Irvin v. Griffin Corp.

TUTTLE, Senior Circuit Judge: The appellant, Mary Sue Engle Irvin, appeals from a summary judgment dismissal of her products liability lawsuit against the appellees, Griffin Corporation and Roper Corporation, for injuries she sustained in a motorcycle accident while wearing a motorcycle helmet allegedly manufactured and distributed by the defendants. FACTS On February 5, 1982, the plaintiff was seriously injured in a motorcycle automobile collision in Marshall County, Alabama, while riding as a passenger on a motorcycle being operated by her husband. The driver of the automobile, which collided with the appellant’s motorcycle, Z.D. Burgett, and his insurance carrier, Alabama Farm Bureau Insurance Carrier, offered to settle with the appellant. The appellant accepted $10,000 from the insured which was the maximum amount of his $10,000 insurance policy. In so doing, the appellant executed a form which was unmistakably in the form of a general release of liability. The release provided in part: [Mary Irvin] forever discharges Z.D. Burgett and Alabama Farm Bureau Insurance Cos., Inc. heirs, executors, administrators, agents and assigns, and all other persons, firms or corporations liable, or who might be claimed to be liable, none of whom admit any liability to the undersigned but all expressly deny any liability from any and all claims, demands, damages, actions, causes of action or suits or any kind or nature whatsoever and particularly on account of all injuries known and unknown, both to person and property, which have resulted or may in the future develop from an accident which occurred on or about the fifth day of February, 1982 at or near Douglas, Alabama. Undersigned hereby declares that the terms of the settlement have been completely read and are fully understood and voluntarily accepted for the purpose of making a full and final compromise, adjustment and settlement of any and all claims, disputed or otherwise, on account of the injuries and damages abovementioned, and for the express purpose of precluding forever any further or additional claims arising out of the aforesaid accident by the undersigned. This release was witnessed by the appellant’s lawyer. After executing the release, the plaintiff then filed a products liability action against the various defendants alleging that the helmet she was wearing at the time of the collision was defective in both design and manufacture. Extensive discovery between the parties subsequently followed. The appellant, then without notice to the named defendants in the products liability action, sought a reformation of the general release by petitioning the circuit court for Marshall County. The petition alleged that the release signed by Mary Sue Engle Irvin was intended as a pro tanto release and not a general release as the form indicated. The Alabama court conducted a hearing on this petition for reformation and entered judgment reforming the release on May 11, 1984 as a pro tanto rather than a general release. The circuit court found that the parties had intended to effect a release only of Z.D. Burgett and his insurer from liability. Neither of the appellees was made a party to the reformation suit or personally appeared to contest the reformation of the release. However, in the products liability action in the district court below, the appellees moved for summary judgment, alleging that the original release executed by the appellant was a general release, which operated as a bar to any further proceedings against any tortfeasors, and secondly, that the reformation was improper because none of the defendants was made a party to or given notice of the reformation proceeding. The district court then refused to give judicial recognition to the Alabama circuit court’s reformation of the release before it. It held that the release executed by the plaintiff was unambiguous and would be given effect according to the intentions of the parties to [804] be judged from what appeared within the four corners of the instrument. The court held that the defendants herein were beneficiaries of the general release executed by the plaintiff and for the circuit court to conclude their rights by a judgment of reformation in a suit to which the defendants were not made parties and of which they had no notice was, according to the court, offensive to the notions of equity and good conscience and the reformed release was therefore inadmissible in derogation of the general release. For reasons set forth below, we reverse the judgment of the district court and remand for further proceedings. DISCUSSION Under Alabama law, an injured party’s execution of a general release arising from a tort claim operates as a bar to any other potential claim of the party arising from the same tort. The general release operates in favor of other alleged tortfeasors and releases them from liability. This is simply a reflection of the old common law rule, that one who accepts payments from one tortfeasor and executes a release, which, in express terms, releases “any and all persons” is held to have discharged both the payer party as well as other tortfeasors not party to the release agreement. Thompson v. N.C. St. L. Railway, 49 So. 340 (Ala.1909); Wright v. McCord, 88 So. 150 (Ala.1922). However, the common law rule has been modified by statute and a release executed in writing in a general form as was the case below, does not ipso facto, discharge all other potential parties from liability. By statute, the Legislature has provided for an “intention of the party’s” test. Alabama has codified the general rule regarding release as follows: All receipts, releases and discharges in writing, whether of debt or record, a contract under seal or otherwise, must have effect according to the intention of the parties. Section 12-21-109, Code of Alabama (1975). The major substantive change in the common law rule was that of modifying the law regarding settlements or releases, and changing it according to the law of contracts, that is, that the release must be given effect according to the intentions of the parties. Thus, under Alabama law, the common law rule on the subject of general releases has been modified by the intention of the party standard of contract law. In so doing, courts have recognized the validity of both pro tanto releases and general releases. In