Floor Seal Technology, Inc. v. Sinak Corp.

concurring in part and dissenting in part.

I concur in Parts 2 and 3 of the majority disposition but respectfully dissent from Part 1.

The consideration paragraph of the settlement agreement provides for both legal and illegal consideration. The illegal consideration is that each party shall refrain from tortious acts. But that provision can be severed under California Civil Code *906 § 1599, leaving legal consideration. First, each party agreed to dismiss the action with prejudice. That is, by itself, good consideration because it confers a legal benefit that neither party owed the other before they entered into the settlement agreement. Second, each party agreed to “freely and fairly compete in an atmosphere which is to be undisturbed by any wrongful activity and each shall endeavor in good faith to prevent such acts from occurring.” It is hard to make anything concrete of the “atmosphere” promise, but there is something concrete that goes beyond either party’s legal duties in the “endeavor in good faith to prevent” wrongful activity promise. While parties have a legal duty to refrain from wrongful activity, and the promise to do so is not good consideration, a promise to take…

MEMORANDUM *

Floor Seal Technology, Inc. appeals the district court’s post-trial judgment on the pleadings in favor of Sinak Corporation in Floor Seal’s diversity action seeking damages for breach of contract. Floor Seal also appeals the district court’s denial of leave to amend, denial of equitable relief and refusal to retax costs. Because the parties are familiar with the facts, we do not recite them in detail. We affirm in part and reverse in part.

I.

The district court correctly found that the provision of the settlement agreement Sinak was alleged to have breached contained “unlawful consideration” and was therefore void and unenforceable under California law. “Interference,” as used in the agreement, refers to tortious conduct because that word is included in a series of torts and is the explicit expression of the parties’ intent to avoid “wrongful activity.” “Interference,” in this context, unambiguously refers to illegal activity rather than activity that is improper, but not unlawful. Under Cal. Civ.Code §§ 1607, 1667, a promise to refrain from unlawful conduct is unlawful consideration. A contract that includes such a promise as consideration is illegal. See Kallen…