Turner et al v. Frascella Enterprises, Inc. et al

UNITED S TATES B ANKRUPTCY COURT
FOR T HE E ASTERN DISTRICT O F PENNSYLVANIA
In re 	: 	Chapter 11
:
FRASCELLA ENTERPRISES, INC., 	: 	Bankruptcy No. 06-10322DWS
d/b/a CashToday, 	:
:
Debtor. 	:
:
LAWRENCE TURNER, 	: 	Adversary No. 06-0101
LINDA DAVIS and DEMRYI HILL, 	:
on behalf of themselves and all others 	:
similarly situated, 	:
:
Plaintiffs, 	:
:
v. 	:
:
FRASCELLA ENTERPRISES, INC., 	:
d/b/a CashToday, 	:
LARRY D. FRASCELLA, 	:
DAVID W. FRASCELLA, JR., and 	:
THERESA FRASCELLA, 	:
:
Defendants. 	:
OPINION
BY: 	DIANE WEISS SIGMUND, United States Bankruptcy Judge
Before the Court is the Plaintiffs’ Motion to Enforce Settlement (the “Motion”).
The facts giving rise to the Motion are contained in the record of this Court’s proceedings
and in certain documents that comprise the evidentiary record. 	Counsel for Lawrence
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1 At the conclusion of the briefing, I scheduled a further status conference to verify the
parties’ positions on the necessity of a hearing. Plaintiffs’ counsel stated that all relevant facts were
undisputed. Defendants disagreed but claimed it was the Plaintiffs’ burden to establish the right to
enforcement so they saw no need for a hearing either. However, in further briefing that I requested,
Plaintiffs stated that if their position was not sustained because I found disputed material facts,
they would then seek a hearing.
2 I shall take judicial notice of the docket entries in this case. Fed.R.Evid. 201, incorporated
in these proceedings by Fed.R.Bankr.P. 9017. See Maritime Elec. Co., Inc. v. United Jersey Bank,
959 F.2d 1194, 1200 n.3 (3d Cir. 1991). While a court may not take judicial notice sua sponte of
facts contained in the debtor’s file that are disputed, In re Augenbaugh, 125 F.2d 887 (3d Cir. 1942),
it may take judicial notice of adjudicative facts “not subject to reasonable dispute ... [and] so long
as it is not unfair to a party to do so and does not undermine the trial court’s factfinding authority.”
In re Indian Palms Assoc., 61 F.3d 197, 205 (3d Cir. 1995) (citing Fed.R.Evid. 201(f) advisory
committee note (1972 proposed rules). Moreover, “factual assertions in pleadings, which have not
been superceded by amended pleadings, are judicial admissions against the party that made them.”
Larson v. Gross Bank, 204 B.R. 500, 502 (W.D. Tex. 1996). The Debtor’s Amended Disclosure
Statement and the briefs in support of the Motion contain the undisputed factual history
recited below.
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Turner, Linda Davis and Demryi Hill on behalf of themselves and all others similarly
situated (the “Plaintiffs” or the “Class”) rely on the foregoing record and do not seek an
evidentiary hearing. 1 For the following reasons, I grant the Motion in part. While the
writings that memorialize the modifications do not constitute a binding agreement because
they have not been signed by all counsel as contractually required, the failure to reach a
resolution on the post-hearing issues does not negate the enforceability of the agreement
reached on August 17, 2007 to which the parties are presently contractually bound.
BACKGROUND
On January 30, 2006 (“Petition Date”) Frascella Enterprises, Inc. d/b/a CashToday
(“Debtor”), filed for protection under Chapter 11 of the Bankruptcy Code. 2 Since that date
its reorganization proceedings have been animated by claims of a consumer class against
it and its principals David and Larry Frascella (the “Brothers”) (together Debtor and
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3 Pending before the Court was the Defendants’ Motion to Enforce Arbitration. 	Doc.
No. 42. The parties had just concluded their discovery and submitted an agreed upon documentary
record in support of their respective positions.
4 While the Defendants dwell at some length on the events leading up to the settlement,
I find those facts irrelevant to the issue before me since, as discussed below, there is no question in
my mind that a settlement was reached. I do acknowledge that it represented months of negotiation
and was aided by a judicial mediator although ultimately the parties reached closure by themselves.
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Brothers, the “Defendants”). 	A class action complaint (the “Turner Action”) alleging
violations of various usury and other consumer protection laws in connection with Debtor’s
payday lending business pending on the Petition Date in state court was removed to this
Court on February 3, 2006. A jurisdictional battle then ensued with the Debtor and Brothers
arguing that the arbitration provision in the consumer contracts must be given effect and the
Plaintiffs opposing that consequence as it would deny them a class action vehicle for
asserting their claims. Notably at the time this dispute raged, the federal and state courts
diverged in their views of the enforceability of arbitration clauses. 	In particular, it was
not clear whether the Third Circuit Court of Appeals would embrace decisions of the
Pennsylvania lower courts that held that arbitration clauses that foreclose the use of class
actions were unenforceable as unconscionable adhesion contracts. Indeed that precise issue
was teed up for resolution here3 in the first instance when the parties announced a settlement
of the Turner Action.4
The Settlement
The settlement is memorialized in a document executed by all parties to the
litigation entitled Agreement to Settle Class Adversary Proceeding dated August 17, 2007
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5 While the Court was advised by the parties that they had reached this resolution
somewhat earlier, the Settlement Agreement was not fully executed until August 17, 2007.
6 Upon the Effective Date of the Plan, the Debtor is discharged, the property of the estate
revests in Debtor and the merger of the Debtor into its affiliate occurs.
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(the “Settlement Agreement”).5 Exhibit 5 to Affidavit of Aris J. Karalis (“Karalis Aff.”).
