Bath Junkie Branson v. Bath Junkie, Inc. ( 2008 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 07-3042/08-1757
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Bath Junkie Branson, L.L.C.; *
Gloria R. Arney, *
*
Appellees, *
*
v. *
*
Bath Junkie, Inc.; Bath Junkie * Appeals from the United States
Distribution, Inc.; Bath Junkie * District Court for the
Franchise, Inc.; Bath Junkie * Western District of Missouri.
Corporate Store, Inc.; Zimmerelli, *
LLC; Bath Deli, Inc.; Judy *
Zimmer; Jon Zimmer; Jocelyn *
Morelli; Steven Kay, *
*
Appellants. *
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Submitted: April 18, 2008
Filed: June 9, 2008
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Before GRUENDER, BRIGHT and BENTON, Circuit Judges.
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GRUENDER, Circuit Judge.
The sole issue on appeal is whether the district court1 abused its discretion in
refusing to grant the appellants’ (“Franchisors”) motion for an evidentiary hearing, a
motion they presented for the first time after the district court announced its intention
to enforce a settlement agreement between Franchisors and the appellees
(“Franchisees”). For the reasons stated below, we affirm.
I. BACKGROUND
Franchisees sued Franchisors on federal and state claims with respect to a Bath
Junkie, Inc. (“Bath Junkie”) franchise. The parties informed the court that they had
reached a settlement agreement the day before the trial was scheduled to begin. Tom
Morris negotiated on behalf of Franchisors, and David Morris negotiated on behalf of
Franchisees. Others involved in the negotiations on Franchisors’ behalf included
attorney Jenni Cook, Bath Junkie corporate counsel Steven Kay, and Bath Junkie
President Judy Zimmer.
On February 22, 2007, the parties made a record of the settlement in front of the
district court. David Morris recited what he characterized as the “salient provisions”
of the agreement, which included the total payment by Franchisors to Franchisees of
$95,000, a payment schedule, interest on any delinquent payments and reductions for
any early payments, the entry of a consent judgment reflecting the payment terms,
execution of a settlement agreement containing mutual releases, and the dismissal of
Franchisors’ counterclaims. Tom Morris stated, on the record, “I agree with it all. It
sounds exactly like what we agreed to.” Neither party suggested that the settlement
agreement included any additional terms. The parties agreed to file a proposed
consent judgment by February 28.
1
The Honorable Richard E. Dorr, United States District Judge for the Western
District of Missouri.
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David Morris and Tom Morris failed to finalize a written settlement agreement
after exchanging several drafts, and they failed to file a proposed consent judgment.
After this point, David Morris was no longer involved in the case, and neither party
maintained contact with him.
On June 15, the district court ordered the parties to show cause why the lawsuit
should not be dismissed with prejudice. Franchisees filed a motion to enforce the
settlement based on the proceedings before the district court on February 22 and
requested oral argument. Franchisors filed a Response to Plaintiff’s Motion to
Enforce Settlement (“Response”). Franchisors did not request either oral argument
or an evidentiary hearing, but they did attach affidavits from Tom Morris, Cook, Kay
and Zimmer. These affidavits attested to the substance of the negotiations that
occurred before the February 22 hearing, which they aver also included agreements
about confidentiality, non-disparagement and non-disclosure, none of which were
included in the “salient” terms identified to the district court. All four affidavits also
claimed that the parties had agreed to structure the settlement as a franchise sale and
repurchase and that this “franchise sale language” was necessary to avoid Franchisors’
obligation under 16 C.F.R. § 436.5(c) to report a judgment against it in its Uniform
Franchise Offering Circular. Under the franchise sale language, Franchisors claimed
that the parties had agreed that Franchisors would grant Franchisees four franchises,
agree to sell those franchises on Franchisees’ behalf and then pay Franchisees $95,000
in accordance with the payment schedule. The affidavits also alluded to the exchange
of drafts of the settlement agreement after the February 22 hearing, but Franchisors
did not provide any of the exchanged draft agreements to the district court. Relying
on these affidavits, Franchisors claimed that the parties had earlier reached an
agreement that contained terms in addition to those detailed on the record before the
district court. Because Franchisees wanted to enforce the settlement agreement as
represented to the court on February 22, which differed from the agreement
Franchisors believed they had reached during negotiations, Franchisors argued that
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there must not have been a meeting of the minds as to the settlement and that the
Franchisees’ motion, therefore, should be denied. Franchisors asked the district court
to reschedule the matter for trial.
