PPG Industries, Inc. v. Russell

• Decision Date: 19 October 1989
• Docket Number: No. 88-3132,88-3132
• Citation: 887 F.2d 820
• Parties: PPG INDUSTRIES, INC., Plaintiff-Appellant, v. George RUSSELL, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 820

887 F.2d 820

PPG INDUSTRIES, INC., Plaintiff-Appellant, v. George RUSSELL, Defendant-Appellee.

No. 88-3132.

United States Court of Appeals Seventh Circuit.

Argued April 4, 1989.

Decided Oct. 19, 1989.

Charles W. Kenrick, Frederick W. Bode, III, Dickie, McCamey & Chilcote, Pittsburgh, Pa., and Allen F. Wharry, Lebanon, Ind., for PPG Industries, Inc., plaintiff-appellant.

Alan S. Brown and Robert F. Zoccola, Locke, Reynolds, Boyd & Weisell, Indianapolis, Ind., for George Russell, defendant-appellee.

Before COFFEY, FLAUM and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

The plaintiff-appellant, PPG Industries, Inc. (PPG), and the defendant-appellee, George Russell, entered into a covenant and agreement not to sue in connection with Mr. Russell's failed attempt to purchase PPG's Plastic Fabricating Division. In this diversity action, PPG alleges that Mr. Russell breached this agreement when he later sued the successful purchaser of the Division in state court and PPG was joined as a third-party defendant. The district court determined that the agreement was unambiguous and granted Mr. Russell's motion for summary judgment. PPG now appeals. We reverse the judgment of the district court and remand for further proceedings.

I. Background

A. Facts

In 1979, PPG decided to sell its Plastic Fabricating Division (the Division). Mr. Russell, then vice-president of PPG and the general manager of the Division, began negotiations with PPG in an effort to purchase the Division. To obtain financing for the acquisition, Mr. Russell also commenced negotiations with Mr. C.W. Jackson. On August 15, 1980, PPG entered into a written agreement with Mr. Russell that stated the terms for his purchase of the Division. The agreement, referred to as the Restated Agreement, provided that the PPG/Russell closing would take place on September 30, 1980. On the morning of the closing, Mr. Russell informed PPG that he did not have the money for the purchase price because he and Mr. Jackson had been unable to agree on financing terms.

Mr. Russell had arranged to sell Ideal Mold--part of the Division--to Decatur Mold, Tool and Engineering, Inc. on the PPG/Russell closing date. Because the PPG/Russell sale did not close, Mr. Russell had no right to sell Ideal Mold. Therefore, he transferred to PPG the right to sell Ideal Mold to Decatur Mold. PPG closed this sale on October 1, 1980. The district court concluded that, in consideration for the transfer of this right, PPG granted Mr. Russell two additional weeks in which to obtain funds sufficient to cover the purchase price. See PPG Industries, Inc. v. Russell, No. IP 85-878-C, mem. entry at 3-4 (S.D.Ind. Oct. 5, 1988); R.33 at 3-4 [hereinafter Mem. op.]. PPG asserts that it allowed Mr. Russell an opportunity to raise the money during the first two weeks in October only "as a courtesy and given his longstanding interest" in the Division. Appellant's Br. at 6-7.

After the collapse of the PPG/Russell closing on September 30, Mr. Jackson approached PPG and expressed an interest in purchasing the Division. Subsequently, during October 1980, PPG negotiated with Mr. Jackson, Mr. Russell, and other prospective purchasers. Mr. Russell's efforts to raise the money were unsuccessful. As a result, on or before October 20, 1980, PPG sold the Division to Mr. Jackson. "As part of the sale, PPG warranted and represented to Jackson that it had an unencumbered right to sell the [Division] and that the sale of the [Division] to Jackson did not constitute a breach of any other agreement." Mem. op. at 4.

When Mr. Russell learned that PPG was negotiating a sale of the Division to Mr. Jackson, he notified in writing PPG and Mr. Jackson that he objected to these dealings, and threatened to sue if PPG sold the Division to Mr. Jackson. Consequently, after PPG and Mr. Jackson had signed a sales agreement, PPG and Mr. Russell negotiated and signed a Covenant and Agreement, dated October 28, 1980 (the covenant). This covenant provided for the termination of Mr. Russell's employment and contained certain undertakings not to sue. ¹ In consideration for this agreement, PPG agreed to pay Mr. Russell up to $120,000 ($25,000 for the termination of his employment and, for the covenant not to sue, a reimbursement up to $95,000 for expenses incurred in the PPG/Russell negotiations).

