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United States v. $1

United States District Court, N.D. Ohio, Western Division

March 26, 2018

United States of America, Plaintiff
$1, 264, 000.00 in U.S. Currency, et al., Defendants



         I. Background

         On April 22, 2013, the government initiated this forfeiture action involving a $1, 264, 000.00 in cash seized from Ohio Scrap Corporation, located in Delta, Ohio. Todd Zappone and Carrie Zappone are the owners and operators of Ohio Scrap Corporation. The currency allegedly was the subject of “structuring” by the owners of Ohio Scrap Corporation in violation of 31 U.S.C. § 5324(a)(3). The claimants in this case include Ohio Scrap Corporation, their owners, and The Farmers & Merchants State Bank, which holds a perfected security interest in the business assets and inventory.

         This was not the only litigation involving the Zappones. There were multiple cases involving all of the claimants in the Fulton County Common Pleas Court as well as the Bankruptcy Court in the Northern District of Ohio. Additionally, the Zappones initiated a Bivens action against the United States and numerous other individuals in this Court. See Todd N. Zappone, et al. v. Richard Dailey, et al., Case No. 3:15-cv-2135 (N.D. Ohio).

         In December 2013, the parties in this litigation entered into a partial settlement agreement whereby $500, 000 of the currency was disbursed, with $400, 000 applied to the amount owed to Farmers and $100, 000 applied to the Zappones' 2013 income tax liability. (Doc. No. 31-1). In return, Farmers agreed to subordinate its security interest in the balance of the currency with the understanding the balance would be applied to the Zappones' tax obligations for 2009 through 2012. Farmers also agreed to enter into a forebearance agreement to allow the Zappones a window of opportunity to liquidate their business free from collection efforts as well as consenting to dismissal of Ohio Scrap's Chapter 11 bankruptcy proceeding. (Id.)

         In February 2014, a forebearance and loan modification agreement was entered into among Ohio Scrap, Superior 24 Hr. Towing & Road Service, the Zappones, and Farmers. (Doc. No. 96-2). The forebearance agreement “set forth the Bank's commitment to hold off on collection efforts for six months while the Zappones tried to sell their business.” (Doc. No. 94 at p. 14).

         The parties appeared before the Honorable David A. Katz on September 21, 2015, in an attempt to resolve the remaining claims in the forfeiture action. (Non-document entry dated October 13, 2015). Judge Katz placed the terms of the settlement on the record. The entry following the conference noted the case was settled and a dismissal entry was due by November 30, 2015. (Id.)

         In December 2015, I extended the deadline for dismissal or a status report to February 15, 2016. (Doc. No. 63). In late February 2016, the Plaintiff advised the Court the Zappones had retained new counsel and were not inclined to sign the written settlement agreement circulated to all parties regarding the September mediation. (Doc. No. 64). Unable to resolve the dispute, Farmers moved to enforce the settlement agreement. Following briefing, I held an evidentiary hearing on July 19, 2016.

         Accordingly, the matter is before me on Claimant Farmers & Merchants State Bank's motion to enforce the settlement agreement. (Doc. No. 86). Responsive pleadings to this motion include a response by Dunn Counsel PLC (Doc. No. 88), and those of Claimants Ohio Scrap Corporation, Carrie Zappone, and Todd Zappone. (Doc. No. 92). Following the evidentiary hearing, post-hearing briefing was filed by the Claimant lenders (Doc. No. 96 and 100), as well as the Claimant borrowers (Do. No. 98). Also pending on the docket are the Zappones' and Ohio Scrap's motion for summary judgment (Doc. No. 58), filed prior to the mediation, and motions for charging liens. (Doc. Nos. 69 and 89).

         II. Applicable Legal Standard

         The Sixth Circuit “has long recognized the broad, inherent authority and equitable power of a district court to enforce an agreement in settlement of litigation pending before it” “ ‘even if that agreement has not been reduced to writing.' ” Therma-Scan, Inc. v. Thermoscan, Inc., 217 F.3d 414, 419 (6th Cir. 2000) (quoting Bostick Foundry Co. v. Lindberg, 797 F.2d 280, 282-83 (6th Cir. 1986) and Brock v. Scheuner Corp., 841 F.2d 151, 154 (6th Cir. 1988)).

         The validity of a settlement agreement was addressed by the Sixth Circuit in RE/MAX International, Inc. v. Realty One, Inc., 271 F.3d 633, 645-46 (6th Cir. 2001):

Before enforcing a settlement, a district court must conclude that agreement has been reached on all material terms. Brock v. Scheuner Corp., 841 F.2d 151, 154 (6thCir. 1988). Ordinarily an evidentiary hearing is required where facts material to an agreement are disputed. Kukla v. Nat'l Distillers Prods. Co., 483 F.2d 619, 622 (6th Cir. 1973); Aro Corp., 531 F.2d at 1372. . . . .
The existence of a valid agreement is not diminished by the fact that the parties have yet to memorialize the agreement. When parties have agreed on essential terms of a settlement, and all that remains is to memorialize the agreement in writing, the parties are bound by the terms of the oral agreement. Brock, 841 F.2d at 154; Kukla, 483 F.2d 15 621 (observing that the power of the trial court to enforce a settlement agreement has been upheld even where the agreement has not been arrived at in the presence of the court nor reduced to writing).

         Settlement agreements are governed by contract law and Ohio requires contracts be interpreted according to the “law of the place of the contract's making.” The Glidden Co. v. Kinsella, 386 Fed.Appx. 535, 540 (6th Cir. 2010), citing Bamerilease Capital Corp. v. Nearburg, 958 F.2d 150, 152 (6th Cir. 1992). “To constitute a valid settlement agreement, the terms of the agreement must be reasonably certain and clear.” Rulli v. Fan Co., 79 Ohio St.3d 374, 376 (1997).

         III. Discussion

         Judge Katz conducted a mediation on September 21, 2015. At the evidentiary hearing, Kenneth Baker, counsel for Farmers testified as to what transpired prior to placing the terms of the settlement on the record:

         Judge Katz early on informed me that the Zappones not only wanted to try to settle this case, but to wrap up the entire proceedings, settle the entire case. I told Judge Katz I would not do that, that I did not come prepared for that, and that was the purpose of the mediation.

         Next, I met with Mr. Rojas, and the Zappones had consented to finally telling me the tax liability, so I then knew that I was getting approximately $90, 000 as part of the settlement. I would waive my claim to the attorney's fees. And then once the settlement agreement had been signed, the parties would then try to work out settlement of the remaining parts of those claims.

         (Doc. No. 94 at pp. 18-19).

         At conclusion of the mediation, Judge Katz read the following into the record with counsel for all parties present:

         The Court: The matters were resolved on the following basis.

1. The government has agreed to pay and the claimants have agreed to accept in full and complete settlement of their claims for ...

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