Opinion
NOT TO BE PUBLISHED
Santa Clara County Super. Ct. No. CV042739
McAdams, J.
Appellant Jacques Delacroix appeals from an order enforcing a settlement agreement between Delacroix and his former employer, Santa Clara University (University), and the other defendants in this case under Code of Civil Procedure section 664.6. Delacroix contends the court erred when it interpreted the terms of the settlement agreement and concluded that the settlement agreement permitted University to issue Internal Revenue Service (IRS) 1099 Forms for the installment payments due under the settlement agreement. The defendants contend that the court’s order is not appealable and that the appeal is moot because University has already issued a 1099 Form for the payment it made in 2006.
All further statutory references are to the Code of Civil Procedure.
We construe the court’s order enforcing the agreement as a judgment and conclude the order is appealable. We also hold the appeal is not moot. On the merits, we conclude the court’s finding that the terms of the settlement agreement permit University to issue 1009 forms is supported by substantial evidence. For these reasons, we affirm the judgment.
FACTS AND PROCEDURAL HISTORY
I. Nature of Action
Two University students accused Delacroix, a tenured professor, of discrimination and harassment. University investigated the allegations and concluded that, while Delacroix had not intentionally discriminated against the students, he had created a hostile learning environment that impacted their chances for success. University proposed training and supervision of Delacroix’s work to insure compliance with University’s policy against discrimination and harassment.
Delacroix believed that he had been falsely accused and that University had republished those accusations. Consequently, he sued University, its Provost, its President, and its investigator (hereafter jointly Defendants) for defamation, interference with prospective economic advantage, breach of contract, “bad faith,” and intentional and negligent infliction of emotional distress. The individual defendants obtained an order granting them summary judgment prior to trial. However, that order was never reduced to a judgment. University obtained summary adjudication of all causes of action, except the causes of action for breach of contract and “bad faith.”
The record does not contain a copy of the complaint. This list of the causes of action in the complaint is from University’s brief on appeal and is not disputed by Delacroix.
II. Settlement
On September 5, 2006, the first day of trial, the parties engaged in settlement discussions before the court and placed their settlement on the record. The case settled for an amount that was to be paid in three equal installments, one each in 2006, 2007, and 2008.
On our own motion, we have taken judicial notice of the docket entries for this case in the trial court’s public website, which indicate that the case settled on the first day of trial. ( [as of November 28, 2007].)
When the parties placed the settlement on the record, the court stated: “We have an agreement. I’m going to announce it for the record. If anybody disagrees with anything I’ve said, interrupt me right away so we can get it right. At the end if I’ve left anything out, you’ll have a chance to add things.” After stating the amount of the settlement and the payment dates, the court stated: “[T]he parties agree that this sum of money will be allocated to emotional distress damages; that there will be no withholding made by the university. But that if it turns out that the IRS challenges this and imposes withholding tax or penalties on the university for not withholding money, that the plaintiffs agree to indemnify and hold the university harmless. [¶] And that means that if there are any penalties that the university incurs because of this, you have to pay them. You’re going to owe them the money to pay those penalties, and that you can’t sue them for – if the IRS challenges this allocation.”
As part of the settlement, Delacroix agreed to give up all claims, known and unknown. The parties agreed that the settlement agreement would contain a confidentiality provision and that Delacroix would not seek or accept future employment with University. The parties agreed to bear their own costs and attorney fees, to release the individually-named defendants under the settlement agreement, since the order granting those defendants summary judgment had not been reduced to a judgment, and to a number of other terms.
With regard to the question of University issuing an Internal Revenue Service (IRS) Form 1099, after the court discussed the parties’ costs and attorney fees and inquired whether there were any existing sanctions orders, counsel for University stated: “Let me just go over this on the tax issue because this is where we normally recite the university, who’s paying the money, not any of the individual named defendants, will issue a 1099. [¶] Professor will be responsible … if the IRS comes back and successfully challenges the allocation. He’ll be responsible for any taxes, interest and/or penalties that are resulting from that. I just want to make it clear so everybody understands how that works.”
The parties agreed the court would retain jurisdiction to enforce the settlement under section 664.6. With regard to this point, the court stated: “And I’m telling you the way I’m going to resolve [disagreements between the oral settlement and the written settlement agreement] is if it was contemplated by what we’re saying here, … I’m going to leave it in the settlement agreement. If it’s a brand new provision that no one ever thought of, it’s coming out. That’s why I’m telling you to think of everything right now.”
III. Preparation of Written Release
On September 21, 2006, Defendants sent a draft Settlement Agreement and Release (Release) to Delacroix for review and signature. The draft Release provided: “[University] shall issue Form 1099s to Plaintiff in connection with the payments.”
