Opinion ID: 561305
Heading Depth: 2
Heading Rank: 2

Heading: Application of the Settlement Release to Envirodyne

Text: 24 Turning to the release itself, the question to be resolved concerns the proper interpretation of a contract entered into by informed parties represented by counsel. Should the release be read broadly to include Envirodyne, even though Envirodyne is nowhere named in the Settlement Agreement? In construing the terms of a contract, a court is required to engage in a two-fold inquiry. First, it is necessary to look to the plain language of the provision at issue. Reviewing Illinois law, this Court has noted that [t]he starting point must be the contract itself. If the language of the contract unambiguously provides an answer to the question at hand, the inquiry is over. LaSalle Nat'l Bank v. Service Merchandise Co., 827 F.2d 74, 78 (7th Cir.1987). If the plain language of the contract is ambiguous, then the court must go on to declare [the contract's] meaning. Id. If the court finds that a contract is ambiguous and that extrinsic evidence is undisputed, then the interpretation of the contract remains a question of law for the court to decide. City of Clinton v. Moffitt, 812 F.2d 341, 344 (7th Cir.1987). However, if the parties dispute the extrinsic evidence on an ambiguous contract, then a fact-finder must be called upon to determine the intent of the parties. Id.; LaSalle Nat'l Bank, 827 F.2d at 78; Air Line Stewards and Stewardesses Ass'n v. American Airlines, Inc., 763 F.2d 875, 878 (7th Cir.1985). 6 25 We hold that as a matter of law the release is ambiguous on its face. Envirodyne is not identified by name as a settling party, and the release, while it names WSC and EDC, nowhere states that naming the subsidiaries operates to release the parent corporation. 26 Judge Moran declined to examine fully the parties' intent, believing instead that [t]he issue is not    their subjective intent but the necessary implications of the bargain which they made. District Court Memorandum and Order of November 7, 1989, at 9 (Plaintiffs' App. A-10). In effect the district court tacitly admitted by this statement that the plain language of the release is insufficient to determine Envirodyne's status. However, to draw any conclusions concerning the necessary implications of this bargain requires going beyond the language contained in the writing itself. Therefore it is necessary to define the parties' intent by looking to extrinsic and parol evidence. The record on appeal is insufficient for us to ascertain the parties' intent. This inquiry must properly be carried out by the district court judge, who has the parties and the evidence before him. In Air Line Stewards and Stewardesses, this Court decided that although the settlement agreement in a sex discrimination case was ambiguous on its face, it did not provide for retroactive retirement credit for employees upon consideration of extrinsic evidence. The Court declined to remand for findings of fact, concluding that the issues in the case had been fully briefed, and the Court had before it all of the relevant extrinsic evidence. 763 F.2d at 879. We cannot do the same here, because the record is incomplete. The district judge made no findings of fact, and there may well be extrinsic evidence outside the record on appeal that bears upon the proper determination of the parties' intent. 27 Although this Court cannot make factual findings concerning the intent of the parties from this record, we can examine the legal principles that will apply to the district court's evidentiary inquiry. First, it must be determined under applicable law whether, as plaintiffs contend, a specific intent to release is required for Envirodyne to be released from further liabilities pursuant to the Settlement Agreement. Second, this Court must decide whether Envirodyne is specifically included in the release by virtue of the fact that it is the parent corporation of two corporate entities named explicitly in the release, EDC and WSC. 28 Envirodyne advances two arguments in support of its position that the Settlement Agreement released it from the instant lawsuit. The first is what plaintiffs call the implied or general release argument. It concerns the proper scope to be given to a release as a matter of law. The plain language of the release nowhere mentions Envirodyne. In order to prevail, the defendant must demonstrate that such a requirement is unnecessary and that, as a matter of law, a generally worded release operates to release potential defendants from all foreseeable claims. This was the ancient common law rule under which a release extinguished the cause of action to which it related, and a release of one party released all others jointly liable, without regard to the intent of the parties. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 343, 91 S.Ct. 795, 808, 28 L.Ed.2d 77. Unfortunately for Envirodyne, in the very same opinion, the Supreme Court put that rule to rest, rejecting it in favor of the rule set forth in the Second Restatement of Torts: The straightforward rule is that a party releases only those other parties whom he intends to release. Id. at 347, 91 S.Ct. at 810. 29 The plaintiffs in this case assert that they did not intend to release Envirodyne by entering into the Settlement Agreement. Indeed, at the fairness hearing the plaintiffs' attorney announced to the district court that plaintiffs were reserving their rights against Envirodyne. Before we conclude, however, that the rule in Zenith governs this case, a more searching analysis is required. 