Opinion
Case No. 2:99CV324K
May 23, 2000
ORDER
This matter is before the court on Plaintiff On the Planet's ("OTP") Motion to Enforce Settlement Agreement. A hearing on the matter was held on May 18, 2000. At the hearing, OTP was represented by Matthew D. Tanner via telephone, and Defendants Intelliquis International, Inc. and Intelliquis L.L.C. (collectively "Intelliquis") were represented by William Marsden. Before the hearing, the court considered carefully the memoranda and other materials submitted by the parties. Since taking the matter under advisement, the court has further considered the law and facts relating to this matter. Now being fully advised, the court renders the following Order.
I. BACKGROUND
OTP brought this lawsuit against Intelliquis and its related entities, alleging copyright infringement, breach of contract, and fraud. Intelliquis then counterclaimed against OTP and Ernest Hemple. The parties entered into settlement discussions, and during the last week of December 1999 and the first week of January 2000, Intelliquis allegedly agreed to settle the lawsuit and a related state-court action (the "Alleged Agreement"). Intelliquis then allegedly failed to perform under that Alleged Agreement. OTP seeks to have the court summarily enforce the Alleged Agreement.
A. Factual Background
The Alleged Agreement was written, signed, and sent via facsimile to OPT's counsel by Intelliquis' counsel on January 4, 2000. Under the terms of the Alleged Agreement, Intelliquis was to pay OTP $150,000 in three payments. The first $25,000 was due upon closing, which was to occur "as soon as practicable, both parties using their best efforts to close immediately." A second payment in the amount of $50,000 was to be made by January 31, 2000, "although [Intelliquis would] exercise good faith efforts to make that payment by [January 14, 2000.]" A final payment, in the amount of $75,000 was to be made by April 1, 2000.
In addition, Intelliquis was to issue to OPT 300,000 shares of registered Intelliquis stock. The stock would be subject to a lock-up agreement, limiting to 10,000 the number of shares that could be sold per month. At the end of 24 months after the closing, the remaining shares could be sold without restriction. If the stock failed to achieve a designated target price at the end of two years, Intelliquis would issue to OTP an additional 100,000 shares of registered stock, which would also be subject to limits on the number of shares that could be sold per month.
The target price listed in the Alleged Agreement is $1 per share, but the parties agree that this was a misprint and that the target price is actually $2 per share.
In exchange for these and other provisions, OTP, Intelliquis, and their principals agreed to release one another from all claims and counterclaims relating in any way to this lawsuit, including OTP's claims against parties first named in its First Amended Complaint, as well as to a state-court action pending in the Fourth District Court (the "State Action"). The Alleged Agreement provided that it would eventually be superseded by other settlement documents to be executed by the parties. Intelliquis' counsel offered to take "the laboring oar" in preparing those documents, indicating that he would attempt to fax working drafts by the following day, January 5, 2000.
On January 6, 2000, both parties indicated a desire to include a confidentiality provision in their settlement, but Intelliquis ultimately rejected the provision drafted by its lawyer. Also on that day, the parties' counsel jointly called the court to inform it that the case had settled.
On or about Friday, January 7, 2000, Intelliquis' counsel informed OTP's counsel that Intelliquis did not have enough registered stock to meet the terms of the Alleged Agreement. However, Intelliquis' counsel indicated that certain currently restricted shares would soon become registered, and he offered to convey them in February or March 2000, with OTP being allowed to sell a sufficient number of shares in the month received to make up for any delay in tendering the shares by Intelliquis. OTP agreed to this modification of the parties' Alleged Agreement.
On or about January 10, 2000, Intelliquis' counsel informed OTP's counsel that Intelliquis did not own any registered Intelliquis stock that it could convey in tradeable form to OTP, and it would not have any for more than a year. Intelliquis' counsel allegedly stated that some sort of solution would be found and that the settlement deal would close, with the payment of at least $25,000 to OTP no later than January 14, 2000.
Although Intelliquis had represented in the Alleged Agreement that superseding draft documents would be sent around January 5, 2000, the first time a "draft" of the papers was sent to OTP's counsel was on Friday, January 14, 2000. Intelliquis' counsel faxed thirty pages of proposed settlement documents to OTP's Chicago counsel, who immediately reviewed and made proposed changes to Intelliquis' proposed documents. Within an hour of receipt, OTP's counsel conveyed their proposed changes to Intelliquis' counsel, who acknowledged that most of the changes were relatively minor, but three were objectionable. He also indicated that he still did not know if these "superseding" documents were acceptable to his own client, even without the proposed changes.
Later that day, Intelliquis' counsel informed OTP's counsel that one of his client representatives was on a plane and apparently had not yet reviewed the proposed settlement papers, that the other client representative was unwilling to review them on such short notice, and that Intelliquis' securities counsel was unavailable to review the papers.
