Reversed and Remanded and Opinion filed November 24, 2015.
In The
Fourteenth Court of Appeals
NO. 14-14-00077-CV
MKM ENGINEERS, INC., AND PIKA INTERNATIONAL, INC., Appellants
V.
JAL B. GUZDER, Appellee
On Appeal from the 434th Judicial District Court
Fort Bend County, Texas
Trial Court Cause No. 07-DCV-155803A
OPINION
Appellee Jal B. Guzder sued appellants MKM Engineers, Inc. (“MKM”) and
PIKA International, Inc. (“PIKA”), seeking to enforce a Rule 11 agreement to
settle pending litigation. Guzder moved for summary judgment on his breach of
contract claim, and MKM and PIKA jointly filed a cross-motion for summary
judgment contending that the Rule 11 agreement was unenforceable. The trial
court granted a judgment in favor of Guzder. In six issues, MKM and PIKA
contend that the trial court erred by granting Guzder’s motion for summary
judgment and denying MKM and PIKA’s cross-motion. We conclude that the
agreement is enforceable, but fact issues concerning Guzder’s performance under
the Rule 11 agreement preclude summary judgment in his favor. We reverse and
remand.
FACTUAL BACKGROUND
MKM provides environmental remediation and disposal of unexploded
munitions to government agencies. Its customers include the United States Army
Corps of Engineers, the Department of Homeland Security, Defense Reutilization
Marketing Services, and the Environmental Protection Agency. Khodi Irani is
MKM’s majority shareholder. MKM was a participant in the Small Business
Administration’s “Minority Set-aside Program,” also referred to as the “8(a)
program,” which is designed to help small businesses obtain government contracts.
Similar to MKM, PIKA is an environmental consultant and remediation firm
whose primary customers are U.S. government agencies. PIKA also participated in
the 8(a) program. Tirandaz Kasnavia is PIKA’s owner and Irani’s brother-in-law.
Guzder owns an environmental remediation consulting company named
Energy & Environmental Technology Company (“EETCO”). Guzder and EETCO
initially provided consulting services to MKM, but in 1999, Guzder became an
officer, director, and 1% shareholder of MKM. In 2002, Guzder sued MKM, Irani,
and others over his compensation and the case ultimately settled. The settlement
documents provided that disputes over the agreement would be referred to
arbitration before the American Arbitration Association (“AAA”).
In 2005, Guzder sued MKM, Irani, PIKA, and Kasnavia in federal court,
citing the qui tam provisions of the False Claims Act. See 31 U.S.C. § 3730(b) (the
“Qui Tam Lawsuit”). Guzder alleged that MKM, Irani, PIKA, and Kasnavia
fraudulently misrepresented their eligibility for the 8(a) program and submitted
2
inflated bid proposals to the government. The U.S. investigated the allegations and
declined to intervene. On Rule 12(b)(6) grounds, the federal court dismissed
several of the claims against MKM and Irani, and all of the claims against PIKA
and Kasnavia. See Fed. R. Civ. P. 12(b)(6). Four claims against MKM and Irani
remained pending.
In 2007, Guzder and EETCO filed the present lawsuit in the district court in
Fort Bend County, contending that MKM and Irani breached the 2002 settlement
documents (the “Fort Bend Lawsuit”). Guzder also sued Irani’s wife, Parinaz Irani,
PIKA, Kasnavia, and several members of Kasnavia’s family. The trial court
ordered Guzder’s and EETCO’s claims against MKM, Irani, and Parinaz to
arbitration (the “AAA Arbitration”) and stayed the lawsuit as to all other parties
until the arbitration resolved. In March 2010, less than a month after the federal
court had dismissed some of Guzder’s claims against MKM and Irani in the Qui
Tam Lawsuit, Guzder filed another suit related to the 2002 settlement agreement
against MKM’s former auditor, Suhrid Thakore. Although not parties to that
lawsuit, MKM, the Iranis, PIKA, and its employees were served with discovery
requests as third-party witnesses.
In an attempt to resolve the pending disputes, the parties engaged in
mediation and settlement conferences. On May 27, 2011, counsel for MKM and
Irani drafted a letter on their law firm’s letterhead to “memorialize the terms of the
proposed settlement agreement pursuant to Tex. R. Civ. P. 11.” (the “Rule 11
Agreement”). Under the Rule 11 Agreement, MKM and PIKA together agreed to
pay Guzder $1.7 million “to settle fully and finally” the Fort Bend Lawsuit and the
AAA Arbitration. The Rule 11 Agreement was executed by counsel for Guzder
same day. PIKA, Kasnavia, and Kasnavia’s family members also signed the
document.
3
Under the Rule 11 Agreement, the parties agreed to execute a “final
settlement agreement” to include specified material terms, including the exchange
of mutual releases and payment of the settlement amount. In the proposed releases,
Guzder, his wife Zenobia Guzder, and EETCO would agree to exchange mutual
releases with MKM, Irani, PIKA, Kasnavia, and others. The releases would “grant
a full and final release of any and all claims or potential claims, known or
unknown, against the respective parties,” except that Guzder would not release
“any claims against MKM’s outside auditors or accountants, including, but not
limited to, Suhrid Thakore.” The Rule 11 Agreement further provided that, prior to
disbursement of the settlement amount, Guzder, Zenobia, and EETCO would agree
to release all claims asserted by them in the Fort Bend Lawsuit and the AAA
Arbitration and to dismiss all claims asserted in those lawsuits. Khodi Irani, his
wife Parinaz Irani, and MKM would agree to release all claims asserted by them in
the AAA Arbitration and dismiss all claims asserted in that dispute.
