Living Designs, Inc. v. E.I. Dupont De Nemours and Co.

• Citation: 431 F.3d 353
• Decision Date: 05 December 2005
• Docket Number: No. 02-16948.,No. 02-16951.,No. 02-16947.,No. 04-16354.,02-16947.,02-16948.,02-16951.,04-16354.
• Parties: LIVING DESIGNS, INC. and Plant Exchange, Inc., Hawai'i corporations, Plaintiff-Appellant, v. E.I. DUPONT DE NEMOURS AND COMPANY, a Delaware corporation, Defendant-Appellee. Anthurium Acres, a Hawai'i general partnership, successor in interest to Island Tropicals; Mueller Horticultural Partners, a Hawai'i limited partnership, Plaintiffs-Appellants, v. E.I. Dupont de Nemours and Company, a Delaware corporation, Defendant-Appellee. McConnell, Inc., a California corporation, Plaintiff-Appellant, v. E.I. Dupont de Nemours and Company, a Delaware corporation, Defendant-Appellee. Living Designs, Inc. and Plant Exchange, Inc., Hawai'i corporations; David Matsuura, individually and dba Orchid Isle Nursery; Stephen Matsuura, individually and dba Hawaiian Dendrobium Farm; Fuku-Bonsai, Inc.; David W. Fukumoto; Living Designs, Inc. and Plant Exchange, Inc.; McConnell, Inc., a California corporation; Anthurium Acres, a Hawai'i general partnership, successor in interest to Island Tropicals; Mueller Horticultural Partners, Plaintiffs-Appellants, v. E.I. Dupont de Nemours and Company, a Delaware corporation, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 353

431 F.3d 353

LIVING DESIGNS, INC. and Plant Exchange, Inc., Hawai'i corporations, Plaintiff-Appellant, v. E.I. DUPONT DE NEMOURS AND COMPANY, a Delaware corporation, Defendant-Appellee.

Anthurium Acres, a Hawai'i general partnership, successor in interest to Island Tropicals; Mueller Horticultural Partners, a Hawai'i limited partnership, Plaintiffs-Appellants, v. E.I. Dupont de Nemours and Company, a Delaware corporation, Defendant-Appellee.

McConnell, Inc., a California corporation, Plaintiff-Appellant, v. E.I. Dupont de Nemours and Company, a Delaware corporation, Defendant-Appellee.

Living Designs, Inc. and Plant Exchange, Inc., Hawai'i corporations; David Matsuura, individually and dba Orchid Isle Nursery; Stephen Matsuura, individually and dba Hawaiian Dendrobium Farm; Fuku-Bonsai, Inc.; David W. Fukumoto; Living Designs, Inc. and Plant Exchange, Inc.; McConnell, Inc., a California corporation; Anthurium Acres, a Hawai'i general partnership, successor in interest to Island Tropicals; Mueller Horticultural Partners, Plaintiffs-Appellants, v. E.I. Dupont de Nemours and Company, a Delaware corporation, Defendant-Appellee.

No. 02-16947.

No. 02-16948.

No. 02-16951.

No. 04-16354.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 11, 2005.

Filed December 5, 2005.

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Stephen T. Cox, Cox & Moyer, San Francisco, CA, for the plaintiffs-appellants.

C. Stephens Clay and James F. Bogan III, Kilpatrick Stockton LLP, Atlanta, GA, for defendant-appellee.

Appeal from the United States District Court for the District of Hawai'i; Manuel L. Real, District Judge, Presiding. D.C. Nos. CV-99-00660-MLR, CV-00-00615-MLR, CV-00-00328-MLR, CV-96-01180-MLR, CV-97-00716-MLR.

Before THOMAS, SILVERMAN, and CLIFTON, Circuit Judges.

OPINION

THOMAS, Circuit Judge.

In these consolidated cases, Plaintiffs Living Designs, McConnell, Inc., Anthurium Acres, Matsuura, and Fuku-Bonsai allege that Defendant E.I. DuPont de Nemours and Company ("DuPont") fraudulently induced the settlement of their prior products liability litigation. We reverse the district court's grant of judgment on the pleadings in favor of DuPont on Plaintiffs' claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 ("RICO"), and the district court's grant of summary judgment in favor of DuPont on Plaintiffs' state tort claims.

I

A

Outside of the agricultural community, plant disease-causing fungi are rarely the subject of casual dinner conversation, much less contentious litigation. Yet to farmers worldwide, the problems posed by white mold, virulent black leg, foot rot, and scab are extremely serious matters. In the late 1950s and early 1960s, DuPont developed a systemic fungicide to combat these problems, which it marketed under the name of Benlate. At the zenith of its use, Benlate was one of DuPont's most successful commercial products.

However, into every product's life, a little rain must fall. In the case of Benlate, the rain became a torrent of litigation alleging that Benlate had become contaminated with the herbicide sulfonylureas ("SUs") during the manufacturing process, resulting in widespread crop damage.

In previous litigation filed in 1992 and 1993, Plaintiffs, who are commercial nurserymen, separately sued DuPont alleging that contaminated Benlate had killed their plants. Matsuura v. Altson & Bird (Matsuura I), 166 F.3d 1006, 1007, amended by 179 F.3d 1131 (9th Cir.1999).

Many similar suits were filed by commercial growers across the nation. In early trials, DuPont falsely represented that soil tests had produced no evidence of contamination. During consolidated discovery proceedings in Hawai'i, which included the [Plaintiffs'] suits, DuPont falsely denied withholding evidence of Benlate contamination, and improperly invoked work product protection to resist disclosure of testing data.

Id.