On October 2, 2006, Delacroix sent Defendants a “redlined” version of the Release “making several significant changes.” Both parties attached copies of the redlined Release to their papers in support of and in opposition to the motion to enforce the settlement agreement. The redlined Release that Defendants submitted to the court contained only typed changes and left the original language about the 1099 Forms intact. The redlined release that Delacroix submitted to the court had the typed changes, as well as some hand-written changes that were not on the redlined Release that Defendants filed. As part of the hand-written changes, Delacroix deleted the sentence that provided that University would issue 1099 Forms. It is not clear when the hand-written changes were made. Clearly, it was before Delacroix filed his motion to enforce the settlement agreement.
The parties met and conferred and Defendants agreed to several of Delacroix’s proposed changes. On October 9, 2006, Defendants sent Delacroix a revised Release and the first payment. Defendants’ revised Release retained the provision that “[University] shall issue Form 1099s to Plaintiff in connection with the payments.” Defendants asked Delacroix to deposit the payment in an interest-bearing trust account until he signed the Release and dismissed the case with prejudice.
IV. Section 664.6 Motion to Enforce Settlement Agreement
As of November 27, 2006, there were still many unresolved issues regarding the terms of the written Release, which prompted Delacroix to file a motion to enforce the settlement agreement pursuant to section 664.6. Delacroix asked the court to order Defendants to sign a version of the Release that he attached to his motion. One of the issues was whether, under the terms of the agreement, Defendants had agreed not to file 1099 Forms with the IRS. Although Delacroix did not brief this precise issue in his section 664.6 motion, the Release he asked the court to adopt did not contain Defendants’ proposed language about the 1099 Forms. He argued that University was not seeking a tax deduction for the settlement amount and that University was required to cooperate with Delacroix by putting language in the release that supports Delacroix’s characterization of the damages as being for emotional distress.
In opposition to the motion, Defendants argued that Delacroix “wants to add several paragraphs to the agreement, which were not only never agreed to at the settlement conference, but also completely mischaracterize the lawsuit and leave Defendants susceptible to liability for tax fraud.” They asserted that while they had agreed that the settlement proceeds would be allocated to “purported emotional damages, they did not agree to anything more than that with respect to the characterization of damages.” They argued that University was legally required to issue 1099 Forms, that this term had been agreed to on the record, and that Defendants had “no intention of evading their tax responsibilities to assist Delacroix in setting new precedent on this issue.”
Delacroix briefed the 1099 issue in his reply.
At the November 27, 2006 hearing on the motion, the court observed, “The transcript does not help me a lot because it doesn’t tell me one way or another whether a 1099 was going to be filed. The language is a little loose.” The judge quoted defense counsel’s comments at the hearing, where he stated, “[T]his is where we normally recite the university, who’s paying the money, not any of the individual named defendants, will issue a 1099.” The court commented, “And I don’t know if that means he’s saying it because he’s going to issue the 1099 or he’s saying it because we normally issue a 1099, and this time we’re not issuing a 1099. … I can’t tell from the language, and I don’t have a recollection. [¶] And I personally wasn’t thinking about 1099s. I was thinking about withholding tax.”
The court observed that the parties’ agreement was to allocate the settlement proceeds to emotional distress damages and stated that the issue was whether or not University had to issue a 1099 Form. The judge summarized some legal research she had done and concluded that it was unclear whether damages for emotional distress were taxable in this case. The court stated, “The only thing I need to decide is whether or not this agreement precludes a 1099 from being filed….” The court did not see anything in the agreement that precluded the 1099 and held that University should be allowed to file 1099 Forms.
After the initial hearing on the motion to enforce, the parties attended three ex-parte hearings regarding the motion and the Release. The court ultimately determined what the terms of the parties’ settlement agreement were and crafted a Release for the parties to sign. On December 14, 2006, the court issued an order directing the parties to sign the Release forthwith. A copy of the release was attached to the order.
With regard to the 1099 issue, the court’s Release provided: “[Delacroix] has asserted to [University] and the Court that 1099s for the settlement payment should not be issued by [University] because payments to compensate for emotional distress are not taxable income. [University] believes it is required to issue 1099s. The Court has taken the position that since the law is unclear as to whether emotional distress damages are taxable, [University] is allowed, if it chooses, to issue 1099s in connection with the payments.”
Delacroix signed the Release on December 13, 2006. The Defendants signed it on or before December 19, 2006. On December 19, 2006, the parties filed a request for dismissal, dismissing the entire case with prejudice.
