Intersections Inc. et al v. Loomis et al

Filing 216

MEMORANDUM OPINION: Because the parties in this case did not reach a complete and enforceable settlement agreement, plaintiffs' Motion to Enforce Settlement Agreement [Dkt. No. 131] will be denied by an Order to be issued with this Memorandum Opinion.Signed by District Judge Leonie M. Brinkema on 11/3/10. (yguy)

Intersections Inc. et al v. Loomis et al

Doc. 216

j^
NOV - 3 2010
IN THE UNITED STATES DISTRICT COURT FOR THE CLERK, U.S. DISTRICT C O U R T
ALEXANDRIA, VIRGINIA

L_.

EASTERN DISTRICT OF VIRGINIA

Alexandria Division

INTERSECTIONS,

INC.

et al.

Plaintiffs,
v.

1:09cv597(LMB/TCB)
LOOMIS, J E N N I M. LOOMIS,

J O S E P H C.

Defendants.
MEMORANDUM OPINION

B e f o r e the C o u r t a r e p l a i n t i f f s ' M o t i o n to E n f o r c e S e t t l e m e n t

Agreement [Dkt. No. 131], defendant J o s e p h C. L o o m i s ' s M o t i o n for

Reconsideration re: Magistrate Judge Buchanan's Report and
Recommendation r e c o m m e n d i n g enforcement of the settlement
a g r e e m e n t [Dkt. No. 2 0 1 ] , a n d d e f e n d a n t J e n n i M. L o o m i s ' s

Objection to Magistrate Judge's Report and Recommendation [Dkt.

No. 202].

For the reasons stated in this Memorandum Opinion, the

Court finds that no enforceable settlement agreement was reached
by the parties, and therefore plaintiffs' Motion to Enforce the
S e t t l e m e n t A g r e e m e n t w i l l be d e n i e d . 1

1 Defendant Joseph C. Loomis ("Loomis") has also filed

motions and objections relating to various tangential matters,
including Objections to Magistrate Judge's Order on Motion for
R e c u s a l [Dkt. No. 206] a n d a M o t i o n f o r R e c o n s i d e r a t i o n of

Magistrate Judge's Decision on Disqualification of Counsel Emil
W. Herich and Keats McFarland & Wilson LLP [Dkt. No. 195] . All

of these motions are rendered moot by the decision concerning the settlement agreement. Moreover, Loomis's Objection to Magistrate
Judge's Order on Motion for Recusal was not timely filed.
Accordingly, those motions and objections will be denied.

Dockets.Justia.com

I.

Background

This case arises out of a variety of fraud and conspiracy
a l l e g a t i o n s m a d e b y I n t e r s e c t i o n s , Inc. ( " I n t e r s e c t i o n s " ) a n d N e t

Enforcers, Inc. ("NEI") a g a i n s t b o t h J o s e p h C. L o o m i s ("Loomis")

and his sister, Jenni M. Loomis.

The allegations center on the

November 2007 sale by Loomis of all of the stock in NEI, a company he had created, to plaintiff Intersections. Intersections paid a

p u r c h a s e p r i c e for the NEI s t o c k of $14,000,000.00, m e m o r i a l i z e d

in a Stock Purchase Agreement.

As part of the purchase, the

parties also entered into an Employment Agreement, dated November

19, 2007, in which Loomis remained the CEO of NEI, which agreed to pay him an annual salary of $250,000.00 and also granted him certain stock options. In the Employment Agreement, Loomis also

agreed to various non-compete and other restrictive provisions,
including an agreement not to use or share certain intellectual
p r o p e r t y b e l o n g i n g to NEI.

On or about October 20, 2008, plaintiffs suspended Loomis

from his position as CEO of NEI, and subsequently terminated his

employment.

Plaintiffs then filed their Complaint on May 27,

2009, a l l e g i n g that L o o m i s a n d his sister, c o - d e f e n d a n t Jenni

Loomis, conspired to provide Intersections with inaccurate and

fraudulent information regarding NEI's business and financial
condition before Intersections acquired NEI, in an effort to induce Intersections to pay more for NEI's stock than it was
worth. Plaintiffs also allege that Loomis diverted assets and

resources t h a t p r o p e r l y b e l o n g e d t o N E I to h i s o w n p e r s o n a l g a i n

a n d to his c o m p a n y , L o o m i s E n t e r p r i s e s , t h e r e b y c o m m i t t i n g t h e

t o r t of c o n v e r s i o n a n d b r e a c h i n g h i s f i d u c i a r y d u t i e s to NEI.

