Tedesco Manufacturing Co. v. Honeywell International Inc.
Opinion of the Court
OPINION OF THE COURT
Tedesco Manufacturing, Inc. appeals a final judgment of the District Court denying its third motion to enforce settlement agreement. For the reasons that follow, we will affirm in part, vacate in part, and remand the case.
I.
This case comes to us for the second time. Because we write for the parties, we assume familiarity with the factual background set forth in our previous opinion. See Tedesco Mfg. Co. v. Honeywell Int’l Inc., 127 Fed.Appx. 50 (3d Cir. 2005). In that appeal, we interpreted Paragraph 13 of the agreement in principle (AIP) and held that it authorized Honeywell to offset amounts owed by Tedesco against the sums Honeywell agreed to pay.
On remand, at the insistence of the District Court, the parties executed a written “Settlement Agreement and Mutual Release” (Settlement Agreement) that resolved many, but not all, of the disputed issues. The parties memorialized their remaining disagreements in Paragraph 11 and those issues were excluded from the Settlement Agreement’s mutual general release.
Paragraph 11 is not a model of clarity, however, particularly when it is analyzed in conjunction with other provisions of the Settlement Agreement. For example, the initial section of Paragraph 5 provides that “Honeywell shall purchase and Tedesco shall transfer to Honeywell or its designee that portion of Tedesco’s finished goods and raw materials inventory that Honeywell finds usable in its discretion based on national sales (the “Inventory”) at full transfer price ... for finished goods and at cost for raw materials.” Id. at 412A. Meanwhile, Paragraph 5(a) states that “the Inventory, and the price that Honeywell will pay for the Inventory, is set forth on Attachments A (raw materials) and B (finished goods) hereto....”
In spite of the rather unsettled aspects of the Settlement Agreement, in the summer of 2006 Tedesco transferred, and Honeywell paid for, that portion of Tedes-co’s inventory that Honeywell deemed usable. Unsurprisingly, the parties continued to disagree as to whether Honeywell had properly evaluated the usability of the in
(1) improperly based its usability determination on its current product line, rather than on “national sales” as required by both the AIP and the Settlement Agreement;
(2) improperly discounted the purchase price for Tedesco’s inventory and raw materials to reflect Honeywell’s estimate that not all of the goods would be usable;
(3) wrongly refused to include in the “full transfer price” a series of rebates it had promised Tedesco in a pre-litigation contract;
(4) wrongly refused to repurchase any used brake shoe cores;
(5) should be required to pay packing and loading costs for the inventory and raw materials it had purchased from Tedesco; and
(6) began operations in Tedesco’s exclusive territory before making the agreed-upon payment to buy out Tedesco’s rights, which entitled Tedesco to disgorgement of Honeywell’s profits from these operations.
The District Court concluded that the second and sixth claims had been released by Tedesco pursuant to the Settlement Agreement. As to the other four issues, the District Court ruled for Honeywell on the merits. Tedesco appeals the judgment of the District Court as to all six issues.
II.
The gravamen of Tedesco’s appeal is that the District Court erred when it ruled in Honeywell’s favor as a matter of law, when a hearing was necessary to determine disputed factual issues. “Where material facts concerning the existence or terms of an agreement to settle are in dispute, the parties must be allowed an evidentiary hearing.” Saudi Basic Inds. v. Exxon, Corp., 364 F.3d 106, 113 (3d Cir. 2004) (citations omitted).
“Settlement agreements ‘are regarded as contracts and must be considered pursuant to general rules of contract interpretation.’ ” Miller v. Ginsberg, 874 A.2d 93, 99 (Pa.Super. 2005) (quoting Friia v. Friia, 780 A.2d 664, 668 (Pa.Super. 2001)). In interpreting a written contract,
[fjirst, the court must make a preliminary inquiry as to whether the contract before it is ambiguous. This question is an issue of law for the court to resolve. A term is ambiguous if it is susceptible to reasonable alternative interpretations. If the court determines that a given term in a contract is ambiguous, then the interpretation of that term is a question of fact for the trier of fact to resolve in light of the extrinsic evidence offered by the parties in support of their respective interpretations.
Sanford Inv. Co. v. Ahlstrom Machinery Holdings, Inc., 198 F.3d 415, 421 (3d Cir. 1999) (citations omitted).
Because the District Court adjudicated Tedesco’s claims without holding an evi-dentiary hearing, it follows that the Dis
III.
