Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-01578/USCOURTS-casd-3_15-cv-01578-0/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1332fd Diversity-Breach of Fiduciary Duty

---

1 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

JACK A. HASTINGS, an individual, 

Plaintiff,

v. 

THOMAS J. HASTINGS, individually 

and as trustee of the Doris E. Cosgrove 

Trust, et al., 

Defendant.

 Case No.: 15-cv-1578-H-(KSC) 

REPORT AND 

RECOMMENDATION DENYING 

MOTION TO ENFORCE 

SETTLEMENT 

[Doc. Nos. 39, 40] 

Presently before the Court is the parties’ Joint Motion to Enforce Settlement filed on 

August 26, 2016. [Doc. No. 39.] Plaintiff seeks an Order from the Court determining the 

obligation of defendant to pay taxes refunded to defendant pursuant to a Settlement 

Agreement entered into between the parties. Defendant seeks an Order from the Court 

denying the Motion to Enforce Settlement because he asserts that plaintiff is not owed any 

tax refund. The Motion was referred to this Court for report and recommendation, pursuant 

to Title 28 U.S.C. 636(b)(1)(B), by the Honorable Marilyn L. Huff. For the reasons 

addressed more thoroughly below, IT IS HEREBY RECOMMENDED that the District 

Court DENY the Motion to Enforce the Settlement. [Doc. No. 39.] 

/ / / 

/ / / 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 1 of 10
2 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

BACKGROUND 

On July 16, 2015, plaintiff filed suit against defendant, his brother, alleging that 

defendant breached his fiduciary duties and engaged in other wrongdoing as trustee of their 

mother’s trust, the Doris E. Cosgrove Trust. [Doc. No. 1.] The sole asset of the trust was 

real property in Julian, California (“Julian Property”). [Doc. No. 39, pp. 3, 11.] Under the 

terms of the Trust, the Julian Property was gifted to plaintiff and defendant, 50% each. 

[Doc. No. 39, pp. 3, 11.] On or about January 8, 2015, the Julian Property was sold. [Doc. 

No. 39, p. 3.] At the time of the sale of the Julian Property, $21,645.00 was withheld in 

escrow for tax liability due to the California Franchise Tax Board (“FTB”). [Doc. No. 39, 

p. 3; Doc. No. 39-1, Ex. 1, pp. 9-13.] 

On December 7, 2015, plaintiff and defendant settled the case at an Early Neutral 

Evaluation (“ENE”) conference held before Magistrate Judge Karen S. Crawford. [Doc. 

No. 22, at p. 2.] At the conference, the parties agreed among other things that defendant 

would pay plaintiff $235,000.00, but that $30,000.00 would be set aside to cover taxes due 

and one-half of the costs associated with preparing the filing of a tax return for the trust for 

the year 2015. [Doc. No. 22, at p. 2.] 

On January 25, 2016, the parties entered into a written Settlement Agreement [Doc. 

No. 39-2; Ex. 2, pp. 7-12.] Under the terms of the Settlement Agreement1

, the parties 

agreed in relevant part as follows: 

2d. Thirty Thousand and 00/100 Dollars ($30,000.00) 

shall be withheld (“Reserved Funds”) for the payment of 

Jack’s [Plaintiff] fifty percent (50%) share of any federal, 

county or state taxes associated with the sale of the Julian 

Property, including Jack’s 50% proportional share of all 

costs for the preparation of said tax returns (collectively, the 

“Taxes”); 

2e. In the event Jack’s fifty percent (50%) share of the 

                                                                

1

 To support their respective positions, the parties submitted a redacted version of the written Settlement 

Agreement (Section 1(a)-(c)) to the Court. [Doc. No. 39-2; Ex. 2.] In reaching a decision on the parties’ 

dispute, the Court has relied on the redacted version of the Agreement provided. 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 2 of 10
3 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Taxes is less than the amount of the Reserved Funds, Thomas 

[Defendant] shall pay to Jack the difference between the 

Reserved Funds and the actual Taxes due as set forth on the 

tax returns (and 50% of preparation expenses), within fortyfive (45) days of the filing of the tax returns. Within fortyfive (45) days of the filing of the Trust’s tax returns, Thomas 

will provide Jack with copies of the Trust’s tax returns and 

all invoices reflecting accounting, legal and tax preparation 

expenses incurred in the preparation of said tax returns; 

2f. To the extent that the California Franchise Tax Board 

refunds any portion of the funds held at the close of escrow 

for the Julian Property ($21,645.00), Thomas shall pay to 

Jack fifty percent (50%) of any refund within five (5) 

business days of receipt of said funds, with documentation of 

said refund to be sent to counsel for Jack contemporaneously 

with the payment. . . 

