Opinion ID: 203914
Heading Depth: 2
Heading Rank: 2

Heading: Compromise

Text: Although the settlement agreement was a valid contract between the parties, there exists a further question whether it was a compromise under Puerto Rico law. The Supreme Court of Puerto Rico has identified three elements of a compromise: (i) an uncertain legal relationship, or conflicting intentions born out of a legally dubious question; (ii) an intent to eliminate the uncertainty, that is, the parties must intend to substitute the uncertain relationship for one that is for them certain and uncontrovertable; and (iii) the parties must make reciprocal concessions. Citibank, N.A. v. Dependable Ins. Co., 121 P.R. Dec. 503, 21 P.R. Offic. Trans. 496, 506 (1988); accord Cabán Hernández, 486 F.3d at 12. See also P.R. Laws Ann. tit. 31, § 4821. Fernandez does not contest this well-settled proposition. Rather, he asserts that the civil law principle of narrowly construing compromises and waivers of rights precludes the conclusion that, despite its plain terms, the settlement agreement compromised all commission-related disputes between the parties. Thus, he argues that the settlement compromised only the dispute over commission charges in excess of Smith Barney's standard charges, [9] leaving open any dispute over the difference between Smith Barney's actual charges and the lower commission rates that Smith Barney promised Fernandez. This contention is misplaced. We are aware of nothing in Puerto Rico law that hinders the most natural reading of the settlement agreement as settling all commission-related disputes between the parties as of the date of the agreement. As we read the authority Fernandez cites, it is in pitch-perfect harmony with our conclusion on this score. It is true that the civil law limits the scope of any compromise to objects specifically determined therein or which from a necessary inference from its words must be considered as included therein, P.R. Laws Ann. tit. 31, § 4826; see also Sucesion De Roman Febres v. Shelga Corp., 111 D.P.R. 782, 11 P.R. Offic. Trans. 988 (1982), and the civil law further cabins a renunciation of rights to only those [rights] relating to the question with regard to which compromise has been made. Id. Citing to this authority, Fernandez argues that the expansive language of the settlement should be limited to claims for only overcharges over Smith Barney's published rates. Although the civil law would almost certainly restrict the scope of the settlement agreement, Fernandez's proposed interpretation strikes us as dissonant with the general rules of contract construction in Puerto Rico, which remain applicable to compromises. See Roman Febres, 11 P.R. Offic. Trans. 988 (Of course, as far as they are not incompatible with this particular rule of construction, the general rules of interpretation of contracts are applicable....). Applying Puerto Rico's general rules of contract construction, we conclude, while keeping in mind the policy of construing renunciations of rights narrowly, that the best reading of the settlement agreement is that it settles all of the parties' commission-related disputes. The Puerto Rico Supreme Court has made clear that contracts are to be construed in good faith, and that contracts should be construed assuming that they were drawn faithfully and correctly, that is in the understanding that when they were drawn[,] the parties wished to express themselves as normally honest people do, not seeking circumlocutions, deliberate obfuscations or obscurity.... Citibank, 21 P.R. Offic. Trans. at 508 ( citing Ex Parte Negron Rivera y Bonilla, 120 P.R. Dec. 61, 20 P.R. Offic. Trans. 63, 77-78 (1987)). Under this standard, in Citibank the Puerto Rico Supreme Court turned aside Citibank's claim that, despite plain language in a stipulation and settlement, certain insurance claims should not have been dismissed with prejudice because they were not discussed during negotiations and Citibank was under the (mistaken) impression that such claims had been paid or were in the process of being paid. See id. at 503-04. The court found persuasive (and not contrary to the civil law) the settlement's plain language that the parties agreed to settle all the claims accrued or which may accrue from the Policy. Id. at 508. Fernandez nevertheless argues that the case sub judice more closely resembles another case, Roman Febres, in which the Puerto Rico Supreme Court made clear that a settlement with respect to one case would not be made applicable to other cases that were pending between the same parties, despite potentially broad language in the agreement. In that case, Romn Febres agreed to settle a dispute with Hampton Development Corporation involving the sale of property for development purposes. The settlement agreement included a term by which Romn Febres agreed to fully and completely release Hampton [Development Corporation] and its affiliates from any claims or causes of action that could have accrued or may accrue in the future in behalf of the former and against Hampton and its affiliates as a result of relations existing between the parties mentioned up to this day. Roman Febres, 11 P.R. Offic. Trans. 988. Relying on this language, Hampton argued that the settlement agreement encompassed three suits filed by Romn Febres seeking damages arising from three separate and unrelated construction contracts. The Puerto Rico Supreme Court began its analysis by noting that nothing in P.R. Laws Ann. tit. 31, § 4827 constrains the court's ability to interpret the scope and application of a compromise. Id. The court went on to conclude that the settlement agreement, despite the broad language cited above, should not be read to include the three suits at issue, which sought recovery for materials supplied and work previously performed in unrelated contracts. Id. The court grounded its decision on three related bases: first, the court noted that the broadly drafted settlement was ambiguous, particularly with respect to the phrase mentioned. Next, the court noted that if the parties to the release wished to extinguish then-filed and pending suits, it would be logical to think that they would have said so specifically and not as part of a general and indeterminate release, which the court concluded was an accessory to the main compromise settling the real estate dispute. Id. Finally, the court relied on the civil law notion that compromises should be narrowly construed to reinforce its independent reading of the settlement agreement as not reaching the other suits. Id. Fernandez argues that the dispute regarding his contractually-based fee claims are like the unrelated suits that the court found in Roman Febres were not included in the parties' broadly worded settlement agreement. In support of his contention, Fernandez argues that, at the time Smith Barney drafted the settlement agreement, it was not aware of the contractual commission fees of ten and three cents per share that it had (allegedly) agreed to in mid-2003. Further, Fernandez argues that the settlement agreement makes clear that by the settlement agreement's plain terms, the approximately $950,000 provided for in the agreement only reflects the variance between standard commissions and the actual commissions charged. Recognizing that this case does not fit comfortably within the paradigm of either Citibank or Roman Febres, we conclude that Smith Barney's proposed reading of the settlement agreement is the better one. Smith Barney argues that the parties wished to settle at a minimum all of their commission-related disputes, and that the settlement agreement should be read to effectuate its purpose of resolv[ing] all pending claims and differences [between Smith Barney and Fernandez]. It is true that the release was not arrived at with the lengthy drafting history or the specific terms described in Citibank, 21 P.R. Offic. Trans. at 502-03, (describing settlement and its terms with respect to several causes of action); see also id. at 506-07 (stating that Citibank negotiated settlement of ongoing controversy and that Citibank's counsel signed settlement after review to resolve all doubts surrounding the items and sums involved). Nevertheless, Smith Barney furnished Fernandez with all calculations necessary to determine an acceptable settlement of the commission-related disputes, and after an opportunity to review these calculations and the agreement itself, Fernandez agreed to the proposed settlement. And unlike Roman Febres, the claim that Fernandez wishes to exclude from the settlement arises from the same common nucleus of operative fact: Smith Barney's levying of excessive commissions charges, which were the impetus for the compromise at issue. Accordingly, we see no reason to refrain from enforcing the plain, if broad, terms of the agreement. This case just does not encompass the same level of ambiguity present in Roman Febres, and the compromise should be enforced. [10] Accord Cabán Hernández, 486 F.3d at 12 (noting that release was intended to eliminate all uncertainty surrounding plaintiffs' termination).