Grand Union Supermarkets of the Virgin Islands, Inc. v. Lockhart Realty Inc. , 493 F. App'x 248 ( 2012 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 11-4645
_____________
GRAND UNION SUPERMARKETS OF THE
VIRGIN ISLANDS, INC; RED APPLE GROUP, INC.
v.
LOCKHART REALTY INC, f/k/a/ H.E. LOCKHART MANAGEMENT, INC.,
Appellant
_____________
No. 11-1963
_____________
GRAND UNION SUPERMARKETS OF THE
VIRGIN ISLANDS, INC.; RED APPLE GROUP, INC.
v.
LOCKHART REALTY, INC., f/k/a H.E. LOCKHART MANAGEMENT, INC.,
Appellant
_____________
No. 12-1021
_____________
GRAND UNION SUPERMARKETS OF THE VIRGIN ISLANDS, INC.;
RED APPLE GROUP, INC.
v.
LOCKHART REALTY INC.,
f/k/a H.E. LOCKHART MANAGEMENT, Inc.,
Appellant
_____________
On Appeal from the District Court of the Virgin Islands
(D.C. No. 3-01-cv-00044)
District Judge: Honorable Juan R. Sanchez
_______________
Argued May 11, 2012
Before: CHAGARES, JORDAN, and COWEN, Circuit Judges.
(Filed: August 15, 2012 )
Gregory H. Hodges, Esquire (Argued)
Justin K. Holcombe, Esquire
Michael C. Quinn, Esquire
Dudley, Topper & Feuerzeig
1000 Frederiksberg Gade
P.O. Box 756
St. Thomas, VI 00804
Counsel for Appellant
Henry F. Reichner, Esquire (Argued)
Reed Smith
1650 Market Street
2500 One Liberty Place
Philadelphia, PA 19103
Karin A. Bentz, Esquire
Law Offices of Karin A. Bentz
18 Dronningens Gade
Suite 8
St. Thomas, VI 00802
Counsel for Appellees
_______________
OPINION
_______________
2
CHAGARES, Circuit Judge.
Lockhart Realty Inc., formerly H.E. Lockhart Management, (“Lockhart”) appeals
from the District Court’s judgment in favor of, and award of prejudgment interest and
attorneys’ fees to, the plaintiff, Grand Union Supermarkets of the Virgin Islands, Inc.
(“Grand Union”). 1 For the reasons discussed below, we will reverse.
I.
Because we write solely for the parties, we recount only the facts that are relevant
to our disposition. This case, and three related cases involving the same parties, arose out
of the destruction of a commercial structure in St. Thomas owned by Lockhart (“the
Building”) during Hurricane Marilyn on September 15, 1995. At the time, Lockhart was
leasing the Building to Grand Union. Pursuant to its lease from Lockhart for the Building
(“the Lease”), Grand Union was required to insure the Building and to rebuild promptly
at its own expense if the Building was damaged. When Hurricane Marilyn struck, Grand
Union had self-insured the property but had not taken out a separate insurance policy.
After Hurricane Marilyn destroyed the Building, Grand Union brought suit in the
Virgin Islands Territorial Court in 1996 against Lockhart seeking, inter alia, a declaratory
judgment that the Lease was still in force (“Grand Union I”). In addition, Grand Union
purchased retroactive insurance coverage from National Union Fire Insurance Co.
1
Grand Union is a wholly owned subsidiary of Red Apple Group, Inc. (“Red
Apple”). In turn, Red Apple is owned by John Castimatidis. Red Apple was originally a
plaintiff in this lawsuit but voluntarily dismissed its claims on the first day of trial.
Hereinafter, Grand Union, Red Apple, and John Castimatidis will be referred to
collectively as “Grand Union.”
