Kobatake v. E.I. DuPont De Nemours & Co.

United States Court of Appeals,
Eleventh Circuit.
Nos. 97-8899, 97-8914.
Warren KOBATAKE; Pleasonton Corp., a Hawaii Corporation, et al., Plaintiffs-Appellants,
v.
E.I. DUPONT DE NEMOURS AND COMPANY; Alston & Bird, A Georgia Partnership
Including Professional Corporations, Defendants-Appellees.
Ellis W. LAY, Individually and d.b.a. Wintergreen Nurseries; Prince Nurseries, Inc., a North
Carolina corporation, et al., Plaintiffs-Appellants,
v.
E.I. DUPONT DE NEMOURS AND COMPANY, a Delaware corporation; Alston & Bird, a
Georgia Partnership, Defendants-Appellees.
Dec. 3, 1998.
Appeals from the United States District Court for the Northern District of Georgia. (Nos. 1:96-cv-
2303-RCF, 1:96-cv-3417-RCF), Richard C. Freeman, Senior Judge.
Before TJOFLAT and DUBINA, Circuit Judges, and HILL, Senior Circuit Judge.
PER CURIAM:
The judgement in this case is affirmed for the reasons stated in the district court's thorough
and well-reasoned order filed on July 18, 1997, and attached hereto as an appendix.
AFFIRMED.
APPENDIX
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
GEORGIA ATLANTA DIVISION
Ellis Lay, individually and d/b/a/ Wintergreen Nurseries; Prince Nurseries, Inc.; James Oliver
Prince, Jr.; Lynn Hayes, individually and d/b/a/ Lynn's Nurseries; Thomas O. Mahaffey, Jr.
Greenhouse, Inc.; Thomas O. Mahaffey Jr.; and George S. Ferguson, individually and d/b/a/ Scrub
Oak Foliage
v.
E.I. Dupont De Nemours and Company and Alston & Bird
Warren Kobatake, Pleasonton Corporation, Malcolm R. Saxby, and Puna Certified Nursery
v.
E.I. Dupont De Nemours and Company and Alston & Bird
Nos. 1:96-cv-2303-RCF, 1:96-cv-3417-RCF
ORDER
RICHARD C. FREEMAN, Senior District Judge:
These related actions are before the court on defendants' motions to dismiss the complaints
in both litigations. The court addresses the actions together because defendants rely on the same
legal theories in both cases to argue that the complaints do not state a claim upon which relief may
be granted. In addition, plaintiffs rely on the same legal theories in both cases to counter defendants'
argument.
BACKGROUND
Plaintiffs are nursery owners whose plants were allegedly damaged by Benlate 50DF, a
product manufactured by defendant E.I. DuPont de Nemours and Company [DuPont].
Approximately five years ago, plaintiffs filed several products liability lawsuits against DuPont to
recover the money lost from the damage to their plants.1 The Kobatake plaintiffs proceeded to trial
against DuPont and, while the jury was deliberating, settled the case. At the same time, the Lay
plaintiffs also settled their action against DuPont. Pursuant to the terms of the settlement
agreements, plaintiffs executed general releases, all of which provide, in relevant part:
1
Defendant Alston & Bird represented DuPont in the products liability litigation.
[Plaintiff] hereby now and fully, finally and forever, releases and discharges DuPont, [and]
its ... attorneys from any and all liability, claims, demands, damages or rights of action
(hereinafter referred to as "claims") of any kind or character and of any nature whatsoever,
whether known or unknown, fixed or contingent, arising from the beginning of time to the
present, including but not limited to (1) any and all claims arising from or allegedly arising
from or in any way related to [plaintiff's] use of Benlate or any Benomyl-containing
fungicide; (2) any and all claims arising from or allegedly arising from or in any way related
to Benlate or any Benomyl-containing fungicide or any constituents thereof, and (3) any and
all claims which might have been alleged, or which were alleged, in the Civil Action.
See, e.g., DuPont's Motion to Dismiss, Exhibit A. The releases also contain merger clauses, which
provide that "[a]ll agreements and understandings between [plaintiff] and DuPont are embodied and
expressed herein" and "[plaintiff] signs this Release as its own free act, without any promise,
inducement, or representation not fully expressed herein." Id.
