[00:00:13] Speaker 02: Okay, we shouldn't assume that I'll be that generous with the clock every time, but as you can see, there were reasons for that in that particular case. [00:00:21] Speaker 02: The next case before the court is Guzik Technical Enterprises versus Western Digital Corporation, docket number 141421. [00:00:29] Speaker 02: Ms. [00:00:30] Speaker 02: Chun, it's my understanding that you want to reserve three minutes for rebuttal. [00:00:39] Speaker 02: That's correct, Judge O'Malley. [00:00:41] Speaker 02: This is an appeal from the Northern District of California. [00:00:45] Speaker 02: All right, you may begin. [00:00:48] Speaker 03: Thank you, Your Honor. [00:00:49] Speaker 03: May it please the court, A Marissa Chun for Appellant Accused Technical Enterprises. [00:00:54] Speaker 03: The issue in this case is whether a valid binding contract to settle a major piece of patent litigation was entered by the parties, or whether the parties agreed to draft in good faith that settlement agreement in the days ahead. [00:01:10] Speaker 03: On its face, GTE's position is that it is an agreement to agree. [00:01:15] Speaker 03: Let me direct your honors to the term sheet itself, the plain language of the contract, and that is at the appendix at A199. [00:01:24] Speaker 03: Three key material terms are phrased as conditional obligations. [00:01:30] Speaker 03: If you turn to the very first provision, settlement payment, it states [00:01:36] Speaker 03: that Western Digital is not bound to make any payment until within 30 days after execution of a settlement agreement and a purchase order agreement. [00:01:48] Speaker 03: Does that really make it conditional or does that just set the timing for it? [00:01:52] Speaker 03: Your Honor, it makes it conditional and in fact the record below shows that the parties did not in fact provide a settlement agreement [00:02:04] Speaker 03: a settlement payment, excuse me, because that was conditioned upon a settlement agreement being drafted and executed, also conditional items, milestones, which did not occur here. [00:02:17] Speaker 03: If, in fact, this was an agreement to settle finally this major piece of litigation, this [00:02:24] Speaker 03: consideration provision would not have been conditioned upon 30 days after execution of the settlement agreement and purchase order agreement. [00:02:32] Speaker 04: What would have happened? [00:02:33] Speaker 04: Let's suppose that the dispute that arose in the last hours during this process had not arisen and things had gone smoothly all the way to ultimate resolution of the case without any dispute. [00:02:48] Speaker 04: What would have happened by way of a further documentation that would have triggered this 30-day period? [00:02:59] Speaker 03: Yes, Your Honor. [00:03:00] Speaker 03: The parties actually worked quite diligently in the days after they signed this term sheet. [00:03:07] Speaker 03: There were four agreements, and the confidential settlement agreement was something that was drafted. [00:03:13] Speaker 03: That would have been finalized. [00:03:15] Speaker 03: That would have been executed by the parties. [00:03:17] Speaker 04: I guess what I'm asking is, what were they working on, setting aside for now the dispute that arose with respect to this term sheet? [00:03:25] Speaker 03: They were working on finalizing the confidential settlement agreement, the purchase order agreement. [00:03:30] Speaker 04: When you say confidential settlement agreement, do you mean an agreement that would have incorporated the term sheet or what would it have included other than the term sheet? [00:03:41] Speaker 03: Your Honor, actually it's the purchase order agreement that did in fact try to incorporate some of the key terms in the term sheet. [00:03:48] Speaker 04: And the settlement agreement would have said the lawsuit is dismissed without prejudice and the counterclaims are dismissed without prejudice to each side to bear its own costs. [00:03:56] Speaker 04: Is that the kind of thing you're talking about, the settlement agreement? [00:03:59] Speaker 03: Well, the settlement agreement, Your Honor, sets forth actually most of these terms that are set forth in the term sheet. [00:04:05] Speaker 04: Oh, I thought you said that was in the purchase order. [00:04:07] Speaker 03: Well, the purchase order agreement [00:04:09] Speaker 03: goes into detail as to the scope and the pricing of the purchase orders that would have constituted that future purchase order obligation. [00:04:18] Speaker 03: So there were a number of different agreements that the parties were trying to work on and finalize. [00:04:24] Speaker 03: But what happened- I'm trying to get at this. [00:04:26] Speaker 04: What is it that was still to happen that was really important to the parties that wasn't simply paperwork? [00:04:35] Speaker 04: And setting aside the dispute that arose with respect to portions of this term. [00:04:41] Speaker 03: Yes, Your Honor. [00:04:41] Speaker 03: The parties were trying to work out and finalize what was supposed to be in the purchase order agreement in terms of what would be within the scope of that. [00:04:51] Speaker 04: That's the issue that arises under purchase order, scope, and price in the term sheet. [00:04:57] Speaker 04: What other than these items [00:05:00] Speaker 04: were the parties still negotiating? [00:05:03] Speaker 03: There was an amendment to a master purchase agreement which governed the party's business relationship between Western Digital and GTE, sir. [00:05:11] Speaker 03: That was one of the four documents that was remaining to be executed and finalized. [00:05:17] Speaker 03: There was also, I believe, Your Honor, a mutual release with regards to... Neutral releases are standard. [00:05:23] Speaker 03: So those were the documents that the parties were going back and forth