13. No Oral Modifications: This Agreement may not be 

modified or amended except by written instrument, signed 

by each of the Parties hereto, expressing such an amendment 

for modification. 

[Doc. No. 39-2; Ex. 2, pp. 8, 11.] 

On February 23, 2016, the parties filed a Joint Motion to Dismiss this case with 

prejudice. [Doc. No. 35.] According to the Notice, the parties agreed that the Court would 

retain jurisdiction to enforce their settlement. [Doc. No. 35, p. 2.] On February 24, 2016, 

this Court entered the Order Dismissing the Case with Prejudice, which retained 

jurisdiction to enforce the settlement. [Doc. No. 36.] 

1. Current Dispute 

Defendant trustee completed the tax filings and work for the Trust in late-May 2016. 

[Doc. No. 39, p. 13.] On June 2, 2016, defendant provided plaintiff with copies of all of 

the relevant tax documents and an accounting of the taxes. [Doc. No. 39, pp. 4, 13.] 

Between June 2, 2016 and June 27, 2016, the parties, through their counsel, exchanged 

emails regarding their disagreement about the accounting of the parties’ respective tax 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 3 of 10
4 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

liability. [Doc. No. 39, pp. 4-7, 13-17, 26-38.] 

Plaintiff contends that defendant is improperly withholding $8,381.00 from plaintiff. 

[Doc. No. 39, p. 7.] Plaintiff argues that defendant owes him this sum because plaintiff’s 

share of the tax liability is less than the $30,000.00 withheld by defendant pursuant to the 

Settlement Agreement. [Doc. No. 39, p. 7.] It is plaintiff’s position that defendant is 

“attempting to add in a payment of $21,645.00 as a liability, when in fact that was a 

payment from the escrow for the sale of the subject property.” [Doc. No. 39, p. 6.] Plaintiff 

relies on Paragraph 2(f) in the Settlement Agreement to support his argument that he is 

entitled to half of the refund from the FTB. [Doc. No. 39, p. 4.] 

Plaintiff asserts that the correct accounting of taxes is as follows: 

Item Total Paid Plaintiff’s Share 

Federal Tax Liability: $46,277.00 $23,138.50 

IRS Supplemental Notice of 

Unpaid Balance: 

$277.00 $138.50 

Tax Preparation Bill: $2,400.00 $1,200.00 

CA FTB Refund Due (still 

pending): 

-$5,716.00 $2,858.00 

Total Liability: $43,238.00 $21,619.00 

[Doc. No. 39, p. 7.] Plaintiff contends that his share of tax liability for 2015/2016 

($21,619.00) should be subtracted from the $30,000.00 withheld by defendant requiring 

defendant to pay him $8,381.00. [Doc. No. 39, p. 7.] Plaintiff’s position is that the 

$21,645.00 FTB tax was paid from escrow when the Julian Property sold on January 8, 

2015, so it should be treated differently from other taxes due on the property, and not 

considered for purposes of determining taxes paid pursuant to Paragraph 2(d) of the 

Settlement Agreement. [Doc. No. 39, p. 7.] 

Defendant contends that he owes no tax refund to plaintiff. [Doc. No. 39, at p. 14.] 

