Court Opinion

ID: 3203755
Source: CourtListenerOpinion
Date Created: 2016-05-16 20:00:31.932372+00
Date Added: 2024-06-11T14:28:28.350224
License: Public Domain

NOT PRECEDENTIAL

          UNITED STATES COURT OF APPEALS
               FOR THE THIRD CIRCUIT

                         No. 14-4604

  WHITE AND WILLIAMS LLP; THE WHITE AND WILLIAMS
LLP PENSION PLAN AND TRUST; THE WHITE AND WILLIAMS
 LLP 401(K) TAX DEFERMENT/RETIREMENT SAVINGS PLAN

                            v.

 MICHELLE T. SEIDNER; MARY DIXON LEVY; THE UNITED
                 STATES OF AMERICA,

                                  Michelle T. Seidner,

                                                      Appellant

        On Appeal from the United States District Court
           for the Eastern District of Pennsylvania
             (District Court No.: 2-13-cv-00110)
         District Judge: Honorable L. Felipe Restrepo

          Submitted under Third Circuit LAR 34.1(a)
                      on April 6, 2016

    Before: FISHER, RENDELL, and BARRY, Circuit Judges

                (Opinion filed: May 16, 2016)
                                     O P I N I O N*

RENDELL, Circuit Judge:

      Michelle T. Seidner appeals from the District Court’s Order denying her Motion

that sought to enforce her interpretation of a settlement agreement, or to otherwise set

aside that agreement, and that sought sanctions. We will affirm the District Court’s Order

denying her Motion.

                                     I. Background

      Irving Steven Levy (“Decedent”) passed away on January 7, 2012. Decedent was a

partner of the law firm of White and Williams LLP (“White and Williams”) and, at the

time of his death, was married to Mary Dixon Levy (“Levy”). Decedent was previously

married to Michelle T. Seidner (“Seidner”) until their divorce on February 10, 2009.1 At

the time of his death, Decedent owed federal income taxes in excess of $800,000.

      Upon his death, Decedent was entitled to the proceeds of certain funds held or

controlled by White and Williams (collectively, “the Funds”): (1) White and Williams

profit distributions; (2) an unfunded pension calling for payments to Decedent’s

beneficiary amounting to $2,000 per month for a period of five years; (3) the White and

Williams Pension Plan held by Wilmington Trust; and (4) a 401(k) account through the

      *
         This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
       1
         Decedent and Seidner finalized their divorce in 2009 in a bifurcated proceeding.
As the division of property was not finalized at the time of the divorce, equitable
distribution proceedings were ongoing when Decedent passed away.
                                            2
White and Williams 401(k) Tax Deferment/Retirement Savings Plan held by Vanguard

Fiduciary Trust Company (“Vanguard”).

       On January 8, 2013, White and Williams, along with the White and Williams

Pension Plan, commenced an interpleader action in District Court, naming Seidner, Levy,

and the United States as defendants.2 The United States filed a counterclaim against

White and Williams seeking to enforce a levy the IRS had served to collect Decedent’s

federal-income-tax liabilities and seeking the imposition of a penalty for White and

William’s failure to honor the levy.

       Upon the conclusion of settlement discussions before Magistrate Judge Elizabeth

T. Hey, the parties executed a Settlement Agreement dated January 8, 2014. The terms of

the Settlement Agreement, in relevant part, stated:

       In full and final payment of all personal tax liabilities owed by Decedent to
       the United States, the United States will accept the sum of Seven Hundred
       Seventy Five Thousand Dollars ($775,000.00). To the extent the Funds
       exceed $775,000, the excess sums shall be distributed fifty percent (50%)
       to Seidner and fifty percent (50%) to Levy.

