Nature's Sunshine Products v. Sunrider Corporation
Filing
39
ORDER AND MEMORANDUM DECISION granting 29 SEALED MOTION to Enforce Settlement Agreement. Signed by Judge Tena Campbell on 11/21/11 (alt)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
NATURE’S SUNSHINE PRODUCTS, INC.
Plaintiff and Counter Defendant,
ORDER AND MEMORANDUM
DECISION
vs.
THE SUNRIDER CORPORATION,
Case No. 2:09-cv-896
Defendant and Counter Claimant.
Plaintiff Nature’s Sunshine Products, Inc. (Nature’s Sunshine) brought this case against
The Sunrider Corporation (Sunrider) alleging several claims stemming from Sunrider’s
registration and use of domain names that allegedly include Nature Sunshine’s federallyregistered trademark and Sunrider’s sale of goods branded with the trademark. On July 26, 2011,
Nature’s Sunshine filed a Motion to Enforce Settlement Agreement (Dkt. No. 29).
BACKGROUND1
On April 15, 2011, the parties attended a mediation to attempt to resolve the issues
involved in this case. Before the mediation, Joshua Gigger, counsel for Nature’s Sunshine, sent
an email to Arthur Berger, counsel for Sunrider, in which he stated, “Obviously a mediation only
makes sense if each party provides a representative with complete authority to settle. If Sunrider
agrees to a mediation, Nature’s Sunshine will agree to provide such a representative. Please
confirm that Sunrider and Tei-Fu Chen will do likewise.” (Ex. 18 to Dkt. No. 37 at 1.) Mr.
1
The history of the trademarks at issue in this case is somewhat lengthy and not relevant
to Nature Sunshine’s Motion to Enforce. Accordingly, the court does not repeat that history here.
Berger responded, “we do have a person with full authority who can attend the mediation in
March.” (Ex. 19 to Dkt. No. 37 at 1.) Approximately ten days before the mediation was set to
take place, H. Dickson Burton, the mediator, sent a mediation agreement to counsel for both
parties for their signature. The mediation agreement contained the condition that “The Parties
agree to participate in good faith and will attend with one or more persons who have full
settlement authority to resolve the disputes between the parties.” (Ex. 20 to Dkt. No. 37 at 1.)
Mr. Berger signed this agreement on April 6, 2011.
On April 15, 2011, counsel for Nature’s Sunshine and counsel for Sunrider engaged in a
full-day mediation. Sunrider’s in-house counsel Owen Smigelski attended the mediation.
During the mediation, Mr. Smigelski sent updates and discussed the negotiations with Sunrider’s
International Operations Director Sunny Beutler, who was unable to attend the mediation.
Following the mediation, the parties continued to discuss settlement. On April 16, 2011,
Mr. Gigger emailed a draft of the settlement agreement to Mr. Berger. Samuel Straight, also
counsel for Sunrider, responded to the email on April 19 with revisions to the agreement. The
parties exchanged similar emails on April 22 and 26 and May 4.2 All of these emails were sent
between Mr. Gigger, Mr. Berger, and Mr. Straight.
On May 19, Nature’s Sunshine sent an email to Sunrider offering to accept Sunrider’s
recent revision if Sunrider agreed to one other clarification. Mr. Gigger stated, in relevant part:
2
The terms of the agreement and the revisions made are not relevant to the discussion.
Sunrider does not argue that the terms render the agreement unenforceable. Rather, Sunrider
contends that the settlement agreement is unenforceable because it is not a signed writing and
because Mr. Smigelski, with whom Mr. Berger communicated, did not have authority to enter the
agreement.
2
As mentioned in my voice message, Nature’s Sunshine had an opportunity to discuss
Sunrider’s most recent changes with international personnel. In short, Nature’s
Sunshine agrees to all of Sunrider’s changes so long as Sunrider will agree to amend
Section 4 (trade dress) to confirm our understanding that it applies on an international
basis.
If this clarification is agreeable to Sunrider, then the only outstanding issue is
Sunrider’s labels/marketing materials.
(Ex. 14 to Dkt. No. 31.) Mr. Berger responded the following day: “That’s good news. Yes, we
can clarify that section 4 concerning trade tress applies internationally. We have asked our
marketing people to put together a revised mockup of product label compliant with paragraph
3.e. We should have that on Monday.” (Ex. 15 to Dkt. No. 31.) Sunrider then sent Nature’s
Sunshine a revised product label for Exhibit 1 of the agreement but did not provide any trade
dress samples with the revised label for Exhibit 2.
On May 25, Nature’s Sunshine sent an email to Sunrider with the final agreement. The
email stated:
Attached are a clean and a redline of what should be the final agreement. Please
note, however, that I don’t have anything to include in exhibit 2 for the Sunrider trade
dress other than the labels that you sent on Monday, which are already included in
exhibit 1. Let me know if there is something else that you contemplate being
included there. Once this issue is finalized we can revise the Effective Date and
distribute for signatures.