Defendant’s position is that the total tax liability for 2015/2016 exceeded the $30,000.00 

reserve provided for in the Settlement Agreement. [Doc. No. 39, at p. 14.] Defendant 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 4 of 10
5 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

claims that plaintiff’s argument relies on an “out-of-context interpretation of Section 2(f) 

of the Settlement Agreement.” [Doc. No. 39, p. 14.] Defendant’s position is that “the intent 

of the parties under the Settlement Agreement was that taxes — all taxes — be borne 

equally in proportion to their beneficiary interest [50%].” [Doc. No. 39, p. 15.] Defendant 

argues that “[r]ead in context, it is obvious that Section 2(f) is nothing other than a timing 

provision. If there is a refund from the California Franchise Tax authority, then Jack 

[plaintiff] wants it within five days. Nowhere in the Settlement Agreement does it provide 

that Jack [plaintiff] will be able to ignore his proportional liability for the Cosgrove Trust 

taxes.” [Doc. No. 39, p. 16.] 

Defendant asserts that the correct accounting of taxes is as follows: 

Item Total Paid Plaintiff’s Share 

Federal Tax Liability: $46,277.00 paid on April 

15, 2016 

$23,138.50 

IRS Supplemental Notice of 

Unpaid Balance: 

$277.00 paid on May 18, 

2016 

$138.50 

Tax Preparation Bill: $2,400.00 paid on April 28, 

2016 

$1,200.00 

CA FTB Liability: $21,645.00 paid at closing 

of Julian Property on 

January 8, 2015 

$10,822.50 

CA FTB Refund Due (still 

pending): 

-$5,716.00 $2,858.00 

Total Liability: $64,883.00 $32,441.50 

[Doc. No. 39, pp. 13, 27.] Defendant contends that he paid, as the Trustee, a total of 

$70,588.00 in taxes in 2015/2016. [Doc. No. 39, p. 13.] He claims that he learned through 

the return filing that the escrow overpaid California taxes and thus the Trust will receive a 

refund of $5,716.00 from the FTB. [Doc. No. 39, p. 13.] Notwithstanding the pending 

refund from the FTB, defendant argues that he owes no taxes to plaintiff because pursuant 

to Sections 2(d) and 2(e) of the Settlement Agreement, the total liability for taxes for 

2015/2016 exceeded the $30,000 reserve. [Doc. No. 39, p. 14.] 

/ / / 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 5 of 10
6 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2. Motion to Enforce Settlement 

On August 4, 2016, plaintiff contacted the Court requesting a telephonic status 

conference to discuss a potential Motion to Enforce the Settlement Agreement regarding 

the parties’ disagreement over the terms of the Settlement Agreement. [Doc. No. 37.] On 

August 19, 2016, Judge Crawford held a telephonic settlement conference regarding the 

same. [Doc. No. 38.] The issue was not resolved. [Doc. No. 38.] The parties were directed 

to file a Joint Motion to Enforce the Settlement. [Doc. No. 38.] 

LEGAL STANDARD 

“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). To be enforced, the settlement must meet two requirements: (1) it must be a 

complete agreement, id.; and (2) both parties must have either agreed to the terms of the 

settlement or authorized their respective counsel to settle the dispute. Harrop v. Western 

Airlines, Inc., 550 F.2d 1143, 1144-45 (9th Cir. 1977). In addition, “[t]he construction and 

enforcement of settlement agreements are governed by principles of local law which apply 

to interpretation of contracts generally.” Jeff D. v. Andrus, 899 F.2d 753, 759 (9th 1989). 

Therefore, this Court applies California law regarding the interpretation of the Settlement 

Agreement at issue. 

“Under California law, the intent of the parties determines the meaning of the 

contract.” United Commercial Ins. Serv., Inc. v. Paymaster Corp., 962 F.2d 853, 856 (9th 

Cir. 1992) (citing Cal. Civ. Code §§ 1636, 1638). The proper inquiry is the parties’ 

objective intent, “that is, the intent manifested in the agreement and by surrounding conduct 

– rather than the subjective beliefs of the parties.” Id. Therefore, the true intent of a party 

is irrelevant if it is unexpressed. Id. 

