Simon A. Hershon v. Gibraltar Building & Loan Association, Inc.

864 F.2d 848, 275 U.S. App. D.C. 26, 1989 U.S. App. LEXIS 95, 1989 WL 476

• Court: Court of Appeals for the D.C. Circuit
• Decided: January 6, 1989
• Docket: 87-7009, 87-7010, 87-7058, 87-7063 and 87-7066
• Status: Published

Opinions

Opinion for the court filed by Circuit Judge BUCKLEY.

Dissenting opinion filed by Circuit Judge WILLIAMS.

BUCKLEY, Circuit Judge:

Simon A. Hershon, Leo and Nina Her-shon, and Anton and Jacqueline Vierling appeal the district court’s judgment holding them liable to Gibraltar Building and Loan Association, Inc., for a total of $265,162, the amounts payable on certain promissory notes secured by deeds of trust on property located in the District of Columbia. The trial court ruled that these obligations were not cancelled by a release agreement executed by the parties. The Hershons and the Vierlings argue that the district court erred in not giving effect to the release’s clear language and in considering extrinsic evidence that contradicted the contract’s plain meaning. We conclude that the agreement unambiguously released and discharged all claims between the parties— including those evidenced by the notes and deeds at issue. Therefore, we reverse.

I. BackgRound

These consolidated cases involve obligations incurred in connection with the purchase, in July and December of 1981, of three units in the Admiral Dupont condominiums in Washington, D.C. These obligations are represented by promissory notes executed by appellants Simon A. Her-shon, his brother Leo and sister-in-law Nina, and Anton Vierling and his wife Jacqueline. The notes are payable to appellee Gibraltar Building and Loan Association, Inc. (“Gibraltar”), and are secured by deeds of trust in which Gibraltar’s president, ap-pellee Lawrence B. Goldstein, is named as a co-trustee.

Simon Hershon, Anton Vierling, and Goldstein had long been involved in an intricate web of business and financial transactions. Their relationship deteriorated, however, and Hershon and Vierling engaged in a series of bitter business disputes with Goldstein that eventually culminated in five lawsuits. Subsequently, Simon and Leo Hershon, Vierling, Goldstein, Gibraltar, and various business associates and affiliates entered into a Mutual Release and Discharge Agreement (“Release”) dated August 24, 1984. The Release contains the following relevant provisions:

1. ...

(d) The term “Claims” shall mean and refer to any actions, causes of action, suits, debts, dues, liens, sums of money, accounts, reckonings, specialities, covenants, promises, judgments, expenses, costs, attorneys’ fees, liabilities, claims for relief, proceedings, debts, contracts, damages, defenses, obligations, responsibilities, demands and interest of any kind or nature whatsoever, known or unknown, tangible or intangible, fixed or contingent.

2. [The parties release and discharge each other] absolutely, unconditionally and forever ... from any and all Claims, whether in law or in equity, or both, which, against each of the Releasees, the Dischargees, and against each of the Dis-chargees, the Releasees, ever had, or has or hereinafter can, shall or may have, for or by reason of any matter, cause or thing whatsoever, to and including the date of execution hereof, specifically including, but not limited to, any matters which arise directly, indirectly and/or derivatively, from and with respect to, and/or which are based upon and/or arise out of any matter whatsoever (including the execution and delivery of this Release) involving and/or concerning Gibraltar, IFS, M-AFSLP and/or 633 JV [business entities described in 111(a) and (b)]; provided, however, that RFS and Gibraltar specifically exclude and reserve from this Mutual Release and Discharge any claims ... for bills allegedly due and owing for accounting services.

4. It is expressly agreed that this Mutual Release and Discharge is, and shall be, a full and complete termination, settlement and satisfaction of any and all Claims alleged and matters in dispute in [five pending cases].

6. Except as herein set forth, it is the specific intent and purpose of the parties hereto to release and discharge each and the other from any and all Claims of any kind or nature whatsoever, whether known or unknown, whether specifically mentioned herein or not, which may exist or might be claimed to exist either directly, indirectly and/or derivatively, at, upon, or prior to the date hereof, or which may in the future arise by reason of any association or relationship of any kind or nature existing or claimed to exist among the parties, and the parties do hereby waive any right or claim to hereafter assert that any Claim of any nature or kind whatsoever has been, through oversight or error, or intentionally or unintentionally, omitted from this Mutual Release and Discharge.