(Ex. 17 to Dkt. No. 31.) On June 29, Sunrider refused to sign the agreement unless Nature’s
Sunshine would agree to limit the scope of the agreement to the United States and permit
Sunrider to use the trademark with certain goods in Class 3.
Nature’s Sunshine contends that the parties reached a settlement agreement on May 20
when Sunrider agreed to Nature’s Sunshine’s clarification and did not request any further
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changes. It is this agreement, which was sent to Sunrider in final form3 on May 25, that Nature’s
Sunshine seeks to enforce. Sunrider argues that the agreement is not enforceable for two reasons:
(1) the agreement is not a signed writing as required for all agreements reached in mediation, and
(2) Mr. Smigelski, with whom counsel for Sunrider communicated, did not have authority to
accept the terms of the agreement.4 Sunrider alleges that its management had instructed Mr.
Smigelski that no settlement could be made without approval from management, that it would
not accept a worldwide settlement, and that it must be allowed to use the trademark with skin
care products. Although Mr. Smigelski periodically updated Sunrider’s management on the
negotiations taking place between the parties, he did not share the terms of the agreement with
management until May 24. Sunrider then refused to sign the agreement.
ANALYSIS
“A trial court has the power to summarily enforce a settlement agreement entered into by
the litigants while the litigation is pending before it.” Untied States v. Hardage, 982 F.2d 1491,
1496 (10th Cir. 1993). Under Utah law, courts will enforce settlement agreements “if the record
establishes a binding agreement and ‘the excuse for nonperformance is comparatively
insubstantial.’” Zions First Nat’l Bank v. Barbara Jensen Interiors, Inc., 781 P.2d 478, 479 (Utah
App. 1989) (quoting Tracy-Collins Bank & Trust Co. v. Travelstead, 592 P.2d 605, 609 (Utah
1979)).
Sunrider does not argue that the terms of the agreement allegedly reached on May 20, and
3
The final agreement does not have anything for Exhibit 2, as noted in Mr. Gigger’s May
25 email. This was the only remaining piece that needed to be added to the agreement.
4
In support of its second argument, Sunrider submitted an affidavit from Ms. Beutler,
Sunrider’s International Operations Director, and Oi-Lin Chen, Sunrider’s Vice President.
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memorialized in the final agreement sent on May 25, are somehow insufficient to create a
binding agreement.
1. Signed Writing
Sunrider relies almost exclusively on the Utah Supreme Court’s decision in Reese v.
Tingey Construction, 2008 UT 7, 177 P.3d 605, for the proposition that the agreement reached in
this case must be a signed writing because in arose in the context of mediation. In Reese, the
Utah Supreme Court held that “Utah law requires agreements reached in mediation to be reduced
to a writing and signed by all the parties to the agreement in order for the agreement to be
enforceable by a court.” Id. ¶ 15. In reaching this conclusion, the court focused on the
confidentiality protections afforded parties to mediation: under Utah Code section 78-31b-8(4),
“no person attending an ADR proceeding . . . may disclose or be required to disclose any
information obtained in the course of an ADR proceeding, including any memoranda, notes,
records, or work product.” Utah Code Ann. § 78B-6-208. The court found that it would not be
possible to “enforce the terms of an oral agreement reached in mediation without requiring
parties to disclose, and the court to consider, confidential settlement negotiations.” Reese, 2008
UT 7, ¶ 12.
Sunrider contends that the agreement reached in the May 20 email was a product of the
April 15 mediation because the terms of the agreement were initially discussed during the
mediation and then filled out and clarified over the course of the following month. For that
reason, it is subject to the writing requirement established in Reese.
The court does not agree with Sunrider’s broad reading of Reese. The Utah Supreme
Court specifically stated its holding as requiring “agreements reached in mediation to be reduced
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to a writing and signed.” Id. ¶ 15. This holding was justified, at least in part, by a concern that
enforcing oral agreements would require parties to disclose, and the courts to evaluate,
confidential information obtained in the course of the mediation. Here, the agreement was
reached over a month after the mediation and only after several email exchanges between
Nature’s Sunshine and Sunrider. There is nothing in Reese to suggest that the court’s holding
extends to any agreement reached long after the mediation was over and the parties had
continued to engage in settlement negotiations.
Even if the writing requirement in Reese applied to this case, the Utah Supreme Court
noted that “a writing via various electronic media, such as an email exchange between the parties
in which they agree to particular provisions or a recording in which the parties affirmatively state
what constitutes their agreement, would satisfy this requirement.” Id. n.6. Sunrider contends
that the Utah Supreme Court’s use of the word “parties” means that only emails sent between the
actual parties, and not counsel, will satisfy the requirement. Again, the court does not agree with
Sunrider’s interpretation. First, when parties are represented by counsel, rules of ethics require
that all communications are directed through the attorneys. Second, Utah courts have enforced
settlement agreements based on email communications between counsel, finding the emails
evidence that the “parties had reached a meeting of the minds.”5 LD III, LLC v. BBRD, LC,
2009 UT App. 301, ¶ 16, 221 P.3d 867 (emphasis added). Accordingly, even if the settlement
agreement needed to be in writing, the emails between Mr. Gigger and Mr. Berger satisfy this
requirement.