Plaintiffs, represented by Florida attorney Kevin Malone, settled their Benlate product liability cases against DuPont in April of 1994.¹ Plaintiffs did not dismiss their claims with prejudice until October and November of 1994. Matsuura v. E.I. du Pont de Nemours & Co. (Matsuura III), 330 F.Supp.2d 1101, 1120 (D.Haw.2004). After Plaintiffs settled their product liability claims against DuPont, it became clear that DuPont had not revealed to Plaintiffs during discovery damaging test results that indicated that Benlate was indeed contaminated with SUs. There are three different categories of tests concealed, withheld, and lied about by DuPont in the course of litigating Benlate cases across the country.

1. Alta Test Results. The results of tests conducted by Alta Analytical Laboratories ("Alta") showed that farms where Benlate had been used were contaminated with SUs. "Alta laboratories was one of the few laboratories, if not the only one, capable of performing the sophisticated soil and water analysis to determine if Benlate was contaminated with [SUs]." Matsuura v. E.I. du Pont de Nemours & Co. (Matsuura II), 102 Hawai'i 149, 73 P.3d 687, 689 n. 5 (Haw.2003).

2. Costa Rica field tests. DuPont conducted field tests of Benlate in Monte Vista, Costa Rica in 1992. During the Costa Rica field tests, the plants treated with Benlate died, demonstrating that Benlate was harmful to plants. DuPont destroyed the plants subjected to these field tests and withheld evidence of the field test results. Productora de Semillas, S.A. v. E.I. du Pont de Nemours, & Co., No. 97-12186 CA 23 (Fla.Cir.Ct. June 30, 2001) (order on Plaintiff's motion to strike defendant DuPont's pleadings and on Plaintiff's motion for sanctions against DuPont for the destruction of the Monte Vista Benlate test).

3. BAM results. These tests were performed on behalf of DuPont by A & L Midwest laboratories and by DuPont's in-house testing facilities. These tests also showed that Benlate was contaminated with SUs. Kawamata Farms, Inc. v. United Agri Products, 86 Hawai'i 214, 948 P.2d 1055, 1065 (1997) (referring to the Keeler documents).

DuPont first produced Alta test results showing Benlate contamination in May 1994 to Benlate plaintiffs who had not yet settled their cases, such as to plaintiffs in the Kawamata/Tomono case,² over which Judge Ibarra presided in the Third Circuit Court in Hawai'i. Matsuura II, 73 P.3d at 689.³ Contrary to DuPont's prior representations, the tests confirmed that Benlate was contaminated. Additional evidence of Benlate contamination was produced in other Benlate litigation. Two district courts held that DuPont had intentionally engaged in fraudulent conduct by withholding this evidence. See Kawamata Farms v. United Agri Prods., 86 Hawai'i 214, 948 P.2d 1055, 1083, 1087-88 (1996) (imposing $1.5 million punitive sanction for discovery abuse), aff'd, 86 Hawai'i 214, 948 P.2d 1055 (Haw.1997); Bush Ranch v. E.I. DuPont de Nemours & Co. (In re DuPont) ("Bush Ranch"), 918 F.Supp. 1524, 1556-58 (M.D.Ga.1995) (imposing sanctions potentially totaling $115 million), rev'd on other grounds, 99 F.3d 363 (11th Cir.1996). Although the Eleventh Circuit reversed the Georgia court on the ground that the sanctions were punitive and the court had not followed applicable criminal procedure, the court noted the "serious nature of the allegations" and stated that it assumed the U.S. Attorney would conduct an investigation, In re E.I. DuPont, 99 F.3d at 369 n. 7. On remand, the district court asked the United States Attorney to "investigate and prosecute" DuPont for criminal contempt, In re E.I. du Pont, No. 4:95-CV-36 (HL) (M.D.Ga. Nov. 4, 1998) (order referring matter to U.S. Attorney), but the court ultimately approved a civil settlement resolving the matter, which required DuPont and Alston & Bird to make payments totaling $11.25 million, see In re E.I. du Pont, No. 4:95-CV-36 (HL) (M.D.Ga. Dec. 31, 1998) (consent order and final judgment).

Matsuura I, 166 F.3d at 1007-08.

DuPont was first sanctioned by Judge Elliot, who presided over the Bush Ranch litigation in the United States District Court for the Middle District of Georgia, on August 21, 1995 for (1) intentionally withholding evidence of the SU contamination of Benlate that was in its possession and which it was ordered to produce and (2) for falsely representing to the court and to plaintiffs that the Alta documents it withheld contained no evidence of SU contamination. Bush Ranch, 918 F.Supp. at 1555-1558.

B

After learning that DuPont fraudulently withheld evidence of Benlate's contamination, Plaintiffs filed the instant actions in the United States District Court for the District of Hawai'i, asserting claims under RICO and state common law claims of fraud, conspiracy, misrepresentation, abuse of process, infliction of emotional distress, interference with prospective economic advantage, negligence, and spoliation of evidence. In sum, Plaintiffs alleged that DuPont fraudulently withheld evidence of Benlate's contamination to induce Plaintiffs to settle their underlying Benlate litigation. Plaintiffs allege they were harmed by DuPont's fraudulent conduct "because they would have requested more money or refused to settle had they known about the concealed data." Matsuura II, 73 P.3d at 691.

The district court⁴ granted DuPont's judgment on the pleadings, ruling the suit was barred by releases signed by Plaintiffs as part of their settlement agreements with DuPont. Matsuura I, 166 F.3d at 1008. Furthermore, "the court held [Plaintiffs] could have rescinded the settlement agreements because of DuPont's fraud, but forfeited that remedy by failing promptly to tender the settlement proceeds." Id.

Plaintiffs appealed. We reversed, holding that Delaware law controlled and that the Delaware Supreme Court would likely interpret the releases as not barring a claim for fraudulent inducement. Id. at 1011. We also held that, under Delaware law, plaintiffs alleging that they were fraudulently induced to settle their...