the instant case, the appellant sought a reformation of the release executed between her and the insured, Z.D. Burgett, and his insurance company, to effect the true intention of the parties to execute a pro tanto release only, releasing the parties to the agreement from liability. The reformation of the release was sought pursuant to § 8-1-2 of the Alabama Code of 1975, which provides that: When through fraud, a mutual mistake of the parties or mistake of one party which the other at the time knew or suspected a written contract does not truly express the intention of the parties, it may be revised by the court on the application of the parties aggrieved so as to express that intention, so as it can be done without prejudice to the rights acquired by third persons in good faith and for value. (Emphasis added.) The circuit court of Marshall County, in granting the appellant’s petition, found that it was the intent of all the parties concerned to release only Z.D. Burgett and Alabama Farm Bureau Insurance Company and that no other entity was involved in the compromise and release; that the parties executed the release on a general form although not intending a general release of all parties. The circuit court held that they intended to execute only a pro tanto release. Clearly, Alabama law provides for a pro tanto release. In Steenhuis v. Holland, 217 Ala. 105, 115 So. 2 (1927), the court construed Alabama statute § 12-21-109 as providing for the right of an injured party to accept satisfaction in part from one tortfeasor, release him, and then proceed against the other. Moreover, there [805] need not be a reservation of a right to pursue other tortfeasors expressed in the pro tanto release. The court noted: Such reservation is not essential, nor need the release take the form of a covenant not to sue. The true inquiry is, that the party’s intend to limit release to the parties named, with no intent that the cause of action be satisfied in full. It is clear that under Alabama Code § 12-21-109, a release, which has as its intent the discharge from liability of only named parties to the release, need not discharge all potential parties then or later known. In the instant case, the appellant Mary Irvin, sought relief in the appropriate state court seeking a reformation of the general release and it was granted. The question therefore, in this case, is whether the reformation of the release was invalid because Ms. Irvin failed to give notice to the other alleged tortfeasors who were not parties to the original release. The answer to the question depends upon whether notice of the reformation proceeding was required under state law. Alabama law provides that a written contract which does not express the true intentions of the parties, may be reformed only so far as it can be done without prejudice to the rights acquired by third persons in good faith and for value. Ala.Code § 8-1-2 (1975). Without questioning the good faith of appellees, it is clear that they have paid nothing by way of value for the “benefits” which they received fortuitously from the general release. The appellees, Roper and Griffin Corporation, contend that since they were necessary parties to the reformation of the release, and were not notified of the action, the reformation proceeding lacked proper notice, and therefore, a federal district court, sitting in a diversity lawsuit cannot recognize a state court judgment that lacked proper notice to the necessary parties. They argue that since the reformation proceeding was started after the products liability action had been filed in federal court and appearances thereto made, the reformation proceeding in state court suffered a jurisdictional defect, because they were not notified of the action, as proper parties to it. The appellees assert that they were necessary parties because they had a beneficial interest in the original release once it was executed by the plaintiffs. According to the appellees, the plain language of the release discharges “all other persons, firms or corporations liable, or who might be claimed to be liable from any and all claims on account of all injuries known and unknown which have resulted or may in the future result from the accident____” They contend that Mrs. Irvin’s release is unambiguous in meaning and is supported by consideration. They point to the fact that under Alabama law a petition for reformation of the instrument is a suit in equity, and equity demands that all persons who will be affected by the decision be notified of the action. They cite the general rule in equity that all persons having a material interest, legal or equitable, in the subject matter of the suit must be made parties to the proceedings. Rollan v. Posey, 271 Ala. 640, 645, 126 So.2d 464, 468 (1961). Thus, “all persons who are legally or beneficially interested in the subject matter of a suit in equity, are necessary parties.” Leigeber v. Scott, 263 Ala. 507, 508, 83 So.2d 246, 247 (1955). However, both cases cited by the appellees involve claims by parties to the rights to title to real property. Posey involved the claims by a mortgagee, as a necessary party in an equity action to settle a boundary dispute of land. The Alabama Court of Appeals found that the mortgagee was a necessary or indispensable party to that ease. Posey was an action in equity which did not involve a suit for reformation of an instrument. Moreover, in Leigeber v. Scott, the Supreme Court of Alabama found that a decedent’s heirs at law were necessary parties in a suit for reformation or the cancellation of a deed involving the decedent’s conveyance of property. The court cited the rule that those persons having a legal or equitable interest in the [806] subject matter of a suit for reformation of an instrument must be made parties to the proceeding, but in so doing, cited only Corpus Juris Secundum on Reformation of Instruments. 