Federfin Tech Srl v. Union Packaging, Inc.

Background

Federfin Tech SRL sued Union Packaging, Inc. over claims involving several orders for aluminum bottle caps placed between January 2014 and May 2017. The claims included breach of contract, unjust enrichment, account stated, goods sold and delivered, violations of California’s Unfair Competition Law, and breach of the implied covenant of good faith and fair dealing. Union Packaging filed counterclaims alleging that the bottle caps were defective.

After private mediation, the parties entered into a settlement agreement on January 29, 2019. Union Packaging agreed to pay Federfin Tech $150,000 in installments between January 15, 2020, and June 15, 2021. If Union Packaging missed an installment, it would owe $200,000, less prior installment payments, immediately. Federfin Tech agreed to use its best efforts to file and collect an insurance claim concerning the defective bottle caps, with any insurance payment credited against the amount owed. Union Packaging also signed a $200,000 promissory note.

The court dismissed the case with prejudice but retained jurisdiction to enforce the settlement agreement. After Federfin Tech reported that Union Packaging had made no payments, the court granted Federfin Tech’s motion to enforce the settlement agreement and ordered Union Packaging to pay $200,000 within 30 days. Union Packaging’s counsel had stated in a January 2020 email that the company had been dissolved in 2019, no longer existed, had substantial debt, and was effectively bankrupt and not collectible.

Motion for Civil Contempt

Federfin Tech moved to hold Union Packaging in civil contempt and requested sanctions and attorneys’ fees. Civil contempt is a court’s power to require compliance with a specific order or compensate for losses caused by noncompliance. The court explained that Federfin Tech had to prove by clear and convincing evidence that Union Packaging violated the payment order and failed to take all reasonable steps within its power to comply. The court also explained that inability to comply is a complete defense to civil contempt.

The court declined to hold Union Packaging in contempt on the record before it. The only evidence before the court suggested that Union Packaging could not comply with the payment order because it had been dissolved and remained unable to pay. The court stated that it would not proceed with civil contempt when compliance was factually impossible.

The court denied the motion without prejudice. It stated that Federfin Tech could renew the motion if it provided information showing why Union Packaging was nevertheless able to comply and pay the settlement amount.

Motion for Attorneys’ Fees and Costs

Federfin Tech separately sought $5,983.10 in attorneys’ fees and $159.18 in costs. It relied on the settlement provision allowing the prevailing party to recover reasonable fees and costs in an action to enforce the settlement agreement or promissory note.

The court acknowledged that Federfin Tech had prevailed on its earlier motion to enforce the settlement agreement. But the court found that the fee request appeared to include time spent throughout the litigation, rather than only time spent enforcing the settlement agreement. The request also included time spent preparing the contempt motion, on which Federfin Tech did not prevail, and approximately $420 incurred before the first settlement payment was due. Because many billing entries were block billed, the court could not determine how much time was spent specifically enforcing the settlement agreement.

The court denied the motion without prejudice and stated that Federfin Tech could renew it with more detailed supporting information. The court also noted that, if Union Packaging could not pay the settlement amount, it seemed unlikely that Union Packaging could pay attorneys’ fees and costs.

Disposition

Judge Haywood S. Gilliam, Jr. denied both motions in their entirety without prejudice: the motion to hold Union Packaging in civil contempt and the motion for attorneys’ fees and costs. The order did not prevent Federfin Tech from renewing either motion under the conditions described by the court.