Sephora United States, Inc. v. Palmer, Reifler & Assocs., P.A.

SEPHORA USA, INC., Plaintiff, v. PALMER, REIFLER & ASSOCIATES, P.A., Defendant.

Case No. 15-cv-05750-JCS

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

January 25, 2019

ORDER REGARDING MOTION TO ENFORCE SETTLEMENT AGREEMENT

Re: Dkt. No. 83

I. INTRODUCTION

Plaintiff Sephora USA, Inc. ("Sephora") moves to enforce a settlement agreement against Defendant Palmer Recovery Attorneys, LLC ("PRA," sued as "Palmer, Reifler & Associates, P.A."). The Court held a hearing on January 25, 2019. For the reasons discussed below, Sephora's motion is GRANTED as to PRA's delinquent payment of $4,444.44, but DENIED as to Sephora's request to enter a consent judgment including liquidated damages pursuant to the default provision of the parties' settlement agreement.¹ PRA is ORDERED to produce documents no later than February 1, 2019 establishing when PRA initiated the electronic transfer of funds due December 9, 2018, and the parties are instructed to meet and confer regarding methods to ensure compliance going forward.

II. BACKGROUND

A. Procedural History and Settlement Agreement

Sephora initiated this action against PRA after successfully defending a claim brought by the mother of a girl accused of shoplifting who received demand letters from PRA on behalf of Sephora. As detailed in this Court's previous order denying PRA's motion for judgment on thepleadings, Sephora claimed that PRA breached its contractual duty to defend and indemnity Sephora. See generally Order Denying J. on Pleadings (dkt. 44).² The parties reached a settlement and stipulated to dismiss this action, with the Court retaining jurisdiction "solely for purposes of enforcing the Settlement Agreement, including entering the provisionally confidential consent judgment [attached thereto] in the event [PRA] shall fail to comply with the Settlement Agreement." Stip. Order of Dismissal (dkt. 78). The Court signed the parties' stipulated order of dismissal on June 23, 2017. Id.

The settlement agreement requires PRA to pay Sephora "$160,000.00 in 36 equal [monthly] payments of $4,444.44, except as provided in Paragraph 6 below." Rockey Decl. (dkt. 83-2) Ex. A ("Settlement Agreement") ¶ 2. "The parties agree that [PRA] shall make funds available to [Sephora] through the ACH system of payments." Id. ¶ 3. Paragraph 6 reads as follows:

6. Default. If [PRA] fails to make any monthly payment to [Sephora] timely and fails to cure as described herein, [PRA] will owe [Sephora] $175,000.00, consisting of the $160,000 [PRA] agreed to pay plus an additional amount of $15,000 which the parties agree is a reasonable estimate of the additional costs to be incurred by [Sephora] to enforce the judgment to be filed and entered pursuant to this paragraph in the event of default by [PRA]. . . . [PRA] shall be permitted to subtract from the amount of $175,000 the total of payments [PRA] has previously made to [Sephora]. The $175,000 minus the total of any payments made as of the date of default is the Default Amount.

[PRA] shall owe the Default Amount if and only if [PRA] fails to cure the monthly payment deficiency or omission by making full payment within eight (8) calendar days of receiving a written notice from [Sephora] saying in substance that [PRA] has failed to make the required payment in part or in full ("Notice").

The parties agree that in the event [PRA] shall default and fail to cure that default, the Default Amount shall become immediately due and owing. Any such written Notice required to [PRA] under this paragraph must be sent by [Sephora] by Overnight Delivery to defense counsel . . . .

Id. ¶ 6 (line breaks added). "In the event [PRA] shall default and it shall become necessary for [Sephora] to take steps to enforce the stipulated judgment," Sephora is also entitled to its actualattorneys' fees and costs for enforcing the judgment to the extent that they exceed the $15,000 liquidated damages. Id. ¶ 24. The settlement agreement is governed by California law. Id. ¶ 23.

B. Post-Settlement Conduct

PRA made a timely first payment on July 10, 2017. Rockey Decl. ¶ 3. The parties agreed in early August that each payment would be made on the ninth of each month, or the next business day if the ninth was not a business day, and stipulated at the hearing on the present motion that this subsequent agreement constitutes a binding term of the settlement agreement. Rockey Decl. ¶ 3 & Ex. B. PRA nevertheless failed to provide a timely payment for that month, but paid on August 15, 2017 after Sephora's counsel sent an email on August 11, 2017. Id. ¶ 4; Jensen Decl. (dkt. 83-1) ¶ 2. PRA also failed to make a timely payment for September of 2017, ultimately paying for that month on September 25, 2017 after Sephora notified PRA of the missed payment. Rockey Decl. ¶ 5; Jensen Decl. ¶ 2. After PRA missed the deadline for its October payment, counsel for Sephora sent notice of default via overnight mail pursuant to Paragraph 6 of the settlement agreement, and PRA provided that months' payment on October 18, 2017. Rockey Decl. ¶ 6 & Ex. C; Jensen Decl. ¶ 2. PRA made the next two payments on time, but missed the deadline for its January 2018 payment, and counsel for Sephora sent another notice of default via overnight mail on January 22, 2018. Rockey Decl. ¶ 7 & Ex. D; Jensen Decl. ¶ 2.