On J a n u a r y 14, 2010, the p a r t i e s met w i t h M a g i s t r a t e J u d g e
Buchanan in a lengthy settlement conference. The parties agree

that by the c o n c l u s i o n of the s e t t l e m e n t conference, t h e y h a d

r e a c h e d a tentative agreement, at least in principle, as to how
the case w o u l d be resolved. In particular, the p a r t i e s h a d a g r e e d
and

t h a t d e f e n d a n t s w o u l d p a y $ 7 , 0 0 0 , 0 0 0 . 0 0 to s e t t l e t h e case,

that the s e t t l e m e n t a m o u n t was to be p a r t i a l l y f u n d e d w i t h a

$2,000,000.00 wire transaction the following week from an account
o w n e d or c o n t r o l l e d b y Loomis. T h o s e funds w e r e to be h e l d in

e s c r o w p e n d i n g e x e c u t i o n of the w r i t t e n agreement.

Furthermore,

real estate o w n e d or c o n t r o l l e d b y Loomis was i d e n t i f i e d as

potential collateral for the remaining portion of the payment, and

both defendants were to sign a confessed judgment or promissory
note as part of the agreement. Finally, the parties agreed that

the Employment Agreement containing the non-compete restrictions
would be void. All of the agreed-upon terms were reflected in an

unsigned, handwritten "Term Sheet" prepared by the magistrate
j u d g e d u r i n g the s e t t l e m e n t conference.

However, no written settlement agreement was ever signed at the January 14, 2010 mediation. Rather, the parties contemplated

that a final written settlement agreement would be prepared and signed by January 22, 2010. In the week following the conference,
3

plaintiffs p r e p a r e d s e v e r a l d r a f t s e t t l e m e n t a g r e e m e n t s , w h i c h
r e f l e c t e d the p r i m a r y t e r m s a g r e e d to at t h e m e d i a t i o n b u t a l s o

a d d e d several n e w a n d d i f f e r e n t terms.

L o o m i s r e f u s e d to a g r e e to

those terms, a n d p l a i n t i f f s r e f u s e d to w i t h d r a w them. Additionally, o n o r a b o u t J a n u a r y 19, 2010, d e f e n d a n t J e n n i L o o m i s

indicated her refusal to sign a promissory note, as was required by the settlement. Accordingly, no final written agreement was
L o o m i s t h e n f i l e d for

e v e r r e a c h e d o r s i g n e d b e t w e e n the parties.

C h a p t e r 11 b a n k r u p t c y p r o t e c t i o n on J a n u a r y 26, 2010.2
O n J u n e 30, 2 0 1 0 , p l a i n t i f f s f i l e d a M o t i o n t o E n f o r c e t h e

Settlement Agreement.

On A u g u s t 6, 2010, a h e a r i n g was h e l d on

that motion before Magistrate Judge Buchanan, who, on September 17, 2010, issued a Report and Recommendation recommending
e n f o r c e m e n t of the s e t t l e m e n t agreement. O n O c t o b e r 1, 2010,

defendants timely filed their substantive objections to the Report

and Recommendation and requested reconsideration of the matter by
the Court. Defendants argue that there was no meeting of the

m i n d s o n all m a t e r i a l t e r m s of the settlement, a n d that the

tentative agreement reached o n January 14, 2010 is therefore not
legally enforceable.
II. Standard of Review

2 An automatic Order of Stay was entered on January 26,
2010. However, o n M a y 5, 2010, the b a n k r u p t c y c o u r t i s s u e d a n order granting limited relief from that s t a y to a l l o w plaintiffs to p r o c e e d o n t h e i r M o t i o n to E n f o r c e S e t t l e m e n t Agreement.

Fed. R. Civ. P. 72(b)(3) p r o v i d e s f o r de n o v o r e v i e w b y a

district court of a magistrate judge's report and recommendation
o n a d i s p o s i t i v e motion:
T h e d i s t r i c t j u d g e m u s t d e t e r m i n e de n o v o a n y p a r t of the m a g i s t r a t e j u d g e ' s d i s p o s i t i o n t h a t h a s b e e n

p r o p e r l y o b j e c t e d to. The district j u d g e m a y accept, reject, or modify the recommended disposition; receive
further evidence; or return the matter to the

magistrate judge with instructions.