Delacroix appeals. The sole issue on appeal is whether the court erred when it held that the settlement agreement provided that University “is allowed, if it chooses, to issue 1099s in connection with payments.”
DISCUSSION
I. Appealability
Defendants contend the court’s order on the motion to enforce the settlement agreement is not appealable. As Defendants correctly note, the “existence of an appealable judgment is a jurisdictional prerequisite to an appeal. Thus, this court is obligated to review the question of appealability.” (Doran v. Magan (1999) 76 Cal.App.4th 1287, 1292 (Doran).)
Section 664.6 provides in pertinent part: “If parties to pending litigation stipulate, … orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.”
In arguing that the court’s order enforcing the settlement agreement is not appealable, Defendants rely on Doran, supra, 76 Cal.App.4th at pages 1292-1294, where the court held that an order denying a section 664.6 motion is a non-appealable interlocutory ruling. The Doran court observed that “California is governed by the ‘one final judgment’ rule which provides ‘interlocutory or interim orders are not appealable, but are only “reviewable on appeal” from the final judgment.’ ” (Id. at pp. 1292-1293.) The court explained: “It is the substance and effect of the adjudication, and not the form, which determine if the order is interlocutory and nonappealable, or final and appealable. [Citation.] If no issues in the action remain for further consideration, the decree is final and appealable. But if further judicial action is required for a final determination of the rights of the parties, the decree is interlocutory. [Citation.] The decree will not be appealable ‘unless it comes within the statutory classes of appealable interlocutory judgments.’ ” (Id. at p. 1293.) The court held that an order denying a motion to enforce a settlement agreement is not “a final judgment, but rather denial of a motion for judgment. The denial of the motion, rather than finally disposing of the action, expressly leaves it open.” (Ibid.)
On the other hand, an order granting a motion for entry of judgment pursuant to section 664.6 is generally appealable, since the ruling granting the motion is considered to be the rendering of a judgment. (Casa de Valley View Owner’s Assn. v. Stevenson (1985) 167 Cal.App.3d 1182, 1193 (Casa de Valley View).)
Under section 664.6, the court “may enter judgment pursuant to the terms of the settlement.” In ruling on a section 664.6 motion, “the trial court acts as the trier of fact, determining whether the parties entered into a valid and binding settlement.” (Terry v. Conlan (2005) 131 Cal.App.4th 1445, 1454 (Terry).) The court is also empowered to determine the terms and conditions of the settlement. (Fiore v. Alvord (1985) 182 Cal.App.3d 561, 566.) The trial court may consider declarations of the parties and their counsel, the transcript of the proceedings in which the oral agreement was presented to the court, and any additional oral testimony. (In re Marriage of Assemi (1994) 7 Cal.4th 896, 911.) When the same judge supervises the settlement negotiations and hears the motion to enter judgment on the settlement, he or she may rely on his or her recollection of the settlement discussions. (Terry, supra, 131 Cal.App.4th at p. 1454.)
In this case, the court determined that the parties had entered into a valid and binding settlement agreement and determined what the terms of the agreement were. Although the court did not adopt the interpretation that Delacroix advanced regarding the 1099 Forms, it nonetheless found the existence of an agreement to settle the case. The court concluded that the agreement provided that University “is allowed, if it chooses, to issue 1099s in connection with the payments.” We therefore conclude the court’s order was an appealable order granting the motion to enforce the settlement agreement. (Casa de Valley View, supra, 167 Cal.App.3d at p. 1193.)
Defendants assert that although the court ruled on various disputes regarding the language of the settlement agreement, it never entered a judgment. They argue that the order that Delacroix appeals “was merely to enforce the revised written settlement agreement based on the court’s prior ruling.” They note that Delacroix was the moving party and argue that the order is not appealable because “the court denied the portion of the order from which he appeals” related to the 1099 Forms.
Although section 664.6 authorizes the court to enter a judgment in accordance with the parties’ settlement agreement (§ 664.6 [“the court … may enter judgment pursuant to the terms of the settlement”]), the court did not enter a judgment in this case. When Delacroix filed his motion, several terms of the settlement agreement were in dispute. By the time the proceedings to enforce the agreement concluded, there was only one disputed issue left. Rather than enter judgment, the court issued an order directing the parties to sign a new Release, which contained the terms the court had determined were part of the settlement agreement. Ultimately, all parties signed the agreement. Delacroix specifically reserved his right to appeal the court’s ruling on the 1099 issue.
Where an order effectively disposes of the entire action, it may be amended to convert it to a judgment, thereby allowing the reviewing court to hear an appeal. (Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 700.) Whether an order may be considered a final judgment for appeal purposes comes down to whether the order finally determines the rights of the parties. The substance and effect of the “judgment,” and not its label, determine whether it is final and thus appealable. (Id. at p. 698.) As a general test, an order constitutes the final determination of a case “where no issue is left for future consideration except the fact of compliance or noncompliance with the terms of the first decree.” (Ibid.)
