Tedesco Manufacturing Company, Inc v. Honeywell International Inc.

The Honorable Cynthia M. Rufe, District Judge for the United States District*
Court for the Eastern District of Pennsylvania, sitting by designation.
NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 08-4635
____________
TEDESCO MANUFACTURING COMPANY, INC.,
Appellant
v.
HONEYWELL INTERNATIONAL INC.
____________
On Appeal from United States District Court
for the Wester District of Pennsylvania
(D.C. No. 03-cv-00699)
District Judge: Honorable David Stewart Cercone
____________
Submitted Under Third Circuit LAR 34.1(a)
February 4, 2010
Before: McKEE, HARDIMAN, Circuit Judges, and RUFE , District Judge*
(Filed: March 17, 2010)
__________
OPINION OF THE COURT
____________

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HARDIMAN, Circuit Judge.
Tedesco Manufacturing, Inc. appeals a final judgment of the District Court
denying its third motion to enforce settlement agreement. For the reasons that follow, we
will affirm in part, vacate in part, and remand the case.
I.
This case comes to us for the second time. Because we write for the parties, we
assume familiarity with the factual background set forth in our previous opinion. See
Tedesco Mfg. Co. v. Honeywell Int’l Inc., 127 F.App’x 50 (3d Cir. 2005) . In that appeal,
we interpreted Paragraph 13 of the agreement in principle (AIP) and held that it
authorized Honeywell to offset amounts owed by Tedesco against the sums Honeywell
agreed to pay.
On remand, at the insistence of the District Court, the parties executed a written
“Settlement Agreement and Mutual Release” (Settlement Agreement) that resolved many,
but not all, of the disputed issues. The parties memorialized their remaining
disagreements in Paragraph 11 and those issues were excluded from the Settlement
Agreement’s mutual general release.
Paragraph 11 is not a model of clarity, however, particularly when it is analyzed in
conjunction with other provisions of the Settlement Agreement. For example, the initial
section of Paragraph 5 provides that “Honeywell shall purchase and Tedesco shall
transfer to Honeywell or its designee that portion of Tedesco’s finished goods and raw

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Paragraph 5(a) states that Attachments A and B are “preliminary” in nature, but1
also provides that “in no event shall Honeywell be required to pay for” anything not listed
in Attachment A or B. Id.
Tedesco’s second motion to enforce settlement agreement was filed on July 17,2
2006, and withdrawn a week later.
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materials inventory that Honeywell finds usable in its discretion based on national sales
(the “Inventory”) at full transfer price . . . for finished goods and at cost for raw
materials.” Id. at 412A. Meanwhile, Paragraph 5(a) states that “the Inventory, and the
price that Honeywell will pay for the Inventory, is set forth on Attachments A (raw
materials) and B (finished goods) hereto . . . .” As we shall explain, the goods and prices1
listed in Attachments A and B cannot easily be reconciled with the introductory
provisions of Paragraph 5. Moreover, a number of the disputes reserved in Paragraph 11
of the Settlement Agreement relate to these apparent internal contradictions of Paragraph
5.
In spite of the rather unsettled aspects of the Settlement Agreement, in the summer
of 2006 Tedesco transferred, and Honeywell paid for, that portion of Tedesco’s inventory
that Honeywell deemed usable. Unsurprisingly, the parties continued to disagree as to
whether Honeywell had properly evaluated the usability of the inventory, whether
Honeywell was paying the proper price for these goods, and which of them was
responsible for the packing and loading costs associated with shipping the goods.
Because of these disputes, Tedesco filed a third motion to enforce settlement. In2
response to that motion, the District Court ordered the parties to mediate issues on which

