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July 22, 1996


The opinion of the court was delivered by: MUNSON

 Presently before the court is defendant's motion seeking enforcement of an alleged oral settlement agreement and dismissal of the instant complaint with prejudice. Plaintiff opposes defendant's motion and brings cross motions seeking summary judgment dismissing defendant's state common law damages claim, and Rule 11 sanctions against defendant for filing the instant motions.


 In the instant case, plaintiff Sears, Roebuck and Company ("Sears Roebuck") alleges five causes of action: 1) trademark infringement under § 32(1) of the Lanham Act, 15 U.S.C. § 1114(1); 2) unfair competition under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); 3) dilution of trademark under § 368-d of the New York General Business Law; 4) unfair competition under New York common law; and 5) declaratory judgment under the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. Complaint, Document ("Doc.") 1. The complaint was filed in response to defendant, Sears Realty Co., Inc., d/b/a Sears Express Shoppe(s), Sears Oil Co., Inc., and Sears Petroleum and Transport Corporation's ("Sears Oil"), planned expansion of its gasoline service station business in late 1988, as well as defendant's proposed move into the convenience store and credit card businesses. Defendant's answer includes several affirmative defenses and counterclaims. The first counterclaim requests declaratory relief under the federal Declaratory Judgment Act. The second counterclaim alleges state common law trademark infringement and unfair competition arising from plaintiff's use of the "SEARS" mark on its oil products. By order dated December 4, 1990, the court granted a motion by plaintiff for a preliminary injunction prohibiting defendant from using the SEARS mark in connection with certain gas stations, convenience stores and credit card operations. Dec. 4, 1990 Memorandum-Decision and Order ("MDO"), Doc. 59 *fn1" By order dated July 8, 1993, the court denied both parties' motions for summary judgment and continued the preliminary injunction. July 8, 1993 MDO, Doc. 79.

 The present dispute arises out of the events surrounding a settlement conference. Defendant claims that the meeting resulted in a binding oral settlement agreement, and seeks enforcement of the alleged agreement. Defendant's ("Def.") Notice of Motion, Doc. 83. Plaintiff opposes the instant motion and cross moves for summary judgment of defendant's state law claim for damages. Plaintiff's Notice of Cross Motions, Doc. 83. In addition, plaintiff asks the court to sanction defendant for filing the instant motion. Id. A hearing was held on November 21, 22 and 30, 1994, at Syracuse, New York. The following constitutes the court's MDO with respect to defendant Sears Oil's motion to enforce the alleged settlement agreement, and with regard to plaintiff's cross motions for summary judgment and sanctions.


 Since plaintiff initiated the instant lawsuit on November 8, 1989, the parties have made substantial efforts to settle the case. At a pretrial conference in late November 1993, the parties agreed to a meeting of the principals to discuss a settlement, inasmuch as all previous negotiations handled by legal counsel were unsuccessful. The principals for Sears Roebuck and Sears Oil were James D. Thornton, Vice President-Automotive Division of Sears Roebuck, and Howard P. Sears, Jr., President of Sears Oil.

 However, the parties appeared equally concerned with preserving the right not to be bound as a result of a meeting of the principals. Def.'s Exhs. 1-4. For example, in a letter to counsel for Sears Oil, Mr. Hansen expressly referred to the upcoming meeting as being held "off-the-record" and "completely without prejudice to the position of any of the parties to the litigation." Def.'s Exh. 3. In another letter, Mr. Hansen gave his assurance that Mr. Thornton had authority to bind Sears Roebuck, but qualified that statement with the following: "However, as I told you, this letter is not to be construed as an undertaking that Mr. Thornton will exercise his authority to so bind the corporation at the time of the meeting or at any time thereafter." Def.'s Exh. 4. Indeed, in a letter to Mr. Hansen, Vincent M. Amberly, counsel for Sears Oil, acknowledged the "without prejudice" status of the upcoming meeting of the principals. Def.'s Exhs. 1.