3
(“National Union”) for the period of October 1, 1994 through October 1, 1995. Because
the Building had already been destroyed at the time the policy was purchased, National
Union insisted that Grand Union execute a side agreement providing that it would make
no claims for losses to the Building relating to Hurricane Marilyn and would indemnify
National Union in the event that the insurance company was compelled to make a
payment to Lockhart. The insurance policy, therefore, was essentially purchased so that
Grand Union could prove that it had fulfilled the terms of the Lease. Notwithstanding
these efforts, in 1997, Lockhart brought suit in the Virgin Islands Territorial Court
against National Union and Grand Union for breach of the Lease, seeking $2.7 million in
damages for Grand Union’s failure to rebuild the Building (“Lockhart I”).
The case at bar arose out of the settlement of Grand Union I and Lockhart I.
Although National Union and Grand Union originally shared counsel in Lockhart I, on
December 16, 1998, National Union notified Grand Union in a letter that it would retain
its own attorney, negotiate with Lockhart separately, and seek indemnification from
Grand Union should it be required to pay Lockhart. In relevant part, National Union’s
letter stated:
We expect to enforce National Union’s rights under the letter of
undertaking and the indemnity agreement against Red Apple/Grand Union.
Under those undertakings Red Apple/Grand Union has no claim to any
insurance proceeds and will be required to indemnify and hold harmless
National Union from any payments which it may be forced to make to
[Lockhart] . . . .
This is to advise you that we intend to deal directly with [Lockhart] in
regard to claims it may have against National Union’s policy proceeds,
regardless of whether any further action is undertaken by [Lockhart] against
National Union in the territorial court of the Virgin Islands. . . .
4
In summary, National Union hereby disassociates itself from all previous
actions taken by Red Apple/Grand Union in connection with its relationship
with [Lockhart] and/or the territorial court of the Virgin Islands. We reject
any claim that Red Apple/Grand Union may make to insurance proceeds,
and advise you that we will take steps to satisfy the claims [Lockhart] has
against policy proceeds, and we will enforce all aspects of the indemnity
agreement entered into by Red Apple Group and Grand Union on February
15, 1996.
Joint Appendix (“JA”) 1143-44. In addition to that clear disassociation, National Union
never paid any legal fees to Grand Union’s counsel.
Accordingly, Lockhart and National Union began settlement negotiations and, on
March 1, 1999, entered into an agreement by which National Union agreed to pay
Lockhart $2.7 million to reconstruct the Building and Lockhart released all claims against
National Union (“National Union-Lockhart Settlement”). Neither Lockhart nor National
Union immediately informed Grand Union of their separate settlement.
Meanwhile, Grand Union and Lockhart engaged in separate settlement
negotiations and, on March 4, 1999, entered into a “Mediated Settlement Agreement” to
settle Grand Union I and Lockhart I. The Mediated Settlement Agreement provided that
(1) mutual releases would be exchanged, (2) Grand Union would pay Lockhart $35,000
and transfer to Lockhart its unused architectural plans for the Building, and (3) Grand
Union would surrender its claim to the five years remaining on the Lease. The parties
executed a formal release the following day in which Grand Union released all claims
against Lockhart and Lockhart released all claims against both Grand Union and National
Union.
5
Days after the Mediated Settlement Agreement, National Union brought suit
against Grand Union in New York (“New York Litigation”), seeking indemnification of
the $2.7 million that it paid to Lockhart pursuant to the National Union-Lockhart
Settlement. In settlement of that suit, on April 30, 2004, Grand Union paid $1.5 million
to National Union in exchange for a release of all of National Union’s claims it.
While National Union and Grand Union were settling the New York Litigation, on
February 26, 2001, Grand Union filed this lawsuit against Lockhart. In its complaint,
Grand Union alleged fraud, unjust enrichment, and breach of the covenant of good faith
and fair dealing. Grand Union’s claims are based on Lockhart’s failure to disclose the
National Union-Lockhart Settlement to Grand Union during their settlement negotiations.
Because Lockhart had already released all claims against National Union before March 4,
1999, Lockhart’s release of its claims against National Union in the Mediated Settlement
Agreement was worthless. Thus, Grand Union maintains that Lockhart was unjustly
enriched because it obtained Grand Union’s consideration in the Mediated Settlement
Agreement in exchange for a release that was worth less than Grand Union understood it
to be. Grand Union claims that it was deceived because it settled under the mistaken
belief that National Union would be included in the settlement and, as such, National
Union would not turn to Grand Union for indemnification.
