Opinion
FSTCV095010920S
01-15-2019
JP MORGAN CHASE BANK, N.A. v. Roger ESSAGHOF et al.
UNPUBLISHED OPINION
GENUARIO, J.
I. Introduction
The issue presently before the court is whether or not the plaintiff and the defendant entered into a clear and unambiguous settlement agreement enforceable pursuant the rule of Audubon Parking Associates Limited Partnership v. Barclay & Stubbs, Inc., 225 Conn. 804 (1993) and its progeny.
By way of background, after a trial to the court, judgment of strict foreclosure entered against the defendants Roger Essaghof and Catherine Marr-Essaghof on November 27, 2015. The defendants appealed and on October 10, 2017 the trial court judgment was affirmed and the case was remanded for the purpose of setting a new law day by the Appellate Court. See JP Morgan Chase National Association v. Essaghof, 177 Conn.App. 144 (2017). The defendants filed a Petition for Certification to the Connecticut Supreme Court which granted Certification on March 28, 2018, limited to the following question: "Did the Appellate Court properly affirm the judgment of the trial court ordering the defendants to reimburse the plaintiff for property taxes and homeowner’s insurance premiums in violation of the provisions of General [Statutes] § 49-14 pertaining to deficiency proceedings?"
The case is currently pending before the Connecticut Supreme Court with regard to the certified question.
Subsequent to the granting of the defendants’ Petition for Certification by the Supreme Court, the parties, through counsel, engaged in settlement discussions. During the course of the settlement discussions the plaintiff was represented by Attorney Brian Rich (Rich) and the defendants were represented by Attorney Ridgley Brown (Brown). The settlement discussions resulted in an exchange of emails which included the following. On July 25, 2018 Brown sent a letter to Rich which, after expressing his views as to the issues in the case and the benefits to the plaintiff of settling the case, concluded by saying
In any event my clients have rejected the $ 100, 000 offer that you so kindly made this morning and insist on a settlement of $ 175, 000.
No other conditions of settlement were referenced in the letter.
On August 10, 2018 Brown emailed Rich at 10:45 stating "please respond to the latest $ 175, 000 demand ASAP." At 2:59 p.m. on the same day Rich responded as follows:
Thank you for your email. My client accepts your offer to settle this case for payment of $ 175, 000 (one hundred and seventy-five thousand dollars) payable upon a complete withdrawal of the appeal and all claims and/or defenses, a stipulated judgment of strict foreclosure (with waiver of deficiency) and a move out from the property within sixty days, at which time the property will be in suitable broom swept condition. I will prepare an appropriate settlement agreement for your review and, of course, please let me know of any questions. Thanks and have a good weekend.
Ten minutes later Brown responded to Rich as follows
Ninety days and no deficiency okay?
Fourteen minutes later Rich responded to Brown
Okay; all other terms unchanged.
The electronic communications continued about three days later when on August 13th Brown asked Rich to forward him a copy of the settlement papers stating "my clients are coming, in tomorrow afternoon and I would like to review with them." On August 14th Brown emailed to Rich at 4:24 p.m. the following:
The Supreme Court clerk said that instead of filing a settled but not withdrawn which does not exist in the Supreme Court, I should file a further motion for extension indicating the circumstances and your consent. As we sort out the issues can I get three weeks from you? I am meeting with my clients this afternoon and we will probably give you a call tomorrow on if there are any open issues.
At 9:24 p.m. on the same day Rich emailed to Brown
Thanks. I will get a draft agreement to you ASAP, but I am not aware of any "open" issues. You have my consent for a three-week extension.
On August 15, 2018 at 11:21 a.m. Brown wrote to Rich by email that he wanted to change the language from "broom clean" to "keeping in good repair." He gave his reasons why and then added "also, my clients want an additional $ 25, 000." Approximately two and a half hours later on the same day Rich electronically responded to Brown
Neither term below was the subject of our agreement, which is enforceable and subject only to appropriate documentation, as previously discussed and agreed upon: Please inform your clients accordingly. I will forward the agreement, with the terms discussed and agreed upon last week, as soon as possible, but we are not interested in re-negotiating the terms already agreed upon.
And on the same day at 2:53 p.m. Rich forwarded a draft settlement agreement to Brown. The settlement agreement has never been executed.
The plaintiff takes the position that as of October 10, 2018 when Rich emailed to Brown "Okay, all other terms unchanged" that the parties had a clear and unambiguous and therefore enforceable settlement agreement. The defendants take the position that they did not intend to be bound and that intent manifests itself in the email exchanges and, in part, by the references to an appropriate settlement agreement to be drafted by Rich and forwarded to Brown for his review, first mentioned in Rich’s email of August 10, 2018 at 2:59 p.m.
These emails along with other documentation were introduced into evidence at a hearing conducted by the court. In addition to the introduction of the emails both Brown and the defendant Roger Essaghof testified. Mr. Essaghof testified that he had discussed the parameters of a settlement agreement with Brown, that he was aware of the terms of the offer, that he was aware of the settlement discussions, that Brown forwarded to him some of the email correspondence, that he knew Brown was working to settle the case and that Brown had authority to settle the case. However, he testified that he thought he could change his mind until he signed the document. Brown also testified that he thought the reference to the settlement agreement and his desire to go over it with his clients evidenced his intent that no party would be bound until a written settlement agreement was executed.
