In a case arising out of a stock purchase and employment agreement gone wrong, a district court judge has declined to enforce a settlement “Term Sheet”, stating that the document did not rise to the level an enforceable settlement agreement between the parties.
The case, Intersections, Inc., et al. v. Loomis & Loomis, , involved a stock sale of $14 million dollars from defendant Joseph Loomis (“Loomis”) and his company, Net Enforcers, Inc. (“NEI”) to plaintiff Intersections, Inc. (“Intersections”). Loomis remained an employee of NEI after he sold it, and entered into an employment agreement which contained a non-compete and other restrictive covenants. Within a year after the stock purchase and Loomis entering into the employment agreement, NEI suspended Loomis from his position and ultimately terminated his employment. Litigation followed in which plaintiffs alleged that Loomis and his sister, co-defendant Jenni Loomis, engaged in fraud by misrepresenting the financial condition of NEI. Plaintiffs also alleged that Loomis engaged in conversion of NEI assets and breach of his fiduciary duties to NEI.
In an attempt to settle the case, the parties engaged in extensive settlement discussions with a magistrate judge and reached an agreement, in principle, to settle the case. In exchange for receiving a monetary payment from the defendants, inter alia, the parties agreed that Loomis’ employment agreement containing the non-compete provisions would be void. A handwritten term sheet was prepared by the magistrate judge reflecting the agreement reached by the parties. However, when plaintiffs prepared draft settlement agreements for signature by the parties, they were rejected by the defendants. Thus, the parties never signed a final settlement agreement.
In rejecting both the plaintiff’s attempt to enforce the settlement agreement and the magistrate judge’s report and recommendation to enforce the agreement, the Court held that the parties had not entered into a legally enforceable agreement because there was no meeting of the minds as to the final terms of the settlement. In particular, the Court found that plaintiffs added terms to the agreement beyond what was agreed to at the settlement conference; contingencies in the proposed agreement were not satisfied; and there was apparently not a meeting of the minds as to whether all of the restrictive covenants in Loomis’ employment agreement would be void as part of the settlement of the case. As such, the Court concluded that under Virginia law, it could not save an agreement that had never ultimately been reached by the parties.
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