Opinion ID: 2584198
Heading Depth: 4
Heading Rank: 1

Heading: the choice of remedies

Text: In its February 28, 2005 order, the circuit court expressly concluded that the plaintiffs have two available remedies  (1) to rescind the settlement agreements or (2) to affirm the agreements and sue for fraud. The plaintiffs raise, as a point of error, that the circuit court's conclusion was erroneous. They, however, provide no discernible argument or cite to any authority with respect to their position. This court has repeatedly announced that it is not obliged to address matters for which the appellants have failed to present discernible arguments. Hawai`i Rules of Appellate Procedure (HRAP) Rule 28(b)(7) (2007) (the opening brief must exhibit it [t]he argument, containing the contentions of the appellant on the points presented and the reasons therefor, with citations to the authorities . . . relied on); Taomae v. Lingle, 108 Hawai`i 245, 257, 118 P.3d 1188, 1200 (2005) (stating that the court may disregard points of error when the appellant fails to present discernible arguments supporting those assignments of error); Norton v. Admin. Dir. of the Court, 80 Hawai`i 197, 200, 908 P.2d 545, 548 (1995) (same). Thus, on this basis alone, we could decline to address this matter. However, in light of the plaintiffs' next contention concerning the proper measure of damages in the instant fraud action, a preliminary question arises regarding the remedies afforded a defrauded plaintiff in Hawai`i. This court has repeatedly announced that: As a general rule, a properly executed settlement precludes future litigation for its parties. Indeed, a settlement agreement is an agreement to terminate, by means of mutual concessions, a claim which is disputed in good faith or unliquidated. It is an amicable method of settling or resolving bona fide differences or uncertainties and is designed to prevent or put an end to litigation. 15A Am.Jur.2d Compromise and Settlement § 1 (1976). We acknowledge the well-settled rule that the law favors the resolution of controversies through compromise or settlement rather than by litigation. Such alternative to court litigation not only brings finality to the uncertainties of the parties, but is consistent with this court's policy to foster amicable, efficient, and inexpensive resolution of disputes. In turn, it is advantageous to judicial administration and thus to government and its citizens as a whole. Amantiad v. Odum, 90 Hawai`i 152, 161-62, 977 P.2d 160, 169-70 (1999) (internal quotation marks and some citations omitted). We have further stated that settlement agreements (1) are simply a species of contract, Wong v. Cayetano, 111 Hawai`i 462, 481, 143 P.3d 1, 20 (2006) (citations omitted), and, thus, (2) are governed by principles of contract law, State Farm Fire & Cas. Co. v. Pac. Rent-All, Inc., 90 Hawai`i 315, 323-24, 978 P.2d 753, 761-62 (1999) (construing a settlement agreement under contract principles). Consequently, as with contracts, settlement agreements induced by either a fraudulent or material misrepresentation are voidable by the defrauded party because he or she has not freely bargained but has been induced to settle by the other party. Cf. Fujimoto v. Au, 95 Hawai`i 116, 157, 19 P.3d 699, 740 (2001) (stating the general rule that, if a party's misrepresentation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient (internal quotation marks, citations, and original brackets omitted)). In other words, a plaintiff who was induced to enter into a settlement agreement by fraudulent or material misrepresentations may obtain a decree rescinding or cancelling the agreement ab initio.  Peine v. Murphy, 46 Haw. 233, 239, 377 P.2d 708, 712 (1962) (citations omitted); see also Hong v. Kong, 5 Haw.App. 174, 181, 683 P.2d 833, 840 (1984) (stating that [t]he rescission of a contract for fraud in the inducement is part of the law of restitution) (citations omitted). The result of rescission is to return both parties to the status quo ante, i.e., each side is to be restored to the property and legal attributes that it enjoyed before the contract was entered and performed. As the United States Court of Appeals for the Ninth Circuit (the Ninth Circuit) has stated: Rescission reverses the fraudulent transaction and returns the parties to the position they occupied prior to the fraud. It restores the status quo ante. Under true rescission, the plaintiff returns to the defendant the subject of the transaction, plus any other benefit received under the contract, and the defendant returns to the plaintiff the consideration furnished, plus interest. Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017, 1031 (9th Cir.1999) (citations omitted). Hawai`i courts are clearly in accord with the basic contract principle that a party defrauded on a contract may seek rescission of the contract. See Restatement (Second) of Contracts § 164 (1981) (a contract is voidable when it is entered into on the basis of a fraudulent or material misrepresentation). However, whether plaintiffs who have released their tort claims may affirm a fraudulently induced settlement agreement and maintain a separate fraud action is less clear in Hawai`i. Although this court appears to recognize such a remedy, it has yet to explicitly declare so. See, e.g., Lemle v. Breeden, 51 Haw. 426, 436, 462 P.2d 470, 475 (1969) (holding that a lease is essentially a contractual relationship, and, upon a breach of an implied warranty of habitability, a tenant would be entitled to basic contract remedies of damages, reformation, and rescission). Nonetheless, rather than limit a party's remedy to rescission, we believe a defrauded party should be afforded the choice of remedies, i.e., rescission or an independent action for damages. As this court has announced, because [s]ettlement is the voluntary relinquishment of the right to a determination by a court of law[,] encouraging parties to forego the protections associated with a trial requires adequate assurance that appropriate remedies exist for settlements reached through bad faith and misconduct. Matsuura I, 102 Hawai`i at 161, 73 P.3d at 699 (emphasis added). In this regard, DiSabatino v. United States Fidelity & Guaranty Co., 635 F.Supp. 350 (D.Del.1986), is instructive. In that case, the United States District Court for the District of Delaware was presented with the issue whether, under Delaware law, a plaintiff who has settled a negligence suit for personal injuries may affirm that release and institute a cause of action based on fraud. Id. at 351. Although acknowledging the lack of Delaware precedent on the issue, the court proceeded to analyze Delaware law based primarily on cases involving election of remedies under contract law. Id. Focusing on the earlier Delaware decisions of the Court of Chancery in Hegarty v. American Commonwealths Power Corp., 163 A. 616 (Del.Ch. 1932), and Eastern States Petroleum Co. v. Universal Oil Products Co., 49 A.2d 612 (Del.Ch.1946), the court concluded that the holdings in Hegarty and Eastern States Petroleum can easily be extended to cover a contract of settlement compromising a tort claim. DiSabatino, 635 F.Supp. at 353. Consequently, the court held that the plaintiffs, who were defrauded on an agreement to settle a tort claim, may elect either to rescind the contract or to affirm it and sue for damages resulting from the fraudulent misrepresentation[.] Id. at 356. In so holding, the court in DiSabatino observed that the minority of courts that have limited a defrauded plaintiff to the remedy of rescission have done so based on two grounds. First, by distinguishing between simple contracts and releases of tort actions, the minority of courts essentially reason that: There is usually no analogy between the situation of one induced by fraud to release a tort claim and one induced by fraud to buy something. Obviously, . . . the releasor of a tort claim buys nothing, although he may receive something, usually money or its equivalent, for what he relinquishes. He does give up something ( i.e., his tort claim), as a seller gives up what he sells. Thus, on cursory consideration, the release of a tort claim might appear to be analogous to a sale of something. However, where there has been a sale of something, possession of that something has usually been relinquished by the seller. Even where use of the sold something has not made it less valuable, the seller will usually want money for it as he did when he made the sale. If he takes it back, he has to sell it to get that money. Each change of possession of that something will ordinarily involve expense or inconvenience. On the other hand, the releasor has nothing to repossess on rescission of the release; and such rescission revests him with the same claim for money that he had before, not something he must resell to get that money. In reality, the releasor does not sell anything even of an intangible nature. In effect, the releasor has merely agreed for a consideration not to enforce his tort claim. Id. at 353-54 (quoting Shallenberger v. Motorists Mut. Ins. Co., 167 Ohio St. 494, 150 N.E.2d 295, 300 (1958)) (emphasis added). The DiSabatino court, however, disagreed with the aforementioned reasoning, stating that [a] settlement agreement is surely a contract, for which consideration on both sides has passed. The consideration given by the plaintiff, the right to prosecute his tort claim  like something which a seller has sold and whose value in use is bound to decline  certainly will change in value with the passage of time. In effect, the plaintiff is a seller of a cause of action of which he must