On January 3, 2005, the District Court dismissed Grand Union’s fraud and good
faith claims. The District Court later denied Lockhart’s motion for summary judgment
on the unjust enrichment claim, however, because “a reasonable juror could determine
that Lockhart did not disclose to Grand Union that it had agreed to release its claims
6
against National Union so that Grand Union would confer valuable consideration upon it
in exchange for the dismissal of those very same claims.” JA 5. On December 13, 2010,
a jury found in favor of Grand Union on the unjust enrichment claim and awarded it $2.7
million in restitution. The District Court thereafter denied Lockhart’s renewed motion
for judgment as a matter of law or, in the alternative, for a new trial, and awarded Grand
Union prejudgment interest and attorneys’ fees. Lockhart timely filed this appeal.
II.
The District Court of the Virgin Islands had diversity jurisdiction over this case
pursuant to 48 U.S.C. § 1612(a) and 28 U.S.C. § 1332. See Edwards v. HOVENSA,
LLC, 497 F.3d 355, 357 (3d Cir. 2007). We have jurisdiction over the appeal pursuant to
28 U.S.C. § 1291.
We review de novo the District Court’s denials of Lockhart’s motion for summary
judgment and renewed motion for judgment as a matter of law. Stratechuk v. Bd. of
Educ., South Orange-Maplewood Sch. Dist., 587 F.3d 597, 603 (3d Cir. 2009); Acumed
LLC v. Advanced Surgical Servs., Inc., 561 F.3d 199, 211 (3d Cir. 2009). Summary
judgment should be rendered “if the movant shows that there is no genuine issue as to
any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). “In making this determination, we must view the facts in the light most
favorable to the nonmoving party and draw all inferences in that party’s favor.”
Stratechuk, 587 F.3d at 603 (quotation marks omitted).
There is a similarly high standard for overturning a jury verdict on a renewed
motion for judgment as a matter of law. Legal questions are reviewed de novo and the
7
jury’s factual findings are reviewed to “determine whether the evidence and justifiable
inferences most favorable to the prevailing party afford any rational basis for the verdict.”
Intermilo, Inc. v. I.P. Enters., Inc., 19 F.3d 890, 892 (3d Cir. 1994). A court may grant a
renewed motion for judgment as a matter of law “only if ‘the record is critically deficient
of the minimum quantum of evidence’ to sustain the verdict.” Acumed LLC, 561 F.3d at
211 (quoting Gomez v. Allegheny Health Servs., Inc., 71 F.3d 1079, 1083 (3d Cir.
1995)). This Court must decide “whether the evidence is sufficient to sustain liability.”
Id. (quoting Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993)). In
doing so, the Court “may not weigh the evidence, determine the credibility of witnesses,
or substitute its version of the facts for the jury’s version.” Id. (quoting Lightning Lube,
Inc., 4 F.3d at 1166).
III.
Lockhart appeals the District Court’s denial of (1) its motion to dismiss or for
summary judgment on the unjust enrichment claim; (2) its renewed motion for judgment
as a matter of law pursuant to Federal Rule of Civil Procedure 50(b) or, in the alternative,
for a new trial pursuant to Federal Rule of Civil Procedure 59(a)(1)(A); and (3) its motion
to strike Grand Union’s jury demand. Lockhart also maintains that Grand Union failed to
prove damages and challenges the award of attorneys’ fees and prejudgment interest.
Lockhart first argues that the District Court should have dismissed Grand Union’s
unjust enrichment claim because it was dependant on proof of the same facts as the fraud
claim that the District Court dismissed as issue precluded. Because we agree, we will
reverse the judgment of the District Court.