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The mediation was successful, and these issues are not before us.3
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it found questions of fact remained. As for issues that it found to present questions of3
law, the District Court ruled against Tedesco on its claims that Honeywell:
(1) improperly based its usability determination on its current product line,
rather than on “national sales” as required by both the AIP and the
Settlement Agreement;
(2) improperly discounted the purchase price for Tedesco’s inventory and
raw materials to reflect Honeywell’s estimate that not all of the goods
would be usable;
(3) wrongly refused to include in the “full transfer price” a series of rebates
it had promised Tedesco in a pre-litigation contract;
(4) wrongly refused to repurchase any used brake shoe cores;
(5) should be required to pay packing and loading costs for the inventory
and raw materials it had purchased from Tedesco; and
(6) began operations in Tedesco’s exclusive territory before making the
agreed-upon payment to buy out Tedesco’s rights, which entitled Tedesco
to disgorgement of Honeywell’s profits from these operations.
The District Court concluded that the second and sixth claims had been released by
Tedesco pursuant to the Settlement Agreement. As to the other four issues, the District
Court ruled for Honeywell on the merits. Tedesco appeals the judgment of the District
Court as to all six issues.
II.
The gravamen of Tedesco’s appeal is that the District Court erred when it ruled in
Honeywell’s favor as a matter of law, when a hearing was necessary to determine

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disputed factual issues. “Where material facts concerning the existence or terms of an
agreement to settle are in dispute, the parties must be allowed an evidentiary hearing.”
Saudi Basic Inds. v. Exxon Corp., 364 F.3d 106, 113 (3d Cir. 2004) (citations omitted).
“Settlement agreements ‘are regarded as contracts and must be considered
pursuant to general rules of contract interpretation.’” Miller v. Ginsburg, 874 A.2d 93, 99
(Pa. Super. 2005) (quoting Friia v. Friia, 780 A.2d 664, 668 (Pa. Super. 2001)). In
interpreting a written contract,
[f]irst, the court must make a preliminary inquiry as to whether the contract
before it is ambiguous. This question is an issue of law for the court to
resolve. A term is ambiguous if it is susceptible to reasonable alternative
interpretations. If the court determines that a given term in a contract is
ambiguous, then the interpretation of that term is a question of fact for the
trier of fact to resolve in light of the extrinsic evidence offered by the
parties in support of their respective interpretations.
Sanford Inv. Co. v. Ahlstrom Machinery Holdings, Inc., 198 F.3d 415, 421 (3d Cir. 1999)
(citations omitted).
Because the District Court adjudicated Tedesco’s claims without holding an
evidentiary hearing, it follows that the District Court found no material facts in dispute.
We review this determination de novo. Tiernan v. Devoe, 923 F.2d 1024, 1031-32 & n.5
(3d Cir. 1991) (likening a motion to enforce settlement agreement to a motion for
summary judgment, and applying the same standard).

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III.
A.
We first consider Tedesco’s claim that material issues of fact existed regarding
Honeywell’s usability determination. The District Court rejected Tedesco’s claim based
on Paragraph 5 of the Settlement Agreement, which granted to Honeywell the power to
determine usability “in its discretion.”
Paragraph 5 provides that “Honeywell shall purchase . . . that portion of Tedesco’s
finished goods and raw materials inventory that Honeywell finds usable in its discretion
based on national sales.” App. 421A. Unlike Paragraph 5, Attachment A of the
Settlement Agreement—which deals with “raw inventory”—states that usability was
“determined based on bill of materials compliance with current HW product line.” Id. at
428A. And unlike both Paragraph 5 and Attachment A, Attachment B—which deals with
“finished goods”—states that usability was “determined based on previous 6-month sales
and bill of materials compliance.” Id. at 481A. As noted above, Paragraph 5(a) of the
Settlement Agreement provides that the Attachments represent those goods that
Honeywell found usable, and thus was obliged to purchase. Id. at 421A. Finally,
Paragraph 11(f) of the Settlement Agreement specifically preserves disputes over “the
national sales data upon which Honeywell relied in arriving at its usability
determination.” Id. at 425A.

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The parties agree that Attachments A and B omit as “unusable” all of Tedesco’s
inventory and raw materials that were not part of Honeywell’s product line in
approximately March 2006. Tedesco challenges this methodology, claiming it violates
the provision of the Settlement Agreement that required Honeywell to determine usability
“in [its] discretion based on national sales.” Tedesco also claims the usability
determination was to be made as of the date of the AIP (August 2003), not the date of the
Settlement Agreement (March 2006).
In this regard, the District Court noted that paragraph 5 of the Settlement
Agreement granted Honeywell “broad discretion” to determine usability, and declared
that it would not “second guess” Honeywell’s exercise of that discretion. But Paragraph
5 also requires Honeywell’s determination to be “based on national sales.” This
requirement differs from Attachment A, however, which uses Honeywell’s then-current
product line, not national sales data. This is not an immaterial distinction because the
record indicates that Honeywell regarded its current product line and its national sales as
different things. Compare Attachment A, App. 428A ( referring to “bill of materials
compliance with current HW product line” and not sales data) with Attachment B, id. at
481A (referring to “previous 6-month sales” and to “bill of materials compliance,” which
might refer to Honeywell’s product line).
Thus, although Tedesco agreed to Attachments A and B in Paragraph 5(a) of the
Settlement Agreement, the other terms of Paragraph 5 as well as the AIP would appear to