In addition, Guzder would provide (through counsel) notice to MKM and
PIKA “10 days before filing motions to dismiss the disputes as contemplated
herein.” After receiving that notice, and prior to the filing of the motions to
dismiss, MKM and/or PIKA were to wire transfer the settlement amount to
Guzder’s counsel within 10 days, to be held in trust until the required dismissals
were entered. If all the actions were not dismissed, then the settlement amount was
to be returned to MKM and PIKA and any releases provided by the parties would
automatically be rescinded and ineffective.
Guzder also agreed to provide a “Side Letter” simultaneously with the
execution of the final settlement agreement. In the Side Letter, Guzder was to
memorialize his intent to obtain a dismissal of the Qui Tam Lawsuit and to explain
“that he no longer wishes to prosecute” that lawsuit.
4
Contemporaneously, and before the execution of the Rule 11 Agreement,
MKM sought confirmation that Guzder would sign a proposed form of the Side
Letter detailing Guzder’s reasons for dismissing the Qui Tam Lawsuit, including a
statement that “the evidence developed in the lawsuit does not support the
allegations of fraud or violations of the False Claims Act made against [Irani] and
MKM in the Qui Tam Lawsuit.”1 MKM and PIKA wanted the Side Letter with the
proposed language because they were concerned that Guzder’s allegations in the
Qui Tam Lawsuit would jeopardize PIKA’s ongoing participation in the 8(a)
program and MKM’s continued work for governmental entities. Via email,
Guzder’s counsel confirmed Guzder’s approval of the proposed Side Letter “as
part of the Settlement Agreement and consistent with our discussions regarding the
confidentiality provisions.”
After executing the Rule 11 Agreement, the parties continued to negotiate
the final settlement documents well beyond the 12-day deadline. From June
through November 2011, the parties negotiated terms such as the scope and content
of the releases, confidentiality provisions, covenants not to sue, disclaimers of
rights, damage caps on suits related to the final settlement agreement, and non-
disparagement provisions.
1
The proposed Side Letter included, among other things, the following language:
During the six years since filing the Qui Tam Lawsuit, I understand that the
Government elected not to intervene in the action after its investigation of the
allegations. I have been integrally involved in discovery in the Qui Tam Lawsuit,
including specifically in the review of documents provided by your family’s
and/or MKM’s banks, insurers and accountants, and by other third parties.
Importantly, I also reviewed the Small Business Administration’s files that the
agency produced in the lawsuit.
Based on my assessments regarding the merits of the claims and, in particular, my
review of information obtained in discovery, explanations provided by
defendants, the SBA records, and SBA regulations, I have concluded that the
evidence discovered to date does not support claims against you and MKM for
fraud against the U.S. Government or violations of the False Claims Act.
5
Shortly after the Rule 11 Agreement was signed, and before any final
settlement documents were executed, Guzder circulated draft dismissal papers for
the Fort Bend Lawsuit, the AAA Arbitration, and the Qui Tam Lawsuit. On July
18, Guzder’s counsel gave notice to MKM and PIKA that Guzder intended to file
the dismissals of the present lawsuit and the AAA arbitration, and stated that the
notice triggered the Rule 11 Agreement’s provision that the settlement funds were
to be wired to Guzder’s counsel’s trust account within ten days. MKM and PIKA
did not wire the funds, however, contending in an August 8 email that the Rule 11
Agreement was merely a “preliminary agreement to agree” and that Guzder’s
proposed notice of dismissal of the Qui Tam Lawsuit was premature because the
terms of a final settlement had not been reached and Guzder had not provided the
Side Letter. Nevertheless, the parties continued negotiations.
On September 6, Guzder’s counsel forwarded a signed version of the Side
Letter that differed substantially from the May 27 version. The entirety of the
substantive portion of the letter read as follows:
Based on the settlement memorialized in our Rule 11 Agreement of
May 27, 2011, I no longer wish to prosecute the Qui Tam Lawsuit. In
accordance with paragraph 5 and 6 of our settlement, I have complied
with all terms of the Rule 11 Agreement, including instructing my
lawyers to communicate my desires to the Department of Justice and
obtain the government’s consent in the dismissal of my Qui Tam
Lawsuit, which they have done and which resulted in the Court’s final
dismissal of the Qui Tam Lawsuit on August 29, 2011.
Guzder also signed this version as President of EETCO, rather than individually as
in the May 27 version.
That same day, Guzder filed a supplemental petition, alleging that MKM and
PIKA breached the Rule 11 Agreement by failing to fund the settlement ten days
after Guzder gave notice of his intent to dismiss the pending actions. Guzder also
6
sought reasonable attorney’s fees under section 38.001(8) of the Texas Civil
Practice and Remedies Code. Attached to Guzder’s supplemental petition was a
copy of the Rule 11 Agreement, which had been filed with the trial court on July
25.
