Title: Ingenuity International, LLC, et al. v. Smith

State: alabama

Issuer: Alabama Supreme Court

Document:

REL: June 16, 2023 
 
 
 
 
 
 
 
 
 
Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter.  
Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue, 
Montgomery, Alabama 36104-3741 ((334) 229-0650), of any typographical or other errors, in order that corrections 
may be made before the opinion is printed in Southern Reporter. 
 
 
 
SUPREME COURT OF ALABAMA 
 
OCTOBER TERM, 2022-2023 
____________________ 
 
SC-2022-0501 
____________________ 
 
Ingenuity International, LLC; Robert Przybysz; Global Asset 
Management-Holdings, LLC; and David G. Byker 
 
v. 
 
Nannette Smith 
 
Appeal from Jefferson Circuit Court 
(CV-14-163) 
 
____________________ 
 
SC-2022-0502 
____________________ 
 
Ingenuity International, LLC; Robert Przybysz; Global Asset 
Management-Holdings, LLC; and David G. Byker 
 
 
 
SC-2022-0501; SC-2022-0502 
 
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v. 
 
Nannette Smith 
 
Appeal from Jefferson Circuit Court 
(CV-14-369) 
 
PARKER, Chief Justice. 
 
The Jefferson Circuit Court summarily enforced a settlement 
agreement by ordering the defendants to either (1) pay money directly to 
the plaintiff or (2) pay money to the clerk of court pending adjudication 
of the plaintiff's claims alleging breach of the settlement agreement. 
Because the circuit court essentially entered a summary judgment on the 
breach-of-settlement-agreement claim and issued an injunction order sua 
sponte and with no notice to the parties, the court deprived the 
defendants of their due-process right to an opportunity to respond. 
Accordingly, we reverse. 
I. Facts 
 
Nannette Smith, the 20% owner of B2K Systems, LLC ("B2K"), 
sued B2K, asserting numerous claims related to the sale of certain 
intellectual property in software developed by Smith. In the same action, 
Smith 
sued 
B2K's 
80% 
owner, 
Ingenuity International, LLC 
 
 
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("Ingenuity"); Robert Przybysz, the owner of Ingenuity; B2K's secured 
creditor, Global Asset Management-Holdings, LLC ("GAM"); and David 
G. Byker, GAM's owner (collectively "the defendants"). The action was 
later consolidated with an action by GAM to domesticate a Michigan 
judgment against B2K.  
The parties eventually settled, and their attorneys read the 
settlement agreement into the record at a hearing on November 15, 2016. 
Thereafter, Smith amended her complaint, asserting an additional claim 
based on an alleged breach of the settlement agreement by the 
defendants. She also asserted claims of fraud and conspiracy. Smith 
amended her complaint several times thereafter, and she added claims 
of malicious prosecution/abuse of process and unjust enrichment.  
The defendants moved for leave to deposit $20,956.28 with the 
circuit clerk under Rule 67, Ala. R. Civ. P., pending adjudication of 
Smith's claim that she was entitled to 20% of the revenue from the sale 
of the software. Thereafter, the court entered the following order in the 
consolidated actions: 
 
"1. Defendants … are ORDERED and DIRECTED to 
pay $20,956.28 directly to ... counsel of record for ... [Smith], 
 
 
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or to pay the entire $84,650.00 received as royalties from the 
... software to the Clerk of Court to be held pending further 
orders of the Court. 
 
 
"…. 
 
 
"4. … [Smith] is entitled to $20,956.28 under the terms 
of the settlement … on November 15, 2016 .... 
 
 
"5. If the Defendants wish to contest the Court's 
understanding of the terms of the settlement agreement as it 
impacts the $20,956.28 referenced above, they may do so at 
the trial of the remaining matters in these consolidated 
cases." 
 
