DSW Inc. v. Zina Eva Inc

Filing 37

OPINION AND ORDER granting motion to enforce the settlement agreement 29 . Motion to strike 34 is granted to the extent that DSWs memorandum in opposition to the motion to enforce 31 shall remain under seal. The motion for protective order [#30] is denied as moot. Signed by Magistrate Judge Terence P Kemp on 12/13/11. (rew)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

DSW, Inc.,

:
Plaintiff,

Zina Eva, Inc.,

Case No. 2:11-cv-0036

:

v.

:

Magistrate Judge Kemp

:

Defendant.

:

OPINION AND ORDER
This case was referred to the Magistrate Judge for complete
disposition based on the consent of the parties and pursuant to
28 U.S.C. §636(c).

As part of the Court’s usual case management

practice, the case was referred to a volunteer mediator as part
of the Court’s settlement week program.

In August, 2011, the

mediator reported that the case had settled and that an agreed
dismissal entry would be submitted by August 15, 2011.
The parties did not submit an entry by that date.

Rather,

on September 29, 2011, DSW noticed Zina Eva’s deposition.

Zina

Eva responded by filing a motion to enforce the parties’
purported settlement agreement and by moving for a protective
order preventing the deposition from going forward.

Those

motions, as well as a motion to strike DSW’s response to the
motion to enforce the settlement agreement, are all pending.

For

the following reasons, the Court will grant the motion to
enforce, deny the motion to strike (but keep the response under
seal), and deny as moot the motion for a protective order.
I. Background Facts
This case arises out of a contract dispute between

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Plaintiff, DSW, and Defendant, Zina Eva, Inc. DSW alleges in its
complaint (#2) that it had ordered handbags from Zina Eva on
three separate occasions, and that the handbags which were
delivered did not match the samples Zina Eva previously provided
and did not meet DSW’s quality specifications.
On August 9, 2011 the parties engaged in mediation.
point, it appeared that an agreement had been reached.

At some

The

attorneys who represented DSW and Zina Eva at the mediation then
prepared and signed a handwritten document outlining the terms of
the agreement.

A copy of this document is attached to Zina Eva’s

Motion to Enforce the Settlement Agreement.

DSW does not appear

to dispute that it is the same document that was signed at the
end of the mediation conference.

Without reciting the document’s

contents in full, it states that the parties “wish to resolve the
case and hereby agree as follows:” What follows are payment terms
as well as an agreement that Zina Eva and its principal will
execute a promissory note containing those terms, that judgment
may be taken in a greater amount if Zina Eva defaults, and that
Zina Eva would be entitled to written notice and an opportunity
to cure any default within twenty days of the receipt of notice.
The document does not state that it is contingent upon any other
events or conditions, nor does it indicate that it was not
intended to be effective immediately.
According to the exhibits attached to DSW’s response to the
motion to enforce (#31), on August 12, 2011, three days after
this handwritten document was signed, counsel for DSW emailed
Zina Eva a formal settlement agreement.

Its operative terms

(those relating to payment) are identical to the handwritten
document, but it also contained additional language, primarily
relating to the parties’ mutual release of claims and the
dismissal of the lawsuit.

In that same email, DSW’s counsel

requested that Zina Eva produce its tax returns for the previous
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two years.
Zina Eva’s counsel responded with an email dated August 19,
2011.

She suggested three minor changes to the formal agreement,

but did not comment on the request for tax returns.

DSW’s

counsel then agreed to make two of the three suggested changes
and proposed a different way of resolving the third point.
However, he again requested the tax returns.

In response, in an

email dated August 19, 2011, counsel for Zina Eva stated that the
returns were “irrelevant and not readily available” and that her
client objected to their production.
There was further correspondence about this issue, but the
parties’ positions did not change.

Essentially, DSW took the

position that it needed to verify Zina Eva’s financial situation
before it signed the settlement agreement, whereas Zina Eva
contended that the parties’ agreement could have been, but was
not, made contingent upon such verification, and that if DSW had
wanted such a term included in the settlement agreement, that
term should have been set forth in the handwritten document
executed as part of the mediation conference.

DSW brought the

matter to a head by noticing Zina Eva’s deposition, and Zina Eva
responded by filing its motion to enforce the settlement
agreement and for a protective order staying further discovery.
II. Discussion
A federal court has inherent authority to enforce agreements
in settlement of litigation before it. See Therma-Scan, Inc. v.
Thermoscan, Inc., 217 F.3d 414, 419 (6th Cir. 2000). The party
relying on the settlement agreement has the burden of proving its
validity.

