Opinion ID: 771820
Heading Depth: 2
Heading Rank: 1

Heading: Forfeiture of the Release Defense

Text: 52 The parties approach this issue from a number of different angles. WestPoint argues in its opening brief that it did not waive the release defense as to attorney's fees and that, in any case, this Court should exercise its discretion to hear this issue because it is a pure question of law and injustice would result by leaving untouched an internally inconsistent district court opinion. In response, the Allen plaintiffs argue that (1) WestPoint should not be permitted to raise an issue for the first time on appeal because it will prejudice the Allen plaintiffs and reward WestPoint's bad faith tactics, and (2) the district court correctly found that WestPoint forfeited the defense. 53 As an initial matter, this issue is properly framed as one relating to forfeiture, not waiver. Unlike a waiver, which is an intentional relinquishment of a known right, a forfeiture occurs [w]here a litigant's action or inaction is deemed to incur the consequence of loss of a right, or, as here, a defense. Hamilton v. Atlas Turner, Inc., 197 F.3d 58, 61 (2d Cir. 1999). However, because we choose to exercise our discretion to reach this issue whether or not it was raised below, we do not address whether the district court abused it discretion in finding a forfeiture. See Diesel v. Town of Lewisboro, 2000 WL 1692912, at  (2d Cir. Nov. 13, 2000) (recognizing that we have discretion to address the merits of an otherwise waived argument). 54 It is the general rule, of course, that a federal appellate court does not consider an issue not passed upon below. Singleton v. Wulff, 428 U.S. 106, 120 (1976); see also Vintero Corp. v. Corporacion Venezolana de Fomento, 675 F.2d 513, 515 (2d Cir. 1982) (A party who has not raised an issue below is precluded from raising it for the first time on appeal.) (internal quotation marks omitted). In Singleton, the Supreme Court explained the rule's rationale: 55 [The rule] is essential in order that parties may have the opportunity to offer all the evidence they believe relevant to the issues ... [and] in order that litigants may not be surprised on appeal by final decision there of issues upon which they have had no opportunity to introduce evidence. 56 428 U.S. at 120 (quoting Hormel v. Helvering, 312 U.S. 552, 556 (1941)). 57 In keeping with this rationale, we have repeatedly recognized that the rule is not an absolute bar where the issue is purely legal and there is no need for additional fact-finding or where consideration of the issue is necessary to avoid manifest injustice. Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 302 (2d Cir. 1996); see also Greene v. United States, 13 F.3d 577, 586 (2d Cir. 1994). Cf. Diesel, 232 F.3d at 108 (refusing to exercise discretion where the argument requires new evidence or factual findings) (internal quotation marks omitted). Therefore, where an allegedly forfeited claim raises a pure question of law, we may choose to reach the merits. Baker v. Dorfman, 2000 WL 1233349,  (2d Cir. Sept. 1, 2000). 58 WestPoint has easily met this standard. The facts underlying the scope of the releases have been fully set out during a decade of litigation. Whether the releases, the scope and effect of which are unambiguous, relieve WestPoint's obligation to pay attorney's fees under the EPI Amendment is purely a question of law. See Revson, 221 F.3d at 65 (Under New York law, the meaning of a contract that is unambiguous is a question of law for the court to decide.). The Allen plaintiffs argue that they will be prejudiced if we exercise our discretion to hear this issue. In particular, they contend that the district court's equitable decision not to rescind the releases would have come out differently if the district court had known that the Allen plaintiffs would not recover attorney's fees. 59 A court will refuse to consider a forfeited defense where there may have been particular facts that might have been better developed and analyzed if the issue had been raised below or where [t]here is a risk of prejudice to the other party. Amcel Corp. v. International Executive Sales, 170 F.3d 32, 36 (1st Cir. 1999). Here, however, the Allen plaintiffs' claim of prejudice is belied by the district court's opinion, severely compromised by our 1998 decision and is not supported by New York law. For these reasons, we are not swayed by the Allen plaintiffs' speculation. 60 First, there is no indication that the district court considered attorney's fees in rejecting the Allen plaintiffs' rescission claim. The district court held that (1) although WestPoint improperly changed the mistaken discount rate, it had acted in good faith (in fact, as discussed below, WestPoint did not act improperly), (2) WestPoint should not be compelled to pay twice the market-based value of the Allen plaintiffs' benefits, and (3) each of the Allen plaintiffs had received a fair payment. The district court concluded that rescission would create an entirely unfair result and provide the Allen plaintiffs with an undeserved and unintended windfall. Allen, 933 F.Supp. at 269. In the next section of its opinion, the district court addressed attorney's fees without a single reference back to the rescission determination. 61 Second, our 1998 decision severely undercuts any remaining likelihood that the Allen plaintiffs could have been entitled to rescission of the releases. In their lawsuit, the Allen plaintiffs sought rescission on the grounds of mutual mistake and fraud arising out of WestPoint's change to the discount rate. The district court held that although WestPoint improperly changed the discount rate, the equities did not justify ... [the] drastic and extraordinary remedy of rescission. Id. at 268 (internal quotation marks omitted). On appeal, we held that, in fact, WestPoint had properly changed the discount rate. However, [b]ecause the Allen plaintiffs' rescission and fraud claims both were predicated on the theory that 5% represented the proper discount rate at which to calculate their lump sum payouts under the EPI Amendment, we affirm[ed] the district court's judgment [denying rescission] on the merits without reaching [those] claims. Krumme, 143 F.3d at 82-83. Our ruling swept away the foundation for any subsequent rescission claim by the Allen plaintiffs. 