After settling with DuPont, plaintiffs discovered information that led them to believe that
defendants acted improperly and fraudulently during the defense of the previous litigation by, inter
alia, scheming to destroy harmful evidence and presenting perjured testimony. Plaintiffs
subsequently filed these actions, alleging fraud, civil conspiracy, spoliation of evidence, violations
of the Georgia Fair Business Practices Act, public nuisance, and racketeering. In addition, plaintiffs
allege that they were fraudulently induced into settling the prior actions. Defendants seek dismissal
of the pending actions on the grounds that the general releases prohibit plaintiffs from asserting their
claims.2
DISCUSSION
1. Collateral Estoppel
2
Because defendants' motions are brought under Fed.R.Civ.P. 12(b)(6) for failure to state a
claim upon which relief may be granted, the court accepts the facts as pleaded in the complaint
and construes them in the light most favorable to the plaintiff. Parr v. Woodmen of The World
Life Insurance Co., 791 F.2d 888, 889-90 (11th Cir.1986). Thus, defendants can succeed with
their motion only if "it appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim." Bracewell v. Nicholson Air Services, Inc., 680 F.2d 103, 104 (11th
Cir.1982).
The parties first dispute whether defendants are collaterally estopped from arguing that the
general releases bar plaintiffs' actions for fraud. Plaintiffs contend that the doctrine of collateral
estoppel applies because defendants argued and lost this same point in the district court that presided
over the products liability actions. See In re E.I. du Pont de Nemours and Co., 918 F.Supp. 1524,
1551 (M.D.Ga.1995), rev'd, 99 F.3d 363 (11th Cir.1996), petition for cert. filed, 65 U.S.L.W. 3767(U.S. May 8, 1997) (No. 96-1777).*** This contention is without merit. The district court, in a
lengthy opinion, made numerous factual and legal conclusions, including the determination that the
general releases did not prevent the court from hearing plaintiffs' motion for contempt. The court
then found DuPont in contempt and fined it in excess of $6 million. DuPont appealed, and, after
determining the threshold issue of whether the district court had jurisdiction over the contempt
proceeding, the Eleventh Circuit reversed and remanded the action. See In re E.I. DuPont De
Nemours and Co., 99 F.3d 363 (11th Cir.1996). This reversal and remand for further proceedings
negates any conclusive effect that the district court's judgment might have had, and thus the doctrine
of collateral estoppel is not applicable here. See, e.g., Jaffree v. Wallace, 837 F.2d 1461, 1466 (11th
Cir.1988) ("A judgment that has been vacated, reversed, or set aside on appeal is thereby deprived
of all conclusive effect, both as res judicata and as collateral estoppel."); 18 Wright, Miller, and
Cooper, Federal Practice and Procedure § 4432 (1981) ("Reversal and remand for further
proceedings on the entire case defeats preclusion entirely until a new final judgment is entered by
the trial court or the initial judgment is restored by further appellate proceedings."). Accordingly,
the court finds it appropriate to address defendants' argument that plaintiffs released all claims
against them, including the claims that are raised in these actions.
2. Releases
***
cert. denied, --- U.S. ----, 118 S.Ct. 263, 139 L.Ed.2d 190 (1997).
As set forth above, plaintiffs discharged defendants from "any and all liability, claims,
demands, damages or rights of action of any kind or character," "whether known or unknown,"
"arising from the beginning of time to the present," "including ... any and all claims arising from or
in any way related to [plaintiffs'] use of Benlate" when they executed the releases in exchange for
a substantial amount of money. At the same time, plaintiffs also agreed that the releases represented
the parties' entire agreement and would be governed by Georgia law.1
Plaintiffs first argue that the releases do not encompass the claims alleged in the actions at
bar. The court cannot agree. Under Georgia law, "[a] release or settlement agreement is a contract
subject to construction by the court." Darby v. Mathis, 212 Ga.App. 444, 441 S.E.2d 905, 906
(Ga.App.1994). Nonetheless, "no construction of the contract is ... permissible when the language
employed by the parties in the contract is plain, unambiguous and capable of only one reasonable
interpretation." Sakas v. Jessee, 202 Ga.App. 838, 415 S.E.2d 670 (Ga.App.1992). Here, the
releases could not be more plain; plaintiffs gave up all rights to seek damages from defendants in
connection with their use of DuPont's Benlate product and agreed that the release represented the
parties' entire agreement.2 When "[a] contract provides plainly that it was the intent of the parties
1
The court declines plaintiffs' invitation to apply federal common law to the actions at bar.
