DONALD W. BOSTWICK, United States Magistrate Judge.
Presently before the Court are the following crossclaims:
These crossclaims arise out of a court-ordered mediation held in this case. The Court (both the undersigned magistrate judge and the assigned district judge) entered orders directing mediation of this case and further directing that certain insurers, including FAMI, attend a mediation conference to be conducted by Dennis Gillen on November 12, 2009. (Doc. 265, 266.) The mediation was held and an Alternative Dispute Resolution Report was filed on December 12, 2009, which indicated that the case had settled at the ADR session, but also stated that the session lasted over eight hours in person with "3 weeks of follow up discussion." (Doc. 275.)
A disagreement arose after the mediation concerning whether FAMI had offered to contribute funds to the proposed settlement. The City/County Defendants filed a motion to enforce the settlement (Doc. 277), and FAMI filed a motion to intervene. (Doc. 278.) The Court granted FAMI's motion to intervene, but determined that the matter should proceed by means of crossclaims rather than by motions, and directed the filing of such crossclaims. (Doc. 289.) On May 18, 2010, after the parties had filed their respective crossclaims, the Court held a pre-hearing conference concerning the crossclaims and entered a Pre-Hearing Order. (Doc. 296.)
A bench trial of these claims was held on June 9, 2010 before the undersigned magistrate judge.
The City/County Defendants called three witnesses: Dennis Gillen,
After the bench trial, the parties filed proposed findings of fact and conclusions of law. (Doc. 299, 300.)
Having reviewed the pleadings, suggested findings and trial exhibits, the Court is prepared to rule.
As set out in the Pre-Hearing Order, the parties have stipulated to the following facts:
1. Farmers Alliance Mutual Insurance Company ("FAMI") is an insurance company authorized to conduct business in Kansas.
2. Plaintiff Eddie Lowery ("Lowery") has alleged in this case that defendants Riley County, City of Manhattan, and City of Ogden, among others, are or may be liable for damages arising from Lowery's alleged wrongful arrest, conviction, and incarceration, all as more fully described in Lowery's 2004 Complaint. (Doc. 1).
4. Venue is proper pursuant to 28 U.S.C. § 1391(b).
5. City of Ogden ("Ogden") notified FAMI of Lowery's lawsuit in December 2005, and demanded that FAMI defend and indemnify it against Lowery's claims under the Policy.
6. FAMI subsequently sent Ogden a reservation of rights letter in which it denied that the Policy provides coverage for Lowery's claims and further denied that FAMI owes Ogden any duty to defend or indemnify it against Lowery's claims.
7. The Court, on September 17, 2009, ordered the parties and their respective insurers to appear at November 12, 2009 mediation. (Doc. 265).
8. FAMI appeared at the mediation by Jess W. Arbuckle and Sandy Baldwin.
9. The parties and insurers participating in the mediated settlement of the case have executed a written settlement agreement and release of claims consistent with promises made during and after the mediation on November 12, 2009. (Said Settlement Agreement is attached as Exhibit B to Doc. 277)
10. The City of Ogden executed the settlement agreement on January 20, 2010.
11. More than five days have passed since January 20, 2010.
12. The City/County Defendants, through counsel, have made demand upon FAMI to pay $100,000 toward the settlement pursuant to it oral agreement at mediation to do so. FAMI has not done so and avers that it made no oral agreement at mediation to pay $100,000 toward settlement and disputes any obligation to do so. (Doc. 296, at 3-4.)
The dispute concerning FAMI's position at the November 12, 2009 mediation arises out of only two short meetings: the first between FAMI representatives (Baldwin and Arbuckle) and two attorneys representing Lowery (Beck and Hale); the second between FAMI representatives (Baldwin and Arbuckle) and the mediator (Gillen). Neither meeting is reported to have lasted more than 5-10 minutes. Recollections of the participants of these meetings are diametrically opposed as to major points.
