Judge Jill Feeney, Case Number: 19STCV25230, Date: 2024-05-09 Tentative Ruling

This is a breach of contract matter. The Complaint alleges as follows. Plaintiff Hype Factor, LLC (“Hype Factor), owned by Sean Kilbane (“Kilbane”) is an entertainment company that contracted with Defendant JFF Entertainment, LLC (“JFF”), principled by Defendant John Fitzpatrick (“Fitzpatrick”). (Compl. ¶¶ 24-29.) The contract provided that Hype Factor was to ensure that Fabletics, LLC performed their tasks under the contract, and that JFF was to ensure that social media talent Catherine Paiz (“Paiz”) performed her tasks under the contract. (Compl. ¶ 25.) Fitzpatrick/JFF held themselves out to be Paiz’s talent manager. (Compl. ¶ 21.) Paiz failed to perform under the contract because Fitzpatrick and JFF failed to inform Paiz about the agreement and because JFF/Fizpatrick were not Paiz’s talent manager. (Compl. ¶ 54.)

Right after the parties appeared in court on April 4, 2024 at 8:30 a.m., the Court ordered the notice of settlement as well as the document filed on April 3rd to be blocked from public view. This occurred at approximately 9:30 a.m. and from that time forward no member of the public had access to the document.

Pursuant to Code of Civil Procedure section 664.6, “if parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.” “Section 664.6 was enacted to provide a summary procedure for specifically enforcing a settlement contract without the need for a new lawsuit.” (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 809.)

To be enforceable under Code Civ Proc., section 664.6, any written settlement agreement outside of court must be signed by the parties and their counsel. Although the Court may adjudicate disputes over the terms of the settlement agreement, the Court may not modify the terms agreed to by the parties. (Machado v. Myers (2019) 39 Cal.App.5th 779, 797.)

Here, the parties signed a settlement agreement on April 1, 2024. (Plaintiff’s Exhibits, Exhs. 1, 4.) Plaintiff agreed to dismiss the Complaint 90 days after payment of settlement funds and to refrain from bringing further legal proceedings against Defendants. (Id., ¶2(b).) Defendant agreed to pay a settlement payment by wiring the funds to Plaintiff within 180 days of the date the agreement was signed, and Plaintiff delivered IRS Form W-9 to Defendants. (Id., ¶3(a).) Defendants further agreed they would refrain from filing a bankruptcy petition for 90 days after paying the settlement funds. (Id.) In the event Defendants fail to pay the settlement funds or file a bankruptcy petition before 90 days pass after payment, Plaintiff would file a stipulated judgment with the Court. (Id., ¶3(b).) The parties agreed the Court would retain jurisdiction to enforce the settlement agreement under Code Civ. Proc., section 664.6. (Id., ¶15.)

On April 2, 2024, Defendants failed to file a notice of conditional settlement. (Bourke Decl., ¶14.) Plaintiff filed a notice of conditional settlement that day. (Id.) On April 3, 2024, Defendant’s counsel represented he would take no further action regarding filings with the court because Plaintiff’s counsel included confidential settlement terms in the notice of conditional settlement. (Id., ¶15.) Defendants failed to make the initial payment under the settlement by April 11, 2024 as required under Paragraph 3(a)(i). (Id., ¶21.)

The evidence shows a settlement agreement exists between the parties and the Court retained jurisdiction to enforce the agreement under Code Civ. Proc., section 664.6. Additionally, Defendants failed to perform under the agreement by failing to make payment under the agreement by April 11, 2024. The parties dispute whether Defendants were excused from performance because Plaintiff publicly disclosed confidential settlement terms. Specifically, Defendants allege that they are excused from performance under the frustration of purpose doctrine.

“The elements of [the frustration of purpose] doctrine are as follows: Performance remains possible, but the fundamental reason of both parties for entering into the contract has been frustrated by an unanticipated supervening circumstance, thus destroying substantially the value of performance by the party standing on the contract.” (Cutter Laboratories, Inc. v. Twining (1963) 221 Cal.App.2d 302, 314–315.) “It is settled that if the parties have contracted with reference (to the frustrating event) or have contemplated the risks arising from it, they may not invoke the doctrine of frustration to escape their obligations.” (Glenn R. Sewell Sheet Metal, Inc. v. Loverde (1969) 70 Cal.2d 666, 676.)