The material terms of the Settlement Agreement are:
(1) The establishment of a settlement fund totaling $1.2 million comprised of (a) four
quarterly installments of $150,000 to be paid by the Brothers commencing the later of
October 1, 2007, the 10 th day after the Order approving the Amended Disclosure Statement
or the 10 th day after the order certifying the class and preliminarily approving the Settlement
and (b) $150,000 to be paid by the Debtor and $450,000 to be paid by the Brothers within
ten days of the Trigger Date (i.e., the later of (a) entry of a final order (i) confirming the
Plan, (ii) certifying the class and (iii) giving final approval to the Settlement Agreement
and (b) the occurrence of the Effective Date of the Plan). 	Until all payments are made,
the installment payments made shall be held in escrow and the Amended Plan will not
go “effective.”6 If there is a default of the payment obligations, the escrowed payments will
be returned to the party who made them and “the Court shall determine what further orders
should be entered in the main bankruptcy case and the [Turner Action].” However, in such
case, the remaining balance will be accelerated and will be immediately due with interest
accruing thereon.
(2) 	Until the $1.2 million is paid, no principal payments shall be made to any of
the noteholders who have loaned money for use in Defendants’ lending activities.
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7 Also before the Court at that hearing was the Debtor’s request for approval of its
Amended Disclosure Statement. Given the parties’ agreement to continue to discuss the terms of
the settlement with a view toward confirmation of a more feasible plan of reorganization, I held
over the Amended Disclosure Statement for further hearing as it may be amended.
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(3) In return for the $1.2 million, the Defendants and all other Frascella- controlled
entities and certain others will be released by the Class.
(4) 	The Debtor and two related entities shall forgive and discharge any amounts
owed by any member of the Class on any loan that was in default as of December 23, 2005.
The Approval Motion and Hearing
On September 24, 2007 Plaintiffs filed a Motion Seeking Preliminary Approval
(“Approval Motion”) of the Settlement Agreement accompanied by a proposed order of
approval and a class notice. Adv. Doc. No. 65. Shortly thereafter Debtor filed an Amended
Chapter 11 Plan and Amended Disclosure Statement setting forth, inter alia, the terms of the
Settlement Agreement and providing for its implementation as part of the proposed plan.
Doc. Nos. 277 and 278.
On November 5, 2007 the parties appeared in connection with the Approval Motion,7
and explained to the Court what was envisioned at that point. Pursuant to Fed.R.Civ. P. 23,
I was requested to provide preliminary approval of the Settlement Agreement, i.e., to
provisionally certify the class, the class representatives and their counsel for settlement
purposes and preliminarily approve the Settlement Agreement as sufficient for transmission
to the Class. As part of that process, a date was requested for the fairness hearing at which
the Court would finally determine whether the criteria for class certification were met and
whether the Settlement Agreement was fair, and a schedule was proposed for notification
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8 Specifically I asked for “clarification” on the implementation of the settlement vis a vis the
“Trigger Date” and “Effective Date” of the plan to which Debtor’s counsel provided an explanation
but then stated “if we need to amend anything or clarify that. . . .” Id. at 12. I went on to state that
I “have a conceptual problem with how you structured this as a Chapter 11, but I’m first trying to
understand it . . . from the point of view of a class member who’s going to get a notice that’s going
to say here is the settlement, but it may never happen.” I then suggested that “from point of view
of debtor in possession and creditors, I think you are asking me to confirm a plan that’s really
illusory.” Id. at 13.
9 In connection with this Motion, I have more carefully studied the Settlement Agreement
and determined that a payment default does not render the Settlement Agreement null and void.
On the contrary, the Settlement Agreement only provides that the payments would be returned,
the obligations accelerated and I would determine what orders should be entered in the main
bankruptcy case and Turner Action. Settlement Agreement ¶17.
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of the Class (through mailed notice and publication), the filing of a motion for final approval
of the Settlement Agreement and the filing of objections thereto. 	While the Approval
Motion was styled as Plaintiffs’ motion, the parties made clear at the hearing that it was a
mutual request that I confer preliminary approval of the Settlement Agreement and the
negotiated class notice.
While my response began by sincerely congratulating counsel on achieving the
settlement, I nonetheless noted that there were aspects of the settlement that I either did not
understand or that I found to be cumbersome as part of Chapter 11 reorganization plan.
Transcript of November 5, 2007 hearing (Tr.) at 6 (“I have a comfort level with it in terms
of...preliminary approval” but I have “concerns and questions”).8 My primary focus was a
provision that upon payment default by the Brothers, the escrowed payments would be
returned to them, and the parties would return to their litigation positions.9 I expressed my
concern that this provision could be fatal to the confirmed plan which due to the deferral of
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10 I questioned “Is there any reason why the whole legal process [final approval of the
settlement] has to be in advance of the payment? In other words, why can’t the plan process be
deferred until the money comes in?” Id. at 15-16. I also questioned whether there was to be a
judgment for $1,050,000 to execute on? Id. at 19.
11 Again my focus was on the integration of the settlement into the reorganization process:
“if you approach it as the class action part of it, that’s easier than when you try to wrap it into a
Chapter 11 proceeding. And that’s . . . where my sensibilities are.” Id. at 34. I continued: “to the
extent you want to re-look at the sequencing [of the payments] and it means deferring plan
confirmation, I don’t have any problem with that if the goal is get it on more certain footing for
being confirmed.” Apparently understanding my point, Debtor’s counsel stated, “okay.” Id. at 39.
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the effective date until all payments are made, might never be consummated. As I stated,
“I’m trying to determine, Mr. Karalis, what I have by way of a confirmed plan.” Id. at 14.
While noting that “I don’t want to be a fly in the ointment, id. at 17, I stated that “I’m trying
to understand what happens if it [the settlement] unravels.” 10
To these concerns, Brothers’ counsel Marc Zucker (“Zucker”) opined that the money
and the plan function as the “carrot and the stick.” 	The Brothers’ desire for the
consummated reorganization would motivate them to make the payments. I still maintained
that creditors would be hard pressed to vote for a plan “when they don’t have the foggiest
notion of whether it will ever go effective?” Id. at 21. In short, I expressed my discomfort
with the payment timetable because of the resulting uncertainty to the reorganization.