When it became clear that Intelliquis was not willing to close on January 14, 2000, OTP's counsel requested that Intelliquis at least pay the $25,000 that was due upon closing, in light of the fact that, pursuant to the Alleged Agreement, the closing was to take place no later than January 14, 2000. OTP suggested that on the following business day, the parties could resolve the relatively minor issues regarding the proposed settlement papers. Intelliquis' counsel stated that although the money was available, it would not be paid to OTP.
The following Monday, January 17, 2000, Intelliquis' counsel notified OTP's counsel that the papers he had drafted were not acceptable to his client. On that day, Intelliquis presented a proposal by which cash at closing would be increased by an amount equal to the amount necessary to permit OPT to buy 120,000 unrestricted shares from a third party to whom Mr. Tippets, a principal of Intelliquis, would introduce Mr. Hemple, a principal of OTP. Concurrently with the closing of the settlement, OPT could purchase 120,000 shares from that third party pursuant to an agreement which would contain lock-up provisions identical to those which had been proposed in the Alleged Agreement. OTP rejected that proposal.
II. DISCUSSION
A. OTP's Arguments
OTP claims that the Alleged Agreement is an enforceable contract because it shows a meeting of the minds and sets forth in detail the parties' respective obligations, including monetary payments and their dates, the tendering of shares and the conditions for their resale, and the scope of the parties' mutual releases. Moreover, OTP argues, the fact that the parties jointly called the court to inform it that the case had settled also demonstrates that both parties believed that the case had settled. OTP claims that the fact that the Alleged Agreement was to be superseded by more formal documentation does nothing to undermine the binding nature of what was agreed upon.
Further, according to OTP, there is no doubt that Intelliquis has breached the contract. There has been no closing, and Intelliquis has never tendered money or documents of which it approves to effectuate the settlement. Further, OPT claims that it was not required to accept Intelliquis' offer to buy the shares at below-market cost from an identified person, which sounded "like a regulatory dodge, and could well have entailed OTP suffering the burden of a default (or an SEC enforcement action) with no clear recourse." OTP also argues that because Intelliquis shares are readily obtainable on the open market, there is no legal impediment to Intelliquis' performance.
B. Intelliquis' Arguments
Intelliquis argues that the Alleged Agreement is not an enforceable contract for numerous reasons. First, Intelliquis argues that there was no mutual assent and that determining whether the omitted terms were essential to the agreement requires an examination of the entire agreement and the circumstances under which the agreement was created. Intelliquis argues that an examination of the Alleged Agreement itself, the modifications that the parties made to the Alleged Agreement, and the parties' dealings as they sought to move from the Alleged Agreement to the superseding settlement documents compel the conclusion that the parties failed to reach a meeting of the minds that is essential to the formation of a binding contract. Specifically, Intelliquis argues, among other things, that the Alleged Agreement was "obliterate[d]" by the parties' post-formation desire to incorporate a confidentiality provision for which mutually agreeable terms were never reached and that OTP's unwillingness to agree to terms placed into subsequent documentation that were not contained in the original Alleged Agreement shows that there was no meeting of the minds.
Intelliquis argues that the Alleged Agreement is merely a preliminary statement of principle that "resound[s] with tentativeness." Intelliquis points out that the document contains terms such as "highlight," "in extremely brief form," "understanding in principle," "brief sketch of the settlement understanding," and "superseded by settlement documents."
Intelliquis also contends that even if the Alleged Agreement constitutes an enforceable contract, the court should rescind the contract as a result of a material mistake. Intelliquis explains that at the time it negotiated the Alleged Agreement, Intelliquis was unaware that neither it nor its officers possessed shares capable of being conveyed to OPT without triggering a new one-year holding period under securities regulations. Intelliquis argues that this was a mutual mistake, a unilateral mistake, or that performance should be deemed "impracticable." Intelliquis sets forth the four requirements to state a claim for rescission on the basis of a unilateral mistake:
1. The mistake be of so grave a consequence that to enforce the contract as actually made would be unconscionable.
2. The matter as to which the mistake was made must relate to a material feature of the contract.
3. Generally the mistake must have occurred notwithstanding the exercise of ordinary diligence by the party making the mistake.
4. It must be possible to give relief by way of rescission without serious prejudice to the other party except the loss of his [or her] bargain. In other words, it must be possible to put him [or her] in status quo.
Mostrong v. Jackson, 866 P.2d 573, 580 (Utah Ct.App. 1993), cert. denied, 878 P.2d 1154 (Utah 1994). Intelliquis argues that the effect of the mistake was that instead of supplying 120,000 shares at no cost, it would be required to purchase shares on the open market, which, at the time, would have cost $75,000. Thus, the cash settlement would have been increased by 50%, from $150,000 — as agreed — to $225,000. Therefore, Intelliquis argues, it would be unconscionable to enforce the contract. Intelliquis also argues that the other three factors set forth in Mostrong are satisfied.
