Jocelyn Manship v. Jason Stein

• Court: Court of Appeals for the Third Circuit
• Decided: December 5, 2024
• Docket: 24-1383
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ______________

No. 24-1383 ______________

JOCELYN MANSHIP; JULIE WEISMAN

v.

JASON STEIN; HERBERT STEIN; HARRIS STEIN Appellants ______________

On Appeal from the United States District Court for the District of New Jersey (District Court No. 2:21-cv-10389) District Court Judge: Honorable Madeline Cox Arleo ______________

Submitted Pursuant to Third Circuit L.A.R. 34.1(a) November 5, 2024 ______________

Before: KRAUSE, SCIRICA, and RENDELL, Circuit Judges

(Filed: December 5, 2024)

______________

O P I N I O N* ______________

* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not constitute binding precedent. RENDELL, Circuit Judge.

Defendant-Appellants Jason Stein, Herbert Stein, and Harris Stein (“the Steins”)

appeal from the District Court’s denial of their motion for summary judgment and grant

of Plaintiff-Appellees Jocelyn Manship and Julie Weisman’s motion for summary

judgment. The Steins urge that the District Court erred by (1) finding that the Settlement

Agreement and Indemnification Agreement could coexist, (2) holding that Appellees

needed to prove only “potential” as opposed to “actual” liability to be entitled to

indemnification, and (3) finding that Appellees did not waive their right to

indemnification. We will affirm.

I.

The Steins, Manship, and Weisman were shareholders of Natural Flavors, Inc.

(“Natural Flavors”). In 2017, Natural Flavors entered into an Asset Purchase Agreement

(“APA”) to sell its assets to Firmenich Inc. (“Firmenich”). In 2019, after the sale was

consummated, Firmenich sued the Steins, Manship, Weisman, and Natural Flavors in the

Superior Court of Delaware (“Delaware Action”), alleging misrepresentations in and

breaches of obligations under the APA. Manship and Weisman retained Saiber LLC

(“Saiber”), to litigate the Delaware Action, while the Steins retained Greenberg Traurig,

LLP (“Greenberg Traurig”).

Manship and Weisman believed themselves to be blameless in the Delaware

Action and considered filing crossclaims against the Steins. Instead, however, they

entered into an Indemnification Agreement with the Steins, whereby the Steins agreed to

indemnify Manship and Weisman against any losses related to the Delaware Action.

2 Manship and Weisman, in turn, agreed to allow the Steins to approve counsel to defend

them in the Delaware Action and to waive any conflicts of interest that might arise from

such representation. The Steins chose Greenberg Traurig to represent Manship and

Weisman. Although Saiber—Manship and Weisman’s then-current counsel—contacted

Greenberg Traurig, no party took steps to replace Manship and Weisman’s counsel and

Saiber remained on the case.

The Delaware Action went to mediation in late 2020 and came to a settlement

agreement by early 2021. It was clear during the mediation that the parties would not be

able to reach an agreement without contributions from all shareholders (including

Manship and Weisman). As a result, Manship and Weisman contributed the minimum

payment Firmenich would accept from them under the parties’ negotiations. The final

Settlement Agreement included releases of known and unknown claims between

Firmenich on one side and various other parties on the other.1 The parties all agreed to

bear their own costs for the settlement. The Settlement Agreement also included an

integration clause providing that the final agreement superseded all previous agreements

between the parties related to settling the Delaware Action.

Once the Delaware Action had settled, Manship and Weisman sought

indemnification from the Steins based on the Indemnification Agreement. The Steins

1 The relevant released claims in the agreement were between: (1) Firmenich on one side and the Steins on the other, (2) Firmenich on one side and Manship and Weisman on the other, and (3) Firmenich on one side and Natural Flavors on the other. J.A. 190–92. 3 refused, so Manship and Weisman brought suit for breach of contract. Each party

subsequently moved for summary judgment.

Manship and Weisman urged that they were entitled to indemnification based on

the plain language of the Indemnification Agreement. The Steins urged that the language

of the Settlement Agreement superseded the language of the Indemnification Agreement,

and that Manship and Weisman waived their right to indemnification by contributing to

the settlement and continuing to use their original lawyers. The District Court considered

the language of the Indemnification Agreement and its interaction with the Settlement

Agreement and found that the two contracts addressed different issues and could

therefore coexist with one another. Next, the District Court concluded that Manship and

Weisman were entitled to indemnification because they had shown that they would be

potentially liable but for the settlement. Lastly, the District Court found that Manship and

Weisman had not waived their right to indemnification by contributing a payment to the

Settlement Agreement or continuing to use their own counsel after the consummation of

the Indemnification Agreement. This appeal followed.

II.

The District Court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332.

We have jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review of an

award of summary judgment, applying the same standard as the district court. Blunt v.

Lower Merion Sch. Dist., 767 F.3d 247, 265 (3d Cir. 2014). Summary judgment is

warranted when, viewing the evidence in the light most favorable to the non-moving

party (here, Appellants), there are no genuine issues of material fact, and the non-movant

4 is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a); Bletz v. Corrie, 974 F.3d

306, 308 (3d Cir. 2020).

