Matsuura v. Alston & Bird

• Decision Date: 02 February 1999
• Docket Number: 97-17033,Nos. 97-16400,s. 97-16400
• Parties: 29 Envtl. L. Rep. 20,643, 99 Cal. Daily Op. Serv. 909, 1999 Daily Journal D.A.R. 1155 David MATSUURA, individually and dba Orchid Isle Nursery, and Stephen Matsuura, individually and dba Hawaiian Dendrobium Farm, Plaintiffs-counter defendants-Appellants, v. ALSTON & BIRD, a Georgia partnership including professional corporations, Defendant, and E.I. duPont de Nemours and Company, Inc., a Delaware Corporation, Defendant-counter plaintiff-Appellee. David Matsuura, individually dba Orchid Isle Nursery; Stephen Matsuura, individually dba Hawaiian Dendrobium Farm, Plaintiffs-Appellants, v. E.I. duPont de Nemours and Company, Inc., a Delaware Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1006

166 F.3d 1006

29 Envtl. L. Rep. 20,643, 99 Cal. Daily Op.

Serv. 909,

1999 Daily Journal D.A.R. 1155

David MATSUURA, individually and dba Orchid Isle Nursery,

and Stephen Matsuura, individually and dba

Hawaiian Dendrobium Farm, Plaintiffs-counter defendants-Appellants, v. ALSTON & BIRD, a Georgia partnership including professional

corporations, Defendant,

and

E.I. duPont de Nemours and Company, Inc., a Delaware

Corporation, Defendant-counter plaintiff-Appellee.

David Matsuura, individually dba Orchid Isle Nursery;

Stephen Matsuura, individually dba Hawaiian

Dendrobium Farm, Plaintiffs-Appellants, v. E.I. duPont de Nemours and Company, Inc., a Delaware

Corporation, Defendant-Appellee.

Nos. 97-16400, 97-17033.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 1998.

Decided Feb. 2, 1999.

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

William H. Boice and A. Stephens Clay, Kilpatrick Stockon, Atlanta, Georgia, for the defendant-appellee.

Appeals from the United States District Court for the District of Hawai'i; David Alan Ezra, District Judge, Presiding. D.C. Nos. CR-96-01180 DAE, CV-96-01180-DAE.

Before: BROWNING, GOODWIN, and SCHROEDER, Circuit Judges.

PER CURIAM:

After settling their product liability suits against E.I. du Pont de Nemours and Company, Inc. (DuPont), David and Stephen Matsuura allegedly discovered that DuPont had fraudulently induced them to settle for less than the fair value of their claims. They sued DuPont ¹ for fraud, but the district court held the suit was barred by general releases in the settlement agreements. We conclude that under Delaware law, which governs, defrauded tort plaintiffs may stand by their settlement agreements and institute an independent action for fraud, which the Matsuura-DuPont releases do not bar. We therefore reverse.

I

The Matsuuras, commercial nurserymen, alleged in their product liability suits that a DuPont fungicide, Benlate, was contaminated with herbicides, which killed their plants. ² 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 Hawaii, which included the Matsuuras' suits, DuPont falsely denied withholding evidence of Benlate contamination, and improperly invoked work product protection to resist disclosure of testing data. The Matsuuras allege DuPont took these steps to induce Benlate plaintiffs to settle their cases for less than their fair value.

After the Matsuuras settled, DuPont disclosed its testing data in the Hawaii discovery proceedings. 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 Hawaii 214, 948 P.2d 1055, 1083, 1087-88 (1996) (imposing $1.5 million punitive sanction for discovery abuse) aff'd, 86 Hawaii 214, 948 P.2d 1055 (Haw.1997); In re E.I. du Pont de Nemours and Co.--Benlate Litig., 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 totalling $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).

In their present suit, the Matsuuras allege DuPont committed this fraud to induce them and other Benlate plaintiffs to settle. The district court granted DuPont judgment on the pleadings, ruling the suit was barred by releases signed by the Matsuuras as part of the settlement agreements. The court held the Matsuuras could have rescinded the settlement agreements because of DuPont's fraud, but forfeited that remedy by failing promptly to tender the settlement proceeds. The Matsuuras moved for reconsideration; the court denied the motion. The Matsuuras appeal.

