Dart Industries Co., Inc. v. Westwood Chemical Co., Inc.

• Decision Date: 02 April 1980
• Docket Number: 78-1525,Nos. 77-3880,s. 77-3880
• Citation: 649 F.2d 646
• Parties: DART INDUSTRIES COMPANY, INC., Movant-Appellee, v. WESTWOOD CHEMICAL COMPANY, INC., Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 646

649 F.2d 646

DART INDUSTRIES COMPANY, INC., Movant-Appellee, v. WESTWOOD CHEMICAL COMPANY, INC., Respondent-Appellee.

Nos. 77-3880, 78-1525.

United States Court of Appeals,

Ninth Circuit.

April 2, 1980.

Arthur I. Winard, New York City, Lon M. Mickelson, Los Angeles, Cal., on briefs, for movant-appellee.

John G. Wigmore, Lawler, Felix & Hall, Los Angeles, Cal., on briefs, for respondent-appellee.

Appeal from the United States District Court for the Central District of California.

Before WALLACE and ANDERSON, Circuit Judges, and PALMIERI, ^* District Judge.

PALMIERI, District Judge:

This is an appeal from the entry of an order quashing a subpoena duces tecum and denying any further discovery against appellee. The basic question presented on appeal is whether the district court abused its discretion by denying discovery.

The present proceeding is an outgrowth of a lawsuit filed by Westwood Chemical Company, Inc. (Westwood) against two of its former employees in the Southern District of New York. These employees allegedly conspired with Synthetic Products Company (Synthetic), a division of Dart Industries Company, Inc. (Dart), as well as Dart, to terminate a sales agency agreement that had been in force for some years between Westwood and Synthetic. In an effort to pursue discovery ancillary to the New York lawsuit, Westwood had a subpoena duces tecum issued from the Central District of California to one of Dart's officers directing him to appear for deposition upon written questions and to produce documents. Upon Dart's motion, the district court signed an order quashing the subpoena and denying any further discovery against Dart.

The district court's order barring discovery is to be reviewed under an "abuse of discretion" standard. In Premium Service Corp. v. Sperry & Hutchinson Co., 511 F.2d 225, 229 (9th Cir. 1975), this court affirmed an order quashing a subpoena duces tecum and explained:

We will reverse such an order to quash only for abuse of discretion Such abuses must be unusual and exceptional; we will not merely substitute our judgment for that of the trial judge A judge abuses his discretion only when his decision is based on an erroneous conclusion of law or where the record contains no evidence on which he rationally could have based that decision.

We conclude that the district court did not abuse its discretion in barring discovery.

Dart was not a party to the New York lawsuit that arose from the termination of the sales agreement with Westwood because Dart and Westwood had entered into an agreement of general release on September 1, 1976. Under the release, Westwood received $700,000 from Dart in settlement of all claims under the parties' sales agency agreement, and as satisfaction for all claims Westwood may have had resulting from the termination of the sales agreement and the alleged conspiracy causing the termination.

The crucial issue in the controversy before us turns on the interpretation of the release agreement. The release agreement provided "that WESTWOOD releases and discharges DART INDUSTRIES INC. and its Synthetic Products Division of any rights it has or may hereafter have by reason of a conspiracy alleged by WESTWOOD " (emphasis added). Dart argues, and the district court agreed, that Westwood released any right to engage in discovery against Dart. Westwood contends that the agreement was designed only to release Dart from any possible claims against Dart as a defendant, not to bar discovery in an action against third parties. Although each side has sought to support its interpretation of the agreement's meaning by affidavits of attorneys who participated in its formulation, we have concluded that the meaning of the agreement is clear, requiring no amplification.

Our dissenting brother disagrees with our construction of the general release by saying "it contains much of the standard boiler plate to live up to this advance billing" (as a general release), adding that there is nothing in the agreement referring to Westwood's releasing its right of discovery from Dart. The answer to this is that Westwood gave up far more than its right of discovery against Dart. It gave up everything. It released Dart from "any rights (Westwood) has or may hereafter have by reason of a conspiracy alleged by Westwood." (emphasis added). Additionally, we can see no reason to denigrate the use of boiler plate or stereotype language where, as here, it was used appropriately. Such language has the value of frequent usage and general understanding. Far from derogating from its meaning, we believe it enhances its clarity beyond peradventure of doubt.