At the evidentiary hearing on the subject motion Mr. Essaghof offered through his testimony what may be the actual reason for his decision not to sign the settlement agreement. Mr. Essaghof testified that he was concerned about the tax implications of the transactions and thought that the tax implications could result in the defendants incurring a tax obligation in excess of $ 175, 000 to the IRS which would not be dischargeable in bankruptcy.
The court makes no finding as to what, if any, the tax implications of the proposed transaction would be, or whether such tax obligations as there might be would be dischargeable in bankruptcy.
Of course this issue had never been raised by either party during the email correspondence exchange notwithstanding that all parties were represented by experienced counsel, that the plaintiff is a sophisticated entity and that Mr. Essaghof is also "a highly experienced real estate investor who had negotiated numerous residential and commercial mortgages." JP Morgan Chase Bank v. Essaghof at 148.
The draft settlement agreement forwarded by Rich to Brown contained the following paragraph:
18. Tax Consequences— Customers acknowledge and agree that they are solely responsible for the payment of any and all federal, state, city or local taxes which might be due and owing as a result of any term contained in this agreement. The parties acknowledge that no tax advice has been offered or given by either party, their attorneys, agents or any other representatives in the course of these negotiations and each party is relying upon the advice of its tax consultant with regard to any tax consequences that may arise as a result of the execution of this agreement. Customers acknowledge that customers may be required by Chase to submit a form W9 and that Chase may be required to issue a form 1099 or other tax form reporting the consideration flowing to the customers under this agreement to the Internal Revenue Service and/or other taxing authority.
The court will discuss other evidence as it relates to issue before the court in the subsequent sections of this memorandum.
II. DISCUSSION
A. Authority
The defendants argue that attorney Brown while authorized to engage in settlement discussions was not authorized to enter into a final settlement agreement without his client’s consent. In support of their position the defendants introduced several retainer agreements which outline the relationship between Brown and the defendants. All such retainer agreements included the provision "neither you nor I will settle ... the case without the other’s approval in writing or on the court record." The argument is to no avail. Of course, the plaintiff was not privy to, nor did it have access to the retainer agreements prior to entering into the settlement discussions. At a minimum Attorney Brown had apparent authority to negotiate and enter into a settlement agreement with the plaintiff.
Apparent authority exists, one, where the principal held the agent out as possessing sufficient authority to embrace the act in question and knowingly permitted him to act as having such authority; and, two, in consequence thereof, the person dealing with the agent acting in good faith reasonably believed under all the circumstances that the agent had the necessary authority ...Ackerman v. Sobel Family Partnership LLP, 298 Conn. 495, 504 (2010) quoting Tomlinson v. Board of Education, 226 Conn. 704, 734 (1993). Ackerman itself was a case involving the enforcement of a settlement agreement pursuant to the Audubon holding. "[A]pparent authority [of a lawyer in an attorney-client relationship] to effect a settlement that binds the client is present when, as in transactions of various sorts involving agents who are not lawyers, the opposing party or lawyer reasonably believes that the lawyer has actual authority to effect a settlement and that belief is traceable to manifestations of the client." Ackerman at 510. (Internal quotations and citations omitted.) In Ackerman, a case which also involved sophisticated parties, intense settlement negotiations through mediation occurred at a time when the clients were present and the lawyer was acting as the negotiator. A settlement agreement was reached. When one of the Ackerman defendants argued that her lawyer did not have authority, the Ackerman court stated "if a principal has given an agent general authority to engage in a class of transactions, subject to limits known only to the agent and the principal, third parties may reasonably believe the agent to be authorized to conduct such transactions and need not inquire into the existence of undisclosed limits on the agent’s authority. Ackerman at 512, quoting 1 Restatement (Third), Agency, section 303, comment (b) pages 174-75. In the case at bar Essaghof tested that he authorized Brown to engage in the negotiations, and, that he was generally kept abreast of the negotiations including the transmittal of some if not all of the pertinent emails.
Mr. Essaghof testified that he received some of the emails but that his email access was limited during the month of August. The court did not consider the testimony concerning limited ability to obtain emails particularly credible as no significant reason was given for the same.
The client, having authorized Brown to engage in such negotiations with the plaintiff, cannot rely on limits to Brown’s authority known only to the client. At one point Mr. Essaghof testified that, with regard to the settlement discussions, he told Brown to "make it happen." Having clothed Brown with authority to negotiate and engage in settlement discussions the defendants arc bound by his statements in manifesting that authority.
Nor does this court find that Brown did not have actual authority. Such finding is unnecessary because it is clear that he had apparent authority at a minimum.
B. The Terms of the Agreement
The more significant question is whether or not the reference to the preparation of a settlement agreement by Rich to be reviewed by Brown in their correspondence evidences an intent not to be bound until such time as the written agreement is signed by the parties.