Although there is some suggestion that if the

agreement is oral only, the burden of proof is by clear and
convincing evidence, see Huffer v. Herman, 168 F.Supp.2d 815, 823
(S.D. Ohio 2001), citing

Anschutz v. Radiology Assoc. of

Mansfield, Inc., 827 F.Supp. 1338, 1343 (N.D. Ohio 1993), where
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there is a written agreement, the burden (under Ohio law) appears
to be the same as in any other case based on breach of contract,
and that is to “prove by a preponderance of the evidence the
existence of the elements of the contract, including offer,
acceptance and consideration both as to the existence of the
contract and as to its terms.”

Ohio State Tie & Timber, Inc. v.

Paris Lumber Co., 8 Ohio App. 3d 236, 240 (Franklin Co. 1982).
A threshold question in a case where a settlement agreement
is sought to be enforced is which substantive law to apply.

In a

case where the federal court’s jurisdiction is based solely on
diversity of citizenship, as it is here, the Court must apply the
forum state’s choice of law principles in order to determine
which state’s law to apply to the question. See Russell v. GTE
Government Systems Corp., 232 F.Supp.2d 840, 848 (S.D. Ohio
2002).

Because this is a diversity action, Ohio choice of law

principles apply.

Under those principles, because DSW is an Ohio

corporation, the litigation was filed in Ohio, and the settlement
negotiations occurred in Ohio, the formation and enforceability
of any purported settlement agreement is governed by Ohio
contract law.

See Bamerilease Capital Corp. v. Nearburg, 958

F.2d 150, 152 (6th Cir. 1992).
To enforce a settlement agreement, “a district court must
conclude that agreement has been reached on all material terms.
Ordinarily, an evidentiary hearing is required where facts
material to an agreement are disputed. However, no evidentiary
hearing is required where an agreement is clear and unambiguous
and no issue of fact is present.”

RE/MAX Int’l, Inc. v. Realty

One, Inc., 271 F.3d 633, 645-646 (6th Cir. 2001) (internal
citations omitted).

A district court’s enforcement of a

settlement agreement is appropriate when no substantial dispute
exists regarding the entry into and the terms of a settlement
agreement.

Id.
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The primary question presented by Zina Eva’s motion is
whether the handwritten document contains all the material terms
which are required for an agreement to resolve a pending claim
for money damages.

The Court concludes that it does.

In Ohio,

the terms which must be included in an agreement to settle
pending litigation are simply a payment term and an agreement of
some sort to release the party against whom the claim for money
damages is made from further obligation once the money is paid.
See, e.g., Burrell Industries, Inc. v. Central Allied
Enterprises, 1998 WL 896534 (Belmont Co. App. December 15, 1998);
see also Fisco v. H.A.M. Landscaping, Inc., 2002 WL 31667300
(Cuyahoga Co. App. November 27, 2002).

As that latter decision

points out, even an oral agreement to settle a case is binding as
long as it contains the “core terms” of a mutual release and an
amount to be paid.

Id. at *1.

The handwritten agreement signed at the mediation conference
contains these terms.

It provides that the agreement is intended

to effect the parties’ desire to “resolve the case,” which can be
reasonably construed to mean that the parties intended Zina Eva
to be released from further obligation on the claim set forth in
the complaint, and it sets forth the total amount that Zina Eva
must pay to DSW in order to obtain that release.

Had it said no

more than that, it would be enforceable, but it also provides a
payment schedule for installment payments, for the execution of a
promissory note, and the amount of judgment in case of default on
that note - all perfectly acceptable terms as well, although not
strictly needed in order to constitute a binding settlement
agreement.
DSW does not dispute that these terms all appear within the
handwritten agreement.

Clearly, these are sufficient terms upon

which to resolve an action based on a claim for money damages,
and the additional terms which DSW proposed in the formal version
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of the agreement are not material.

Even if they were, it appears

that Zina Eva and DSW also consented to those terms, as modified
by the email exchanges between counsel.

Thus, the record

reflects that counsel for both parties signed an agreement that
is sufficiently definite and complete to constitute a valid
contract.
In its memorandum in opposition to the enforcement of this
seemingly complete agreement, DSW makes two conceptually distinct
arguments.

The first is that a material term is lacking in the

agreement, namely that “Zina Eva lacked assets.”
that the agreement was procured through fraud.

The second is

The Court

addresses each of these arguments separately.
Whether or not Zina Eva (or, for that matter, any other
contracting party) possesses any specific amount of assets is not
a term which is ordinarily viewed as material to the formation of
a contract.

