                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-30-2005

Tedesco Mfg Co Inc v. Honeywell Intl
Precedential or Non-Precedential: Non-Precedential

Docket No. 04-1040




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"Tedesco Mfg Co Inc v. Honeywell Intl" (2005). 2005 Decisions. Paper 1414.
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                                                                 NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT


                                      No. 04-1040




                  TEDESCO MANUFACTURING COMPANY, INC.

                                           v.

                       HONEYWELL INTERNATIONAL, INC.,
                                                 Appellant




                    On Appeal from the United States District Court
                       for the Western District of Pennsylvania
                         D.C. Civil Action No. 03-cv-00699
                            (Honorable David S. Cercone)


                                Argued January 13, 2005

  Before: SCIRICA, Chief Judge, ROTH, Circuit Judge, and IRENAS, District Judge *

                                (Filed: March 30, 2005)


ANDREW J. McGUINNESS, ESQUIRE (ARGUED)
THOMAS M. HANSON, ESQUIRE
Dykema Gossett
2723 South State Street, Suite 400
Ann Arbor, Michigan 48104



   *
    The Honorable Joseph E. Irenas, United States District Judge for the District of New
Jersey, sitting by designation.
JOHN C. HANSBERRY, ESQUIRE
Pepper Hamilton
5000 One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15219

       Attorneys for Appellant


CHAD I. MICHAELSON, ESQUIRE (ARGUED)
RUSSELL J. OBER, JR., ESQUIRE
DOUGLAS M. HOTTLE, ESQUIRE
Meyer, Unkovic & Scott
1300 Oliver Building
535 Smithfield Street
Pittsburgh, Pennsylvania 15222

       Attorneys for Appellee




                                 OPINION OF THE COURT


SCIRICA, Chief Judge.

       Honeywell International appeals from a judgment of the District Court granting

Tedesco Manufacturing Company’s motion to enforce a settlement agreement reached by

the two parties. In granting Tedesco’s motion, the District Court ordered Honeywell to

pay Tedesco a sum of $700,000 without offset. On appeal, Honeywell challenges the

District Court’s interpretation of the agreement, arguing that it created a broad right of

offset, and that Honeywell had the right to offset certain payments Tedesco was obligated

to make against the $700,000. Because we find that the settlement agreement


                                              2
unambiguously created a broad offset right, we conclude that it was error to order

Honeywell to pay the $700,000 without offset. Therefore we will reverse the judgment of

the District Court.

                                            I.

       Honeywell and Tedesco are both involved in the manufacture of Bendix brake

systems. Honeywell, which owns the Bendix trademark, produces parts that are

assembled into complete braking systems by independent companies such as Tedesco.

The relationship between Honeywell and Tedesco is governed by a Regional

Manufacturing and Distribution Agreement (RMDA) under which Tedesco has the

exclusive right to manufacture Bendix brakes in certain states. The agreement was signed

by Tedesco and Allied Signal Corporation, Honeywell’s predecessor, in 1992. Under the

terms of the agreement, Honeywell can dictate the materials used by Tedesco as well as

the price Tedesco receives for each completed unit.

       Because certain parts in a brake shoe system are recycled, the purchase price paid

by a customer included a “core deposit” which Honeywell transferred as a “core credit” to

Tedesco. When it received a return of a used pair of brake shoes, Tedesco notified

Honeywell which effectively triggered a credit to Honeywell from Tedesco for an amount

equivalent to the core deposit. Honeywell in turn credited this amount to the customer

who returned the used brake shoes. Thus, accounting for the core deposits and core




                                            3
credits was revenue neutral to Honeywell but profitable to Tedesco to the extent that

customers failed to return old brake shoes.

       Following the Honeywell-Allied merger, the relationship between the parties

began to sour. Tedesco claims that Honeywell sought to eliminate the system of

independent manufacturers and pressured it and other manufacturers to accept lower

prices for complete brake systems. In addition, Tedesco asserts that Honeywell began to

withhold money it owed for core credits and began directing certain customers in

Tedesco’s territory to other manufacturers. Honeywell does not deny withholding money

it owed Tedesco but asserts it did so because Tedesco failed to process returned brake

shoes quickly enough so that Honeywell could credit its customers with refunds of their

core deposits.

       In May of 2003, Tedesco filed suit against Honeywell, alleging breach of contract

and misrepresentation. On August 27, 2003, the parties met for a scheduled deposition

and agreed to settle the case. The general terms of the settlement were memorialized in

an agreement in principle (AIP), which was dictated to a court reporter present for the

deposition. Under the terms of the AIP, Honeywell agreed to buy out Tedesco's right to

manufacture Bendix brakes for $450,000 and further agreed to purchase Tedesco's usable

inventory. The agreement also required the parties to make a variety of other payments to

each other in order to settle the various claims which spurred the lawsuit. In addition, the




                                              4
AIP obligated the parties to negotiate in good faith to reach a final settlement of the case.

Finally, and most relevant to the issue on appeal, paragraph thirteen of the AIP stated:

       Honeywell shall have the right to offset from all payments due under this
       agreement any amounts owed by Tedesco to Honeywell under this
       agreement.

       Following approval of the AIP, the parties exchanged several draft proposals in

order to reach a final settlement but were unable to do so.1 Tedesco, claiming that

Honeywell sought to add terms to the settlement that were outside the scope of the AIP,

filed a motion in the District Court to enforce the settlement. The Court granted the

motion, agreeing with Tedesco that Honeywell had attempted to modify the AIP. In

addition, the District Court interpreted paragraph thirteen to give Honeywell a limited

offset right and requiring Honeywell to pay Tedesco a total of $700,000 without offset:

$450,000 to buy Tedesco out of the RMDA under paragraph four of the agreement,

$235,000 for core credits under paragraph seven, and $15,000 “for reboxing DAP

Product” under paragraph eight. The District Court ordered Honeywell to make this

payment within two weeks. In addition, the Court required the parties to execute a final

agreement within forty-five days.