On July 27, 2007, the district court issued a written order announcing its intent
to enforce the settlement agreement and ordering the parties to advise the court
whether the judgment should be filed under seal. On July 31, Franchisors, for the first
time, requested an evidentiary hearing on Franchisees’ motion to enforce the
settlement. Franchisors also advanced a new argument in their request for an
evidentiary hearing. In addition to asking the district court to hold an evidentiary
hearing to determine whether there was a meeting of the minds, they also requested
the court to determine the terms of the settlement agreement, if it concluded there was
a meeting of the minds. On August 1, the district court entered judgment under seal
enforcing the settlement agreement as it was detailed by the parties during the
February 22 proceedings. Franchisors appealed the district court’s refusal to hold an
evidentiary hearing.
Franchisors submitted their opening brief to this court on December 7, 2007.
After their initial brief had been filed, Franchisors located David Morris, and Cook
met him in Dallas, Texas, on December 10. Franchisees submitted their brief on
January 9, 2008. On February 14, Cook completed an affidavit in which she claimed
that during her meeting with David Morris, he acknowledged that he never thought
that the franchise sale language would be a “big deal” and that additional terms were
to be included in the written settlement agreement. Franchisors submitted this
affidavit and copies of four draft settlement agreements, alleged to have been
exchanged by the parties, to this court in a supplemental appendix on February 19 and
relied upon them for arguments made in their reply brief. Franchisees moved to strike
the supplemental appendix and Franchisors’ reply brief.
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In addition to this appeal, Franchisors appeal the district court’s order denying
their motion to stay execution of the judgment and granting Franchisees’ motion to
allow the judgment to be registered and enforced in other United States district courts
notwithstanding the pending appeal. We have consolidated the two appeals. Finally,
Franchisors filed a motion with this court to stay execution of the judgment.
II. DISCUSSION
A. Motion to Strike
After both parties had filed their initial briefs, Franchisors submitted a
supplemental appendix containing four draft settlement agreements and Cook’s
affidavit concerning her meeting with David Morris, none of which were part of the
record before the district court. Franchisees move to strike the appendix and
Franchisors’ reply brief that relied upon the supplemental appendix. “An appellate
court can properly consider only the record and facts before the district court and thus
only those papers and exhibits filed in the district court can constitute the record on
appeal.” Huelsman v. Civic Ctr. Corp., 873 F.2d 1171, 1175 (8th Cir. 1989); see Fed.
R. App. P. 10(a). Because the drafts of the settlement agreement and the second Cook
affidavit were presented for the first time at the appellate stage, they are not part of the
record for our review. See Huelsman, 873 F.2d at 1175. “[W]e cannot consider it as
evidence . . . .” Id. Because we cannot consider this evidence, we grant Franchisees’
motion to strike the supplemental appendix and the reply brief to the extent that its
arguments rely on evidence that had not been presented to the district court.
B. Evidentiary Hearing
We now examine the record before the district court, and we review its decision
not to hold an evidentiary hearing for abuse of discretion. See Stewart v. M.D.F., Inc.,
83 F.3d 247, 251–52 (8th Cir. 1996). District courts are given “considerable
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discretion” in deciding whether to hold an evidentiary hearing. Id. at 251; see
Chaganti & Assocs., P.C., v. Nowotny, 470 F.3d 1215, 1223 (8th Cir. 2006) (“When
deciding whether to hold a hearing, a court may also consider the need to conserve
judicial resources and the unseemliness of holding, in effect, a mini-trial . . . .”)
(internal quotation omitted). “When a motion is based on facts not appearing of
record, Fed. R. Civ. P. 43[] provides that a district court ‘may hear the matter on
affidavits presented by the respective parties,’ or ‘may direct that the matter be heard
wholly or partly on oral testimony or deposition.’” Stewart, 83 F.3d at 251.
