Spitzer v. Aljoe

          ORDER RE: MOTION TO RESCIND AND MOTION TO ENFORCE SETTLEMENT AGREEMENT Re: Dkt. Nos. 183, 187

          MARIA-ELENA JAMES UNITED STATES MAGISTRATE JUDGE

         INTRODUCTION

         Plaintiffs Thomas "Leroy" Spitzer and Craig J. Spitzer ("Plaintiffs") filed this 42 U.S.C. § 1983 action against a number of Defendants, including the City of Pleasanton (the "City"), Trisha A. Aljoe, Jonathan P. Lowell, George Thomas, Walter Wickboldt, Sergeant Robert Leong, and Officer Ryan Tujague ("City Defendants"). On September 1, 2015, Plaintiffs and the City Defendants filed a "Stipulation For Application For Good Faith Settlement" in which they notified the Court they had reach a settlement through private mediation. Stipulation for Appl. for Good Faith Settlement ("Stip."), Dkt. No. 136; see also id, Ex. A ("Settl. Terms"). The Court granted the Application for Good Faith Settlement on November 6, 2015. Dkt. No. 152. In doing so, the Court ordered the parties to file a stipulation for dismissal of the City Defendants by December 4, 2015 or file a status report as to why they had not been dismissed. Id. The parties timely filed a stipulation dismissing Defendants George Thomas, Walter Wickboldt, Ryan Tujague, and Robert Leong. Dkt. No. 157. However, they filed a status report explaining that "[a] stipulation to dismiss Aljoe, Lowell, and the City of Pleasanton [was not] filed because Plaintiffs and Defendants disagree as to the dismissal.]" Dkt. No. 158.

         This Order now considers the parties' disagreements over the settlement. The Court has ordered Plaintiffs and the City, Aljoe, and Lowell (referred to as "Defendants" for purposes of this Order) to attempt to resolve their disputes informally, and they have filed several status reports on this issue. See Dkt. Nos. 172, 173, 178. Ultimately, however, they have been unable to resolve this matter and now have filed cross motions to enforce and rescind the settlement agreement. See Pls.' Mot., Dkt. Nos. 187-88^[1]; Defs.' Mot., Dkt. No. 183. Having considered the parties' motions, the record in this matter, and the relevant legal authority, the Court GRANTS Defendants' Motion to Enforce and DENIES Plaintiff's Motion to Rescind as set forth below.

         BACKGROUND

         Plaintiffs brought this action for violations of their constitutional rights related to, among other things, the abatement of their residence located at 4719 Orangewood Court in Pleasanton, California (the "Property"). Third Am. Compl. ("TAC") ¶ 5, Dkt. No. 98. As part of the abatement, the City began a state-court abatement action, and the Alameda County Superior Court appointed J. Benjamin McGrew as receiver of the Property. Id. ¶ 117. McGrew initially allowed Plaintiffs to enter the Property, remove their personal property, and make necessary repairs, but he later barred them from entering and instead contracted with a company to remove their remaining personal property. Id. ¶¶ 119, 123-24. McGrew also recorded a deed of trust granting title to the Property to lenders as security for a loan. Id. ¶¶ 131(d), 138-39. Plaintiffs allege McGrew took these actions without the Superior Court's approval. Id. ¶ 131. Among other things, Plaintiffs allege they lost the use of their house and possession of personal property due to the Property's abatement as well as subsequent threats of arrest upon entry of the Property by certain of the City Defendants. Id. ¶¶ 37, 48-61, 70-77.

         Plaintiffs bring claims against under 42 U.S.C. § 1983.^[2] Originally, they named only the City, Aljoe, Lowell, Thomas, and Wickboldt as Defendants. Dkt. No. 1. They later added McGrew as a Defendant in their First Amended Complaint (Dkt. No. 9), and subsequently filed a Second Amended Complaint on April 20, 2014 (Dkt. No. 27). The Court dismissed McGrew for lack of subject matter jurisdiction on June 30, 2014. Dkt. No. 44 at 6-7. Plaintiffs later filed a Motion for Leave to File a Proposed Third Amended Complaint, in which they sought to (1) name as defendants Police Officer Ryan Tujague and Sergeant Robert Leong of the City, and (2) reassert claims against McGrew. Dkt. No. 72. The Court allowed Plaintiffs to amend and name Officer Tujague and Sergeant Leong, but denied leave to add claims against McGrew. Dkt. No. 96. Plaintiffs filed the operative TAC on April 13, 2015. Dkt. No. 98.

