Engineered Abrasives, Inc. v. American Machine Products & Se , 882 F.3d 650 ( 2018 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 17-1429
ENGINEERED ABRASIVES, INC.,
Plaintiff-Appellant,
v.
AMERICAN MACHINE PRODUCTS
& SERVICE, INC., et al.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 13-CV-7342 — Sara L. Ellis, Judge.
____________________
ARGUED SEPTEMBER 20, 2017 — DECIDED FEBRUARY 13, 2018
____________________
Before MANION AND KANNE, Circuit Judges, and MILLER,
District Judge.*
* The Honorable Robert L. Miller, Jr., of the United States District
Court for the Northern District of Indiana, sitting by designation.
2 No. 17-1429
MILLER, District Judge. The principals of American Ma-
chine Products are a father and son who left employment at
Engineered Abrasives, Inc., to start a competing business in
2011. Bad blood seems to have marked the companies' rela-
tionship ever since, to the apparent benefit of the lawyers who
have represented them over years of bitter litigation. This case
involves two lawsuits from that history.
In March 2015, Engineered Abrasives won a default judg-
ment against American Machine and its principals for
$714,814.04 and injunctive relief for stealing trade secrets and
infringing trademarks. Five months later, Engineered Abra-
sives sued American Machine and its principals again. This
time, with the help of the magistrate judge, the parties
reached a settlement. American Machine’s insurer would pay
$75,000 to Engineered Abrasives, and a permanent injunction
would be entered against slander by American Machine or its
principals with a $250,000 liquidated damages clause accom-
panying the injunction.
Paragraph 8 of the settlement agreement contains a release
provision:
a. [Engineered Abrasives], on behalf of itself, its
parents, subsidiaries, affiliates, officers, direc-
tors, employees, agents, successors and assigns,
hereby releases [American Machine], their sub-
sidiaries, affiliates, officers, directors, employ-
ees, agents, attorneys, shareholders, successors
and assigns, of and from any and all rights,
claims, debts, demands, acts, agreements, liabil-
ities, obligations, damages, costs, attorneys’
fees, expenses, actions, and/or causes of action
of every nature, character and description,
No. 17-1429 3
whether known or unknown, suspected or un-
suspected, which it ever had, now has, or may
hereafter claim to have by reason of any matter,
cause or circumstances whatsoever arising or
occurring prior to and including the date of the
Agreement, including but not limited to the
claims and defenses set forth in the Action.
A similar release addressed American Machine’s claims
against Engineered Abrasives. The agreement’s Recital A de-
fined “the Action” as Engineered Abrasive’s August 2015 suit
(the latter of the two suits involved in today’s case).
American Machine returned to the district court in the ear-
lier case under Federal Rule of Civil Procedure 60(b), report-
ing that the settlement covered the March 2015 trademark
judgment as well as the new case; Engineered Abrasives con-
tended that it had only settled the new case. The written set-
tlement didn’t mention a global settlement.
Engineered Abrasives said it hadn’t intended to release
the earlier default judgment, and pointed to extrinsic evi-
dence to support its position: Engineered Abrasives’ pre-set-
tlement demand letter didn’t mention the earlier judgment;
the parties didn’t discuss the earlier judgment during the set-
tlement conference; the working draft of the settlement agree-
ment didn’t contain anything about satisfaction of the earlier
judgment; the parties didn’t discuss, on the record, satisfying
the judgment; the settlement agreement was for a sum just a
tenth of the amount of the earlier judgment; and Engineered
Abrasives’ attorney objected at the first suggestion that the
settlement agreement might encompass the earlier judgment.
4 No. 17-1429
We can’t vouch for the accuracy of those factual assertions
because the district court didn’t consider them. Applying Illi-
nois law, the district court found the settlement agreement
unambiguous and released both the default judgment in the
March 2015 case and the judgment in the more recent case. A
court deciding whether the parties intended to include other
claims in a release can’t consider extrinsic evidence unless the
contract is ambiguous. See Farm Credit Bank of St. Louis v. Whit-
lock, 581 N.E.2d 664, 667 (Ill. 1991). Engineered Abrasives ap-
peals the district court’s ruling, arguing that the settlement
agreement is ambiguous and the district court should have
considered its extrinsic evidence. Whether a contract is am-
biguous is a question of law, so we review without deferring
to the district court’s opinion. See Prestwick Capital Mgmt. v.
