EI DUPONT v. Florida Evergreen Foliage

• Decision Date: 06 December 1999
• Docket Number: No. 205, 1999.,205, 1999.
• Parties: E.I. DuPONT DE NEMOURS AND COMPANY, Defendant Below, Appellant, v. FLORIDA EVERGREEN FOLIAGE and Louis Chang, Plaintiffs Below, Appellees.
• Court: United States State Supreme Court of Delaware

744 A.2d 457

E.I. DuPONT DE NEMOURS AND COMPANY, Defendant Below, Appellant, v. FLORIDA EVERGREEN FOLIAGE and Louis Chang, Plaintiffs Below, Appellees.

No. 205, 1999.

Supreme Court of Delaware.

Submitted: September 21, 1999.

Decided: December 6, 1999.

Rehearing Denied January 26, 2000.

Richard L. Horwitz, and Kevin R. Shannon, Potter Anderson & Corroon LLP, Wilmington, Delaware and A. Stephens Clay (argued), Kilpatrick Stockton LLP, Atlanta, Georgia, for Appellant.

Peter E. Hess, the Law Office of Peter E. Hess, Wilmington, Delaware, Stephen T. Cox (argued) and David W. Moyer, Cox & Moyer, San Francisco, California, and A. Camden Lewis, and Thomas A. Pendarvis, Lewis, Babcock & Hawkins, Columbia, South Carolina, for Appellees.

Thomas P. Preston, Duane, Morris & Heckscher LLP, Wilmington, Delaware, Amicus Curiae Delaware State Chamber of Commerce.

Ben T. Castle, and Matthew P. Denn, Delaware Trial Lawyers Association, Wilmington, Delaware, Amicus Curiae Delaware Trial Lawyers Association.

Phebe S. Young, the Bayard Firm, Wilmington, Delaware and Hugh F. Young, Jr., Product Liability Advisory Council, Inc., Reston, Virginia, Amicus Curiae Product Liability Advisory Council, Inc.

Before WALSH, HOLLAND, and BERGER, Justices.

WALSH, Justice:

This Court has accepted a certified question of law from the United States District Court for the Southern District of Florida pursuant to Supreme Court Rule 41(a). The question of law concerns the ability of a litigant who signed a settlement and release of a tort claim to bring suit against the released party for fraudulent inducement. We conclude, in answer to the certified question, that, under Delaware law, a tort claimant fraudulently induced to execute a release may opt either for rescission or a separate suit for fraud with damages calculated on the difference between that received under the release and the value of the settlement or recovery achieved had there been no fraud by the released party.

I.

The factual basis for certification is taken from the District Court for the Southern District of Florida's Order and Certificate of Question of Law to the Supreme Court of the State of Delaware, dated May 5, 1999. Our certification acceptance is limited to these facts. Kerns v. Dukes, Del.Supr., 707 A.2d 363, 367 (1998).

In October, 1992, Louis Chang and his nursery business, Florida Evergreen Foilage, (collectively "Plaintiffs") brought a products liability action (the "First Suit") against E.I. duPont de Nemours and Company ("DuPont") alleging that a DuPont fungicide, Benlate, was defective and that it caused damage to their plants and nursery. In May 1994, Plaintiffs entered into a settlement agreement with DuPont that resulted in DuPont's payment of $2.3 million in exchange for Plaintiffs executing a release. The preamble of the settlement agreement states:

WHEREAS, Plaintiff has filed suit against Defendant in the civil action identified on Exhibit 1 attached hereto ("the Action") in which Plaintiff has alleged against Defendant various claims related to Plaintiff's purchase and/or use of Benlate fungicide;

WHEREAS, Defendant has denied the aforementioned allegations;

WHEREAS, Plaintiff desires to terminate said litigation, to release and dispose of all claims against Defendant and all claims incident thereto against Defendant, thereby finally disposing of the same, and to give assurance that Plaintiff will not hereafter prosecute such claims or cause them to be prosecuted.

The settlement agreement also includes the following release language in Paragraph 1:

In consideration of Defendant's payment of the amount set forth in the authorization previously signed by Plaintiff, Plaintiff hereby releases Defendant from any and all causes of action, claims, demands, actions, obligations, damages, or liability, whether known or unknown, that Plaintiff ever had, now has, or may hereafter have against Defendant, by reason of any fact or matter whatsoever, existing or occurring at any time up to and including the date this Release is signed (including, but not limited to, the claims asserted and sought to be asserted in this action).

Further, the settlement agreement, in Paragraph 15, provides:

This release shall be governed and construed in accordance with the laws of the State of Delaware without giving effect to the choice of laws provisions thereof.