Id. at 27.
After hearing my questions and concerns, the parties agreed to return to the table
to attempt to address these issues consistent with their overall agreement. Debtor’s counsel
said they “require us to sit down with Mr. Ackelsberg and try to see if there is some
mechanism by which we can address the concerns you are raising.”11 After asking for
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a return court date, he concluded “[w]ell clearly, your Honor, we’re going to need to
obviously sit down and work through these issues.” Id. at 51-52.
Brothers’ counsel and David Frascella were present during this colloquy about the
next step and did not demur. Significantly, I concluded as follows: “And I say, good work.
I think we’re going to get there and I think... sometimes more work in the beginning is
helpful in the end to which Brothers’ counsel replied, “Thank you for the benefit of your
thoughts.” Id. at 54.
Post-hearing Negotiations
Consistent with the parties’ assurances to the Court as we adjourned on November 5
and as is apparent from the various written documents exchanged by the parties after the
hearing, there was a significant effort “to sit down and work through” the issues I raised.
An initial e-mail dated November 14, 2007 from Ackelsberg to Karalis and Zucker detailed
Ackelsberg’s view of the issues to be addressed and proposed modifications to the
Settlement Agreement that accomplished that end in furtherance of a conference call
scheduled for the next day. Exhibit 1 to Affidavit of Irv Ackelsberg, Esquire (“Ackelsberg
Aff.”). As of December 4, 2007, as reflected in a Karalis e-mail of that date, there were
apparently drafts of a modified agreement prepared by both Ackelsberg and Zucker which
were reviewed by Karalis against his hearing notes. 	He then prepared his own version
working off the original settlement agreement (as opposed to the Ackelsberg or Zucker
drafts). He stated:
As you all know, we devoted much time and energy to achieve the settlement
agreement that is on file with the Court. I believe that my version addresses
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12 He not merely makes this statement but he focuses on the implementation of the
modification asking Ackelsberg to address the changes to the notice and proposed order and to
circulate same when and as soon as prepared. Id.
13 I was not concerned about the Debtor’s payment obligation since I can require that to be
escrowed as a condition of plan confirmation. Fed.R.Bankr.P. 3020.
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the primary concerns raised by the Court. My version continues to utilize the
original time frame contemplated under our original agreement.
However, it excludes some of the changes suggested by Irv which were not
contained in the original agreement filed with the Court. Lastly, as suggested
by the Court, it defers the approval process to a date after the Escrow Agent
is in possession of the $1,050,000 that is being paid by Dave and Larry.
The e-mail speaks of another conference call to follow. 	Karalis’ proposed Modified
Agreement to Settle Class Adversary Proceeding was attached along with provisions to
be incorporated into the final approval order. The transmission went to both Brothers and
Zucker. Exhibit 2 to Ackelsberg Aff.
On December 10, 2008 Ackelsberg transmitted his revised version of the Karalis draft
to Karalis and Zucker noting his belief that it responded to the Court’s concerns while
retaining the payment schedule and creating an enforcement mechanism that is not a money
judgment but becomes one in the event of a failure to comply with the payment schedule.
Exhibit 3 to Ackelsberg Aff. On December 11, 2008, 	Karalis responded with a copy to
Zucker and the Brothers that he and Marc were reviewing his draft and had a few points of
“clarification.” He observed that “[o]verall, it seems we are close.” Exhibit 4 to Ackelsberg
Aff.12 Indeed it appears that the lawyers had found a consensual solution to my principal
concern, 	i.e., 	that 	the 	monetary 	settlement 	could 	be 	undone 	if 	Brothers’ 	missed
an installment or other payment,13 by providing for a $1,050,000 judgment note to be
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paid in the same schedule as contemplated by the Settlement Agreement. Karalis’ follow-up
e-mail with a revised modification agreement (the “Karalis Modification”) blacklined to
Ackelsberg’s last draft was transmitted to Ackelsberg on December 14, 2007 with copies
to Zucker and Brothers along with a request that he call after he completed his review.
Exhibit A-5 to Ackelsberg Aff.
On December 20, 2007 Ackelsberg transmitted to Karalis and Zucker what he
“hoped to be a mutually acceptable revision” (the “Ackelsberg Modification”). He accepted
the Karalis Modification but for four changes, one of which he characterized as substantive.
The non-substantive changes dealt with the characterization of the loan debt being
discharged to promote more favorable tax consequences to the Class; a clarification of
the definition of Trigger Date; and a two-week acceleration of the Final Hearing date.
The substantive change involved the original provision that the individual investors (i.e.,
the Noteholders) not be paid until after Class was. Karalis had changed that, and Ackelsberg
changed it back. Exhibit A-6 to Ackelsberg Aff.
The Repudiation
On December 19, 2008, the Third Circuit Court of Appeals filed its opinion in Gay v.
Creditinform, 511 F.23 369 (3d Cir. 2007), in which it affirmed the district court and held
that an arbitration provision in certain consumer contracts for credit repair services was
enforceable, rejecting the unconscionability defense to a motion to compel arbitration.
On December 21, 2007 Zucker sent an e-mail (the “Repudiation Letter”) to Ackelsberg with
a copy to Karalis stating:
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We are in receipt of your December 20 email, raising further substantive
issues regarding any proposed settlement of this case. Given the failure of the
parties to reach agreement, the Court’s failure to approve the earlier
agreement, which is now null and void, and the impact of the Third Circuit’s
decision in Gay v. Creditinform, all terms previously proposed are hereby
withdrawn. Defendants need to give further thought to the terms upon which
they would be willing to consider a settlement of this case.
Exhibit 7 to Ackelsberg Aff.