       On January 7, 2004, Honeywell moved to stay the order pending appeal. The

District Court granted the stay and required Honeywell to post a bond in the amount of


   1
    Both parties agree there is a binding, enforceable contact notwithstanding the failure
to reduce the AIP to a final written settlement agreement. Their dispute relates only to the
proper interpretation of the contract embodied in the AIP.

                                              5
$690,000. Tedesco then moved to modify the stay to require Honeywell to pay $450,000

upfront. The District Court denied the motion on May 27, 2004.

                                               II.

       A motion to enforce a settlement agreement is similar in many respects to a motion

for summary judgment. See Tiernan v. Devoe, 923 F.2d 1024, 1031 (3d Cir. 1991).

Where, as here, the District Court grants a party’s motion to enforce a settlement

agreement without holding an evidentiary hearing and making explicit findings of fact,

we review the District Court’s order de novo.

       A settlement agreement is a contract, and familiar principles of contract law

govern this case. We first determine, as a matter of law, whether the relevant provision of

the contract is ambiguous. Sanford Inv. Co. v. Ahlstrom Mach. Holdings, Inc., 198 F.3d

415, 421 (3d Cir. 1999). A provision is ambiguous if it is “susceptible to reasonable

alternative interpretations.” Id. If we determine that a provision is ambiguous, then we

leave it to the trier of fact to ascertain its meaning.

       Paragraph thirteen of the AIP reads:

       Thirteen, Honeywell shall have the right to offset from all payments due
       under this agreement any amounts owed by Tedesco to Honeywell under
       this agreement.

The District Court interpreted this paragraph to “allow Honeywell to offset monies owed

by Tedesco for raw material [under paragraph ten of the AIP] against the cost of usable

inventory [paragraph one] and all the raw materials to be repurchased by Honeywell from



                                                6
Tedesco [paragraph two].” The District Court concluded that the payments Honeywell

was obligated to make under paragraphs four, seven, and eight were to be made without

offset. On appeal, Honeywell contends that the plain meaning of paragraph thirteen

dictates that the offset right apply to all payments under the agreement, not just those

recognized by the District Court.

       We hold that the language in paragraph thirteen is unambiguous and grants

Honeywell a right to offset all of the payments it is owed by Tedesco under the agreement

against all the payments it is obligated to make. By its own terms, the offset provision

applies to “all payments due [from Honeywell to Tedesco] under this agreement” and

“any amounts owed by Tedesco to Honeywell under this agreement” (emphasis added).

Tedesco argues instead that the phrase “all payments due under this agreement” should

not be read to include obligations that, though mentioned in the AIP, have their genesis in

the RMDA. In particular, Tedesco argues that the balance of its “trade account” with

Honeywell should not be considered a payment due under the AIP and therefore should

not be subject to offset.

       We disagree. While many of the obligations due under the AIP date back to the

RMDA, the plain language of paragraph thirteen applies to “all payments due under [the

AIP],” regardless of their origins. Nothing in paragraph thirteen suggests the offset

provision is meant to exclude obligations that have their origins in the RMDA. Because

the AIP purports to “resolve all claims” in the suit, it is no longer accurate to speak of



                                              7
certain obligations as being “due under” the RMDA. Rather, to the extent these

obligations are mentioned in the AIP, they are “due under” the latter agreement.

                                             III.

       In granting Tedesco’s motion, the District Court concluded that the absence of the

words “credit” or “offset” from paragraphs one, two, four, seven, and eight of the AIP

suggested that those payments were to be made without offset. In addition, the Court

found that it would be illogical to grant Honeywell a right to offset Tedesco’s obligations

against money that Honeywell indisputably owed Tedesco, including money for core

credits that Honeywell had previously withheld from Tedesco. But the absence of words

such as “credit” or “offset” in other sections of the agreement does not necessarily imply

that the offset right in paragraph thirteen was intended to be limited. Because paragraph

thirteen plainly states that the offset right applies to “all payments,” it would have been

redundant for the parties to use words such as “credit” in referring to Honeywell’s

obligations in other parts of the agreement. Similarly, we see nothing illogical in

allowing Honeywell to offset Tedesco’s obligations against money it had previously

withheld from Tedesco. The broad right of offset recited in paragraph thirteen is

consistent with the parties’ acceptance of the obligations set forth in the AIP.

       Finally, the District Court relied on language in draft agreements submitted by

Honeywell subsequent to the AIP as evidence that the parties did not intend to create a

broad offset right. When the language of a contract is clear, we will ordinarily not look to



                                              8
extrinsic evidence to ascertain the parties’ intent. See Glenn Distribs. Corp. v. Carlisle

Plastics, Inc., 297 F.3d 294, 300 (3d Cir. 2002). While we see no need to look to the

provisions of the draft agreements to ascertain the meaning of the AIP, we do note that

both draft agreements relied on by the District Court contain language granting

Honeywell a broad offset right consistent with paragraph thirteen of the AIP. Thus, the

draft agreements do not support the conclusion that the parties intended the limited offset

right found by the District Court.

       Regardless, we hold the language of the AIP is clear and grants Honeywell the

right to offset Tedesco’s obligations under the AIP against the payments it is obligated to

make. Therefore we will reverse the judgment of the District Court and remand for

proceedings consistent with this opinion.




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