12. This Mutual Release and Discharge sets forth all (and is intended by all parties hereto, together with the other documents and transactions executed simultaneously herewith, to be an integration of all) of the promises, agreements, conditions, understandings, warranties and representations among the parties hereto with respect to Gibraltar, IFS, 633 JV and/or M-AFSLP [being four among the more than twenty individuals, corporations, and partnerships listed in paragraph 1(a) and (b) as “Re-leasees” or “Dischargees”], and there are no promises, agreements, conditions, understandings, warranties or representations, oral or written, express or implied, except as set forth herein.

Contending that this Release discharged all claims and debts among the parties, the Hershons and Vierlings refused to tender the payments due October 1, 1984 on the promissory notes. On November 1, 1984, Gibraltar notified appellants that if they refused to pay the amounts owed, Gibraltar would declare a default and accelerate the balances under the deeds of trust, which would become due in full on December 2, 1984. Gibraltar interpreted the Release as settling only matters “in dispute,” as identified in the Release (i.e., the cases listed in paragraph 4) and in its integrated documents and transactions (¶ 12), which contain no reference to the Dupont obligations.

On November 27, 1984, the Hershons sued Gibraltar in the Superior Court for the District of Columbia, alleging that the Release discharged the Dupont promissory notes and trust deeds and requesting a declaratory judgment that would require Gibraltar to release the deeds and to treat the debt as satisfied. Gibraltar had the case removed to the United States District Court for the District of Columbia, which had diversity jurisdiction under 28 U.S.C. § 1332 (1982). Gibraltar also counterclaimed for the balance of the Hershons’ debt and for costs and attorneys’ fees incurred to defend the lawsuit.

On November 30, 1984, the Hershons offered to pay their past debt. Gibraltar rejected this payment because the Her-shons refused to include the attorneys’ fees that they allegedly owed the bank.

Meanwhile, the Vierlings continued to withhold their payments until December 31, when Anton Vierling tendered a check for the amount due under protest and notified Gibraltar that he would sue the bank for breaching the Release. Gibraltar refused to accept payment on the ground that it was conditional.

On January 3, 1985, the Vierlings filed a complaint against Gibraltar that was nearly identical to the one previously lodged by the Hershons. Again, Gibraltar had the case removed and counterclaimed. Three months later, the two cases were consolidated for trial, which began on March 3, 1986.

In a bench opinion issued March 25,1986, the district court noted that the case involved a dispute over the meaning of the word “Claims” in the Release, but made no factual findings concerning possible ambiguities in the agreement. Nevertheless, the court asserted that the contract was “ambiguous on its face” because it was unclear whether “Claims”'referred to “any and all Claims” as broadly defined in paragraph 1 or only to the specific claims arising out of the lawsuits enumerated in paragraph 4 and the integrated documents mentioned in paragraph 12. Based on its evaluation of evidence derived from the parties’ settlement negotiations and their subsequent conduct, the court further concluded that the parties intended to resolve only the specific matters described or referred to in the Release, “despite the terms of the agreement which are very strong.” Therefore, the court held that the Release did not discharge the Dupont condominium promissory notes and deeds of trust.

The court reached its conclusions by applying Maryland law, as provided in paragraph 11 of the Release. Specifically, the court relied on Admiral Builders Savings & Loan Ass’n v. South River Landing, 66 Md.App. 124, 502 A.2d 1096 (Ct.Spec.App.1986) (“Admiral Builders”), which had ruled that a trial judge may consider extrinsic evidence both to determine whether a contract ambiguity existed (unless that evidence varied, altered, or contradicted the writing’s clear meaning) and to resolve any ambiguity by ascertaining the parties’ intent. The district court acknowledged that if no facial ambiguity existed, parol evidence should be excluded. Applying the Admiral Builders methodology, the trial court found the Release unclear and relied on extrinsic evidence to conclude that the parties did not intend to cancel the Dupont obligations.

