Bluelink Mktg. LLC v. Declan Carney & Tagcade LLC

BLUELINK MARKETING LLC and GERALD OWENS, Plaintiffs, v. DECLAN CARNEY and TAGCADE LLC a/k/a PUBVANTAGE, Defendants.

16-CV-7151 (JLC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 15, 2017

OPINION & ORDER

JAMES L. COTT, United States Magistrate Judge.

Plaintiffs Bluelink Marketing LLC and Gerald Owens (together, "Plaintiffs") bring this action against defendants Declan Carney and Tagcade LLC (together, "Defendants") for breach of contract, fraudulent conveyance, and breach of fiduciary duty. Presently before the Court are Defendants' motion to enforce a settlement agreement, the material terms to which the parties agreed following a settlement conference with the Court earlier this year, and Plaintiffs' cross-motion to enter a settlement judgment. For the reasons set forth below, Defendants' motion is granted and Plaintiffs' cross-motion is denied.

I. BACKGROUND

A. Plaintiffs' Allegations

In the Amended Complaint, Plaintiffs allege that Carney agreed to sell his equity interest in Bluelink Marketing LLC to Owens. Amended Complaint dated October 11, 2016 ("Am. Compl.") ¶ 7 (Dkt. No. 8). Pursuant to a purchase agreement dated September 4, 2015, "Carney was required to make payment to [Bluelink] for Carney and his wife's proportionate share of the shortfall of [Bluelink's] Deferred Cash Plan (the 'Plan') once that portion of the shortfall was determined by the Plan's Administrator." Id. "The Plan Administrator calculated that the Plan shortfall was $279,476.87, and that information was communicated to Carney on April 12, 2016." Id. ¶ 8. Carney allegedly breached the purchase agreement when he failed to remit the Plan shortfall to Bluelink. Id. ¶¶ 9-17. Plaintiffs, moreover, were unable to terminate the plan due to the shortfall, and thus allegedly "incur[red] additional costs and expenses associated with the continuation of the Plan that would have otherwise been closed." Id. ¶¶ 18, 27.

B. Procedural History

Plaintiffs initiated this action on September 13, 2016 and amended their complaint on October 11, 2016. (Dkt. Nos. 1, 8). Shortly after Defendants answered the Amended Complaint (Dkt. No. 19), the Court held an unsuccessful settlement conference on January 17, 2017 (Dkt. No. 22) and ordered the parties to "continue their settlement discussions over the next 30 days" (Dkt. No. 23). When the parties reached an impasse, the Court held a second settlement conference on March 20, 2017 ("the March conference"). (Dkt. No. 27).

After lengthy negotiations, the parties agreed on the material settlement terms at the March conference. See March 20, 2017 Conference Transcript ("Conf. Tr.") at 3-8 (Dkt. No. 29). The Court then placed the parties on the record, and the following colloquy occurred:

THE COURT: [I]t's my understanding that the parties have agreed to a settlement. It is further my understanding that the parties plan to memorialize their settlement in a written agreement, but they also wish to place the material terms of the settlement on the record at this time. And the reason they wish to do so is to [e]nsure that in the highly unlikely event that they are unable to memorialize all of the terms of the settlement in a written agreement, they will then have all of the material terms set forth on the record at this time, and upon inquiry from the Court, they will agree to be bound by all of those material terms such that there is a binding and enforceable agreement between the parties.

Mr. Mercer, is that your understanding of how we are proceeding?

MR. JUSTIN MERCER [Plaintiffs' counsel]: Yes, Your Honor.

THE COURT: And Ms. Sedhom, is that your understanding of how we are proceeding?

MS. RANIA SEDHOM [Defendants' counsel]: Yes, Your Honor.

Id. at 3-4. Plaintiffs' counsel recited a number of terms on the record, including the following:

[T]he parties will work cooperatively and in good faith to draft a written settlement agreement within the next 60 days. If a motion to enforce is brought concerning that agreement, whichever party brings that motion and prevails will be entitled to its reasonable attorneys' fees in bringing that motion.

. . . .

Mr. Carney shall agree to indemnify and hold harmless Bluelink and its subsidiaries and affiliated companies and each of their owners, officers, agents and employees, including, but not limited to Owens (defined as Bluelink indemnities) for any claim, loss, costs, penalty, reasonable expense or other damage, including attorneys' fees, suffered by any of the Bluelink indemnities, resulting from or incurred with respect to any legal or governmental proceedings, review or audit related to plan or attributable to Mr. Carney's gross negligence or willful misconduct regarding Bluelink's taxes, including costs of enforcement.

Id. at 4-7.