After Guzder alleged that appellants had breached the Rule 11 Agreement,
the parties nevertheless continued to negotiate and exchange drafts, but the parties
were unable to reach an agreement. In April 2012, Guzder filed a “Motion for
Summary Judgment to Enforce Rule 11 Settlement.” MKM and PIKA filed
amended answers and responses to the summary judgment motion. MKM and
PIKA also jointly filed a cross-motion for summary judgment asserting that the
Rule 11 Agreement was unenforceable. Guzder responded to the cross-motion. On
August 29, 2013, the trial court granted Guzder’s motion for summary judgment,
impliedly denying the cross-motion. Guzder moved for rendition of a final
judgment, which the defendants opposed because not all parties and claims had
been addressed or disposed of. Guzder filed a motion for severance.
On October 22, 2013, the trial court signed a document titled “Interlocutory
Final Judgment as to Some Parties,” which reiterated its grant of summary
judgment to Guzder and awarded $1.7 million in damages plus prejudgment
interest on that amount and attorney’s fees of $260,000. The trial court then
granted Guzder’s motion for severance. MKM and PIKA jointly filed a motion for
new trial or to modify the judgment, as well as a request for findings of fact on the
attorney’s fees issue. Ultimately, the trial court signed a “Modified Final
Judgment” in Guzder’s favor on January 27, 2014.2 No findings of fact were filed.
2
The Modified Final Judgment reflected that the trial court granted in part the motion for
new trial or motion to modify the judgment and deleted an award of conditional appellate
attorney’s fees to Guzder, but otherwise did not alter any relief previously awarded.
7
SUMMARY JUDGMENT STANDARD OF REVIEW
We review summary judgments de novo. Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). Under the well-
established standards governing traditional motions for summary judgment, the
movant must show there is no genuine issue of material fact and he is entitled to
judgment as a matter of law. Tex. R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt.
Co., 690 S.W.2d 546, 548 (Tex. 1985). We take as true all evidence favorable to
the non-movant, and we indulge every reasonable inference and resolve any doubts
in the non-movant’s favor. Provident Life & Accident Ins. Co. v. Knott, 128
S.W.3d 211, 215 (Tex. 2003). We review a summary judgment for evidence that
would enable reasonable and fair-minded jurors to differ in their conclusions. Wal-
Mart Stores, Inc. v. Spates, 186 S.W.3d 566, 568 (Tex. 2006) (per curiam).
When a movant meets that burden of establishing each element of the claim
or defense on which it seeks summary judgment, the burden then shifts to the non-
movant to disprove or raise an issue of fact as to at least one of those elements.
Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 511 (Tex.
2014. When a party asserts an affirmative defense to defeat a summary judgment,
it must come forward with evidence sufficient to raise a fact issue on each element
of at least one of its affirmative defenses. Brownlee v. Brownlee, 665 S.W.2d 111,
112 (Tex. 1984). To prevail on the affirmative defense, the non-movant must prove
each element of its defense as a matter of law, leaving no issues of material fact.
See Johnson & Johnson Med., Inc. v. Sanchez, 924 S.W.2d 925, 927 (Tex. 1996).
When we review cross-motions for summary judgment, we consider both motions
and render the judgment that the trial court should have rendered. Coastal Liquids
Transp., L.P. v. Harris Cty. Appraisal Dist., 46 S.W.3d 880, 884 (Tex. 2001).
8
ANALYSIS OF MKM AND PIKA’S ISSUES
Appellants MKM and PIKA contend the trial court erred by granting
summary judgment on Guzder’s breach of contract claim based on the Rule 11
Agreement and by denying appellants’ cross-motion on the Rule 11 Agreement’s
enforceability. In support of these contentions, appellants make six principal
arguments: (1) the Rule 11 Agreement is unenforceable as a matter of law or,
alternatively, fact issues as to the parties’ intent and the affirmative defense of
fraudulent inducement preclude summary judgment for Guzder; (2) Guzder failed
to perform as required to recover for breach of contract; (3) Guzder’s failure to
perform conditions precedent relieves appellants of the duty to pay Guzder; (4)
Guzder failed to prove damages of $1.7 million as a matter of law under any
accepted legal measure; (5) the judgment effectively awarded specific performance
unilaterally to Guzder even though he never requested that equitable remedy and
appellants were not awarded anything in exchange for the $1.7 million; and (6)
Guzder failed to prove as a matter of law that his reasonable and necessary
attorney’s fee was $260,000.
I. The Rule 11 Agreement is an Enforceable Contract
In their first issue, appellants contend that the trial court erred by granting
summary judgment in Guzder’s favor and by failing to grant appellants’ motion for
summary judgment. According to appellants, the Rule 11 Agreement is not
enforceable as a matter of law because the parties did not intend the Rule 11
Agreement to be a final settlement agreement and it lacks essential and material
terms. Consequently, appellants argue, the Rule 11 Agreement is no more than an
unenforceable agreement to agree and appellants are entitled to summary judgment
in their favor. Alternatively, appellants contend that genuine issues of material fact
exist on the enforceability of the Rule 11 Agreement. Finally, appellants contend
9
that a fact question exists whether Guzder fraudulently induced appellants into
signing the Rule 11 Agreement.
A. Enforceability of the Rule 11 Agreement
The trial court granted summary judgment on Guzder’s breach of contract
claim based on the Rule 11 Agreement purporting to settle the parties’ disputes.