It is clearly not a performance term; rather, it

would have been, had it been included in the agreement, a
representation which Zina Eva would have made to the effect that
certain facts were true about its financial condition at the time
of contracting.

Contracting parties are certainly free to make

their contractual obligations contingent on the truth of such
representations, but the absence of such representations from the
written contract typically means that the parties chose not to
condition the performance of their respective duties upon certain
facts being true or upon one party’s receipt of some verification
of those facts.

After all, written contracts are ordinarily

interpreted based on the four corners of the written agreement,
and their terms are limited by application of the parol evidence
rule, which excludes any additional terms not embodied in the
parties’ written agreement.

See, e.g, Galmish v. Cicchini, 90

Ohio St. 3d 22, 27 (2000)(“the act of embodying the complete
terms of an agreement in a writing (the ‘integration’), becomes
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the contract of the parties”), quoting In re Gaines’ Estate, 15
Cal. 2d 255, 264-65 (1940); see also Bellman v. Am. Internat’l
Group, 113 Ohio St. 3d 323, 327 (2007) (“[w]hether a contract is
integrated ... is not dependent upon the existence of an
integration clause to that effect”).

At the end of a mediation

conference, when parties prepare and sign a written settlement
agreement, it is reasonable to assume that the agreement
constitutes the parties’ complete contract and embodies all of
the terms which either party deemed material.
As part of this argument, DSW seems to be asserting that
Zina Eva’s production of tax returns - although not, apparently,
the presence or absence of any specific information on those tax
returns - was somehow a condition precedent to DSW’s being bound
by the agreement.

Again, one would ordinarily expect conditions

precedent to contract formation to be recited in the contract
itself, and the parol evidence rule prevents a contract from
being varied or contradicted by an alleged oral condition
precedent if the same subject is treated within the written
contract.

See, e.g., Beatley v. Knisley, 183 Ohio App. 3d 356,

362 (Franklin Co. 2009).
In this case, DSW has not actually attempted to introduce
evidence that the parties specifically agreed that production of
the tax returns was a condition precedent to the settlement
agreement’s becoming effective.

The furthest it has gone on that

subject is a statement in its attorney, Joshua D. Rockwell’s,
affidavit (Doc. #31, Exhibit 1) to the effect that “[i]t is my
standard practice to request and obtain tax returns as part of
the overall settlement document where, as here, an
agreement/proposal is based on a Defendant claiming it has no
money to pay Plaintiff’s damages.”

Whatever his standard

practice may be, Mr. Rockwell does not state that he communicated
this practice to Zina Eva during the course of the settlement
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conference or, more to the point, that DSW and Zina Eva reached a
meeting of the minds about whether Zina Eva’s production of tax
returns was a condition precedent to the formation of a binding
settlement agreement.

Even if his affidavit had gone that far,

the parol evidence rule would preclude the Court from concluding
that the contract included such a term, because the contract, as
written, is unconditional; it simply predicates resolution of the
lawsuit on Zina Eva’s making payment according to the terms set
forth in the agreement.

To add a condition such as the one

proposed by DSW would vary or alter the contract in a way that is
not permitted by the parol evidence rule.

Therefore, the Court

finds no merit in the argument that Zina Eva’s production of tax
returns was either an omitted material term of the contract or a
condition precedent to its formation.
DSW’s other argument is that it was fraudulently induced to
enter into the settlement agreement.
precluded by the parol evidence rule.
28.

Such a claim is not
Galmish, 90 Ohio St. 3d at

“A claim of fraud in the inducement arises when a party is

induced to enter into an agreement through fraud or
misrepresentation.”
(1998).

Abm Farms v. Woods, 81 Ohio St. 3d 498, 502

The fraud relates to the facts inducing its execution,

not to the nature of the contract.

Id.

To prove fraud in the

inducement in this case, or even to create an issue about that
matter which might necessitate an evidentiary hearing, DSW must
produce evidence that Zina Eva made a knowing, material
misrepresentation with the intent of inducing DSW’s reliance and
that DSW relied upon that misrepresentation to its detriment.
Id.
Here, DSW alleges in its memorandum in opposition that it
was induced by Zina Eva to settle based on certain
representations made by Zina Eva during the mediation concerning
Zina Eva’s financial condition. DSW, however, has presented no
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evidence that Zina Eva made any such representations, nor that
any of its representations were false.

Instead, it appears to

assume that Zina Eva could not have been telling the truth about
its financial condition because of its subsequent refusal to
produce its tax returns to DSW after the mediation.