8
The District Court dismissed Grand Union’s fraud claim in this action on January
3, 2005. In the order of dismissal, the District Court held that Grand Union was
collaterally estopped from arguing that Lockhart’s failure to disclose its settlement with
National Union was fraudulent because Grand Union had raised the same argument in the
New York Litigation and it had been rejected by the court. In the New York Litigation,
defendant Grand Union alleged in a counterclaim that National Union had committed
fraud by intentionally failing “to disclose material aspects of its negotiation and
settlement of the Lockhart claim to Red Apple/Grand Union.” JA 54. The New York
Supreme Court analyzed Grand Union’s counterclaim as a fraudulent or tortious
nondisclosure cause of action. Such a claim in New York requires a showing that “(1)
the defendant made a material false representation, (2) the defendant intended to defraud
the plaintiffs thereby, (3) the plaintiffs reasonably relied upon the representation, and (4)
the plaintiffs suffered damage as a result of their reliance.” Swersky v. Dreyer & Traub,
219 A.D.2d 321, 326 (N.Y. App. Div. 1996) (citation omitted). In addition, the plaintiff
must prove that the defendant had a duty to disclose material information. Id. A duty to
disclose arises where there is a fiduciary relationship between the parties. Id. at 327. In
addition, “[u]nder the ‘special facts’ doctrine, a duty to disclose arises where one party’s
superior knowledge of essential facts renders a transaction without disclosure inherently
unfair.” Id. (quotation marks and citation omitted).
The New York Supreme Court found that National Union had no duty to disclose,
and Grand Union had no actionable claim for fraud, because there was no fiduciary
relationship between National Union and Grand Union, and National Union did not have
9
“‘superior knowledge of the essential facts,’” which would have rendered the transaction
without disclosure “‘inherently unfair.’” JA 54 (quoting Swersky, 219 A.D.2d at 327).
National Union did not have superior knowledge because it had advised Grand Union of
its intention to deal directly with Lockhart “in regard to claims it may have against
National Union’s policy proceeds” on December 16, 1998, months before the Mediated
Settlement Agreement. Id. at 55. Accordingly, Grand Union was on notice that National
Union would settle separately with Lockhart, and Grand Union did not have an actionable
fraud claim based on fraudulent nondisclosure.
Although Grand Union’s fraud claim in the New York Litigation was against
National Union rather than Lockhart, the District Court nonetheless held that Grand
Union’s fraud claim against Lockhart in this litigation was issue precluded because it
depended on proof of the exact same facts as the fraud claim in the New York Litigation.
In both cases, Grand Union would have had to prove that National Union or Lockhart had
knowledge of essential facts that rendered the Mediated Settlement Agreement inherently
unfair. 2 The question we decide now is whether the dismissal of the fraud claim
compelled dismissal of the unjust enrichment claim as well.
Issue preclusion is appropriately invoked if:
(1) the previous determination was necessary to the decision, (2) the
identical issue was previously litigated, (3) the issue was decided in a
decision that [was] final, valid, and on the merits, and (4) the party that is
being precluded from relitigating the issue was adequately represented in
the previous action.
2
Grand Union also argues that the District Court erred in dismissing the fraud
claim but Grand Union did not appeal that decision and that issue is not before this Court.
10
Gonzalez v. AMR, 549 F.3d 219, 223 (3d Cir. 2008) (quoting Harrilal v. Blackwood, No.
CIV. 619/1998, 2001 WL 1769735, at *4 (V.I. Terr. Ct. Dec. 13, 2001)). The relevant
elements of tortious nondisclosure in the Virgin Islands are the same as in New York,
which are set forth above. 3
No Virgin Islands statute provides an unjust enrichment cause of action. Instead,
pursuant to 1 V.I.C. § 4, “[t]he rules of the common law, as expressed in the restatements
of the law . . . shall be the rules of decision in the courts of the Virgin Islands . . . in the
absence of local laws to the contrary.” See also Hefferman v. U.S.Virgin Islands, No.