A settlement agreement “must be interpreted as to give effect to the mutual intention 

of the parties as it existed at the time of contracting.” Roden v. Bergen Brunswig Corp., 

107 Cal. App. 4th 620, 625 (2003); see Cal. Civ. Code § 1636. When the agreement is in 

writing, “the intention . . . is to be ascertained from the writing alone, if possible.” Brinton 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 6 of 10
7 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

v. Bankers Pension Servs., Inc. 76 Cal. App. 4th 550, 559 (1999); see Cal. Civ. Code 

§ 1639. Further, “[a]lthough the language of the contract must govern its interpretation 

(Civ. Code, secs. 1638, 1639), nevertheless the meaning is to be obtained from the entire 

contract and not from any one or more isolated portions thereof.” Lemm v. Stillwater Land 

& Cattle Co., 217 Cal. 474, 480 (1933). 

DISCUSSION 

Here, it is undisputed that the parties entered into a legally enforceable written 

Settlement Agreement, executed on January 25, 2016. [Doc. 39-2, Ex. 2, pp. 7-12.] The 

Settlement Agreement provides in broad terms that the intent of the parties was that all 

taxes be borne in proportion to their fifty percent beneficiary interest of the Julian Property. 

[Doc. No. 39-2, Ex. 2, p. 8.] The Agreement explicitly states that plaintiff shall be 

responsible for fifty percent of the taxes on the Julian Property. [Doc. No. 39-2, Ex. 2, p. 

8.] The Settlement Agreement provides in relevant part as follows: “[T]he Parties hereto 

agree as follows. . . Section 2(d): for the payment of [plaintiff’s] fifty percent (50%) share 

of any federal, county or state taxes. . .; Section 2(e): [Plaintiff’s] 50% proportional share 

of all costs for the preparation of said tax returns. . .; Section 2(e): [Plaintiff’s] fifty percent 

share of the Taxes. . . .” [Doc. No. 39-2, Ex. 2, p. 8.] 

 The issue before the Court is whether provision 2(f) of the Settlement Agreement, 

which provides that defendant shall pay plaintiff 50% of any refund from the FTB within 

five days of receipt said funds, affects the parties’ tax liability under the Agreement. 

Plaintiff contends, he “was informed by his accountant that the $21,645.00 paid to the FTB 

was likely too high, and that a refund would be due.” [Doc. No. 39, p. 4.] “Accordingly, 

[plaintiff] requested a specific provision in the Settlement Agreement that he would be 

entitled to half of that refund.” [Doc. No. 39, p. 4.] As previously referenced, defendant 

contends that “[r]ead in context, it is obvious that Section 2(f) is nothing other than a timing 

provision. If there is a refund from the California Franchise Tax authority, then Jack wants 

it within five days.” [Doc. No. 39, p. 16.] 

 This Court reads the entire Agreement as a whole, supra, Lemm v. Stillwater Land 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 7 of 10
8 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

& Cattle Co., 217 Cal. at 480. The underlying premise of the entire Settlement Agreement 

read as a whole, not just Section 2(f) as an isolated provision, is that the parties intended to 

share the tax liability (including the cost of tax preparation) for 2015/2016 by 50%. The 

plain language of the Agreement is that the parties’ respective tax liability comes first, and 

then, if there is a refund paid to plaintiff, as trustee, defendant will pay half to plaintiff 

within five business days of receipt. [Doc. No. 39-2, Ex. 2, p. 8.] As indicated in plaintiff’s 

declaration, the parties understood that tax returns would be filed in order to close out the 

estate. [Doc. No. 39-2, p. 2 at ¶9.] The parties agreed that defendant would hold $30,000.00 

of plaintiff’s funds to cover 50% share of tax liability going forward and did not anticipate 

that tax liability and preparation costs would exceed $60,000.00. [Doc. No. 39-2, p. 2 at 

¶9.] If the tax liability for 2015/2016 exceeded $30,000.00, then plaintiff would not receive 

a refund. [Doc. No. 39-2, p. 2 at ¶9.] However, if the tax liability were less than $30,000.00, 

then defendant would pay to plaintiff the difference between taxes paid and associated 

filing costs and the $30,000.00 of plaintiff’s funds held in reserve by defendant. [Doc. No. 

39-2, p. 2 at ¶9.] Read in context, the Court finds that Section 2(f) was intended to cover 

any subsequent refund by the FTB which was paid after accounting on the reserve was 

completed. This timing provision was not intended to relieve plaintiff from his 50% share 

of tax liability. 