What our brother seems to be saying is that because the word "discovery" should have been used, and was not used, the agreement is ambiguous and operates only as a partial release. This conclusion is nothing short of rewriting the agreement and emasculating it. Equally unfounded is his statement that the major portion of the $700,000 payment to Westwood "merely represents money due under their sales agreement." This flies in the face of the agreement which states at the very outset:

WESTWOOD CHEMICAL COMPANY, INC., having an address at 801 Second Avenue, New York, New York 10017, for and in consideration of the sum of SEVEN HUNDRED THOUSAND U. S. DOLLARS ($700,000.00) in hand paid by DART INDUSTRIES, INC., 8480 Beverly Boulevard, Los Angeles, California 90048, the receipt and sufficiency whereof is hereby acknowledged,

The dissent in this particular apparently relies on a choice between conflicting partisan affidavits submitted after the agreement was executed and the consideration paid, and when this controversy reached the district court. We believe that court reached a correct conclusion on "evidence which he rationally could have based that decision." Premium Service Corp. v. Sperry & Hutchinson Co., supra at 229.

The dissent states that important policy considerations militate against interpreting the agreement as a general release. While discovery is a valuable right and should not be unnecessarily restricted, Kyle Engineering Co. v. Kleppe, 600 F.2d 226, 232 (9th Cir. 1979), the "necessary" restriction may be broader when a nonparty is the target of discovery. As one district court has noted, "(t)here appear to be quite strong considerations indicating that discovery would be more limited to protect third parties from harassment, inconvenience, or disclosure of confidential documents." Collins and Aikman Corp. v. J. P. Stevens & Co., Inc., 51 F.R.D. 219, 221 (D.S.C.1971). One author has stated that the more appropriate nomenclature is "nonparty" discovery, not "third-party" discovery, as "the word nonparty serves as a constant reminder of the reasons for the limitations that characterize 'third-party' discovery." Getman, R., "Federal 'Third-Party' Discovery in the Small Antitrust Case," 45 Brooklyn L.Rev. 311 (1979).

Although the strong policy in favor of liberal discovery is clear, Hickman v. Taylor, 329 U.S. 495, 507, 67 S.Ct. 385, 391, 91 L.Ed. 451 (1957), commentators have recognized that there is a potential for abuse in such a policy. One commentator has written:

(T)he draftsmen of the federal rules held utopian notions of what might be gained from discovery.

Designed with the hope of eliminating the so-called sporting theory of justice, discovery practice in many cases simply transfers the battlefield from the courtroom to the pretrial stage.

A central justification for our exceedingly liberal discovery practice has been that the right to discover facts and information is kept entirely distinct from the right to use that information at trial.

This theory gives insufficient weight to the rights of privacy of the person from whom discovery is sought and to the expense, delay, and potential for harassment and abuse that go with unrestricted discovery.

We need an increased consciousness of the excesses and an increased willingness either assumed voluntarily or imposed through wider use of the discretionary powers of the court to check them.

Stanley, J., "President's Page" (Message from the President of the American Bar Association), 62 American Bar Association Journal 1375 (November 1976). See Also, Pollack, M., "Discovery Its Abuses and

Correction," 80 F.R.D. 219 (Remarks made at the Fifth Circuit Conference on April 26, 1978). The district judge did not abuse his discretion in not invoking the policy favoring liberal discovery to defeat an unambiguous agreement for which Dart paid substantial consideration.

While an exception was expressly set forth in the agreement with respect to the two former employees, none was stated with respect to Dart. We cannot accept Westwood's suggestion that it necessarily agreed only to refrain from suing Dart. Its agreement is far broader and it cannot be equated with a covenant not to sue ¹, an undertaking that could readily have been expressed. If indeed the cooperation of Dart for the production of documents and the providing of testimonial evidence was a matter of importance to Westwood in the contemplated litigation against its ex-employees, such obligations could easily have been spelled out and defined. ² Having bought its peace for $700,000, a very substantial consideration, Dart should be permitted, as the district court ruled, to be left alone totally free of any obligations to Westwood.

In Van Bronkhorst v. Safeco Corp., 529 F.2d 943, 950 (9th Cir. 1976), this court stated that agreements that avoid litigation and lessen the burden on courts are to be encouraged: "It hardly seems necessary to point out that there is an overriding public interest in settling and quieting litigation." (footnote omitted). Accord, United States v. McInnes, 556 F.2d 436 (9th Cir. 1977). ³ The dissent correctly points out that the policy in favor of settlement is not an absolute. In Vuitton et Fils, S. A. v. J. Young Enterprises, 609 F.2d 1335 (9th Cir. 1979), to which he analogizes the case...