Opinion ID: 1043281
Heading Depth: 2
Heading Rank: 1

Heading: Contract Validity

Text: Ejaz offers four arguments to explain why the Settlement Agreement is not a valid contract: (1) there was no consideration supporting the Settlement Agreement, (2) there was no meeting of the minds when the parties signed the Agreement, (3) the Settlement Agreement is unconscionable, and (4) he signed the Settlement Agreement under duress.
Ejaz argues that the Settlement Agreement lacked consideration because, although it purported to release Bose's legal claims against Ejaz, that release was illusory, as the earlier Consent Order in the British courts had already released those same claims. This argument is contradicted by the facts of the case in three respects: the Consent Order was not an earlier, separate agreement, but rather part and parcel of the Settlement Agreement; the actual issuance of the Consent Order was not earlier; and the releases were not coextensive. Ejaz signed the Settlement Agreement on January 27, 2007 and has not identified any releases predating that agreement. The Settlement Agreement became effective upon Bose's signing it on February 26, 2007. The Consent Order was not issued until March 9, 2007, after both parties had executed the Settlement Agreement. Additionally, the Consent Order released only those legal claims at issue in the U.K. litigation, while the Settlement Agreement released all legal claims, -7- regardless of location. Ejaz did receive consideration for his promises in the Settlement Agreement.
Ejaz offers two arguments for his claim that there was no meeting of the minds. First, he contends that he subjectively attached a different understanding to the contract than Bose did: Bose believed, in accordance with the contract's explicit language, that Ejaz would be barred from selling Bose products anywhere without permission, while Ejaz believed that he would be barred from selling Bose products only in the United States and United Kingdom, leaving him free to sell in Australia. Second, he argues on appeal that he never even saw the terms of the Settlement Agreement before signing it, and that instead he was merely given a signature page that he thought corresponded to the Consent Order, which he had previously reviewed. Ejaz's subjective belief is insufficient to invalidate the contract. Absent fraud, an individual who signs a written agreement is bound by its terms whether he reads and understands them or not. Awuah v. Coverall N. Am., Inc., 703 F.3d 36, 44 (1st Cir. 2012) (quoting St. Fleur v. WPI Cable Sys./Mutron, 879 N.E.2d 27, 35 (Mass. 2008)) (internal quotation mark omitted). Ejaz falls directly within the scope of this rule. Ejaz's second argument attempts to avoid that rule by asserting that he was defrauded, arguing Massachusetts binds an -8- individual to the terms of the contract he signs only in the absence of fraud. Haufler v. Zotos, 845 N.E.2d 322, 333 (Mass. 2006). But that argument is completely unsupported by the record. Fraud is an affirmative defense that must be pleaded with particularity, see Fed. R. Civ. P. 9(b), and Ejaz failed to do so. Indeed, his answer to the complaint never even makes the contention that Ejaz presses in his brief, that Bose had Ejaz sign the Settlement Agreement without his knowledge; much less does it give specific details about any allegedly fraudulent transaction. Without those specific details, Ejaz's fraud claim cannot prevail. See N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8, 16 (1st Cir. 2009). Additionally, regardless of the quality of Ejaz's pleadings, the evidence in the record shows that Ejaz did have the full Settlement Agreement and knew what he was signing: he stated in his deposition that he tried [his] best to read it and signed it on the same day he received it; that he had his wife review the document; and that he must've read the whole Settlement Agreement when he signed it. As a result, the contract does not fail for a lack of meeting of the minds.
