Deckard v. General Motors Corp.

• Decision Date: 01 October 2002
• Docket Number: No. 01-2156.,01-2156.
• Citation: 307 F.3d 556
• Parties: Betty DECKARD, et al., Plaintiffs-Appellants, v. GENERAL MOTORS CORP., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

307 F.3d 556

Betty DECKARD, et al., Plaintiffs-Appellants, v. GENERAL MOTORS CORP., Defendant-Appellee.

No. 01-2156.

United States Court of Appeals, Seventh Circuit.

Argued December 6, 2001.

Decided October 1, 2002.

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Eric D. Johnson (argued), Kightlinger & Gray, Trevor J. Crossen, Wagner Reese & Crossen, Indianapolis, IN, for Plaintiff-Appellant.

Michael D. Moon, Jr., Barnes & Thornburg, Indianapolis, IN, Frank Nizio, Danielle A. Gee (argued), Bowman & Brooke, Detroit, MI, for Defendant-Appellee.

Before CUDAHY, EASTERBROOK and EVANS, Circuit Judges.

CUDAHY, Circuit Judge.

Betty Deckard, Michael W. Deckard, Frank Pershing, Donna Shields and Brian Shields (the plaintiffs) appeal from the order of the district court dismissing their claims against General Motors Corporation (GM) arising from an automobile accident. We reverse.

I.

On August 16, 1997, Karen Watson, while driving her 1992 Toyota Tercel, failed to stop at a stop sign and struck a 1994 GMC Jimmy truck driven by Betty Deckard. The Jimmy was occupied by passengers Donna Shields, Brandi Shields and Sherry Pershing (who was pregnant with Adrianna¹). As a result of the impact of the collision, the Jimmy rolled over and all of its occupants, except Brandi, were ejected. Betty Deckard and Donna Shields were seriously injured; Sherry and Adrianna Pershing were killed.

On February 4, 1998, the plaintiffs in settling their claims against Karen Watson and her insurer, United Farm Bureau Mutual Insurance Company (Farm Bureau), signed release agreements. Betty and her husband, Michael Deckard, and Donna and her husband, Brian Shields, signed the same form release agreements that purported to release:

... United Farm Bureau Mutual Insurance and all other persons, firms or corporations liable or who might be claimed to be liable ... from any and all claims, demands, damages, actions, causes of action or suits of any kind or nature whatsoever, on their own behalf and on behalf of their children, and particularly on account of all injuries, known and unknown ... which resulted or may in the future develop from an accident which occurred on or about the 16th day of August, 1997, in or near Bedford, Lawrence County, Indiana....

Separate App. to Appellant's Br., Exhibit 4, at 3 (emphasis added). Although Betty Deckard and Donna Shields allegedly incurred over $200,000 and $40,000, respectively, in medical expenses, the Deckards and the Shields settled their claims for $5,000 each.

Frank Pershing also signed release agreements to settle claims arising from the death of his wife Sherry and his unborn daughter Adrianna. With respect to the claims arising from the death of Sherry, Frank purported to release:

... United Farm Bureau Mutual Insurance and all other persons, firms or corporations liable or who might be claimed to be liable ... on account of all injuries, death and damages suffered directly to Sherry Pershing and for the loss of services of said Sherry Pershing to Frank Pershing which resulted or may in the future develop from an accident which occurred on or about the 16th day of August, 1997, in or near Bedford, Lawrence County, Indiana....

Id. at 1 (emphasis added). Frank Pershing received $42,500 in settlement of these claims with respect to Sherry. He received an additional $42,500 in exchange for settling the claims arising out of the death of Adrianna.²

On August 12, 1999, the plaintiffs filed an automotive products liability suit against GM claiming that the Jimmy was improperly designed. On March 1, 2000, GM filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, alleging that the release agreements that the plaintiffs entered into with Farm Bureau also released GM.

On March 27, 2000, Farm Bureau entered into agreements captioned "Rescission Agreement and Release" with the plaintiffs, purporting to rescind the original release agreements and to enter into new release agreements that specifically excluded GM from being released.

On March 31, 2001, the district court entered a judgment and order granting GM's motion. The district court concluded that the plaintiffs intended to release GM when they signed the original release agreements with Farm Bureau. The district court also rejected the plaintiffs' attempt to rescind the original release agreements. The order was made final pursuant to Rule 54(b) of the Federal Rules of Civil Procedure on May 29, 2001. The plaintiffs appeal.

