Oral Argument Preview: When Is an Evidentiary Hearing Required Over the Existence of a Disputed Settlement Agreement? Artisan Mechanical, Inc. v. Beiser.

This case was dismissed as improvidentally certified on October 27, 2011.

On Tuesday, October 4, the Ohio Supreme Court will hear oral arguments in Artisan Mechanical, Inc. v. Beiser et al, 2011-0052. This case is brought to resolve a conflict between the courts of appeals on the following issue: “When there is a factual dispute between the parties over the existence of a valid settlement agreement, is the trial court required to conduct an evidentiary hearing regardless of whether it enforces or denies enforcement of the agreement and enters judgment pursuant to the Ohio Supreme Court decision in Rulli v. Fan Co., 79 Ohio St.3d 374?”

In this case, Beiser and his co-defendant Lay were mechanical engineers employed by Artisan Mechanical, a contractor. Beiser and Lay left Artisan to start a mechanical engineering firm on their own called Accurate Mechanical Solutions (“AMS”). Artisan sued Besier and Lay for unfair competition. In 2009, Artisan made a settlement proposal to Beiser and Lay, in which both parties agreed not to compete with each other for certain key customers for six months, and in which both companies agreed not to submit bids or complete projects for two of the other’s named key customers. Beiser and Lay accepted.

The parties’ attorneys corresponded by email to further clarify terms of the agreement, and Artisan informed the trial court that the case had settled. The court issued a conditional dismissal order and gave the parties 60 days to submit a report with the terms of the settlement. The parties corresponded a few more times, but then discontinued their discussion. In April 2009, the 60-day period lapsed without either party requesting the court to take further action or submitting a written entry detailing the settlement, and the case was dismissed.

In June 2009, Artisan learned that Beiser and Lay were doing work for one of Artisan’s key customers in violation of their agreement.  When asked, Beiser and Lay’s attorney acknowledged the work but argued that Artisan had failed to execute the settlement agreement, and thus there was no binding contract. Artisan filed a new lawsuit to enforce the settlement agreement, and to recover damages for breach of that agreement. The Butler County Common Pleas Court granted summary judgment to Beiser and Lay on the grounds that the parties never reached a meeting of the minds on the essential terms of the agreement.

Artisan appealed to the Twelfth District Court of Appeals arguing that the trial court should have held an evidentiary hearing before granting the summary judgment, because there was a factual dispute over the existence of the agreement.  The Twelfth District found that no such hearing was required when the agreement was not to be enforced.

Artisan has appealed to the Supreme Court. In support of its position, it cites Rulli v. Fan Co. (1997), 79 Ohio St. 3d 374. There, the Court held in the syllabus that where the terms or the existence of a settlement agreement is disputed, a trial court must conduct an evidentiary hearing prior to entering judgment. The Twelfth District distinguished Rulli by explaining that Rulli only compels an evidentiary hearing if the agreement is to be enforced; here where the trial court refused to enforce the agreement, such a hearing was not necessary. In contrast, other districts have held that an evidentiary hearing is required any time the existence of an agreement is disputed, regardless of whether the trial court enforces or refuses to enforce the agreement.

Artisan claims that the lower court misread and improperly limited Rulli  to its particular facts. It argues that a trial court cannot possibly conclude that no meeting of the minds exists without conducting an evidentiary hearing.

Beiser and Lay argue that (1) Artisan waived its Rulli argument by never bringing the case to the attention of the trial court, nor requesting an evidentiary hearing before summary judgment was granted, (2) Artisan never presented any evidence that could have been used to prove the existence of an agreement in an evidentiary hearing (3) there is no conflict between districts, because all cases on point are cases where trial courts enforced agreements without holding hearings,(4) there could not have been an enforceable oral contract because Beiser and Lay intended to be bound only by a written contract, and (5) the finality of judgments that underpins the holding in Ruli is not present when a court denies the enforcement of a disputed agreement.  Finally, Beiser and Lay argue that the party requesting a Rulli hearing should meet a burden of producing enough evidence tending to prove the existence of a disputed contract. Otherwise, holding a hearing to determine the existence of an agreement, when no evidence of such is tendered beforehand, would be a waste of time.

Student Contributor: Greg Kendall

 

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