Franchisors did not request an evidentiary hearing until after the district court
had considered the arguments and the affidavits in Franchisors’ Response and issued
an order stating its intent to enforce the settlement agreement.2 Franchisors should
have requested an evidentiary hearing to introduce evidence “outside the record”
under Federal Rule of Civil Procedure 43(c) before the district court announced its
decision to enforce the settlement agreement. In Vaughn v. Sexton, we rejected the
argument that the district court should have held an evidentiary hearing when the
party’s original filing did not contain “any request for an evidentiary hearing or even
the suggestion that the submission of additional evidence, beyond that accompanying
the motion, would be necessary or helpful.” 975 F.2d 498, 505 (8th Cir. 1992).
Eventually, after the district court made its decision, the party seeking an evidentiary
hearing filed an untimely request, which the district court denied. Id. We concluded
that “[u]nder these circumstances, we hold that the trial court was well within its
discretion to act on the original motion without giving the defendants an evidentiary
hearing.” Id. (citing rule amended as Fed. R. Civ. P. 43(c)).
2
While we need not decide whether the district court’s July 27 order indicating
its intent to enter an order enforcing the settlement agreement is a “final order,” we
note that the district court made an unequivocal statement that it had decided to grant
Franchisees’ motion to enforce, and its only remaining task, entering the judgment,
was “ministerial.” See Minnesota v. Kalman W. Abrams Metals, Inc., 155 F.3d 1019,
1023 (8th Cir. 1998).
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In this case, Franchisors’ Response did not request an evidentiary hearing.
Even without a formal evidentiary hearing, Franchisors had the opportunity to present
additional evidence, which they did by submitting the four affidavits attached to their
Response. The district court considered the Response and decided to enforce the
settlement agreement. After the district court made its decision, it asked the parties
whether the judgment should be filed under seal, and Franchisors responded with the
unresponsive and untimely request for an evidentiary hearing. We conclude that, as
in Vaughn, the district court had no basis to believe that either party desired an
evidentiary hearing or had even suggested that the submission of additional evidence,
beyond that accompanying their motions, would be necessary or helpful. Under these
circumstances, the district court’s decision not to hold an evidentiary hearing was not
an abuse of discretion.3
Franchisors essentially argue that the district court should have held an
evidentiary hearing sua sponte before it decided to enforce the settlement agreement.
We examine whether the district court’s failure to hold an evidentiary hearing sua
sponte constitutes plain error. We may correct the error where there is “(1) error, (2)
that is plain, and (3) that affects substantial rights” and if “(4) the error seriously
affects the fairness, integrity, or public reputation of the judicial proceeding.” United
States v. Rice, 449 F.3d 887, 894 (8th Cir. 2006) (quotations omitted); see Champagne
v. United States, 40 F.3d 946, 947 (8th Cir. 1994) (applying plain error in a civil case).
We conclude that there was no error.
3
Franchisors argue that they relied upon Franchisees’ request for oral argument
and “assumed” that they would receive oral argument. Franchisors never requested
oral argument in their Response. Regardless, oral argument on a motion does not
encompass the ability to introduce new evidence, and it is the default rule before this
district court that motions will be ruled upon without oral argument. See W.D. Mo.
Local R. 7.1(b), (g); cf. Eaton v. Mallinckrodt, Inc., 224 S.W.3d 596, 599 (Mo. 2007)
(holding that a trial court may enforce a settlement agreement upon the motions and
“oral argument” without accepting new evidence).
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“[A]s a general rule, an evidentiary hearing should be held when there is a
substantial factual dispute over the existence or terms of a settlement.” Stewart, 83
F.3d at 251. “But this rule presupposes that there are essential issues of fact that can
only be properly resolved by such a hearing.” Id. Based on the record before the
district court, there was no substantial factual dispute over the settlement agreement,
and the district court did not err by deciding not to hold an evidentiary hearing sua
sponte.
“The essential elements of an enforceable contract are parties competent to
contract, a proper subject matter, legal consideration, mutuality of agreement, and
mutuality of obligation.” L.B. v. State Comm. of Psychologists, 912 S.W.2d 611, 617
(Mo. Ct. App. 1995).4 “The nature and extent of a contract’s essential terms which
form the basis of the parties’ mutual assent must be certain or capable of being
certain.” Id. “Under the objective theory of contracts applied in Missouri since 1892,
the stress is on the outward manifestation of assent made to the other party . . . .” Don
King Equip. Co. v. Double D Tractor Parts, Inc., 115 S.W.3d 363, 369 (Mo. Ct. App.