2009/0087, 2010 WL 4942160, at *2 (D.V.I. Nov. 30, 2010). Under the Restatement
3
The Restatement (Second) of Torts § 551(1), which is applied in the Virgin
Islands, defines tortious nondisclosure as follows:
One who fails to disclose to another a fact that he knows may justifiably
induce the other to act or refrain from acting in a business transaction is
subject to the same liability to the other as though he had represented the
nonexistence of the matter that he has failed to disclose, if, but only if, he is
under a duty to the other to exercise reasonable care to disclose the matter
in question.
In turn, a duty to disclose exists where, inter alia,
(b) matters known to him that he knows to be necessary to prevent his
partial or ambiguous statement of the facts from being misleading; and
....
(e) facts basic to the transaction, if he knows that the other is about to enter
into it under a mistake as to them, and that the other, because of the
relationship between them, the customs of the trade or other objective
circumstances, would reasonably expect a disclosure of those facts.
Id. § 551(2).
11
(Third) of Restitution § 1 (2011), “[a] person who is unjustly enriched at the expense of
another is subject to liability in restitution.” The Restatement (Third) of Restitution
§ 13(1) specifies that the mistake that leads to unjust enrichment can be induced by either
fraud or material misrepresentation:
A transfer induced by fraud or material misrepresentation is subject to
rescission and restitution. The transferee is liable in restitution as necessary
to avoid unjust enrichment.
The comments explain that if the transfer is induced by an “innocent misrepresentation,”
it “is subject to rescission only if the misrepresentation was material.” Id. cmt c. 4 Thus,
to prevail on an unjust enrichment claim based on a mistake of fact, a plaintiff must prove
(1) that a mistake of fact caused the plaintiff to confer a benefit upon another and (2) that
the mistake was due to either fraud or an innocent but material misrepresentation. In
addition, the court must conclude that equity requires the defendant to return the unjust
benefit to the plaintiff. Cruse v. Callwood, D.C. Civ. App. Nos. 2006-71 & 2006-76,
2010 WL 438173, at *6 (D.V.I. Feb. 3, 2010).
4
Similarly, the Restatement (First) of Restitution § 28 (1937) provided that:
A person who has paid money to another because of a mistake of fact and
who does not obtain what he expected in return is entitled to restitution
from the other if the mistake was induced:
(a) by the fraud of the payee, or
(b) by his innocent and material misrepresentation . . . .
Because the Restatement (Third) of Restitution was published after the District Court
denied Lockhart’s renewed motion for judgment as a matter of law, we mention the
relevant provisions from both the First and Third Restatements here. As applied to this
case, there is no material difference between them, however.
12
Not all of their elements are identical, but tortious nondisclosure and unjust
enrichment claims share the element of material mistake of fact. In addition, where there
is no fiduciary relationship, both causes of action require a showing that the defendant’s
misstatement or omission rendered the transaction unfair or unjust. Although the New
York Supreme Court did not state it directly, it held that there was no material mistake of
fact here because National Union’s knowledge of the National Union-Lockhart
Settlement was not “superior knowledge” of an “essential fact” that rendered the
transaction inherently unfair. Thus, with respect to the material mistake element of an
unjust enrichment claim, Grand Union’s claim is barred by issue preclusion by the
Court’s finding in the New York Litigation. As such, the District Court erred in
declining to dismiss the unjust enrichment claim. 5
Our decision in Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris,
Inc., 171 F.3d 912 (3d Cir. 1999), is instructive. In Steamfitters, the unjust enrichment
and fraud claims both failed because they shared the element of proximate causation of
damages and the plaintiffs failed to establish that element. Because the plaintiff could
not prove its fraud claim, we declined to afford it a roundabout route to recovery by way
of unjust enrichment. We explained:
In the tort setting, an unjust enrichment claim is essentially another way of
stating a traditional tort claim (i.e., if defendant is permitted to keep the
benefit of his tortious conduct, he will be unjustly enriched). . . . We can
5
The other requirements for issue preclusion are also satisfied. The New York
Litigation was a final decision on the merits, the dismissal of the fraud claim was
essential to the adjudication of Grand Union’s counterclaim, and Grand Union, which
was a party to the New York Litigation, was adequately represented and had a full and
fair opportunity to litigate the issue in that case.