on in the evidence that we have submitted to the district court. [00:05:31] Speaker 04: I'm sorry, I took up too much of your time on this. [00:05:37] Speaker 02: I want to go back to some basics. [00:05:40] Speaker 02: There are two questions really that the district court had to analyze. [00:05:45] Speaker 02: did the parties intend to enter into a settlement agreement and were the terms reasonably understood between the parties, in other words, the material terms. [00:05:57] Speaker 02: Then the second question is, even assuming that a contract was formed, is that contract enforceable? [00:06:04] Speaker 02: Is that fair? [00:06:04] Speaker 02: Yes, Your Honor. [00:06:05] Speaker 02: All right. [00:06:06] Speaker 02: So your argument on the burden of proof [00:06:09] Speaker 02: I'm having a hard time with your debate over what the district court did. [00:06:13] Speaker 02: Now, I mean, it could have been a little cleaner the way the district court said it. [00:06:17] Speaker 02: But in this particular instance, as I understood it, the district court did place the burden of proving the formation of the contract upon the defendant. [00:06:28] Speaker 02: And it was only the burden of establishing that the contract, once the court found it to exist, was unenforceable that the court felt. [00:06:39] Speaker 02: should shift the burden at that point. [00:06:41] Speaker 02: Isn't that really what the district court does? [00:06:43] Speaker 02: No, Your Honor. [00:06:44] Speaker 03: I would respectfully disagree. [00:06:45] Speaker 03: There are two categories of cases where these settlement agreement disputes arise. [00:06:50] Speaker 03: One is where the parties do not dispute that a contract has been established. [00:06:55] Speaker 03: This case, Your Honor, falls in the second category where the parties vigorously disputed whether a contract has been formed at all. [00:07:02] Speaker 03: And in that case, Your Honor, you say you vigorously disputed it. [00:07:06] Speaker 02: You only disputed it after fact. [00:07:07] Speaker 02: You stood in front of the district court judge and said, we have settled this case. [00:07:11] Speaker 02: It's over. [00:07:11] Speaker 02: It's done. [00:07:12] Speaker 02: Let the jury go home. [00:07:14] Speaker 02: I mean, how do we not hold you to those representations to the district court? [00:07:19] Speaker 03: Your Honor, I would request that the court look more carefully at the representations that were made to the court. [00:07:25] Speaker 03: with regards to at every step, Your Honor. [00:07:28] Speaker 01: We can read you what you said in a joint statement to the court on page 164 of the sending. [00:07:33] Speaker 01: The parties hereby notify the court that they have a breach agreement and a signed term sheet and jointly request for the trial to be taken out of the calendar while they memorialize the term sheet and further agreement. [00:07:45] Speaker 01: Memorialize doesn't sound to me like they need to further negotiate a settlement agreement. [00:07:50] Speaker 01: It sounds like they need to put the settlement agreement they've reached into proper legal form. [00:07:56] Speaker 01: That's the statement you signed and submitted to the district court in a document called Joint Notice of Settlement. [00:08:04] Speaker 03: Your Honor, with regards to the document that GTE's then counsel signed, I would agree that the label of the pleading perhaps was not the most articulately or accurately phrased. [00:08:15] Speaker 03: But if you look at the content beyond the sentence that Your Honor quoted, the parties expect [00:08:20] Speaker 03: this process to result in a dismissal shortly. [00:08:23] Speaker 03: It reflects an expectation, Your Honor, not a certainty. [00:08:27] Speaker 03: And if you look at the representations that were... That's a pretty clever read. [00:08:29] Speaker 01: I mean, all that seems to me to suggest is it's going to take us a few days to memorialize our settlement agreement, and then we will be done with it all together. [00:08:42] Speaker 01: I mean, this happens all the time. [00:08:44] Speaker 01: Parties get [00:08:46] Speaker 01: close to a trial, they hammer out the terms of the settlement agreement, they have the settlement agreement, and then they tell the district court, we need a couple more days to put it into writing. [00:08:58] Speaker 01: But it's not that agreement hasn't been reached, it's that it hasn't been put into the final legal format. [00:09:04] Speaker 01: If that's the case, then it's an agreement, and that the district court can determine that you reached a settlement agreement. [00:09:10] Speaker 01: Why isn't that what happened here? [00:09:12] Speaker 03: Because in those majority of cases, Your Honor, there is a meeting of the minds, an agreement as to the same material terms. [00:09:19] Speaker 03: in this case, getting back to Judge O'Malley's excellent point, with regards to the intent of the parties, that meeting of the minds did not exist here. [00:09:27] Speaker 03: And that was made evident when the parties tried to finalize the negotiation with regards to the settlement. [00:09:35] Speaker 03: And in fact, Your Honor, I would respectfully disagree. [00:09:38] Speaker 01: Why isn't that? [00:09:40] Speaker 01: Because you talked about a meeting of the minds, and it may be that you'd have another argument if what we had was [00:09:45] Speaker 01: verbal representation back and forth. [00:09:48] Speaker 01: We have a, I don't know how many page document sending forth a lot of terms very specifically and the only thing you seem to dispute is how you interpret the specific portion of that document. [00:10:00] Speaker 01: That to me seems more like a question of either it's too indefinite [00:10:05] Speaker 01: to be enforced, not that it wasn't an agreement, or actually left over for a breach