2003). “The mutuality or meeting of minds is to be determined by the expressed, and
not by the secret, intention of the parties.” Butler v. Mo. Ins. Co., 187 S.W.2d 56, 60
(Mo. Ct. App. 1945).
“An open court stipulation as to a settlement agreement ‘is a contract but made
with more solemnity and with better protection to the rights of the parties than an
ordinary contract made out of court.’” Vulgamott v. Perry, 154 S.W.3d 382, 391 (Mo.
Ct. App. 2004) (quoting Fair Mercantile Co. v. Union-May-Stern Co., 221 S.W.2d
751, 755 (Mo. 1949)). “Any reservation or limitation as to the scope of a settlement
agreement must be clearly expressed.” Fiegener v. Freeman-Oak Hill Health Sys.,
996 S.W.2d 767, 773 (Mo. Ct. App. 1999) (quoting Angoff v. Mersman, 917 S.W.2d
4
Both parties rely on Missouri law, and consequently we assume that Missouri
law controls. See Harris v. Brownlee, 477 F.3d 1043, 1047 n.2 (8th Cir. 2007).
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207, 211 (Mo. Ct. App. 1996)). “[W]e cannot be concerned with what [the parties]
may have subjectively intended to say.” Fiegener, 996 S.W.2d at 773.
We believe that Fiegener, which involved a settlement agreement in a medical
negligence lawsuit, is most analogous. There, the parties made a record before the
court of a “high-low” settlement agreement at 11:30 p.m., while the jury was
deliberating.5 Id. at 769–70. At 11:48 p.m., the parties again went on the record, and
some of the defendants clarified that they had intended only to accept a limited
percentage of net fault assessed to them. Id. at 770. The Missouri Court of Appeals
held that the settlement agreement “was not ambiguous and did not lack any essential
contractual elements.” Id. at 772. There was “no indication that [the] clients intended
to limit the scope of the settlement as [the attorney] contended at 11:48 p.m.” Id. at
773. Although the parties supplemented the record with this 11:48 p.m. statement and
with subsequent depositions, the “unilateral act of supplementing the record cannot
alter the terms of the contact entered into earlier.” Id. “At best, [the attorney’s]
actions belatedly revealed the subjective intent of his client.” Id. Therefore, even if
a party may have subjectively believed that it had outstanding important contractual
terms, a court will still enforce a settlement agreement that the record reflects contains
all material terms. See, e.g., Chaganti, 470 F.3d at 1223; Vulgamott, 154 S.W.3d at
391.
In this case, the district court considered Franchisors’ affidavits and argument
that the parties failed to reach an agreement, but it also had the benefit of counsel for
Franchisees identifying all “salient” terms of their settlement agreement on the record
before the court and counsel for Franchisors explicitly agreeing, without qualification,
5
A “high-low” settlement is an agreement that the plaintiff will recover no less
than a certain amount and no more than a certain amount no matter what the jury
actually awards. If, however, the jury award is within that range, the plaintiff recovers
the amount of the jury award.
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to the terms of the settlement.6 The record reflects the parties’ objective mutual assent
to enter a settlement agreement with all the material terms identified to the court and
no suggestion that additional terms had been agreed to or were subject to further
negotiation. Franchisors’ attempt to supplement the record after the fact does not alter
the content of the agreement on the record. The parties agreed to the material terms
of the settlement agreement, and the settlement agreement was capable of being
enforced. See L.B., 912 S.W.2d at 617. Because there was no substantial factual
dispute, the district court’s decision to resolve the matter on affidavits without an
evidentiary hearing was not error, much less plain error.7
6
“Salient” is defined as “[s]tanding out from the rest; prominent, conspicuous.”
Oxford English Dictionary (2d ed. 1989). A “material term” is defined as “[a]
contractual provision dealing with a significant issue such as subject matter, price, [or]
payment.” Blacks Law Dictionary 1510 (8th ed. 2004). While “salient term” is not
generally a legal term of art, its use in contract cases is not unprecedented. See, e.g.,
Old Reliable Fire Ins. Co. v. Castle Reinsurance Co., Ltd., 665 F.2d 239, 242 n.4, 244
(8th Cir. 1981) (concluding that Missouri reinsurance proposal contained all “salient
terms”); Cooper v. Jensen, 448 S.W.2d 308, 310 (Mo. Ct. App. 1969) (discussing the
“salient terms” of a contract). Terms that are not salient, by contrast, would be
inconspicuous or lack prominence, which means that they would be insignificant or
immaterial.