30 In a case involving a federal cause of action, the extent to which a release binds parties unnamed is an issue governed by federal law. Locafrance U.S. Corp. v. Intermodal Systems Leasing, Inc., 558 F.2d 1113 (2d Cir.1977) (Oakes, J.). However, because there is no general federal common law, conflicting interpretations of this mandate have arisen among the circuits. See Northwest Airlines, Inc. v. Transport Workers Union, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750. The Second Circuit in Locafrance favored a uniform federal rule--namely, that a release of a joint tortfeasor or coconspirator does not release others unless the party signing the release intended the others to be released. Locafrance, 558 F.2d at 1115. 31 The Ninth Circuit disagrees. In Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454 (9th Cir.1986), Judge Norris readily acknowledged that the scope of the validity of a release of a federal cause of action is governed by federal law. Mardan, 804 F.2d at 1457. However, the court believed that the governing federal law does not require the courts to establish a uniform federal rule. Rather, the federal law in this area arises through the incorporation of state rules of decision, which furnish an appropriate and convenient measure of the governing federal law. Id. at 1458. See Burks v. Lasker, 441 U.S. 471, 486, 99 S.Ct. 1831, 1841, 60 L.Ed.2d 404 (in stockholders' derivative suit brought under federal law, state law should be applied). 32 Judge Norris' point in Mardan is well-taken here. In fashioning a federal rule of decision, courts must often look to the applicable state law for guidance in areas where Congress has not provided for a uniform federal rule. Therefore in Mardan, where the purchaser of a musical instrument plant brought an action against the vendor under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) (42 U.S.C. Secs. 9601-9657 (1982)), the court applied New York law, holding that the action was barred by that state's law of release. 7 Id. at 1461. 33 The Mardan rule makes sense, for the alternative presented in Locafrance places the job of inventing a uniform federal rule within the discretion of the first federal judges that gets their hands on the issue. This leaves too much to chance. If Congress intended federal courts to be bound by a single standard when a federal cause of action arises, then it could have provided for such a rule for cases where a federal cause of action raises an accompanying question of interpretation of a related legal position. 34 Turning then to state law, we must examine the law of release in Illinois. In Illinois, the law of release has been reviewed by the courts in the area of tort law as a result of the express provisions contained in the Illinois Contribution Among Joint Tortfeasors Act (Ill.Rev.Stat. ch. 70, para. 302 (1989)), which provides in part (c): 35 When a release or covenant not to sue or not to enforce judgment is given in good faith to one or more persons liable in tort arising out of the same injury or the same wrongful death, it does not discharge any of the other tortfeasors from liability    unless its terms so provide but it reduces the recovery on any claim against the others to the extent of any amount stated in the release    or in amount of the consideration actually paid for it, whichever is greater. 36 The Illinois Supreme Court has construed the Act as applied to a generally worded release arising out of the settlement of an action for personal injuries. Alsup v. Firestone Tire & Rubber Co., 101 Ill.2d 196, 77 Ill.Dec. 738, 461 N.E.2d 361 (1984). There the injured plaintiffs, who were in one car at the time of the accident, entered into a settlement containing a general release of the driver and his parents, who were in the other car, and all other persons, firms, and corporations, both known and unknown. Id. at 197, 77 Ill.Dec. 738, 461 N.E.2d 361. The release also posed a complete bar to all claims or suits for injuries or damages of whatsoever nature resulting or to result from said accident. Id. at 199, 77 Ill.Dec. 738, 461 N.E.2d 361. Subsequently, after discovering that a defective tire might have precipitated the accident, the plaintiff's administrator filed suit against the tire manufacturer. 37 On review, the Illinois Supreme Court held that the tire manufacturer was not released, despite the apparent breadth of the settlement language. In its analysis, the state court criticized the common law rule whereby the release of one tortfeasor released all joint tortfeasors, and relied instead upon the Illinois Contribution Among Joint Tortfeasors Act. Recognizing the danger that plaintiffs may unwitting[ly] discharge    joint tortfeasors, id. at 201, 77 Ill.Dec. 738, 461 N.E.2d 361, the court declined to release Firestone when it was not named or specifically designated in the release. The 1984 opinion, by the court's own admission, established a new rule of decision under Illinois law: 38 We judge that the widespread use of and reliance upon general releases to discharge all tortfeasors, including those not specifically identified in the release, require that our decision here be made prospective in operation.    We accordingly hold that this decision will apply prospectively to releases from liability executed after the date of the filing of this opinion. 39 Id. at 202-203, 77 Ill.Dec. 738, 461 N.E.2d 361 (citations omitted). See also Stewart v. Village of Summit, 114 Ill.2d 23, 30, 101 Ill.Dec. 862, 865, 499 N.E.2d 450, 453 (1986) ([T]he public policy of this jurisdiction is that no instrument purporting to terminate the liability of a tortfeasor serves to discharge any other tortfeasor from liability for the same injury unless its terms so provide.). 