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Terracon Consultants, Inc. v. Drash

United States District Court, Tenth Circuit

November 19, 2013

TERRACON CONSULTANTS, INC., and TT COMPANIES, INC., Plaintiffs,
v.
CHESTER J. DRASH, JR., and DRASH CONSULTANTS, LLC, Defendants.

MEMORANDUM AND ORDER

ERIC F. MELGREN, District Judge.

This matter is before the Court on Plaintiffs' Motion to Enforce Settlement (Doc. 90), Plaintiffs' Motion to Strike Portions of Affidavits of Carl P. Tobey and Chester Drash (Doc. 94), and Defendant Chester Drash's Motion for Leave to File Additional Suggestions in Opposition to Plaintiffs' Motion to Enforce Settlement (Doc. 104). All three motions relate to a Memorandum of Settlement Agreement the parties entered into on May 7, 2013, after mediating this litigation and a related arbitration proceeding. For the following reasons, the Court grants Plaintiffs' Motion to Enforce Settlement, grants in part and denies in part Plaintiffs' Motion to Strike, and denies Drash's Motion for Leave to File Additional Suggestions.

I. Factual and Procedural Background

Terracon Consultants, Inc. ("Terracon") is a Delaware corporation with its principal place of business in Johnson County, Kansas. Terracon provides nationwide consulting services related to engineering and other scientific matters, including geotechnical, environmental, construction, and facility issues. TT Companies, Inc. ("TT Companies") is a holding company that owns all of the outstanding stock of TSVC, Inc., which, in turn, owns all of the outstanding stock of Terracon. In October 2004, Terracon acquired Drash Consulting Engineers, Inc., an engineering consulting firm owned by Defendant Chester Drash and others. Drash served as Division Manager and Senior Vice President of Terracon from October 2004 until he resigned in July 2011. Drash also served on TT Companies' board of directors from January 2008 to July 2011.

Plaintiffs generally allege that when Drash left Terracon in July 2011, he misrepresented what he intended to do and instead formed a new company that competes with Terracon. Plaintiffs also allege that Defendants misappropriated a large volume of Terracon's proprietary information and that Defendants are using, without Terracon's permission, Terracon's federally registered and common law trademarks. Plaintiffs' Second Amended Complaint asserts claims for misrepresentation, misappropriation of trade secrets, breach of fiduciary duty, conspiracy to breach fiduciary duty, tortious interference, trademark infringement, and unfair competition against Defendants. In addition, Drash initiated an arbitration proceeding against TT Companies for breach of a promissory note given him as consideration for repurchase of his shares of stock in TT Companies when he resigned in July 2011.

On May 7, 2013, the parties mediated this lawsuit and the related arbitration proceeding. At the end of the day, the parties executed a "Memorandum of Settlement Agreement" ("Settlement Memorandum") prepared by the mediator. The Settlement Memorandum provides the key terms of the parties' agreement, including a payment schedule setting forth Terracon's obligation to pay Drash under the promissory note, mutual releases of all claims, and dismissal with prejudice this suit and Drash's arbitration proceeding. The Settlement Memorandum also contains a provision regarding a list of documents that Plaintiffs claim as their intellectual property or trade secrets that were allegedly misappropriated by Defendants. Paragraph 1.D. of the Settlement Memorandum states as follows regarding this list:

Attached to this Memorandum are three versions of a list of electronic files in possession of Drash and/or DC. This settlement is contingent upon subsequent agreement of the parties about which files may be removed from the list. Drash will submit a proposed list of files to be removed from the list and if Terracon does not agree, then the parties will negotiate in good faith as to removal of files from the list. If an agreement is reached, then Drash and DC shall permanently delete and wipe all electronic documents remaining on the list. Drash, DC and either (i) The Tobey Law Firm or (ii) Drash's IT consultant shall certify to Terracon that the agreed-upon remaining files from attached list have been permanently deleted and wiped. If such good faith negotiations fail to produce an agreement by 3:00 p.m. CDT, May 17, 2013, then this settlement agreement shall be void.[1]

Finally, the Settlement Memorandum contains a heading titled "Documents Required" and lists under that heading "Settlement Agreement, including releases of claims" and "Stipulation/Order of Dismissal with prejudice for lawsuit and arbitration."[2]

Over the next week, the parties communicated regarding the list of documents and a formal Settlement Agreement. Plaintiffs contend that the parties agreed on a final list on Friday, May, 17, 2013, at 10:26 a.m., when Plaintiffs' counsel sent Defendants' counsel an e-mail agreeing to remove a certain file from the list and stating, in part, "[s]o we are agreed on a list."[3] Defendants disagree, asserting that the parties never reached an agreement as to which documents should be removed from the list.

With regard to the formal Settlement Agreement referenced in the Settlement Memorandum, Plaintiffs' counsel sent Defendants' counsel a proposed draft on May 13, 2013. Defendants' counsel responded to that e-mail on May 17, 2013, at 10:53 a.m., stating that the parties should simply prepare a supplement to the Settlement Memorandum that identifies an agreed upon list of documents. A few hours later, Defendants' counsel sent another e-mail to Plaintiffs' counsel stating that the Settlement Memorandum required formal settlement documents to be prepared by 3:00 p.m. that day for the settlement to be effective. Plaintiffs' counsel responded, stating that he would not be able to complete the formal Settlement Agreement by the 3:00 p.m. deadline but that it was not necessary for the settlement to be enforceable. The parties did not and currently have not come to an agreement on the formal Settlement Agreement. The primary issue preventing the parties from completing such agreement is whether paragraph 1.D. the Settlement Memorandum requires Defendants to delete all copies of each file on the list or only the specific electronic file listed, leaving Defendants in possession of any other copies they may have of the same document.

On May 20, 2013, the parties held a telephone scheduling conference with the arbitrator regarding the arbitration proceeding. During the teleconference, TT Companies asserted that the parties had settled this case and the arbitration proceeding through the Settlement Memorandum. Drash, however, disagreed. The arbitrator then ordered the parties to submit briefs on whether the arbitration agreement was still in effect such that he retained jurisdiction or whether his jurisdiction was superseded by the Settlement Memorandum.

On June 20, 2013, after submitting its brief to the arbitrator, Plaintiffs filed a Motion to Enforce Settlement, asking the Court to enforce the terms of the Settlement Memorandum. Defendants' response to Plaintiffs' Motion to Enforce included the Affidavits of Carl P. Tobey and Chester Drash. Plaintiffs have also filed a Motion to Strike portions of these affidavits on the basis that they contain inadmissible legal conclusions and argument.

On July 3, 2013, the arbitrator issued an Order finding that no agreement was reached by the 3:00 p.m. deadline on May 17, 2013, and as a result, the Settlement Memorandum was void pursuant to its terms. On August 27, 2013, the arbitrator held a hearing on the remaining issues in the arbitration. The arbitrator issued his Final Order and Arbitration Award ("Final Award") on September 11, 2013, sustaining Drash's breach of contract claim and awarding Drash damages. Drash subsequently filed with the Court a Motion for Leave to File Additional Suggestions In Opposition to Plaintiffs' Motion to Enforce Settlement arguing that the arbitrator's Final Award precludes the Court's examination of whether an enforceable settlement was reached.

The Court will decide Plaintiffs' Motion to Strike Portions of Affidavits of Carl P. Tobey and Chester Drash, Drash's Motion for Leave to File Additional Suggestions in Opposition to Plaintiffs' Motion to Enforce Settlement, ...


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