question of whether somebody is living up to what was actually termed by that language. [00:10:18] Speaker 03: Your Honor, with regards to the term sheet, I would submit that the various terms here, both with regards to the settlement payment, with regards to the last term of the term sheet, where it clearly says that the parties [00:10:35] Speaker 03: are to, in good faith, draft a settlement agreement in the coming days with regards to the dismissal and release provision. [00:10:42] Speaker 03: That's phrased conditionally. [00:10:43] Speaker 03: The parties would dismiss an issue of release subject to the settlement payment being made. [00:10:48] Speaker 03: This is not the language of binding final settlement. [00:10:53] Speaker 01: I'm sorry, go ahead. [00:10:56] Speaker 01: Go ahead. [00:10:57] Speaker 01: You're all. [00:10:58] Speaker 01: If you had a document titled Settlement Agreement, and it had all these terms, [00:11:05] Speaker 01: At the end of the day, it might have a term that said 10 days after this agreement is signed, one party will pay the other party X amount of dollars. [00:11:15] Speaker 01: 10 days after that, they will file a notice of dismissal. [00:11:19] Speaker 01: That's conditional future language. [00:11:21] Speaker 01: That doesn't mean it's not a settlement agreement. [00:11:23] Speaker 01: It's just setting up the timing for things to occur. [00:11:26] Speaker 03: Your honor, this goes beyond that, because the final paragraph states and cabins and conditions the terms that are set forth above. [00:11:36] Speaker 03: It says that the parties would, in good faith, draft within 48 hours a settlement agreement, and it's not simply a matter of timing as to certain events, because in fact, your honor, [00:11:49] Speaker 03: A number of these milestones were not met, and there was, in fact, no meeting of the minds with regards to this purchase order and pricing provision. [00:11:56] Speaker 02: Let me go back to first principles on this point. [00:11:59] Speaker 02: I mean, you argue that this is all subject to de novo review, but every case you cite has to do with contract interpretation under California law. [00:12:08] Speaker 02: But this is the question that we're addressing here, is contract formation. [00:12:12] Speaker 02: The first question, the initial question, correct? [00:12:15] Speaker 02: Yes, Your Honor. [00:12:16] Speaker 02: And how do you deal with the fact that under California law, that's not a question of de novo review for us. [00:12:22] Speaker 02: This trial court had a hearing, had [00:12:25] Speaker 02: You know, the parties in went through all the term sheets, was living with you back and forth in terms of the representations being made to the court, and had a signed agreement in front of them. [00:12:37] Speaker 02: How are we to say that the trial court committed clear error when it made the factual finding that a contract was formed? [00:12:46] Speaker 03: Your Honor, [00:12:47] Speaker 03: I believe that the issues here are actually legal issues. [00:12:51] Speaker 03: The court said that this inquiry was a legal one. [00:12:54] Speaker 03: My honorable opponents also agree that the heart of this appeal pertains to legal issues. [00:12:59] Speaker 03: And with regards to, although there are cases where the court's factual findings are reviewed for clear error, in this case the court looked at the terms of the settlement of the term sheet itself. [00:13:12] Speaker 03: and it relied upon incompetent evidence. [00:13:15] Speaker 03: We cited here on a California Supreme Court case, Parsons versus Bristol development, where a court is looking at either incompetent evidence or if there is a legal dispute, those are clearly matters that this court can review as a matter of de novo review. [00:13:32] Speaker 03: We believe that this is a legal issue with regards to [00:13:35] Speaker 03: interpreting whether in fact this contract has been signed. [00:13:38] Speaker 04: To return to, I think it was Judge Hughes' question a little earlier that I wanted to follow up on. [00:13:44] Speaker 04: I think you said in response to his question that there was no meeting of the minds here. [00:13:49] Speaker 04: And the reason we know there's no meeting of the minds is that there was a different understanding of the scope of the clause that deals with the purchase order scope, right? [00:14:00] Speaker 04: Yes, Your Honor. [00:14:00] Speaker 04: Well, wouldn't that suggest, if that is the definition of a meeting of the minds, wouldn't that suggest that any time there is a [00:14:09] Speaker 04: contract interpretation problem that arises at some point during the existence of the contract, that that would suggest that there was never any formation of the contract at all, which isn't the law. [00:14:22] Speaker 03: No, Your Honor. [00:14:23] Speaker 04: Why isn't what you're saying essentially that proposition? [00:14:29] Speaker 03: In this case, Your Honor, the legal analysis really has two levels. [00:14:33] Speaker 03: One is whether there was a meeting of the mind that this [00:14:36] Speaker 03: term sheet was intended to settle the litigation, okay, in terms of the object of this term sheet. [00:14:43] Speaker 03: The second issue, which I think the parties have devoted a lot of time, is whether there was a meeting of the minds as to the purchase order, scope, and pricing provision. [00:14:52] Speaker 04: With regards to the first... But you're not arguing that disagreement as to the second means that there was no formation of the contract? [00:15:00] Speaker 03: Your Honor, we do. [00:15:01] Speaker 04: We believe that that's a material... We do argue that. [00:15:03] Speaker 04: Okay, if that's your argument, why isn't that [00:15:06] Speaker 04: simply saying that any time there's a contract construction problem, that that shows that there was no