A.
We first consider Tedesco’s claim that material issues of fact existed regarding Honeywell’s usability determination. The District Court rejected Tedesco’s claim based on Paragraph 5 of the Settlement Agreement, which granted to Honeywell the power to determine usability “in its discretion.”
Paragraph 5 provides that “Honeywell shall purchase ... that portion of Tedes-co’s finished goods and raw materials inventory that Honeywell finds usable in its discretion based on national sales.” App. 421A. Unlike Paragraph 5, Attachment A of the Settlement Agreement — which deals with “raw inventory” — states that usability was “determined based on bill of materials compliance with current HW product line.” Id. at 428A. And unlike both Paragraph 5 and Attachment A, Attachment B — which deals with “finished goods” — states that usability was “determined based on previous 6-month sales and bill of materials compliance.” Id. at 481A. As noted above, Paragraph 5(a) of the Settlement Agreement provides that the Attachments represent those goods that Honeywell found usable, and thus was obliged to purchase. Id. at 421A. Finally, Paragraph 11(f) of the Settlement Agreement specifically preserves disputes over “the national sales data upon which Honeywell relied in arriving at its usability determination.” Id. at 425A.
The parties agree that Attachments A and B omit as “unusable” all of Tedesco’s inventory and raw materials that were not part of Honeywell’s product line in approximately March 2006. Tedesco challenges this methodology, claiming it violates the provision of the Settlement Agreement that required Honeywell to determine usability “in [its] discretion based on national sales.” Tedesco also claims the usability determination was to be made as of the date of the AIP (August 2003), not the date of the Settlement Agreement (March 2006).
In this regard, the District Court noted that paragraph 5 of the Settlement Agreement granted Honeywell “broad discretion” to determine usability, and declared that it would not “second guess” Honeywell’s exercise of that discretion. But Paragraph 5 also requires Honeywell’s determination to be “based on national sales.” This requirement differs from Attachment A, however, which uses Honeywell’s then-current product line, not national sales data. This is not an immaterial distinction because the record indicates that Honeywell regarded its current product line and its national sales as different things. Compare Attachment A, App. 428A (referring to “bill of materials compliance with current HW product line” and not sales data) ivith Attachment B, id. at 481A (referring to “previous 6-month sales” and to “bill of materials compliance,” which might refer to Honeywell’s product line).
Thus, although Tedesco agreed to Attachments A and B in Paragraph 5(a) of the Settlement Agreement, the other terms of Paragraph 5 as well as the AIP would appear to require the use of a different usability criterion. Accordingly, and in light of Paragraph ll(f)’s reservation of this dispute, we find that issues of fact remain as to whether the “based on national sales” requirement remains a term of the settlement, and, if so, whether the usability determination reflected in Attach-
We also agree with Tedesco that factual findings are necessary to determine whether usability is to be assessed as of 2006 or 2003. Attachments A and B determine usability as of roughly the time of the Settlement Agreement, and the Settlement Agreement itself contains no provision that would require a retroactive usability analysis. Paragraph 11(e) of the Settlement Agreement, however, preserves a dispute over “who should bear the differences in prices and useability of the inventory ... associated with delay in implementing the terms of the Agreement in Principle.” Id. at 425A. The AIP requires a usability determination similar to that provided for in the Settlement Agreement, but is silent as to whether usability was to be determined as of the time the AIP was agreed to, or as of the time of the actual transfer of the goods. If, as Tedesco maintains, the parties intended the usability determination to be immediate, then Honeywell’s failure to purchase those portions of Tedesco’s inventory that were usable in 2003 but not usable in 2006 would qualify as a “difference[ ] in ... useability of the inventory ... associated with delay in implementing the terms of the Agreement in Principle,” id, which would oblige Honeywell to purchase those parts that became unusable between 2003 and 2006.
For the aforementioned reasons, we will vacate the judgment of the District Court as to Tedesco’s first issue and remand for an evidentiary hearing.
B.
We next analyze Tedesco’s challenge to Honeywell’s pricing of the goods it repurchased. As noted above, Paragraph 5 of the Settlement Agreement requires Honeywell to repurchase usable inventory “at full transfer price.” Id. at 421A. In Attachment B, the per-unit price for each item of finished goods is marked “2003 Tx Pricing.” App. 481A. Attachment B, however, also includes a notation that Honeywell’s “[sjurvey of rebuilder inventory on highest quantity part # s reduces usable inventory by app. 5%.” Id.
