Article

Note: Edgar Morales-Ramirez and Carlos

Montano ran a joint venture college which received student financial aid. When United States Department of Education accused the joint venture of failing to comply with regulatory and statutory provisions governing receipt of federal funds for student financial aid, it fined the joint venture USD 1,365,078. Montano then sued Morales-Ramirez, claiming that Morales-Ramirez had mismanaged the venture, asserting that Montano had nothing to do with running the venture and sought indemnification from Morales- Ramirez.

In a settlement of this suit, Morales-Ramirez promised to "hold harmless, defend (with counsel of his own choosing), and indemnify" Montano and "assume full responsibility for any and all liabilities that have arisen or may arise from" the joint venture.

When Montano tried to start a new educational venture, the United States Department of Education refused to certify it because the previous fines had not been paid. The Department calculated that Montano owned 40% of the previous venture, so Montano owed 40% of the fine for a total of USD 540,000. In response, Montano sued Morales-Ramirez under the terms of the previous settlement to compel Morales- Ramirez to pay Montano's portion of the fine.

The district court found that Morales-Ramirez had violated the settlement agreement and ordered him to obtain and provide a standby LC in favor of the Department of Education to cover Montano's fine. On appeal, the United States Court of Appeals, First Circuit, Lynch, C.J., affirmed.

The appellate court ruled that "[t]he district court's order is consistent with the broad language of the settlement agreement, which goes beyond a mere promise to indemnify.... Further, the district court was involved in the parties' settlement negotiations and is uniquely positioned to understand their intent...As a result, the district court did not exceed its remedial power to enforce its judgment when it directed Morales to post a letter of credit."

[JAH]

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