meeting of the minds, ergo, no formation of a contract. [00:15:18] Speaker 03: Because, Your Honor, in this case, that's not all we have. [00:15:21] Speaker 04: We have... [00:15:22] Speaker 04: I want to know why you said you're making the argument that the fact that there was a disagreement about this term in itself is sufficient to show there was no meeting of the minds. [00:15:35] Speaker 04: That's what I understood your argument to be. [00:15:37] Speaker 04: If that's your argument, why isn't that very broad and basically saying there's never a formation of a contract in such a situation? [00:15:45] Speaker 03: Your Honor, I believe that there's a distinction between [00:15:49] Speaker 03: a problem, an infirmity with a contract being formed versus a disagreement as to a material provision. [00:15:56] Speaker 03: And in this case, because this was negotiated and signed as a document which would give the parties further time, a little bit more time beyond the December 2 trial date. [00:16:07] Speaker 03: to finalize the settlement negotiations. [00:16:11] Speaker 01: Let's assume this was a settlement agreement, that it's a signed settlement agreement, but that part of the settlement agreement included we're going to have a further agreement on a purchase order. [00:16:22] Speaker 01: We have a settlement agreement, and it turns out after you have the signed settlement agreement that you have different understandings of [00:16:30] Speaker 01: what the obligations are for the purchase agreement as laid out in the settlement agreement, and you can't negotiate the second agreement on purchase orders. [00:16:39] Speaker 01: Does that render the settlement agreement not an actual, not a form settlement agreement? [00:16:47] Speaker 01: Again, is that a formation problem or is that an interpretation problem? [00:16:52] Speaker 03: With regards to your hypothetical, Your Honor, I believe that that would be an interpretation problem, and that that's a problem that we are not faced with here. [00:17:01] Speaker 03: Because I believe that the fundamental issue in terms of- And why is that the case? [00:17:07] Speaker 01: Because this actually lays out specific [00:17:10] Speaker 01: provisions, and I won't talk about them because they're highlighted in yellow in my appendix, but it lays out specific provisions relating to the purchase order requirements. [00:17:22] Speaker 01: It has terms here. [00:17:24] Speaker 01: It just happened that after this agreement was signed, the parties interpreted these terms differently. [00:17:34] Speaker 01: Why isn't that what's happening instead of this is not a signed settlement? [00:17:40] Speaker 03: Your Honor, the reason why is because if you look at 8206, those terms that were spelled out were the terms that the parties agreed that they would in good faith draft put into a settlement agreement. [00:17:53] Speaker 03: This can't be the settlement agreement because as I noted, Your Honor, the dismissal and release, there's no ripe obligation because that was contingent upon the settlement payment being made. [00:18:04] Speaker 03: There was no obligation in terms of the consideration. [00:18:07] Speaker 01: I don't understand that point at all. [00:18:08] Speaker 01: You're saying that there's no settlement agreement until the payment is made, but the payment is made until the settlement agreement is affected. [00:18:16] Speaker 01: That seems completely circular, and also contrary to almost the way all settlement agreements work. [00:18:22] Speaker 01: You sign the settlement agreement, and then you make the payment. [00:18:25] Speaker 03: Well, Your Honor, if in fact this were the settlement agreement, then it seems to me that the parties would have [00:18:32] Speaker 03: drafted this in a way such that the payment was due within 30 days of the signing of this document. [00:18:38] Speaker 03: That's not what this document said. [00:18:40] Speaker 03: Moreover, between November when this was signed and March when the court issued its order granting the motion to enforce, there was no settlement payment that was made. [00:18:49] Speaker 01: Well, that's because you didn't honor your settlement agreement, as the district court passed. [00:18:53] Speaker 02: Let me ask you a question because this is important. [00:18:56] Speaker 02: We keep talking about the terms and we keep going back and forth and yet we're supposedly not allowed to talk about them here in open court. [00:19:02] Speaker 02: Are both sides insisting on the confidentiality of these settlement terms? [00:19:06] Speaker 02: Because some of them are important to discuss. [00:19:09] Speaker 03: Yes, Your Honor. [00:19:10] Speaker 03: With regards to GTE's position, we've always insisted from the inception of this appeal that this should all be public and so we do not have any objection to this being discussed. [00:19:20] Speaker 00: I think if we keep the dollar amount confidential, I think the remainder of the pricing scope provisions are going to be fine. [00:19:28] Speaker 02: We can easily work around the dollar. [00:19:30] Speaker 02: Thank you. [00:19:31] Speaker 02: I think we're way over your time. [00:19:34] Speaker 02: I said I wasn't going to be this generous with the clock, but we ended up getting there anyway. [00:19:38] Speaker 02: So we'll restore your rebuttal. [00:19:39] Speaker 02: We'll give your friend on the other side an extra three minutes if needed. [00:19:45] Speaker 02: Thank you, Your Honor. [00:19:54] Speaker 00: Thank you, Your Honor. [00:19:56] Speaker 00: I wanted to also start at first principles, which is that the appeal here is asking the court to furrow away an eight-page written agreement that incorporates by reference a 10-page written purchase agreement that was signed by Gusick's CEO. [00:20:10] Speaker 00: That was the product of weeks of negotiation between