The mediation began with a opening presentation by Plaintiff's attorneys about the nature of Plaintiff's claims and damages. Attendees then broke up and went to separate rooms waiting to meet with the mediator. The first meeting between Baldwin, Arbuckle, Beck and Hale occurred late in the morning when Beck and Hale came into the room assigned to FAMI. None of these four individuals knew each other, and both sides were initially uncertain who they were dealing with and why. Baldwin and Arbuckle recall reviewing with Beck and Hale FAMI's position on coverage and the policy limits of the policy issued by FAMI to the City of Ogden ($100,000 vs. $500,000). FAMI had not been able to locate a copy of the policy, and prior to the mediation FAMI had spent time attempting to reconstruct the contents of that policy. FAMI had previously sent the City of Ogden a reservation of rights letter written by a coverage attorney which outlined FAMI's position that they had no coverage because they could not find that any personal injury endorsement had been purchased and
Beck and Hale agree that during the meeting with Baldwin and Arbuckle they reviewed documents provided by FAMI concerning the reconstruction of the FAMI policy to the City of Ogden specifically concerning the applicable policy limits, but do not recall any significant discussion of the coverage issue. Hale does recall that before coming to the mediation he saw a copy of FAMI's reservation of rights letter which dealt with the personal injury endorsement and coverage issue. After listening to FAMI and reviewing their documents, Beck became persuaded that the FAMI policy limits were more likely the $100,000 figure, not $500,000. Beck testified that it was his preference to reach a global settlement of all claims with all parties, but that he was prepared to "carve out" any party who did not participate for later litigation concerning their policy obligations. Beck gave his argument that Plaintiff had a strong case and that FAMI should simply pay its policy limits in order to avoid being "carved out" of any settlement and left with the risk that FAMI could be found to have failed to settle within policy limits thus risking a later judgment for a much greater amount than their policy limits. Beck testified that Arbuckle told him if FAMI's $100,000 would help him get the case settled, Beck had it, but he believed there was a long way to go. Beck believed that FAMI had given him "an option" on FAMI's policy limits of $100,000 to use in order to put together a settlement. The only condition precedent to that option was to obtain a settlement and order of dismissal of the parties who were insured. As he was leaving and was told that there was a long way to go, Beck believed that this referred to Plaintiff's ability to reach an overall or global settlement with all the parties. In response, Beck said that a journey of a thousand miles begins with a single step. At some time later, Beck met with Gillen and talked about his discussions with FAMI and with other carriers.
Arbuckle testified that he attended the mediation because he didn't want FAMI to be told to just pay the money (i.e., policy limits) since he knew that is how the game works, and he did not want to pay the $100,000 on this claim. After talking with his coverage attorney, Arbuckle was told that he could "still go hard" with every argument made in the reservation of rights letter his coverage counsel had sent to the City of Ogden several years before the mediation. When he and Baldwin signed in at the mediation, Arbuckle identified himself as a FAMI representative and then wrote "no coverage" on the sign-in sheet. See Exhibit 3, at 47.
The second meeting took place after lunch between Baldwin, Arbuckle and Gillen. Arbuckle and Gillen had worked on other cases and mediations in the past and Arbuckle described Gillen as a friend, so
Baldwin apparently did not talk much during the meeting but in her trial testimony she confirmed Arbuckle's statements.
Gillen testified that when he came into the meeting with FAMI he asked how much coverage FAMI had because he was uncertain whether the policy limits were $500,000 or $100,000. After determining the coverage was $100,000, Gillen told Arbuckle that he needed "to pony up" his limits because otherwise he would be carved out of the settlement and the defense costs would eat up his policy limits. Gillen testified that Arbuckle nodded his head at this statement, and there was no doubt in Gillen's mind that Arbuckle had manifested an intention to contribute $100,000 from FAMI to settle the case. Gillen thereafter included the sum of $100,000 in his notes as a contribution by FAMI. Gillen's practice on note-taking was to put an asterisk or similar notation by any amounts that were discussed but that were not certain. Gillen's notes did not contain any asterisk or other qualifying note concerning the $100,000 from FAMI. See Exhibit 3 at 11, 19, 21 & 22.
No settlement was reached during the mediation on November 12, 2009. Arbuckle visited briefly with Gillen as the mediation was winding up and Gillen told him no settlement had been reached and if Gillen needed anything further he would contact them. Arbuckle asked if Gillen thought the case was going to settle, and Gillen said he thought it would settle in the $6 to $10 million dollar range. Arbuckle's impression was that if Gillen need a little more money, he would call Arbuckle.
When the November 12 mediation concluded, there was a pool of money available from defendants or carriers of defendants in the amount of $6,200,000. Exhibit 1, at 1; Exhibit 3, at 19. Thereafter, the parties continued discussions, mainly between plaintiff and the defendants or carriers who had not made offers during the mediation. Gillen, as mediator, was not deeply involved in those discussions. Ultimately, Gillen was advised by Plaintiff's representative, apparently Beck, that the case settled for $7,500,000 on December 7, 2009. Thereafter Hale worked on a draft of a proposed settlement agreement but he did not know precisely which parties were contributing what amounts so no dollar amounts were included. This draft was sent to FAMI's coverage attorney for review.
