DATE: MAY 3, 1994
CASE NO.: 86-ERA-23

IN THE MATTER OF:

JOSEPH J. MACKTAL, JR.
    Complainant

    v.

BROWN & ROOT
    Respondent

    On the 25th of March, 1994, a hearing was held in Dallas, Texas on Respondent's Motion to Stay Proceedings Pending Return of Settlement Monies. Respondent filed a proposed Order Staying Proceedings Pending Return of Settlement Monies April 8, 1994. Complainant filed a Motion for Interlocutory Review April 18, 1994. As Complainant has not contradicted Respondent's recitation of the background of this litigation, the Court will adopt by reference and incorporate herein the procedural history recited in the paragraphs entitled Findings of Facts, The Settlement Agreement and Release, the November 14, 1989 Order and The Appeal and Remand off Respondent's notion.

    The Secretary's October 13, 1993 Order disapproved the prior settlement (hereinafter the "agreement") and no party has an enforceable obligation under that agreement. Although Respondent contends that Complainant's retention of the settlement funds ratified the settlement and worked an accord and satisfaction irrespective of paragraph 3, this matter now has been remanded for hearing. Accordingly, the parties are in the same position they were prior to their execution of the Agreement in November, 1986, with one important exception -- Complainant continues to enjoy the benefit of settlement monies which he has not earned and has no right to possess.

    Irrespective of the enforceability of the Agreement, if Complainant wishes to continue with this §210 claim he must return the $35,000.00, with interest, and restore the parties to their prior status.

    Respondent conferred a benefit of $35,000.00 upon Claimant in exchange for a full and final settlement of his §210 claim and release of all claims against Brown & Root and the Comanche Peak companies arising out of his employment on the Comanche Peak project. Although Respondent paid Complainant the money and performed all of its duties under the Agreement, it did not receive the dismissal of this case that both parties had contemplated. Where one has been unjustly enriched by the receipt of a benefit to which he is not entitled, equity will intervene to restore the benefit to its rightful owner. See Klein v. Jones, 980 F.2d 521, 527 (8th Cir. 1992) (equitable doctrine of unjust enrichment prohibits one from unfairly profiting at the expense of another); Hercules. Inc. v. Pages, 814 F.Supp. 74, 80 (M.D. Fla. 1993) (unjust enrichment occurs where a benefit is conferred upon and retained by a defendant under circumstances where it would be inequitable for him not to pay for it). See also Harker Heights v. Sun Meadows Land, 830 S.W. 2d 313, 319 (Tex. App. 1992)("principle of unjust enrichment suggests that restitution is an appropriate remedy in circumstances where the agreement contemplated is unenforceable, impossible, not fully performed, thwarted by mutual mistake or void for other legal reasons."). Under the circumstances, Respondent is entitled to the return of its money. See generally Restatement of Restitution, §1 (1937)("a person who has been unjustly enriched at the expense of another is required to make restitution to the other").¹

    The parties entered into the Agreement for the purpose of disposing of Complainant's §210 claim. The Agreement stated that the parties desired to resolve their dispute and that Complainant wished to withdraw his claim. Respondent made the $35,000.00 settlement payment only upon the execution of a stipulated dismissal. The settlement monies were held in escrow pending the presiding Administrative Law Judge's execution of an order dismissing the action with prejudice.

    Where a fundamental purpose of an agreement is frustrated by a mistake of the parties, any benefit conferred under the agreement must be returned. In this respect the Restatement of Restitution provides that:

[A] person is entitled to restitution for a benefit which he has conferred upon another as the whole or part of his performance of a contract with another, under the erroneous belief induced by a mistake of law, either shared by both or known to the other that the manifested basic purpose of the contract can be carried out or is thereby achieved.

Restatement of Restitution, §48 (1937). Similarly, the Restatement of Contracts provides that restitution is proper where the underlying purpose of a contract is frustrated by changed circumstances, the nonexistence of which was a fundamental assumption of the parties. Restatement (Second) of Contracts, §265 (where principal purpose of contract is frustrated through no fault of party by event, nonoccurrence of which was basic assumption, party's duties are discharged) and §276 (where contracting parties' duties under contract did not arise due to frustration of purpose, party is entitled to return of any benefit conferred). Cf. Sun Meadows Land, 830 S.W.2d at 319 (restitution proper remedy in cases of impossibility).