As stated by the Supreme Court, "absent some congressional authorization to formulate
substantive rules of decision, federal common law exists only in such narrow areas as those
concerned with the rights and obligations of the United States, interstate and international
disputes implicating the conflicting rights of States or our relations with foreign nations, and
admiralty cases." Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 101 S.Ct.
2061, 2067, 68 L.Ed.2d 500 (1981). None of these areas is implicated here.
2
Although plaintiffs explain that it was not their intention to release the claims alleged in
these actions, the court is prohibited from taking this explanation into account where, as here, the
releases are plain and unambiguous. See, e.g., Leventhal v. Seiter, 208 Ga.App. 158, 430 S.E.2d
378, 382 (Ga.App.1993) ("parol evidence is inadmissible to challenge the unambiguous terms of
the contract"); cf. Sakas, 202 Ga.App. 838, 415 S.E.2d at 673 ("Whatever appellants might wish
they had said in the [contract], they did not say it, and what they did say is unambiguous; it
cannot be made ambiguous by the mere assertion that it was meant to include other matters
to settle and effect a resolution of all claims and disputes of every kind and nature among them ...;
that it is the entire agreement of the parties; and that they released and waived all claims against
each other of any kind whether known or unknown, ... [n]o grounds at law or in the contract itself
exist to open [it] to jury examination." Sakas, 415 S.E.2d at 673. Thus, however egregiously
defendants may have behaved during the prior litigation, plaintiffs' execution of such
all-encompassing releases prohibits them from suing defendants for that behavior.3
However, because plaintiffs have alleged that they were fraudulently induced to execute the
releases, the releases are voidable. See, e.g., Gibbs v. Jefferson-Pilot Fire & Casualty Ins. Co., 178
Ga.App. 544, 343 S.E.2d 758, 759 (Ga.App.1986) ("Fraud in the procurement of a release will
render it voidable."). In such a situation, plaintiffs have an election of remedies; they may (1)
rescind the contract, thereby restoring to defendants the benefits they received as a result of the
settlement, and sue in tort for damages resulting from the alleged fraud or (2) affirm the contract,
thereby retaining the benefits received under the contract, and sue for damages. See, e.g., Ben
Farmer Realty Co. v. Woodard, 212 Ga.App. 74, 441 S.E.2d 421, 422 (Ga.App.1994) (explaining
that a party "claiming to have been fraudulently induced into entering a ... contract has an election
of remedies involving rescission or affirmation of the contract"); Carpenter v. Curtis, 196 Ga.App.
which it did not mention.").
3
It is of no consequence that plaintiffs were unaware of defendants' allegedly fraudulent
conduct at the time they executed the releases. In U.S. Anchor Manufacturing, Inc. v. Rule
Industries, Inc., 264 Ga. 295, 443 S.E.2d 833 (Ga.1994), the Georgia Supreme Court addressed
the question of whether a general release discharges liability for injury caused by already
committed tortious conduct that was unknown to the releasing party at the time the release was
executed and determined that "a party may ... discharge liability for injury caused by unknown
tortious conduct" when such intention is "clearly expressed." 264 Ga. 295, 443 S.E.2d at 835.
As discussed above, the releases at issue here clearly express the parties' intentions to discharge
liability for unknown conduct. Thus, plaintiffs may not avoid the unambiguous terms of the
releases on the grounds that they were unaware of the facts forming the basis for their complaints
in these actions.