On September 23, 1998, Plaintiffs filed the present action ("Present Action") for fraudulent inducement in the United States District Court for the Southern District of Florida. In their Amended Complaint, Plaintiffs allege that during the course of the litigation of the First Suit, DuPont wrongfully, illegally, and fraudulently withheld from discovery vital scientific data and information that DuPont was under an obligation to produce in the First Suit and in other Benlate litigation being conducted while the First Suit was pending. Plaintiffs also allege that DuPont gave false testimony in other Benlate cases about the product's alleged defects and about scientific tests of Benlate relating to such issues. Plaintiffs further allege that the data was material to establishing the allegedly defective and contaminated nature of Benlate. They claim that DuPont withheld this data and information and made false statements in implementation of a scheme to defraud Plaintiffs and others who had used Benlate and suffered resulting damage. Plaintiffs assert that DuPont's fraudulent conduct began before September 1991 and was continuing as of the filing of the Present Action.

The alleged effect of this scheme and fraud was to induce Plaintiffs to enter into the May 1994 settlement agreement with DuPont for less than they would have otherwise have insisted upon. Plaintiffs allege that, had they known of the concealed data and information, they would have been in a more advantageous position in the First Suit and would have been able to achieve either a judgment in their favor or a more favorable settlement.¹ Plaintiffs have not tendered or paid to DuPont the $2.3 million received as consideration for the release. Plaintiffs allege that before they discovered the fraud, they used the settlement proceeds to pay attorneys' fees, taxes, Benlate remediation costs, and bank loans, and, as a result, are unable to make an adequate restoration.

The Florida District Court Order of Certification posed the following question: "Under Delaware law, does the release in these settlement agreements bar Plaintiffs' fraudulent inducement claims?" By order dated May 21, 1999, this Court accepted the certified question.

II.

DuPont contends that the express provisions of the release bar Plaintiffs' fraudulent inducement claims. Specifically, DuPont argues that Delaware law does not, and should not, recognize settlement fraud based on prior litigation misconduct as an independent cause of action where the parties have agreed to and affirmed a release that includes such claims. DuPont contends that, under Delaware law, the only remedy for a fraudulently induced release is rescission with restoration of the proceeds of the settlement. Because Plaintiffs failed to promptly and unequivocally elect to rescind the contract and make a timely tender of the settlement proceeds upon learning of the facts giving rise to the alleged fraud, DuPont asserts that Plaintiffs are foreclosed from pursuing such remedy.

Plaintiffs contend that the release does not cover the conduct alleged in the Present Action. They argue that the language of the release makes it clear that the parties were settling a products liability claim based on damage to Plaintiffs' plants and business arising from the use of a defective product and not damages attributable to DuPont's fraudulent conduct which, Plaintiffs claim, was unknown at the time and completely unrelated. Moreover, Plaintiffs argue that any clause in the release interpreted to bar Plaintiffs' fraud action would be unconscionable, against public policy, and unenforceable.

Plaintiffs contend that under the election of remedies doctrine they need not rescind the settlement agreement to bring the Present Action for Fraud against DuPont. However, as an alternative remedy, Plaintiffs have asked that the release be rescinded, despite the concession that they have yet to make a timely tender of the settlement consideration. In effect, they seek an equitable exception to the requirement of restoration of benefits incident to rescission.

III.

The certifying court has indicated that it has phrased the certified question "in its broadest terms" to permit this Court to determine "what facts in the record and the pleadings are relevant to the resolution of the issues encompassed by the question certified." While we appreciate this invitation to flexibility in framing the facts, we view the procedural context in which this question arose in the certifying court to be much more restrictive. The certified question was prompted by DuPont's motion to dismiss under Federal Rules of Procedure 12(b)(6) for failure to state a claim for which relief can be granted. The certifying court has noted that for "consideration of DuPont's Motion to Dismiss, the allegations of the Amended Complaint will be presumed true." Thus, consistent with the requirements for consideration of a motion to dismiss under F.R.C.P. 12(b)(6), we view the facts from a perspective which favors Plaintiffs. Stone v. Wall, 11th Cir., 135 F.3d 1438, 1442 (1998).

To the extent we are required to credit the allegations of the complaint, we must assume that Plaintiffs can prove that they were fraudulently induced to execute the settlement agreement. This assumption, to a large extent, renders immaterial certain of the parties' contentions over the language of the release, and whether exculpatory language should be specific or general. Nonetheless, in view of the preamble language referring to claims related to the use of Benlate, the releasing language is arguably...