A m o t i o n to e n f o r c e a s e t t l e m e n t a g r e e m e n t is a m o t i o n that would, if granted, f u l l y r e s o l v e the action, a n d it is thus

considered a dispositive motion.

Accordingly, the Court will

r e v i e w the e n f o r c e a b i l i t y of the s e t t l e m e n t a g r e e m e n t de novo.
III. Discussion

A valid settlement must be the product of a mutual agreement

between the parties.

To find a settlement agreement enforceable,

a court must determine that there are sufficient facts to resolve

any disputes over material terms, and must find that all material
a g r e e d - u p o n t e r m s are s u f f i c i e n t l y d e f i n i t e to e n a b l e the c o u r t to g i v e t h e m a n e x a c t meaning. H e n s l e y v. A l c o n Labs.. Inc., 277

F . 3 d 535 (4th Cir. 2002); S i l i c o n I m a g e Inc. v. G e n e s i s Microchip. Inc., 271 F. Supp. 2d 840 (E.D. Va. 2003); M a y e r S m i t h v. Farrell.
1 9 9 Va. 1 2 1 (1957). A s e t t l e m e n t a g r e e m e n t is a m a t t e r of

contract, a n d w i t h o u t a m e e t i n g of the m i n d s as to a l l m a t e r i a l
terms, there can be no enforceable settlement agreement as a
See Grubb & Ellis Co. v. Potomac Medical

matter of contract law.

Building LLC,

2009 U.S.

Dist.

LEXIS 93471

(E.D. Va.

2009).

Accordingly, if a n y m a t e r i a l p o r t i o n s of the p r o p o s e d s e t t l e m e n t terms w e r e not r e s o l v e d by the parties, there is no e n f o r c e a b l e agreement. Id. Moreover, u n d e r V i r g i n i a law, a

settlement that includes a t e r m r e q u i r i n g that it be r e d u c e d to a
s i g n e d w r i t i n g is not e n f o r c e a b l e u n l e s s a n d u n t i l that

contingency is fulfilled.

See Golding v. Floyd, 261 Va. 190

(2001) (holding that a handwritten "Settlement Agreement
Memorandum" agreed to at a mediation was not a binding settlement
agreement where all parties understood that a formal settlement

a g r e e m e n t h a d to be d r a f t e d a n d signed); see a l s o Atl. R e a l t y Co.

V. Robertson's Ex'r. 135 Va. 247, 253-54 (1923) (finding that
where the parties contemplate signing a written agreement later, there is a presumption that "no contract has been entered into,
w h i c h requires s t r o n g e v i d e n c e to overcome.").
I n t h i s case, t h e e v i d e n c e d e m o n s t r a t e s t h a t t h e r e is n o

binding, legally enforceable settlement agreement between the

parties.

Although the parties reached a tentative agreement

during the settlement conference on January 14, 2010, they

explicitly contemplated that they would ultimately be bound only
by a written, signed, fully integrated settlement agreement. That

is why the Term Sheet states that a written settlement agreement
was to be signed on or before January 22, 2010, and that all of
the m a t e r i a l e v e n t s r e l a t e d to the s e t t l e m e n t ( s u c h as the r e l e a s e

of the monetary deposit and the signed confessed judgment note,
the time in which plaintiffs could accept the designated real
6

properties l i s t e d o n the T e r m Sheet, a n d the d i s m i s s a l of the
i n s t a n t l i t i g a t i o n as s e t t l e d ) w e r e e x p r e s s l y t i e d to t h e

e x e c u t i o n of a w r i t t e n a g r e e m e n t .

S e e Def. J o s e p h L o o m i s ' s

Objections to Report and Recommendation at Ex. C (containing the
T e r m Sheet); see a l s o R e p o r t a n d R e c o m m e n d a t i o n re: Mot. to
E n f o r c e S e t t l e m e n t A g r e e m e n t at 4 ( f i n d i n g t h a t t h e e x e c u t i o n of a

signed, written settlement agreement by January 22, 2010 was a

requirement of the proposed deal and was to be a "trigger" for
many important events).