B. The Underlying State Court Litigation (The "State Court Litigation")

In December 1981, more than a year after PPG and Mr. Russell had entered into the covenant, Mr. Russell filed a ten-count complaint against Mr. Jackson and C. W. Jackson Co. in the Circuit Court of Marion County, Indiana. ² Mr. Russell alleged that Mr. Jackson had promised to provide financing for the purchase of the Division. The complaint alleged, inter alia, intentional interference with a contractual relationship, breach of contract, breach of joint venture, promissory estoppel, fraudulent misrepresentation, conversion, and a conspiracy between PPG and Mr. Jackson to deprive Mr. Russell of an exclusive contract right to purchase the Division after September 30, 1980. In essence, Mr. Russell claimed that Mr. Jackson breached a financing agreement that was intended to enable Mr. Russell to purchase the Division and further asserted that Mr. Russell had exclusive contract rights to purchase the Division after September 30, 1980.

In response to Mr. Russell's allegations, on May 5, 1982, Mr. Jackson filed a third-party complaint against PPG seeking indemnification for the company's alleged breach of representations and warranties set forth in the contract executed by PPG and Mr. Jackson to effectuate Mr. Jackson's purchase of the Division. Mr. Jackson alleged that, to the extent Mr. Russell had the exclusive right to purchase the Division after September 30, 1980, PPG had misrepresented that it had an unencumbered right to sell the Division.

In January 1983, PPG answered the third-party complaint and, pursuant to Indiana Trial Rule 14(A), filed a claim against Mr. Russell alleging that he had violated provisions of the covenant not to sue. The basis for this allegation was Mr. Russell's promise to refrain from making claims that could cause PPG to be in breach of its warranties in connection with the sale of the Division to Mr. Jackson. PPG alleged that Mr. Russell's initiation of the state court litigation against Mr. Jackson had breached this covenant. In March 1984, Mr. Russell amended counts VI and VIII to allege a separate agreement made with PPG on September 30, 1980. Mr. Jackson then amended his third-party complaint to conform to the new "separate agreement" theory.

In September 1984, PPG elected to withdraw the Rule 14(A) claim without prejudice. The state case still proceeded to trial and resulted in a $2,000,000 verdict in favor of Mr. Russell against Mr. Jackson and a verdict in favor of PPG with respect to Mr. Jackson's third-party complaint. The trial court decision was affirmed by the Indiana court of appeals. See Jackson v. Russell, 498 N.E.2d 22 (Ind.Ct.App.1986).

C. This Litigation

Basing jurisdiction on diversity, PPG's complaint in this action alleged that Mr Russell violated the covenant when he asserted in counts VI and VIII that the Restated Agreement was valid and binding after September 30, 1980. Additionally, PPG claimed that Mr. Russell's allegations of a conspiracy between PPG and Mr. Jackson caused Mr. Jackson to join PPG in the state court litigation. In essence, PPG alleged that Mr. Russell's actions caused it to be entangled in litigation it had sought to avoid by executing the covenant. PPG asserted that the plain language of the covenant required Mr. Russell to reimburse PPG for expenses and reasonable attorney's fees incurred in the state court litigation. Both parties moved for summary judgment: PPG asserted that the plain language required reimbursement, and Mr. Russell alleged that the plain language did not require reimbursement to PPG. On October 5, 1988, PPG's motion for summary judgment was denied and Mr. Russell's cross-motion for summary judgment was granted. PPG now appeals.

II. Discussion

A. Governing Principles of Law

In examining the district court's grant of summary judgment, our duty is to review de novo the record and the controlling law. " '[W]e must decide whether the record shows that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.' " Dribeck Importers, Inc. v. G. Heileman Brewing Co., Inc., 883 F.2d 569, 573 (7th Cir.1989) (quoting Colan v. Cutler-Hammer, Inc., 812 F.2d 357, 360 (7th Cir.) (per curiam), cert. denied, 484 U.S. 820, 108 S.Ct. 79, 98 L.Ed.2d 42 (1987)); see also DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir.1987). As we recently reiterated in Dribeck Importers, "[a] genuine issue of material fact exists only where 'there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.' " Dribeck Importers, supra, 883 F.2d at 573 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)).

Since our jurisdiction is based on diversity of citizenship, see 28 U.S.C. Sec. 1332, state substantive law must govern the rights and liabilities of the parties. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties agree that the applicable law is the law of Indiana. Indeed, in the covenant, PPG and Mr. Russell agreed that "it is the intent of the parties ... that [the Agreement] is to be construed under the laws of the State of Indiana." Plaintiff's Ex. B at 5. In applying state law in a diversity action, while mindful of our duty to review determinations of law de novo, see Cross v. American Country Ins. Co., 875 F.2d 625, 628 (7th Cir.1989); Bandura v. Orkin Exterminating Co., Inc., 865 F.2d 816, 819 (7th Cir.1988); see also Afram Export Corp. v. Metallurgiki Halyps, S.A., 772 F.2d...