On January 22, 2008 a status hearing (the “Status Hearing”) was held in which I was
advised of the Defendants’ position as expressed in the Repudiation Letter and the Plaintiffs’
intention to seek enforcement of the settlement. A schedule for submissions was established,
and all evidentiary material and briefs (including an unanticipated but permitted sur-reply
filed by Defendants) were filed by March 28, 2008. 	Following my review of all these
materials, I scheduled a further status hearing because, inter alia, I found that there may be
relevant and material facts in dispute, and I wanted to verify that Plaintiffs, as their briefs
stated, did not wish to present any further evidence. 	When I was assured that was their
decision, I requested a further briefing on the defense of lack of settlement authority raised
by Defendants in their Reply Brief to which the Plaintiffs had not responded. That brief and
the Defendants’ sur-reply have now been filed, and the contested matter is ripe for decision.
DISCUSSION
A. Introduction
The Plaintiffs seek an Order of this Court enforcing the Settlement Agreement as
modified by the Ackelsberg Modification, contending that an agreement on all material
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14 Defendants argue that Plaintiffs only seek enforcement of the Settlement Agreement as
modified as though there are two separate agreements at issue. To the extent the Motion could be
construed in that manner, and I do not, Plaintiffs’ brief makes clear that while it is their desire to
enforce the Settlement Agreement along with the subsequently negotiated modifications, they have
not abandoned the Settlement Agreement and seek its enforcement.
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terms of the settlement was reached and the parties intended that the agreement be final
and binding. 14 In defense, the Defendants claim there is no extant agreement since (1) the
original Settlement Agreement is null and void by reason of the Court’s failure to approve
it; (2) the Ackelsberg Modification does not represent a meeting of the minds since there
were material terms not agreed to and/or missing; (3) even if its material terms were agreed
to, the Ackelsberg Modification is not enforceable because it has not been executed by the
parties nor have the Brothers consented to the new terms; and (4) even if its material terms
were agreed to, the Ackelsberg Modification is not enforceable because it is not a simple
contract but a class action, the settlement of which requires many steps not yet addressed.
Defendants Memorandum in Opposition to Motion (“Def. Mem.”).
In addition to the documentary exhibits referenced above, Ackelsberg and Karalis
filed Affidavits which verify the documentary evidence (along with their respective
“spins” on its meaning) and David Frascella (“David”) filed an Affidavit (“Frascella Aff.”)
in support of Defendants’ contention that his counsel had no authority to bind him and his
brother to an unsigned or oral agreement. Exhibit “B” to Def. Mem. According to David,
after reviewing the Gay opinion, they concluded that they “could not in good conscience
justify a continued negotiation of settlement on the terms that we had been discussing.”
Frascella Aff. ¶7. Not unexpectedly, he states that they would not sign off on either of the
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15 The Circuit explained:
This central issue-whether there was any disputed issue of material fact as to the
validity of the settlement agreements-is similar to that which any court must address
when ruling on a motion for summary judgment. See Fed.R.Civ.P. 56(c). This is not
mere coincidence. The stakes in summary enforcement of a settlement agreement
and summary judgment on the merits of a claim are roughly the same-both deprive
a party of his right to be heard in the litigation.
Id. at 1031.
16 Defendants curiously present a long exposition on choice of law principles, reiterating
their position in the underlying litigation that Delaware law applies, and then conclude that since
Delaware and Pennsylvania are the same for these purposes, it does not matter. They then proceed
to cite to cases under Pennsylvania law which Plaintiffs contend is controlling. I have been mindful
of this issue as I made my way through the various legal questions presented and have concluded
that choice of law is not dispositive of the outcome of this Motion. See n. 18 infra.
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circulated drafts today nor would they agree to the Settlement Agreement which they
view as “null and void” because the Court declined to approve it at the November 7 hearing.
Id. ¶¶ 6, 8.
B. Applicable Legal Principles
1. Procedure. The parties agree on the applicable legal principles which will be stated
as a context for this decision. 	First, the Court’s role in deciding a motion to enforce a
settlement agreement closely resembles a motion for summary judgment and uses a similar
review process. Tiernan v. Devoe, 923 F.2d 1024 (3d Cir. 1991). 15 When relief depends on
a factual issue and credibility determinations are required, however, a hearing should be held.
Garabedian v. Allstates Engineering Co., 811 F.2d 802, 803 (3d Cir. 1987).
2. Substantive Law.16
Quoting from Defendants’ Memorandum, Plaintiffs agree that where the existence of
a settlement agreement is disputed, ordinary principles of contract law are applied to resolve
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17 Because I am unable to enforce the modification for other reasons, I need not reconcile
Karalis’ pre- Gay statement that “overall it seems we are close” with the Defendants’ position as
expressed in their brief that there were “many open terms” so as to negate any meeting of the minds.
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the matter. 	In re Cendant Corp. Prides Litigation, 233 F.3d 188, 193 (3d Cir. 2000).
Plaintiffs, as the party seeking enforcement, have the burden of establishing that an
agreement has been formed containing terms sufficiently definite to be enforced and that both
parties have manifested an intention to be bound by them. 	Channel Home Centers v.
Grossman, 795 F.2d 291, 298-99 (3d Cir. 1986). When these elements have been found,
enforcement will be ordered even where the agreement is not memorialized in writing.
Green v. John H. Lewis & Co., 436 F.2d 389, 390 (3d Cir. 1970).
This court is mindful that amicable settlement of disputes is favored over litigation
and its concomitant burden on the courts. 	Standard Steel, LLC v. Buckeye Energy, Inc.,
2005 WL 2403636, *8 (W.D. Pa. Sept. 29, 2005). 	In so noting, I also observe that this
policy does not encourage premature enforcement of settlements that are not yet complete.
United Mine Workers of America v. Barnes & Tucker Co., 561 F.2d 1093, 1099
(3d Cir. 1977).
C. Conclusions
1. The Modification Negotiations Have Not Been Memorialized in a Binding Written
Agreement. While disputing that there was a meeting of the minds regarding the material
terms of a modification,17 the Defendants also argue that even that which appears to have
been agreed to, was not because Karalis was not authorized on behalf of the Brothers to enter
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18 Although the opposition pleadings have been filed jointly by Debtor’s and Brothers’
counsel, there does not appear to be any independent reason why the Debtor would oppose a
settlement that would pave the way for its emergence from bankruptcy.