The complexity of the issues involved and the amount of money
at stake in this c a s e o n l y b u t t r e s s the c o n c l u s i o n that the

parties anticipated resolving the matter by means of a signed
agreement setting forth all relevant details. Additionally, at

the evidentiary hearing, Loomis testified that while he agreed to
c e r t a i n t e r m s d u r i n g t h e m e d i a t i o n , he d i d n o t u n d e r s t a n d the

handwritten Term Sheet to be a final, binding settlement. he only intended to be bound by a formal, signed agreement:
As a businessman,

Rather,

I have done multimillion dollar deals

in the past, I w o u l d a l w a y s s i g n - I w o u l d n e v e r consider an a g r e e m e n t or a n y k i n d of settlement,

promissory note, et cetera, nothing until I actually
h a d the o p p o r t u n i t y to see it in a w r i t t e n f o r m w i t h
all four corners, et cetera.

Tr. of H r ' g o n M o t i o n s (Aug. 6, 2010) at 161:3-10; see a l s o id. at

103:19-25 (testimony of defendant's former counsel, Ellis Bennett,
a g r e e i n g that " e v e r y o n e u n d e r s t o o d that . . . the final s e t t l e m e n t
w o u l d be in w r i t i n g . " ) .

However, n o s u c h i n t e g r a t e d a g r e e m e n t w a s e v e r s i g n e d . M o r e o v e r , the r e q u i r e d c o n d i t i o n t h a t t h e d e f e n d a n t s s i g n a confessed judgment note was likewise never fulfilled. Rather, t h e

p a r t i e s r e a c h e d an impasse, a n d the s e t t l e m e n t " b l e w up" b e f o r e
the p a r t i e s c o u l d e v e r a r r i v e at a final, s i g n e d a g r e e m e n t . Tr.

of Hr'g on Motions (Aug. 6, 2010) at 212:10-18 (statement by Magistrate Judge Buchanan). The failure of those contingencies

m e a n s that the s e t t l e m e n t a g r e e m e n t i t s e l f f a i l e d as a m a t t e r of
contract law. See Golding. 261 Va. at 194 ("The execution of a

formal agreement, therefore, was a c o n d i t i o n p r e c e d e n t to the
e x i s t e n c e of a b i n d i n g c o n t r a c t .
executed; as a result,

A formal contract was never

no contract exists.").

Additionally, the plaintiffs' inclusion in their proposed

written settlement agreements of terms not found in the two-page
handwritten Term Sheet further demonstrates that the tentative

s e t t l e m e n t r e a c h e d at the J a n u a r y 14, 2 0 1 0 m e d i a t i o n was

incomplete and that there was no legally enforceable "meeting of
the minds" between the parties. Under Virginia law, where there

is no m e e t i n g of the minds, t h e r e c a n b e n o e n f o r c e a b l e c o n t r a c t .

For example, in M o n t a g n a v. H o l i d a y Inns, Inc.. 221 Va. 336 (1980), the V i r g i n i a S u p r e m e Court h e l d that there was no

enforceable settlement where, after a tentative agreement had been
reached, one of the p a r t i e s a t t e m p t e d to i n s e r t a d d i t i o n a l terms, t h e r e b y p r o m p t i n g the o t h e r p a r t y to r e n o u n c e the settlement.

In this case, as in Montagna. plaintiffs attempted to include
8

additional terms in their draft settlements agreements, which they
d e e m e d "necessary" to the f i n a l agreement, b u t w h i c h w e r e not

actually included in the original Term Sheet.

See Tr. of Hr'g on

M o t i o n s (Aug. 6, 2010) at 84-85:23-8; see a l s o id. at 125-127:1512. The n e w terms i n c l u d e d p r o v i s i o n s c o n c e r n i n g c o n t i n u a t i o n of

certain aspects of the non-compete restrictions in the Employment Agreement (which the Term Sheet described as void),3 a property
certification document demanded by plaintiffs as part of the
settlement, the applicable interest rate, the scope of the "mutual

release," and other relevant provisions in the promissory note.
Id.