PRA did not make any subsequent payments on time. Rockey Decl. ¶¶ 8-12; Jensen Decl. ¶¶ 2-4. Sephora's counsel sent additional overnight letters on February 16, March 15, May 29, June 15, and September 5, 2018, and PRA paid the amount due after receiving each of those letters. Rockey Decl. ¶¶ 8-12; Jensen Decl. ¶¶ 2-3. Sephora's letter in June asserted that PRA had breached the settlement agreement and the duty of good faith and fair dealing and warned that Sephora would take action if PRA continued to miss payments. Rockey Decl. ¶ 11 & Ex. H. PRA's final payment, for delinquent funds due in July and August of 2018, was received by Sephora more than eight days after PRA received a delinquency letter: Sephora's counsel sent the letter September 5, 2018; PRA received it September 6, 2018; the eight-day deadline fell on September 14, 2018; and although PRA initiated the transfer of funds that day, Sephora did not receive payment until the following business day, September 17, 2018. See Rockey Decl. ¶ 12 &Ex. I; Jensen Decl. ¶ 3 & Ex. A;³ Lagos Decl. (dkt. 84-1) ¶ 5 & Ex. 1.

PRA had made no further payments as of the date of Sephora's motion. Rockey Decl. ¶ 13; Jensen Decl. ¶ 4. At that time, PRA had paid a total of $62,222.16 of the $160,000 that it owes, with $97,777.84 remaining to be paid, including five monthly payments totaling $22,222.20 past due. See Jensen Decl. ¶ 5.

PRA's employee Thomas Stefanos states that PRA has experienced financial hardship in recent years due to a contraction of the retail sector that makes up much of its clientele, causing PRA to downsize its workforce and office space. Stefanos Decl. (dkt. 84-2) ¶¶ 5, 7. Stefanos states that PRA has not "held on to funds or withheld payment to frustrate Sephora," but rather "sought only to conserve all of its resources and meet its obligations as best it can." Id. ¶ 8.

Sephora's counsel states that on or about November 12, 2018, PRA's counsel took the position that PRA had no obligation to make payments unless and until it received notices under Paragraph 6. Rockey Decl. ¶ 12. PRA's counsel disputes that characterization, stating in his own declaration that he told Sephora's counsel only that Sephora could not seek default unless PRA failed to make a payment within the eight-day grace period after receiving notice under Paragraph 6. Dahlberg Decl. (dkt. 84-3) ¶¶ 8-9. A November 9, 2018 email from PRA's counsel to Sephora's counsel asserts that Sephora provided "no documentary proof of any late payment as that term is defined by the Agreement, or at all," and that PRA's initiation of a transfer of funds within the grace period satisfied the "only" requirement of the settlement agreement. Id. Ex. 2.

At the hearing on January 25, 2019, the parties agreed that since Sephora filed its motion, PRA has paid the amounts owed for September through December of 2018. The parties disputewhether PRA provided the December payment within eight days of receiving formal notice from Sephora. PRA has not yet paid the amount due on January 9, 2019, and Sephora has not yet provided notice pursuant to Paragraph 6 regarding that missed payment.

III. ANALYSIS

A. Legal Standard

Federal "courts have ancillary jurisdiction to enforce a settlement agreement only 'if the parties' obligation to comply with the terms of the settlement agreement ha[s] been made part of the order of dismissal—either by separate provision (such as a provision "retaining jurisdiction" over the settlement agreement) or by incorporating the terms of the settlement agreement in the order.'" K.C. ex rel. Erica C. v. Torlakson, 762 F.3d 963, 967 (9th Cir. 2014) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381 (1994)) (alteration in original). The parties' agreement here includes such a provision, and the Court therefore has jurisdiction to enforce the agreement.

So long as the settlement agreement falls within the district court's jurisdiction, "[i]t is well settled that a district court has the equitable power to enforce summarily an agreement to settle a case pending before it." Callie v. Near, 829 F.2d 888, 890 (9th Cir. 1987). Such enforcement falls within the discretion of the district court. See, e.g., In re J.T. Thorpe, Inc., 870 F.3d 1121, 1124 (9th Cir. 2017) (citing Callie for the rule that enforcement of a settlement agreement is reviewed for abuse of discretion).

"The construction and enforcement of settlement agreements are governed by principles of local law which apply to interpretation of contracts generally." Jeff D. v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989). Under California law, a "settlement [agreement], like any agreement, imposes upon each party a...