See Tex. R. Civ. P. 11.3 To prevail on his breach of contract claim, Guzder was
required to prove: (1) a valid contract existed between Guzder and appellants; (2)
Guzder tendered performance or was excused from doing so; (3) appellants
breached the terms of the contract, and (4) Guzder sustained damages as a result of
appellants’ breach. See WTG Gas Processing, L.P. v. ConocoPhillips Co., 309
S.W.3d 635, 643 (Tex. App.—Houston [14th Dist.] 2010, pet. denied).
Rule 11 agreements have long been recognized as “an effective tool for
finalizing settlements by objective manifestation so that the agreements ‘do not
themselves become sources of controversy.’” Knapp Med. Ctr. v. De La Garza,
238 S.W.3d 767, 768 (Tex. 2007) (quoting Kennedy v. Hyde, 682 S.W 2d 525, 530
(Tex. 1984)). Courts construe Rule 11 settlement agreements just as they would
any contract. See Padilla v. LaFrance, 907 S.W.2d 454, 460 (Tex. 1995); Trudy’s
Tex. Star, Inc. v. City of Austin, 307 S.W.3d 894, 914 (Tex. App.—Austin 2010, no
pet.).
The intent of the parties to be bound is an essential element of an
enforceable contract. See Foreca, S.A. v. GRD Dev. Co., 758 S.W.2d 744, 746
3
Rule 11 provides: “Unless otherwise provided in these rules, no agreement between
attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and
filed with the papers as part of the record, or unless it be made in open court and entered of
record.” Compliance with Rule 11 is a threshold requirement for enforceability. Knapp Med. Ctr.
v. De La Garza, 238 S.W.3d 767, 768 (Tex. 2007). It is undisputed that the Rule 11 Agreement
in this case was in writing, signed, and filed with the court.
10
(Tex. 1988). A Rule 11 settlement agreement also must contain all the essential
terms of the settlement. Padilla, 907 S.W.2d at 460. Essential or material terms of
a Rule 11 settlement agreement include payment terms and release of claims. See
id. at 460–61. Essential terms are those terms that the parties “would reasonably
regard as vitally important elements of their bargain.” Potcinske v. McDonald
Prop. Invs., Ltd., 245 S.W.3d 526, 531 (Tex. App.—Houston [1st Dist.] 2007, no
pet.).
Agreements to enter into future contracts are enforceable if they contain all
material terms. McCalla v. Baker’s Campground, Inc., 416 S.W.3d 416, 418 (Tex.
2013) (per curiam). Thus, a binding settlement may exist when parties agree upon
some terms, understanding them to be an agreement, and leave other terms to be
made later. See, e.g., Foreca, 758 S.W.2d at 746; Eastman Gas Co. v. Goodrich
Petroleum Co., 456 S.W.3d 319, 326 (Tex. App.—Texarkana 2015, pet. denied);
Gen. Metal Fabricating Corp. v. Stergiou, 438 S.W.3d 737, 744 (Tex. App.—
Houston [1st Dist.] 2014, no pet.). While Texas courts favor validating transactions
rather than voiding them, a court may not create a contract where none exists and
generally may not add, alter, or eliminate essential terms. Eastman Gas Co., 456
S.W.3d at 326. Generally, the materiality of a contract term is determined on a
contract-by-contract basis, in light of the circumstances of the contract. Amedisys,
437 S.W.3d at 514. A settlement agreement containing all necessary terms is
enforceable as a matter of law. McCalla, 416 S.W.3d at 416.
(1) The Parties’ Intent to be Bound
Appellants argue that the parties did not treat the Rule 11 Agreement as a
binding contract because it: (1) contemplated a future “final settlement agreement”
by a date certain; (2) stated the final settlement agreement would include the stated
terms but did not state that the final agreement’s terms would be restricted to the
11
stated terms; (3) did not spell out the terms of the contemplated releases that had
yet to be drafted; (4) contemplated releases to be signed by persons and entities
who did not sign it; and (5) was drafted in the future tense, describing numerous
events to occur in the future rather than simultaneously with its execution.
Appellants also point to their affidavits controverting Guzder’s assertion of the
Rule 11 Agreement as a final agreement and assert that this evidence must be
accepted as true under the summary judgment standard of review.
The opening line of the Rule 11 Agreement reflects it was prepared “to
memorialize the terms of the proposed settlement agreement pursuant to Tex. R.
Civ. P. 11.” The Rule 11 Agreement provides that “[t]he parties understand that the
primary reason for entering into this agreement is to obtain peace though a
complete and final resolution of all disputes among them . . . .” Under the Rule 11
Agreement, MKM and PIKA together agreed to pay Guzder $1.7 million “to settle
fully and finally” the Fort Bend Lawsuit and the AAA Arbitration. The parties also
agreed to execute “a final settlement agreement” within twelve days of the
execution of the Rule 11 Agreement.
Courts have often “enforced settlement agreements that contemplate
additional documentation or leave open certain terms for future negotiation.”
