Silver Dream L.L.C. v. 3MC Inc.

Addressing a provision in a settlement agreement permitting termination of the agreement if an affidavit was false, the U.S. Court of Appeals for the Fifth Circuit affirmed a lower court summary judgment ruling that the provision was not triggered by an affidavit assuring that statements were made to the best of the affiant’s knowledge and memory and, thus, that the settlement agreement was enforceable. Silver Dream L.L.C. v. 3MC Inc., Case No. 11-30968 (5th Cir., March 13, 2013) (per curiam) (non-precedential).

The plaintiff, Silver Dream, brought suit against 3MC and Charles and Mei Chen (collectively, the Chens) alleging that the Chens sold football-themed fleur-de-lis jewelry infringing its copyright interests. The parties reached a settlement agreement in which the Chens would make a one-time payment of $1,850, turn over any infringing items, cease further infringing sales and provide “materially true, complete, and exact” affidavits disclosing the details of the source of the infringing items. In exchange, Silver Dream agreed to dismiss the suit. Silver Dream retained the right to terminate the settlement within a year if the Chens’ affidavits were “false.”

To satisfy the settlement agreement, the Chens provided sworn declarations to the best of their “knowledge and memory” that a small number of infringing jewelry pieces were purchased from Malibu International at a trade show. In their declarations, the Chens stated that they did not have a receipt and were “really uncomfortable with [providing] an exact number” of pieces purchased. Silver Dream allegedly obtained documents from Malibu denying that it made any such sales and subsequently refused to dismiss its suit against the Chens based on falsity of the affidavits, invoking the termination provision of the settlement agreement. The Chens filed a counterclaim to enforce the settlement agreement and moved for summary judgment. After the district court found for the Chens, Silver Dream appealed.

The 5th Circuit unanimously affirmed, rejecting Silver Dream’s argument that the Chens’ affidavits constituted breach of the settlement agreement. The court reasoned that the termination provision only applied if the statements in the affidavits were false, and because the Chens’ statements were made to the best of their “knowledge and memory,” the provision did not apply. Moreover, Silver Dream proffered no competent evidence that the statements in the Chens’ affidavits were actually false. Accordingly, the court granted summary judgment and remanded for a determination of attorneys’ fees and costs.

Practice Note: The 5th Circuit stated that an affidavit need only be a positive and unqualified statement of personal knowledge. Practitioners should be aware that any agreement made contingent on a declaration or affidavit being “false” is likely to be construed as a term subjective to the affiant’s actual knowledge, whether or not such knowledge is factually correct.