Fidelity and Guaranty Insurance Co. v. Star Equipment Corp.

The Town of Seekonk (defendant), Massachusetts, contracted with Star Equipment Company (Star) (defendant) to install a water main in the town. Charlene and John Foran (defendants) were the principals of Star. Under the terms of the construction contract, a performance bond was required. Fidelity and Guaranty Insurance Co. (Fidelity) (plaintiff), as surety, executed the performance bond on Star’s behalf, and in exchange, the Forans agreed to indemnify Fidelity for any losses incurred by Fidelity. Star defaulted on the construction project, and Fidelity sued Star, the Forans, and the town for a determination of rights and obligations. All the parties attended a mediation, at the end of which the mediator drafted a handwritten document entitled “Settlement Memorandum of Understanding.” The memorandum reflected an agreement that Fidelity would pay the town $50,000 and that all parties would release their claims in the action except that Star, the Forans, and Fidelity did not release any claims and defenses they had against each other. Essentially, the indemnification issue remained outstanding. Fidelity verbally informed the Forans that it would “work with [them]” to resolve the indemnification claim in a mutually agreeable manner. The only written conditions in the settlement memorandum were approval by town authorities and “execution of customary releases and settlement agreement.” All parties, their counsel, and the mediator signed the memorandum. Thereafter, the releases were drafted, but the Forans asserted that there was no binding settlement agreement because the memorandum was contingent on a satisfactory resolution of the indemnification claim. Fidelity moved to enforce the settlement agreement, which the court granted on reconsideration. The court later granted summary judgment to Fidelity on the indemnification claim. Star and the Forans appealed, challenging the enforcement of the settlement memorandum.