 The court finds particularly instructive Mr. Thornton's understanding of the purpose of the principal's only meeting. As part of his duties as an officer for Sears Roebuck, Mr. Thornton regularly conducts contract negotiations. It is a Sears Roebuck policy that all contracts must be in writing, and any documents of a legal nature are subject to prior review by counsel. At the time of the principals-only meeting, Mr. Thornton knew that he had the authority to bind his company to a settlement. He first became aware of the instant lawsuit only about one month before the meeting with Mr. Sears and had no prior involvement in the course of settlement negotiations. Mr. Thornton was told by in-house counsel that the meeting was to be a "discussion without prejudice, off the record, as an attempt to try to resolve it with non-lawyers." Thornton Tr., Doc. 117, at 9. Based on his conversation with in-house counsel, Mr. Thornton believed that anything said during the meeting was not to have any binding effect on Sears Roebuck. While it was Mr. Thornton's intention to attend the meeting to listen to Mr. Sears' views as to how the matter could be resolved without a trial, he did not know that Mr. Sears intended to reach a settlement agreement at their meeting.

 After a brief introduction of the parties at the meeting of the principals on January 5, 1994, the attorneys were dismissed from the room and Messrs. Sears and Thornton privately met for several hours. The meeting began with a general discussion in which Mr. Sears described the history of Sears Oil. He then expressed frustration with the course of the present litigation and accused the attorneys of being "obstructionists". Thornton Tr., Doc. 117, at 11-12; Thornton Tr., Doc. 107, at 27. During this portion of the discussion, Mr. Thornton said that in the "normal course of doing business, all documents of that nature or any legal contract would be reviewed by counsel." Thornton Tr., Doc. 107, at 27-31; Sears Tr., Doc. 110, at 105. Mr. Thornton did not explicitly state, however, that any settlement agreement reached during this particular meeting was subject to attorney review. Thornton Tr., Doc. 107, at 27-31.

 It is undisputed that the parties agreed that the territory into which Sears Oil may expand its operations would not extend into the states of Massachussets or Vermont, or into downstate New York. Thornton Tr., Doc. 107, at 2-3; Sears Tr., Doc. 110, at 28-30. With regard to the remaining territory relative to the instant dispute, Mr. Thornton agreed to consider defendant's sale of gasoline and automotive fuels. (Def's Exh. 5). Thornton Tr., Doc. 107, at 8; Thornton Tr., Doc. 108, at 31. The conversation shifted to a more detailed discussion about the services offered by Sears Oil. Those services included, for example, the operation of gasoline stations, convenience stores and car washes, the use of credit card services, the sale of promotional products bearing the SEARS mark, and the sale of automotive fuels, including motor oil, transmission fluid and fuel oil. Sears Tr., Doc. 110, at 35-47. Included in the discussion pertaining to territorial expansion, the parties covered various other topics, such as whether Sears Oil could sell shocks, struts and car batteries. In addition, they discussed whether Sears Oil could offer a quick oil change service to customers, whether the convenience stores could sell the existing stock of metal utility cans bearing the SEARS mark, and the use of the mark on marine vessels and convenience store and gas station signs.

 At the conclusion of the principals-only meeting, counsel for both parties were called into the room. Messrs. Sears and Thornton give divergent accounts of what was said in the presence of the attorneys. It is undisputed that Mr. Thornton was the first to address the group. Mr. Sears recalled that Mr. Thornton began the conversation by saying "not only do we have an agreement, not only do we have a settlement, we have Howard Sears back as a good customer." Sears Tr., Doc. 110, at 51. Mr. Thornton then recited the "points of [the] agreement." Id. Mr. Thornton does not recall the words "settlement" or "agreement" in describing the meeting. Instead, Mr. Thornton, reading from the notes that he had taken during the meeting, "announcing the points that [they] had discussed." Thornton Tr., Doc. 107, at 34, 38. Mr. Thornton did say something to the effect that Sears Roebuck had Mr. Sears back as a good customer, but he did not intend to indicate by the remark that it was a result of a settlement agreement. Instead, Mr. Thornton was referring to Mr. Sears' comment that he had stopped using his Sears Roebuck credit card because of the instant lawsuit. Thornton Tr., Doc. 108, at 28. At some point during their private meeting, Mr. Sears had referred to his "willingness maybe to consider using the Sears credit card again." Thornton Tr., Doc. 117, at 16.