If the parties had a clear and unambiguous agreement, they had it on August 10, 2018 at 3:13 p.m. when Rich emailed to Brown in response to Brown’s email fourteen minutes earlier "Okay; all other terms unchanged." Three emails occurred between 2:59 p.m. and 3:13 p.m. The most detailed of the emails establishes (1) the amount of settlement; $ 175, 000 (2) the time for payment; upon complete withdrawal of the appeal, a stipulated judgment of strict foreclosure with waiver of deficiency and a move out from the property within sixty days and (3) the condition of the property upon departure "suitable broom swept condition." The only response to these details from Brown to Rich is ninety days (as opposed to the sixty days) and no deficiency which was consistent with the waiver of deficiency phrase contained in the first email. Rich’s response "Okay; all other terms unchanged" sets forth his agreement to change the timing to ninety days for a move out of the property. If the parties had a clear and unambiguous agreement at that time, that deal cannot be thwarted or made ambiguous by Brown’s later attempts to change the provision regarding the condition of the property at move out or the amount by $ 25, 000.
The defendants rely on the case of Kidder v. Read, 150 Conn.App. 720 (2014) but Kidder is inapplicable. In Kidder the Appellate Court reversed the trial court finding that a clear and unambiguous settlement agreement had been reached. The Kidder parties had discussed the timing of certain payments, which was a material issue in coming to a settlement but had never come to agreement on the timing of such payments. The Appellate Court held that the parties never reached an agreement on the timing of the payments and therefore had not entered into a clear and unambiguous agreement.
In Massey v. Town of Branford, 118 Conn.App. 491 (2009) the court enforced a settlement agreement notwithstanding the fact that one party could not obtain a desired release from a nonparty witness to the case. The parties had previously entered into a written settlement agreement and had filed it with the court; there was no mention of the nonparty release in the written settlement agreement. The Appellate Court affirmed that the Trial Court’s decision to enforce the settlement agreement noting that "the parties attempted later, after the execution of the agreement, to accommodate each [other] in the execution and exchange of releases does not mean they were an integral part of the agreement. There are settlements documents that are typically incidental between parties once a settlement is reached."
Under Massey the fact that certain incidental items have not have been fully completed does not thwart the enforcement of a settlement agreement. But the facts in the case at bar demonstrate that the parties were at least one step earlier in the process than the parties were in Massey . In the case at bar the parties had not executed a settlement agreement though a settlement agreement had been referenced in their correspondence. While it is true that the business terms as it related to the direct relationship between the parties had been set forth in the correspondence between Brown and Rich, it was reasonable for the defendants to conclude that they would not be bound until such time as they had an opportunity to review and sign the written settlement agreement that is referenced in the correspondence. Indeed the settlement agreement forwarded to the defendants for execution was eight pages long (not counting exhibits and signature pages). To be sure it included a page of recitals and language that was completely consistent with the email exchange, it also included the plaintiff’s view of the previously undiscussed tax consequences of the transaction as well as some other terms not discussed (waiver of jury trial in any action arising out of or related to the agreement, confidentiality provisions, as well as the provision concerning tax consequences).
The draft settlement agreement required the defendants to "acknowledge and agree that they are solely responsible for the payment of any and all federal, state, city or local taxes which might be due and owing as a result of any term contained in this agreement." That provision may not impose upon the defendants a tax obligation that would not otherwise be theirs but then again it may. It was important enough to the plaintiff to include it in the settlement agreement, notwithstanding the fact that it had not been previously discussed. It was provision that the defendants had not agreed to. It may well be that while the parties had agreed on the business terms between them they had not considered and/or agreed on the tax incidence applicable to the transaction.
It is not unusual for complex business transactions to include provisions that impact the tax incidence of a transaction. The parties on August 10th may have agreed upon the terms that they had considered but had not considered all the terms.
More importantly, when parties expressly refer to a written agreement to be subsequently drafted, reviewed and executed it often gives the parties some comfort, not to believe that they can change the terms upon which they have already agreed, but to believe that they may consider other terms that need to be incorporated and/or addressed prior to the execution of a binding agreement. Thus, in some circumstances, the reference to a written document to be drafted and signed, manifests an intent not to be bound until such time as the agreement is in writing. If the parties did not intend to be bound and that intention not to be bound is implied by express references to a future writing which incorporates not only the agreed upon terms but other material provisions, the parties will not be bound. See Hackley v. Garofano, 50 Conn.L.Rptr. 208, 210 WL 3025597 (2010) (Silbert, J.). In Hackley, the court decided that a clear and unambiguous settlement agreement did not exist because the parties had not addressed the issue of whether or not the plaintiffs were obliged to provide their social security number to the defendant. The court determined that because a material issue had not been addressed in their discussions the parties had not unambiguously agreed to a settlement.
IV. CONCLUSION
The court believes that under the facts of this case, the reference to a settlement agreement to be drawn and executed reasonably gave rise to the impression in the defendants mind that they would not be bound until such time as the agreement was executed and that the defendants did not intend to be bound until such time as that agreement was drawn and executed. For all these reasons the motion to enforce the settlement agreement is denied and the objection is sustained.