II

Under Delaware law, ³ parties who have been fraudulently induced to enter into a contract have a choice of remedies: they may rescind the contract or they may affirm the contract and sue for fraud. Hegarty v. American Commonwealths Power Corp., 163 A. 616, 619 (Del.Ch.1932). In DiSabatino v. United States Fidelity & Guar. Co., 635 F.Supp. 350 (D.Del.1986), a federal district court sitting in Delaware held that plaintiffs who have been fraudulently induced to settle tort claims have the same choice of remedies under Delaware law. DiSabatino, 635 F.Supp. at 352-53 (discussing Hegarty and Eastern States Petroleum Co. v. Universal Oil Prods. Co., 49 A.2d 612 (Del.Ch.1946)). DiSabatino 's analysis is persuasive. ⁴

DuPont does not argue that DiSabatino was wrongly decided, but only that it does not control this case. DuPont claims DiSabatino applies only when a tort defendant's insurer fraudulently induces a plaintiff to release claims against its insured. DiSabatino cannot be read so narrowly. Its policy and legal analysis ⁵ apply regardless of who commits the fraud. ⁶

DuPont also distinguishes DiSabatino because the court did not discuss the effect of the general release included in the DiSabatino settlement agreement. The district court agreed, and concluded that the terms of the Matsuura-DuPont releases precluded the Matsuuras from suing for fraud. The Matsuuras argue they may affirm the settlement agreement and sue for fraud without regard to the terms of the release. ⁷ We need not decide whether the Matsuuras are correct, because we conclude that the Supreme Court of Delaware would not interpret the Matsuura-DuPont releases to bar a claim of fraudulent inducement of the releases themselves.

III

We conclude the Supreme Court of Delaware would not interpret the Matsuura-DuPont releases ⁸ as barring the Matsuuras' fraud claims, for three reasons.

First, Delaware principles of contract construction preclude DuPont's broad reading of the release. The Supreme Court of Delaware held in Adams v. Jankouskas, 452 A.2d 148 (Del.1982), that when specific recitals in a release are followed by general language, the general language is restricted by the specific recital. Id. at 156. Applying this rule to the release before it, ⁹ the court held that general language releasing "all actions ... concerning the estate" did not plainly bar an action against the estate unrelated to the particular items mentioned in the recital. Id. at 156. The Matsuura-DuPont releases begin with a recital that Plaintiffs intended to terminate their litigation of "claims related to [their] purchase and/or use of Benlate fungicide ... and all claims incident thereto." Under Adams, the broad release language relied on by DuPont is restricted by this specific recital--only claims related to the purchase or use of Benlate or incident to the underlying litigation are released. "Claims related to" the Matsuuras' purchase or use of Benlate suggests claims for personal injury and property damage caused by the product or the Matsuuras' decision to use the product; "claims incident to" the claims or the litigation suggests claims likely to arise or naturally arising from the product liability claims or the litigation, which in common understanding would not encompass claims for fraud. Of course, a claim that the settlement agreements were fraudulently induced is "related" to the Matsuuras' use of Benlate and to the underlying litigation in the sense that one would not have occurred but for the other, but applying the phrase literally is "a project doomed to failure, since, as many a curbstone philosopher has observed, everything is related to everything else." California Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 335, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997) (Scalia, J., concurring). We cannot agree with the district court that the Matsuuras' fraud claims "clearly fall within the scope" of the general language of the release. ¹⁰

Second, the Delaware Court is likely to impose a clear statement requirement for release of fraudulent inducement claims. Contract clauses purporting to relieve a party from future liability for negligence are enforceable in Delaware only if the language is "crystal clear and unequivocal." State v Interstate Amiesite Corp., 297 A.2d 41, 44 (Del.1972); see also J.A. Jones Constr. Co. v. City of Dover, 372 A.2d 540, 552-53 (Del.Super.Ct.1977) (such provisions are enforceable only if "the parties specifically contemplated that the contracting party would be relieved of its own defaults") (listing cases applying rule). A release for fraudulent inducement of a settlement contract is analogous: like a release for future negligence, it relieves the defendant of liability for defendant's own wrongdoing when it is still within defendant's power to avoid the wrongdoing. A clear statement rule is particularly appropriate where, as in this case, the claim is one that ordinarily would not be released knowingly.

Third, Delaware courts are reluctant to enforce unintended releases of fraud claims; express language in contracts that seemed to bar such claims has been...