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

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

November 11, 2019

Y&O WF, LLC, Defendant.



         On September 3, 2019, the United States Magistrate Judge issued Findings, Conclusions, and a Recommendation (the “FCR”) in this case. FCR, ECF No. 90. The FCR recommended that the Court deny Defendant Y&O WF LLC's (“Y&O”) Motion to Enforce Settlement Agreement (“Def.'s Mot.”) (ECF No. 83), filed February 14, 2019, and grant Plaintiff Sears Authorized Hometown Stores, LLC's (“Sears”) Counter-Motion to Enforce Settlement Agreement (“Pl.'s Counter-Mot.”) (ECF No. 86), filed March 7, 2019. Y&O filed Objections (“Def.'s Obj.”) (ECF No. 92), and Sears filed a Response (“Pl.'s Resp.”) (ECF No. 95).

         The Court has conducted a de novo review of those portions of the FCR to which an objection was made. For the following reasons, Y&O's objections are OVERRULED, and the Court ADOPTS the reasoning in the Magistrate Judge's FCR. Accordingly, the Court DENIES Y&O's Motion to Enforce Settlement Agreement and GRANTS Sears's Counter-Motion to Enforce Settlement Agreement.

         I. BACKGROUND

         Following a dispute pertaining to the lease of a retail property located in Wichita Falls, Texas and owned by Y&O, Y&O and Sears entered into a settlement agreement (the “Proposal”), the scope of which they now contest. See Def.'s Mot. 6-7, ECF No. 83; Pl.'s Counter-Mot. 8, ECF No. 86. Specifically, the parties challenge whether the Proposal prevents Sears from bringing third-party claims against Faith Retail, LLC (“Faith”) and its owner, Cheryl Warren (“Warren”). See Id. Faith and Warren are not parties to the Proposal and are no longer parties to this action. See Def.'s Mot. 6, ECF No. 83; Pl.'s Counter-Mot. 4-5, ECF No. 86

         This case began when Sears sued Y&O for injunctive relief and damages in connection with Y&O's alleged “wrongful[] withholding” of its equipment, inventory, and intellectual property, all located in the Sears Hometown Store in a shopping center owned by Y&O. Compl. 3, ECF No. 1. Faith and Warren operated that store until May 18, 2018, when they allegedly abandoned it and Y&O locked the premises. Id. at 2-3. In response, Y&O filed a Counterclaim against Sears and a Third-Party Complaint against Faith and Warren. Original Countercl. & Third-Party Compl., ECF No. 18. Ultimately, Y&O settled its third-party claims against Faith and Warren. See Settlement Agreement & Release, ECF No. 84-2. In their signed agreement, Faith and Warren agreed “to assign to Y&O any and all claims that the Warren Defendants may have against [Sears] and any of its affiliates, ” and Y&O agreed “to defend the Warren Defendants from any claims asserted by [Sears].” Id. at 1-2. The Court approved the agreement and entered a Final Judgment “fully and completely resolv[ing] all claims by and between these parties” and dismissing the claims with prejudice. Final J. 1, ECF No. 61.

         Y&O and Sears, the remaining parties in the litigation, engaged in mediation before mediator Melvin Wolovits (the “Mediator”). See Alternative Dispute Resolution Summ., ECF No. 81. The Mediator's ADR Summary stated that Y&O and Sears “[s]ettled as a result of ADR.” Id. The Mediator sent Y&O and Sears the Mediator's Proposal (“the Proposal”), which states that it is “made to settle any and all claims/counter-claims/third party claims, whether by assignment or otherwise, by and between PLAINTIFF and DEFENDANTS, which are brought or could have been brought in Cause 7:18-CV-0083.” Proposal 1, ECF No. 84-3. By signing the release, Y&O and Sears agreed “to submit to the Court an Agreed Motion and Order of Dismissal with prejudice of all claims/counterclaims/third party claims.” Id. The Magistrate Judge also ordered Y&O and Sears to file the appropriate dismissal papers. See Order, ECF No. 82.

         Shortly thereafter, “[t]he parties reached an impasse.” Pl.'s Resp. 3, ECF No. 95. They disagreed on the scope of the Proposal and were unable to draft a mutually satisfying settlement agreement. See Id. Y&O filed a Motion to Enforce Settlement Agreement, stating that Sears refused to sign its draft settlement agreement and asking the Court to uphold Y&O's interpretation of the Proposal. See Def.'s Mot. 5-7, ECF No. 83. “The draft agreement prepared by Y&O contain[ed] mutual releases that include[d] the claims assigned by Warren to Y&O as well as any claims [Sears] may have against Warren or Faith Retail. . . .” Id. at 6. Y&O asserts that this agreement was consistent with the Proposal, which it took to reflect the parties' intent to “negotiate a comprehensive, ‘walk away' resolution that foreclosed any possibility of further litigation involving [Sears] or Y&O related to the Wichita Falls store location.” Id. at 4. It argues that the Proposal was intended to foreclose Sears' potential claims against Faith and Warren, given that Y&O had previously agreed to defend Faith and Warren from such claims. See Id. at 3-4. Though Y&O recognizes the parties' disagreement regarding the “intended scope of the release, ” it highlights that the Proposal “was signed by both parties and their counsel, included consideration[, ] provided that [it] became enforceable upon execution by both parties . . . [and] encompassed all material terms.” Id. at 8. It maintains that there was “no doubt” that the Proposal “reflected the parties' intent to enter into a binding agreement as well as an intent to fully settle the entire lawsuit.” Id.

         In response, Sears filed a Counter-Motion to Enforce the Settlement Agreement, in which it provides is own interpretation of the Proposal. Pl.'s Counter-Mot., ECF No. 86. Therein, Sears argues that the Proposal applies only to claims “by and between” Y&O and Sears and does not prevent Sears from bringing future claims against Faith and Warren, which were “never sued by [Sears], were not parties to the lawsuit at the time of the mediation, did not participate in the mediation, are nowhere mentioned in the release provisions of the Mediator's Proposal, and are not parties to the Proposal.” Id. at 1-2. Sears argues that Y&O is asking the Court to read alleged intent that goes beyond the Proposal's agreed-upon text. See Id. at 3.

         The Magistrate Judge considered both Y&O's Motion and Sears's Counter-Motion, and he issued Findings, Conclusions, and a Recommendation in this case on September 3, 2019. FCR, ECF No. 90. Y&O filed Objections. Def.'s Obj., ECF No. 92. Sears responded. Pl.'s Resp., ECF No. 95. The FCR, Objections, and Response are now ripe for review.


         “A [d]istrict [c]ourt has the power to enforce . . . a settlement agreement reached in a case pending before it.” Mid-South Towing Co. v. Har-Win, Inc., 733 F.2d 386, 389 (5th Cir. 1984). In a diversity case, a federal court reviewing a settlement agreement applies the law of the state in which the 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 provisions of Rule 11[ of the] Texas Rules of Civil Procedure (‘Texas Rule 11').” Borden v. Banacom Mfg. & Mktg., Inc., 698 F.Supp. 121, 123 (N.D. Tex. 1988) (citing Anderegg v. High Standard, Inc., 825 F.2d 77, 80-81 (5th Cir. 1987)). Under Texas Rule 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)).


         Plaintiff makes several objections to the Magistrate Judge's FCR. First, Y&O argues that the FCR fails to give meaning to essential terms in the Mediator's Proposal. Def.'s Obj. 5-7, ECF No. 92. Second, Y&O argues that the FCR fails to consider relevant facts bearing on the parties' intent. Id. at 7-8. And third, Y&O argues that the “by and between” language in the mediator's proposal does not exclude ...

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