The court scheduled a jury trial on Smith's remaining claims. The 
defendants moved to alter, amend, or vacate the order, but it does not 
appear that the court ruled on that motion. The defendants appeal the 
court's order, under Rule 4(a)(1)(A), Ala. R. App. P. (injunctions).  
II. Analysis 
A. Jurisdiction 
 
Rule 4(a)(1)(A), Ala. R. App. P., provides an appeal of right from 
"any interlocutory order granting … an injunction." The circuit court's 
order was interlocutory because it did not resolve all of Smith's claims 
against the defendants.  
 
 
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Smith and the defendants agree that the order granted an 
injunction, but they dispute whether the injunction was preliminary or 
permanent. On the one hand, the defendants contend that the order 
granted a preliminary injunction because the court entered it before 
adjudicating Smith's claims. They point out that the order itself provided 
that the defendants could litigate at trial the merits of Smith's claims 
under the settlement agreement. Smith, on the other hand, contends that 
the order granted a permanent injunction because it enforced a 
settlement agreement. Both Smith and the defendants are correct 
because the order contains both a preliminary and a permanent 
injunction. 
A permanent injunction is "[a]n injunction granted after a final 
hearing on the merits," Black's Law Dictionary 938 (11th ed. 2019); see 
City of Gadsden v. Boman, 143 So. 3d 695, 703 (Ala. 2013) (adopting 
Black's Law Dictionary's definitions of permanent and preliminary 
injunctions); Howell, Tilley's Alabama Equity § 3:1(d) (5th ed. 2012) ("The 
court issues a permanent or perpetual injunction after full hearing and 
decision of the merits of the matter and enjoins the respondent absolutely 
 
 
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according to the matter which is specified."). By contrast, a preliminary 
injunction is "[a] temporary injunction issued before or during trial to 
prevent an irreparable injury from occurring before the court has a 
chance to decide the case." Black's Law Dictionary 938. Preliminary 
injunctions are designed "to preserve the status quo in aid of the ultimate 
equitable relief claimed." Tilley's Alabama Equity § 3:1(b). In addition, 
injunctions are generally enforceable by contempt. See generally id. § 3:9. 
In the order, the circuit court gave the defendants two options. 
First, the defendants could pay the $20,956.28 directly to Smith ("option 
1"). Because option 1 gave Smith the ultimate relief that she sought on 
her breach-of-contract claim and appears to have been enforceable by 
contempt had the defendants chosen not to comply (other than by 
choosing option 2), option 1 was a permanent injunction. See Boman, 143 
So. 3d at 703. 
Alternatively, the defendants could contest the court's ruling on the 
merits at the scheduled trial, but in order to do so, they would have to 
first deposit the entire $84,650 in software royalties with the circuit clerk 
("option 2"). Because option 2 was designed to maintain the status quo 
 
 
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pending final determination of the merits of Smith's claims, that aspect 
of the order was a preliminary injunction. See id. 
Accordingly, both options in the court's order are appealable under 
Rule 4(a)(1)(A). 
B. Merits 
1. Option 1 
 
In reviewing option 1, we apply the standard of review that applies 
to a permanent injunction enforcing a settlement agreement, which is de 
novo. Kappa Sigma Fraternity v. Price-Williams, 40 So. 3d 683, 692 (Ala. 
2009). In addition, option 1 was based on the circuit court's partial 
summary judgment, which we also review de novo. Ex parte Teal, 336 So. 
3d 165, 168 (Ala. 2021). 
 
As the defendants note, the relief ordered in option 1 was outside 
the scope of Rule 67, Ala. R. Civ. P., because that rule provides only for 
depositing of disputed property with the circuit clerk; it does not provide 
for delivery of disputed property to another party. Further, under Rule 
67, a party "may" deposit disputed property "by leave of court." 
(Emphasis added.) Rule 67's permissive language makes clear that 
 
