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Sears Authorized Hometown Stores, LLC v. Y&O WF, LLC

United States District Court, N.D. Texas, Wichita Falls Division

September 3, 2019

Y&O WF, LLC, Defendant.



         Before the Court are the Motion to Enforce Settlement Agreement (ECF No. 83) and Appendix in Support (ECF No. 84) filed by Y&O WF, LLC ("Y&O") on February 14, 2019; the Response and Counter-Motion to Enforce Settlement Agreement (ECF No. 86) and Appendix in Support (ECF No. 87) filed on March 7, 2019 by Sears Authorized Hometown Stores, LLC ("Sears"); Y&O's Reply (ECF No. 88) filed on March 20, 2019; and Sears' Reply in Support of its Counter-Motion to Enforce Settlement Agreement (ECF No. 89) filed on April 3, 2019. United States District Judge Reed O'Connor referred Y&O's Motion (ECF No. 83) and all related responses, replies, briefs in support, appendices, etc., to the undersigned by Order dated February 19, 2019. (ECF No. 85).

         After considering the pleadings and applicable legal authorities, the undersigned RECOMMENDS that Judge O'Connor GRANT Sears' Counter-Motion to Enforce Settlement Agreement (ECF No. 86) and DENY Y&O's Motion to Enforce Settlement Agreement (ECF No. 83).

         I. BACKGROUND

         What remains in this case is a dispute concerning the terms of a settlement agreement. The case began when Sears sued Y&O for injunctive relief and damages in connection with recovery of its equipment, inventory, and intellectual property in the Sears Hometown Store located in a shopping center owned by Y&O in Wichita Falls, Texas. (ECF No. 1). Faith Retail, LLC ("Faith") and Cheryl Lynn Warren ("Warren"), the owner of Faith, operated that store until May 18, 2018, when they allegedly abandoned it and Y&O locked the premises. (Id. at 2-3). Y&O counterclaimed against Sears and filed a Third-Party Complaint against Faith and Warren. (ECF No. 18). Sears, Faith, and Warren filed no claims against each other in this case.

         Judge O'Connor initially referred only Sears' motion for temporary restraining order to the undersigned, but later referred the entire case for pretrial management. (See ECF Nos. 15 and 36). Sears and Y&O reached an agreement regarding Sears' motion for a temporary restraining order. (ECF Nos. 30 and 33). Y&O ultimately settled its third-party claims against Faith and Warren. (See ECF Nos. 60 and 61). Y&O filed a Joint Motion for Entry of Judgment Against Third Party Defendants. (ECF No. 60), explaining that it entered a settlement agreement with Faith and Warren that included "entry of . . . judgment" and "fully and completely resolve[d] all claims by and between . . . these parties." (Id. at 1). Judge O'Connor granted Y&O's Motion and entered final judgment against Faith and Warren on October 16, 2018. (ECF No. 61). At that time, Faith and Warren ceased to be parties to this case.

         On November 29, 2018, the undersigned entered Findings, Conclusions, and a Recommendation that addressed Y&O's Supplemental Motion to Dismiss (ECF No. 34) and its Rule 12(b)(6) Motion to Dismiss Sears' Misappropriation of Trade Secrets claim (ECF No. 51). (See ECF No. 73). On December 17, 2018, Judge O'Connor accepted the recommendation and denied Y&O's Motions to Dismiss. (ECF No. 80). On December 18, 2018, Melvin Wolovits, who conducted a mediation with Sears and Y&O, filed an ADR Summary that stated that the parties had reached a settlement following the ADR session on December 13, 2018 (ECF No. 81). The undersigned then entered an order on December 19, 2018, requiring the parties to file the appropriate dismissal papers pursuant to Federal Rule of Civil Procedure 4l(a)(1)(A)(ii) or an agreed motion with corresponding proposed order on or before February 17, 2019. (ECF No. 82).

         On February 14, 2019, Y&O filed its Motion to Enforce Settlement Agreement (ECF No. 83), arguing that Sears refused to sign the draft settlement agreement attached in the Appendix in Support (ECF No. 84-16). Y&O alleges that Sears and it accepted the Mediator's Proposal (ECF No. 84-3) ("the Proposal"), which represented the parties' agreement to settle the case and release all claims that each party had against the other, including any and all future claims that may arise from this case. (See ECF No. 83 at 7-10). Y&O also asserts that the parties' intent, as reflected in the Proposal, was for Sears to release any and all claims that it had or might in the future have against Faith and Warren as well. (Id. at 11-14). Y&O argues that settlement of the entire lawsuit included Sears' claims against Faith and Warren because Y&O had agreed to defend Faith and Warren from such claims as part of its settlement with those parties. (Id.). Without settlement of those claims, Y&O asserts it could not have settled all of its claims with Sears. (Id.).

