Opinion ID: 868777
Heading Depth: 3
Heading Rank: 1

Heading: Prior Action

Text: The present action has its genesis in a prior lawsuit. In the prior lawsuit, filed in the United States District Court for the Western District of Michigan, USI sued NVI and Torchia, as well as their attorney Marc Celello, for five million dollars, claiming that they misappropriated funds they were holding in escrow for USI. E.g., Universal Settlements Int’l, Inc. v. Nat’l Viatical, Inc., No. 1:07-CV-1243, 2009 WL 1606648 (W.D. Mich. June 8, 2009). While this case was pending, USI sought relief under the Companies’ Creditors Arrangement Act of Canada (“CCAA”) in the Ontario Superior Court of Justice in Canada. A CCAA case is similar to a reorganization bankruptcy under Chapter 11 of the United States Bankruptcy Code. NVI and Torchia moved for summary judgment but it was denied by the magistrate judge who was presiding over the dispute. Subsequently, the parties held a settlement conference and agreed on settlement terms. The record indicates that NVI and Torchia agreed to pay USI $1,242,000 in installment payments.1 NVI and Torchia further agreed that a default penalty of five million dollars would be due if NVI and Torchia defaulted on any payment and did not cure it within ten days. After the settlement conference, the parties placed their agreement on the record. It was only then that confidentiality was discussed. The record indicates that counsel for NVI and Torchia asked for a “standard mutual confidentiality agreement,” but agreed that, as an exception, USI could report the settlement terms to the CCAA court, any taxing authorities, attorneys, and accountants on a need-to-know basis: 1 Specifically, the amount was to be paid in four installments, including a balloon payment at the end of twelve months. No. 12-2262 Nat’l Viatical Inc., et al. v. Universal Page 3 Settlements Int’l, Inc. COUNSEL FOR CELELLO: Why don’t we just exempt from the confidentiality except to the extent necessary for reporting to the Canadian court and/or taxing authorities, et cetera, et cetera, something like that? MR. TORCHIA: Then they’re going to put it on a website, right? COUNSEL FOR USI: I don’t know. MR. TORCHIA: I mean, I don’t care. It doesn’t matter. The magistrate judge also clarified for the record that the concern for the confidentiality clause was that Torchia “doesn’t want it to appear to any credit authority or any other entity that he has a five-million-dollar judgment against him.” Following the settlement conference, USI petitioned the CCAA court to obtain the necessary directions and clearance to proceed with the settlement. Pursuant to these directions, USI posted a notice on its website informing its creditors of the settlement agreement: USI has entered into a settlement of the US Litigation (identified in s. 2.3 of the CCAA Plan of Compromise and Arrangement as Universal Settlements International Inc. v. James Torchia, Marc Celello and National Viatical, Inc. (United States District Court, Western District of Michigan, Court File No. 1:07-cv-1243). The settlement has been reached as a result of a judicial mediation held on October 26, 2010 in Grand Rapids, Michigan. Although the settlement is subject to a U.S. Federal Court judicial order requiring confidentiality, the essential terms that may be reported are as follows: USI will receive a total amount of $1,242,000 payable over a period of one year and there are terms imposing sanctions if there is a default on any of the required payments. The counterclaim against USI will be dismissed. USI’s litigation committee has approved the settlement. The terms of settlement are in the process of being finalized and documented. The Settlement will be presented to the Ontario Superior Court of Justice on a motion for directions pursuant to s. 7.8 of the CCAA Plan of Compromise and Arrangement. USI is of the view that there is no court approval required of the Settlement but is bringing the motion out of an abundance of caution. No. 12-2262 Nat’l Viatical Inc., et al. v. Universal Page 4 Settlements Int’l, Inc. Alleging that the website posting violated the confidentiality clause, Celello, NVI, and Torchia refused to pay in accordance with the settlement agreement and returned to the magistrate judge with an emergency motion to enforce the confidentiality provision of the settlement agreement. The magistrate judge ruled that there was no breach because the website posting was “very, very vague,” but she permitted NVI and Torchia to reserve the right to file a separate breach of contract claim against USI in the future. Although she found no breach, the magistrate judge nonetheless issued an injunction enjoining USI from any future publication of the settlement information. USI appealed the injunction to a district court judge of the United District Court for the Western District of Michigan, who reversed the injunction, holding that magistrate judges are not authorized to issue injunctions. Universal Settlements Int’l, Inc. v. Nat’l Viatical, Inc., No. 1:07-CV-1243, 2011 WL 1642341, at  (W.D. Mich. May 2, 2011).