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Missouri Crop, LLC v. CGB Diversified Services, Inc.

United States District Court, E.D. Missouri, Eastern Division

December 18, 2017

MISSOURI CROP, LLC, et al., Plaintiffs,
v.
CGB DIVERSIFIED SERVICES, INC., et al., Defendants.

          MEMORANDUM AND ORDER

          E. RICHARD WEBBER SENIOR UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on GemCap Lending I, LLC, 's Motion to Enforce Settlement Agreement and Request for Sanctions [129] and Motion for Sanctions [120].

         I. BACKGROUND

         A. Procedural History

         Matthew Burgher is the sole owner of Missouri Crop, LLC, a crop insurance sales business. On March 4, 2015, Burgher and Missouri Crop[1] initiated the underlying lawsuit in state court against CGB Diversified Crop Insurance Services (“Diversified”) and CropUSA Insurance Agency, Inc., (“CropUSA”), arguing the defendants owed them $434, 466.48 in unpaid commissions for crop insurance policies sold during the 2013 crop year. In their Petition [6], Plaintiffs alleged Burgher entered into an “Independent Agent Contract” with CropUSA, which remained in effect for the sale of crop insurance for the 2013 crop year. Under the Independent Agent Contract, Burgher agreed to sell Diversified crop insurance policies through CropUSA, one of Diversified's general agents. Diversified removed the action to this Court on April 2, 2015.

         On July 16, 2015, Diversified filed a crossclaim in interpleader against GemCap Lending I, LLC, (“GemCap”), a third-party asset lending company. Diversified stated GemCap had initiated a lawsuit against Diversified and CropUSA in the United States District Court, Central District of California, in July 2013. The court in that case enjoined Diversified from distributing the funds to any entity, and in August 2014, it dismissed Diversified with prejudice. Following a settlement between GemCap and CropUSA, the court dismissed the remainder of that case without making any determination as to the lawful recipient of the funds with the injunction remaining in effect. Given GemCap and CropUSA's competing claims to the funds, Diversified asked to deposit the $434, 466.48 with this Court on April 1, 2016. This Court entered a default judgment against CropUSA and permitted Diversified to deposit the funds into the Court's Registry.

         On April 26, 2016, GemCap filed a Motion for Summary Judgment [53], stating its interest in the crop insurance commissions paid by Diversified to CropUSA was senior to that of Plaintiffs', which was based on their subagency agreement with CropUSA. On May 13, 2016, Plaintiffs filed a Motion for Leave to File their First Amended Complaint [57]. This Court granted that motion and denied GemCap's Motion for Summary Judgment as moot. In their First Amended Complaint, Plaintiffs stated Burgher sold Diversified insurance policies as a direct agent of Diversified, rather than as a subagent of CropUSA. Yet, their First Amended Complaint included two noteworthy attachments: the Independent Agent Contract (Exhibit 1) and a document titled “Assignment of Commissions” in which Burgher directed CropUSA to pay all commissions earned by him to Missouri Crop (Exhibit 2). As such, Plaintiffs argued the commissions from all insurance policies Burgher sold during the 2013 crop year were directly owed from Diversified to Plaintiffs.

         B. Findings of Fact Relevant to GemCap's Pending Motion to Enforce Settlement Agreement and Request for Sanctions [146] and Motion for Sanctions [120]

         During discovery, Plaintiffs produced to GemCap a document titled “Settlement Agreement and Release” that was executed on August 20, 2014 between Diversified and Plaintiffs. The Settlement Agreement and Release indicated Plaintiffs had accepted $300, 000 from Diversified in exchange for a full release of “any and all claims, actions, causes of action, rights, liabilities, obligations and demands of every kind and nature, known or unknown, past, present, and future, for any and all claims arising from or relating to the purchase[2] which now or hereafter may exist, whether known and unknown.” GemCap also subpoenaed the records of Diversified, regarding the business relationship between Plaintiffs and Diversified for the 2013 crop year. Diversified produced a January 28, 2014 letter from Burgher, on behalf of Missouri Crop, to Diversified, which stated:

For the 2013 crop year and prior we were working with [CropUSA] as a subagent and they were doing our processing for us. Please be advised that we no longer have any desire to be affiliated with [CropUSA] and that effective with the 2014 crop year (which would include wheat policies sold in the fall of 2013) we desire to be a direct agent of [Diversified]. We have executed what we believe to be all the necessary paperwork in that regard.

         GemCap filed a Motion for Sanctions on May 8, 2017 [120], stating Plaintiffs and their counsel had prosecuted this case in bad faith as evidenced by their misrepresenting Plaintiffs' relationship with CropUSA and Diversified in their First Amended Complaint and their nondisclosure of a settlement agreement which indicated Plaintiffs had forfeited any rights they had to the contested funds. GemCap asked this Court to sanction Plaintiffs and their counsel and award GemCap $109, 688 for the attorneys' fees and legal fees it incurred by responding to the interpleader action. The motion was set for hearing on June 20, 2017.

         In May 2017, the parties began discussing settling the case. Ultimately, the parties agreed to split the $434, 466.48, with GemCap receiving $389, 466.48 and Plaintiffs receiving $45, 000. On May 22, 2017, counsel for Plaintiffs provided GemCap with a revised draft of the settlement agreement, which included six proposed changes. On May 23, 2017, counsel for GemCap sent counsel for Plaintiffs an email indicating it accepted all proposed changes and asking to include a clarification to the draft settlement agreement. That same day, counsel for Plaintiffs responded that the clarification was “fine and acceptable.” Counsel for GemCap forwarded counsel for Plaintiffs a version of the settlement agreement with all proposed changes. This version was signed by GemCap. However, on June 7, 2017, rather than executing the updated version of the settlement agreement, Plaintiffs executed an earlier version that had two typos and omitted the clarification. The differences between the two signed settlement agreements are as follows.

         The first typo, occurring in the first paragraph of the version executed by Plaintiffs, is the omission of the word “commissions”:

WHEREAS, the lawsuit involves claims concerning entitlement to Multi-Peril Crop insurance policy earned by Matthew Burgher and Missouri Crop for the 2013 ...

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