    It is well established that an intervening judicial or administrative decision may frustrate the underlying purpose of a contract or render its performance impossible. Ashland Oil & Refining Co. v. Cities Service Gas Co., 462 F.2d 204, 210 (10th Cir. 1972); Far West Bank v. Dir., Office of Thrift Supervision, 787 F.Supp. 952, 960-61 (D. Or. 1962) (legislation frustrated contract where nonoccurrence of interference occasioned by legislation was basic assumption of the parties); Consumers Power Co. v. Nuclear Fuel Services, Inc., 509 F.Supp. 201, 210 (W.D.N.Y. 1981) (generally, contractual duty is discharged where performance is subsequently prevented by subsequent administrative order). generally 6 Corbin on Contracts §1346 (1962)²

    In Far West Federal Bank, private investors entered into a conversion agreement with the Federal Home Loan Bank Board to recapitalize a failed thrift institution. Under the conversion agreement FHLBB agreed to forbear from enforcing certain capitalization requirements against the thrift institution. FHLBB further agreed that a ten year business plan under which the thrift institution would operate would be deemed to be in compliance with regulatory capital requirements for all purposes notwithstanding subsequent regulatory changes. Subsequent to the execution of the conversion agreement, Congress passed FIRREA and the Office of Thrift Supervision promulgated regulations pursuant to that statute. OTS then disapproved the conversion agreement, finding that it was not in compliance with its new regulatory capital requirements. 787 F.Supp at 955-956.

    The investors brought suit contending that they were entitled to the return of their investment based upon the frustration of purpose doctrine. The Court agreed, holding that the passage of FIRREA abrogated key provisions of the conversion agreement and thereby frustrated the contract's fundamental purpose. The Court found that the nonoccurrence of events which would preclude the government from honoring its obligations was a basic assumption of the parties. Accordingly, the Court found that the investors were entitled to the return of their investment. Id. at 961.

    In the present case, neither of the parties anticipated the change in policy of the Nuclear Regulatory Commission or the Secretary's eventual disapproval of the Agreement. Indeed, as the Secretary has noted, the parties believed that the Agreement was effective upon the Judge's Order of Dismissal. [Brief for the Secretary, Macktal v. Secretary of Labor, at 34].

    The same principles of equity and justice which require Complainant to return Respondent's funds preclude him from proceeding with this action until he does so. It is well established that a party to a settlement agreement may not escape his obligations thereunder while at the same time retaining the contract benefits. See Grillet v. Sears Roebuck & Co., 927 F.2d 217, 220 (5th Cir. 1991) (plaintiff who executed release agreement for payment could not simultaneously retain benefit of agreement and escape obligations it imposed); Mustang Beach Development Corp v. Fidelity & Gas Co., 348 F.Supp. 1270, 1272 (S.D. Tex. 1972), aff'd without opinion, 463 F.2d 1138 (5th Cir. 1973) (it is a well- settled rule in equity that one who seeks to avoid an obligation must return consideration paid) (following Texas law); Mungin v. Florida East Coast Railway Co., 318 F.Supp. 720, 735 (M.D. Fla. 1970), aff'd without opinion, 441 F.2d 728 (5th Cir. 1971) (justice required that for settling party to be relieved of settlement obligation he must restore the status quo ante by returning settlement payment). See also Kirby v. Dole, 736 F.2d 661, 663-64 (11th Cir. 1984) (plaintiff who agrees to settle action cannot subsequently seek to retain the benefit of the agreement while continuing to press the claim he agreed to settle). As Texas courts have held:

It is a familiar rule of equity that "He who seeks equity must do equity." Thus it is held that one seeking a cancellation of an instrument, with certain exceptions not pertinent here, must restore the original status; he cannot repudiate the instrument and retain the benefits thereunder received.

Guion v. Guion, 475 S.W.2D 856, 869 (Tex. App. 1971) (plaintiff ratified settlement by retaining consideration) (quoting Texas Company v. State, 281 S.W.2d 83 (Tex. 1955).

    In Grillet, for example, plaintiff sued her former employer for wrongful termination under the Age Discrimination in Employment Act. The employer moved for summary judgment on the basis of a release plaintiff had executed at the time of her termination. The district court denied the motion, however, noting that plaintiff had raised factual issues concerning the validity of the release.

    Reversing, the Fifth Circuit found that irrespective of any claim of fraud or duress in connection with the execution of the release, plaintiff had ratified the release by retaining the funds paid in consideration. The Court noted that "[a] party cannot be permitted to retain the benefits received under a contract and at the same time escape the obligations imposed by the contract." 927 F.2d at 220. In order to prosecute her ADEA case, the Court held that plaintiff should have offered unconditionally to return the full amount paid by the employer with interest as soon as she learned of the facts upon which she based her claims of fraud and duress. Having failed to do so, plaintiff ratified the release. Id. See also Wamsley v. Champlin Refining & Chemicals. Inc., 1993 U.S. App. LEXIS 34091 *22, 63 Fair Empl. Prac. Cas. (BNA) 821 (5th Cir. December 30, 1993)(Justice and equity require employee who seeks to avoid obligation under settlement agreement to return money received).