App. at 90a (emphasis added). The Settlement Agreement contemplated that the

“personal tax liabilities owed by Decedent” might not be the only taxes imposed on the

Funds—the Settlement Agreement states at Paragraph 4:

       [White and Williams] will issue 1099 Forms to the recipients of the Funds,
       and shall not be responsible for any tax liabilities of any kind related to the
       Funds, which responsibilities, including income and inheritance tax, shall
       lie with the recipients only. Seidner does not acknowledge that she has any
       tax liability for the distribution to be made to her pursuant this Settlement

       2
       On August 26, 2013, an amended complaint was filed to add the White and
Williams LLP 401(k) Tax Deferment/Retirement Savings Plan as a plaintiff in the action.
                                             3
      Agreement and reserves the right to contest any tax assessment made with
      respect to such distribution.

App. at 90a–91a. Finally, White and Williams agreed to pay the United States a sum of

$5,000 from the firm’s assets in addition to paying the $775,000 from Decedent’s assets.

      Following the execution of the Settlement Agreement, but with some delay, White

and Williams assembled and distributed the $775,000 to the United States in four

separate payments. Upon accepting the full payment, the United States released the

federal tax liens, and dismissed both a foreclosure action on Seidner’s residence and its

counterclaim against White and Williams. After the United States received $775,000 for

Decedent’s unpaid income taxes, and after the payment of additional applicable federal

taxes on the Funds that were withheld by Vanguard and Wilmington Trust, the balance

that remained totaled $44,000, of which Seidner received 50%.

      Upon receiving her 50% distribution, Seidner filed a motion asserting that the

Settlement Agreement had not been complied with. She asserted that the parties all

contemplated that, because the amount of the Funds at the time of Settlement was over a

million dollars, she should have received approximately $114,500 rather than the $22,000

she actually received. Seidner acknowledged that the discrepancy was a result of federal

tax withholdings by Vanguard and Wilmington Trust, but asserted that these

withholdings were not contemplated by the parties at the time the agreement was signed.

Seidner also contended that the discrepancy arose as a result of White and Williams’s

failure to comply with a Court order requiring the firm to place the Funds in an account

                                            4
with the Court. In a hearing before the District Court, she stated that her attorney had

refused to give her tax advice and had then withdrawn from the case.

       Ultimately, the District Court denied Seidner’s Motion, having determined that all

parties substantially complied with the Settlement Agreement. Further, the District Court

held that Seidner failed to demonstrate any reason to set aside the Settlement Agreement

or to impose sanctions.

                          II. Jurisdiction and Standard of Review

       We have jurisdiction under 28 U.S.C. § 1291 to review the District Court’s final

Order denying Appellant’s Motion. The District Court had jurisdiction pursuant to 28

U.S.C. §§ 1331, 1346, and 2410.3 We apply plenary review to the District Court’s

construction of the Settlement Agreement—that is, to its findings as to the legal operation

of the Settlement Agreement—but we review the District Court’s interpretation of the

Settlement Agreement and any other factual findings for clear error. Cf. In re Cendant

Corp. Prides Litig., 233 F.3d 188, 193 (3d Cir. 2000) (“[C]ontract construction, that is,

the legal operation of the contract, is a question of law mandating plenary review,” while

“contract interpretation is a question of fact, and review is according to the clearly

erroneous standard.”). Because the United States is a party to the Settlement Agreement,

       3
         We disagree with the District Court’s alternative finding that it lacked
jurisdiction to grant Seidner’s Motion. See App. at 5 n.6. District courts do not have
inherent subject matter jurisdiction over disputes that concern “the breach of an
agreement that produced the dismissal of an earlier federal suit,” but because the District
Court here had not dismissed the underlying action, it retained jurisdiction to enforce the
Settlement Agreement. See Bryan v. Erie Cty. Office of Children and Youth, 752 F.3d
316, 322 (3d Cir. 2014) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.
375, 379 (1994)).
                                             5
we will apply federal common law in interpreting it, although we detect no conflict

between federal common law and the laws of Pennsylvania. See Boyle v. United Techs.

Corp., 487 U.S. 500, 504 (1988) (“We have held that obligations to and rights of the

United States under its contracts are governed exclusively by federal law.”).

