FirstMerit Bank, N.A., v. Ferrari et al
Filing
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MEMORANDUM Opinion and Order. Written by the Honorable Gary Feinerman on 3/4/2015. (lcw, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FIRSTMERIT BANK, N.A.,
Plaintiff/Counter-Defendant,
vs.
MARIA FERRARI, JUAN SALGADO, ROBERT
FERRARI, and 2425 W CORTLAND PROPERTIES,
INC.,
Defendants/Counter-Plaintiffs.
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13 C 6625
Judge Feinerman
MEMORANDUM OPINION AND ORDER
FirstMerit Bank, N.A., brought this suit for mortgage foreclosure and breach of a
promissory note against Maria Ferrari, Juan Salgado, Robert Ferrari, and 2425 W Cortland
Properties, Inc. (“Cortland Properties”). Doc. 1. Defendants answered and counterclaimed,
alleging violations of 42 U.S.C. § 1981 and the Equal Credit Opportunities Act, 15 U.S.C.
§ 1691 et seq. Doc. 41. The court denied FirstMerit’s motion to dismiss the counterclaims.
Docs. 65-66 (reported at __ F. Supp. 3d __, 2014 WL 5293441 (Oct. 16, 2014)). Now before the
court is Defendants’ motion to enforce what they assert is the parties’ settlement agreement.
Doc. 72.
In June 2013, Cortland Properties defaulted on a note held by FirstMerit and secured by
guarantees and a mortgage from the individual defendants. The parties began talks to settle the
debt shortly after FirstMerit filed this suit in September 2013. In November 2013, David Standa,
FirstMerit’s counsel, emailed a draft settlement agreement to Michael Pomerantz, Defendants’
counsel. Doc. 72-2 at 2. Standa wrote that the draft was “still subject to client approval,” but he
asked Pomerantz to “take a look and let me know if everything looks alright.” Ibid. On
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December 3, 2013, Pomerantz replied with some changes, noting that his draft too “remains
subject to my clients’ review and approval.” Id. at 8. Ten days later, Standa sent back a new
proposal, noting that “[w]e’re close here, but not quite there.” Ibid.
The parties continued to discuss terms over the next month. On January 28, 2014,
Pomerantz emailed Standa asking for a revised agreement. Id. at 12. On January 29, Standa
responded, “My client is working on getting the approval for the deal. Once it is approved, I’ll
draft the documents.” Id. at 12. On February 3, Standa emailed Pomerantz with a “draft
agreement.” Doc. 78-1 at 5; id. at 6-14 (the draft agreement). The email stated: “The draft
agreement is attached. We’re also going to need an escrow agreement, but we’ll cross that
bridge once we’ve finalized the details of the settlement agreement. This is still subject to my
client’s review and approval.” Id. at 5.
Settlement agreements are contracts and are interpreted according to the law of the
jurisdiction where the contract was (purportedly) created—here, Illinois. See In re Motorola Sec.
Litig., 644 F.3d 511, 517 (7th Cir. 2011); Newkirk v. Vill. of Steger, 536 F.3d 771, 774 (7th Cir.
2008). As with any contract, there must be an offer to settle, an acceptance of the offer, and a
meeting of the minds. See Dillard v. Starcon Int’l, Inc., 483 F.3d 502, 507 (7th Cir. 2007); Kim
v. Alvey, Inc., 749 N.E.2d 368, 378 (Ill. App. 2001). “Whether the parties had a ‘meeting of the
minds’ is determined not by their actual subjective intent, but by what they expressed to each
other in their writings. Thus, the parties decide for themselves whether the results of preliminary
negotiations bind them, and they do so through their words.” Abbott Labs. v. Alpha Therapeutic
Corp., 164 F.3d 385, 387 (7th Cir. 1999).
Defendants contend that because Standa “did exactly as promised [on February 3] and
forwarded the Enforceable Settlement Agreement, as he indicated he would after his client
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approved the proposed deal[,] … this matter has been settled pursuant to well-founded Illinois
law.” Doc. 72 at ¶¶ 5-6. That contention is wrong for two separate and independent reasons:
first, Standa’s February 3 email was not a binding offer; and second, even if that email were such
an offer, Defendants did not accept it and, in fact, rejected it.
With respect to whether there was an offer, although Standa said on January 29 that he
would forward a settlement agreement after FirstMerit approved it, his February 3 email clearly
stated that such approval had not yet been obtained. Doc. 78-1 at 5 (“This is still subject to my
client’s review and approval.”). In addition, Standa’s email expressed the need to “finalize the
details” of what he called the parties’ “draft agreement.” All this objectively indicates that the
email was part of preliminary negotiations rather than a binding offer. See PFT Roberson, Inc. v.