Stergiou, 438 S.W.3d at 747–48 & n.8 (Tex. App.—Houston [1st Dist.] 2014, no
pet.) (collecting cases); see also Scott v. Ingle Bros. Pac., Inc., 489 S.W.2d 554,
555 (Tex. 1972) (stating that parties may agree upon certain contractual terms and
leave other matters for later negotiation). The critical issue for determining
enforceability when the parties agree that some terms will remain open is whether
the parties intended for their agreement to be a present, binding agreement in the
absence of an agreement on the remaining terms or whether they intended their
agreement to have no legal significance until agreement on the remaining terms is
12
reached. Stergiou, 438 S.W.3d at 748. Although intent to be bound is generally a
question of fact, it may be determined as a matter of law. Foreca, 758 S.W.2d at
746; WTG Gas Processing, 309 S.W.3d at 643.
In this case, the document was expressly drafted as a Rule 11 agreement—a
recognized tool for finalizing settlements—presumably because the parties
intended to settle their disputes by entering into an enforceable contract. See Knapp
Med. Ctr., 238 S.W.3d at 768. Moreover, the document contains no language
indicating that it was merely intended as a preliminary, non-binding agreement.
See John Wood Grp. USA, Inc., 26 S.W.3d 12, 19 (Tex. App.—Houston [1st Dist.]
2000, pet. denied) (cautioning that a party who does not wish to be prematurely
bound by a letter agreement should include a provision clearly stating that the letter
is nonbinding). Nor does it provide that the parties’ agreement was “subject to” a
more formal agreement or contain language indicating that certain actions were
conditions precedent to the agreement’s enforceability. Compare MCRB I Ltd. v.
Sw. Rail Indus., Inc., No. 14-10-00922-CV, 2011 WL 4031023, at *3–4 (Tex.
App.—Houston [14th Dist.] Sept. 13, 2011, no pet.), with Martin v. Martin, 326
S.W.3d 741, 753–54 (Tex. App.—Texarkana 2010, pet. denied); John Wood Grp.
USA, 26 S.W.3d at 18.
Contrary to appellants’ assertions, the Rule 11 Agreement is not
unenforceable merely because the parties contemplated taking additional actions
and executing a final settlement agreement at a later date. And although appellants
complain that the terms of the releases were not spelled out and had yet to be
drafted, the Rule 11 Agreement identified the specific parties and claims that
would be released, as well as the claims to be excluded from the releases.4 The
4
Although appellants complain that the Rule 11 Agreement is unenforceable because
Zenobia Guzder (Guzder’s wife) and EETCO (Guzder’s company) did not sign it, the face of the
Rule 11 Agreement, as drafted by MKM’s counsel, reflects that it was intended to bind only
13
Parties also agreed that Guzder would make certain representations in the Side
Letter he was to provide contemporaneously with the final documentation.
Appellants point to nothing in the language of the Rule 11 Agreement that
conclusively shows that the parties did not intend it to be an enforceable contract
or that raises a fact issue concerning the parties’ intent to be bound.
Appellants next assert that the parties’ continued negotiations and other
conduct after the Rule 11 Agreement’s execution show that the parties did not
intend to be bound to a settlement contract. Appellants note that for months after
executing the Rule 11 Agreement, the parties engaged in ongoing negotiations,
conference calls, and exchanges of drafts over several months. But working toward
final settlement documents is exactly what the Rule 11 Agreement contemplated
the parties would do.
Other conduct of the parties shows that immediately after the Rule 11
Agreement was signed, the parties took actions consistent with an understanding
that a binding agreement had been reached. For example, six days after the Rule 11
Agreement was executed, MKM’s counsel notified the case manager in the AAA
Arbitration that “the Parties have entered into an agreement to settle this
proceeding” and requested that the proceeding be abated “while the parties worked
toward a final, comprehensive settlement agreement.” In December, the parties and
the court were notified by the AAA that the arbitration proceeding had been
administratively closed.
Guzder and appellants also filed a “Joint Notice of Settlement and Request
for 30-Day Stay” with the federal court in the Qui Tam Lawsuit. Appellants point
Guzder individually. In part, the document recites, “[i]f the terms of this proposal are acceptable
to Mr. Guzder, please sign on his behalf below. . . . [T]his offer is available to Mr. Guzder until
Friday, May 20, 2011 . . .” (emphasis added). Likewise, the signature line provides for Guzder’s
counsel to sign “on behalf of Jal B. Guzder.”
14
out that the notice informed the federal court that a settlement was “pending” while
the parties were “working toward executing final settlement documents,” and that
parties were requesting only a stay rather than a dismissal. According to appellants,
Guzder took these actions because he realized that the parties were still
contemplating negotiating and signing a final agreement, “which might never reach
fruition.” However, the notice further informs the court that “[o]n Friday, May 27,
2011, [the parties’ settlement discussions] culminated in a settlement reflected in
an Agreement under Texas Rule of Civil Procedure 11.” The evidence also shows
that the parties requested a stay because several motions were pending and the stay
allowed Guzder time to notify the government of his intent to dismiss the action.
On June 10, Guzder circulated to counsel for MKM and PIKA a proposed
dismissal order filed in the Qui Tam Lawsuit reciting that “[t]he Court . . [has]
been advised . . . that an amicable settlement has been reached in a related lawsuit
and [the parties] . . . want to dismiss this action . . . .” MKM’s counsel replied that
the draft “looks fine to us.” The proposed order was submitted to the federal court,
with copies to counsel for MKM and PIKA, and signed June 19, 2011. Counsel for
MKM and PIKA lodged no objection. The order provided for dismissal with
prejudice as to Guzder and without prejudice as to the government in forty-five
days from the date of the order (August 4, 2011). After the government consented
to the dismissal on August 3, the federal judge entered an order formally
dismissing the Qui Tam case on August 29, 2011.