    The question as to whether Complainant's refusal to return the prior settlement pay constitutes a ratification is not being addressed. However, it appears to this Court that it is grossly unfair for Complainant to be allowed to proceed with this litigation while retaining the benefit which had been conferred for the purpose of avoiding litigation. Such prosecution would be for the primary purpose of attempting to obtain greater benefits without risk. Further, Respondent would have to incur additional costs and could have difficulty collecting if it is ultimately determined that Complainant is entitled to less. If Complainant has confidence in the merits of this claim, he should be prepared to go to trial in the same position as any other plaintiff and without the unjust enrichment he is attempting to retain.

    A similar conclusion was reached in Gregory v. Garrett Corn., 589 F.Supp. 296 (S.D.N.Y. 1984). In Gregory the estates of several air crash victims brought suit for damages against an aviation company ("TGA") and others. TGA alleged each of the estates had released TGA from liability for any tort claims arising out of the crash in return for payments of $250,000.00 to each estate. In the first phase of a bifurcated trial, the jury found that the releases had been obtained through fraud or misrepresentation. Thereafter, TGA moved to the district court to order the plaintiffs to return the consideration paid for the releases before allowing plaintiffs to proceed with the second phase of the trial. Id. at 298-99.

    The Court granted the motion. Though noting that under New York law (which the Court found to apply to procedural issues) it was not necessarily required to order the return of the release money prior to the second phase of trial, the Court nevertheless held that various equitable considerations required that the money be returned. The Court noted, for example, that the plaintiffs had accepted the release payments in order to recover money immediately, rather than enduring a trial and a appeal. To allow plaintiffs to retain the funds while proceeding to trial, the Court found, would afford them a benefit to which they were not entitled. Id. at 301. Additionally, the court found that it would be "distinctly unfair for plaintiffs to retain the money while proceeding with the action, since plaintiffs might seek to retain the funds if they failed to obtain a judgment in their favor or received a judgment for less than the release amount. Such a result would effectively relieve the plaintiffs of all risk in the action. Id. Finally, the Court noted that there was no guaranty the plaintiffs would receive judgments of $250,000.00 or more from which the release awards could be subtracted. Id.

    The Court has considered Complainant's Motion for Interlocutory Review. As indicated during the hearing, part of the basis for setting a deadline for repayment, is to allow all issues to be before the Secretary during any subsequent appeal. The Court is unpersuaded that an interlocutory appeal is warranted in this case.

    It is, therefore, ORDERED, ADJUDGED and DECREED that Respondent's Motion to Stay Proceedings is, in all things, GRANTED.

    It is further ORDERED that Complainant shall, with 90 days of the entry of this Order, repay Respondent $35,000.00, plus interest, from October 13, 1993 at the rate provided by 28 U.S.C. §1961.

    It is further ORDERED that the Order Scheduling Trial is hereby VACATED.

    It is further ORDERED that Complainant's Motion for Interlocutory Review is, in all things, DENIED.

    It is further ORDERED that if Complainant fails to submit to the Court proof by June 25, 1994, that repayment has been made in accordance with this Order, the Court will recommend to the Secretary of Labor that this case be DISMISSED with prejudice for lack of prosecution.

    Entered this 3rd day of May, 1994, at Metairie, Louisiana.

       JAMES W. KERR, JR.
       Administrative Law Judge

JWK:mpb

¹ It is well established that restitution awards include prejudgment interest. See Union Bank of Benton v. First National Bank, 677 F.2d 1074, 1077-78 (5th Cir. 1982) (under Texas law, equitable grounds underlying remedy of restitution broadens scope of recovery; award of prejudgment interest proper). See generally Restatement of Restitution, §156 (duty to pay interest arises if the benefit was a sum certain and payment is necessary to avoid injustice).

² Texas law provides that, where one pays money to another in anticipation of an agreement which fails to materialize, equity requires that the money be returned. King v. Tubb, 551 S.W.2D 436, 442-443 (Tex. App. 1977); Acoustical Screens, 524 S.W.2d 346, 350 (Tex. App. 1975). In light of the Secretary's conclusion that no agreement existed for purposes of dismissal until he approved the Agreement, return of the money is appropriate in the present case.