Volvo Trucks N. Am., Inc., 420 F.3d 728, 732 (7th Cir. 2005) (“Volvo protected itself by stating
in the email that many ‘required details’ remained to be ‘finalize[d]’; if the details were
‘required,’ there was no agreement without them.”); Empro Mfg. Co. v. Ball-Co Mfg., Inc., 870
F.2d 423, 425 (7th Cir. 1989) (explaining that a party “insulated” its preliminary negotiations
“from binding effect by listing, among the conditions to which the deal was ‘subject,’ the
‘approval of the shareholders and board of directors’”); Leavell v. Dep’t of Natural Res., 923
N.E.2d 829, 841 (Ill. App. 2010) (“In the present case, the communications between the parties
were preliminary communications about a ‘proposed’ settlement, and no definite and certain
agreement was ever entered into between the parties.”).
In any event, even if Standa’s February 3 email was a binding offer, offers alone do not
create contracts. They must be accepted, and Defendants do not and could not plausibly claim to
have accepted the terms Standa presented on February 3. That is because on February 4, the
very next day, Pomerantz sent Standa this reply:
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Please see my initial comments attached. Given a few of the major
discrepancies indicated (like $250,000 v. the $200,000 agreed), I have not yet
reviewed the same with my clients, and the same remains subject to my
client’s review and approval. Please call me once you have had an
opportunity to review the attached.
Doc. 78-1 at 16. Pomerantz’s comments on Standa’s draft included: (1) reducing Defendants’
settlement payment from $250,000 to $200,000; (2) deleting a provision allowing FirstMerit to
reinstate this lawsuit if it turned out that Defendants had falsely represented that they were
unable to satisfy the entire indebtedness; (3) requiring FirstMerit to release Defendants from
their mortgage obligations before, not after, they paid the settlement amount. Id. at 21.
It is disquieting that Defendants’ motion to enforce did not attach, or even acknowledge
the existence of, Pomerantz’s February 4 email—and this despite the fact that Pomerantz
submitted a declaration averring that the motion attached “[t]rue and correct” copies of his and
Standa’s settlement emails “[d]uring the winter of 2013-2014.” Doc. 72-1 at ¶ 4. Due to
Defendants’ omission, FirstMerit had to attach Pomerantz’s February 4 email to its brief. Doc.
78-1 at 16-25. Still more disquieting is that Defendants did not acknowledge or address the
February 4 email in their reply brief; they just pretended that it did not exist. Doc. 84. The
Seventh Circuit has rebuked lawyers for the “ostrich-like tactic of pretending that potentially
dispositive authority against a litigant’s contention does not exist.” Hill v. Norfolk & Western
Ry. Co., 814 F.2d 1192, 1198 (7th Cir. 1987); see also Bovee v. Broom, 732 F.3d 743, 745 (7th
Cir. 2013) (“The belief that ostriches stick their heads in the sand to avoid seeing danger is a
canard. Lawyers shouldn’t do it either.”). A lawyer pretending that a potentially dispositive fact
does not exist is no better—particularly when the fact consists of an email drafted and sent by the
lawyer himself.
And the February 4 email is dispositive. “To be valid, an acceptance must be objectively
manifested, for otherwise no meeting of the minds would occur.” Energy Erectors, Ltd. v. Indus.
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Comm’n, 595 N.E.2d 641, 644 (Ill. App. 1992); see also Echo, Inc. v. Whitson Co., 121 F.3d
1099, 1103 (7th Cir. 1997); Rosin v. First Bank of Oak Park, 466 N.E.2d 1245, 1249 (Ill. App.
1984). Yet Pomerantz did not manifest any objective intent to accept Standa’s February 3 offer
(if in fact it was a binding offer). Pomerantz’s own clients, he explained, had not had yet
reviewed Standa’s draft, and he would not take final action without their approval. Doc. 78-1 at
16. Furthermore, although Defendants now claim that the parties agreed on the material terms of
the settlement on February 3, Pomerantz’s “initial comments” on February 4 identified several
“major discrepancies” that needed to be addressed, ibid.—including the amount Defendants were
to pay ($200,000 vs. $250,000), the timing of the release that Defendants would obtain in
exchange for their payment, and whether FirstMerit would be permitted to reinstate this suit
should it later appear that Defendants had misrepresented their financial condition. Id. at 21.