the parties. [00:20:14] Speaker 00: And that was used by both parties to rely on, to ask the district court to vacate a trial that was to start [00:20:21] Speaker 00: the following Monday. [00:20:22] Speaker 00: He was saying on a Friday. [00:20:23] Speaker 04: Can I start you with the same question I started to propose in council? [00:20:29] Speaker 04: What remains to be done here? [00:20:31] Speaker 04: I mean we have references to this settlement agreement and it may be that this is being used as a term of art but I don't understand what was contemplated to be in the settlement agreement that is different from or beyond what we have already seen as [00:20:49] Speaker 00: Very well is the answer, Your Honor. [00:20:52] Speaker 00: The settlement agreement takes it from a chart form. [00:20:55] Speaker 00: You see in the settlement agreement that I think is the settlement agreement, naming it A199, takes it from a chart form with headers and short abbreviated paragraphs and makes it more lawyered. [00:21:06] Speaker 00: It presents it in a more traditional fashion with whereas clauses and things along those lines. [00:21:11] Speaker 00: that I think companies like Western Digital and Guzik are more comfortable with as a formal document, but it doesn't change the substance. [00:21:20] Speaker 00: It wasn't intended to change the substance of the primary agreements, the material terms that were agreed to. [00:21:25] Speaker 04: Okay, now, if that's the case, in order not to... [00:21:30] Speaker 04: have this rely on the lawyer argument. [00:21:34] Speaker 04: Can you point to anything in the record that would confirm that the settlement agreement, as that term is used in the term sheet, was simply a recitation in effect of what's in the term sheet in the purchase order agreement without any other substantive component? [00:21:58] Speaker 00: Well, the graphs, Your Honor, start to go back and forth, and I'm trying to find the best starting point for that. [00:22:06] Speaker 04: Because this term's argument is that there was this concept of a settlement agreement, which is the ultimate agreement, which had not yet [00:22:14] Speaker 04: come into being. [00:22:15] Speaker 04: And that that's the basis for the argument that this is really just an agreement of the parties, or this is a tentative proposal or set of proposals that the parties are using as a starting point for negotiations, which will be end up finding their way into a settlement agreement. [00:22:31] Speaker 04: And I'm looking to you to tell me exactly what in the record tells me that's wrong. [00:22:36] Speaker 04: Oh, then I misunderstood your question in the first place. [00:22:38] Speaker 04: Well, there really are slightly different questions. [00:22:41] Speaker 04: But that's really the core of what's concerning. [00:22:44] Speaker 00: Thank you, Your Honor. [00:22:46] Speaker 00: So multiple things. [00:22:46] Speaker 00: The Four Corners of the agreement itself show you that it's got the material terms. [00:22:51] Speaker 00: It says it's expressly, the terms of the agreement are expressly there to resolve the disputes between the parties for all claims pending or previously pending in the lawsuit. [00:23:02] Speaker 00: The signatures are of the principals. [00:23:04] Speaker 00: not a legal document that's a placeholder. [00:23:08] Speaker 00: The CEO of their company signs it under a statement that says, oh, agreed. [00:23:12] Speaker 00: It's then sent to the district court. [00:23:14] Speaker 00: First, there's the joint statement of settlement that goes to the district court where they say the material terms have been agreed to, the term sheet's been signed. [00:23:22] Speaker 00: we ask that the trial be taken off calendar. [00:23:25] Speaker 00: So you have the agreement itself. [00:23:27] Speaker 00: You have the joint statement of settlement to the court. [00:23:31] Speaker 00: Then you have the party standing up in court Monday morning when trial was supposed to begin. [00:23:35] Speaker 00: You have Guzik's lawyers saying all the material terms have been agreed to. [00:23:40] Speaker 00: There's ancillary documents, which are the ones they're now relying upon as not so ancillary, but as [00:23:45] Speaker 00: pivotal to the case that are still being worked upon. [00:23:48] Speaker 00: And we asked the court to take the trial off calendar. [00:23:51] Speaker 00: I then stood up, and this is all in the record, Your Honor. [00:23:54] Speaker 00: I then stood up and said, we see this as a binding agreement. [00:23:57] Speaker 00: They sat silent. [00:23:58] Speaker 00: Judge Graywall then issued an order after that hearing. [00:24:01] Speaker 00: He reviewed the term sheet. [00:24:03] Speaker 00: He canceled the trial. [00:24:04] Speaker 00: He then issued a minute order that says, case has settled. [00:24:08] Speaker 04: When was it that the email from, I guess, Mr. Alberti, is that right, that came in that said, hold the press, when was that in the course of all of this? [00:24:18] Speaker 04: You know what I'm talking about. [00:24:19] Speaker 00: Well, there was a nine, what happened, your honor, I was involved in these negotiations. [00:24:23] Speaker 00: So after the settlement agreement was signed, the parties had the case taken off calendar, were then negotiating the four ancillary agreements. [00:24:31] Speaker 00: We are down to three terms that remain in dispute, and they're relatively small. [00:24:36] Speaker 00: When all of a sudden, and this is with the addition of the McDermott lawyers, there's a document that comes from Mr. Gilliland, who's the Kilpatrick lawyer, saying, I've been instructed to provide this wholly rewritten settlement agreement. [00:24:50] Speaker 00: It's a one page document. [00:24:52] Speaker 04: Mr. Albert, this is Mr. Gilliland. [00:24:53] Speaker 00: It was Mr. Gilliland, but