                                      III. Analysis

       Seidner argues that she was entitled to at least $114,500 under the Settlement

Agreement rather than the $22,000 that she actually received. She asserts that all parties

shared a fundamental assumption that the amount remaining after the $775,000 paid to

the United States would be approximately $229,000, of which she would be entitled to

50%. She urges that the District Court erred by declining to either (a) enforce the

Settlement Agreement as she understood it—that is, to enforce the expectation that she

would receive $114,500, or (b) to set aside the Settlement Agreement because it was

based on a mistake of fact.

       The District Court correctly rejected Seidner’s arguments. “A basic principle of

contract construction is that we must interpret and enforce unambiguous agreements

according to their terms.” Shaver v. Siemens Corp., 670 F.3d 462, 496 (3d Cir. 2012).

The District Court correctly determined that the Settlement Agreement was unambiguous

in guaranteeing Seidner no sum certain but rather only 50% of whatever funds remained

after the $775,000 payment to the United States for Decedent’s unpaid income taxes. See

App. at 5. Indeed, the Settlement Agreement contemplated at Paragraph 4 that additional

taxes—beyond Decedent’s delinquent income taxes—might apply to the Funds. See App.

at 90a–91a (“[White and Williams] will issue 1099 Forms to the recipients of the Funds,

                                            6
and shall not be responsible for any tax liabilities of any kind related to the Funds, which

responsibilities, including income and inheritance tax, shall lie with the recipients only.”).

The District Court likewise correctly found that Seidner had presented no “persuasive

reason” for setting aside the Settlement Agreement because of any mistake of fact. As the

District Court so aptly put it:

       Seidner’s primary complaint about the settlement concerns money. Despite
       the pension plan and 401(k) accounts increasing in value from the date the
       Settlement Agreement was signed to the date the Funds were disbursed,
       Seidner received a smaller cash payout than she was anticipating. The
       disparity between Seidner’s unfounded expectation and the practical reality
       is the result of Vanguard and Wilmington Trust withholding 30% and 20%
       of the account balances, respectively, for tax purposes. Seidner’s
       expectation that the Vanguard and Wilmington Trust disbursements would
       not be taxed runs contrary to both law and reason, and Seidner’s reliance
       o[n] paragraph 4 of the Settlement Agreement is misplaced. An agreement
       between private parties cannot relieve a party to that agreement of tax
       liability, no matter how strongly that party believes they should not be
       taxed. The taxability of the Vanguard and Wilmington [T]rust distributions
       was never waived by the United States or otherwise made part of the
       Acknowledgement Letter. Hr’g Tr. at 18-20, 41-42. That Seidner failed to
       comprehend the tax implications of the settlement or secure competent
       legal advice to help her understand such implications is not a sufficient
       reason to set aside the settlement. If Seidner needed a sum certain to be
       satisfied with the settlement in this matter, she should have protected
       herself by including that sum certain as a condition of the Settlement
       Agreement. Instead, she bargained for and received exactly 50% of the
       Funds “to the extent the Funds exceed[ed] $775,000.”

App. at 5-6 n.8. We agree with the District Court’s reasoning and conclusions. Cf.

Restatement (Second) of Contracts § 154 (“A party bears the risk of a mistake when (a)

the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the

contract is made, that he has only limited knowledge with respect to the facts to which

the mistake relates but treats his limited knowledge as sufficient, or (c) the risk is

                                              7
allocated to him by the court on the ground that it is reasonable in the circumstances to do

so.”).

         Finally, we see no error in the District Court’s determination that the Appellees

substantially complied with their obligations under the Settlement Agreement and that

Seidner failed to demonstrate that either White and Williams or the United States

engaged in any sanctionable conduct.

                                      IV. Conclusion

         For the foregoing reasons, we will affirm the District Court’s Order denying

Seidner’s Motion to Enforce the Settlement.

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