II.

This court has jurisdiction under 28 U.S.C. § 1291 over an appeal from a final order of a district court. Although the district court's order is cast in terms of a motion to dismiss, both parties submitted evidence outside the pleadings for the district court's consideration, and so, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, GM's Motion to Dismiss was converted into a Motion for Summary Judgment. A motion to dismiss was improper since release is an affirmative defense, Fed.R.Civ.P. 8(c), and the existence of a defense does not undercut the adequacy of the claim. See Gomez v. Toledo, 446 U.S. 635, 639-41, 100 S.Ct. 1920, 64 L.Ed.2d 572 (1980). We review de novo a summary judgment under Rule 56. Scherer v. Rockwell Int'l Corp., 975 F.2d 356, 359 (7th Cir.1992). Summary judgment should be granted only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving part is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In making this determination, we draw all justifiable inferences in favor of the non-moving party. Karazanos v. Navistar Int'l Transp. Corp., 948 F.2d 332, 335 (7th Cir.1991). Since this case arises from the diversity jurisdiction of a federal court sitting in Indiana, we apply Indiana contract law to interpret the purported release and rescission agreements. See Strachan v. Nisbet, 202 F.2d 216, 218 (7th Cir.1953).

A.

There are two sets of release agreements in this case. GM argues that the original release agreements control the disposition of this case, while the plaintiffs argue that the new release agreements (which specifically exclude GM from being released) control. The plaintiffs also argue that the district court erred in concluding that the rescission agreements that they entered into with Farm Bureau did not effectively rescind the original release agreements. We conclude that the rescission agreements did not rescind the original release agreements and that the original release agreements control this case.

The purpose of rescission is to return contracting parties to their precontract position. Am. Standard Ins. Co. v. Durham, 403 N.E.2d 879, 881 (Ind.Ct. App.1980). However, an exact or literal return to the status quo is not necessary. Econ. Leasing Co. v. Wood, 427 N.E.2d 483, 486 (Ind.Ct.App.1981). Rescission can arise under two circumstances: (1) it may be effected by mutual agreement and (2) it may be granted unilaterally because of fraud, illegality, mutual mistake or a contract provision providing for rescission. Id. The parties by mutual consent may rescind a contract at any stage of performance. Id. In its order, the district court held that the rescission agreements did not rescind the original release agreements because the parties involved were not returned to their precontract positions. Attached App. to Appellants' Br. at 11-15. The district court stated that the parties could not return to their pre-contract positions because the original release agreements had been fully performed, and the plaintiffs had not returned the settlement proceeds to Farm Bureau. Id. Further, the district court concluded that the rescission agreements were not valid because they were not supported by new consideration.

While both parties, on appeal, disagree about whether the parties to the original release agreements could return to their pre-contract positions, both parties failed to address whether the plaintiffs could enter into any rescission agreements once GM acted upon the original release agreements.

"Generally, only parties to a contract or those in privity with the parties have rights under the contract." OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1314-15 (Ind.1996). However,

One not a party to the contract may nonetheless enforce it by demonstrating that the parties intended to protect him under the agreement by the imposition of a duty in his favor. To be enforceable, it must clearly appear that it was the purpose or a purpose of the contract to impose an obligation on one of the contracting parties in favor of the third party. It is not enough that performance of the contract would be of benefit to the third party. It must appear that it was the intention of one of the parties to require performance or some part of it in favor of such third party and for his benefit, and that the other party to the agreement intended to assume the obligation thus imposed.

Id. at 1315. OEC-Diasonics recognizes that third-party beneficiary contracts exist under Indiana law. Stated in another way, a third-party beneficiary contract is formed when (1) the parties intend to benefit a third party, (2) the contract imposes a duty on one of the parties in favor of the third party and (3) the performance of the terms of the contract renders a direct benefit to the third party. Kiltz v. Kiltz, 708 N.E.2d 600, 602 (Ind.Ct.App.1999).

Under Indiana law,

"the parties to a contract entered into for the benefit of a third person may rescind, vary, or abrogate the contract as they see fit, without the assent of the third person, at any time before the contract is accepted, adopted, or acted upon by [the third person], and such rescission deprives the third person of any rights under or because of such contract."

Seavey v. Estate of Fanning (In re Estate of Fanning), 263 Ind. 414, ...