working together now with the McDermott lawyers. [00:24:57] Speaker 00: It's a one-page document, has nine terms. [00:25:00] Speaker 00: It removes the covenant not to sue. [00:25:03] Speaker 04: When did this happen? [00:25:04] Speaker 04: In the course of it, was this before you appeared before Judge Grewell or after? [00:25:09] Speaker 04: After. [00:25:10] Speaker 00: So there's two appearances before Judge Grewell I think are relevant. [00:25:13] Speaker 00: The first one is the Monday the trial was supposed to start on December 2nd. [00:25:17] Speaker 00: There's the signed settlement agreement beginning at A199. [00:25:20] Speaker 00: There's the joint notice of settlement. [00:25:22] Speaker 00: We get up and we tell them there's no need for a trial. [00:25:24] Speaker 00: And he sends the jurors home. [00:25:25] Speaker 00: He sends the jurors home. [00:25:26] Speaker 00: He enters the minute order of cases settled. [00:25:28] Speaker 00: Then the parties negotiate. [00:25:30] Speaker 00: When we get this 9.1 page document that removes the protections for Western Digital, then we're done. [00:25:37] Speaker 00: And we have a joint request for a status conference that goes to the district court. [00:25:42] Speaker 00: That request, by the way, Your Honors, says there's a settlement agreement. [00:25:46] Speaker 00: It refers to the original A199 as a settlement agreement. [00:25:49] Speaker 00: Now, I know Guzik has taken that to task, saying, well, it wasn't authorized to be filed. [00:25:55] Speaker 00: That's not true. [00:25:56] Speaker 00: The appendix at 8223 shows you that I asked Mr. Gilliland, do I have your approval to file? [00:26:02] Speaker 00: His response wasn't, wait, hold your horses. [00:26:04] Speaker 00: That's not a settlement agreement. [00:26:05] Speaker 00: You're mischaracterizing it. [00:26:07] Speaker 00: He says, looks fine to me. [00:26:09] Speaker 00: Please go ahead and file. [00:26:11] Speaker 00: So we filed the joint request for status conference, calling the agreement a settlement agreement. [00:26:16] Speaker 00: we go and then have a status conference in which Judge Greywall at 235 says, I thought the case had settled. [00:26:23] Speaker 00: So this is a sample, Your Honor. [00:26:25] Speaker 00: There's probably five more things I could come up with that will show you that this was a settlement agreement and everybody knew it. [00:26:31] Speaker 04: And to go back, to circle back one more time, just to make sure I understand this, what remained to be done, in your view, was essentially to massage the term sheet into [00:26:45] Speaker 04: more acceptable legal language and a dismissal motion, a formal dismissal motion. [00:26:54] Speaker 04: What else remained? [00:26:55] Speaker 00: There were four things. [00:26:56] Speaker 00: One was the dismissal itself, which was the simple form, Northern District of California basic format. [00:27:02] Speaker 00: That was agreed to very quickly. [00:27:03] Speaker 00: There was a non-disclosure agreement that the parties wanted to have that would replace some of the terms they had in their prior business agreements. [00:27:11] Speaker 00: That was, I think, completed. [00:27:13] Speaker 00: There was a purchase order agreement. [00:27:15] Speaker 00: And most of the work, Your Honor, was put into this in the negotiation of the ancillary documents. [00:27:20] Speaker 00: Not the settlement, but the purchase order agreement. [00:27:23] Speaker 00: And the reason for that was the parties had already had a lawsuit. [00:27:26] Speaker 00: As you know from the record, the consideration being paid is substantial. [00:27:30] Speaker 00: This was a meaningful lawsuit. [00:27:31] Speaker 00: And instead of finding ourselves back in court again, the parties were hoping to come to a resolution that would govern the business relationship that would smooth the road going forward, so that hopefully we wouldn't find ourselves back in court. [00:27:43] Speaker 00: Most of the negotiations you'll see are on the purchase order agreement, and they're on force majeure, trade on board, things like that, and trying to find ways to lead times, really at the details of the business relationship, so hopefully the parties won't be fighting with each other anymore. [00:28:01] Speaker 00: They're not on the core terms of you're going to release me, you're going to dismiss me, you're going to pay me cash upfront, you're going to pay me a specific unchanging dollar amount, you're going to commit to me purchase orders in an unchanging dollar amount. [00:28:14] Speaker 00: All those things stay the same. [00:28:16] Speaker 02: But the heart of the dispute now has morphed into the question of whether or not the parties really understood what was going to be encompassed in this purchase order. [00:28:28] Speaker 02: In terms of, we know what the dollar figures are going to be, and there's a firm commitment to make purchase orders up to a specific dollar amount. [00:28:37] Speaker 02: And correct me if I'm wrong here, but it looks like the nine point plan that came from [00:28:45] Speaker 02: the new lawyers who came in and decided maybe we don't want the settlement agreement that was agreed to. [00:28:50] Speaker 02: As to that point, what was supposed to be encompassed within the purchase order is pretty consistent with what you claimed was encompassed within the purchase order and what the court found to be encompassed within the purchase order. [00:29:04] Speaker 00: If you look at all of the redlining that leads up to the final settlement agreement, it's all consistent with Western Digital's position. [00:29:10] Speaker 00: It shows you that Guzik's first draft of the agreed term settlement agreement, A199, had a scope and pricing provision that was very spare. [00:29:21] Speaker 00: You'll see this at A301. [00:29:23] Speaker 00: And it