7
We also note that some of Franchisors’ alleged omitted terms are inconsistent
with the terms of the settlement agreement as it was disclosed to the court on February
22. We fail to see how the franchise sale language could be consistent with a payment
schedule contained in a consent judgment. A consent judgment would allow a party,
under certain circumstances, to satisfy the judgment by attaching and seizing assets
of the other party. It is significantly different than an agreement to sell and later
repurchase four franchises. In addition, the entry of a consent judgment is
inconsistent with the stated purpose of the franchise sale language, avoiding the
requirement of reporting a judgment against a franchisor in its Uniform Franchise
Offering Circular. See 16 C.F.R. §§ 436.5(c)(1)(ii), (3)(ii) (requiring that “a party to
any material civil action involving the franchise relationship” must disclose “the date
when judgment was entered and any damages or settlement terms”).
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In summary, Franchisors failed to make a timely request for an evidentiary
hearing, and their Response did not suggest that additional evidence would be useful.
The district court did not plainly err by failing to hold an evidentiary hearing sua
sponte because the parties’ open court agreement purported to contain all material
terms and there was no substantial factual dispute over the terms of the settlement
agreement. The district did not abuse its discretion by not conducting an evidentiary
hearing.
Franchisors also appeal the district court’s order denying their motion to stay
execution of the August 1 judgment enforcing the settlement agreement and granting
Franchisees’ motion to allow the judgment to be registered and enforced in other
United States district courts notwithstanding the pending appeal. Because we now
affirm the district court’s decision to enforce the settlement agreement without an
evidentiary hearing, we also affirm the district court’s decision to deny the motion to
stay execution of the judgment and to grant the motion allowing the registration and
enforcement of the judgment.8
III. CONCLUSION
Accordingly, we affirm both the district court’s decision not to hold an
evidentiary hearing and its denial of the motion to stay execution of the judgment.
BRIGHT, Circuit Judge, dissenting.
I respectfully dissent.
8
For the same reasons, we also deny Franchisors’ motion to stay execution of
the judgment.
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The district court should have held an evidentiary hearing to determine if the
parties entered into an enforceable settlement agreement. Failure to do so was an
abuse of discretion.
The majority opinion ignores our Circuit’s rule that “an evidentiary hearing
should be held when there is a substantial factual dispute over the existence or terms
of a settlement.” Stewart v. M.D.F., Inc., 83 F.3d 247, 251 (8th Cir. 1996); Sheng v.
Starkey Laboratories, Inc., 53 F.3d 192, 194 (8th Cir. 1995) (“As a general rule, when
the parties dispute the existence or terms of a settlement agreement, the parties must
be allowed an evidentiary hearing.”) (emphasis added). This is exactly the case here.
The majority claims that there was no substantial factual dispute sufficient to
warrant a hearing. I disagree. The majority’s contention is belied by the record. The
affidavits and briefs, submitted to the district court in response to Franchisees’ motion
to enforce the settlement, clearly established that during the settlement negotiations
certain terms were discussed – terms which the Franchisors claim Franchisees’
counsel agreed to. While they were not the “salient” terms entered on the record on
February 22, 2007, there was a substantial dispute over whether those terms were
“material” to the parties’ agreement. In short, there was a clear disagreement as to the
essential issue of whether there was a meeting of the minds, in the sense that the
parties had reached a complete agreement.
The district court therefore abused its discretion in enforcing the settlement
agreement when there was a substantial factual dispute over the terms of the
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agreement. I would reverse and remand with instructions that the district court hold
an evidentiary hearing.9
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9
The majority has refused to consider the Franchisors’ supplemental appendix.
The material therein discloses that the Franchisors’ claim of no complete agreement
is supported by statements in a proposed agreement submitted by Franchisees’ original
counsel. This information should have been disclosed by plaintiffs’ counsel in
response to the order to show cause issued by District Judge Richard E. Dorr.
Judge Dorr is an able and careful judge. If the information disclosed to this
court in the supplemental appendix had been submitted to the district court, its ruling
may well have been different. I believe on remand that important information should
be brought before Judge Dorr in appropriate proceedings.
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