234, 395 S.E.2d 653, 655 (Ga.App.1990) ("Two actions are available to one who was fraudulently
induced by misrepresentations into entering a contract: he can affirm the contract and sue for breach
or seek to rescind and sue in tort for fraud and deceit."). Of course, if a party elects to affirm the
contract, he or she is bound by its provisions. Orion Capital Partners, L.P. v. Westinghouse Electric
Corp., 223 Ga.App. 539, 478 S.E.2d 382, 385 (Ga.App.1996). Rescission, on the other hand,
relieves the party from any adverse consequences dictated by the terms of the contract. Id.As mentioned previously, the releases at issue here contain merger clauses. Defendants,
asserting that plaintiffs have affirmed the settlement agreements by retaining the money paid to them
under those agreements, argue that the merger clauses prohibit plaintiffs from voiding the releases
on the grounds that plaintiffs were fraudulently induced into executing them. Plaintiffs, on the other
hand, contend that the merger clauses are without any force and effect because defendants breached
a duty to disclose information that either would have prevented them from entering into the releases
or would have enabled them to settle for a greater amount of money. In the alternative, plaintiffs
argue that they are entitled to rescission of the releases.
a. Affirmance
Assuming first that plaintiffs have affirmed the releases,4 the court agrees with defendants
that the merger clauses prevent plaintiffs from voiding them on the basis of fraud. Where, as here,
a contract contains an entire agreement clause, "that clause operates as a disclaimer, establishing that
the written contract completely and comprehensively represents all of the parties' agreement" and
thus "bars [plaintiffs] from asserting reliance on the alleged misrepresentation not contained within
4
As will be explained below, the court finds that, having accepted and retained the money
paid to them in exchange for the releases after having discovered the alleged fraud, plaintiffs
have affirmed the releases.
the contract." Pennington v. Braxley, 224 Ga.App. 344, 480 S.E.2d 357, 359 (Ga.App.1997).5 As
explained by another court, "[t]his result obtains because where the allegedly defrauded party
affirms a contract which contains a merger or disclaimer provision and retains the benefits, he is
estopped from asserting that he has relied upon the other party's misrepresentation and his action for
fraud must fail." American Demolition, Inc. v. Hapeville Hotel Ltd. Partnership, 202 Ga.App. 107,
413 S.E.2d 749, 751 (Ga.App.1991).
In these cases, plaintiffs seek to void the releases on the grounds that defendants did not
disclose information relevant to plaintiffs' decision to settle their products liability claims. Plaintiffs
did not, however, execute releases that contained a representation that they were relying on
information provided to them by defendants. Instead, plaintiffs, with the aide of their attorneys,
negotiated releases that specifically provided that they were executing the document "as [their] own
free act, without any promise, inducement, or representation not fully expressed herein." Nothing
in the releases indicates that plaintiffs were induced to settle by anything other than the settlement
amount.
Attempting to avoid the plain language of the releases, plaintiffs argue that the merger
clauses do not apply because defendants prevented them from exercising their own independent
judgment when making the contract. Specifically, plaintiffs argue that defendants were obligated
to inform them of the information that would have caused them to reevaluate the settlements. A
similar argument was rejected by the Georgia Court of Appeals in the American Demolition case.
There, the court determined that "[t]here was no evidence to suggest that this transaction was
anything other than an arm's length transaction between two professionals and there is no evidence
that any special or confidential relationship existed to give rise to a duty to disclose." 202 Ga.App.
5Reliance is, of course, an element essential to establishing fraud. Id.
107, 413 S.E.2d at 751-52. Similarly, plaintiffs here have not alleged that the transaction
effectuating the settlement was not an arm's length transaction or that a relationship existed between
them and defendants that would give rise to a duty to disclose. Indeed, the settlements were the
product of the parties' attorneys' negotiations, which took place near the end of extremely
contentious litigation.6
Because the releases contain valid merger clauses, and assuming the releases were affirmed,
plaintiffs cannot void the releases on the basis that they were fraudulently induced into executing
them.
b. Rescission
Plaintiffs, perhaps anticipating the court's conclusion that the merger clauses operate to bar
their claims of fraudulent inducement, have argued in the alternative that the releases may be
rescinded. As mentioned above, rescission relieves plaintiffs of the terms of the release. Thus, if
the releases are rescinded, the merger clauses are without effect.
"A contract may be rescinded at the instance of the party defrauded; but, in order to rescind,
the defrauded party must promptly, upon discovery of the fraud, restore or offer to restore to the
other party whatever he has received by virtue of the contract if it is of any value." O.C.G.A. § 13-
4-60. However, a party "need not tender back what he is entitled to keep, and need not offer to
restore where the defrauding party has made restoration impossible, or when to do so would be
6
Plaintiffs do assert that defendants were under a duty to disclose because a court order
existed in the products liability action that directed them to produce the relevant information.
