Opinion
602712/05.
Decided on February 28, 2007.
Quinn Emanuel Urquhart Oliver Hedges, LLP, New York, NY, (Kevin S. Reed, Esq.)Siegal, Napierkowski Park, Mt. Laurel, NJ, (Brian G. Fox, Esq.) Levin Glasser, P.C., New York, NY, (Paul G. Burns, Esq.), for Plaintiffs, for Defendants.
This action arises as a result of a transaction in which plaintiff, The Scotts Company, LLP (Scotts), entered into a settlement and Release (Release) with the defendants, including Pacific Employers Insurance Company (PEIC), in resolution of litigation. Scotts brought this complaint seeking: (i) to rescind that Release on the basis of unilateral mistake, mutual mistake, or unconscionability; or (ii) a declaration that the release is otherwise null, void, and of no force or effect. I have suspended discovery while PEIC moves, pursuant to CPLR 3212, for summary judgment: (i) dismissing the complaint; and (ii) declaring the Release valid and enforceable.
According to the complaint, from April of 1971 through November of 1986, Scotts was a wholly-owned subsidiary of ITT Industries, Inc. or its predecessors. Defendants are all insurance companies which issued certain primary and excess layer comprehensive general liability insurance policies to ITT. Particularly at issue are the policies issued by PEIC (the Policies). It is uncontested that Scotts became an insured under the Policies.
During the 1990s, Scotts allegedly received various claims, demands, and notices relating to the cleanup of various hazardous waste sites (the Environmental Claims). In response to those Environmental Claims, Scotts engaged the non-party firm Dispute Resolution Management (DRM) to assist it in securing insurance coverage from PEIC, among others.
Scotts and DRM tendered the Environmental Claims to PEIC under the Policies. DRM, uncontestedly acting as Scotts' agent, subsequently engaged in negotiations and discussions to resolve the insurance matters arising from the Environmental Claims. To supplement those negotiations, which took place between March 1999 and December 2000, DRM prepared a "Scotts Policy Chart" (Policy Chart) that detailed the coverage available to Scotts under the Policies. The Policy Chart contained a bar graph illustrating, by year, the carrier providing coverage to Scotts and the amount of said coverage. DRM used the Policy Chart in its negotiations with the defendant insurers to justify its method of allocating losses among multiple policies and policy years.
According to the complaint and the evidence, the Policy Chart contained a fundamental visual error: it graphed each of the primary PEIC Policies as having limits of $2 million per occurrence per year for the policy periods from 1978 to 1986, giving the impression of a total amount of $16 million in primary coverage. It is uncontested that the PEIC primary Policies had actual limits, rather, of $2 million per occurrence with an aggregate limit of $10 million per year. The amounts of the actual limits were written on the Policy Chart, but the bars representing the PEIC Policies were of the wrong, i.e. a smaller size.
Scotts notes that the difference between the primary coverage depicted on the Policy Chart and the amount of primary coverage actually provided by the PEIC Policies is $64 million. The excess coverage, of which there was no misunderstanding, was in an aggregate amount of $80 million. As a result, Scotts claims that the supposed value of the PEIC Policies in the negotiations was $96 million ($16 million primary plus $80 million excess coverage), while the actual total value was $160 million ($80 million primary plus $80 million excess coverage).
In August of 2000, while negotiations among Scotts, DRM, and PEIC were underway, PEIC filed an action for declaratory relief styled Pacific Employers Insurance Company v The Scotts Company, et al. in the United States District Court for the Southern District of New York, (No. 00 CV 6216), seeking a declaration that it was not obligated to defend or indemnify Scotts for the Environmental Claims (the Underlying Action).
In December 2000, the parties to the Underlying Action signed the Release, which was intended to fully terminate the relationship between Scotts and the insurers, released all past, present, and future claims under the PEIC Policies, and was executed for the consideration of $325,000. ( see Fox Affirmation, Exhibit B)
The Release, governed by New York law ( id., ¶ 20), states that "[n]o representation, warranties or promises have been made or relied on by either Party hereto other than expressly set forth herein" ( id., ¶ 18[i]), all parties "have obtained the advice of legal counsel of their own choosing" ( id., ¶ 18[e]), and "[t]hey have read [the Release], know of the contents [t]hereof, and have signed [the Release] of their own free acts" ( id., ¶ 18[d]).
The complaint seeks to rescind the Release on the basis of unilateral or mutual mistake of fact (first cause of action), or unconscionability (second cause of action), and requests a declaration (third cause of action) that the Release is rescinded or is otherwise null, void, and of no force or effect. PEIC moves, pursuant to CPLR 3212, for summary judgment dismissing the complaint, and for a declaration that the Release is valid and enforceable (first counterclaim).