 
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depositing property is voluntary, not compulsory. Thus, the trial court's 
role is limited to granting or withholding leave; Rule 67 does not give it 
authority to order such a deposit. Accordingly, in ordering option 1, the 
circuit court acted beyond the scope of Rule 67. 
Instead, it appears that the circuit court acted under its general 
authority to enforce settlement agreements. See Kappa Sigma, 40 So. 3d 
at 696 (Murdock, J., concurring in rationale in part and concurring in 
result) ("[A] trial court exercises inherent power to [enforce a settlement 
agreement] based on the fact that the agreement has been made before 
the court."). Normally, when a party to a settlement agreement alleges, 
before the underlying claim has been dismissed, that the settlement 
agreement has been violated, that party seeks relief by moving to enforce 
the settlement agreement instead of asserting a new claim of breach of 
contract. See Lem Harris Rainwater Family Trust v. Rainwater, [Ms. 
1210106, Sept. 30, 2022] ___ So. 3d ___, ___ (Ala. 2022) ("[W]hen a 
settlement agreement … is entered into mid-litigation and the 
underlying action is not dismissed, the mechanism for seeking relief 
based on a breach of that agreement is a motion to enforce the 
 
 
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agreement."). That motion essentially functions as an amendment to the 
complaint, asserting a breach-of-contract claim against the allegedly 
breaching party. See Billy Barnes Enters., Inc. v. Williams, 982 So. 2d 
494, 498 (Ala. 2007) (explaining that a motion to enforce a settlement 
agreement is an alternative to filing a new action alleging breach of the 
settlement agreement). In addition, a motion to enforce functions as a 
summary-judgment motion because the trial court may summarily 
dispose of it by entering a judgment in favor of the moving party, see 
Mays v. Julian LeCraw & Co., 807 So. 2d 551, 554 (Ala. Civ. App. 2001) 
("A settlement agreement ... will be summarily enforced."); Sagamore Ins. 
Co. v. Sudduth, 45 So. 3d 1286, 1289 (Ala. Civ. App. 2010) (same).1 
 
1That authority of a trial court does not permit it to enforce a 
settlement agreement in a perfunctory manner when there is a disputed 
issue of fact. See Hensley v. Alcon Lab'ys, Inc., 277 F.3d 535, 541 (4th 
Cir. 2002) ("If there is a factual dispute … the [trial] court may not 
enforce a settlement agreement summarily."). Instead, the trial court 
must hold an evidentiary hearing on that factual issue. As this Court 
recently explained: 
 
"[T]he principles that apply to breach-of-contract claims also 
ordinarily apply to a motion to enforce a settlement 
agreement. When a party raises a defense to a breach-of-
contract claim and the defense involves an issue of fact, 
 
 
 
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Ordinarily, then, when a party moves to enforce a settlement agreement, 
the party simultaneously amends the complaint and moves for a 
summary judgment on the new claim. 
But Smith did not avail herself of that mechanism. Instead, she 
simply amended her complaint to add a breach-of-contract claim based 
on the defendants' alleged breach of the settlement agreement. When the 
circuit court then ordered the defendants to pay Smith the relief that she 
sought ($20,956.28) in the name of enforcing the settlement agreement, 
the court essentially entered a summary judgment in her favor on that 
claim. And the court did so sua sponte, without giving the defendants 
notice and an opportunity to be heard.  
 
normally a trial must be held on the defense. Accordingly, 
when the same situation arises on a motion to enforce a 
settlement agreement, an evidentiary hearing must be held. 
That is, when a party raises a fact-based defense to 
enforcement of a settlement agreement, that defense must be 
resolved in the same way other issues of fact are resolved -- 
by conducting a hearing at which evidence is received and any 
witnesses are subject to cross-examination." 
 
Lem Harris Rainwater Family Trust v. Rainwater, [Ms. 1210106, Sept. 
30, 2022] ___ So. 3d ___, ___ (Ala. 2022) (citations omitted). 
 