regain possession. Each change of possession of that something will ordinarily involve expense or inconvenience. DiSabatino, 635 F.Supp. at 354 (internal quotation marks and citations omitted). Second, the minority of courts assume that the damages in the action for fraud are too speculative because they must be measured on the basis of the personal injuries sustained. `The measure of damages, if any, in the action for fraud and deceit is inextricably bound with the question of liability and the nature and extent of the injuries involved in the underlying tort claim which was settled.' Id. (quoting Mackley v. Allstate Ins. Co., 564 S.W.2d 634, 636 (Mo.Ct.App.1978)) (original brackets omitted). However, as discussed infra in section III.A.1.b., the DiSabatino court rejected such reasoning and concluded that damages for fraud are conceptually different from damages for the underlying tort claims and are not too speculative to calculate. Id. at 354-55. The court also observed that a defrauded party may be entitled to punitive damages that would not be available if the original action was reinstated through rescission. Id. at 356. Finally, the court believed that, as a matter of policy, this cause of action should be deemed to exist[] . . . [because an unscrupulous party] would have everything to gain and nothing to lose by systemically defrauding tort claimants into accepting low settlement offers. In such cases[, the defendant] gambles that the deceit will not be uncovered. If the fraud is uncovered, then the [defendant] only faces litigation, or the costs of reimbursement, that it would have had to confront without a settlement. Id. at 355. The interpretation of Delaware law in DiSabatino was later confirmed in E.I. DuPont de Nemours and Co. v. Florida Evergreen Foliage, 744 A.2d 457 (Del.1999). In that case, the Delaware Supreme Court concluded that  DiSabatino, both in its analysis of previous Delaware decisional law and its statement of the policy concerns supporting the recognition of a damages option, is a correct foreshadowing of Delaware law. Id. at 464. The court followed DiSabatino and held that a party alleging fraud in the settlement of a tort claim may elect rescission and restoration to the status quo ante or, alternatively, may bring an action for the recovery of special, or expectancy, damages with retention of the settlement proceeds. Id. at 465 (footnote omitted); see also Matsuura v. Alston & Bird, 166 F.3d 1006, 1008 & n. 4 (9th Cir.1999) (finding DiSabatino's analysis persuasive and rejecting the reasonings behind other courts that restricted a defrauded plaintiff's remedies to rescission). Indeed, the majority of jurisdictions that have considered the issue have also favored affording plaintiffs the choice of either of the two remedies. [7] The weight of authority, therefore, supports the conclusion of the circuit court in the instant case to allow defrauded tort plaintiffs the traditional contract remedies of either (1) rescinding the contract, returning any benefits received, and being returned to the status quo or (2) affirming the contract, retaining the benefits, and seeking damages. Additionally, when there exists two or more concurrent but inconsistent remedies, as here, the equitable doctrine of election of remedies provides that: [A] plaintiff need not elect, and cannot be compelled to elect between inconsistent remedies during the course of trial. If, however, a plaintiff has unequivocally and knowledgeably elected to proceed on one of the remedies he or she is pursuing, he or she may be barred recourse to the other. The doctrine acts as a bar precluding a plaintiff from seeking an inconsistent remedy as a result of his or her previous conduct or election. Cieri v. Leticia Query Realty, Inc., 80 Hawai`i 54, 71, 905 P.2d 29, 46 (1995) (internal quotation marks, citations, brackets, and ellipses omitted) (emphasis in original). The purpose of the election of remedies doctrine is not to prevent recourse to any remedy, or to alternative remedies, but to prevent double recoveries or redress for a single wrong. 25 Am.Jur.2d Election of Remedies § 3 at 665 (2004) (footnotes omitted). In the instant case, the plaintiffs did not seek rescission of their settlement agreements in their first amended complaint. In fact, the complaint wholly rested upon allegations of DuPont's fraudulent misrepresentations and concealment of scientific data and information that were allegedly vital to the plaintiffs' settlement negotiations of their product liability claims. Thus, based on the allegations of their complaint, the plaintiffs have unequivocally and knowledgeably elected to affirm their settlement agreements and pursue an action for fraud. Consequently, we next examine the appropriate measure of damages in the plaintiffs' asserted fraud action.