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require the use of a different usability criterion. Accordingly, and in light of Paragraph
11(f)’s reservation of this dispute, we find that issues of fact remain as to whether the
“based on national sales” requirement remains a term of the settlement, and, if so,
whether the usability determination reflected in Attachments A and B complies with that
requirement.
We also agree with Tedesco that factual findings are necessary to determine
whether usability is to be assessed as of 2006 or 2003. Attachments A and B determine
usability as of roughly the time of the Settlement Agreement, and the Settlement
Agreement itself contains no provision that would require a retroactive usability analysis.
Paragraph 11(e) of the Settlement Agreement, however, preserves a dispute over “who
should bear the differences in prices and useability of the inventory . . . associated with
delay in implementing the terms of the Agreement in Principle.” Id. at 425A. The AIP
requires a usability determination similar to that provided for in the Settlement
Agreement, but is silent as to whether usability was to be determined as of the time the
AIP was agreed to, or as of the time of the actual transfer of the goods. If, as Tedesco
maintains, the parties intended the usability determination to be immediate, then
Honeywell’s failure to purchase those portions of Tedesco’s inventory that were usable in
2003 but not usable in 2006 would qualify as a “difference[] in . . . useability of the
inventory . . . associated with delay in implementing the terms of the Agreement in

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There is some question whether conducting the usability determination in this4
way was compatible with the “national sales” criterion that Honeywell may have been
required to use. The District Court should address this question on remand.
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Principle,” id, which would oblige Honeywell to purchase those parts that became
unusable between 2003 and 2006.
For the aforementioned reasons, we will vacate the judgment of the District Court
as to Tedesco’s first issue and remand for an evidentiary hearing.
B.
We next analyze Tedesco’s challenge to Honeywell’s pricing of the goods it
repurchased. As noted above, Paragraph 5 of the Settlement Agreement requires
Honeywell to repurchase usable inventory “at full transfer price.” Id. at 421A. In
Attachment B, the per-unit price for each item of finished goods is marked “2003 Tx
Pricing.” App. 481A. Attachment B, however, also includes a notation that Honeywell’s
“[s]urvey of rebuilder inventory on highest quantity part #s reduces usable inventory by
app. 5%.” Id. Accordingly, the last page of Attachment B reflects a five percent4
reduction in the total purchase price for all of Tedesco’s finished goods. Id. at 521A.
Tedesco claims this reduction is contrary to the requirement that Honeywell pay “full
transfer price.” The District Court, however, held that Tedesco had waived this claim
because it had not explicitly reserved it in the Settlement Agreement, and that in any
event it would not revisit Honeywell’s discretionary pricing determinations.

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We note initially that Paragraph 11(f) of the Settlement Agreement preserves
disputes relating to “Honeywell’s determination of the useability of the Inventory,
including but not limited to the prices used and the national sales data upon which
Honeywell relied in arriving at its usability determination.” Id. at 425A (emphasis
added). It is not clear from the face of the Settlement Agreement what is meant by this
reference to “the prices used” in determining usability. The Settlement Agreement itself
does not seem to contemplate the price of the goods as an element of the usability
analysis, and even Honeywell’s reference to its current product line does not seem to
incorporate any consideration of price. Thus, it is possible that this ambiguous language
refers to the reduction in price based on Honeywell’s usability determination.
In any event, with respect to the purchase price for the parts, the Settlement
Agreement is self-contradictory: Paragraph 5 first requires the payment of “full transfer
price,” but Paragraph 5(a) then provides for the price reflected in Attachment B, which is
something less than the full transfer price because of the usability discount. To add to the
confusion, Paragraph 5(a) later states that Honeywell will purchase Tedesco’s inventory
“at the unit prices reflected on Attachments A and B and in accordance with the terms of
this Agreement.” Id. at 421A. As noted above, however, the unit prices in Attachment B
do not include the disputed usability discount. For these reasons—and in light of
Paragraph 11(f)’s reservation of a dispute over “the prices used” in determining
usability—we find the contract ambiguous with respect to the correct purchase price,