         The City Defendants and Plaintiffs engaged in private mediation with mediator Simon Frankel and settled the case on August 7, 2015. See Stip.; Certification of Mediation, Dkt. No. 149. Under the terms of the settlement, the City Defendants agree to (1) pay Plaintiffs $50, 000; (2) sign a stipulation for McGrew's removal as receiver in the state-court abatement action, request the appointment of a qualified receiver, and consider Plaintiffs' proposed receiver; (3) submit an attorneys' fee recovery request in the state court abatement action for hours worked at no greater than $150 per hour; (4) look for any non-privileged communications regarding McGrew and to either provide Plaintiffs' counsel with additional documents or inform him that no such documents exist; and (5) prepare and submit a Release for Plaintiffs' notarized signature and to issue the settlement check within 14 days of receipt of the notarized release. See Settl. Terms. Specifically Term No. 2 provides that:

Defendants will sign a stipulation prepared by Plaintiffs and acceptable to Defendants for McGrew's removal as receiver in the state-court abatement action, and request the state court appoint a qualified receiver. Defendants will consider Plaintiffs' proposed receiver (Edwin Heath). If Defendants consider him materially unqualified, they will notify the Court. If the Court asks the parties for potential receivers, Defendants will submit named for reconsideration. The parties will leave it to the Court's discretion to appoint the new receiver[.]

Id. Term No. 4 provides that:

Defendants will look again for any non-privileged communications regarding Receiver McGrew. Upon conclusions of Defendants' review, they will contact Plaintiffs' counsel and either: (1) provide him additional documents; or (2) inform him no such documents exist. Plaintiffs preserve the right to make a Public Records Act Request under California law upon dismissal of the settling defendants herein[.]

Id.

         On September 1, 2015, the City Defendants filed an Application seeking the Court's determination of a good faith settlement, and Plaintiffs stipulated that the settlement is a good faith settlement for purposes of California Code of Civil Procedure sections 877 and 877.6. Stip. ¶ 1. The Court found the settlement was made in good faith for purposes of California Code of Civil Procedure sections 877 and 877.6. Dkt. No. 152.

         A series of unfortunate events have led to the parties' current dispute. The essential facts are as follows. The parties' settlement agreement put the onus on Plaintiffs to "prepare[]" a stipulation for McGrew's removal, which Defendants would then sign and "request the state court appoint a qualified receiver." Settl. Term No. 2. After the settlement agreement was formed-but before preparing the stipulation to remove McGrew-Plaintiffs filed a motion with the state court to terminate the receivership in its entirety or alternatively, to remove McGrew and replace him. Defs.' Req. for Judicial Notice ("RJN"), Ex. A (Pls.' Mot. to Terminate Receivership), Dkt. No. 185.^[3] In the motion, Plaintiffs informed the state court that "[a]ll of the City of Pleasanton defendants in the federal case have stipulated to remove McGrew as receiver" and further proposed Edwin Heath as the new receiver. Id., Ex. A at 3. Defendants reacted to Plaintiffs' filing, opposing termination of the receivership. Id., Ex. B; Schwartz Decl., Ex. 4 (Defs.' Opp'n to Pls.' Mot. to Terminate Receivership), Dkt. No. 189. They also stressed that they had not stipulated to appointing Heath. Id. (both) at 2. Additionally, while indicating they had agreed to a stipulation to have McGrew replaced, they informed the Court that Plaintiffs had "failed to prepare and present such stipulation for the City's signature" at that point-a true statement by all accounts. Id. (both) at 8. But there is no indication Defendants provided the state court with the language from the parties' settlement agreement, and Defendants' opposition indicated they had only agreed "not to object" to McGrew's removal. Id. (both) at 8, 10. Defendants also proceeded to propose another receiver, who it appears Plaintiffs did not know about in advance, and there is no indication the state court asked Defendants for proposed alternative receivers at that point. Id. (both) at 10. With their opposition, Defendants also submitted a proposed Order, in which they specifically proposed McGrew be terminated "good cause appearing" and that their proposed receiver, Mark S. Adams, be appointed. Id. (both) (see attachment, Proposed Order).