19 In Covington, the Third Circuit Court of Appeals, construing Pennsylvania law, read prior
decisions of the Pennsylvania Supreme Court to leave open the possibility that apparent authority
may, in appropriate circumstances, become the basis of enforcing a settlement where the conduct
of the principal warrants that result. Id. at 219-20. It stated, however, that apparent authority will
only be created when the principal has made representations concerning the agent’s authority to a
third party. Id. at 220. However, in Reutzel the majority reaffirmed that express authority was the
rule in Pennsylvania and rejected the Third Circuit’s understanding of its case law to suggest
otherwise. 582 Pa. at 157, 870 A.2d at 791.
Similarly, the Delaware courts reject implied or apparent authority of an attorney to bind
his client. Corbesco, Inc. v. Intern. Union of Operating Engineers Local No. 542, 620 F.Supp. 1239,
1243 (D. Del. 1985) (“An attorney . . . does not have implied or apparent authority to compromise
an action solely on the basis of being retained as counsel in the matter”) (citing Aiken v. National
Fire Safety Counsellors, 36 Del. Ch. 136, 139, 127 A.2d 473, 475 (1956)); Joyner v. News Journal,
1996 WL 659005, at *4-5 (Del. Super. 1996) (“Where an attorney consents to settlement of his
client's cause without the actual consent of the client, the settlement will not be binding on the
client”).
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the agreement he proposed. 18 Rather the Brothers aver that they expected to have the
opportunity to review a final written agreement and execute it before they would be bound.
An attorney has no authority to settle his client’s case solely by reason of his general
power to handle the case. Garabedian, 811 F.2d at 803. A binding agreement can only be
formed if the client authorizes the compromise. Id. Such authorization must be express to
enable an attorney to compromise rights or impose new liabilities or burdens on the client.
Reutzel v. Douglas, 582 Pa. 149, 154, 870 A.2d 787, 789-90 (2005) (“The law in this
jurisdiction is clear and well-settled that an attorney must have express authority in order to
bind a client to a settlement agreement.”). See also Covington v. Continental General Tire
Co., 381 F.3d 216, 218-19 (3d Cir. 2004). 19
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I thus turn to the record which Plaintiffs contend evidences the existence of such
authority. 	Following the November hearing at which David was present, the Brothers
authorized counsel to conduct further negotiations on the points addressed by the
modification draft. 	Frascella Aff. ¶ 6. 	They were copied on every draft their counsel
transmitted to Plaintiffs, Exhibits 2, 4, and 5 to Ackelsberg Aff., and were therefore aware
of Karalis’ statement that he and Zucker were reviewing Ackelsberg’s draft and “we are
close.” Exhibit 4 to Ackelsberg Aff. Moreover, Karalis had advised Ackelsberg that the
Frascellas might be willing to agree to the entry of a judgment upon non-payment as they
requested, which “clearly stat[ed] his intention to seek their authorization to make such a
supplemental agreement.” Plaintiff’s Supp. Mem. at 5. The subsequent inclusion of that
term in the Karalis Modification leads Plaintiffs to conclude that approval of that term was
sought and obtained. Id. at 6.
In response, Defendants have proffered the Frascella Affidavit in which David states:
We were never asked for, and never gave authority to counsel to bind us to
any unsigned agreement. To the contrary, our understanding at all times was
that we would have a final opportunity to review with care any and all written
terms of a formal written agreement negotiated by counsel and either reject
those terms or accept them and sign the final agreement.
Frascella Aff. at ¶3.
Both parties recognize that I am to approach this Motion using summary judgment
procedure, and if there is any question concerning counsel’s authorization, I am required to
hold an evidentiary hearing. 	Garabedian, 811 F.2d at 803-804; Suber v. Peterson, 2006
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20 The cases cited by Plaintiffs are premised on that principle. See Plaintiffs’ Supp Mem.
at 6 n.2. 	Prior to Reutzel, even where the theory of implied apparent authority was accepted,
it required evidence of the principal’s (not counsel’s) direct communications to the other party’s
counsel which would lead him to believe that counsel had the authority to settle. Thus, there was
no implied authority found from the attendance of the principal in the courtroom when a settlement
was announced, Farris v. J.C. Penney, 176 F.3d 706 (3d Cir. 1999), or because the attorney had
transmitted all communications and attended a pretrial conference where client authority was
required by the court. Edwards v. Born, Inc., 792 F.2d 387 (3d Cir. 1986). There is no evidence in
this record of communications by the Frascellas to Plaintiff’s counsel; rather the facts as relied upon
by Plaintiffs are actions of Debtor’s counsel (and not even Brothers’ counsel).
21 I do not find that to be the case. Plaintiffs apparently believed that they could make their
case on the record submitted. They have failed to do. When a summary judgment motion is denied,
the case is tried.
22 Rather than reject the requirement of a hearing, Defendants reiterate, without any
authority, their position that “any evidentiary hearing must be held before an arbitrator in accordance
with the parties’ multiple arbitration agreements. 	Assuming that there are such agreements,
a fact that Plaintiffs dispute, their existence does not deprive this Court of jurisdiction to adjudicate
(continued...)
-17-
WL 1582312 (E.D. Pa. 2006); Patton v. Simone, 1993 WL 485897, at *11 (Del. Super.
Sep 22, 1993). Although there is a presumption that a settlement entered into by an attorney
has been authorized, the presumption is rebuttable. Id. The Frascella Affidavit demonstrates
the existence of a material fact, i.e., whether the Brothers had expressly authorized counsel to
settle on the terms of the Karalis Modification. Even assuming the facts recited by Plaintiffs
were sufficient to find implied authority,20 that theory has been expressly disavowed by the
Pennsylvania Supreme Court in Reutzel.