 After Mr. Thornton addressed the group, Mr. Hansen, counsel for Sears Roebuck, remarked that the agreement was subject to attorney approval. Mr. Sears became upset and reiterated his objection to attorney involvement in the matter. Thornton Tr., Doc. 107, at 31. Mr. Amberly, counsel for Sears Oil, took notes while Mr. Thornton spoke to the attorneys and was chosen to draft a document about what had been discussed. Although Mr. Sears believed that the purpose of the document was to memorialize the terms of an oral settlement agreement, Sears Tr., Doc. 110, at 50-51, Mr. Thornton believed that it only was meant to "capture" what had been discussed during the meeting, Thornton Tr., Doc. 107, at 33-34. Stated another way, Mr. Thornton did not believe that he and Mr. Sears had reached an agreement. Thornton Tr., Doc. 107, at 35.

 In the weeks following the meeting, the parties engaged in certain activities that have a limited bearing on the issues presently before the court. On the day after the meeting, Mr. Sears sent a letter to Mr. Thornton stating in part:

I believe the inclusive settlement of the various aspects of this entire matter as agreed upon by and between us is a fair and equitable conclusion to an otherwise litigious future. Our respective counsel now have the task to embody the substance and intent of our agreement in an appropriate memorialization. I am confident that we can direct that process so as to effectuate a speedy conclusion.

 Def.'s Exh. 8. The letter, which Mr. Thornton has no recollection of receiving, Thornton Tr., Doc. 107, at 44, does not accurately reflect Mr. Thornton's belief as to what occurred at the meeting. Id. at 43-44. About one week after the meeting, Mr. Amberly sent a "draft Settlement Agreement" to Mr. Hansen. Agreement, attached to Jan. 12, 1994 Letter, Plaintiff's Exh. H. In July 1994, Mr. Hansen countered with a "draft settlement proposal" of his own. Agreement, attached to July 6, 1994 Letter, Plaintiff's Exh. L.

 Mr. Thornton had several telephone conversations with Mr. Sears subsequent to their January meeting. During one of those conversations, Mr. Thornton stated that local Sears Roebuck managers had expressed concern about the expansion of Sears Oil operations, and with the likelihood of consumer confusion. Mr. Thornton also told Mr. Sears that he requested market research, and that Mr. Thornton was not able to "respond to the proposed agreement" until he had a chance to review the survey. Sometime after the principals-only meeting, and before about February 15, 1994, a market research survey was ordered by plaintiff's legal counsel. Thornton Tr., Doc. 117, at 74. In addition to the above events, the parties had additional conversations and exchanged several other letters in which they discussed the drafting of a settlement agreement. Plaintiff's Exhs. I, J, K, and M. Negotiations ultimately broke down sometime in the summer of 1994, and defendant subsequently filed the instant motion to enforce the putative oral settlement agreement.


 I. Settlement Agreement

 A. Choice of Law

 The issue presently before the court is whether the parties formed a valid oral agreement to settle a trademark dispute, and if so, whether the agreement is enforceable. Plaintiff argues that the court should apply state statutory law, Plaintiff's Mem. in Opposition, Doc. 88, at 7-8, Plaintiff's Post-Hearing Mem. in Opposition, Doc. 115, at 9-11, while defendant maintains that federal common law applies. Def.'s Mem. of Law, Doc. 98, at 7, 8, n.3, Def.'s Mem. of Law, Doc. 84, at 13. As to what federal common law the court should apply, defendant argues that federal courts have consistently applied New York common law of contracts. Def.'s Mem. of Law, Doc. 98, at 10; Def.'s Mem. of Law, Doc. 84, at 17. If federal law must be applied, the court also must decide whether there exists an applicable federal rule. In the absence of a federal rule governing settlement agreements, the court must fashion a federal rule. In so doing, it may borrow state law or fashion a rule out of some other cloth. If state law applies, then the court must decide which substantive state rule to apply. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 727-29, 99 S. Ct. 1448, 1458-59, 59 L. Ed. 2d 711 (1979); see also Erwin Chemerinsky, FEDERAL JURISDICTION, § 6.2.1. The court turns to a discussion of whether to apply federal or state law.