         A week after Defendants filed their opposition, Plaintiffs prepared a stipulation, which was a modified version of Settlement Term No. 2. Schwartz Decl., Ex. 3 (proposed stipulation and email exchange). Defendants informed Plaintiffs they were reviewing the language and would exchange "any proposed revisions." Id., Ex. 3. In the meantime, the state court held a hearing on the matter in which Defendant Aljoe told the court the parties "have no stipulation" and that Plaintiffs "waited to the eleventh hour and now we're where they are trying to force us to sign something that's not acceptible [sic]." Id., Ex. 5 at 21:2-19. When Plaintiffs' counsel apparently attempted to tell the state court that their proposed stipulation was similar to the settlement term itself, the court stated "I don't really care. The point is you don't have an agreed upon stipulation right now." Id., Ex. 5 at 21:22-24. Elsewhere, however, the court acknowledged that "[t]here's clearly a settlement here. [¶] And pursuant to that settlement, they are required to sign a stipulation to remove Mr. McGrew as the State Court, you know, appointed Receiver." Id., Ex. 5 at 26:5-8. Aljoe then stated "I explained to our Counsel and to the City Attorney, I don't believe that a stipulation in a Federal Court is controlling on this court. And that Receiver belongs to you. [¶] We can't tell you whether you should replace that Receiver or not." Id., Ex. 5 at 26:18-23. Before concluding the hearing, the court asked "[i]s there any reason that I shouldn't continue this for a short period of time so that the stipulation between the parties can actually get finalized and I can actually consider it?" Second Schwartz Decl., Ex. 1 at 35:8-13, Dkt. No. 201. Aljoe responded, "Your Honor, I wouldn't have any problem right now saying that we stipulate that we agreed to have Mr. McGrew removed, and I still have the same position. [¶] It has no legal authority with this court because the Receiver belongs to this court." Id., Ex. 1 at 35:14-19. Although Plaintiffs requested a continuance so they could get the stipulation "in place, " it appears the court rejected that request, immediately stating afterward that the matter was submitted. Id., Ex. 1 at 36:3-6.

         The state court did not grant either Plaintiffs' motion or Defendants' proposed order; McGrew remains the receiver. RJN, Ex. D (Order denying McGrew's removal and acknowledging "[t]he City did agree to sign a stipulation to remove McGrew as receiver and to replace him with another qualified receiver" but further noting "[t]he agreement between the parties . . . to enter into this stipulation is in no way binding on this Court").

         Defendants now seek their freedom from this case, urging the Court to enforce the settlement agreement because (1) "the parties entered into a valid, enforceable contract, " and (2) "Defendants have fulfilled all material terms of the contract[.]" Defs.' Mot. at i. Plaintiffs, for their part, do not seek to enforce the settlement agreement. Rather, they seek rescission of the agreement in part and the ability to continue to pursue their claims against Defendants in this Court.

         LEGAL STANDARDS

         "It is well settled that a district court has the equitable power to enforce summarily an agreement to settle a case pending before it." Callie v. Near, 829 F.2d 888, 890 (9th Cir. 1987) (citations omitted); TNT Mktg., Inc. v. Agresti, 796 F.2d 276, 278 (9th Cir. 1986) (district court has "inherent power" to enforce agreement in settlement of litigation before it). "California law also provides for summary enforcement of settlement agreements." Aki v. Univ. of Cal. Lawrence Berkeley Nat’l Lab., 2015 WL 1778481, at *3 (N.D. Cal. Apr. 17, 2015) (citing Cal. Civ. Proc. Code § 664.6; additional citation and internal quotation marks omitted).

         For the Court to enforce a settlement agreement, two requirements must be met. First, the settlement must constitute a "complete" agreement. Maynard v. City of San Jose, 37 F.3d 1396, 1401 (9th Cir. 1994) (quoting Callie, 829 F.2d at 890). Second, both parties must have agreed to the terms of the settlement or authorized their respective counsel to settle. Harrop v. W. Airlines, Inc., 550 F.2d 1143, 1144-45 (9th Cir. 1977).

         A settlement agreement is a contract, and thus its enforceability is governed state law. Jeff D. v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989) (further noting "[e]ach party agrees to ‗extinguish those legal rights it sought to enforce through litigation in exchange for those rights secured by the contract.'" (quotation omitted)); see, e.g., Kirkland v. Legion Ins. Co., 343 F.3d 1135, 1140 (9th Cir. 2003) (applying state law to action to enforce settlement agreement). This is true even if the underlying claims are federal. United Commercial Ins. Serv., Inc. v. Paymaster Corp., 962 F.2d 853, 856 (9th Cir. 1992); see also Cal. Civ. Code § 1646 ("contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.").