13
find no justification for permitting plaintiffs to proceed on their unjust
enrichment claim once we have determined that the District Court properly
dismissed the traditional tort claims because of the remoteness of plaintiffs’
injuries from defendants’ wrongdoing.
Id. at 936-37; see also Allegheny Gen. Hosp. v. Philip Morris, Inc., 228 F.3d 429, 447
(3d Cir. 2000) (adopting the declaration in Steamfitters that “[i]n the tort setting, an
unjust enrichment claim is essentially another way of stating a traditional tort claim.”). 6
Likewise, in this case, Grand Union’s fraud and unjust enrichment claims both
require proof that Lockhart’s nondisclosure was material, caused Grand Union to enter
into the Mediated Settlement Agreement, and rendered the settlement unfair or unjust.
Because the New York Supreme Court decided those questions in the negative, we
conclude that the unjust enrichment claim should have been dismissed on the same basis
as the fraud claim.
Moreover, Grand Union’s choice to pursue the unjust enrichment claim on a tort-
based theory of nondisclosure meant that its fraud and unjust enrichment claims were one
and the same. It is generally understood that tortious nondisclosure is a fraud claim based
on an omission rather than an affirmative misstatement. See Duquesne Light Co. v.
Westinghouse Elec. Corp., 66 F.3d 604, 612-13 (3d Cir. 1995) (discussing claim for
tortious nondisclosure as a “fraudulent omission claim”); Lightning Lube, Inc., 4 F.3d at
1185 (same); Navarro v. Gov’t of the V.I., 18 V.I. 473, 476-77 (D.V.I. 1981) (“[I]n
6
Similarly, in Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust
v. Walgreen Co., 631 F.3d 436, 448 (7th Cir. 2011), the Court of Appeals for the Seventh
Circuit upheld the District Court’s holding that the dismissal of plaintiff’s fraud claim
“took the unjust enrichment claim with it” because plaintiff failed to separately allege
facts supporting the unjust enrichment claim.
14
certain circumstances nondisclosure is treated as a fraudulent misrepresentation[.]”);
Bortz v. Noon, 729 A.2d 555, 560 (Pa. 1999) (“The tort of intentional non-disclosure has
the same elements as intentional misrepresentation except in the case of intentional non-
disclosure, the party intentionally conceals a material fact rather than making an
affirmative misrepresentation.” (quotation marks omitted)). Thus, by instructing the jury
on tortious nondisclosure, the District Court conflated the fraud and unjust enrichment
claims and asked the jury to decide a question that was already answered in the New
York Litigation. This confusion illustrates that the fraud and unjust enrichment claims
are inseparable and that the unjust enrichment claim was an impermissible attempt at a
second bite at the apple.
We hold, therefore, that Grand Union’s unjust enrichment claim was barred by
issue preclusion and should have been dismissed. Because we hold in favor of Lockhart
on the basis of issue preclusion, we need not reach the other arguments that Lockhart
raised in this appeal.
IV.
In accordance with the foregoing, we will reverse the judgment of the District
Court and remand for further proceedings consistent with this opinion.
15
Grand Union Supermarkets of the Virgin Islands, Inc. and Red Apple Group, Inc. v.
Lockhart Realty, Inc f/k/a H.E. Lockhart Management, Inc., Nos. 11-1963, 11-4645, 12-
1021
JORDAN, Circuit Judge, concurring.
I agree with the Majority’s conclusion that we should vacate the District Court’s
December 30, 2011 judgment in favor of Grand Union on Grand Union’s unjust
enrichment claim. However, I write separately because I believe that the District Court
should have granted Lockhart’s cross-motion to dismiss Grand Union’s unjust
enrichment claim based on the parties’ agreement to release all claims arising out of the
Lease.