Peregrine Fin. Group, 727 F.3d 646, 655 (7th Cir. 2013) (quoting
EraGen Biosci., Inc. v. Nucleic Acids Licensing LLC, 540 F.3d 694,
698 (7th Cir. 2008)) (“If [a] contract is ambiguous, a more def-
erential standard of review is applied to the interpretation of
the terms and factual findings.”).
American Machine argues that Engineered Abrasives has
waived any argument that the settlement agreement is am-
biguous because it claimed in the district court that the agree-
ment was unambiguous, though Engineered Abrasives said it
was unambiguously supportive of Engineered Abrasives.
What isn’t argued in the district court generally can’t be ar-
gued on appeal either. Roberts v. Reliance Standard Life Ins. Co.,
130 F.3d 1231, 1238 (7th Cir. 1997). Although Engineered
Abrasives argued ambiguity in the district court as a second-
ary argument, its argument isn’t waived.
Illinois law provides the rule of decision in this diversity
case. A court’s job in construing a negotiated release under
No. 17-1429 5
Illinois law is to determine what the parties intended. Miller
v. Lawrence, 61 N.E.3d 990, 997 (Ill. Ct. App. 2016) (“A release
will not be construed to include claims that were not within
the contemplation of the parties.”); Ainsworth Corp. v. Cenco
Inc., 437 N.E.2d 817, 822 (Ill. Ct. App. 1982) (“Illinois courts
have uniformly held that the scope and extent of a release is
controlled by the intent of the parties signing it.”). Courts look
to the language of the settlement agreement to determine the
parties’ intent unless the agreement is ambiguous. See Gladi-
nus v. Laughlin, 366 N.E.2d 430, 432 (Ill. Ct. App. 1977).
If a settlement agreement contains specific terms as well
as general terms, the specific language controls. Carlisle v.
Snap-On Tools, 648 N.E.2d 317, 321 (Ill. Ct. App. 1995). In seek-
ing the parties’ intent, Illinois courts generally disfavor a
reading to which a reasonable person would be unlikely to
have agreed. See Bank of Commerce v. Hoffman, 829 F.3d 542,
548 (7th Cir. 2016). But a court can’t rewrite a release to make
it objectively more reasonable: if the agreement is unambigu-
ous, “[a] unilateral or self-induced mistake is not a valid
ground for setting aside a clear and unambiguous release.”
Rakowski v. Lucente, 472 N.E.2d 791, 794 (Ill. 1984).
Illinois courts will look to what each party knew to learn
what each party meant: if the releasing party knew of other
claims not mentioned in the release, a general release can’t
foreclose the unmentioned claims, but “where both parties
were aware of an additional claim at the time of signing the
release, courts have given effect to the general release lan-
guage of the agreement to release that claim as well.” Farm
Credit Bank of St. Louis v. Whitlock, 581 N.E.2d at 667; accord
Janowiak v. Tiesi, 932 N.E.2d 569, 586 (Ill. Ct. App. 2010).
6 No. 17-1429
Each side relies on our precedent. American Machine re-
lies on Hampton v. Ford Motor Company., 561 F.3d 709 (7th Cir.
2009). After Ford employee Collette Hampton filed a charge
of sexual harassment with the Illinois Department of Human
Rights and the EEOC, she decided to accept a seniority-based
reduction in force buyout Ford offered. She signed a waiver
that amounted to a release of “any and all rights or claims”
she might have against Ford “relating in any way to” her em-
ployment or the termination of her employment, and received
her $64,429 buyout. The waiver didn’t specifically mention
sexual harassment claims. Ms. Hampton later received her
right-to-sue letter and sued Ford under Title VII for sexual
harassment. We held that the waiver was unambiguous de-
spite not mentioning the Title VII claim. We relied on Fair v.