62 Finally, while the Allen plaintiffs correctly note that rescission is an equitable determination, their assertion that attorney's fees somehow are involved in that analysis is unsupported. They have not cited any New York case law to support the proposition that the district court could have properly considered attorney's fees. Under New York law, [r]escission is an extraordinary remedy, appropriate only where the breach is found to be material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract. Canfield v. Reynolds, 631 F.2d 169, 178 (2d Cir. 1980) (internal quotation marks omitted). We are not convinced that New York law would permit the consideration of attorney's fees to tip the equitable balance in favor of the plaintiffs where the trial court found that the defendant acted in good faith and that the plaintiffs received fair payment under the agreement. 63 Accordingly, we find that WestPoint presents a pure question of law, the determination of which requires no additional fact-finding and does not prejudice the Allen plaintiffs. At bottom, however, [e]ntertaining issues raised for the first time on appeal is discretionary with the panel. Greene, 13 F.3d at 586. In exercising our discretion to hear WestPoint's defense, assuming, arguendo, that it was not properly raised below, we have considered three additional factors. First, the district court's holding that the Allen plaintiffs released WestPoint from any further obligation to them under the EPI Agreement, is facially inconsistent with the district court's holding that the Allen plaintiffs were entitled to attorney's fees under the same agreement. The Allen plaintiffs have failed to harmonize these two conclusions and the district court declined the opportunity to do so. This inconsistency, although it may not rise to the level of manifest injustice as WestPoint argues, certainly weighs in favor of our reaching the issue. 64 Second, we find the district court's forfeiture determination dubious at best. WestPoint consistently and aggressively advanced the releases as a defense to plaintiffs' entire claim for breach of the EPI Amendment. From the outset, WestPoint pressed the argument that the releases barred the Allen plaintiffs from recovering anything under the EPI Amendment. In 1990, the district court granted WestPoint's motion to dismiss on the basis of the release defense. After we reversed that decision, WestPoint again raised the affirmative defense of the releases in its answer. 65 Since then, the threshold dispute between WestPoint and the Allen plaintiffs has been whether the Allen plaintiffs were entitled to rescind the releases. In 1995, WestPoint moved for partial summary judgment arguing that the plaintiffs released WestPoint from all obligations under EPI. The district court denied partial summary judgment for WestPoint because it found that there were factual issues regarding the Allen plaintiffs' rescission claim. To that end, in January 1996, the district court held a separate trial on the issue of whether the releases should be rescinded. 66 Prior to the trial, the parties repeatedly cited the importance of the release issue to the Allen plaintiffs' claims. For example, WestPoint's counsel argued at a 1995 conference that if the Allen plaintiffs don't get around the release, they don't get anywhere. Judge Scheindlin concurred, noting that if the releases are good, they haven't breached anything. Finally, before the parties agreed to try the change of control issue separately, WestPoint's counsel noted that subject to certain argument about the release, the change of control issue was likely dispositive of the attorney's fees issue. 67 WestPoint argues that it was inconceivable that the district court could find that the releases superseded the EPI Amendment, and nevertheless award attorney's fees under the EPI Amendment. The district court responded that WestPoint should have anticipated that it would prevail on the rescission issue and raised the release as a defense to attorney's fees. This begs the question. Litigating the rescission issue was raising the attorney's fees defense because if the district court had uniformly applied its interpretation of the releases, WestPoint's attorney's fees argument not only would have been addressed, but would have prevailed. Notably, WestPoint points out that when the Allen plaintiffs appealed the dismissal of their complaint in 1991, they did not argue that, even if the releases were upheld, they still should be entitled to attorney's fees. 68 In the past, we have noted that a party cannot be expected to anticipate every aspect of [a ruling] that may be subject to profitable challenge on appeal. Chase Manhattan Bank, N.A. v. American Nat'l Bank & Trust Co., 93 F.3d 1064, 1072 (2d Cir. 1996); see also Kepner-Tregoe, Inc. v. Vroom, 186 F.3d 283, 289 (2d Cir. 1999) (defendant cannot be said to have reasonably anticipated that the lower court would make an allegedly double damage award). In that vein, we refuse to require a defendant to anticipate that a trial court will issue an internally inconsistent decision. 69 Finally, although the Allen plaintiffs allege that WestPoint made a deliberate tactical decision not to raise the release as a defense to attorney's fees, the district court did not find any evidence that WestPoint made such a decision, see Krumme v. West Point Pepperell, 1998 WL 526430, at -3 (S.D.N.Y. Aug. 20, 1998), and we find none in the record. 70 The district court noted that if WestPoint is right, then this issue can and will be decided as a matter of law and need cause no further expense and delay by permitting a new round of motion practice in the district court. Id. at  n.5. WestPoint is right, and we accept the district court's invitation to review this issue as a matter of law.