Plaintiff’s argument that defendant seeks to recover $21,645.00 in FTB tax paid from 

escrow when the Julian Property was sold, and again after the Settlement Agreement when 

the return was filed, is without merit. [Doc. No. 39, p. 7.] The parties deducted $21,645.00 

from the sale price of the Julian Property for taxes due, and a refund of $5,716.00 is still 

pending from the FTB. Even though the parties deducted the FTB tax from the sale price 

of the Julian Property, it is still a tax liability that the parties must share equally. The fact 

that some taxes were paid from an escrow and some were paid after the escrow closed is 

irrelevant. Plaintiff still owes half of the tax liability under the Agreement. 

It is also clear that plaintiff’s “objective” intent – “the intent manifested in the 

agreement and by surrounding conduct” – indicates that he intended to share 50% of the 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 8 of 10
9 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

tax liability up to $30,000.00 per year. United Commercial Ins. Serv., Inc. v. Paymaster 

Corp., 962 F.2d at 856. To the extent that plaintiff subjectively intended to avoid part of 

his tax liability by inserting a provision in the Settlement Agreement about his entitlement 

to a refund of the FTB tax payment does not override the objective intent manifested in the 

Agreement. 

Indeed, as defendant argues in his briefing, the parties estimated the amount due in 

taxes and tax preparation, and failed to budget a large enough reserve in the Settlement 

Agreement. [Doc. No. 39, p. 15.] Defendant paid slightly more ($2,441.50) in taxes for 

2015/2016 than plaintiff, but did not thereafter demand any additional money from 

plaintiff. [Doc. No. 39, pp. 13, 15.] The Settlement Agreement is silent about instances 

where the parties’ liability exceeds the $60,000.0, one half of which was set aside by 

plaintiff. Thus, there is no basis for defendant to recover from plaintiff the additional 

amount he paid in taxes in 2015/2016. 

Finally, the Settlement Agreement contains a “no oral modifications” provision that 

the Agreement may not be modified or amended unless in writing. [Doc. No. 39-2, Ex. 2, 

p. 11.] The parties have not made any such modifications to the Settlement Agreement. 

Thus, the Court RECOMMENDS that plaintiff’s Motion to Enforce the Settlement 

ordering defendant to pay plaintiff taxes in the amount of $8,381.00 be DENIED.

2

 

CONCLUSION 

Accordingly, the Court RECOMMENDS that plaintiff’s Motion to Enforce the 

Settlement [Doc. No. 39] ordering defendant to pay plaintiff taxes is DENIED. The Court 

agrees with the defendant’s accounting of taxes as set forth in the chart on page five herein. 

                                                                

2

 The history of this case and the briefing at issue underscores the need for litigators to balance zealous 

advocacy with cost-effective representation. Here, the Court finds that the language of the Settlement 

Agreement regarding the parties’ mutual intention to equally share the tax liability of the Julian Property 

was clear. Notwithstanding the clear language, counsel for the parties focused more on advocating their 

respective client’s underlying disagreements and desire to “win” at all costs than on counseling their 

clients to put down their swords and resolve their dispute. 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 9 of 10
10 

15-cv-1578-H-(KSC) 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

This Court further RECOMMENDS that to the extent defendant has not yet paid to 

plaintiff $235,000.00 from the sale of the Julian Property pursuant to the terms of their 

settlement, defendant should be ordered to do so within ten days of the District’s Court 

Order. This Report and Recommendation is submitted to the United States District Judge 

assigned to this case, pursuant to the provisions of 28 U.S.C. § 636(b)(1) and Civil Local 

Rule 72.1(d). Within fourteen (14) days after being served with a copy of this Report and 

Recommendation, “any party may serve and file written objections.” 28 U.S.C. § 

636(b)(1)(B)&(C). The document should be captioned “Objections to Report and 

Recommendation.” The parties are advised that failure to file objections within this 

specific time may waive the right to raise those objections on appeal of the Court’s order. 

Martinez v. Ylst, 951 F.2d 1153, 1156–57 (9th Cir.1991). 

IT IS SO ORDERED.

Dated: October 7, 2016 

Case 3:15-cv-01578-H-KSC Document 41 Filed 10/07/16 Page 10 of 10