The fact that defendants failed to meet a discovery obligation does not, however, give rise to an
obligation to disclose that same information during the course of settlement negotiations.
However inequitable a settlement may appear in hindsight, plaintiffs read and understood the
language of the document they were signing and cannot now seek to renegotiate the terms of that
document. See, e.g., Driscoll v. Schuttler, 697 F.Supp. 1195, 1203 (N.D.Ga.1988) ("Plaintiffs
were not precluded from reading the releases; they understood that they were releasing their
claims and exercised that option rather than gambling on the legal outcome of [their action].").
unreasonable." Crews v. Cisco Brothers Ford-Mercury, Inc., 201 Ga.App. 589, 411 S.E.2d 518, 519
(Ga.App.1991). Because "[t]he tender rule is that neither party may retain an unfair advantage,"
courts are directed to take a "flexible and pragmatic approach ... toward the tender requirement."
Remediation Services, Inc. v. Georgia-Pacific Corp., 209 Ga.App. 427, 433 S.E.2d 631, 636
(Ga.App.1993). The ultimate goal is to return the parties "as nearly as possible to the status quo
ante." Corbitt v. Harris, 182 Ga.App. 81, 354 S.E.2d 637, 639 (Ga.App.1987).
Here, it is undisputed that plaintiffs have neither offered to return nor actually returned the
money they received in consideration for the releases. Plaintiffs argue that they were not required
to tender for two reasons: (1) because the amounts of money they received pursuant to settlement
are less than the amounts to which they are entitled; and (2) because defendants concealed the
alleged fraud until after the money plaintiff's received in settlement were spent. The court cannot
agree. First, if the releases are rescinded and the parties are returned to their pre-settlement
positions, plaintiffs are entitled to nothing. Second, the court finds, as a matter of law, that it is not
defendants who have made restoration impossible. Although plaintiffs are not in a position to
restore the money received in settlement,7 the position in which plaintiffs find themselves is purely
a result of discretionary decisions taken by them upon receipt of their settlement amounts.
Because plaintiffs cannot, as a matter of law, demonstrate that they are excepted from the
requirement to restore the benefits received under the disputed contract, the court finds that they
have affirmed the contract. This finding is in keeping with the general rule that "[a]ccepting and
retaining the benefits under the contract alleged to be fraudulent after discovering the alleged fraud
constitutes an affirmance." Garcia v. Charles Evans BMW, Inc., 222 Ga.App. 121, 473 S.E.2d 588,
7
Plaintiffs allege that the money was spent in an effort to contain the damages caused by
DuPont's product.
589 (Ga.App.1996). See also Leathers v. Robert Potamkin Cadillac Corp., 184 Ga.App. 430, 361
S.E.2d 845, 846 (Ga.App.1987) ("It is well established that one who, for a valuable consideration,
including payment of money, has released another from all further liability, cannot obtain a
rescission of such a contract of release ... without first restoring or offering to restore what the
releasee paid for such release.").8 And as explained above, affirmation of the contract leads to the
ineluctable conclusion that the claims raised by plaintiffs in these actions are barred by the releases.
CONCLUSION
Accordingly, for the reasons explained in the body of this Order, defendants' motions to
dismiss [# 9-1, # 10-1, # 16-1 in Case No. 1:96-cv-2303-RCF and # 42-1 in Case No. 1:96-cv-3417-
RCF] are GRANTED. The Clerk is DIRECTED to DISMISS these actions and CLOSE the FILES.
The Clerk is also DIRECTED to TERMINATE all remaining motions in both actions.
SO ORDERED, this 17 day of July, 1997.
8
The court notes that plaintiffs may not now seek to tender the money received in settlement.
Georgia law requires that rescission be timely. Plaintiffs learned of the alleged fraud in 1994,
nearly two years prior to commencing these actions. This delay is, as a matter of law,
determinative. See, e.g., Orion Capital Partners, 223 Ga.App. 539, 478 S.E.2d at 385 (holding
that seven-month delay "is too late as a matter of law to constitute an effective rescission or
reasonable offer to rescind the agreement").