Court Opinion

ID: 765704
Source: CourtListenerOpinion
Date Created: 2012-04-18 07:48:23+00
Date Added: 2024-06-11T13:09:40.966734
License: Public Domain

187 F.3d 1031 (9th Cir. 1999)
FUKU-BONSAI, INC., a Hawaii corporation, and DAVID W. FUKUMOTO,  Plaintiffs-Appellants,v.E.I. du PONT de NEMOURS AND COMPANY, a Delaware Corporation,PLATT CHEMICAL CORPORATION, a foreign corporation, and BREWER ENVIRONMENTAL INDUSTRY, INC., a Hawaii corporation; JOHN DOES 1-10, JANE DOES 1-10, DOE PARTNERSHIPS 1-10, DOE  CORPORATIONS 1-10; DOE "NON-PROFIT" CORPORATIONS 1-10; ROE GOVERNMENTAL ENTITIES 1-10, Defendants-Appellees.
No. 98-15429
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Argued and Submitted June 15, 1999Filed August 11, 1999

Stephen T. Cox, Molligan, Cox & Moyer, San Francisco, California, for the plaintiffs-appellants.
A. Stephens Clay, IV, Kilpatrick and Cody,  Atlanta, Georgia, for the defendants-appellees.
Appeal from the United States District Court for the District of Hawaii  Samuel M. King, District Judge, Presiding. D.C. No. CV-97-00716 SPK.
Before: Mary M. Schroeder, Betty B. Fletcher and Robert Boochever, Circuit Judges.
Opinion by Judge Betty Fletcher;
Dissent by Judge Boochever
OPINION
B. FLETCHER, Circuit Judge:

1
Plaintiffs Fuku-Bonsai, Inc. and its president, David Fukumoto, (collectively, "Fuku-Bonsai") appeal from the district  court's order dismissing its complaint because it was barred  by release language in a settlement agreement between the  parties. We have jurisdiction pursuant to 28 U.S.C.S 1291,1  and we reverse.

I. BACKGROUND

2
Fuku-Bonsai is a Hawaii corporation that raises ornamental  plants for commercial sale. Like many other commercial  growers and nurseries, Fuku-Bonsai used a DuPont fungicide  called Benlate. Growers suspected that the Benlate was contaminated with the herbicide atrazine after the Benlate  destroyed their plants.2 In 1992, Fuku-Bonsai brought a products liability action against DuPont. It was one of over seventy Benlate cases filed in the Third Circuit Court of Hawaii  that were consolidated for discovery. In 1994, before trial,  Fuku-Bonsai settled its claims against DuPont for $2.5 million. As part of the settlement agreement, Fuku-Bonsai released DuPont from certain claims. The scope of that  release is at issue in this appeal.

3
Shortly after Fuku-Bonsai settled and dismissed the product  liability action, courts hearing Benlate cases in several jurisdictions uncovered evidence that DuPont had systematically  concealed "smoking gun" evidence in Benlate cases around  the country. Other Hawaii plaintiffs, whose case had been  consolidated with Fuku-Bonsai for discovery purposes, went  to trial and won a verdict of $23 million for crop damages  resulting from defective Benlate. See Kawamata Farms, 86  Haw. at 222, 948 P.2d at 1063. That case helped expose  DuPont's widespread concealment of evidence in the Benlate  cases, and revealed that DuPont had systematically withheld  evidence proving that Benlate was contaminated. DuPont was  fined $1.5 million for fraudulently withholding evidence. Id.  at 231. The Hawaii Supreme Court deemed DuPont's pattern  of discovery abuse "an unusual, unique example of unprecedented discovery fraud [perpetrated] against the court." See  id. at 257.

4
After learning of DuPont's fraudulent behavior, FukuBonsai, like many other settling plaintiffs who had been misled by DuPont, in 1997 filed an action seeking damages and  sanctions against DuPont and other defendants. Fuku-Bonsai  claimed that DuPont fraudulently withheld or concealed information and induced it to settle its claims for less than fair  value. We must determine whether the release Fuku-Bonsai  signed as part of the settlement agreement forecloses its present claim that the settlement was induced by fraud.

5
DuPont contends, and the district court agreed, that the release bars the present action. DuPont insists that plaintiffs  should have rescinded the settlement agreement and that having failed to tender the settlement proceeds, plaintiffs forfeited their right to sue. The district court, relying in part on  an unpublished district court Benlate ruling, Matsuura v. Alston & Bird and E.I. DuPont de Nemours and Co., Inc. , D.C.  CV-96-01180-DAE (D. Haw.), involving identically worded  releases signed by other Hawaii growers, concluded that  under Delaware law,3 the release language barred plaintiffs'  claims and that a plaintiff who has settled must affirm or  rescind a release contract in its entirety.

6
In an opinion filed after plaintiffs appealed, this court  reversed the district court decision in Matsuura , holding that  plaintiffs' fraudulent litigation claims fell outside the scope of  the release language. See Matsuura v. Alston & Bird and E.I.  DuPont de Nemours and Co., Inc., 166 F.3d 1006 (9th Cir.  1999)(per curiam). Matsuura is indistinguishable from this  case. We reverse the district court and hold that the release  signed by Fuku-Bonsai does not bar its fraudulent inducement  claim against DuPont.