However,

there is no evidence in the record from which it could be
inferred that Zina Eva agreed to produce its tax returns to DSW
after the parties had entered into a binding settlement
agreement, and this Court cannot interpret its refusal to do so
as evidence of fraud.
Even apart from this failure of proof, to the extent that
DSW claims that it reasonably relied on any representations made
by Zina Eva as to its financial condition - and the Court has no
evidence from which to determine if the key representations were
as to its existing financial condition, its expected future
financial condition (which would not necessarily be a statement
of fact), or both - that claim would fail as well.

During the

course of a settlement conference, the party from whom payment is
requested often contends that payment of any amount in excess of
a certain sum will constitute a financial hardship.

The opposing

party need never take such an expression of financial pessimism
at face value, but can insist upon seeing proof before agreeing
to take a lesser amount.

Alternatively, it can explicitly make

any settlement contingent on the later production of such proof.
Although DSW claims it did the latter, the Court has held that it
failed to do so in a way that either bound Zina Eva to produce
any documentation after the fact, or made the production of such
evidence a condition precedent to the effectiveness of the
settlement agreement.

Since DSW claims to have perceived the

need to verify Zina Eva’s statements about its financial
condition, it cannot credibly argue, at the same time, that it
reasonably relied on those statements, in their unverified form,
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in entering into the agreement.

It knew how to protect itself

against incorrect representations, and was not coerced in any way
to reach a settlement before it had proof in its hands.

It

simply chose not to avail itself of the means to insure that it
had proof before signing a binding settlement agreement.

Under

those circumstances, its reliance, if any, on the veracity of
Zina Eva’s representations can hardly be deemed reasonable.
III. Attorney’s Fees
Zina Eva requests that the Court award it its reasonable
attorney’s fees and costs related to its efforts to enforce the
settlement and stay discovery in this case. Neither of Zina Eva’s
motions state the grounds on which such a request should be
granted and therefore Zina Eva’s request for attorney’s fees is
denied.
IV. Motion for Protective Order
Because this Court orders the settlement agreement to be
enforced, the motion for protective order staying discovery is
moot.
V.

Motion to Strike

Lastly, Zina Eva has moved to strike DSW’s memorandum in
opposition to the motion to enforce the settlement agreement.
Zina Eva claims that in its memorandum, DSW disclosed
confidential communications in violation of Local Rule 16.3. Zina
Eva requests an Order from this Court striking or alternatively
sealing the Memorandum in Opposition, allowing Zina Eva to file a
Reply under seal to the Motion to Enforce, prohibiting DSW from
further disclosing communications made during the mediation,
sanctioning DSW for its disclosure of such information, and
holding DSW liable for any damages sustained by Zina Eva’s
business.

The Court has temporarily sealed the memorandum

pending a resolution of this motion.
Local Rule 16.3(c) states that “[i]n order to promote candor
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and protect the integrity of this Court's ADR processes. . . all
communications made by any person . . . during ADR proceedings
conducted under the authority of this Court are confidential....”
Communications deemed confidential include, but are not limited
to “offers to compromise, statements about the value of a case or
claim, statements about the strength or weakness of a claim or
defense, and statements concerning the possible resolution of all
or part of a case.”

Local Rule 16.3(c)(2).

Such communications

can only be disclosed if they fall under one of the five
exceptions laid out in subsection (c)(3) of the rule.
DSW admits, in its opposing memorandum, that it disclosed
confidential communications in its opposition to the motion to
enforce, and it does not argue that these communications fall
into any one of the exceptions set forth in subsection (c)(3).
Rather, DSW argues that Zina Eva “forced DSW’s hand” and “opened
the door” to disclosure of such communications by filing the
Motion to Enforce the Settlement. (Memo. In Opp., Doc. #35, at
1).

The Court disagrees.

Zina Eva’s two-page motion to enforce

the agreement simply asserts that the parties engaged in
mediation, reached an agreement, and put that agreement into
writing.

It made no representations about the substance of the

settlement negotiations.

Therefore, any additional matters

discussed during the mediation conference are confidential and
subject to Local Rule 16.3.

In order to make sure these matters

do not become public, the Court will make permanent its order to
seal DSW’s memorandum.
VI. Order
For the reasons stated above, Zina Eva’s motion to enforce
the settlement agreement is granted (#29) and its motion for
protective order (#30) is denied as moot.

Further, the motion to

strike (#34) is granted to the extent that DSW’s memorandum in
opposition to the motion to enforce (#31) shall remain under
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seal.

The parties shall submit an appropriate dismissal entry

within fourteen days, after they have executed a formal copy of
the settlement agreement and have agreed on the language of the
dismissal entry.
/s/ Terence P. Kemp
United States Magistrate Judge

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