83 So.2d at 247, citing 76 C.J.S. Subsequent to Scott, the Supreme Court of Alabama addressed the subject of reformation of instruments in writing, as it appeared by statute. In American Liberty Ins. Co. of Birmingham v. Leonard, 270 Ala. 17, 115 So.2d 470 (1959), the court relied upon Section 59, Title 9 of the Code of Alabama (1940), to address the subject of the revision of a fire insurance contract on grounds of the unilateral mistake of the parties. Although refusing to find that reformation was proper in that case, the Supreme Court of Alabama held that a court of equity had the power to reform or revise a written contract only when the requirements of the statute were met. According to the court, those terms were clear and unambiguous. That section, which is now § 8-1-2 of the 1975 Code, provides that an instrument may be revised by a court “so long as it can be done without prejudice to the rights acquired by third persons in good faith and for value.” The court held the statute was merely declaratory of the established principle applicable to the reformation of instruments. The statute requires either a mutual mistake of both parties or a fraud on the part of one of the parties or a unilateral mistake of one party which the other party at the time knew or suspected. In addition to alternate grounds, for equitable relief, there is the requirement that as a result of one of the alternate circumstances the written contract “does not truly express the intention of the parties.” Id. 115 So.2d at 473. It is clear that the statute which is the predecessor of the current statute, is the sole means by which a court is to adjudicate the interests of parties in the reformation of a written contract such as a release. The right of third parties, whether as beneficiaries or actually parties to the reformation of a contract, are addressed by the statute. They are protected if their interests were acquired by good faith and for value. Thus, an equity court may reform an instrument in writing, so long as it does not affect the rights of third parties who satisfy the statute’s good faith and value requirements. The protection of their interests is clearly a limitation upon the court’s power to grant a reformation of an instrument. We construe the statute as saying that if such persons paid value for their interest they are proper parties to a reformation suit, but if they did not, they have no interest to protect and are not proper parties. Here, appellees paid nothing for the benefit from the general release that would permit them to protect their “claimed” rights at a reformation proceeding. The circuit court was free to reform the original release between the parties, without notice to appellees since they had no rights “acquired ... for value.” Our conclusion is supported by Conley v. Harris J. Whelchel Co., 410 So.2d 14 (Ala.1982), which upheld the enforcement of a general release, against the plaintiff’s claim that it was only intended as a pro tanto settlement, and not a bar to any future litigation involving other unnamed defendants. However, without seeking to reform the release, the plaintiffs attempted to avoid its effect on the grounds that it did not reflect the true intention of the parties. In affirming the trial court’s granting of summary judgment, the court stated that “in the absence of fraud, a release supported by valuable consideration, unambiguous in meaning, will be given effect according to the intention of the parties to be judged from the four corners of the instrument and that parol evidence is inadmissible to impeach or vary its terms.” However, the court noted that the plaintiff could have sought the remedy of reformation. The court stated: The evidence ... shows that appellant could have attempted to avoid or rescind the entire release on the grounds of mutual mistake, fraud or misrepresentation. Furthermore, the appellant could have [807] requested reformation of the release, pursuant to Code of 1975, Section 8-1-2, to express the true intention of the parties. However, the appellant chose none of the remedies. She chose partial revocation____ In the case at hand, the appellant Mary Sue Engle Irvin, did just what the Supreme Court of Alabama suggested be done. She petitioned for reformation of the release in the circuit court of Marshall County, Alabama and obtained an instrument reflecting the true intention of the parties, a pro tanto release. Conley, therefore, supports the appellant’s claim here. We conclude, that neither Roper Corporation nor Griffin Corporation, appellees herein, was entitled to notice of the reformation proceeding under Alabama law. They were neither necessary nor interested parties to a reformation of the instrument to which they were neither parties nor intended beneficiaries of the release in question and for such benefits as they claimed they had given nothing of value. Lastly, the appellee, Roper Corporation, cross-appeals the district court’s denial of the summary judgment motion, removing the appellee as one of the defendants in the products liability action. The cross-appellant claims that it had no involvement in the subject of this products liability lawsuit, by virtue of its sale to Griffin Corporation, prior to the manufacture of the motorcycle helmet in question. It claims that it was neither a manufacturer, supplier, or retailer of the helmet and that its only involvement in the lawsuit comes by way of a bulk sale of manufacturing machinery and equipment to Griffin Corporation, approximately six months prior to the manufacture of the helmet, which is the subject of the lawsuit. The district court, addressed cross-appellant Roper Corporation’s claims that it was not liable as a matter of law and denied its motion for summary judgment. We are not inclined to reverse the district court’s ruling on this matter that there was not the absence of genuine issues of fact thereby precluding a summary judgment. A district court judge has wide discretion in denying a motion for summary judgment. For a discussion of the wider discretion of the trial court to deny a motion for summary judgment, we quote from Professor Charles Allen Wright: Despite all that may be shown, the court always has the power to deny summary judgment if, in its sound judgment it believes for any reason that the fair and just course is to proceed to trial rather than to resolve the case on a motion. Wright, Federal Courts, 495 (3d ed. 1976). See also, Kennedy v. Silas Mason Co., 334 U.S. 249, 68 S.Ct. 1031, 92 L.Ed. 1347. We, therefore, remand the case to the district court reversing the district court’s granting of summary judgment as to the appellees Roper and Griffin Corporation and affirming the district court’s denial of summary judgment as to the cross-appellant Roper Corporation. REVERSED in part, AFFIRMED in part.