What Are Your Options When Your Business Legal Settlement Falls Apart?
A recent opinion from the North Carolina Business Court, GZO, LLC v. Safeway Chevrolet, highlights the multiple ways that you can enforce a settlement agreement if the other sides breaches the agreement.
The above case arose from an agreement to purchase an auto dealership. The dealership failed after the new buyer had been operating it for only a few months. Litigation resulted, but the parties settled their disagreement with a settlement agreement. The seller agreed to pay the failed buyer three lump-sum payments.
The parties disagreed about how much was owed for the final payment. (It was calculated by a formula that took into consideration how much the buyer had lost, along with other factors.) The seller made a payment in the amount it deemed appropriate, and the buyer rejected the payment as insufficient. A lawsuit was filed.
The Business Court ultimately decided that the seller’s final payment was sufficient. The court’s decision is instructive because it explains what the legal standard is for enforcing a settlement agreement that has gone off the rails.
If one of the parties to a settlement agreement is not abiding by their promises, there are two options. The first option is to file a new lawsuit for breach of contract. The settlement agreement is a contract, which is enforceable just like any other contract.
The second option is to file a motion to enforce the settlement agreement in the original lawsuit. That is, if you filed a lawsuit, settled, and then the other side breached, you don’t necessarily have to file a new lawsuit to enforce it. As the North Carolina Court of Appeals has stated:
A party may enforce a settlement agreement by filing a voluntary dismissal of its original claim and then instituting another action on the contract, or it may simply seek to enforce the settlement agreement by petition or motion in the original action.
Hardin v. KCS Int’l, Inc., 199 N.C. App. 687, 694, 682 S.E.2d 726, 732 (2009) (internal citation omitted).
If you use the second option, filing a motion to enforce the settlement, then the standard used to evaluate whether your motion will win is the summary judgment standard. Though it’s easier to file a motion, the standard is high. Based on the documentation, there must be no material fact about what happened that is legitimately in dispute. As another court stated:
On summary judgment, the trial court asks “whether, on the basis of materials supplied ... there [is] a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law.” The moving party must demonstrate that lack of any triable issue of material fact. The materials supplied to the Court in support of or in opposition to the motion to enforce must be viewed in the light most favorable to the nonmoving party.
DeCristoforo, 2015 NCBC LEXIS, at *19 (internal citations omitted).
If there are no material facts in dispute, the court can enter judgment in your favor. As another court put it, “in a contract dispute between two parties, the trial court may interpret a plain and unambiguous contract as a matter of law if there are no genuine issues of material fact.” Premier, Inc. v. Peterson, 232 N.C. App. 601, 605, 755 S.E.2d 56, 59 (2014). The court is generally not permitted to go beyond the four corners of the contract to come to its decision, however.
In this case, the Business Court reviewed the settlement agreement and determined that the settlement agreement had not been breached.
The lesson from all of this is that if your settlement agreement is breached you have options. Two options, in fact. You can either file a new lawsuit, or you can file a motion to enforce the settlement agreement within the same lawsuit that was originally filed. Which avenue you should take is something you should discuss with a qualified attorney.
Fairview Law is a Charlotte business law firm that represents entrepreneurs, small businesses, and franchisees in all matters from purchases and acquisitions to litigation. If you have a question about your business, contact us at 980-999-3557 to see how we can help.