In this case, the court’s order directing the parties to sign the Release and the parties’ subsequent signature of the Release, was a final determination of the case because it left no issue for future consideration except the fact of compliance or noncompliance with the terms of the settlement. Under the procedural circumstances of this case, we construe the court’s order directing the parties to sign the court’s Release and the executed Release as an appealable judgment.
Finally, since the threshold issue of appealability determines our jurisdiction to hear the appeal (van’t Rood v. County of Santa Clara (2003) 113 Cal.App.4th 549, 559), we consider the effect, if any, that the filing of the request for dismissal with prejudice had on Delacroix’s right to appeal. “Ordinarily, a plaintiff’s voluntary dismissal is deemed to be nonappealable on the theory that dismissal of the action is a ministerial action of the clerk, not a judicial act. [Citations.] ‘It has also been held that the defendant cannot appeal the plaintiff’s dismissal because the dismissal “has the effect of an absolute withdrawal of [the plaintiff’s] claim and leaves the defendant as though he had never been a party.” ’ [Citations.] However, appellate courts treat a voluntary dismissal with prejudice as an appealable order if it was entered after an adverse ruling by the trial court in order to expedite an appeal of the ruling.” (Stewart v. Colonial Western Agency, Inc. (2001) 87 Cal.App.4th 1006, 1012.)
As the trial court noted, one of the primary issues on the motion to enforce the settlement agreement was the question whether University could issue 1099 Forms under the settlement agreement. The court’s ruling was adverse to Delacroix on this issue and he reserved his right to appeal the issue. For these reasons, we conclude the voluntary dismissal with prejudice pursuant to the parties’ request is not an impediment to this appeal.
II. Mootness
Defendants argue the appeal is moot because University issued a 1099 Form in January 2007 reporting the payment it had made in 2006. As a general rule, appellate courts will not address the merits of an appeal that has been rendered moot by the occurrence of an event pending the appeal and moot appeals will be dismissed. (Eye Dog Foundation v. State Board of Guide Dogs for the Blind (1967) 67 Cal.2d 536, 541.) “A case is moot when the decision of the reviewing court ‘can have no practical impact or provide the parties effectual relief.’ ” (MHC Operating Limited Partnership v. City of San Jose (2003) 106 Cal.App.4th 204, 214.) Appellate courts have the discretion to decide the merits of a moot appeal where the same controversy between the same parties is likely to recur. (Grier v. Alameda-Contra Costa Transit Dist. (1976) 55 Cal.App.3d 325, 330.)
Although University issued a 1099 in 2007 for the first installment payment it made in 2006, there is no evidence that any other 1099 Forms have been issued. The settlement agreement provides for the payment of further installments in 2007 and 2008. The 1099 Forms for those payments are due in 2008 and 2009. Since two 1099 Forms remain to be issued, the decision of this court can have a practical impact and provide the parties effectual relief. Even if we were to conclude that the appeal is moot with regard to the 1099 Form issued in 2007, we have the discretion to decide the issue because it is likely to recur. For these reasons, we hold the appeal is not moot.
Pursuant to the parties’ stipulation and request to augment the record on appeal, which we have construed as a request for judicial notice, we have taken judicial notice of the 1099 Form that University filed with the IRS in connection with the installment payment it made in 2006.
III. Merits
We turn next to the merits of the appeal. The issue on appeal is whether the court erred when it concluded that the settlement agreement did not contain a promise to deviate from the usual procedure and not issue 1099 Forms.
Delacroix contends the parties agreed the settlement payment was a non-taxable payment for emotional distress and there was no agreement to issue a 1099. He argues further that there is no tax code requirement to issue a 1099 Form for a non-taxable settlement payment and that there is no tax fraud in following court precedent and a court order.
A. Standard of Review
We review the trial court’s determination of factual matters such as the existence of a binding agreement to settle the case and the terms of the agreement for substantial evidence. (Terry, supra, 131 Cal.App.4th at p. 1454.) To the extent the appellate court reviews the proper interpretation of section 664.6, it exercises its independent review. (Elnekave v. Via Dolce Homeowners Ass’n. (2006) 142 Cal.App.4th 1193, 1198.) Since the issue here involves the court’s factual determination regarding the terms of the settlement, we apply the substantial evidence test.