Despite acknowledging a settlement in the federal and arbitration
proceedings, MKM contends that throughout the entire process it “consistently
communicated its position” that the Rule 11 Agreement was never intended to be
“the final settlement agreement.” But the issue is not whether the parties intended
the Rule 11 Agreement to be the final settlement agreement, it is whether they
15
intended the Rule 11 Agreement to be a binding contract. Significantly, the first
time appellants communicated that they believed the Rule 11 Agreement was only
an unenforceable “preliminary agreement to agree” was on August 8, 2011, after
the date the Qui Tam Lawsuit was set for automatic dismissal with prejudice as to
Guzder. Then, one day after the federal court had signed the dismissal order,
MKM’s counsel communicated his “surprise[]” that the proposed dismissal order
represented that the parties had reached an agreement, “since the Rule 11 letter was
nothing more than an agreement to agree.”
The only earlier communication appellants point to is a July 27, 2011 email
concerning one of Guzder’s proposed draft settlement documents. In this email,
MKM’s counsel “note[d]” that the Rule 11 Agreement was not signed by all of the
parties and expressed disagreement with Guzder’s position that his preparation of
the dismissal notice in the Qui Tam Lawsuit triggered the settlement funding
requirement. The email, while critical of Guzder’s proposed draft, did not include
any indication that appellants did not believe the Rule 11 Agreement was
enforceable. The timing of appellants’ communications questioning the
enforceability of the Rule 11 Agreement, coming only after substantial steps had
been taken by both parties to dismiss the Qui Tam Lawsuit and the AAA
arbitration, does not raise a fact issue concerning the parties’ intent to be bound.
Finally, appellants complain that Guzder served MKM and PIKA with
additional written discovery on the merits of the underlying claims in September,
and that Guzder sought discovery from them in the Thakore lawsuit, which
appellants contend they spent thousands of dollars defending from November 2011
to August 2012. According to appellants, these actions are inconsistent with an
understanding that the case was settled and show that Guzder knew the Rule 11
Agreement was not intended to be final, because he knew appellants were
16
motivated to obtain peace with respect to all litigation. However, Guzder took
these actions only after filing the supplemental petition alleging that appellants had
breached the Rule 11 Agreement.
We conclude that the language of the Rule 11 Agreement and the
surrounding circumstances conclusively shows that the parties intended to enter
into a binding, enforceable agreement even though the parties contemplated
executing a formal settlement document and taking additional actions at a later
date. Moreover, because the language unambiguously reflects the parties’ intent to
be bound, appellants’ affidavits to the contrary may not be considered. See MCRB
I, Ltd, 2011 WL 4031023, at *4.
(2) Essential and Material Terms
Appellees also contend that the lack of essential and material terms shows
the Rule 11 Agreement was not a final agreement. First, appellants argue that the
Rule 11 Agreement contains no release language, but provides only that full
releases “will” be provided in the future. Second, appellants argue that Guzder
never provided the Side Letter in the form negotiated contemporaneously with the
Rule 11 Agreement. Third, appellants argue that other material terms contemplated
by the final settlement agreement remained unresolved, including assent to the
final agreement and execution of comprehensive releases by Zenobia Guzder and
EETCO, confidentiality provisions, covenants not to sue, disclaimers of rights,
damage caps on related lawsuits, non-disparagement provisions, and discovery and
associated costs in related litigation.
As discussed previously, the Rule 11 Agreement provides that (1) MKM and
PIKA will pay Guzder $1.7 million to fully and finally settle the Qui Tam Lawsuit
and the AAA Arbitration, and (2) MKM, PIKA, Guzder, and the other remaining
individual defendants in the Qui Tam Lawsuit will exchange mutual releases that
17
“will grant a full and final release of any and all claims or potential claims, known
or unknown, against the respective parties.” It also requires Guzder to provide the
Side Letter containing certain representations when the final settlement agreement
is executed, which was to occur within 12 days. We conclude that these terms
constitute the essential and material terms of the parties’ settlement. See, e.g.,
Cantu v. Moore, 90 S.W.3d 821, 825 (Tex. App.—San Antonio 2002, pet. denied)
(holding that settlement agreement contained all material terms when one party
agreed to pay other party $150,000 and all parties agreed to execute full releases);
CherCo Props., Inc. v. Law, Snakard, & Gambill, P.C., 985 S.W.2d 262, 265–66
(Tex. App.—Fort Worth 1999, no pet.) (settlement agreement including terms of
payment and a statement that the parties would execute releases contained all
material terms).
