E.I. Du Pont de Nemours & Co. v. Florida Evergreen Foliage

No. 205 (Del. December 6, 1999)

ELR Digest

The court holds that under Delaware law, a tort claimant that was fraudulently induced to release another from liability may rescind the release or may file a separate suit for fraud. A Florida nursery entered a settlement agreement that released a Delaware corporation from future liability. Subsequently, the nursery claimed that the corporation fraudulently withheld from discovery data related to a fungicide that allegedly damaged the nursery's plants. The corporation argued that the release barred the nursery's claims. The court first holds that the absence of a specific reference to the alleged fraud limits the scope of the general release, and, thus the release does not bar the nursery's claim. The release language is arguably ambiguous, and if one party is to be held to release a claim for fraud in the execution of the release itself, the release should include specific exculpatory language referencing the fraud. Further, if a party cannot release in good faith, the policy of encouraging the settlement of cases is in jeopardy. Moreover, as to the argument that recognizing a fraud exception to general releases will encourage collateral litigation, the incidents of such claims would be so rare as to be exceptional. In addition, the tort alleged here and the torts contemplated by the release are different sequentially and conceptually. The release addressed any conduct the corporation may have engaged in with respect to the manufacture or distribution of the herbicide. However, the very essence of the fraud alleged here is the separate conduct of the corporation in creating a false representation and inducing reliance thereon.

The court next relies on federal precedent to hold that a party alleging fraud in the settlement of a tort claim may elect rescission and restoration to the status quo before settlement or, alternatively, may bring an action for the recovery of special or expectancy damages with retention of the settlement proceeds. The court relied on federal precedent from the state circuit court, which offered a three-prong rationale. A settlement agreement is a contract for which consideration has passed to both sides; a plaintiff who is fraudulently induced to relinquish a claim has certainly lost something, and simply allowing for rescission of the agreement does not take into account the problems associated with the passage of time. Further, this cause of action should exist simply as a matter of policy because otherwise an unscrupulous party would have nothing to lose by defrauding a party to settle a tort claim. And a defrauded party may be entitled to punitive damages that would not be available if the original action was reinstated through rescission.

The full text of this decision is available from ELR (25 pp., ELR Order No. L-135).

Counsel for Appellant
A. Stephens Clay
Kilpatrick & Stockton
1100 Peachtree St., Ste. 2800, Atlanta GA 30309
(404) 873-2127

Counsel for Appellees
Stephen T. Cox
Cox & Moyer
703 Market St., Ste. 1800, San Francisco CA 94103
(415) 543-9464

[30 ELR 20218]

[OPINION OMITTED BY PUBLISHER IN ORIGINAL SOURCE]