Plaintiffs demand a hearing in the event that I do not find their implied authority
thesis dispositive. Defendants point out that Plaintiffs’ present request is inconsistent with
their prior statements that a hearing was not necessary 21 but do not state that one is not
appropriate. 22 Defendants contend that David’s sworn statement that he and his brother
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(...continued)
this Motion. 	In United Mine Workers v. Barnes & Tucker Co., 561 F.2d 1093 (3d Cir. 1977),
the Third Circuit Court of Appeals considered whether judicial enforcement should be accorded
the resolution of a grievance achieved by settlement versus arbitration. While arising in a different
context than the matter before me, the Court’s rationale for its affirmative ruling is instructive here:
It is not arbitration per se that federal policy favors, but rather final adjustment of
differences by a means selected by the parties. If the parties agree that a procedure
other than arbitration shall provide a conclusive resolution of their differences,
federal 	labor 	policy 	encourages 	that 	procedure 	no 	less 	than 	arbitration.
A determination made pursuant to that chosen procedure is no less enforceable in a
federal court than is an arbitration award.
Id. at 1096. Defendants submitted themselves to the jurisdiction of this Court for the purpose of
seeking approval of a settlement of the Turner Action. 	They cannot selectively withdraw that
consent to obstruct enforcement of the agreement by the Court to which they submitted themselves.
-18-
“were never asked for, and never gave, authority to counsel to bind us to any unsigned
agreement” constitutes evidence sufficient to raise an issue of fact under the summary
judgment standard applicable here. Def. Supp. Mem at 2. I agree.
However, while I concur that there is a disputed issue of material fact on the issue
of counsel’s authority, my reasoning differs from the arguments advanced by the parties.
In direct counterpoint to David’s sworn statement that counsel was not authorized to agree
to a settlement and that the Brothers expected to review and sign a final agreement before
it would become binding, is the term of the Settlement Agreement that establishes the
required process for modifying the Settlement Agreement. Paragraph 32 states, in pertinent
part,
This Agreement shall not be modified in any respect except by a writing
executed by counsel for all Parties and approved by the Bankruptcy Court.
Settlement Agreement ¶ 32. Thus, the Brothers have agreed that the Settlement Agreement
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-19-
may be modified by a writing signed by counsel; their agreement appears to contradict the
Frascella Affidavit’s averment that they were to review any modification and sign off.
Indeed if there were such a modification executed by counsel for all parties, Paragraph 32
might foreclose the argument that they now make. Given that the Brothers by their own
admission authorized counsel to negotiate the modification and given that they had not
retained any right to execution, the evidence would have to be compelling that Brothers had
told counsel that they could not execute any modification until they expressly authorized
them to do so. 	If the question of client authorization was dispositive of my conclusion
herein, I would schedule an evidentiary hearing on client authorization as the parties appear
to concede is required when there are material disputed issues of fact.
However, there is another impediment to enforceability of the modification apparent
from the contractual language quoted above which does not require further evidence to
resolve. 	All of the terms of the Settlement Agreement, which I have now held is
enforceable, must be given effect. It is clear that the parties agreed that modification to the
Settlement Agreement “in any respect” must be “in a writing executed by counsel for all
Parties.”
Plaintiffs have referenced the well established principal that an agreement to settle
a lawsuit is binding on the parties in the absence of a writing. Green v. Lewis, 436 F.2d 389,
390 (3d Cir. 1970). On that authority, they contend that the Karalis Modification as accepted
in all material respects by the Ackelsberg Modification is an agreement that represents a
meeting of minds creating a contract without a final formal document signed by the parties.
In so stating, they fail to recognize that the absence of an executed modification is fatal
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23 Both federal and state law recognize the “electronic signature,” defining it as” [a]n
electronic sound, symbol or process attached to or logically associated with a record and executed
or adopted by a person with the intent to sign the record.” 15 U.S.C. § 7006(5) (federal Electronic
Signatures in Global and National Commerce Act); 73 P.S. § 2260.103 (Pennsylvania’s Electronic
Transactions Act); 6 Del.C. § 12A-102 (Delaware’s Uniform Electronic Transactions Act).
-20-
where the parties clearly show that the signing of a document is a condition precedent to the
legal obligation. Franklin Interiors v. Wall of Fame Management Co., Inc., 510 Pa. 597, 600
(1986) (language stating that document does not become a contract until approved by officer
so as to unambiguously require 	execution as a condition precedent to enforcement).
See also Smith v. Onyx Oil and Chemical Co., 218 Fed.2d 104, 108 (3d Cir. 1955)
(New York law); Annand v. Brookmeade, Inc., 1979 WL 4640, at *4 (Del Ch. 1979)
(relying on Smith). The question is one of intent which in this case I must glean from the
parties’ writings which expressly require an agreement executed by counsel for all Parties.
Even if the e-mail sent by Karalis and bearing his name at the bottom could be viewed as an
electronic signature for these purposes,23 an assertion not made by Plaintiffs, there is no
responsive signature by Zucker whose participation in the negotiated document exchange
was not active until the Repudiation Letter was sent. 	Moreover and significantly,
Ackelsberg’s response to the Karalis e-mail was to proffer additional changes to the Karalis
Modification. From this I can only conclude that he was not prepared to and did not sign off
on the same final agreement. As neither the Karalis or the Ackelsberg Modifications can be
construed as the modification document required by the Settlement Agreement, Defendants
cannot be bound to its terms.
2. 	The Settlement Agreement Is An Enforceable Contract between Plaintiffs
and Defendants. 	While negotiation of modifications to the Settlement Agreement may
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-21-
not have been formalized to allow their enforcement, the parties’ written and executed
Settlement Agreement is a valid and enforceable contract. It is clear that when both parties
sought preliminary court approval to commence the class action procedure on November 7,
2007, they considered themselves to be bound. The Defendants admitted as much in their
brief as did David Frascella in his Affidavit. Def. Mem. at 1 (“Plaintiffs make much of the
fact that defendants signed a settlement agreement in August 2007 and agreed to be bound
by its terms, and indeed there is no dispute as to this point.”); Frascella Aff. ¶ 5 (“Ultimately
in September 2007, we reviewed. approved and signed an agreement intending to be
bound by its terms if the Court had approved it.”). The Debtor filed an Amended Plan and
Disclosure Statement incorporating the Settlement Agreement and requested I approve
the Disclosure Statement as containing adequate information to allow all creditors to vote
on the Chapter 11 plan.