         Sears responded with its Counter-Motion to Enforce the Settlement Agreement (ECF No. 86), arguing that the Proposal "by its terms, applies only to claims 'by and between' Y&O and [Sears] and does not address any claims ... against Warren and Faith ...." (Id. at 11). Y&O replies that: (1) Sears ignores crucial language in the Proposal; (2) Y&O does not request the Court to interpret its subjective intent or to consider parol evidence; (3)Y&O asks the Court to consider the "context and underlying factual development related to the 'third party claims' as referenced in the Proposal; and (4) it "requests enforcement of the express words of the parties' agreement - all of the words, not just the ones [Sears] seeks to have enforced against Y&O only." (ECF No. 88 at 1-2). Finally, Sears replies in support of its Counter-Motion that Y&O ignores crucial language in the Proposal, attempts to add terms through inappropriate parol evidence, and seeks to expand the scope of the settlement to include Sears' claims against Faith and Warren. (See generally ECF No. 89). The parties' Motions (ECF Nos. 83 are 86) are now ripe for adjudication.


         "A district court may exercise its discretion to enforce a settlement agreement. ..." Weaver v. World Fin. Corp. of Texas, No. 3:09-CV-1124-G, 2010 WL 1904561, at *1 (N.D. Tex. May 12, 2010) (citing Daftary v. Metro. Life Ins. Co., 136 F.3d 137, at *1 (5th Cir. 1998) (per curiam)). The Court has diversity of citizenship jurisdiction over the claims in the instant case. (See ECF No. 1 at 1-5). A court exercising diversity jurisdiction applies the law of the state in which the settlement agreement was negotiated and is to be performed. Lockette v. Greyhound Lines, Inc., 817 F.2d 1182, 1185 (5th Cir. 1987). "More specifically, the enforceability of a settlement agreement in a diversity case tried in a federal district court in Texas is governed by the provisions of Rule 11 [of the] Texas Rules of Civil Procedure ('Texas Rule 11')." Borden v. Banacom Manufacturing and Marketing, Inc., 698 F.Supp. 121, 123 (N.D. Tex. 1988). Under Texas Rule of Civil Procedure 11, "a settlement agreement is enforceable only if it is (1) 'in writing, signed[, ] and filed with the papers as part of the record' or (2) 'made in open court and entered of record.'" Williamson v. Bank of N.Y. Mellon, 947 F.Supp.2d 704, 707 (N.D. Tex. 2013) (citing Tex.R.Civ.P. 11; Estate of Martineau v. ARCO Chem. Co., 203 F.3d 904, 910 (5th Cir. 2000)).

         III. ANALYSIS

         Neither Sears nor Y&O disputes the validity or enforceability of the Proposal that both parties signed and accepted on December 18, 2018. (See ECF No. 83 at 7; ECF No. 84-3 at 3-4). Each party seeks to enforce the Proposal, and their only dispute concerns the scope of the Proposal. (ECF No. 83 at 11-14; ECF No. 86 at 11-18; ECF No. 88 at 1-2; ECF No. 89 at 2-6). Specifically, Sears and Y&O disagree as to whether the Proposal included a requirement that Sears release existing and future claims against Faith and Warren. The undersigned finds that the Proposal does not include this requirement.

         Under Texas law, "[a] release is a writing which provides that a duty or obligation owed to one party to the release is discharged immediately on the occurrence of a condition." Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 848 (Tex. App-Houston [14th Dist] 2001, pet. denied) (citing National Union Firelns. Co. v. Insurance Co. of N. Am.,955 S.W.2d 120, 127 (Tex. App.- Houston [14th Dist.] 1997), aff'd,20 S.W.3d 692 (Tex. 2000)). "Like any other agreement, a release is subject to the rules of construction governing contracts." Baty, 63 S.W.3d at 848 (citing Grimes v. Andrews,997 S.W.2d 877, 881 (Tex. App.-Waco 1999, no pet.)). "When construing a contract, courts must give effect to the true intentions of the parties as expressed in the written instrument." Baty, 63 S.W.3d at 848 (citing Lenape Resources Corp. v. Tennessee Gas Pipeline Co.,925 S.W.2d 565, 574 (Tex. 1996)). "The contract must be read as a whole, rather than by isolating a certain phrase, sentence, or section of the agreement." Baty, 63 S.W.3d at 848 (citing State Farm Life Ins. Co. v. Beaston,907 S.W.2d 430, 433 (Tex. ...

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