 1. Whether to Apply Federal Common Law

 The court is unable to locate, and the parties have not pointed out, any provision within the Lanham Act that governs settlement agreements. Furthermore, the court has not identified any federal common law on point. As to the use of a federal common law rule, neither the Supreme Court, nor any Circuit Court of Appeals, including the Second Circuit, has articulated a rule with respect to the enforceability of settlement agreements under the Lanham Act. As the discussion immediately below makes clear, the case law cited by defendant fails to adequately support the position that federal law supplies the rule of decision with respect to the settlement of a Lanham Act claim.

 Defendant cites to numerous cases in support of the argument that the court should apply a federal rule of decision. Def.'s Mem. of Law, Doc. 98, at 3-10 (citing, inter alia, Taylor v. Gordon Flesch Co., Inc., 793 F.2d 858 (7th Cir. 1986); Glass v. Rock Island Refining Corp., 788 F.2d 450 (7th Cir. 1986); Mid-South Towing Co. v. Har-Win, Inc., 733 F.2d 386 (5th Cir. 1984); Fulgence v. J. Ray McDermott & Co., 662 F.2d 1207, 1209 (5th Cir. 1981); Allen v. Alabama Bd. of Educ., 612 F. Supp. 1046 (M.D. Ala. 1985); Bergstrom v. Sears Roebuck & Co., 532 F. Supp. 923 (D. Minn. 1982); Gamewell Mfg., Inc. v. HVAC Supply, Inc., 715 F.2d 112 (4th Cir. 1983); Bd. of Trustees of the Sheet Metal Workers Local Union No. 137 Ins. Annuity and Apprenticeship Training Funds v. Vic Construction Corp., 825 F. Supp. 463 (E.D.N.Y. 1993)). While these cases provide some guidance with regard to the issue presently before the court, they are not dispositive. For example, Taylor, Glass and Fulgence each hold that oral settlements of Title VII claims are enforceable under federal law. Taylor, 793 F.2d at 862; Glass, 788 F.2d at 454-55; Fulgence, 662 F.2d at 1209. Taylor and Glass cite to Lyles v. Commercial Lovelace Motor Freight, Inc., 684 F.2d 501 (7th Cir. 1982), which in turn cites to the Fifth Circuit's decision in Fulgence to support the claim that oral settlement agreements of Title VII claims are enforceable. In Fulgence, the Court specifically held that "federal law determines the validity of oral settlement agreements in employment discrimination actions brought pursuant to Title VII." Fulgence, 662 F.2d at 1209. The Court reasoned that the application of state law would interfere with a significant federal interest. In particular, the Fulgence Court observed that "Congress has mandated a policy of encouraging voluntary settlement of Title VII claims." Fulgence, 662 F.2d at 1209 (citing 42 U.S.C. § 2000e-5(b)). Secondly, the Fulgence Court declined to apply state law because "the Supreme Court has already established prerequisites to the validity of settlement agreements in Title VII suits." Fulgence, 662 F.2d at 1209 (citations omitted). Neither of these considerations are present in the case at bar. As far as this court is able to discern Congress has not expressed a particular interest in encouraging settlement agreements of Lanham Act claims. Nor has the Supreme Court articulated prerequisites to the validity of settlement agreements in Lanham Act claims, as it did with settlement agreements in Title VII suits. See Alexander v. Gardner-Denver Co., 415 U.S. 36, 52 n.15, 94 S. Ct. 1011, 1021 n.15, 39 L. Ed. 2d 147 (1974) (employee must knowingly and voluntarily consent to settlement agreement).