International Flowers & Fragrances, Inc., 905 F.2d 1114, 1116 (7th
Cir. 1990), for the proposition that a general release typically
covers all claims a party knows or easily could have discov-
ered; Ms. Hampton already had filed an administrative claim
with state and federal agencies. In addition to the waiver’s
broad language extinguishing existing and future claims, the
waiver specifically preserved any claims Ms. Hampton might
have had under the Age Discrimination in Employment Act,
showing that the parties knew how to exclude claims that
weren’t meant to be part of the release. Unable to find a “rea-
son to believe that the parties ‘couldn’t have meant what they
seem to have said,’” 561 F.3d at 715 (quoting Pierce v. Atchison,
Topeka & Santa Fe Ry. Co., 65 F.3d 562, 568 (7th Cir. 1995)), we
found no ambiguity that would open the door to extrinsic ev-
idence.
Engineered Abrasives points to Bank of Commerce v. Hoff-
man, 829 F.3d 542 (7th Cir. 2016), in which the Bank of Com-
merce’s predecessor in interest had loaned money to Kenneth
No. 17-1429 7
Hoffman and his wife; Mr. Hoffman also had guaranteed a
$900,000 loan from the bank’s predecessor. The Hoffmans en-
tered into a settlement agreement with the bank, and the bank
released their $157,000 loan in exchange for three pieces of re-
alty. A few months later, the bank’s predecessor sued Mr.
Hoffman on the loan he had guaranteed. Mr. Hoffman
claimed the release given in the settlement of the $157,000
loan encompassed his obligations on the $900,000 loan, as
well. We held the contract ambiguous because the $157,000
loan was the only indebtedness mentioned in the agreement,
but the release’s language, if read alone, was sweeping
enough to forgive any indebtedness the Mr. Hoffman might
have had to the bank.
But the ambiguity in the Hoffman case arose not from a sin-
gle release provision, as is found in the Engineering Abrasives
agreement. One part of the Hoffman settlement agreement lim-
ited the release to liability arising from “the Loan Documents
or the Properties,” and defined that phrase as meaning the
properties that secured the $157,000 loan. The Hoffman agree-
ment went on to say it released the Hoffmans “from any and
all liabilities … including, but not limited to, those arising out
of … the Loan Documents … or the Properties … .” This
broader release is nearly identical to the provision at issue be-
tween Engineered Abrasives and American Machine Prod-
ucts. The ambiguity we identified in Hoffman arose, not from
the sweeping language of the “any and all liabilities” provi-
sion, but rather from the conflict between the narrower and
broader provisions. We explained that a contract with con-
flicting release provisions is ambiguous under Illinois law:
“The Illinois courts have repeatedly examined contracts with
multiple release statements, where the ‘general language is
inconsistent and conflicts with the specific language.’ …
8 No. 17-1429
[T]hese contracts are deemed ambiguous.” Hoffman, 829 F.3d
at 547 (quoting Countryman v. Indus. Comm’n, 686 N.E.2d 61, 64
(Ill. Ct. App. 1997)).
The only release provision in the Engineered Abrasives-
American Machine Products settlement agreement is quite
broad, like the one held unambiguous in Hampton v. Ford Mo-
tor:
any and all rights, claims, debts, demands, acts,
agreements, liabilities, obligations, damages,
costs, attorneys’ fees, expenses, actions, and/or
causes of action of every nature, character and
description, whether known or unknown, sus-
pected or unsuspected, which it ever had, now
has, or may hereafter claim to have by reason of
any matter, cause or circumstances whatsoever
arising or occurring prior to and including the
date of the Agreement, including but not lim-
ited to the claims and defenses set forth in the
Action.
See Hampton, 561 F.3d at 712.
The settlement agreement contains no other release provi-
sion that might create an ambiguity. The clause is unambigu-
ous and, as it says, releases all claims and liabilities between
the parties—including the earlier default judgment.
An interesting discussion could address why Engineered
Abrasives would have released a $714,000 judgment for a
payment of $75,000 and an injunction. Perhaps, as American
Machine Products’ attorney suggested at oral argument, it
was due to the long history of disputes and litigation between
the parties. Or perhaps not. But without an ambiguity, the
No. 17-1429 9
parties’ reasons are outside the scope of a court’s inquiry. We
must enforce the release as the parties agreed.
Accordingly, the judgment of the district court is
AFFIRMED.