says, you could read it to say that the scope of what could be counted towards the purchase order commitments was limited to things on the price list. [00:29:32] Speaker 00: Western Digital immediately responds at 8308 and says no. [00:29:36] Speaker 00: And the four paragraphs of that provision become what they are in A199. [00:29:41] Speaker 00: First one about pricing, three about what's included and excluded about scope. [00:29:46] Speaker 00: So that's the first bit of extrinsic evidence, the lead up to the agreement itself. [00:29:50] Speaker 00: Then you have the redlining of the purchase order agreement, the ancillary document after that. [00:29:57] Speaker 00: The first one from Guzik, I mean, does it again. [00:30:00] Speaker 00: It says you're going to be limited on your purchase order commitments only to what's on the price list. [00:30:04] Speaker 00: I sent an email, A404, that says that's not what we agreed to. [00:30:08] Speaker 00: And you'll never see it again. [00:30:11] Speaker 00: The next version of the agreement, and the one after that, and the one after that, and the one after that, all reflect the understanding that the purchase order commitments would not be limited to only what was on the price list. [00:30:23] Speaker 00: Then you have the gap where this dispute erupts, my email A404 comes on a Saturday morning. [00:30:30] Speaker 00: That's the Saturday before the Monday where we show up in court in front of Judge Graywall and say, we've resolved the case. [00:30:36] Speaker 00: We've hammered out the material terms. [00:30:39] Speaker 00: We're working on the details. [00:30:40] Speaker 00: It's only ancillary agreements, all those things we've talked about. [00:30:44] Speaker 00: And so if there was a real failure of the meeting of the minds, it would have been clear to Guzik as of that email A404. [00:30:53] Speaker 00: the Saturday before the hearing with Judge Graywall. [00:30:55] Speaker 00: They would have said something about it to Judge Graywall. [00:30:58] Speaker 00: They didn't. [00:30:59] Speaker 00: All the purchase orders, the drafts go back and forth. [00:31:02] Speaker 00: They drop the issue. [00:31:03] Speaker 00: And then Dr. Gusek, I think he's probably the one who authored these nine points. [00:31:08] Speaker 00: He sends it to the president of Western Digital personally and annotates it and says, here's the only thing I'm willing to agree with. [00:31:15] Speaker 00: The lawyers have screwed this up. [00:31:16] Speaker 00: It's too legalistic. [00:31:17] Speaker 00: Let's get simple. [00:31:18] Speaker 00: And even there, where now you think this is the most important point as they present in court, he would have said you can't have anything count towards the purchase orders if they're not on the price list. [00:31:29] Speaker 00: He doesn't. [00:31:30] Speaker 00: Not in the annotations and not in the nine points document. [00:31:33] Speaker 00: The nine points document says any goods that they offer. [00:31:36] Speaker 00: purchase orders can go to any goods that they offer and then in second provision of that at the prices on the price list, just like what we have in the agreement. [00:31:44] Speaker 04: Of course, if he's talking about the prices on the price list, presumably it excludes goods that aren't on the price list. [00:31:51] Speaker 04: I mean, that's an implication at least that one could draw from that combination of provisions, right? [00:31:56] Speaker 00: It's not, Your Honor, and here's why. [00:31:58] Speaker 00: The agreed terms document talks about this NRE that you've seen in the briefing, NRE being non-recoverable engineering, custom design. [00:32:05] Speaker 00: So the idea is we could ask, Western Digital could ask Kuzik to make some special version, a new connector. [00:32:11] Speaker 04: But then it wouldn't be on the 2013 crisis. [00:32:14] Speaker 00: Right, but the goods that result from it are expressly included in the scope of what would count towards the purchase agreement. [00:32:21] Speaker 00: You'll see that at A199. [00:32:22] Speaker 04: Well, at A199, but not in the nine points, right? [00:32:26] Speaker 00: In the nine points, I see your point, Your Honor. [00:32:31] Speaker 00: He says it would be sold at the prices, but I don't think that's meant to exclude, and he never says there's no correspondence, where he says, and you can only count towards the purchase order. [00:32:39] Speaker 04: No, but it maybe suggests what his understanding of, or at least what his position, what it was with respect to the inclusion of goods outside of the 2013 price list. [00:32:51] Speaker 00: I don't think it does, Your Honor, in light of the context of the back and forth that's gone through this case where they've tried now twice to put that in. [00:32:58] Speaker 00: Maybe this is a third try to do it again, but I don't think so. [00:33:00] Speaker 00: I see your point. [00:33:02] Speaker 02: I just have a factual question. [00:33:04] Speaker 02: The relationship between Western Digital and what is it, HGST? [00:33:09] Speaker 02: HGST. [00:33:10] Speaker 02: What is the relationship between? [00:33:12] Speaker 00: So HGST, there used to be three primary disk drive manufacturers in the last five, six years. [00:33:18] Speaker 00: There was Patachi Global Storage Technologies, Western Digital, and Seagate. [00:33:23] Speaker 00: There were three arch competitors. [00:33:24] Speaker 00: Western Digital acquired HGST, I think it's two years ago now, something along those lines. [00:33:30] Speaker 00: Because of certain antitrust concerns from China, they've been held separate. [00:33:35] Speaker 00: So while it's a subsidiary company, it's independently run and operated. [00:33:39] Speaker 00: And I'm glad you're on a raise, because I think that HGST provision in the scope and pricing is dispositive of the question of