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Our holding that the per-unit transfer prices are unambiguously listed in5
Attachments A and B does not affect our conclusion that the 5% discount applied to the
total purchase price for all parts is not part of the transfer price.
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which will require the District Court to determine this issue in light of the facts developed
at the evidentiary hearing.
C.
We next consider whether the District Court erred when it found that Tedesco was
not entitled to rebates. Tedesco claims that when the parties negotiated their schedule of
transfer prices (which was before this litigation began), Honeywell agreed to pay a series
of per-unit “rebates,” but that the value of these rebates was not included in the price paid
by Honeywell pursuant to the Settlement Agreement. Tedesco therefore contends that
Honeywell has underpaid. Honeywell disagrees, contending that the transfer price was
the baseline price from which the rebates were offered. The District Court found both
that Tedesco had released this claim by not reserving it in the Settlement Agreement, and
that it was meritless because rebates were mentioned neither in the AIP nor in the
Settlement Agreement. We agree that the per-part “transfer price” to which Tedesco
agreed is unambiguously set forth in Attachments A and B to the Settlement Agreement.5
We further agree that, even if the AIP contemplated a different price, the parties
did not reserve any dispute as to rebates in Paragraph 11 of the Settlement Agreement,
and the AIP is therefore superseded on this issue pursuant to the Settlement Agreement’s
integration clause. Arguing to the contrary, Tedesco points to Paragraph 11(e) of the

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Settlement Agreement, which provides that “[t]he parties contest who should bear the
difference in prices . . . associated with delay in implementing the terms of the Agreement
in Principle,” and to Paragraph 11(f), in which “Tedesco contests . . . the prices used . . .
in arriving at [the] usability determination.” Id. at 425A. But the rebate issue has nothing
to do with either the delay in implementing the settlement or with Honeywell’s usability
determination. Tedesco’s rebate claim would be the same regardless of whether any
delay had occurred, and there is no indication that Honeywell’s refusal to pay rebates on
Tedesco’s inventory was related to its estimation of the inventory’s usability.
For the foregoing reasons, we will affirm the judgment of the District Court on this
issue.
D.
Tedesco also claims that Honeywell wrongfully refused to purchase its inventory
of used brake shoe cores, which—according to Tedesco—qualified as “raw materials”
that Honeywell promised to repurchase, subject to its usability determination. Paragraph
11(g) of the Settlement Agreement expressly preserves this dispute.
Neither the AIP nor the Settlement Agreement indicates whether returned cores
should be regarded as “raw materials” (or “raw inventory,” the term used in the
Settlement Agreement), and no extrinsic evidence has been produced on this question.
Honeywell claims that these cores are listed in Tedesco’s bills of materials at a value of
zero. But Honeywell does not cite the record in support of this claim, and our

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It appears that pages 522A to 670A of the Joint Appendix are Tedesco’s catalogs6
of the parts it actually shipped to Honeywell. We are unable to discern whether this is the
“bill of materials” to which Honeywell refers. In any event, the parts are cataloged only
by serial number and not by name, leaving us with no way to determine which if any of
the entries represent brake shoe cores. Furthermore, we have been unable to locate any
part for which the per-unit price is listed as zero. Those parts that qualify as finished
inventory are assigned a separately listed “Core Price,” and for most parts this value is
either blank or zero. But on this record we are unable to see how this is relevant to
Honeywell’s contention that used cores are not raw materials.
The parties dispute whether Honeywell legitimately refused to buy the cores7
because they were deemed unusable. Honeywell contends that one basis for its refusal to
repurchase cores is its discontinuation of its core resale program in the summer of
2004—between the time of the AIP and the Settlement Agreement. As a result,
Honeywell represents, it no longer has any use for used cores, and is entitled to reject
them as unusable. Consistent with Tedesco’s argument in its Reply Brief, however, we
are unaware of any record evidence on this issue. We leave this factual issue to the
District Court on remand as well.
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independent review has revealed only long lists of serial numbers and part values that do
not enable us to meaningfully evaluate Honeywell’s contention. Tedesco, for its part,6
maintains that the District Court erred by not considering the trade meaning of the term
“raw materials,” which allegedly includes used cores. But Tedesco does not direct us to
any record evidence, and we have been unable to find any, in support of its proposed
meaning of the term. Accordingly, we find the contract ambiguous on this issue, which
will require the District Court to make it subject to the evidentiary hearing.7
E.
We next consider Tedesco’s claim that Honeywell is responsible for the costs of
packing and loading the purchased goods for shipment between the parties.