These are hardly words of objective assent; as the Seventh Circuit has observed, even the
statement that “the ‘terms and conditions are generally acceptable’ but that ‘some clarifications
are needed’ … is an ominous noise in a negotiation.” Empro Mfg., 870 F.2d at 426. More to the
point, the terms to which Pomerantz objected were plainly material, which necessarily means
that no contract was formed. See Higbee v. Sentry Ins. Co., 253 F.3d 994, 997 (7th Cir. 2001)
(“we think many defendants would agree that the most material term in any settlement agreement
is the release”); Abbott Labs., 164 F.3d at 388 (holding that “details of the release provisions …
in settlement agreements are inherently material”); Flood v. Ty, Inc., 2005 WL 994579, at *11
(N.D. Ill. Apr. 5, 2005) (holding that settlement amount, mutual releases, and agreement to
dismiss the plaintiff’s case “were the essential and material terms of the settlement agreement”).
Illinois law holds that “an acceptance requiring any modification or change in terms
constitutes a rejection of the original offer and becomes a counteroffer that must be accepted by
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the original offeror before a valid contact is formed.” Finnin v. Bob Lindsay, Inc., 852 N.E.2d
446, 448 (Ill. App. 2006); see also Dresser Indus., Inc. v. Pyrrhus AG, 936 F.2d 921, 926 (7th
Cir. 1991) (“Illinois courts have consistently held that accepting an offer by requesting
modification of the terms constitutes a rejection of the original offer and a counter-offer.”);
Hubble v. O’Connor, 684 N.E.2d 816, 821 (Ill. App. 1997); Sementa v. Tylman, 595 N.E.2d 688,
692 (Ill. App. 1992); Restatement (Second) of Contracts § 39(2) (noting that an “offeree’s power
of acceptance is terminated by his making of a counter-offer”). Accordingly, once Pomerantz
sent his February 4 revisions, Standa’s February 3 offer (again, assuming it was a binding offer)
was rejected, leaving it dead in the water. See Venture Assocs. Corp. v. Zenith Data Sys. Corp.,
987 F.2d 429, 432 (7th Cir. 1993) (“Because Illinois law demands that an acceptance comply
strictly with the terms of the offer … Venture’s modifications of Zenith’s proposed agreements,
however minor, precluded formation of a contract at that point … [and] created a counteroffer
which Zenith never accepted.”) (internal quotation marks omitted). And as Defendants do not
maintain that either FirstMerit or Standa accepted Pomerantz’s counteroffer, it follows that no
enforceable agreement was reached.
Defendants are correct that “[t]here is no requirement that an agreement be ‘signed,
sealed, and delivered’ to be binding and Illinois courts have not been shy about enforcing
promises made in the context of ongoing negotiations and often involving preliminary or
incomplete agreements.” Doc. 72 at ¶ 8 (quoting Seymour v. Hug, 413 F. Supp. 2d 910, 925
(N.D. Ill. 2005)). But before it can be enforceable, a promise made in ongoing negotiations must
be just that—a promise. In Seymour, plaintiff’s counsel emailed defense counsel to state that the
plaintiff “ha[d] accepted” the defendants’ proposed settlement framework and that she was
“prepared to report to [the judge] … that we have settled this case in principle.” 413 F. Supp. 2d
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at 916-17. No such settlement, even in principle, was reached in this case. Again, the Seventh
Circuit has repeatedly emphasized that “the parties decide whether the results of preliminary
negotiations bind them, and they do so through their words.” Abbott Labs., 164 F.3d at 387; see
also Empro Mfg., 870 F.2d at 425. Here, those words were clear. Standa and Pomerantz’s
negotiations were preliminary and did not result in an enforceable agreement.
Because no enforceable agreement was reached on February 3, 2014 or at any time
thereafter, Defendants’ motion to enforce the (purported) settlement agreement is denied. This
disposition makes it unnecessary to consider FirstMerit’s alternative arguments that the motion is
defeated by the Illinois Credit Agreements Act, 815 ILCS 160/3, or that the parties did not
authorize their respective attorneys to settle the case at all, see Webster v. Hartman, 749 N.E.2d
958, 963 n.1 (Ill. 2001) (“In order to grant a motion to enforce an out-of-court settlement, this
court has long held that counsel must possess express consent or authorization … [and] the
burden rests with the party alleging authority to show that fact.”); Higbee v. Sentry Ins. Co., 253
F.3d 994, 999-1000 (7th Cir. 2001) (“where the alleged (written) settlement occurred outside of
court, in the client’s absence, … an attorney’s authority to settle will not be presumed”).
March 4, 2015
United States District Judge
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