Appeal from a judgment of the United States District Court for the Southern District of New York, Sofaer, J., ordering enforcement of a settlement agreement.
Van Graafeiland and Pratt, Circuit Judges, and Re, Chief Judge of the United States Court of International Trade, sitting by designation.
Defendants appeal from a judgment of the United States District Court for the Southern District of New York, Abraham D. Sofaer, Judge, enforcing what plaintiff characterizes as a fully consummated settlement agreement reached among the parties. In ordering enforcement the district court determined that the parties had reached "what both sides understood to be a final and binding agreement." Because we hold that no binding agreement was reached, we reverse and remand for further proceedings.
In May 1983 Marcus & O'Leary, Inc., owner of the title and rights to a series of characters known as "The Gallavants", agreed to sell a 50 percent interest in those characters to Mediafare Entertainment Corporation for the purpose of media exploitation of the characters. Pursuant to this agreement, Marcus & O'Leary and Mediafare formed a corporation called Gallavants, Inc. Defendant Ralph Smith is the president of Mediafare. Plaintiff Winston was allegedly instrumental in bringing together Marcus & O'Leary and Mediafare, and when a dispute arose over Winston's entitlement to a finder's fee she commenced this action in the Southern District of New York.
In anticipation of a status conference with the court scheduled for May 14, 1984, Arthur Kokot, counsel for plaintiff, met with Martin Zuckerbrod, trial counsel for Mediafare, and Edward Marcus, defendants' general counsel, on May 9 to discuss settlement. At that meeting the parties orally reached an agreement in principle pursuant to which plaintiff was to be paid $62,500 in five installments as a non-refundable advance against a percentage of gross revenues from the exploitation of the "Gallavants" characters. Since settlement appeared likely, Kokot informed the district court that the status conference would be unnecessary and requested the court to enter a "30-day order", pursuant to which a case is closed and remains closed unless a party moves to reopen it within 30 days.
Settlement negotiations continued, and on May 17 Zuckerbrod sent Kokot a copy of the original agreement between Mediafare and Gallavants to aid Kokot in preparing the settlement agreement. Kokot forwarded a first draft of the settlement agreement ("first draft") to Zuckerbrod and Marcus on May 23. Since Zuckerbrod had been retained only as trial counsel, it was Marcus who handled the remainder of the settlement negotiations for defendants. In a letter dated June 6 Marcus accepted Kokot's proposal that plaintiff would receive 2 percent of the gross profits obtained from exploitation of the Gallavants characters, but suggested four separate changes in the "first draft". Kokot incorporated three of the four changes into a "second draft" which he sent to Marcus on June 20. With respect to the fourth suggestion, a matter referring to the definition of gross revenues, the district court found that Marcus and Kokot had reached an oral understanding that no changes in the language of the "first draft" would be required. Along with four copies of the "second draft" Kokot enclosed a promissory note to be signed by Mediafare and guaranteed by Smith. Kokot wrote that he looked forward to receiving Mediafare's check for $15,000, and the executed contract, and he promised to hold the check in escrow "pending execution by my client and delivery to you of two fully executed copies of the agreement."
After making various new language changes in the agreement, Marcus on June 28 sent to Kokot four copies of a "third draft" of the agreement. These copies were signed by Mediafare and Gallavants, Inc. and were accompanied by the original executed promissory note, signed and guaranteed as requested; three copies of a stipulation of discontinuance, signed by Zuckerbrod; and a check for $15,000. In his transmittal letter, Marcus stated that all of the enclosures were to be held in escrow until "tow fully executed copies [of the agreement and stipulation] are returned to me."
The record does not clearly reflect the events that took place in the four weeks from June 28 to July 26. What is clear, however, is that Marcus and Kokot discussed by telephone the additional language changes that Marcus had inserted into the "third draft" before returning it, signed, to Kokot on June 28. Kokot stated that he "didn't understand why" Marcus had made the language changes, that Marcus had not consulted Kokot about the changes, and that the changes "surprised" him and "didn't seem to be accomplishing what [Marcus] wanted them to accomplish." Kokot testified that in the course of their telephone conference he and Marcus "went through the changes that [Marcus] had made on the face of the document", and that he and Marcus "worked it out a second time".
On July 26 Kokot sent Marcus four copies of a "fourth draft" of the settlement agreement, reflecting the changes that the district court ultimately found had been agreed to during the telephone negotiations that took place between June 28 and July 26. When, on July 30, Kokot called Marcus to inquire about the return of executed copies of the "fourth draft", Marcus stated that the principals of Mediafare and Gallavants were dissatisfied with the terms of the settlement and refused to proceed.
On July 31, Kokot wrote Marcus, informing him that he was releasing Mediafare's check from escrow and enclosing what Kokot characterized as "two fully executed copies of the agreement". But the enclosed agreement was not simply the "fourth draft" Kokot had sent to Marcus on July 26. Instead, Kokot took two copies of the "fourth draft" from which he removed the blank signature page and substituted therefor the signature page from the "third draft", which Mediafare and Smith had signed on June 28, but which had proved unacceptable to Winston.
In a letter dated August 1, apparently mailed before Marcus received Kokot's July 31 letter and its enclosures, Marcus stated that Marcus & O'Leary objected to Gallavants, Inc. being part of the settlement and that therefore "we cannot proceed with [the settlement] at this time". On August 6, after receiving the papers forwarded by Kokot on July 31, Marcus wrote to Kokot objecting to Kokot's characterizing the July 31 agreement as binding, and, on August 9, Marcus demanded that Kokot return the $15,000 check, the promissory note, and the agreement. Instead of complying Kokot on August 10 wrote to the district court stating that defendants have "attempted to disavow a binding settlement agreement."
After determining that expiration of the 30-day period did not bar a reopening of the case because the clerk had neglected to docket the 30-day order, the district court held a hearing at which Kokot and Marcus testified. Based upon the testimony at this hearing, the court found that the parties had entered into a ...