         Under California law, contract formation requires (1) parties capable of contracting; (2) the parties' consent; (3) a lawful object; and, (4) sufficient cause or consideration. Lopez v. Charles Schwab & Co., 118 Cal.App.4th 1224, 1230 (2004). "Mutual assent usually is manifested by an offer communicated to the offeree and an acceptance communicated to the offeror." Id. (generally citing Cal. Civ. Code §§ 1550, 1565). Under California law, the intent of the parties determines the meaning of the contract. Cal. Civ. Code §§ 1636, 1638. The existence of mutual consent is determined by objective criteria; "[t]he parties' outward manifestations must show that the parties all agreed ‗upon the same thing in the same sense.'" Weddington Prods., Inc. v. Flick, 60 Cal.App.4th 793, 811 (1998) (quoting Cal. Civ. Code § 1580); Paymaster Corp., 962 F.2d at 856 ("The relevant intent is ‗objective'-that is, the intent manifested in the agreement and by surrounding conduct-rather than the subjective beliefs of the parties. . . . For this reason, the true intent of a party is irrelevant if it is unexpressed." (citations omitted)).

         With respect to interpreting the terms of a contract, the primary goal of contract interpretation is to give effect to the mutual intention of the parties. See Bank of the W. v. Superior Ct., 2 Cal.4th 1254, 1264 (1992). The parties' mutual intent is determined by examining a number of factors, including: (1) the words used in the written agreement; (2) the surrounding circumstances under which the parties negotiated or entered into the contract; and, (3) the subsequent conduct of the parties. See Morey v. Vannucci, 64 Cal.App.4th 904, 912 (1998). In California, the words of a contract, as understood in their ordinary and popular sense, govern the contract's interpretation if the language is clear. See Cal. Civ. Code §§ 1638, 1641. While the Court must interpret a contract so as to give effect to the mutual intention of the parties, "the intention of the parties is to be ascertained from the writing alone, if possible[.]" Id. § 1639; see also Titan Grp., Inc. v. Sonoma Valley Cty. Sanitation Dist., 164 Cal.App.3d 1122, 1127 (1985) ("It is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation."). "The parties' undisclosed intent or understanding is irrelevant to contract interpretation." Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., 109 Cal.App.4th 944, 956 (2003) (citation omitted).

         "Normally if a party enters into a settlement agreement knowingly and voluntarily, the agreement is treated as a binding contract and the party is precluded from raising the underlying claims." Arnold v. United States, 816 F.2d 1306, 1309 (9th Cir. 1987) (citation omitted); Folsom v. Butte Cty. Assn. of Gov’ts, 32 Cal.3d 668, 677 (1982) ("Compromise has long been favored. . . . [A] valid compromise agreement has many attributes of a judgment, and in the absence of a showing of fraud or undue influence is decisive of the rights of the parties thereto and operates as a bar to the reopening of the original controversy." (quotations omitted)). "However, if one party breaches a settlement, the other has the option of enforcing the terms of the settlement or rescinding the settlement and suing on the original claims." Arnold, 816 F.2d at 1309 (citation omitted) (noting "for example, that the government could reinstate its case against a defendant if the defendant breached a settlement agreement." (citations omitted)).

         California Civil Code section 1689 provides in pertinent part that a contract may be rescinded where (1) consent was "given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds . . . ."; (2) consideration fails through the fault of the party as to whom he rescinds; (3) consideration "becomes entirely void from any cause"; or (4) consideration, before it is rendered to the rescinding party, "fails in a material respect from any cause"; (5) "the contract is unlawful for causes which do not appear in its terms or conditions, and the parties are not equally at fault"; and (6) "the public interest will be prejudiced by permitting the contract to stand." Cal. Civ. Code § 1689(b).

         MOTION TO RESCIND

         Plaintiffs argue the settlement agreement should be rescinded because: (1) "City Defendants materially violated Settlement Term No. 2, and did so in bad faith, resulting in Plaintiffs not receiving the vital consideration of removal of McGrew[;]" (2) Plaintiffs were "prejudiced during settlement negotiations" because (i) "City Defendants[] failed to produce documents material to settlement before the Settlement Agreement was reached"; (ii) Plaintiffs were "ignorant of newly discovered facts material to settlement"; and (iii) McGrew and City Defendants were "fraudulent[ly] silen[t] on facts material to settlement[;]" (3) "Plaintiffs agreed to the settlement terms under the duress of circumstances[;]" and (4) "The public interest will be damaged by permitting the agreement to stand." Pls.' Mot. at 2. Meanwhile, in opposing Defendants' Motion to Enforce, Plaintiffs also claim, among other things, that the agreement as to Term No. 2 is void, involving an agreement to agree in the future.^[4] Pls.' Opp'n at 6-7, Dkt. No. 200. The Court addresses these arguments below.

         A. ...