Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-03875/USCOURTS-cand-3_04-cv-03875-2/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

TRAVELERS CASUALTY & SURETY

COMPANY, formerly known as THE AETNA

CASUALTY AND SURETY COMPANY,

Plaintiff,

 v.

INSURANCE COMPANY OF THE STATE

OF PENNSYLVANIA, NATIONAL UNION

FIRE INSURANCE COMPANY OF

PITTSBURGH, PA., and DOES 1 through 10,

Defendants. /

No. C 04-03875 WHA

ORDER DENYING

CROSS-MOTIONS 

TO ENFORCE THE

SETTLEMENT AGREEMENT

AND VACATING HEARING

INTRODUCTION

In this insurance case, the parties reached a “settlement” during mediation. The parties

now make cross-motions to enforce the terms of their agreement. Because no final, enforceable

settlement agreement has been executed, this order DENIES both motions.

STATEMENT

This dispute revolves around a previous settlement in a construction lawsuit in San

Francisco Superior Court, entitled Board of Trustees of the California State University v. Perini

Building Company, et. al., Case No. 304093. The parties to the above-captioned action are

insurers that together contributed $16.25 million to that settlement, with Travelers Casualty and

Surety Company (“Travelers”) paying $12 million and National Union Fire Insurance Company

of Pittsburgh, PA (“National Union”) paying $4.25 million (See Usdin Exh. A). Another

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$15.15 million was paid by various subcontractors and used to fund the repair of the damaged

structures (ibid.). Additional funds were also deposited by Travelers and Insurance Company of

the State of Pennsylvania (“ICSOP”) into an escrow account held by Legal Cost Consultants, to

pay the fees and expenses incurred by Perini in defending the underlying action (Closson Decl.

¶ 6).

In short, plaintiff contends it paid a disproportionate share. On September 15, 2004,

plaintiff filed its complaint, seeking equitable contribution from defendants with respect to both

the settlement itself and division of the remaining funds in the escrow account. On

December 2, 2004, defendants filed their answer and counterclaims of equitable contribution,

equitable subrogation, and equitable indemnity.

* * *

On May 23, 2005, the parties participated in a mediation session at JAMS in Los

Angeles, California, at which time this “settlement” was reached. Immediately following the

mediation session, “but still on May 23, 2005, while the parties were present,” a hand-written

memorandum was prepared by Robert Closson, counsel for Travelers; it was signed by

representatives of each side, with the mutual understanding that a typed agreement finalizing

the settlement terms would follow (Closson Decl. ¶¶ 2–4; Schweitzer Decl. ¶¶ 2–4; Fredette

Decl. ¶¶ 3–6).

The hand-written memorandum outlines the following terms (see Closson Exh. 1):

(1) National Union +/or ISCOP to pay to Travelers Casualty and Surety Co.

$942,860.00 on or before September 20, 2005;

(2) National Union +/or ISCOP to release any claim against funds remaining

in Legal Cost Consultants Trust account totalling $519,502.69. Travelers

shall be entitled to immediate recovery of the entire trust account balance as

of May 23, 2005;

(3) National Union +/or ISCOP to provide confirmation of payment of

[$]4,250,000.00 towards the underlying action settlement;

(4) Travelers to dismiss with prejudice its complaint in this action;

(5) National Union +/or ISCOP to dismiss with prejudice its counterclaim in

this action;

(6) Each party to bear its own fees + costs.

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This memorandum did not indicate in any way that it was intended to be a final and enforceable

agreement.

On May 24, 2005, both sides independently submitted letters informing the Court that a

settlement had been reached and a stipulated dismissal was forthcoming. In light of this

information, an order was issued on June 20, 2005, requesting a stipulated dismissal by June 27,

2005. In the series of letters that followed, counsel for both sides indicated that they had

reached an impasse in finalizing the terms of their settlement and intended to file cross-motions

to enforce the settlement agreement. Plaintiff filed its motion on August 26, 2005. Defendants

filed their motion on September 1, 2005. Both motions were noticed for the same hearing date.

The central point of controversy is whether the terms of the hand-written agreement

required defendants to provide “confirmation of payment” or “confirmation of net payment” of

$4.25 million towards the settlement of the underlying action. Plaintiff contends that the parties

agreed during mediation that National Union should provide confirmation of its net payment,

meaning its actual expenditure taking into account any reimbursements received. Its proposed

draft of the final settlement agreement expressly provides that the confirmation of payment

“shall include a copy of the cancelled check and the printout of the complete financial detail

information of every claim file and policy that were affected by the payment of the stated $4.25

million” (See Llaneta Exh. 2 at 3).