 In Allen v. Alabama Bd. of Educ., 612 F. Supp. 1046 (M.D. Ala. 1985), another case cited by defendant, the Court relied heavily upon Fulgence for the claim that the validity of settlement agreements are determined by federal rather than state law. Allen, 612 F. Supp. at 1053. Allen is not helpful because it relies primarily on the Fifth Circuit's decision in Fulgence, a case that this court already distinguished. Furthermore, Allen involved a class action civil rights lawsuit against state officials alleging discrimination. As discussed below, while federal common law has been applied to disputes in which the United States is a party, the Supreme Court has declined to adopt federal common law for private disputes. Morgan v. S. Bend Comm. School Corp., 797 F.2d 471, 475 (7th Cir. 1986).

 In asserting that the court is bound to apply federal common law, defendant makes the claim that the Lanham Act, not state law, is the source of "the parties [sic] rights and liabilities under the settlement." Def.'s Mem. of Law, Doc. 98, at 7. Plaintiff counters that the settlement agreement itself is the source of the right. Addressing defendant's argument, the court notes that while federal law is one source of the parties' rights and liabilities as well as the source of this court's jurisdiction, it is not the sole source. Plaintiff brought the instant suit under state law as well as federal law. Furthermore, defendant places too much emphasis on the court's jurisdictional bases over the instant claims. Def.'s Mem. of Law, Doc. 98, at 5. Although Congress granted federal courts original jurisdiction over all actions arising under the Lanham Act pursuant to 28 U.S.C. § 1338(a), that statute is merely jurisdictional and does not create any substantive legal rights. Texas Indus., Inc. v. Radcliff Materials, 451 U.S. 630, 640, 101 S. Ct. 2061, 2067, 68 L. Ed. 2d 500 (1981) ("The vesting of jurisdiction in the federal courts does not in and of itself give rise to authority to formulate federal common law.") (citing United States v. Little Lake Misere Land Co., 412 U.S. 580, 591, 93 S. Ct. 2389, 2396, 37 L. Ed. 2d 187 (1973)); J. Thos. McCarthy, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION, 3d ed. (1995), § 32.02 (citing Water Technologies Corp. v. Calco, Ltd., 850 F.2d 660 (Fed. Cir. 1988) ("Section 1338(b) is a jurisdictional statute, giving the district court jurisdiction to hear certain state or federal unfair competition claims. That statute does not create the substantive right underlying the claim.")). Furthermore, as discussed more fully below, the mere presence of federal law as a source of the parties' rights and liabilities does not, in itself, mandate the application of federal law. Based on the foregoing, the court concludes that there is no federal common law rule that determines the validity of oral settlement agreements under the Lanham Act.

 In the absence of a federal rule of decision, the issue is whether the court should create a federal common law rule. Congress expressed a preference for federal courts to apply state rules in the Rules of Decision Act. That statute provides that "the laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply." 28 U.S.C. § 1652. The Supreme Court has repeatedly reaffirmed its alleigance to the principal that there is "no federal general common law." See e.g., O'Melveny & Myers v. Federal Deposit Insurance Corp., 512 U.S. 79, 129 L. Ed. 2d 67, 114 S. Ct. 2048, 2053 (1994), citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822, 82 L. Ed. 1188 (1938); cf. Water Technologies, 850 F.2d at 670 ("there is no federal common law of unfair competition"). There are, however, several instances in which federal courts have fashioned federal common law.

 First, courts have done so in matters in which a federal rule of decision is necessary to protect uniquely federal interests. Texas Indus., Inc., 451 U.S. at 640, 101 S. Ct. at 2067 (citations omitted) (adopting state law as rule of decision in determining effect of settlement in antitrust action). However, the Supreme Court emphasized that such instances are "few" in number and "limited to situations where there is a 'significant conflict between some federal policy or interest and the use of state law.'" O'Melveny & Myers, 114 S. Ct. at 2055 (1994). Writing for a majority of the Court in O'Melveny, Justice Scalia noted that the very existence of a significant conflict is a "precondition for recognition of a federal rule of decision." O'Melveny, 114 S. Ct. at 2055. In the case at bar, defendants have not pointed to any conflict, significant or otherwise, between a federal policy and the application of state law. Nor is the court able to identify any conflict that would arise from the application of state law and the Lanham Act that would frustrate the purposes of the federal statutory scheme.