What could have transpired since that date to support the Defendants’ contrary view
or is it simply, as Plaintiffs aver, a case of buyer’s remorse motivated by the Third Circuit’s
decision in Gay? 	First, Defendants contend that the Settlement Agreement is presently
“null and void” due to my failure to approve it at the preliminary approval hearing on
November 7. 	That argument is belied by the colloquy that ensued at the hearing which
I have quoted with considerable detail. Their statement that I have “rejected” the agreement
is contradicted by my statement that I found the terms fair and reasonable. My concerns,
as evidenced by the quoted transcript portions, went to the Chapter 11 proceeding and the
consummation of a confirmed plan of reorganization that could be unwound by a condition
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24 Moreover Defendants are simply wrong when they claim that my comments concerning
the flaws in their settlement preclude enforcement now. Def. Supp. Mem at 5-6. Notably this was
a motion for preliminary approval of a class action under Fed. R.Civ.P. 23, not approval of a
(continued...)
-22-
that was within the plan proponents’ control. The U.S. trustee joined in that assessment.
It was clear that I never disapproved the Settlement Agreement and indeed the requested
approval of the Court at that hearing was intended to only be preliminary so as to trigger the
class settlement process. My invitation to the parties to continue their discussions to address
this and other issues that needed some clarification was not only accepted but welcomed.
Thereafter, and until the release of the Gay decision, they acted in furtherance of their
settlement. The notion that Defendants could renege on the Settlement Agreement, which
has all the attributes of a valid contract executed by the parties, is unsupported by the
record and the law.
In a colloquy with Brothers’ counsel at the Status Hearing, I advised him that I did
not accept the Defendants’ argument that the Settlement Agreement was rendered null
and void by my failure to enter a preliminary approval order at the November hearing.
Plaintiffs, on the other hand, more accurately describe what transpired as a “suspension” of
my decision on the motion for preliminary approval until the parties had an opportunity to
meet and see if they could remedy the flaws I perceived in the agreement, the class notice
and the proposed order. As Defendants said they would try to do so, I never had to decide
whether preliminary approval would be granted to the Settlement Agreement in its present
form.24 My comments about the settlement, as the transcript clearly reflects, as well as the
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(...continued)
compromise under Fed. R.Bankr.P. 9019. While the Settlement Agreement may not garner ultimate
final approval for any number of reasons, including rejection by the Class, such possibility does
not release Defendants from the obligation they freely assumed. See Ramirez v. DeCoster, 142
F.Supp. 2d 104 (D. Me. 2006), infra.
25 Alternatively, Defendants refer to Zucker’s letter declaring the agreement null and void
but still not explaining his power to do so. Def. Supp. Mem. at 5.
-23-
deference a court gives to a highly negotiated agreement are counterintuitive to a suggestion
that I would summarily foreclose class relief.
I also reject Brothers’ alternative argument that they were free to unilaterally and
without cause reject the Settlement Agreement. 	While pressed at the April hearing to
articulate his basis for the position that the agreement was null and void, other than allegedly
made so by me, Zucker was unable to point to any provision of the Settlement Agreement
that supports their view. The recently filed sur-reply memorandum, while reiterating that
the Settlement Agreement was rendered null and void in accordance with its own terms
when it was not preliminarily approved by the Court, still fails to explain a basis for so
contending.25 The absence of support for this position can only be attributed to the fact that
the Settlement Agreement provides otherwise. Paragraph 28 contains the parties’ agreement
on this point. It states:
Unless otherwise agreed by the parties, this Agreement shall be null and void
if not finally approved by the Bankruptcy Court or affirmed on appeal....
Since the null and void provision is triggered by my refusal to grant final approval to the
Settlement Agreement and it is clear that the process was still moving forward after the
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26 This order was vacated by the district court on reconsideration, 636 F.Supp. 64 (M.D.
Ala. 1986) but the circuit court reversed and reinstated the original order enforcing the agreement.
816 F.2d 575 (11th Cir. 1987).
-24-
November 7 hearing, the Defendants’ argument is simply disingenuous. Even the provision
that allows a return of all settlement payments if there is a default in the Brothers’ payment
obligations or if the plan does not become effective due to the Debtor’s failure to make its
payments, does not render the Settlement Agreement null and void.
Moreover, it makes no sense that the costly and time consuming class approval
process could be initiated and the Defendants could pull out at any time for no reason.
Plaintiffs cite two cases that bring this point home. 	In Allen v. Alabama State Board of
Education, 612 F. Supp.1046 (M.D. Ala. 1986), 26 the defendants repudiated a written class
settlement agreement contending that the absence of Rule 23 approval meant the agreement
was not yet binding. 	While recognizing the procedural steps to final approval had yet
to occur (preliminary approval, class notice and fairness hearing), the court nonetheless
concluded that before embarking on that “expensive and time-consuming” process, “[i]t is
essential that ... the court and the parties have some assurance that the settlement is binding
on the names parties. Id. at 1054. Even closer to the facts sub judice, Ramirez v. DeCoster,
142 F.Supp. 2d 104 (D. Me. 2006) involved a mediated class settlement which, during
continuing negotiations of the formal written settlement agreement, was abandoned by the
defendants when some favorable court rulings made them rethink their willingness to settle.
The court, applying basic contract principles, found that all material terms had been agreed
to and the 	negotiation over the document was “a scrivening exercise, with good faith
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-25-
obligations attached.” 	Id. at 114. 	While it observed that the settlement might not
ultimately succeed based on Rule 23 class action requirements still to be met, the agreement
was nonetheless contractually enforceable. 	Id. at 116. 	See also Main Line Theatres v.
