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Guzik Technical Enterprises, Inc. v. Western Digital Corporation

United States District Court, N.D. California, San Jose Division

March 21, 2014

GUZIK TECHNICAL ENTERPRISES, INC., Plaintiff and Counterclaim Defendant,
v.
WESTERN DIGITAL CORPORATION, WESTERN DIGITAL TECHNOLOGIES. INC., and WESTERN DIGITAL (FREMONT), INC., Defendants and Counterclaim Plaintiffs, And WESTERN DIGITAL (THAILAND) COMPANY LIMITED AND WESTERN DIGITAL (MALAYSIA) SDN. BHD., Defendants.

ORDER GRANTING MOTION TO ENFORCE SETTLEMENT AGREEMENT (Re: Docket Nos. 531-4)

PAUL S. GREWAL, Magistrate Judge.

The settlement of any case rarely comes without mixed feelings. It is a time when parties struggle to let go of their deep-seated belief that with trial will come vindication. It is also a time when the plaintiff and defendant wonder if they are about to be snookered, either by giving too much or taking too little. Patent cases are no different. For both the patentee and the accused infringer, the question ultimately is the same, what will I regret more, settling this case- or not settling it?

Sometimes such buyer's remorse causes one party or the other to try to "unsettle" the case, or "resettle" it on different terms. That appears to be the case here. Having made multiple representations to the court that the case was settled, Plaintiff Guzik Technical Enterprises, Inc. now claims that no settlement took place at all. In response, Defendants and Counterclaimants Plaintiffs Western Digital Corporation et al. move to enforce the settlement. As explained below, because the necessary terms were agreed upon without qualification and sufficiently definite, the court GRANTS Western Digital's motion

I. BACKGROUND

GTE sells high-end testers for disk drive heads and media, and for years Western Digital has been one of its largest customers.[1] GTE filed this suit against Western Digital in 2011, alleging patent infringement, breach of contract, and trade secret misappropriation.[2] After over two years of litigation and just a few days before trial, the parties signed an eight-page term sheet entitled "Agreed Terms" so as "to resolve all claims pending, or previously pending, in the lawsuit."[3] In exchange for a dismissal of all GTE claims, Western Digital agreed to an upfront payment of [REDACTED\]. The term sheet also set out scope and pricing of the purchase orders, purchase order placement, provision for termination of the agreement, covenants not to sue, and so forth.[4] The parties anticipated that the term sheet would be incorporated into a complete settlement agreement within 48 hours after its signing.[5]

On November 30, 2013, the parties filed a "Joint Notice of Settlement, " representing that the parties had "reached an agreement in a signed term sheet."[6] The parties continued to "work in good faith to draft within 48 hours a settlement agreement and a purchase order agreement and any other agreement reasonably necessary to effect the terms set out in the term sheet.[7] On December 2, 2013, as trial was set to start, the parties appeared before the court with news that they "reached an agreement with respect to the main terms and are just really hammering out the details at this point."[8] Based on this representation, the court sent the jury home and noted on the docket that the "case has settled."[9] In the following days, negotiations between the parties to further memorialize the settlement deteriorated. Things then fell apart completely. GTE insisted that, instead of the term sheet, all further settlement negotiations revolve around a nine-point list.[10] Western Digital rejected the demand and followed with this motion to enforce settlement.

II. ANALYSIS

There is no question that "[t]he district court [has] inherent power to enforce the agreement in settlement of litigation before it."[11] "Whether a contract is certain enough to be enforced is a question of law. Courts favor enforcing contracts if the parties' intention can be ascertained."[12]

"A settlement agreement is binding on the parties, and a party challenging the validity of a settlement agreement carries a heavy burden."[13] Because the signed term sheet purports "to resolve all claims pending, or previously pending, in the lawsuit, "[14] GTE has the burden to prove that the term sheet is unenforceable.[15]

The construction and enforcement of settlement agreements are governed by principles of local law that apply to the interpretation of contracts, even if the underlying cause of action is federal.[16] Under California law, a signed document is a valid agreement if it contains all material I terms in a reasonably definite manner.[17] If a material term is missing or not sufficiently definite, the agreement is unenforceable. Further, if a missing term is material but merely affects the value of the bargain, the court may still find the settlement agreement enforceable, considering the language of the document, the intent of the parties, whether the parties have delegated choices over material terms, and public policy favoring the enforcement of settlement agreements.[18]

A. The Term Sheet Contains All the Material Terms

Whether any material terms are missing from the contract "depends on the agreement and its context and also on the subsequent conduct of the parties."[19] The court may take into consideration the record of the parties' negotiations, the financial impact on the parties, the relative importance of the term to the parties, and whether the term's absence would make enforcing the remainder of the contract unfair to either party.[20] Furthermore, the Ninth Circuit draws a distinction between the two ways a term may be material:

It may be a necessary term, without which there can be no contract; or, it may be an important term that affects the value of the bargain. Obviously, omission of the former would render the contract a nullity. But a contract that omits terms of the latter type is enforceable under California law, so long as the terms it does include are sufficiently definite for a court to determine whether a breach has occurred, order specific performance or award damages. This is not a very demanding test.[21] Like the settlement agreement in Face book, the term sheet easily passes this test: both sides agreed that Western Digital would get a variety of testers and services, GTE would get a total of [REDACTED\], and everyone would return to a productive commercial relationship rather than this destructive litigation.

Also as in Facebook, the term sheet here even specifies that the parties would complete the "material" terms that GTE claims are missing from the deal: "The parties will work in good faith to draft within 48 hours a settlement agreement and a purchase order agreement and any other agreement reasonably necessary to effect the above terms." This clause confirms that GTE and Western Digital meant to bind ...


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