40 In this case the plaintiff class has not brought a tort suit, and the district court failed to find the analogy to tort law to be persuasive. But the law to be applied is not the law of tort but the law of release as applied to the proper interpretation of a recorded settlement agreement. The 1988 settlement release entered into by the plaintiffs should be interpreted in light of pervasive legal trends rather than the antiquated common law rule. 41 Here the release entered into by the plaintiffs was of the same general nature as the settlement release in Alsup. By settling with Navistar, the plaintiffs, along with the other settling parties agreed to settle any and all claims, actions, causes of action, rights or liabilities, including Unknown Claims, by a Settlement Class Member or on behalf of a Settlement Class Member or by anyone claiming through or under a Settlement Class Member by way of subrogation or otherwise, that have been asserted or could have been asserted in the Chapter 11 bankruptcy proceed or in In re Wisconsin Steel Company. (Settlement Agreement at 4, reprinted in Plaintiffs' Br. at A-21). This is plainly a general release that purports to resolve all claims, but it nowhere mentions Envirodyne by name. Nor does the release mention that Envirodyne is one of the parties that plaintiffs intend to release. 42 There are two separate questions concerning the release, and the decisions of the Illinois Supreme Court in Alsup and the Supreme Court's requirement of a specific intent to release in Zenith provide the appropriate framework for construing the release in view of its facial ambiguity. This requires the district court to give proper consideration to the extrinsic evidence necessary to define the parties' intent. 43
44 Our above conclusion does not wholly pave the way for plaintiffs' suit against Envirodyne to go forward, for Envirodyne advances another argument in favor of its position. It is what the plaintiffs characterize as the defendant's express release argument--that the defendant is released because WSC and EDC are specifically named in the Settlement Agreement and because Envirodyne is the parent corporation of the two subsidiaries, it benefits from the release under an alter ego theory. 45 Envirodyne, in advancing this argument, seeks protection from a doctrine whose purpose is to prevent a corporation that has acted fraudulently or unjustly from protecting itself from liability by shielding itself with the protective mantle of the corporate form. Essentially, defendant's argument is but another way of restating the argument that the release of one party operates to release all others. This time, however, the defendant bases its argument on a principle of corporate law--in short, the defendant has served up a red herring. As we understand its approach to the alter ego doctrine, defendant argues that if it is found to be the alter ego of the subsidiaries, then its relation to the subsidiary is close enough for Envirodyne to be considered a party to the release. 46 However, the alter ego doctrine, as invoked by Envirodyne, does not work this way. Courts will allow plaintiffs to pierce the corporate veil to impose liability on a defendant who unjustly seeks protection in the corporate form. The alter ego doctrine is a sword, not a shield, the basis for a cause of action, not a defense. By asserting that the alter ego doctrine applies to its case, Envirodyne essentially inculpates itself by admitting that WSC and EDC are corporate shells and that Envirodyne, the parent corporation, is the real party at interest in the Settlement Agreement. Envirodyne's wish to be recognized as an alter ego of the subsidiaries here could return to haunt it when the district court decides whether plaintiffs may pierce the corporate veil. By asserting that it is an alter ego, Envirodyne may be barred from stating that it is not an alter ego at a later stage of the litigation. In Goldstein v. Scott, 108 Ill.App.3d 867, 872, 64 Ill.Dec. 374, 378, 439 N.E.2d 1039, 1043 (1982), the Illinois Appellate Court recognized that a party may not assert that it is the alter ego and then, when it is no longer advantageous to do so, deny it. Goldstein involved a defendant church corporation, which sued its liability insurer for coverage on a property damage claim. A federal district court held in favor of the church believing it to be the alter ego of the uninsured beneficial owner of the property. Id. at 871, 64 Ill.Dec. 374, 439 N.E.2d 1039. Subsequently, the church attempted to escape liability for personal injuries caused by the property damage, claiming that it was not the alter ego of the property owner. Id. at 872, 64 Ill.Dec. 374, 439 N.E.2d 1039. The state appellate court concluded that the church may not assert that it is the alter ego and later deny it: 47 [The church] having sought the finding that it was [the property owner's] alter ego    and having obtained the finding it so vigorously sought is judicially estopped from denying in this action that it is the [property owner's] alter ego.    A party cannot play fast and loose    or blow hot and cold during the course of litigation. When a party assumes a certain position in a legal proceeding and succeeds in maintaining that position, he may not thereafter assume a contrary position. 48 Id. at 872, 64 Ill.Dec. 374, 439 N.E.2d 1039, citing Finley v. Kesling, 105 Ill.App.3d 1, 60 Ill.Dec. 874, 433 N.E.2d 1112 (1982). 49