According to appellants, however, other terms negotiated after the Rule 11
Agreement was signed remained unresolved, such as confidentiality provisions,
covenants not to sue, disclaimers of rights, damage caps on suits related to the final
settlement agreement, non-disparagement provisions, and discovery and associated
costs in related litigation.5 While these terms may have been important to one party
or the other, the parties’ failure to resolve their differences concerning other non-
essential or collateral matters left for future negotiation do not render the Rule 11
Agreement unenforceable as a matter of law. See Stergiou, 438 S.W.3d at 744–45;
see also E.P. Towne Ctr. Partners, L.P. v. Chopsticks, Inc., 242 S.W.3d 117, 122
(Tex. App.—El Paso 2007, no pet.) (“Where the parties have intended to conclude
a bargain, the agreement’s silence as to non-essential, or collateral, matters is not
5
In affidavits, appellants state in a conclusory fashion that they considered such terms
“material” or “important” or “deal-breakers,” but do not provide any factual basis for their
statements. Affidavits containing conclusory statements that fail to provide the underlying facts
to support the conclusion are not proper summary judgment evidence. Nguyen v. Citibank N.A.,
403 S.W.3d 927, 931 (Tex. App.—Houston [14th Dist.] 2013, pet. denied).
18
fatal.”); West Beach Marina, Ltd. v. Erdeljac, 94 S.W.3d 248, 259 (Tex. App.—
Austin 2002, no pet.) (parties need not settle all pending issues for mediated
settlement agreement to be enforceable, but may agree on certain severable issues,
while not resolving the entire dispute). Appellants’ companion argument that
Guzder never provided them with a signed release or a satisfactory Side Letter
goes to whether Guzder failed to perform under the Rule 11 Agreement, not
whether the Rule 11 Agreement contains the essential terms of the settlement.
We conclude that appellants have failed to show that the Rule 11 Agreement
is unenforceable as a matter of law or that material and genuine fact issues exist
concerning its enforceability. We therefore hold that the trial court did not err by
impliedly denying appellants’ summary judgment motion.
(3) Fraudulent Inducement
Finally, appellants contend that a genuine issue of material fact exists as to
their affirmative defense that Guzder fraudulently induced them into signing the
Rule 11 Agreement.6 As the non-movants asserting fraudulent inducement as an
affirmative defense, appellants were required to provide sufficient summary
judgment evidence to create a fact issue on each element of the defense. See
Brownlee, 665 S.W.2d at 112. Fraudulent inducement is a type of fraud claim that
requires a showing that: (1) a false material misrepresentation was made that was
either known to be false when made or was asserted without knowledge of its truth
or falsity, (2) it was intended to be acted on, (3) it was relied on, and (4) it caused
injury. See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc.,
6
Guzder contends that PIKA waived the affirmative defense of fraudulent inducement
because it neither pleaded nor raised it in its response to Guzder’s summary judgment motion.
However, PIKA’s response specifically incorporated MKM’s arguments on the issue into its
response and argued that if the Rule 11 Agreement was unenforceable as to MKM, it was also
unenforceable as to PIKA. We conclude that the issue is not waived as to PIKA.
19
960 S.W.2d 41, 47 (Tex. 1998). Because appellants point to no evidence to show
that they suffered any injury from Guzder’s alleged fraudulent inducement of the
Rule 11 Agreement, they have failed to raise a genuine issue of fact on each
element of the affirmative defense.
II. Fact Issues Exist Concerning Guzder’s Performance
In their second issue, appellants contend that Guzder failed to perform as
required to recover for breach of contract. To prevail on his breach of contract
claim, Guzder was required to prove not only the existence of a valid contract, but
also to prove he tendered performance or was excused from doing so. See WTG
Gas Processing, L.P., 309 S.W.3d at 643; Williams v. Unifund CCR Partners
Assignee of Citibank, 264 S.W.3d 231, 234 (Tex. App.—Houston [1st Dist.] 2008,
no pet.). In the trial court, Guzder argued that he performed his part of the Rule 11
Agreement by: (1) dismissing the Qui Tam Lawsuit; (2) circulating draft dismissal
papers for the other proceedings; and (3) providing a version of the Side Letter.
When one party to a contract materially breaches, the non-breaching party
must elect to either terminate performance or continue performance. Gupta v. E.
Idaho Tumor Institute, Inc., 140 S.W.3d 747, 756 (Tex. App.—Houston [14th
Dist.] 2004, pet. denied). If the non-breaching party treats the contract as
continuing and demands performance from the breaching party, then the non-
breaching party must fully perform as well, because the contract continues in force
for the benefit of both parties. Id. A party who elects to treat a contract as
continuing deprives himself of any excuse for ceasing performance on his own
part. Long Trusts v. Griffin, 222 S.W.3d 412, 415–16 (Tex. 2006); Gupta, 140
S.W.3d at 757.
Guzder contends that appellants’ failure to transfer settlement funds to
Guzder’s counsel within ten days after receiving notice of Guzder’s intent to file
20
motions to dismiss the Fort Bend Lawsuit and the AAA Arbitration was a breach
of the Rule 11 Agreement. Guzder asserts that he provided such a notice on July
18, 2011, but appellants failed to transfer the funds to Guzder’s counsel by July 28
or any time thereafter. Assuming this action constituted a breach of the Rule 11
Agreement, Guzder’s actions after July 28 conclusively demonstrate that he chose
to treat the alleged agreement as continuing.