Paramount Film Distributing Corp., 298 F.2d 801, 804 (3d Cir. 1962) (neither party was
free to repudiate the agreement during the period required to accomplish a condition of
the settlement); McClure v. Township of Exeter, 2006 WL 2794172, at *3 (E.D. Pa. Sep. 26,
2006) (contract is enforceable conditioned on the implied condition precedent- formal
ratification by the Township and is not subject to unilateral recision pending that event).
In short, until the Third Circuit rendered the Gay decision to which I am bound and
the Brothers viewed their prospects of defeating the Turner Action on procedural grounds to
be enhanced, Defendants acted in furtherance of their Settlement Agreement. Obviously a
favorable change in the law does not afford a settling party a chance to repudiate an
otherwise valid settlement to which it is contractually bound. Coltec Indus. Inc, v. Hobgood,
280 F.3d 252, 273 (3d Cir, 2002). 	The Zucker e-mail, Exhibit 7 to Ackelsberg Aff.,
withdrawing “all terms previously proposed” had no legal impact on Defendants’ obligatory
performance of the terms and conditions of the Settlement Agreement, which will be
enforced.
While the Defendants contend that many terms remained for negotiation, the issues
they list clearly are referring to the modification. 	Def. Mem at 14-18. 	Nor does the
Supplemental Memorandum Regarding Issue of Actual Authority during which they
took the opportunity to respond to my bench view that the Settlement Agreement
was enforceable state otherwise. 	Indeed I find that the only impact of the deferral of
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27 The dates are “the later of...” See ¶¶ 14, 15 of Settlement Agreement, Exhibit 5 to Karalis
Aff.
-26-
the approval process is the actual timetable which will now differ from that originally
proposed to the Court. The Trigger Date is defined in the Settlement Agreement to be fixed
by certain events, not a date certain. Indeed there is no drop dead date in the Settlement
Agreement for anything to happen.27 Thus, there is no alteration of the contractual meeting
of the minds on this issue. While the parties may have agreed to an implementation schedule
which they proposed to the Court, the Court, not they, is to determine the actual dates.
Moreover while the parties may have agreed to a form of class notice and order, the Court,
not they, is to determine the contents of those documents as well. It is true that the Court
will give deference to the parties’ proposals for a timetable but in the event no consensus is
reached, the Settlement Agreement and notions of due process will inform my decision.
In short, my critique of the terms of the Settlement Agreement and demand for clarity
in the notice and proposed order do not give the Defendants a license to repudiate their
agreement. The only impediment to enforcement of the Settlement Agreement will be if it
is not acceptable to the Class and/or the Amended Plan is not confirmed. Towards that end,
it is time to test it at a rescheduled hearing on the Approval Motion. While I still believe this
to be an imperfect agreement and find the improvements negotiated by counsel would have
been beneficial to all parties, it is better than no agreement and returning to the litigation
as Defendants urge. While I can appreciate that the Brothers want to relieve themselves of
or renegotiate the monetary commitment of $1,200,000 to satisfy the Class claims, I find
that there is no basis in law to permit them to do so.
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Adversary No. 06-0101
-27-
CONCLUSION
For the foregoing reasons, I find that the Settlement Agreement is a binding and
enforceable agreement but the modifications negotiated after the November hearing are not.
A rescheduled hearing will be held on the Motion for Preliminary Approval of the Settlement
Agreement. Pending that hearing, the parties will meet and prepare a revised class notice
and Rule 23 schedule and proposed order consistent with the colloquy at the November
hearing. A rescheduled hearing shall also be contemporaneously held for approval of the
Amended Disclosure Statement in support of Debtor’s Chapter 11 plan of reorganization.
An Order consistent with the foregoing will be entered.
DIANE WEISS SIGMUND
United States Bankruptcy Judge
Dated: May 8, 2008
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UNITED S TATES B ANKRUPTCY COURT
FOR T HE E ASTERN DISTRICT O F PENNSYLVANIA
In re 	: 	Chapter 11
:
FRASCELLA ENTERPRISES, INC., 	: 	Bankruptcy No. 06-10322DWS
d/b/a CashToday, 	:
:
Debtor. 	:
:
LAWRENCE TURNER, 	: 	Adversary No. 06-0101
LINDA DAVIS and DEMRYI HILL, 	:
on behalf of themselves and all others 	:
similarly situated, 	:
:
Plaintiffs, 	:
:
v. 	:
:
FRASCELLA ENTERPRISES, INC., 	:
d/b/a CashToday, 	:
LARRY D. FRASCELLA, 	:
DAVID W. FRASCELLA, JR., and 	:
THERESA FRASCELLA, 	:
:
Defendants. 	:
ORDER
AND NOW, this 8th day of May 2008, upon consideration of the Plaintiffs’ Motion
to Enforce Settlement (the “Motion”), after notice and based on the facts contained in the
record of this Court’s proceedings and in certain documents that comprise the evidentiary
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Adversary No. 06-0101
1 Should any further amendment to the Amended Disclosure Statement be required, it should
be filed and served at least one week prior to the hearing, i.e., June 3, 2008.
-2-
record, and for the reasons stated in the accompanying Opinion, the Court finding that the
Agreement to Settle Class Adversary Proceeding dated August 17, 2007 (the “Settlement
Agreement”) is an enforceable contract;
It is hereby ORDERED that the Motion is GRANTED for the enforcement of the
Settlement Agreement;
And in furtherance thereof, it is ORDERED that a rescheduled hearing will be held
on the Motion for Preliminary Approval of the Settlement Agreement on June 10, 2008 at
11:00 a.m. in the Robert N.C. Nix, Sr. Federal Courthouse, 2nd floor, 900 Market Street,
Courtroom #3, Philadelphia, PA;
It is further ORDERED that a rescheduled hearing shall be contemporaneously
held for approval of the Amended Disclosure Statement in Respect of Plan of Reorganization
dated October 5, 2007. 1
DIANE WEISS SIGMUND
United States Bankruptcy Judge
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