We note initially that Paragraph 11(f) of the Settlement Agreement preserves disputes relating to “Honeywell’s determination of the useability of the Inventory, including but not limited to the prices used and the national sales data upon which Honeywell relied in arriving at its usability determination.” Id. at 425A (emphasis added). It is not clear from the face of the Settlement Agreement what is meant by this reference to “the prices used” in determining usability. The Settlement Agreement itself does not seem to contemplate the price of the goods as an element of the usability analysis, and even Honeywell’s reference to its current product line does not seem to incorporate any consideration of price. Thus, it is possible that this ambiguous language refers to the reduction in price based on Honeywell’s usability determination.
C.
We next consider whether the District Court erred when it found that Tedesco was not entitled to rebates. Tedesco claims that when the parties negotiated their schedule of transfer prices (which was before this litigation began), Honeywell agreed to pay a series of per-unit “rebates,” but that the value of these rebates was not included in the price paid by Honeywell pursuant to the Settlement Agreement. Tedesco therefore contends that Honeywell has underpaid. Honeywell disagrees, contending that the transfer price was the baseline price from which the rebates were offered. The District Court found both that Tedesco had released this claim by not reserving it in the Settlement Agreement, and that it was meritless because rebates were mentioned neither in the AIP nor in the Settlement Agreement. We agree that the per-part “transfer price” to which Tedesco agreed is unambiguously set forth in Attachments A and B to the Settlement Agreement.
We further agree that, even if the AIP contemplated a different price, the parties did not reserve any dispute as to rebates in Paragraph 11 of the Settlement Agreement, and the AIP is therefore superseded on this issue pursuant to the Settlement Agreement’s integration clause. Arguing to the contrary, Tedesco points to Paragraph 11(e) of the Settlement Agreement, which provides that “[t]he parties contest who should bear the difference in prices ... associated with delay in implementing the terms of the Agreement in Principle,” and to Paragraph 11(f), in which “Tedesco contests ... the prices used ... in arriving at [the] usability determination.” Id. at 425A. But the rebate issue has nothing to do with either the delay in implementing the settlement or with Honeywell’s usability determination. Tedesco’s rebate claim would be the same regardless of whether any delay had occurred, and there is no indication that Honeywell’s refusal to pay rebates on Tedesco’s inventory was related to its estimation of the inventory’s usability.
For the foregoing reasons, we will affirm the judgment of the District Court on this issue.
D.
Tedesco also claims that Honeywell wrongfully refused to purchase its inventory of used brake shoe cores, which— according to Tedesco — qualified as “raw materials” that Honeywell promised to repurchase, subject to its usability determination. Paragraph 11(g) of the Settle
Neither the AIP nor the Settlement Agreement indicates whether returned cores should be regarded as “raw materials” (or “raw inventory,” the term used in the Settlement Agreement), and no extrinsic evidence has been produced on this question. Honeywell claims that these cores are listed in Tedesco’s bills of materials at a value of zero. But Honeywell does not cite the record in support of this claim, and our independent review has revealed only long lists of serial numbers and part values that do not enable us to meaningfully evaluate Honeywell’s contention.
E.
We next consider Tedeseo’s claim that Honeywell is responsible for the costs of packing and loading the purchased goods for shipment between the parties.
Paragraph 5(b) of the Settlement Agreement requires Tedesco to “tender” inventory that is “prepared for shipment,” but also contemplates that Honeywell “will conduct a physical inspection to its satisfaction of the Inventory prior to taking possession of each shipment.” Id. at 422A. Moreover, Paragraph 5(e) requires Tedes-co, “upon request [by Honeywell], to provide equipment, labor, and materials to Honeywell to facilitate the inspection, packing and loading process,” and provides that Honeywell must “reimburse Tedesco for charges directly associated with this process,” at specified rates. Id. Based on Paragraph 5(e), Tedesco argues that paying for packing and loading the goods for shipment was Honeywell’s responsibility.
The parties agree that Honeywell waived its right to inspect the inventory before it took possession, so cost of inspection is not at issue. The District Court concluded that Paragraph 5(e) requires Honeywell to pay for packing and loading costs only insofar as they were necessitated by the inspection process because, it said, any other reading would essentially nullify Paragraph 5(b)’s requirements that Tedesco “tender” goods “prepared for shipment.” Accordingly, the District
Because we find the Settlement Agreement ambiguous on this question, we disagree. In our view, the fact that the contract requires goods to be “prepared for shipment” does not necessarily address either the costs of loading the goods or all of the packing costs. Accordingly, a remand is required for the District Court to find facts as to this issue.