5
LD III did not involve a settlement agreement reached during mediation, and
accordingly did not apply the exception noted in Reese.
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2. Mr. Smigelski’s Authority
Sunrider contends that the agreement is unenforceable because Mr. Smigelski did not
have authority to enter into the settlement agreement.
Utah courts recognize that “principals are bound by the acts of their agents which are
within the apparent scope of the authority of the agent and a principal will not be permitted to
deny such authority against innocent third parties who have so relied on that authority.” Forsyth
v. Pendleton, 617 P.2d 358, 360 (Utah 1980).
Here, Sunrider represented to Nature’s Sunshine that Mr. Smigelski had full authority to
settle the case. When the parties were discussing mediation, Mr. Berger told Mr. Gigger that
Sunrider had “a person with full authority who can attend the mediation in March.” (Ex. 19 to
Dkt. No. 37 at 1.) Mr. Berger confirmed this when he signed the mediation agreement, agreeing
to “participate in good faith and . . . attend with one or more persons who have full settlement
authority to resolve the disputes between the parties.” (Ex. 20 to Dkt. No. 37 at 1.) Sunrider
then sent Mr. Smigelski as its representative to the April 15 mediation. From this, Nature’s
Sunshine relied on Mr. Smigelski’s authority to fully settle the case. Accordingly, Sunrider is
bound by the settlement agreement that its counsel entered with the assistance and feedback of
Mr. Smigelski. This is true even though Mr. Smigelski allegedly had secret limitations on his
authority.
“Special or secret instructions or limitations upon the authority of an agent . . . must be
communicated to the party with whom he or she deals, or the principal will be bound to the same
extent as though they were not given.” 3 Am. Jur. 2d Agency § 85 (2002). The Second Circuit
Court of Appeals applied this principle to facts similar to those here in Omega Engineering, Inc.
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v. Omega, S.A., 432 F.3d 437 (2d Cir. 2005). In Omega Engineering the parties attended a
settlement conference the day before trial was set to begin. The magistrate judge had ordered
that the appropriate persons with settlement authority attend. At the end of the conference, the
parties informed the magistrate judge that the case was settled but that the defendants needed two
weeks to get the agreement signed and filed. After reviewing the settlement agreement, officers
for the defendant company refused to sign the agreement. During the enforcement hearing, the
defendant’s general counsel testified that he understood the case to be settled, but his authority to
settle had been confined within certain limits secretly communicated to him by the principals.
The magistrate judge found that counsel had authority to settle the case and that he had done so.
On appeal, the Second Circuit affirmed the magistrate judge’s ruling. The court held:
Regardless of whether [counsel]’s authority to settle had been secretly limited by
[defendant], the Settlement Agreement to which he assented is still binding on his
employer. Every agent is likely to have secret negotiating limits dictated by the
principal, but other parties may safely assume that any agreement the agent agrees to
is within his authority unless there is reason to believe he is exceeding it. No
limitation of authority was communicated to any of those involved in the settlement
at the relevant time.
Id. at 447 (internal citation omitted).
Much like in Omega Engineering,6 Mr. Smigelski and Mr. Berger attended the mediation
6
Sunrider argues that Omega Engineering is distinguishable in two ways: (1) because the
parties in this case never represented to the court that it had reached a settlement, and (2) because
the Second Circuit applied Connecticut law, which is different than Utah law. These arguments
are not persuasive. First, in evaluating whether the defendant’s counsel had authority to settle,
the Second Circuit did not rely on the representation made to the magistrate judge that the case
was settled. Rather, the Second Circuit focused on the fact that “[n]o limitation of authority was
communicated to any of those involved.” Id. The same is true in this case. Second, in deciding
whether counsel had authority, the Second Circuit did not apply Connecticut law; it cited only a
Second Circuit case from New York, International Telemeter Corp. v. Teleprompter Corp., 592
F.2d 49, 55 (2d Cir. 1979), for the proposition that a party is entitled to rely on an agent’s
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after representing that someone with full authority to settle would be present. At no time during
the mediation or the email discussions that took place after did Mr. Smigelski inform Nature’s
Sunshine that he had limitations on his authority to settle. Because these limitations were never
communicated to Nature’s Sunshine, Sunrider is “bound to the same extent as though they were
not given.” 3 Am. Jur. 2d Agency § 85.
CONCLUSION
For the foregoing reasons, Nature’s Sunshine’s Motion to Enforce Settlement (Dkt. No.
29) is GRANTED.
SO ORDERED this 21st day of November, 2011.
BY THE COURT:
______________________________
TENA CAMPBELL
United States District Judge
apparent authority when he or she has no reason to believe the agent is exceeding that authority.
See id. (“Kirsch, however, was acting within the ambit of his apparent authority and ITC was
entitled to rely upon Kirsch’s authority so long as there was no reason to believe that he was
exceeding it. Teleprompter knew that ITC believed that Kirsch had the requisite authority and
did nothing to correct this impression.”)
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