On this motion for summary judgment, PEIC must show that Scotts' causes of action have no merit. In order to do so, PEIC must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Winegrad v New York Univ. Med. Center, 64 NY2d 851, 853 (1985); Wolff v New York City Tr. Auth. , 21 AD3d 956 (2nd Dept 2005).
If PEIC makes this prima facie showing, the burden shifts to Scotts to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action. Zuckerman v City of New York, 49 NY2d 557, 562 (1980); Mazurek v Metropolitan Museum of Art , 27 AD3d 227 , 228 (1st Dept 2006). On this motion, Scotts is entitled to the benefit of every favorable inference that may be drawn from the pleadings, affidavits, and competing contentions of the parties. Myers v Fir Cab Corp., 64 NY2d 806 (1985); Marshall v Vilar, 303 AD2d 466, 466 (2nd Dept 2003).
Here a copy of the duly executed Release has been submitted into evidence. The Release is unambiguous and presumptively valid. George Backer Mgt. Corp. v Acme Quilting Co., Inc., 46 NY2d 211, 219 (1978). Thus, PEIC has made its prima facie showing. With regard to Scotts' burden to establish the existence of material issues of fact, as a preliminary matter, I note that although it is true that interpretation of a release is generally governed by principles of contract law ( Mangini v McClurg, 24 NY2d 556, 562), the Release may only be set aside based upon fraudulent inducement, fraudulent concealment, misrepresentation, mutual mistake, or duress. Id.; accord Global Minerals and Metals Corp. v Holme , 35 AD3d 93 , 98 (1st Dept 2006); Tajan v Pavia Harcourt, 257 AD2d 299, 306 (1st Dept 1999) ("[i]n view of the jural consequences of executing a release, we require that a challenging party establish duress, illegality, fraud or mutual mistake"). Scotts has conceded that its complaint contains no allegations of fraud, misrepresentation, or duress.
With regard to unilateral mistake, where the language of a release is clear and unambiguous, a claim by one party that it intended something else is insufficient to vitiate its force and effect. See Toledo v West Farms Neighborhood Hous. Dev. Fund Co., Inc., 34 AD3d 228, 229 (1st Dept 2006); L K Holding Corp. v Tropical Aquarium at Hicksville, Inc., 192 AD2d 643, 645 (2nd Dept 1993); Booth v 3669 Delaware, Inc., 242 AD2d 921, 922 (4th Dept 1997), affd 92 NY2d 934 (1998); see also Wheeler v State of New York, 286 App Div 310, 313-314 (3rd Dept 1955) (release may be avoided for a unilateral mistake only if there was no consideration given to obtain it). Under these circumstances, a cause of action to rescind the Release due to unilateral mistake is not viable.
A valid claim of unconscionability generally requires a demonstration of an absence of meaningful choice on the part of one of the parties together with contract terms that are unreasonably favorable to the other party. Gillman v Chase Manhattan Bank, N.A., 73 NY2d 1, 10 (1988); Chrysler Credit Corp. v Kosal, 132 AD2d 686 (2nd Dept 1987).
Not only does the language of the Release negate any absence of meaningful choice on Scotts' part in executing the Release ( id.), but both parties attested in the Release that they executed it upon advice of counsel. See Gurnee v Hasbrouck, 267 NY 57, 63 (1935) (a release executed upon advice of counsel for the purpose of ending litigation should not be set aside absent fraud); Goldberg v Moskowitz, 262 AD2d 56, 57 (1st Dept 1999); see also Denburg v Parker Chapin Flattau Klimpl, 82 NY2d 375, 383 (1993) (public policy favors enforcement of settlement agreements); accord Calavano v New York City Health Hospitals Corp., 246 AD2d 317, 319 (1st Dept 1998). Moreover, in commercial transactions among sophisticated business entities, under terms that are standard in the trade, there is a presumption that unconscionability is legally inapplicable. Chrysler Credit Corp., 132 AD2d at 686; 22 NY Jur 2d, Contracts §§ 153, 156; 93 NY Jur 2d, Sales § 47.
Thus, as a matter of law, the aspect of the first cause of action that seeks to rescind the Release based upon unilateral mistake, and the second cause of action for rescission based upon unconscionability must both be dismissed.