III.

A. Supersedure

Like the District Court, we apply New York law.2 Under New York law, a

subsequent contract supersedes a prior contract where the contracts pertain to “precisely

the same subject matter” or where the subsequent contract “has definitive language

indicating it revokes, cancels or supersedes [the] specific prior contract.” Alessi, 578 F.

Supp. 3d at 504 (quoting A & E Television Networks, LLC v. Pivot Point Ent., LLC, No.

10 Civ. 09422, 2013 WL 1245453, at *10 (S.D.N.Y. Mar. 27, 2013)); see also Applied

Energetics, Inc. v. NewOak Cap. Markets, LLC, 645 F.3d 522, 526 (2d Cir. 2011)

(“Under New York law, ‘[i]t is well established that a subsequent contract regarding the

2 The Indemnification Agreement is governed by New York law and the Settlement Agreement is governed by Delaware law. Neither party challenges the District Court’s decision to apply New York law. We agree that under the choice-of-law rules of the forum state—New Jersey—there is no reason to disturb the parties’ contractual choice of law. See Collins v. Mary Kay, Inc., 874 F.3d 176, 183–84 (3d Cir. 2017) (explaining that, “[o]rdinarily, when parties to a contract have agreed to be governed by the laws of a particular state, New Jersey courts will uphold the contractual choice” absent certain exceptional circumstances). Moreover, to the extent that Delaware law may govern the supersedure analysis, it does not conflict with New York law. Compare Haft v. Dart Grp. Corp., 841 F. Supp. 549, 568 (D. Del. 1993) (a new contract supersedes an old one where they govern the same subject matter and cannot coexist, or where parties expressly intend for the new contract to supersede the old one) and BioVeris Corp. v. Meso Scale Diagnostics, LLC, No. CV 8692-VCMR, 2017 WL 5035530, at *7 n. 71 (Del. Ch. Nov. 2, 2017) (same), aff’d, 202 A.3d 509 (Del. 2019) with Alessi Equip., Inc. v. Am. Piledriving Equip., Inc., 578 F. Supp. 3d 467, 504 (S.D.N.Y. 2022) (same). 5 same matter will supersede the prior contract.’” (quoting Barnum v. Millbrook Care Ltd.

P'ship, 850 F. Supp. 1227, 1236 (S.D.N.Y. 1994))).

A court, in conducting this analysis, must consider whether (1) the subsequent

contract contains an integration clause indicating that the prior provision is

superseded; (2) the two provisions have the same general purpose or address the same

general rights; and (3) the two provisions can coexist or work in tandem. Alessi, 578 F.

Supp. 3d at 504.

We agree with the District Court’s conclusion that the Settlement Agreement did

not supersede the Indemnification Agreement. First, the Settlement Agreement’s

integration clause does not sufficiently indicate an intent to supersede the Indemnification

Agreement. A contract must contain “definitive language” demonstrating which prior

agreement, if any, will be superseded. Globe Food Servs. Corp. v. Consol. Edison Co. of

N.Y., 584 N.Y.S.2d 820, 821 (N.Y. App. Div. 1992); see also Mallad Constr. Corp. v.

Cnty. Fed. Sav. & Loan Ass’n, 298 N.E.2d 96, 99 (N.Y. 1973) (a clause explicitly naming

the prior contract to be superseded was sufficiently definitive). No such language occurs

in the Settlement Agreement, which includes only a general statement about its scope

with respect to the Delaware Action. Such imprecise language does not indicate an intent

to supersede the Indemnification Agreement.

Next, although the Indemnification Agreement and the Settlement Agreement both

relate to the Delaware Action, they do not conflict. As the District Court explained, the

parties to the agreements and “the nature and extent of [the] obligation[s] in each

agreement are drastically different.” Joint Appendix (“J.A.”) 6; see also Nat’l Lab. Rels.

6 Bd. v. Newark Elec. Corp., 14 F.4th 152, 167 (2d Cir. 2021) (supersedure applies only

where “two successive agreements governing the same subject matter are entered into by

identical parties”). The Indemnification Agreement is exclusively between Manship and

Weisman, the Steins, and Natural Flavors, while the Settlement Agreement is between

Firmenich, Manship and Weisman, the Steins, and Natural Flavors. The Indemnification

Agreement covers all losses by Manship and Weisman relating to the Delaware Action,

while the Settlement Agreement resolves only claims between Firmenich and various

parties. The Settlement Agreement says nothing to preclude Manship and Weisman’s

reimbursement by the Steins; it only considers their interactions with Firmenich.

Finally, because the parties’ obligations are reconcilable—of Manship and

Weisman to pay their own costs in the settlement, and of the Steins to reimburse Manship

and Weisman for costs they incurred in relation to the Delaware Action—the

Indemnification Agreement and Settlement Agreement can coexist. Cf. A & E Television

Networks, LLC, 2013 WL 1245453, at *11 (S.D.N.Y. Mar. 27, 2013) (finding an

agreement to negotiate “anticipates” a later agreement regarding how to negotiate).