Gillen had not disclosed to Plaintiff's representatives precisely who was contributing what dollar amounts because some of the defendants had asked him not to disclose this information. As the parties were finalizing the settlement documents,
Arbuckle testified that he called Gillen on January 5, 2010, and pinned him down to the fact that Arbuckle had never said that Gillen had FAMI's $100,000. Arbuckle then proceeded to see if he could negotiate a resolution of this misunderstanding directly with the parties by contacting Ogden's counsel.
As to this first telephone call, Gillen testified that Arbuckle said that he had had a discussion with Ogden's counsel that did not go well where FAMI offered to pay $10,000. Gillen made notes of this conversation. See Exhibit 3, at 3. Gillen testified that Arbuckle did not dispute that he said that he might have to pay the $100,000, but claimed that he never formally tendered the $100,000. Arbuckle said no one formally asked him or used the "magic words." Gillen disagreed and told Arbuckle that Gillen thought Arbuckle had tendered that amount even though Arbuckle may not have used the "magic words," and Gillen stated that there was no doubt in his mind that Arbuckle agreed to pay the $100,000 because he didn't have a choice.
A second telephone call between Arbuckle and Gillen took place on approximately January 8, 2010 when Gillen returned a call from Arbuckle. Gillen had been dictating a letter on another matter and he left his recorder on during his call with Arbuckle. The recorder picked up only Gillen's side of the conversation. That recording was later transcribed and reviewed by Gillen in a memo to the file. See Exhibit 3, at 1-2. The portion of the memo in quotation marks on page 1 and the top of page 2 is a direct transcription of the recording. The last paragraph on page 2 was a summary which was dictated by Gillen as soon as he hung up from talking with Arbuckle. These quotes and later dictated notes are substantially the same as the first call—that Gillen understood that Arbuckle had tendered his $100,000 policy limits even if he did not formally use "magic words." In the dictated portion, Gillen noted that Arbuckle did not dispute that he had told Gillen he would pay the $100,000 to settle the case if he had to, but no one asked him and he never used those words to tell Gillen he would pay policy limits although he knew he would have to. See Exhibit 3, at 2.
As to the second conversation, Arbuckle testified that he had not seen Gillen's notes, Exhibit 1, at 1-2, prior to the day of trial. He stated that he did not recall that conversation verbatim, but disputes that he ever stated that he would pay the $100,000 if he had to in order to get the case settled.
When the dispute concerning FAMI's role in the mediation could not be resolved, FAMI refused to contribute $100,000 to the settlement. The final settlement agreement provided that any settling defendant or insurer could agree to advance the additional $100,000 allegedly due from FAMI, and the City of Ogden would assign to such party or parties its rights to seek enforcement of the settlement agreement. The additional $100,000 was subsequently advanced by two City/County Defendants: the City of Manhattan, Kansas paid $80,000 and Riley County paid $20,000. These crossclaims followed.
The Court's job in making findings of fact after hearing conflicting live testimony at trial involves a determination of credibility of the witnesses. Here, the Court was presented with conflicting evidence from several witnesses, holding three different positions: representatives of FAMI, representatives of Plaintiff Lowery, and the mediator. The Court does not doubt that all of these witnesses honestly believe the substance of their testimony accurately reflects the events that occurred. Each witness tells his/her story based on his/her special position and recollection. In deciding which version to accept, the Court must first of all take into account the unique position from which each witness has viewed this transaction.
Starting with the first meeting during the mediation on November 12, 2009 between Plaintiff Lowery's representatives (Beck and Hale) and FAMI representatives (Arbuckle and Baldwin), the Court cannot find that FAMI representatives made any $100,000 offer of settlement to Beck and Hale. Considering that none of the four participants (Arbuckle, Baldwin, Beck and Hale) in the first conversation on November 12 knew each other, and crediting Arbuckle's statement that he never makes offers during mediations to anyone other than the mediator, the Court concludes that while Beck and Hale may have had the impression that FAMI was giving them an "option" on the FAMI $100,000 policy limits, there was no offer made by Arbuckle or Baldwin. The Court agrees with Beck that because of the small policy limits of FAMI's policy with the City of Ogden, it would be unreasonable, and therefore also unlikely, that a small insurer would risk being carved out of the settlement without offering to settle the case. That fact alone, however, does not lead to the conclusion that FAMI made a policy limits offer to Beck and Hale.