whether things only on the priceless should be counted. [00:33:49] Speaker 00: Because what the agreed terms document says at A199 is future purchases from HGST, not counting some that had already been committed, will count. [00:34:00] Speaker 00: But they're going to be applied only on exclusively, it says, on the commercial terms that already exist between HGST. [00:34:09] Speaker 00: That's not the price list. [00:34:10] Speaker 00: That's not the settlement agreement. [00:34:11] Speaker 00: They have their own agreements. [00:34:13] Speaker 00: And then there's a second sentence added after that that says nothing in this agreement will aggregate, void, I forget all the words, but essentially invalidate any agreements that exist between HGST and GUSIC. [00:34:27] Speaker 00: So we know future purchases can be made by HGST, not on this price list, and that they will count towards the purchase order commitments. [00:34:35] Speaker 00: So it can't be the way they read it. [00:34:39] Speaker 00: Unless Your Honors have further questions, I'm happy to try to give you back some of my time. [00:34:44] Speaker 02: Okay, thank you. [00:34:44] Speaker 02: Thank you. [00:34:46] Speaker 03: Your Honors, I wanted to address a couple of points that my opposing counsel made. [00:35:01] Speaker 03: First, with regards to Judge Bryson's original question as to what was to happen in the days ahead. [00:35:08] Speaker 03: With regards to the importance of the purchase order agreement, the settlement agreement, that can't be overestimated because the business relationship of these two entities was such that the scope and the pricing of that was critical. [00:35:26] Speaker 03: And there were disputes with regards to not only whether competitor products would be made available to Western Digital, [00:35:34] Speaker 03: What the backdrop to all this, to step back, was that on November 15 and 22, the two principals, Dr. Guzik and Mr. Babacanian, had worked out what the scope and pricing of the purchase order provision would be. [00:35:47] Speaker 03: And that provision was the subject of much back and forth. [00:35:52] Speaker 03: And there were many items in which the parties disagreed. [00:35:56] Speaker 03: In our appeal, we focused, of course, on the purchase order scope and pricing provision itself. [00:36:01] Speaker 03: But whether it's whether products that were made for customers, competitors, excuse me, were going to be included or whether in fact V2002 testers, which there was no evidence with regards to Western Digital's argument that this would be the bulk of the purchase order provision and therefore [00:36:19] Speaker 03: allowed the district court to minimize the importance of the dispute between the parties. [00:36:24] Speaker 03: All of these things, Your Honor, had still not been finalized. [00:36:28] Speaker 03: And getting back to Judge Hughes' excellent question as to whether our predecessor counsel's statement somehow gave rise to the district court being able to rely upon those statements that a settlement had occurred. [00:36:41] Speaker 03: If you look at the actual statements, Your Honor, [00:36:44] Speaker 03: They were always qualified. [00:36:46] Speaker 03: They were made in good faith at that time. [00:36:48] Speaker 03: And council, predecessor council said, we still have a few issues we're working on. [00:36:53] Speaker 03: This is at A168 on the ancillary agreements. [00:36:56] Speaker 03: But we are still talking and getting close. [00:36:59] Speaker 01: But ancillary agreements suggest ancillary completed settlement agreement. [00:37:05] Speaker 03: Well, Your Honor, I think the word ancillary was not the best choice of words. [00:37:09] Speaker 03: But getting back to the term sheet itself, Judge Hughes, [00:37:12] Speaker 03: The bottom paragraph, I would urge you to look at that because that cabins and conditions the fact that these terms were going to be set forth in the settlement agreement. [00:37:22] Speaker 03: With regards to Mr. Loomish's comment, for instance, that the dismissal was just an easy document, that's not what the term sheet says. [00:37:30] Speaker 03: The term sheet says that the obligation to dismiss [00:37:33] Speaker 03: doesn't even ripen until after the settlement payment has been made. [00:37:39] Speaker 03: That has not happened here. [00:37:41] Speaker 03: This is a conditional document, and we believe that the evidence supported this. [00:37:48] Speaker 03: Now, with regards to the minute order, for instance, that opposing counsel relies upon, if one looks at that, A165, beyond... This is your last point. [00:37:58] Speaker 03: Yes, Your Honor. [00:38:04] Speaker 03: It's saying that the case has settled. [00:38:06] Speaker 03: There are numerous terms indicating that the court and the parties knew that they were close to a settlement that had not settled. [00:38:14] Speaker 03: All pending motions are denied without prejudice. [00:38:17] Speaker 03: Why would the motions be denied without prejudice if the case had been settled? [00:38:20] Speaker 03: You know, the dismissal was to be submitted within two weeks. [00:38:23] Speaker 03: The parties are to reach out if they're unable to timely submit dismissal. [00:38:27] Speaker 03: The district court itself said that, in fact, the parties sounded like they were very close. [00:38:34] Speaker 03: at that time, and in fact, Your Honor, if you look at Western Digital's contemporaneous description of the term sheet, and I believe, Your Honor, that this is at... This is the second point. [00:38:47] Speaker 02: I'm referring to the several-minute order, but you're way over your time now. [00:38:51] Speaker 02: So we're going to have to move on to the next page. [00:38:54] Speaker 02: Yes, Your Honor. [00:38:55] Speaker 03: So with regards to the court, thank you so much, and we thank you for your time.