Intelliquis also argues that the contract should not be enforced because of impracticability, which is embodied in Section 266(1) of the Restatement Second of Contracts:
Where, at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary.
Intelliquis admits that it cannot find a Utah case adopting the Restatement position, but it argues that it makes sense that the unavailability of unrestricted shares makes performance impractical.
Finally, Intelliquis claims that it tendered substantial performance when Intelliquis offered, in lieu of conveying the stock, to provide an additional amount of money. Specifically, it offered to increase the cash payment to OTP rather than convey the 120,000 shares of the promised stock. It claims that the cash would have been equal to the amount necessary to permit OTP to buy 120,000 unrestricted shares from a third party to whom Intelliquis would introduce to OTP. However, Intelliquis implicitly admits that the cash payment was not enough to buy the 120,000 shares at market prices.
Intelliquis argues that the court must conduct an evidentiary hearing to determine that the Alleged Agreement is an enforceable contract, but that it is not necessary to conduct an evidentiary hearing if the court denies OTP's motion.
C. Analysis
The court finds that the Alleged Agreement constitutes an enforceable contract. "A condition precedent to the enforcement of any contract is that there be a meeting of the minds of the parties, which must be spelled out, either expressly or impliedly, with sufficient definiteness to be enforced." King v. Nevada Elec. Inv. Co., 893 F. Supp. 1006, 1016 (D. Utah 1994) (applying Utah law) (quotation and citation omitted). It is not necessary that the contract provide for every collateral matter or possible contingency. Id. Rather, the requirement is that "the parties themselves must have set forth with sufficient definiteness at least the essential terms of the contract." Id. Intelliquis has not demonstrated that any essential term is missing from the Alleged Agreement. Thus, the court finds that the Alleged Agreement contains all of the essential terms and that those terms are sufficiently definite to enforce the contract.
Further, the fact that the Alleged Agreement was to be superseded by more formal documentation does not undermine the binding nature of what was agreed upon. See Goodmansen v. Liberty Vending Sys., Inc., 866 P.2d 581, 584-85 (Utah Ct.App. 1993). "The mere intention to reduce an oral or informal agreement to writing, or to a more formal writing, is not of itself sufficient to show that parties intended that until such formal writing was executed the parol or informal contract should be without binding force." H.B. Zachry Co. v. O'Brien, 378 F.2d 423, 426 (10th Cir. 1967) (quoting 165 A.L.R. 757); Naimie v. Cytozyme Labs., Inc., 174 F.3d 1104, 1111-12 (10th Cir. 1999) ("[t]he fact that the parties may have intended to subsequently prepare a written instrument does not prevent the verbal agreement from binding the parties."); Lawrence Constr. Co. v. Holmquist, 642 P.2d 382, 384 (Utah 1982) ("That the parties contemplated subsequent execution of a written instrument as evidence of their agreement did not prevent the oral agreement from binding the parties.").
While it is true that "if the parties make it clear that they do not intend that there should be legal consequences unless and until a formal writing is executed, there is no contract until that time," Engineering Assocs., Inc. v. Irving Place Assocs., Inc., 622 P.2d 784, 787 (Utah 1980), the "buffering" language contained in the Alleged Agreement does not evince such an intention. That the parties believed they had reached an agreement is further demonstrated by the fact that Intelliquis' counsel and OTP's counsel called the court to inform it that "the case was settled" on January 6, 2000. Goodmansen, 866 P.2d at 585 (noting that the parties' conduct may be evaluated to determine whether they understood a settlement to have been reached).
In addition, the fact that the parties later discussed an additional provision cannot serve to rescind or otherwise "obliterate" a binding contract. The same is true regarding Intelliquis' claims pertaining to other post-formation debates that occurred during the parties' efforts to draft formal settlement papers. While it is certainly possible for contracting parties to agree to modify their contract, these disagreements did not undo a valid and binding contract.
Moreover, rescission is not justified in this case. There is no evidence that the mistake was a mutual mistake. The mistake was a unilateral mistake attributable to Intelliquis, but rescission is not justified because the court finds that Intelliquis did not exercise ordinary diligence in ascertaining the availability of the unrestricted stock. Furthermore, it would not be unconscionable or impracticable to enforce the contract. Intelliquis stock is readily available on the open market, and the additional cash amount that Intelliquis will be required pay does not rise to the level of being unconscionable.