The situation concerning the second meeting, however, presents a different situation. The Court first considers the events of that meeting from FAMI's perspective. Acknowledging FAMI's earlier reservation of rights letter, the fact that FAMI had refused to participate in an earlier mediation of the case and FAMI's note in the sign-in sheet that they had "no coverage," could all reasonably lead one to believe that FAMI had decided to "still go hard" with the arguments it made in its reservation of rights letter. This would also be consistent with Arbuckle's statement that he was attending in order to prevent FAMI from being told to simply pay its policy limits, and statements by FAMI representatives that the coverage issue was as important to them as the determination of the policy limits. The suggestion that FAMI was taking a hard position on coverage, however, is not supported by testimony of either the Plaintiff's representatives or the mediator.
While the Court has not accepted Beck's impression that he had an "option" on FAMI's policy limits, it does find persuasive Beck's and Hale's statements that their short meeting with FAMI did not focus on the lack of coverage due to the absence of a personal injury indorsement to the policy. While that might have been part of the review by FAMI of the documents it had gathered concerning the missing policy, its importance apparently was not stressed by FAMI to the extent they would have the Court believe.
This is also the tenor of the testimony of the mediator. Gillen is an experienced mediator, having conducted between 1700 and 1800 mediations during his almost thirty years acting as a mediator. The Court finds that this extensive experience, coupled with Gillen's stated procedure for note-taking concerning the positions and offers of participants in a mediation,
The mediator explained his normal procedure for taking notes during a mediation and none of his notes indicate any serious discussion of coverage issues by FAMI nor do his notes indicate any uncertainty about the mediator's understanding of FAMI's offer. There is also nothing to indicate that FAMI was "laying in the weeds" to see how the settlement progressed before making any offer. Gillen testified that had such a mediation posture been disclosed to him by FAMI, he would have made a note about it in his mediation notes. While there is a separate note about the policy limits of the FAMI policy being $100,000 (versus the $500,000 noted by Plaintiff's pre-mediation statement), the Court does not accept the argument that the mediator confused the policy limits with an offer to settle. The Court finds that the mediator stated to Arbuckle that FAMI needed to "pony up" its $100,000, and that Arbuckle nodded an agreement to that statement.
This finding is further supported by recorded portion of the second telephone call and the notes of the mediator taken during the two subsequent telephone conversations with Arbuckle after the dispute over FAMI's participation in the settlement had surfaced. Those notes, although contested at trial by Arbuckle, clearly state that Arbuckle didn't dispute that he said to the mediator that he knew he would have to pay the $100,000. In fact, both Baldwin and Arbuckle stated at trial that they had come to the mediation with authority to pay the $100,000 without having to check with anyone else at the company.
Therefore, having heard all the testimony and reviewed the exhibits,
A trial court has the power to summarily enforce a settlement agreement
The question of whether there is a binding settlement agreement may be governed by state contract law, see Advantage Properties, Inc. v. Commerce Bank, N.A., 242 F.3d 387, 2000 WL 1694071 at *2 (10th Cir.2000) (Table) citing Central Kan. Credit Union v. Mutual Guar. Corp., 886 F.Supp. 1529, 1537 n. 2 (D.Kan.1995), aff'd 102 F.3d 1097 (10th Cir. 1996), or federal law, see Swift-Eckrich, Inc. v. Advantage Systems, Inc., 55 F.Supp.2d 1280, 1284 (D.Kan.1999). However, this issue is often immaterial because it does not appear there is any substantial difference in the standards to be applied under Kansas law or federal law. In this case, the parties have stipulated that the crossclaims are governed by Kansas law, and the Court agrees.
Settlement agreements need not be in writing to be enforceable under Kansas law. Lewis v. Gilbert, 14 Kan.App.2d 201, 203, 785 P.2d 1367 (1990). In order for the parties to form a binding contract, there must be a meeting of the minds as to all essential terms. Augusta Bank & Trust v. Broomfield, 231 Kan. 52, 60, 643 P.2d 100 (1982). See also Watson v. Marinovich, No. 98-2380-KHV, 1999 WL 450950, *2 (D.Kan. Jun. 22, 1999) citing Albers v. Nelson, 248 Kan. 575, 580, 809 P.2d 1194, 1198 (1991). Where the evidence concerning the existence of a contract is conflicting, this raises a factual issue for determination by the trier of fact,
Southwest & Assoc., Inc. v. Steven Enterprises, 32 Kan.App.2d 778, 781, 88 P.3d 1246 (2004).