Here, Defendants argue that confidentiality was a basic reason they entered the agreement. Defendants’ counsel alleges that Plaintiff publicly filed a Notice of Conditional Settlement that included a narrative of the parties’ negotiations during mediation, terms of the agreement, and disparaging comments about Defendants’ conduct and business affairs. (Stewart Decl., ¶8.) Additionally, Plaintiff filed a unilateral stipulation for the Court to retain jurisdiction over this matter which contained the same information as the notice of conditional settlement. (Id.)

Defendants allege that they would not have entered into the settlement agreement if the negotiations and agreement were subject to disclosure, the parties acknowledged and agreed to confidentiality as a condition of mediation, the settlement is styled a “Confidential Settlement Agreement,” statements regarding settlement made during the course of mediation are confidential under Evid. Code, section 1119, and disclosure of the agreement was permitted only for the purposes of enforcing the settlement agreement.

Defendants allege that they sought to avoid trial to avoid harm to their reputation. However, Defendants provide no evidence that confidentiality was the entire reason Defendants entered into the settlement agreement or that it was a reason substantial enough that disclosure of some settlement terms virtually destroyed the value of the settlement. It is reasonable to infer that the goal of settlement is to resolve a dispute without the parties having to go through the time and expense of proceeding with trial as well as the risks inherent in any judgment that might result from a trial. Therefore, even if some value of the settlement was diminished due to Plaintiff’s disclosure of the settlement terms, the value of settlement is not completely destroyed because the parties were spared the time and expense of going to trial and Defendants settled for a lesser amount than what was demanded, and which might have been awarded at trial. The parties also achieved certainty. Additionally, as Plaintiff points out, there is no evidence that Plaintiff’s filings disclosing statements allegedly made during mediation and the settlement terms resulted in harm to Defendants’ reputation which would result in the virtual destruction of the settlement agreement’s value to Defendants.

Defendants’ argument that confidentiality as a condition of mediation is unavailing. Defendants provide an email communication from Edward Weiss, the mediator for the parties’ mediation proceeding. (Defendants’ Exh. A.) Weiss required that the attorneys make written disclosure to their clients that mediation is a confidential process. (Id.) However, the mediator’s requirements with respect to confidentiality are not relevant to whether the value of the settlement to Defendants was substantially destroyed.

There is also no evidence that the parties agreed to keep the terms of the settlement agreement confidential. There are no terms in the settlement agreement pertaining to confidentiality. Additionally, as Plaintiff was required to file a notice of conditional settlement which must contain the date by which dismissal is to be filed. (Cal. Rules of Court, Rule 3.1385(a),(c).) Additionally, the Plaintiff was required to show good cause to allow the request for dismissal to be filed after 45 days after the notice was filed. (Id., subd. (c)(2).) Because the settlement agreement required a waiting period of up to 180 days for settlement payment followed by an additional 90 days before Plaintiff was required to file a request for dismissal, the Plaintiff was required to explain why dismissal would take place longer than 45 days after the filing of the notice. Thus, at least some terms would be subject to disclosure. There is no evidence that any party requested that the notice be filed under seal.

Defendants are correct that all communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential under Evid. Code, section 1119. It is not clear to the Court what statements are alleged to have been made during mediation. No particular statements are cited in Defendants’ Counsel’s declaration and the Court does not see any such statements in the filings made by Plaintiff.

The disclosures made in the notice of conditional settlement were accurate and not disparaging. However, the notice did contain information beyond what was required under Cal. Rules of Court, Rule 3.1385(c) and does appear to contain some confidential information regarding the terms of the settlement. However, Defendants provide no evidence demonstrating that this disclosure destroyed all or virtually all of the value of the settlement. There is no evidence that the disclosure resulted in harm to Defendants’ reputations such that there is substantially no value to this settlement to Defendants.

Defendants also argue that sealing the disputed filings does not vitiate the frustration of purpose doctrine because California does not recognize temporary frustration of purpose, citing KB Salt Lake III, LLC v. Fitness Intern., LLC (2023) 95 Cal.App.5th 1032, 1056. However, KB Salt Lake III involved a commercial lease and dealt with the issue of whether an entity was temporarily relieved of the obligation to pay rent. Here, the issue is not whether sealing the record rendered the frustration of purpose temporary, but whether Plaintiff’s disclosures did in fact frustrate the purpose of the contract such that the value of the settlement agreement was virtually destroyed. As discussed above, it would not be reasonable to conclude that Plaintiff’s disclosures caused the settlement agreement to lose virtually all value.