The Defendants in last week’s decision in DeCristoforo v. Givens, 2015 NCBC 53 were hellbent on getting out from under a settlement they had agreed to at mediation. They offered a host of challenges to the validity of their agreement, but Judge Gale rejected all of their arguments.
The Parties And The Mediated Settlement
Plaintiff Vivian DeCristoforo was a member of Lindy’s Homemade, LLC and was its former president and CEO. She and her husband, also an officer of the LLC, sued the LLC, individually and derivatively. They made claims for a breach of their employment agreements, Wage and Hour violations, tortious interference with their contracts, and violations of fiduciary duty by the individual defendants (who were officers and directors of the LLC).
The parties engaged in mediation in September 2014. The Plaintiffs said that all parties had settled the case then, although the Defendants challenged that. The enforceability of the settlement was the issue before the Business Court.
The settlement was reflected by the Mediation Report form cover sheet signed by all of the parties attending the mediation, and two of the attorneys, stating "that a full and final agreement of all issues was reached." The terms of the settlement were described on an attached "Exhibit A." Some of the attending parties put their initials on Exhibit A, but one of the individual defendants (Kaye) left the mediation before Exhibit A was finalized and he did not put his initials on it.
That One Of The Defendants Had Left The Mediation Before The Settlement Was Finalized Was Not A Barrier To Its Enforcement
His departure did not affect the enforceability of this settlement. Judge Gale said:
[t}he Court is not persuaded by Defendants’ contention that the settlement can be avoided because Kaye left the mediation before initialing the final Exhibit A. Kaye left, knowing that the reduction or the terms to paper on Exhibit A was in progress. His counsel was still present. There is no indication that he instructed that his signature, reflecting a ‘full and final agreement of all issues,’ must be withheld until he further assented to Exhibit A. Under these circumstances, Kaye and Lindy’s should be bound to the settlement.
We have all had our clients leave a mediation before all the final details of a settlement have been hammered out. Planes to catch, traffic to avoid. Maybe sheer boredom. Still, it is probably not a good idea to have them leave before all t’s and i’s have been crossed and dotted.
The Individuals’ Signatures — Which Had No Mention Of Their Authority To Bind The Entities — Were Sufficient To Bind The LLC And Its Corporate Member
The next question that Judge Gale grappled with was whether the settlement agreement had all of the signatures necessary to bind the parties. The LLC and its corporate member (Pittco) argued that the signatures of the attendees at the mediation were not sufficient to bind them. The individuals signing the Mediation Report form did not distinguish whether they were signing in their personal capacities or as representatives of the LLC or its corporate member.
That is contrary to the "nearly universal practice" when transactional documents are involved, which is that "the corporate officer signs twice, once as an officer and again as an individual." Op. ¶50 (quoting Keels v. Turner, 45 N.C. App. 213, 218, 262 S.E.2d 845, 847 (1980).
Is that the "universal practice" in mediations? Judge Gale said it was not, writing that:
[o]ften, the time pressures of preparing documents at the end of a long and contentious mediation session require drafting a binding document that does not allow for the same formalities as a transaction completed after multiple document exchanges. That does not mean, however, that a settlement that the attendees represent to be a full and final resolution of all issues should be easily avoided because of the form of signatures.
So, the Judge concluded that the signatures of the individuals, bearing no reference to their corporate authority, bound both the individual and the corporations they were representing at the mediation. Op. ¶50.
The entities which were Defendants in the DeCristoforo case (the LLC and its corporate member) were hard pressed to argue that the individuals did not have the necessary authority to bind them at the mediation. Two of the individuals were the members of the LLC’s "Special Matters Committee," which had been granted generally the "plenary power" to resolve DeCristoforo’s claims and specifically to "execute. . . for and on behalf of [Lindy’s] any and all notices, certificates, agreements . . . and other documents or instruments." One of the Special Matters Committee members also sat on the LLC’s Board of Directors, and was Pittco’s designee to the LLC Board.
The Lack Of An Agreed Upon Release Did Not Invalidate The Settlement
The Defendants’ efforts to evade their settlement did not end here. They said that the agreement became unenforceable when they were unable to agree on the terms of release following the mediation. Exhibit A said that there would be "a further statement of. . . complete mutual release."
The Defendants added terms to the post-mediation release which called for the release of federal claims which were not a part of the Business Court lawsuit and also included terms requiring the Plaintiffs to return corporate documents in their possession, also not mentioned in the terms resulting from the mediated settlement.
Judge Gale found that the language of the Mediation Report was sufficient to release all of the pending claims in the lawsuit and that the voluntary dismissal with prejudice called for by Exhibit A would have the same effect as a release. Op. ¶57.
Conflict With LLC Operating Agreement
The last substantive challenge which the Defendants lodged to the settlement (at least the last one that I am willing to write about) lay in their obligation to repurchase Mrs. DeCristoforo’s membership interest in Lindy’s. Exhibit A to the mediation called for all of the Defendants to pay $1.6 million over three years to buy her interest.
The LLC argued that such a sale was in violation of its Operating Agreement, which limited the conditions under which a membership interest could be sold, and furthermore said that it was prohibited from giving effect to any transfer which wasn’t in compliance with those conditions.
Judge Gale construed the settlement to contemplate a purchase of the Plaintiff’s interest by the LLC itself, which was a permitted transfer under the Operating Agreement. By that decision, the Judge avoided the question whether the individual Defendants had effectively amended the Operating Agreement by agreeing to the sale. Given that the individual defendants had 95.03% of the voting shares of the LLC, it seems that would have been an equally viable route to the same conclusion.