“When a trial court’s factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination.” (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874, italics omitted.) As long as there is substantial evidence, the appellate court must affirm, even if the reviewing justices personally would have ruled differently if they had presided over the proceedings below and even if other substantial evidence would have support a different result. (Id. at p. 874.) Substantial evidence must be of ponderable legal significance; it must be reasonable, credible, and of solid value. (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633.)
B. Analysis
Based on our review of the entire record, we conclude there is substantial evidence that supports the trial court’s finding that the terms of the settlement agreement did not include a promise by University not to issue 1099 Forms. When the parties and the court placed the settlement on the record, the court stated: “[T]he parties agree that this sum of money will be allocated to emotional distress damages; that there will be no withholding made by the university. But that if it turns out that the IRS challenges this and imposes withholding tax or penalties on the university for not withholding money, that the plaintiffs agree to indemnify and hold the university harmless. [¶] And that means that if there are any penalties that the university incurs because of this, you have to pay them. You’re going to owe them the money to pay those penalties, and that you can’t sue them for – if the IRS challenges this allocation.” At that time, there was no mention of 1099 Forms. Defendants agreed to do specific things: allocate the settlement proceeds to emotional distress damages and not to take any withholding from the settlement proceeds. Moreover, Delacroix agreed that if the IRS challenges the parties’ allocation of the settlement proceeds to emotional distress damages, he would indemnify and hold University harmless for any taxes or penalties University may incur.
At the hearing on the motion to enforce the settlement agreement, Delacroix argued that the parties had also agreed that the payments would be nontaxable. Defense counsel argued that Defendants never agreed the settlement proceeds were nontaxable and had specifically said that if Delacroix wanted to address this issue with the IRS, he would have to indemnify University. The judge relied on her personal recollection of the settlement discussions, which she had supervised, and agreed with University. She stated: “[T]his is my recollection. You [(Delacroix)] wanted it to be emotional distress damages, allocated to emotional distress damages because you wanted a tax advantage, i.e. nontaxable. They [(Defendants)] didn’t agree that it was nontaxable. They just said we agree to allocate it to emotional distress damages. Oh, and by the way, if that allocation is challenged, we want to be indemnified.” The court also recalled that Defendants had agreed not to take any withholding. The court stated that during the settlement discussions, the question of whether emotional distress damages were taxable or not taxable “was kind of off my radar. What was on my radar [was] is this wages or is this emotional distress damages? And an allocation of wages and the failure to withhold – [¶] … [¶] … [i]nvolves penalties, and that’s … what was on my radar screen.”
The only mention of a 1099 Form on the record was when defense counsel stated: “Let me just go over this on the tax issue because this is where we normally recite the university, who’s paying the money, not any of the individual named defendants, will issue a 1099.” Rather than elaborate on that point further, defense counsel returned to the indemnity issue and stated: “Professor will be responsible … if the IRS comes back and successfully challenges the allocation. He’ll be responsible for any taxes, interest and/or penalties that are resulting from that. I just want to make it clear so everybody understands how that works.”
The trial court concluded this language was not clear. The court was unable to determine from the words themselves whether defense counsel was stating that University was going to issue 1099s in accordance with the usual practice or whether he was saying that although defendants normally issues 1099s in this situation, as part of this agreement, University was not going to issue 1099s. Moreover, the court did not have any independent “recollection” regarding the issue. Defense counsel’s single, ambiguous comment does not support a conclusion that Defendants promised to deviate from the normal practice of issuing 1099 Forms. We are also mindful of the fact that Defendants were concerned that the IRS would challenge the parties’ characterization of the settlement proceeds as emotional distress damages, since only a contract claim remained. In their view, the issues were whether the settlement proceeds could properly be allocated to emotional distress damages and the risk that the IRS might construe them as income. In view of the entire record, we conclude substantial evidence supports the trial court’s holding that Defendants had not promised not to issue 1099 Forms.
Delacroix devotes 15 pages of his opening brief to argument that a 1099 Form is not required because the compensation for his emotional distress is not taxable. But in his reply brief, he argues “whether the [settlement] is taxable or not (it is not) or whether 1099s are required or not for the payments is irrelevant for the purposes of this appeal.” He maintains, “The issue is simply whether the parties agreed that [University] would not issue 1099s as a part of the Settlement Agreement….” As to the latter point, Delacroix is correct. The scope of the issue before us is whether the trial court’s findings with regard to the terms of the settlement agreement and its conclusion that the parties had not agreed that University would refrain from filing a 1099 Form are supported by substantial evidence. In reviewing the issue presented, we need not decide whether damages for emotional distress in a case such as this are taxable and decline to address the issue.
DISPOSITION
The judgment is affirmed.
WE CONCUR: Rushing, P.J., Duffy, J.