As the Majority opinion correctly notes, Grand Union and Lockhart executed a
formal release on March 5, 1999 (the “Release”). The Release provides, in pertinent part:
Grand Union hereby releases, waives, and forever discharges
any and all claims for which it and its respective agents,
affiliates, parent companies, subsidiaries, representatives,
attorneys, officers, directors, shareholders, employees,
predecessors, successors, and assigns, … may have or ever
had or will have against [Lockhart] and its present and former
agents, employees, officers, directors, shareholders, attorneys,
predecessors, successors, and assigns … arising out of or
related to the Lease, including any and all claims that were
asserted or could have been asserted in that certain action
captioned Grand Union Supermarkets of the Virgin Islands,
Inc. v. H.E. Lockhart Management, Inc., Civil No. 50/1996,
Territorial Court of the Virgin Islands, and any claims that
were asserted or could have been asserted in that certain
action captioned H.E. Lockhart Management, Inc. v. National
Union Fire Insurance Company of Pittsburgh, Inc., Red
Apple Group and Grand Union Supermarket of the Virgin
Islands, Inc., Civil No. 909/1998, Territorial Court of the
Virgin Islands.
(Joint App. at 511.) Lockhart argues that the Release unambiguously bars all claims
arising out of or related to the Lease, and, therefore, Grand Union’s unjust enrichment
claim fails. 1 I agree.
The Verified Complaint avers that “[Lockhart] fraudulently induced Grand Union
to give up the Lease by failing to disclose that it had already settled the very same claims
with [National Union], whom [Lockhart] knew was going to seek indemnification from
Grand Union and Red Apple for the $2.7 million it paid to [Lockhart].” (Id. at 71
(emphasis added).) It also alleges that “[Lockhart] – which already had been paid $2.7
million from National Union – received the benefit it bargained for (the Lease), but
Grand Union did not receive the benefit it bargained for.” (Id. (emphasis added).) Those
1
“The rules of interpretation that apply to contracts generally apply also to
writings that purport to be releases.” Restatement (Second) of Contracts § 284 cmt. c. In
interpreting a contract, we attempt to ascertain the parties’ intent as “objectively
manifested by them” and, to “make a preliminary inquiry as to whether the contract is
ambiguous.” Sunshine Shopping Ctr., Inc. v. Kmart Corp., 85 F. Supp. 2d 537, 540
(D.V.I. 2000). We apply the “plain meaning rule,” which “assumes that the intent of the
parties to [the contract] is embodied in the writing itself.” Id. (internal quotation marks
omitted) (quoting Hullet v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d
Cir. 1994)). Moreover, we interpret “[w]ords and other conduct … in the light of all the
circumstances,” and give great weight to “the principal purpose of the parties” if it is
ascertainable. Restatement (Second) of Contracts § 202(1).
The party pleading a release as an affirmative defense bears “the burden of
establishing its existence and meaning.” Eulo v. Deval Aerodynamics, Inc., 430 F.2d
325, 328 (3d Cir. 1970). Once the party satisfies its burden, the burden then shifts to the
party seeking to invalidate the release to prove that the release is unenforceable. See
Lloyd v. Hovensa, LLC, 369 F.3d 263, 274 (3d Cir. 2004) (“The burden of proving a
generally applicable contract defense lies with the party challenging the contract
provision.”); cf. Harris v. Green Tree Fin. Corp., 183 F.3d 173, 181 (3d Cir. 1999) (“The
party challenging a contract provision as unconscionable generally bears the burden of
proving unconscionability.”).
2
allegations powerfully suggest that Grand Union’s unjust enrichment claim against
Lockhart relates to, and hence is barred by, the Release.
