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Products for Surgery, Inc. v. Shelhigh

January 22, 2008

PRODUCTS FOR SURGERY, INC., PLAINTIFF,
v.
SHELHIGH, INC., DEFENDANT.



The opinion of the court was delivered by: William J. Martini, U.S.D.J.

OPINION

Plaintiff Products for Surgery, Inc. ("PSI") files this motion to enforce a settlement agreement with Defendant Shelhigh, Inc. PSI requests that this Court order Shelhigh to pay the amount set forth in the settlement as well as all fees and costs that PSI incurred in enforcing the settlement. Shelhigh does not dispute the validity of the settlement but responds that it is financially unable to comply with it. This Court holds that Shelhigh's inability to comply with the settlement does not excuse its performance thereunder and thus orders Shelhigh to comply with the settlement. However, this Court finds that the settlement agreement extinguished any right PSI had to seek attorney's fees arising from this litigation. Accordingly, PSI's motion is GRANTED in part and DENIED in part.

I. FACTS AND PROCEEDINGS

This case arises from the settlement of a contract dispute. In 1999, Plaintiff PSI and Defendant Shelhigh entered into a distribution contract, pursuant to which PSI agreed to distribute Shelhigh's medical products. (Compl. ¶ 6.) The distribution contract required PSI to promote and distribute only Shelhigh products. (Countercl. ¶ 28.) The contract provided that upon its termination, PSI could return to Shelhigh any unsold inventory for reimbursement. (Compl. ¶ 7.) The contract also provided that "in the event of litigation arising out of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys fees." (Compl. Ex. A § 20(b).)

By 2005, the relationship had soured. PSI sued Shelhigh for breach of contract, invoking this Court's diversity jurisdiction under 28 U.S.C. § 1332 and alleging that the distribution contract had terminated but that Shelhigh had failed to reimburse PSI for returned medical products. (Compl. ¶¶ 3, 9--14.) Shelhigh counterclaimed for breach, alleging that PSI had sold and promoted the medical devices of a Shelhigh competitor. (Countercl. ¶¶ 30--33.)

Eventually the parties settled, entering into a written settlement agreement on May 16, 2007. (Motion ¶ 4.) The settlement agreement required Shelhigh to pay PSI $65,000 by May 29, 2007. (Settlement ¶ 3(a).) The settlement also provided that the parties relinquished any claims arising from the distribution contract-including claims for attorney's fees or costs. (Settlement ¶ 1.) This Court accordingly dismissed the case but specifically retained jurisdiction to enforce the settlement agreement if needed. (Order of Dismissal.)

Shelhigh never did pay this $65,000 to PSI. (Motion to Enforce Settlement ¶ 14.) Accordingly, on July 31, 2007, PSI filed this Motion to Enforce the Settlement Agreement. PSI seeks an order compelling Shelhigh to pay settlement amount of $65,000. (Motion 4--5.) PSI also seeks to recover all attorney's fees and costs arising from the enforcement of the settlement. (Motion 5.)

II. DISCUSSION

District courts may retain subject-matter jurisdiction to enforce a settlement agreement if that jurisdiction is expressly retained in any order dismissing the case as settled. In re Phar-mor, Inc. Sec. Litig., 172 F.3d 270, 274 (3d Cir. 1999). If the court's jurisdiction over the underlying case was grounded in § 1332 diversity jurisdiction, then the court will look to state law when construing and enforcing the settlement agreement. Consol. Rail Corp. v. Portlight, Inc., 188 F.3d 93, 96 (3d Cir. 1999). Under New Jersey law, the construction and enforcement of settlement agreements is governed by contract principles.*fn1 Thompson v. City of Atl. City, 921 A.2d 427, 439 (N.J. 2007); Nolan ex rel. Nolan v. Lee Ho, 577 A.2d 143, 146 (N.J. 1990).

A. The $65,000 Settlement Obligation

Applying the above principles, it is clear that PSI is entitled to an order compelling Shelhigh to pay the $65,000 settlement amount. The settlement clearly provides for this payment, obligating Shelhigh to "Pay to PSI Sixty Five Thousand Dollars ($65,000.00) as full consideration for the promises set forth above on or before May 29, 2007." (Settlement ¶ 3(a).) Indeed, Shelhigh does not dispute this obligation. (Opp. to Motion to Enforce Settlement.)

Rather, Shelhigh merely asserts that it is financially unable to fulfill this obligation. (Opp.) Shelhigh explains and this Court acknowledges that it is involved in litigation with the FDA (Opp.), which seized Shelhigh's medical devices pursuant to this Court's order. See United States v. Undetermined Quantities of Boxes of Articles of Device, Labeled in Part, Shelhigh No-React Vascupatch Shelhigh, Inc., No. 07-CV-1769, 2008 WL 58871, at *1 (D.N.J. January 3, 2008). Shelhigh states that it "has every intention in paying plaintiff the agreed upon amount," but that it cannot do so now. (Opp.)

While this Court does not question Shelhigh's purported inability to fulfill its settlement obligations, this does not justify modification or vacation of those obligations. Settlement agreements will be honored and enforced absent a demonstration of fraud, misrepresentation, or some undue advantage one party enjoyed in the creation of the agreement. Nolan, 577 A.2d at 146; Zuccarelli v. State, Dep't of Envtl. Prot., 741 A.2d 599, 604 (N.J. Super. Ct. App. Div. 1999). Impossibility of performance does not relieve a party from the obligation to perform a contract. Schwartz v. Hoffman Found. & Holding Corp., 51 A.2d 240, 243 (N.J. Ch. 1947). If ...


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