While the present case involves another element—the presence of a third-party neutral—this does not alter the application of the above legal standards. Thus, in determining whether a party has either
FAMI's representative argued that FAMI had not made an offer because he did not use "the magic words." This argument completely misses the point. First, there are no magic words that must be uttered in order to constitute either an offer or an acceptance sufficient to create a binding contract. In addition, objective manifestation of assent need not be expressed in words.
1 LORD, WILLISTON ON CONTRACTS § 4.2, pp. 340-46 (2007) (footnotes omitted). See also, 17A Am.Jur.2d, Contracts § 33, pp. 68-69 (2004) ("Thus, the question of whether a contract has been made must be determined from a consideration of the expressed or manifested intention of the parties—that is, from a consideration of their words and acts.") (footnotes omitted). Here, the mediator told FAMI that it needed to "pony up" the $100,000 policy limits, and FAMI's representative nodded his assent. Considering the circumstances, this conduct was sufficient to manifest FAMI's assent to the mediator to use FAMI's funds in order to attempt to reach a global settlement of the case.
The City/County Defendants have included in their crossclaim against FAMI a request for sanctions and attorneys fees pursuant to 28 U.S.C. § 1927, claiming that FAMI's actions have unreasonably multiplied the proceedings. (Doc. 292, at 6.) Section 1927 of 28 U.S.C. states:
When the City/County Defendants began their quest for enforcement of an oral settlement agreement, they sought these sanctions but did not state precisely from whom they were seeking the sanctions. See e.g., Doc. 277, at 9; Doc. 292, at 6. In their Proposed Findings of Fact and Conclusions
The Court agrees that the controlling authority in this Circuit concerning an award of fees and expenses under 28 U.S.C. § 1927 is Hamilton v. Boise Cascade Exp., 519 F.3d 1197 (10th Cir.2008). The Court also agrees that Hamilton stands for the proposition that such fees can be awarded in situations involving actions to enforce a settlement agreement. The problem, however, is that this statute provides only for an award of fees against an attorney. Therefore, neither the statute, nor Hamilton's interpretation of the statute, provide a basis for an award of fees and expenses against FAMI.
To the extent that the City/County Defendants seek to apply 28 U.S.C. § 1927 against Arbuckle, the general counsel of FAMI, the Court has additional concerns. FAMI was not a party to this case at the time of the mediation. The basis for the claimed sanctions sought by the City/County Defendants all occurred before FAMI sought to intervene in this case. Thus, while Arbuckle was acting as an attorney when he appeared at the mediation on behalf of FAMI, he was not in the normal position of an attorney of record for a party as was counsel in Hamilton. Moreover, while the Court has rejected Arbuckle's position as to the events which occurred during the mediation, the Court does not find that Arbuckle's actions, when viewed objectively, manifest either intentional or reckless disregard of an attorneys duties to the Court. Hamilton, 519 F.3d at 1202. Therefore, the Court finds that no fees or expenses should be assessed against either FAMI or Arbuckle under the provisions of 28 U.S.C. § 1927.
The City/County Defendants also cite the Court's inherent authority to assess attorneys fees when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons, citing Chambers v. NASCO, Inc., 501 U.S. 32, 44-46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) and Dehning v. Child Dev. Svcs. of Fremont County, 261 Fed.Appx. 75 (10th Cir.2008). The Court agrees that it has the inherent authority to assess attorneys fees when a party has acted in bad faith, vexatiously, wantonly or for oppressive reasons. However, as noted above, the Court does not find that the actions of either FAMI or Arbuckle in this case rise to that level. Therefore, the Court refuses to exercise its inherent authority to assess attorneys fees under the facts and circumstances of this case.
Based upon the above findings of fact and conclusions of law, the Court finds that judgment should be entered in favor of the City/County Defendants and against FAMI on the crossclaim of the City/County Defendants (Doc. 292) in the amount of $100,000. Also, judgment should be entered in favor of the City/County Defendants and against FAMI on the crossclaim of FAMI. (Doc. 291.)
The Court further finds that prejudgment interest should be awarded to the City/County Defendants on the $100,000 judgment pursuant to the provisions of K.S.A. 16-201 at the rate of 10% per annum, from January 25, 2010
IT IS SO ORDERED.