Scotts also claims, however, that the Release was executed under a mutual mistake as to the total value of the PEIC Policies. First, PEIC claims to have made no mistake as to the value of the Policies. See Touloumis v Chalem, 156 AD2d 230, 232(1st Dept 1989) ("the burden of persuasion is on the one who would set the release aside"); accord Mangini, 24 NY2d at 563. Second, assuming, arguendo, that Scotts' allegation is true, and PEIC did make a mistake as to the value of its own Policies, "the law is that rescission is proper only when the mistake is so material that we can see it goes to the foundation of the agreement." Da Silva v Musso, 53 NY2d 543, 552 (1981) (citations and internal quotation marks omitted). Here, the applicable limits of the PEIC policies were not included anywhere in the Release. To indicate that the limits were at the foundation of the Release, when the parties did not even see fit to list those limits in the Appendices, strains reason. Third, the Policy Chart correctly states the applicable limits of the PEIC Policies in the notations within the graph. A release is a very serious jural instrument. Mangini, 24 NY2d at 563. Simple inquiry into the value of the Policies being released, or, indeed, simply reading the text of the Policy Chart, would have elicited the information about which Scotts now claims to have made a mistake. Compare Matter of Jones' Will, 13 Misc 2d 678, 682 (Sur Ct, Nassau County 1958); Matter of Ohrbach's Trust, 4 Misc 2d 964, 969 (Sup Ct, NY County 1955).
Finally, a mistake of calculation is not the type of mutual mistake for which courts have been willing to rescind a contract. Compare Mack v Albee Press, 263 App Div 275, 277 (1st Dept), affd 288 NY 623 (1942) (where there is a mistake only of "miscalculation of consequences, the voluntary settlement of the parties is irrevocable as to both"); accord Mangini, 24 NY2d at 564; Brown v Manshul Realty Corp., 271 App Div 222, 223 (1st Dept 1946), affd 299 NY 618 (1949).
New York courts have emphasized that a release is a "jural act of high significance without which the settlement of disputes would be rendered all but impossible." Mangini, 24 NY2d at 563. "It is well established that further litigation following a release should not be permitted except under circumstances and under rules which would render any other result a grave injustice." Gibli v Kadosh, 279 AD2d 35, 38 (1st Dept 2000) (citations and internal quotation marks omitted). Here, the evidence shows that Scotts had the advice of DRM and legal counsel, affirmed that the Release was based only on the representations within the document, and affirmed that the Release was executed of Scotts own free will. Scotts has offered no reason for its jural act to be rescinded.
As a final matter, the complaint contains the unsupported and perplexing allegation that "[t]he Scotts representative who signed the [Release] was not authorized to do so. The [Release] was neither reviewed nor approved by Scotts' senior management or Board of Directors." See Complaint, ¶ 57. Despite this, PEIC's motion for summary judgment dismissing the third cause of action, and its motion for summary judgment declaring that the Release is valid, are granted.
The negotiator of the Release for Scotts was the Director of Risk Management, Joyce Armstrong. According to Armstrong's sworn affidavit, she presented the negotiated Release to her supervisor, Rebecca Bruening; Bruening, the Vice President, Corporate Treasurer of Scotts, then signed the Release. Armstrong Affidavit, ¶¶ 1, 24-25. Armstrong also notes that when the parties " executed" the Release, she was not aware of the error. Id., ¶ 26. Moreover, Scotts then received and kept the payment for the Release for at least four years, until attempting to restore all consideration for the Release to PEIC by bringing this action. See Complaint, ¶ 70.
Scotts makes no attempt whatsoever to support the bare allegation that neither its Director of Risk Management nor its Treasurer had authority to execute the Release. Di Sabato v Soffes, 9 AD2d 297, 300 (1st Dept 1959) (proofs discernable from affidavits or otherwise must disclose a real issue, rather than a formal, perfunctory, or shadowy one); Mark Hampton, Inc. v Bergreen, 173 AD2d 220, 220 (1st Dept 1991) (inherently incredible allegations that are flatly contradicted by evidence are not entitled to an inference of truth); see also Fleming v Ponziani, 24 NY2d 105, 111 (1969) ("a party defending a suit on the basis of a release has a presumption in his favor that there have been no irregularities in its execution"); accord George Backer Mgt. Corp., 46 NY2d at 219.
Nor does Scotts address the inference that a release executed by the Treasurer of a corporation is, at a minimum, imbued with apparent authority, especially where Scotts, as the principal, receives and keeps the consideration for the Release. See Hallock v State of New York, 64 NY2d 224, 231 (1984). In opposition to summary judgment, Scotts was required to assemble and lay bare its proofs to establish the existence of genuine triable issues of fact. Mere reliance upon inherently incredible and contraindicated allegations is insufficient for that purpose. Goodman v Goodman, 62 AD2d 939, 940 (1st Dept 1978).
Accordingly, it is hereby
ORDERED that the motion of defendant Pacific Employers Insurance Company for summary judgment dismissing the complaint is granted and the complaint is dismissed with costs and disbursements to that defendant as taxed by the Clerk of the Court upon submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly; and it is further
ADJUDGED and DECLARED that the Settlement Agreement and Release executed by and between plaintiff the Scotts Company, LLC and defendants, the ACE Companies (as listed in the Appendix of that document), in December of 2000, is valid and enforceable.