Grand Union, however, argues that the Release does not foreclose its unjust
enrichment claim because the Release is void on public policy grounds. To support that
argument, it relies on the Restatement (Second) of Contracts § 195, which provides that
even if a contract unambiguously exempts a party from liability, it is unenforceable on
public policy grounds if it attempts to “exempt[] a party from tort liability for harm
caused intentionally or recklessly.” Restatement (Second) of Contracts § 195(1). The
problem with that argument, however, is that the jury made no factual findings on the
issue of whether Lockhart acted intentionally or recklessly when it did not disclose its
settlement with National Union. And the lack of findings on that issue is no surprise
because the District Court did not instruct the jury to address it. 2 (See Joint App. at 107-
149 (jury instructions).) Instead, the District Court instructed the jury that, in order for
Grand Union to prevail on its unjust enrichment claim, the jury must find that “(1)
[Lockhart] was enriched; (2) [Lockhart’s] enrichment was at [Grand Union’s] expense;
2
None of the District Court’s instructions asked the jury to decide whether
Lockhart acted intentionally or recklessly when it did not disclose its settlement with
National Union to Grand Union. In addition, there is no evidence in the appellate record
demonstrating that Grand Union ever asked the District Court for such an instruction –
indeed, Grand Union’s proposed jury instructions contain no such request and Grand
Union has not directed us to any evidence that it requested a special interrogatory. Thus,
because the jury made no finding of fact on the issue of whether Lockhart intentionally or
recklessly failed to disclose its agreement with National Union, and Grand Union
provides us with no indication that it asked the District Court to charge the jury on that
issue, we are left to conclude that Grand Union did not attempt to, and cannot, satisfy its
burden of demonstrating that the Release is unenforceable.
3
and (3) [t]he circumstances were such that in fairness and good conscience [Lockhart]
should return the value of the enrichment to [Grand Union].” (Id. at 128.) Based on that
instruction, the jury could find in favor of Grand Union without finding that Lockhart
acted either intentionally or recklessly.
Therefore, because the plain language of the Release bars Grand Union’s unjust
enrichment claim, and because the jury made no finding of fact that bears on the issue of
whether the Release is void for public policy reasons, I would vacate the District Court’s
December 6, 2010 order denying Lockhart’s cross-motion to dismiss and would reverse
the judgment in Grand Union’s favor. 3
3
None of the other arguments Grand Union raises have merit. First, Grand Union
asserts that the Release is void because, under our precedent, “‘a release … will not be
construed to bar a claim which had not accrued at the date of its execution or a claim
which was not known to the party giving the release.’” (Appellees’ Br. at 48 (quoting
Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., 247 F.3d 44, 58 (3d Cir. 2001)
(citing Three Rivers Motors Co. v. Ford Motor Co., 522 F.2d 885, 896 (3d Cir. 1975)
(applying Pennsylvania law))).) But that rule does not apply, when, as here, the plain
language of a contract demonstrates that the parties intended to bar all unknown, future
claims. See Three Rivers Motors Co., 522 at 896 (noting that “where … parties manifest
an intent to settle all accounts, [a] release will be given full effect even as to unknown
claims”).
Second, Grand Union claims that its unjust enrichment claim “‘arises out of and
relates to’ the negotiation of the release and settlement of the litigation between the
parties and not the Lease itself.” (Appellees’ Br. at 45-46.) That argument is also
unpersuasive because, as Lockhart correctly notes in its Reply Brief, “Grand Union’s
entire case hinged on its argument that Grand Union was entitled to restitution for its
surrender of the Lease to [Lockhart], which, Castimatidis testified, was worth $2.75
million.” (Appellant’s Reply Br. at 24 (original emphasis removed and new emphasis
added).) Under these conditions, there is no question that Grand Union’s unjust
enrichment claim “relates to” the Lease.
Third, Grand Union asserts that the Release was the product of fraud by Lockhart.
(See Appellees’ Br. at 42-43 (“A releaser such as Grand Union can always set up fraud
… as grounds to ignore a release that would otherwise bar its suit.”); id. at 43 (noting that
“[w]here there has been a mutual mistake or unilateral mistake by one party and fraud by
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the other party, the party executing a general release as a result of such mistake may sue
to reform the release or may avoid the … release … .” (citation and internal quotation
marks omitted)); id. at 44 (“Grand Union presented evidence tending to establish … fraud
by [Lockhart] … .”).) But again, that argument is unavailing because the jury did not
consider whether Lockhart’s conduct was intentional or fraudulent.
In the end, Grand Union is left with what it bargained for: the waiver of all claims
that arise out of or relate to the Lease. And, it is that bargain that precludes it from
succeeding on its unjust enrichment claim.
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