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Paragraph 5(b) of the Settlement Agreement requires Tedesco to “tender”
inventory that is “prepared for shipment,” but also contemplates that Honeywell “will
conduct a physical inspection to its satisfaction of the Inventory prior to taking possession
of each shipment.” Id. at 422A. Moreover, Paragraph 5(e) requires Tedesco, “upon
request [by Honeywell], to provide equipment, labor, and materials to Honeywell to
facilitate the inspection, packing and loading process,” and provides that Honeywell must
“reimburse Tedesco for charges directly associated with this process,” at specified rates.
Id. Based on Paragraph 5(e), Tedesco argues that paying for packing and loading the
goods for shipment was Honeywell’s responsibility.
The parties agree that Honeywell waived its right to inspect the inventory before it
took possession, so cost of inspection is not at issue. The District Court concluded that
Paragraph 5(e) requires Honeywell to pay for packing and loading costs only insofar as
they were necessitated by the inspection process because, it said, any other reading would
essentially nullify Paragraph 5(b)’s requirements that Tedesco “tender” goods “prepared
for shipment.” Accordingly, the District Court held that Honeywell’s waiver of its
inspection rights also absolved it of any responsibility to pay for their packing and
loading.
Because we find the Settlement Agreement ambiguous on this question, we
disagree. In our view, the fact that the contract requires goods to be “prepared for
shipment” does not necessarily address either the costs of loading the goods or all of the

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The District Court noted that unless the parties to a contract specify otherwise,8
under Pennsylvania’s version of the Uniform Commercial Code, it is the seller’s
obligation to “transfer and deliver” sold goods. 13 Pa. Cons. Stat. § 2301. Here,
however, the Settlement Agreement provides that “the Inventory shall be shipped by
Honeywell or its designee to a location of its choosing.” App. at 422A.
This is different from the relief Tedesco sought in the District Court. There,9
Tedesco sought restoration of “the profits [Tedesco] would have earned if Honeywell had
honor[]ed its obligation.” App. at 332A. Because we conclude this issue has been
waived, this discrepancy in remedies sought is immaterial.
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packing costs. Accordingly, a remand is required for the District Court to find facts as to
this issue.8
F.
Finally, Tedesco asserts that Honeywell wrongly began servicing customers in
Tedesco’s exclusive area long before actually paying for the right to do so. The AIP
provided that “Honeywell will pay $450,000 to Tedesco to extinguish all Tedesco’s right,
title and interest in the regional manufacturing and distribution agreement.” App. at
336A-37A. Honeywell began servicing customers in Tedesco’s region shortly after
October of 2003, but did not make the required payment until June of 2006. Tedesco
therefore claims that it is entitled to disgorgement of Honeywell’s in-region profits for
this time period.9
The District Court found this claim to have been released by the Settlement
Agreement, and we agree. The Settlement Agreement contains no reservation for a claim
of this type. Tedesco points to Paragraph 11(e), reserving disputes over “other costs
associated with delay in implementing the Agreement in Principle.” But the profits

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Honeywell earned in Tedesco’s exclusive geographical region (or the profits Tedesco
forewent in that region by closing its doors) cannot be characterized as one of these costs.
To the contrary, the right to those profits was precisely what Tedesco ceded to Honeywell
in settlement of this case. Accordingly, we will affirm the judgment of the District Court
as to Tedesco’s disgorgement claim.
IV.
For the foregoing reasons, we will affirm the judgment of the District Court
insofar as it exonerated Honeywell from paying rebates as part of the “full transfer price”
for Tedesco’s goods, and from disgorging any profits to Tedesco or compensating
Tedesco for its own lost profits. In all other respects, we will vacate the District Court’s
judgment, and remand so the District Court can conduct an evidentiary hearing consistent
with this opinion.

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