Finally, although Intelliquis argues that it tendered substantial performance, the court finds that such a tender did not constitute substantial performance because of the uncertainty regarding the individuals involved and the potential risks associated with OTP's acceptance of such an offer. However, the court finds that this tender lends further support to the court's determination that the parties had entered into a binding contract.
Regarding Intelliquis' claim that the court cannot grant OTP's motion without first holding an evidentiary hearing, the court disagrees. An evidentiary hearing is required only where "material facts concerning the existence or terms of an agreement to settle are in dispute." Wilson v Wilson, 46 F.3d 660, 664 (7th Cir. 1995) (citing United States v. Hardage, 982 F.2d 1491, 1495-96 (10th Cir. 1993)); see also Goodmansen v. Liberty Vending Sys., Inc., 866 P.2d 581, 584 n. 2 (Utah Ct.App. 1993) ("Settlement agreements may be summarily enforced without an evidentiary hearing.") In United States v. Hardage, 982 F.2d 1491 (10th Cir. 1993), the Tenth Circuit stated that it "had not adopted an ironclad rule," but it noted that "the majority of our sister circuits agree that where material facts concerning the existence or terms of an agreement to settle are in dispute, the parties must be allowed an evidentiary hearing." Id. at 1496 (citing cases) (emphasis added). In this case, the question before the court is whether, as a matter of law and in light of the undisputed material facts, the parties entered into an enforceable contract. Intelliquis has identified no material factual disputes, and it has not identified any issue to be explored at such a hearing. Thus, the court declines to hold an evidentiary hearing.
III. CONCLUSION
For the foregoing reasons, and good cause appearing, IT IS HEREBY ORDERED that OTP's Motion to Enforce the Settlement is GRANTED and
(1) Intelliquis shall pay to OPT, or as directed by OTP's counsel, $150,000 within 14 days of the date of this Order, to meet its payment obligations under paragraph 2 of the Alleged Settlement Agreement (hereinafter the "Settlement Agreement");
(2) Intelliquis shall pay to OTP, or as directed by OTP's counsel, within 14 days of the date of this Order, an additional $52,100 to compensate for the 40,000 shares of Intelliquis stock that Intelliquis was obligated to issue to OTP, and of which OTP was entitled to sell 10,000 shares in each of February, March, April, and May of 2000. This dollar figure was calculated by multiplying 10,000 shares times the average of the monthly high and monthly low trading price for each of these four months. (February high of 1.813, low of .875, average of 1.34; March high of 2.875, low of 1.062, average of $1.97; April high of 1.50, low of .688, average of 1.09; May high of 1.00, low of .62, average of .81);
(3) Intelliquis shall issue to OTP, or as directed by OTP's counsel, 260,000 shares of registered stock in Intelliquis, which represents the 300,000 shares that Intelliquis was obligated to issue pursuant to paragraph 3 of the Settlement Agreement, minus the 40,000 shares accounted for in the preceding paragraph of this Order. Commencing June 1, 2000, OTP may sell these shares at a rate of no more than 10,000 shares in any month through January 2002, after which time any remaining shares may be sold without restriction;
(4) If, on February 1, 2002, the closing price of Intelliquis stock is less than $2 per share (as quoted by the exchange or market maker which at that time is broadcasting the publicly recognized price for the stock)), Intelliquis shall then issue to OTP, or as directed by OTP's counsel, an additional 100,000 shares in any month. OTP shall take no steps to artificially lower the stock's trading price in order to receive these additional shares;
(5) The State Action, as referenced in the Alleged Settlement Agreement (Tippets v. MicroBlvd Direct, L.C., 9904030395 (Fourth District Court), shall be voluntarily dismissed by the parties, with prejudice and on the merits, each party to bear its own costs and attorneys fees;
(6) The Software Rights Agreement between Intelliquis and OTP is terminated, and except as set forth in this Order, neither Intelliquis nor OTP shall have any continuing obligation to the other;
(7) Except for the obligations contained in this Order, OTP and Ernest Hemple, on the one hand, and Intelliquis and Mark Tippets, on the other hand, are hereby deemed to have released each other from all claims relating in any way to this lawsuit (including claims and counterclaims). The release by OTP and Hemple also extends to all parties named in the Amended Complaints, and all agents, licensees, distributees and resellers of any "Y2K"-related product distributed by Intelliquis, while the release by Tippets will also extend to MicroBlvd, defendant in the State Action;
(8) OTP shall issue retraction letters to any of Intelliquis' agents, licensees, distributees and resellers to whom OTP or its counsel wrote with regard to OTP's asserted claims in this action. OTP shall also withdraw its copyright application with regard to the software program that is the subject of this lawsuit;
(9) This matter is dismissed, with prejudice, with each party to bear its own costs and attorneys fees. This court shall retain continuing jurisdiction to enforce the Settlement Agreement and this Order.