Among other things, Guzder (1) allowed the federal court to sign the order
dismissing the Qui Tam Lawsuit with prejudice on August 29, 2011, even though
appellants allegedly breached the Rule 11 Agreement a month earlier; (2)
continued negotiating and exchanging drafts for the “final settlement agreement”
terms through November 2011; (3) provided a version of the Side Letter on
September 6, 2011; (4) demanded performance from MKM and PIKA as late at
October 2011; and (5) requested confirmation in November 2011 that appellants
had transferred the settlement funds to their counsel. Because Guzder elected to
continue performance under the Rule 11 Agreement, he was required to show that
he fully performed under the contract. See Gupta, 140 S.W.3d at 757–58 (holding
non-breaching party’s failure to perform not excused).
Appellants contend that Guzder failed to perform because, among other
things, he never provided a Side Letter with the previously agreed text. As
discussed above, before execution of the Rule 11 Agreement, MKM’s counsel sent
a proposed form of the Side Letter, asking Guzder’s counsel to confirm that it
would be signed by Guzder “in satisfaction of Paragraph 5 of the Rule 11
Agreement.” Guzder’s counsel confirmed that the proposed Side Letter was
“approved pursuant to paragraph 5 of the Rule 11 Agreement, as part of the
Settlement Agreement and consistent with our discussions regarding the
confidentiality provisions.” The version of the Side Letter Guzder provided to
21
appellants on September 6, 2011 tracks the Rule 11 Agreement by stating, in
relevant part, that Guzder “no longer wish[es] to prosecute the Qui Tam Lawsuit.”
However, this version omits the substantive language confirming the Qui Tam
Lawsuit’s lack of factual and legal support, and is not signed by Guzder
individually. Appellants maintain that they never would have signed the Rule 11
Agreement without Guzder’s agreement to the form of the Side Letter previously
approved by Guzder’s counsel.
Both Irani and Kasnavia submitted affidavits in opposition to Guzder’s
motion for summary judgment in which they explained the significance of
obtaining a Side Letter. In his affidavit, Irani stated that that he informed Guzder’s
counsel that a Side Letter was essential to any settlement to “help alleviate any
concerns raised by clients or potential clients arising from Mr. Guzder’s false
accusations that MKM committed fraud against the government.” Further, Irani
stated he would not have agreed to the Rule 11 Agreement if Guzder or his counsel
did not agree to execute and deliver the agreed-upon Side Letter, and he agreed to
execute the Rule 11 Agreement only after Guzder’s counsel agreed to the form and
language of the Side Letter. Kasnavia also stated that he wanted the Side Letter
from Guzder for the purpose of “vindicating me and [PIKA] from serious
allegations, including fraud,” and that without such a letter, neither he nor PIKA
would consider the matter fully and finally resolved.
Guzder forwarded the allegedly non-conforming version of the Side Letter
to appellants on September 6, 2011. About two weeks later, Guzder’s counsel sent
an email to counsel for Irani and MKM in which he expressed dismay at perceived
delays and insisted on “receiv[ing] a firm commitment from your client as to what
he will sign along with confirmation of funding before we can even begin to
commit to anything related to the side-letter” (emphasis added). Guzder did not
22
provide any other signed version of a Side Letter.
In his brief, Guzder argues that his counsel did not unqualifiedly approve the
proposed May 27, 2011 Side Letter. Instead, he argues that his counsel conveyed
that the draft was satisfactory “if it ultimately included, or was made subject to,
confidentiality provisions.” Further, Guzder states that “[c]onfidentiality was
required because the draft included statements in addition to those provided for by
paragraph 5 of the Rule 11 Agreement.” But, Guzder’s approval of the proposed
language was not expressly made “subject to” any confidentiality provision, and
the proposed Side Letter’s text contained no confidentiality provisions. Instead,
Guzder’s counsel confirmed approval of the proposed language “consistent with
our discussions regarding the confidentiality provisions.” Because counsel
“confirmed” that Guzder “approved” appellants’ proposed Side Letter, but did so
with reference to the proposed Side Letter being “consistent” with discussions
concerning unidentified confidentiality provisions, we conclude that genuine issues
of material fact exist concerning whether counsel’s email constituted a
representation that Guzder unqualifiedly agreed to the Side Letter terms proposed
by appellants, and thus whether Guzder performed his obligation under the Rule 11
Agreement to provide the Side Letter when he presented appellants with the
September 6 version.
Because we conclude that genuine issues of material fact exist concerning
Guzder’s performance of his obligation to provide a Side Letter under the Rule 11
Agreement, we hold that the trial court erred by granting Guzder’s motion for
summary judgment.7
7
Because fact issues exist concerning Guzder’s performance require that the case be
reversed and remanded, it is unnecessary to consider whether, as appellants assert, Guzder failed
to fully perform his obligations to provide releases and to dismiss all clams in all proceedings,
not merely the Qui Tam Lawsuit.
23
Conclusion
We hold that the Rule 11 Agreement is an enforceable agreement, and
therefore the trial court did not err by impliedly denying appellants’ motion for
summary judgment on enforceability. However, genuine issues of material fact
exist concerning Guzder’s performance of his obligations under the Rule 11
Agreement that preclude summary judgment in his favor on his breach-of-contract
claim. We therefore reverse the trial court’s judgment and remand the case for
further proceedings consistent with this opinion.
/s/ Ken Wise
Justice
Panel consists of Justices Christopher, Donovan, and Wise.
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