Therefore, the Settlement Agreement did not supersede the Indemnification Agreement.

B. Potential versus actual liability

The District Court concluded that Manship and Weisman were entitled to

indemnification because they demonstrated that they would have been potentially liable

but for the settlement. The Steins do not dispute that Manship and Weisman have proved

that they were potentially liable, rather, they urge that the District Court erred in requiring

Manship and Weisman to prove potential liability, rather than actual liability, in assessing

7 whether they were entitled to indemnification. Under New York law, an indemnitee

seeking indemnification for a settlement must prove either potential or actual liability to

be successful, depending on the circumstances underlying the settlement. Atl. Richfield

Co. v. Interstate Oil Transp. Co., 784 F.2d 106, 112 (2d Cir. 1986). An indemnitee need

only prove potential liability if (1) the settlement is reasonable, and (2) the indemnitor

had notice of the proposed settlement such that it had a “meaningful opportunity to

defend” but “decline[d] either to approve the settlement or to take over the defense.” Id.

at 112–13. Otherwise, the indemnitee must show actual liability. Id. at 112. This rule has

evolved to avoid situations in which an indemnitee might agree to unreasonable

settlements without getting the approval of the indemnitor, because it (that is, the

indemnitee) knows that it will not actually have to pay out the settlement. See, e.g., id. at

113; Nesterczuk v. Goldin Mgmt., Inc., 911 N.Y.S.2d 367, 371 (N.Y. App. Div. 2010)

(requiring potential, not actual, liability where settlement was reasonable and made in

good faith).

Here, Manship and Weisman contributed a relatively small payment to the

settlement once it became clear that the settlement could not proceed if they did not

contribute. Their contribution was reasonable—it made up a small percentage of the total

settlement amount, and represented the minimum negotiated amount needed to resolve

the case. By contrast, had they not contributed to the settlement, Manship and Weisman

would have risked being held jointly and severally liable for the entirety of a multi-

million dollar judgment. We agree with the District Court that Appellees’ settlement

contribution was reasonable. Cf. Koch Indus., Inc. v. Aktiengesellschaft, 727 F. Supp. 2d

8 199, 225 (S.D.N.Y. 2010) (“In the context of indemnification, courts routinely find

settlements to be ‘reasonable’ when the recovery at trial could have been greater.”).

The Steins also had adequate notice of the settlement: they were parties to

settlement negotiations, and, prior to agreeing to the settlement contribution, Manship

and Weisman’s attorney suggested to the Steins’ attorney that Manship and Weisman

contribute to the settlement, and that the Steins repay them afterward. On the whole, then,

the District Court correctly concluded that Appellees were entitled to indemnification, as

they demonstrated that they were potentially liable, but for their settlement contribution.

C. Waiver

Separately, the Steins urge that Manship and Weisman waived their right to

indemnification under the Indemnification Agreement for two reasons. First, they urge

that Manship and Weisman waived their right by voluntarily paying into the settlement.

Second, they urge that Manship and Weisman waived their right by not taking active

steps to engage the Steins’ counsel to defend them.

The Steins submit that Manship and Weisman’s settlement contribution amounts

to waiver of their right to indemnification because (1) the Steins were “already

negotiating a global settlement which would resolve all claims against them” and (2) the

Steins expressly advised Manship and Weisman that they would not indemnify them for

the contribution. Appellants’ Br. 29. The first argument is easily dispensed with: it is

clear from the record that a settlement could not go forward without contributions from

all shareholders, including Manship and Weisman. The second argument is also

unpersuasive. While Manship and Weisman understood that the Steins were perhaps ill-

9 prepared to comply with their obligations under the Indemnification Agreement, they

nevertheless contributed to the settlement with the understanding that the Steins were

obligated to repay them. Under those circumstances, we cannot conclude that Appellees’

settlement contribution represents a knowing, voluntary, and intentional abandonment of

their right to indemnification. See Fundamental Portfolio Advisors, Inc. v. Tocqueville

Asset Mgmt., L.P., 850 N.E.2d 653, 658 (N.Y. 2006).

Appellees’ failure to substitute counsel also does not constitute waiver. Under the

Indemnification Agreement, Manship and Weisman did not need to take active steps to

retain the Steins’ counsel. The Agreement allowed the Steins to approve counsel for

Manship and Weisman and waived any conflicts of interest that might arise from the

Steins’ selection. Even so, Manship and Weisman’s counsel reached out to the Steins’

counsel, whom the Steins had selected, to facilitate Manship and Weisman’s transfer to

the new attorneys. After that contact, no party acted to replace Manship and Weisman’s

counsel. Manship and Weisman did not renege on the terms of the Indemnification

Agreement and did not waive their right to indemnification for that reason.

IV

Because the Settlement Agreement did not supersede the Indemnification

Agreement and Manship and Weisman did not waive their rights to indemnification, we

will affirm the District Court’s order.