 
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As the defendants note, this Court has held that a trial court should 
not sua sponte enter a summary judgment for a party who has not moved 
for such a judgment without affording the other party an opportunity to 
respond, Giles v. Brookwood Health Servs., Inc., 5 So. 3d 533, 555 (Ala. 
2008). This Court reasoned that "'"[o]ne purpose of the procedural rights 
to notice and hearing under Rule 56(c) ... is to allow the nonmoving party 
the opportunity to discover and to present evidence opposing the motion 
for summary judgment."'" Id. (emphasis and citations omitted). 
Accordingly, entering a summary judgment without a motion from the 
benefiting party, and without providing the other party notice and an 
opportunity to respond, violates the due-process rights of that other 
party. See Moore v. Prudential Residential Servs. Ltd. P'ship, 849 So. 2d 
914, 927 (Ala. 2002) ("[T]he trial court violates the rights of the 
nonmoving party if it enters a summary judgment on its own, without 
any motion having been filed by a party."); Cofield v. City of Huntsville, 
527 So. 2d 1259, 1260 (Ala. 1988) (noting that the requirement of notice 
before entry of summary judgment is based on due-process 
considerations). Here, by ordering option 1 without providing the 
 
 
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defendants notice and an opportunity to respond, the circuit court 
deprived them of due process.  
 
Smith contends that the circuit court had authority to enforce the 
settlement agreement under § 34-3-21, Ala. Code 1975, which provides 
that "[a]n attorney has authority to bind his or her client, in any action 
or proceeding, by any agreement in relation to such case, made in writing, 
or by an entry to be made on the minutes of the court." Certainly, the 
court had authority to enforce the settlement agreement; the problem is 
that it did so without a motion to enforce and without giving the 
defendants an opportunity to object to such enforcement. Authority to 
enforce does not mean authority to enforce without due process. 
For these reasons, we conclude that the circuit court erred in 
ordering option 1. 
2. Option 2 
In option 2, the circuit court ordered the defendants to deposit the 
entire $84,650 in software royalties with the clerk of court pending 
resolution of Smith's breach-of-contract claim. As noted above, because 
option 2 was designed to preserve the status quo pending litigation, it 
 
 
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was a preliminary injunction. See City of Gadsden v. Boman, 143 So. 3d 
695, 703 (Ala. 2013). When reviewing a preliminary injunction, we review 
de novo a trial court's legal rulings based on undisputed facts, but we 
review the ultimate decision to issue the injunction under an excess-of-
discretion standard. City of Helena v. Pelham Bd. of Educ., [Ms. SC-2022-
0554, Oct. 21, 2022] ___ So. 3d ___, ___ (Ala. 2022). 
 
Here, the circuit court ordered the defendants to deposit 
approximately four times more than the defendants moved to deposit 
under Rule 67, Ala. R. Civ. P. Thus, as with option 1, the court acted 
beyond the scope of Rule 67. Instead, the court acted under its authority 
to issue preliminary injunctions. But Rule 65(a)(1) provides that "[n]o 
preliminary injunction shall be issued without notice to the adverse 
party." Thus, "[n]otice to the adverse party before a preliminary 
injunction is issued is mandatory." Funliner of Alabama, L.L.C. v. 
Pickard, 873 So. 2d 198, 219 (Ala. 2003). Failure to provide such notice 
violates due process. Southern Homes, AL, Inc. v. Bermuda Lakes, LLC, 
57 So. 3d 100, 104 (Ala. 2010). As the defendants note, the circuit court 
did not give them notice that it would order them to deposit more than 
 
 
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the amount they moved for leave to deposit. Accordingly, option 2 also 
deprived the defendants of due process of law. 
III. Conclusion 
 
Based on the foregoing, we reverse the circuit court's order and 
remand the cases for further proceedings. 
 
SC-2022-0501 -- REVERSED AND REMANDED. 
 
SC-2022-0502 -- REVERSED AND REMANDED. 
 
 
Shaw, Wise, Mitchell, and Cook, JJ., concur. 
 
Bryan, Sellers, Mendheim, and Stewart, JJ., concur in the result.