 Some courts have fashioned a federal rule when there is a perceived need for "uniformity" amongst the states. Kimbell Foods, Inc., 440 U.S. at 728, 99 S. Ct. at 1458; Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 98, 114 L. Ed. 2d 152, 111 S. Ct. 1711 (1991). The Supreme Court has repeatedly recognized that "federal programs that 'by their nature are and must be uniform in character throughout the Nation' necessitate formulation of controlling federal rules." Kimbell Foods, Inc., 440 U.S. at 728 (citations omitted). The need for uniform rules exists, for example, if Congress provides federal courts with exclusive jurisdiction. One such instance is the provision for exclusive federal court jurisdiction over ERISA claims. See Sheet Metal Workers Local 137 v. Vic Construction, 825 F. Supp. 463, 465-66 (E.D.N.Y. 1993) ("Federal common law should govern the validity of settlement agreements resolving ERISA disputes" because, inter alia, Congress provided for exclusive federal court jurisdiction over such disputes, "thereby encouraging the uniform development of federal common law principles."). Likewise, Congress provided exclusive jurisdiction with regard to patent and copyright claims. 28 U.S.C. § 1338(a). In contrast, Congress did not provide exclusive jurisdiction to federal courts to hear claims brought under the Lanham Act; state courts have concurrent jurisdiction to hear Lanham Act claims. See, e.g., Berlitz Schools of Languages of America, Inc. v. Everest House, 619 F.2d 211 (2d Cir. 1980); see also, 4 J. Thos. McCarthy, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION, § 32.01 (3d ed. 1994) ("[A] plaintiff wishing to file suit for violation of a provision of the Lanham Act has a choice to sue on the claim in either federal or state court."). See e.g., Lanham Act § 34, codified at 15 U.S.C. § 1116 ("The several courts vested with jurisdiction of civil actions arising under this chapter shall have power to grant injunctions . . . to prevent the violation of any right of the registrant of a mark registered in the Patent and Trademark Office.").

 Courts have also found the need for a uniform national rule when federal law preempts a state law in a particular area through a comprehensive statutory scheme. For example, Congress expressly reserved the regulation of employee benefit plans to federal authority under ERISA, which expressly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. section 1144(a); see also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138, 111 S. Ct. 478, 482, 112 L. Ed. 2d 474 (1990) (preemption clause is "conspicuous for its breadth" and its "deliberately expansive language was designed to establish pension plan regulation as exclusively a federal concern." (internal citations omitted)). Furthermore, the Supreme Court and the Second Circuit have acknowledged that federal courts are competent to fashion common law in claims brought under ERISA. Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12, 16 (2d Cir.), (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S. Ct. 948, 954, 103 L. Ed. 2d 80 (1989)).

 Congress has not preempted the area of common law trademark. See Mead Data Central v. Toyota Motor Sales, U.S.A., 702 F. Supp. 1031, 1040-41 (S.D.N.Y. 1988) ("To the extent that the New York [antidilution statute, N.Y. Gen. Bus. Law § 368-d,] protects rights not provided for by the federal statute, it does not conflict with the Lanham Act but rather, it complements and supplements it."), rev'd on other grounds, 875 F.2d 1026 (2d Cir. 1989); see also Nikon, Inc. v. Ikon Corp., 803 F. Supp. 910, 925-26 (S.D.N.Y. 1992) (citing Mead Data Central, 702 F. Supp. 1031 (S.D.N.Y. 1988)); La Chemise Lacoste v. Alligator Co., 506 F.2d 339, (3d Cir. 1974), cert. denied, 421 U.S. 937, 95 S. Ct. 1666, 44 L. Ed. 2d 94, reh. denied, 421 U.S. 1006, 95 S. Ct. 2408, 44 L. Ed. 2d 674 (1975). Although the Lanham Act would preempt ...

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