Those terms were significant and material to the deal, and as

the magistrate judge properly found, "[i]t is undisputed that the proposed documents contained additional terms that were not agreed
to by the parties at the settlement conference, as well as some
errors." R e p o r t a n d R e c o m m e n d a t i o n re: M o t . to Enforce Settlement

A g r e e m e n t at 20; see a l s o Tr. of H r ' g o n M o t i o n s at 182:10-13 ("I

think we can suffice it to say that there were provisions in both
drafts [of plaintiffs' proposed settlement agreements] that the

3 The Term Sheet merely states "empl. K void," and the
parties have not been able to agree as to what that term meant. Loomis asserts that his understanding was that a l l restrictive covenants in his Employment Agreement w i t h NEI would be terminated. See Tr. of Hr'g on Motions (Aug. 6, 2010) at 114. However, in their draft settlement agreements, plaintiffs

proposed additional terms relating to an intellectual property
restrictive covenant in the Employment Agreement, which

plaintiffs wished to keep in effect.
that a d d i t i o n a l p r o p o s e d term.

Defendants never agreed to

defendant d i d n ' t a g r e e t o [and] t h a t w e r e n o t i n t h e s e t t l e m e n t

terms.").

Moreover,

in a c o n t e m p o r a n e o u s e-mail, plaintiffs'

c o u n s e l s t a t e d that the a d d i t i o n a l t e r m s w e r e "necessary" to

effectuate the agreement between the parties.

See Def. Joseph

L o o m i s ' s O b j e c t i o n s to R e p o r t and R e c o m m e n d a t i o n at Ex. H
( c o n t a i n i n g the s t r i n g of e - m a i l s a d m i t t e d as E x h i b i t 9 at the

h e a r i n g b e f o r e M a g i s t r a t e J u d g e Buchanan).
As the V i r g i n i a S u p r e m e C o u r t h a s h e l d i n Valiar, Inc. v.

M a r i t i m e Terminals. Inc., 220 Va. 1015, 1 0 1 8 - 1 9 (1980), a

"contract cannot exist if the parties n e v e r m u t u a l l y a s s e n t e d to
t e r m s p r o p o s e d b y e i t h e r as e s s e n t i a l to a n a c c o r d . " For that

r e a s o n , o n e p a r t y ' s p r o p o s a l of a d d i t i o n a l t e r m s to a w r i t t e n

a g r e e m e n t p r e c l u d e s a f i n d i n g of a v a l i d c o n t r a c t w h e r e the o t h e r
party never agreed to those terms and where "[t]he differences

were n e v e r resolved to the mutual s a t i s f a c t i o n of the parties."

Id.

Applying those well-established legal principles to the facts

of this case reveals that the additional terms proposed by
plaintiffs, w h i c h p l a i n t i f f s d e e m e d e s s e n t i a l to the deal but

which defendants flatly rejected, rendered any previous inchoate
agreement unenforceable as a matter of law.

U n d e r the c i r c u m s t a n c e s , t h e r e f o r e , t h e r e w a s n o v a l i d

settlement agreement between the parties w h i c h this Court is

legally empowered to enforce.

A trial court has no authority to

make or salvage a deal that the p a r t i e s themselves did not reach.

As the Fourth Circuit has conclusively held:
10

[I]t is clear that the district court only retains the
p o w e r to e n f o r c e c o m p l e t e s e t t l e m e n t agreements; it does not have the power to impose, in the role of a final arbiter, a settlement agreement w h e r e there was n e v e r a m e e t i n g of the parties' minds. . . . W h e r e t h e r e h a s b e e n n o m e e t i n g of the m i n d s s u f f i c i e n t to

form a complete settlement agreement, any partial performance of the settlement agreement must be
rescinded and the case restored to the docket for
trial.

Ozvagcilar v. Davis. 701 F.2d 306, 308 (4th Cir. 1983); see also
W o o d v. Va. Hauling Co., 528 F.2d 423, 426 (4th Cir. 1975)

(holding that "blue penciling" of contracts is not permitted under

Virginia law, that "there is no such thing as [a] 95 percent settlement," and that a trial court's task is therefore simply to discern whether there was a complete deal that it may enforce).
Because the parties in this case did not reach a complete and
enforceable settlement agreement, plaintiffs' Motion to Enforce

Settlement Agreement [Dkt. No. 131] will be denied by an Order to
be issued with this Memorandum Opinion.
Entered this 3 d a y of N o v e m b e r , 2010.

Alexandria, VA

United States District Judge

LeonieM. Brinkema

11