Defendants, on the other hand, assert that the cancelled check they produced was

sufficient to meet this condition (Fredette Exh. F). They argue that the hand-written agreement

was drafted by plaintiff’s counsel, yet failed to specify that “confirmation of net payment” was

required, such that this provision should be construed against Travelers. Defendants further

accuse plaintiff of attempting to add new terms and conditions in the draft agreement that was

circulated on June 2, 2005. Defendants’ proposed draft of the final settlement agreement, in

contrast, provides that the copy of the cancelled check they produced was sufficient to satisfy

the “confirmation of payment” condition (See Llaneta Exh. 5 at 2–3).

Significantly, while the parties exchanged proposed drafts of the final settlement

agreement, both versions were rejected. Thus far, no final agreement has been executed.

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ANALYSIS

Disputes regarding settlement agreements are resolved under general contract principles. 

Armstrong v. Davis, 275 F.3d 849, 876 (9th Cir. 2001). Courts may enforce only complete

settlement agreements. Callie v. Near, 829 F.2d 888, 890 (9th Cir. 1987).

Even a cursory review of the record reveals that no final settlement agreement was ever

executed. Perhaps in an attempt to avoid the costs of litigating this action, both sides now claim

that the hand-written settlement agreement prepared after the mediation session is enforceable. 

According to the parties, the only issue is how to interpret one of the terms. This order finds,

however, that the hand-written memorandum reflects (at most) only a settlement in principle,

not a final, enforceable settlement agreement.

This determination is supported by counsels’ own representations that the hand-written

agreement was never intended to be the final version, as “a full settlement and release

agreement would be prepared” afterwards (Closson Decl. ¶ 4; Schweitzer Decl. ¶ 4; Fredette

Decl. ¶ 6). Nowhere in the hand-written memorandum did the parties indicate that it was

intended to be enforceable “as is.” Indeed, this interpretation is belied by the fact that both

sides subsequently prepared typewritten drafts to clarify and finalize the terms. Plaintiff even

characterizes the hand-written memorandum as a “contingent” settlement and openly

acknowledges that “[t]o date, the parties have not been able to finalize a settlement and release

agreement related to this matter” (see Plaintiff’s motion Br. 5–6). Counsel for both sides,

unable to finalize the settlement agreement, apparently hold the misguided view that a

bare-bones first draft will be enforced instead. Not so.

Moreover, the Court is not convinced that there was ever a meeting of the minds as to

the meaning of “confirmation of payment.” Plaintiff asserts that it was agreed during mediation

that proof of the cancelled check would not be sufficient to meet this condition (Closson Decl.

¶ 8; Schweitzer Decl. ¶¶ 8–9). Yet, defendants argue just as vigorously that if they had been

required to confirm a net payment of $4.25 million, they would not have been authorized to

enter (and would not have entered) into any agreement on May 23, 2005 (Usdin Decl. ¶ 9). The

reality is that this dispute over the correct interpretation of “confirmation of payment” has

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prevented the parties from finalizing their so-called “settlement” for nearly four months now. 

This alone suggests that there was no settlement based on a shared understanding of what

“confirmation of payment” meant. Had Mr. Closson merely included the phrase “confirmation

of net payment” in drafting the hand-written agreement, perhaps the parties might have come to

this realization months ago and saved themselves the effort of filing these motions.

CONCLUSION

For the aforementioned reasons, this order finds that there is no final and complete

settlement agreement to be enforced. Both motions to enforce the settlement agreement are

DENIED. The hearing on both of these motions, currently scheduled for OCTOBER 6, 2005 AT

8:00 A.M., is VACATED.

In addition, the parties agree that plaintiff has already availed itself of the $519,502.69

in the escrow account, as provided in paragraph (2) of the hand-written agreement. 

Accordingly, plaintiff’s claims relating to equitable contribution of fees and costs for defending

the underlying action — i.e., its first and second causes of action — are DISMISSED WITH

PREJUDICE.

Finally, the parties are reminded that all deadlines, as set forth in the case management

order of March 8, 2005, are still in effect.

IT IS SO ORDERED.

Dated: September 23, 2005 WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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