II. ANALYSIS

7
In Matsuura, we held that, under Delaware law, plaintiffs who have been fraudulently induced to settle tort claims  have a choice of remedies: they may rescind the contract or  they may affirm the contract and sue for fraud. See Matsuura,  166 F.3d at 1008; see also DiSabatino v. United States Fidelity & Guar. Co., 635 F. Supp. 350 (D. Del. 1986). The DiSabatino court had noted that "the Delaware courts are in  accord with the basic contract principle that a party defrauded  on a contract may elect either to rescind the contract or to  affirm it and sue for damages." DiSabatino , 635 F. Supp. at  352. It predicted that "a Delaware court would rule that a tort  claimant has an election to stand on a fraudulently induced  release and proceed on a cause of action based on fraud." Id.  In Matsuura, we concluded that "the policy and legal  analysis" of DiSabatino applies "regardless of who committed the fraud." Matsuura, 166 F.3d at 1008. We rejected  DuPont's argument that a defrauded tort plaintiff was limited  to the remedy of recission. See id. at n.4.

8
In Matsuura, we looked at the scope of the release signed  by Matsuura. We reasoned that "the Supreme Court of Delaware would not interpret the Matsuura-DuPont releases to bar  a claim of fraudulent inducement of the releases themselves."  Matsuura, 166 F.3d at 1009.  We concluded that Delaware  principles of contract construction did not support DuPont's  broad reading of the release. Under Delaware law, when specific recitals in a release are followed by general language, the  specific language restricts the scope of the general release language. See Adams v. Jankouskas, 452 A.2d 148, 156 (Del.  1982). If an apparent conflict exists between the specific  release language and the terms of the general release, Delaware relies on a rule of construction that "words of general  application used in the release which generally follow a specific recital of the subject matter concerned are not to be  given their broadest significance but will be restricted to the  particular matters referred to in the recital." See id.

9
The Fuku-Bonsai release is identical to the one in  Matsuura. No facts that would distinguish our case from  Matsuura have been suggested or revealed in the record  before us. Its reasoning squarely applies to this case.

10
Although the Delaware Supreme Court has not yet ruled on  the effect of the Benlate releases,4 we note that the Delaware  Court of Chancery recently recognized the "conclusive  nature" of the evidence of fraudulent misrepresentation and  concealment in Matsuura when distinguishing insubstantial  fraud allegations in the case before it. See In re U.S. Robotics  Corp. Shareholders Litigation, 1999 WL 160154 at *12, n.3  (Del. Ch., Mar. 15, 1999). That Delaware court noted that in  Matsuura,

11
[t]he plaintiffs supported their fraudulent inducement  claim with evidence which had previously convinced  two federal district courts that the defendants had  misrepresented the nature of certain material evidence and had concealed other evidence plaintiffs  sought. The conclusive nature of the evidence in  Matsuura is far different than the sketchy, implausible, and insubstantial fraud allegations that movants  advance in this case.

III. CONCLUSION

12
We hold, as we did in Matsuura , that plaintiffs' claim  for fraudulent inducement is not barred by the release language in the product liability settlement agreement. DuPont's  fraudulent actions and lack of good faith negotiations undermined plaintiffs' ability to bargain freely for a fair settlement. We reiterate the observation made in Matsuura  that Delaware's policy of favoring the voluntary settlement of legal  disputes is advanced by allowing Fuku-Bonsai a remedy for  its victimization in settlement negotiations.

13
REVERSED AND REMANDED.

Notes:

1
 Defendants removed plaintiffs' action, originally filed in Hawaii state  court, to federal court. The district court denied plaintiffs' motion to  remand, finding that plaintiffs had fraudulently joined the only Hawaii  defendant. That decision is not on appeal in this case.

2
 In 1989, the EPA issued a stop sale order temporarily prohibiting  DuPont from selling certain contaminated lots of Benlate because its sale  violated the Federal Insecticide, Fungicide and Rodenticide Act  ("FIFRA"), 7 U.S.C. S S 136-136y. In 1991, EPA issued a second stop  sale order. DuPont subsequently instituted a total recall of Benlate and  stopped selling it in the United States. See Kawamata Farms v. United  Agri Products, 86 Haw. 214, 223, 948 P.2d 1055, 1064 (1997).

3
 A choice of law provision in the release indicates that it is to be  "governed and construed in accordance with the laws of the State of Delaware without giving effect to the conflict of laws or choice of law provisions thereof." The district court determined that Delaware law applies  because Hawaii, the state where the district court sits, follows the choice  of law principles in the Restatement (Second) of Conflict of Laws. Under  the Restatement, the law selected by the parties in a choice of law provi- sion governs a claim of fraudulent inducement to contract. The parties  agree that Delaware law applies.

4
 A similar case from Florida, E.I. du Pont de Nemours and Company  v. Florida Evergreen Foliage and Louis Chang, 98-2242-CIV-GOLD, was  recently certified to the Delaware Supreme Court. The court has accepted  the certification.

BOOCHEVER, Circuit Judge, dissenting:

14
It is agreed that Delaware law applies in deciding whether  the release signed by Fuku-Bonsai bars it from bringing this  suit claiming that DuPont fraudulently withheld or concealed  information that induced Fuku-Bonsai to settle its claims for  less than fair value.

15
When we decided Matsuura v. Alston & Bird and E.I. Du  Pont de Nemours and Co., 166 F.3d 1006 (9th Cir. 1999) (per  curiam), the Delaware Supreme Court had not accepted certification of the controlling state law question. Once the Delaware Supreme Court answers that question, our decision in  Matsuura will no longer be binding on the interpretation of  Delaware law. The Delaware Supreme Court, not a federal  court, will resolve that state law issue.

16
Because, as indicated in the majority opinion, the Delaware  Supreme Court has accepted certification of this question in  a similar case, see E.I. du Pont de Nemours and Company v. Florida Evergreen Foliage and Louis Chang, 98-2242-CIVGOLD, I would await its decision before attempting to decide  the Delaware law question. The added delay should not prove  too great a hardship as Fuku-Bonsai has retained the $2.5 million it received in settlement of its claims.