F.
Finally, Tedesco asserts that Honeywell wrongly began servicing customers in Tedesco’s exclusive area long before actually paying for the right to do so. The AIP provided that “Honeywell will pay $450,000 to Tedesco to extinguish all Tedesco’s right, title and interest in the regional manufacturing and distribution agreement.” App. at 336A-37A. Honeywell began servicing customers in Tedesco’s region shortly after October of 2003, but did not make the required payment until June of 2006. Tedesco therefore claims that it is entitled to disgorgement of Honeywell’s in-region profits for this time period.
The District Court found this claim to have been released by the Settlement Agreement, and we agree. The Settlement Agreement contains no reservation for a claim of this type. Tedesco points to Paragraph 11(e), reserving disputes over “other costs associated with delay in implementing the Agreement in Principle.” But the profits Honeywell earned in Tedesco’s exclusive geographical region (or the profits Tedesco forewent in that region by closing its doors) cannot be characterized as one of these costs. To the contrary, the right to those profits was precisely what Tedesco ceded to Honeywell in settlement of this case. Accordingly, we will affirm the judgment of the District Court as to Tedesco’s disgorgement claim.
IV.
For the foregoing reasons, we will affirm the judgment of the District Court insofar as it exonerated Honeywell from paying rebates as part of the “full transfer price” for Tedesco’s goods, and from disgorging any profits to Tedesco or compensating Tedesco for its own lost profits. In all other respects, we will vacate the District Court’s judgment, and remand so the District Court can conduct an evidentiary hearing consistent with this opinion.
. Paragraph 5(a) states that Attachments A and B are ‘‘preliminary” in nature, but also provides that "in no event shall Honeywell be required to pay for" anything not listed in Attachment A or B. Id.
. Tedesco's second motion to enforce settlement agreement was filed on July 17, 2006, and withdrawn a week later.
. The mediation was successful, and these issues are not before us.
. There is some question whether conducting the usability determination in this way was compatible with the “national sales” criterion that Honeywell may have been required to use. The District Court should address this question on remand.
. Our holding that the per-unit transfer prices are unambiguously listed in Attachments A and B does not affect our conclusion that the 5% discount applied to the total purchase price for all parts is not part of the transfer price.
. It appears that pages 522A to 670A of the Joint Appendix are Tedesco's catalogs of the parts it actually shipped to Honeywell. We are unable to discern whether this is the "bill of materials" to which Honeywell refers. In any event, the parts are cataloged only by serial number and not by name, leaving us with no way to determine which if any of the entries represent brake shoe cores. Furthermore, we have been unable to locate any part for which the per-unit price is listed as zero. Those parts that qualify as finished inventory are assigned a separately listed “Core Price," and for most parts this value is either blank or zero. But on this record we are unable to see how this is relevant to Honeywell's contention that used cores are not raw materials.
. The parlies dispute whether Honeywell legitimately refused to buy the cores because they were deemed unusable. Honeywell contends that one basis for its refusal to repurchase cores is its discontinuation of its core resale program in the summer of 2004 — between the time of the AIP and the Settlement Agreement. As a result, Honeywell represents, it no longer has any use for used cores, and is entitled to reject them as unusable. Consistent with Tedesco’s argument in its Reply Brief, however, we are unaware of any record evidence on this issue. We leave this factual issue to the District Court on remand as well.
. The District Court noted that unless the parties to a contract specify otherwise, under Pennsylvania's version of the Uniform Commercial Code, it is the seller’s obligation to “transfer and deliver” sold goods. 13 Pa. Cons.Slat. § 2301. Here, however, the Settlement Agreement provides that "the Inventory shall be shipped by Honeywell or its designee to a location of its choosing.” App. at 422A.
. This is different from the relief Tedesco sought in the District Court. There, Tedesco sought restoration of "the profits [Tedesco] would have earned if Honeywell had hon- or[]ed its obligation.” App. at 332A. Because we conclude this issue has been waived, this discrepancy in remedies sought is immaterial.
Reference
- Full Case Name
- TEDESCO MANUFACTURING COMPANY, INC. v. HONEYWELL INTERNATIONAL INC.
- Status
- Published