Counsel for both parties "agree[d] that the material terms ha[d] been set forth on the record," and Owens and Carney personally confirmed that they understood and agreed to the terms both individually and on behalf of the respective corporate parties. Id. at 9-11. Specifically, Owens and Carney "agree[d] to be bound by those terms such that there is a binding and enforceable agreement between" the parties. Id. at 10-11. The Court confirmed that the record was complete:

THE COURT: Anything else either counsel believes we need to put on the record to [e]nsure that we have a binding, enforceable agreement between the parties in the unlikely event that you do not succeed in memorializing your agreement in writing?

MR. MERCER: No, Your Honor.

MS. SEDHOM: No, Your Honor.

Id. at 11. Having been apprised of the settlement, Judge Torres, to whom this case was originally assigned, entered a 60-day dismissal order with a May 22, 2017 end date. Dkt. No. 28; see also Conf. Tr. at 12.

C. Post-Settlement Negotiations

The parties continued to negotiate regarding their written agreement after the March conference. In April 2017, the Plan's actuary informed Plaintiffs that "due to the funding deficiency in the Plan [allegedly caused by Carney], a 'minimum required contribution' ("MRC") in the amount of approximately $34,000 ($17,000 for each year 2016 and 2017) would need to be paid into the Plan prior to terminationand distribution." Declaration of Justin Mercer dated June 20, 2017 ("Mercer Dec") ¶ 3 (Dkt. No. 49). According to Plaintiffs:

The Plan's actuary further explained that the MRC is not an additional Plan expense, but rather a statutory requirement to add liquid assets to a plan. The Plan's actuary further informed Plaintiffs that failure to pay the MRC would expose all plan sponsors to excise tax liability (from anywhere between 10% and 100% of the MRC itself per unpaid year[)] . . . by the IRS.

Id. (citations omitted). Plaintiffs informed Defendants of the MRC and related tax issues on May 4, 2017. Id.

On May 19, 2017, Plaintiffs' counsel, Justin Mercer, emailed Defendants' counsel, Ginger Mimier, in response to Defendants' position that Carney would "not pay the MRC to avoid the imposition of the excise tax." Mercer Dec. Ex. B: PL May 19, 2017 Email. Mercer stated that although the Plan could be terminated without paying the MRC, the IRS would nonetheless impose an excise tax penalty. Id. Mercer further stated that, at the March conference, Defendants agreed to indemnify Bluelink for any losses it "'incurred with respect to[] any legal or governmental proceedings, review, or audit related to Plan.'" Id. (quoting Conf. Tr. at 7).

Because Bluelink was jointly and severally liable for any excise taxes related to the Plan, Mercer argued that Bluelink was entitled to indemnification from Defendants for any tax the IRS imposed. Pl. May 19, 2017 Email. Mercer viewed Defendants' refusal to pay either the MRC or the excise taxes "as a repudiation of [Defendants'] agreement [to] fulfill [their] indemnification obligations to Bluelink." Id. Mercer informed Mimier that Plaintiffs would "continue to litigate if we cannotagree to resolution that provides reasonable assurances that [Defendants] will fulfill [their] contractual obligations." Id.

Mimier responded that Defendants understood the IRS could assess excise taxes if the MRC went unpaid, "but the IRS tax issue has no influence on Plan termination." Mercer Dec. Ex. C: Def. May 19, 2017 Email. Mimier disagreed that the indemnification provision covered the outstanding MRC and refused to place any money in escrow to cover the potential excise taxes. Id.

Mimier clarified Defendants' position in a subsequent email: "Declan [Carney] agrees to waive the [MRC] shortfall and agrees to assume the risk of paying the excise tax imposed by the IRS, if any." Mercer Dec. Ex. E: Def. June 1, 2017 Email. Mercer responded: "Thank you for clarifying and confirming that your client will pay the excise tax when due. However, given your client's history of nonpayment and the inevitability of the excise tax, our clients need more than just a promise. Can we at least agree to put the base excise tax of 10% . . . in escrow now?" Mercer Dec. Ex. F: Pl. June 2, 2017 Email. Mimier refused to place any money in escrow, Mercer Dec. Ex. G: Def. June 2, 2017 Email, but stated (contrary to her June 1, 2017 email) that Carney "agrees to pay 50% of the excise tax imposed by the IRS, if any" with "Bluelink to pay the other 50%," Mercer Dec. Ex. I: Def. June 15, 2017 Email.

D. The Instant Motions

Defendants move to enforce the settlement agreement, and Plaintiffs cross-move to enter a settlement judgment. (Dkt. Nos. 43, 47). Defendants argue thatthe parties set forth and agreed to all of the agreement's material terms at the settlement conference, and the agreement should be enforced as is. See generally Defendants' Memorandum of Law ("Def. Br.") (Dkt. No. 44). Plaintiffs contend that, after the settlement conference, Defendants repudiated the indemnification provision of the parties' agreement. Plaintiffs' Memorandum of Law ("Pl. Br.") at 1-2 (Dkt. No. 48). Plaintiffs thus propose written settlement terms to "clarify" the existing...