Ejaz claims that Bose's lawyers used heavy-handed tactics to get him, unrepresented by counsel, to sign the Settlement Agreement. Unconscionability is an affirmative defense, placing -9- the burden of proof on Ejaz. See E.H. Ashley & Co., Inc. v. Wells Fargo Alarm Servs., 907 F.2d 1274, 1278 (1st Cir. 1990). Under Massachusetts law, unconscionability requires a two-part inquiry, in which the defendant must prove both procedural and substantive unconscionability. Trans-Spec Truck Serv., Inc. v. Caterpillar Inc., 524 F.3d 315, 329 (1st Cir. 2008) (quoting Zapatha v. Dairy Mart, Inc., 408 N.E.2d 1370, 1377 n.13 (Mass. 1980)) (internal quotation marks omitted). The evidence does not show substantive unconscionability as to the making of the contract here. We discuss later the discrete issue of the liquidated damages clause. Contracts are substantively unconscionable if they show a gross disparity in consideration that makes them facially unfair. E.g. Waters v. Min Ltd., 587 N.E.2d 231, 234 (Mass. 1992) (finding gross disparity where annuity with $189,000 immediate cash value was sold for $50,000, and citing as unconscionable another case in which a trust interest worth $1,100,000 was sold for $66,000). The record in this case shows that, at the time he signed the agreement, Ejaz understood that he would be relieved of legal liability that could have reached $250,000 in the U.K. litigation alone.3 Because the 3 The record is unclear as to whether the $250,000 figure refers specifically to the U.K. litigation, which was addressed in the Consent Order. But that distinction is immaterial, because the Settlement Agreement settled all claims, including those covered by the Consent Order, and incorporated the Consent Order within its terms. -10- financial benefit for him was at least a quarter of a million dollars in liability avoided, no reasonable factfinder could conclude that Ejaz has met his burden of proof in his attempt to establish unconscionability.
Duress is an affirmative defense for which Ejaz must prove three elements: (1) he has been the victim of some unlawful or wrongful act or threat; (2) the act or threat deprived him of his free or unfettered will; and (3) due to the first two factors, he was compelled to make a disproportionate exchange of values. Happ v. Corning, Inc., 466 F.3d 41, 44 (1st Cir. 2006). Ejaz contends that Bose acted wrongfully by pressuring and intimidating him using what he says he perceived as threats of jail time, and that Bose's attorneys violated the Massachusetts Rules of Professional Conduct by advising him, as an unrepresented party, to sign the Settlement Agreement. These actions, he claims, constituted duress. Ejaz mischaracterizes the facts of this case. Bose's lawyers approached him, a savvy internet businessman with total annual eBay sales near $75,000 and growing quickly,4 to offer a settlement agreement to avoid a lawsuit. Those lawyers, according to Ejaz, told him that there could be repercussions to his 4 Ejaz's sales the previous year, 2005, were no higher than $50,000; by 2010, his financial records showed sales exceeding two million British pounds annually. -11- actions, which Ejaz took to mean criminal sanctions. However, Ejaz does not assert that Bose actually made threats, as opposed to statements that he subjectively interpreted to be threatening. Indeed, as he described the exchange in his deposition, Bose's lawyer might have said [something] along the lines that people do end up going to jail but I don't remember him exactly saying that, but behind the words was that implication. Or at least I felt that way. Ejaz later stated in his affidavit: I do not remember the precise words that they used about the consequences of not signing the agreement, but what I understood from those conversations is that I could face penalties of as much as $250,000 and possible imprisonment if I did not agree to what they were asking. None of these statements show that Ejaz was ever actually threatened or that Bose's counsel delivered any threats; rather, they show only that Ejaz believed he could potentially face legal penalties due to his unlawful sales. This is far from the unlawful or wrongful act or threat, Happ, 466 F.3d at 44, required to establish a duress defense. More importantly, Ejaz has provided no basis to believe that the statements by Bose's counsel deprived him of his free or unfettered will, id., and forced him to sign the contract. Instead, the facts show that Ejaz was able to review the proposed agreement at his own pace, was free to seek advice from others (and actually did seek advice from his wife), and voluntarily signed and -12- returned it. As long as the option to reject the contract remained, Ejaz did not act under duress. Ismert & Assocs., Inc. v. New Eng. Mut. Life Ins. Co., 801 F.2d 536, 549-50 (1st Cir. 1986) (noting that the option to refuse to sign a release and to litigate instead would defeat a claim for duress, and observing that a strict interpretation of the concept of no real choice is what the Massachusetts courts intend as a policy matter).