On March 27, 1986, the court entered its final order summarizing its findings and rulings on the liability issue. On cross-motions for summary judgment on the damages issue, the court on December 23, 1986 found the Hershons and Vierlings liable to Gibraltar for $265,162. On March 6, 1987, the district court denied Gibraltar’s motion to amend the Vierling judgment to include certain interest expenses.

The Hershons and the Vierlings have appealed the district court’s judgment on the liability and damages issues, and Gibraltar has cross-appealed the denial of its motion to amend.

II. DISCUSSION

A. Contract Interpretation and the Par-ol Evidence Rule

Because federal jurisdiction rests on diversity in this case, state substantive law must be applied. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties agreed, in paragraph 11, that Maryland law would govern the construction and enforcement of the Release. See Kronovet v. Lipchin, 288 Md. 30, 43, 415 A.2d 1096, 1104 (1980) (approving such contractual provisions). Maryland has consistently refused to adopt the “sub-jectivist” approach championed by Arthur Corbin (Contracts § 572B (Supp.1971)), the American Law Institute (2 Restatement (Second) of Contracts § 202 and Comment c, § 212 and Comment b (1981)), and our dissenting colleague. Instead, it adheres to the traditional “objective” test in interpreting contracts: where an agreement’s language is clear, judges must give effect to its plain meaning, as understood by reasonable people in the parties’ position — regardless of what the parties subjectively thought or intended. Billmyre v. Sacred Heart Hosp., 273 Md. 638, 642-43, 331 A.2d 313, 316-17 (1975). See E.A. Farnsworth, Contracts 485 n. 7 (1982) (citing Billmyre as exemplifying “objectivist” view). Where contractual terms are unambiguous, resort to extrinsic evidence is barred. Kasten Constr. Co. v. Rod Enters., 268 Md. 318, 327-29, 301 A.2d 12, 17-18 (1973).

Indeed, Maryland courts steadfastly apply the parol evidence rule, which prohibits the use of extrinsic evidence (e.g., prior negotiations) to contradict a final, written agreement, and admits of but a few narrow exceptions. See, e.g., Rinaudo v. Bloom, 209 Md. 1, 120 A.2d 184 (1956) (reaffirming parol evidence rule, but acknowledging exception to demonstrate consideration supporting contract). Maryland case law reveals a judicial unwillingness to use external evidence to interpret facially explicit contractual terms. See, e.g., Walker v. Associated Dry Goods Corp., 231 Md. 168, 179, 189 A.2d 91, 97 (1963); Kasten, 268 Md. at 327-29, 301 A.2d at 17-18.

Nonetheless, in making the initial determination of whether an agreement is ambiguous, a court may consider extrinsic evidence in certain instances. To cite the classic example, although a contract providing for a delivery “to arrive [on the ship] Peerless from Bombay” may appear clear on its face, a court may admit extrinsic evidence to show the existence of two ships named “Peerless” and to identify the one referred to. See Raffles v. Wichelhaus, 2 Hurl. & C. 906, 159 Eng.Rep. 375 (Ex. 1864). When, however, the offered evidence fails to convince a judge that the contract is ambiguous or when it “varies, alters, or contradicts the clear meaning of the writing,” such evidence must be excluded. Admiral Builders, 66 Md.App. at 131, 502 A.2d at 1100. Conversely, if the external evidence can be construed consistently with the agreement’s language, the court may use such data to decide whether any ambiguity exists. Id.

In sum, Admiral Builders requires that extrinsic evidence reveal an ambiguity in the contract’s language and prohibits the use of parol evidence to contradict the clear, ordinary meaning of the contract’s words. Although the district court purported to apply Admiral Builders, it failed to identify any facts or external evidence to support its conclusion that the Release was facially ambiguous — a point conceded by appellees at oral argument. Instead, the court erred by relying on parol evidence that contradicted the agreement’s clear language (releasing “all Claims”) and plain meaning, as discussed below.

B. Contractual Analysis

The appropriate standard of review is a procedural question governed by federal law, even in diversity cases. Although appellate courts must review a trial court’s factual findings under the restrictive “clearly erroneous” standard, Fed.R.Civ.P. 52(a), a ruling that a contract contains facial ambiguities is a question of law subject to de novo review. See, e.g., Washington Metro. Area Transit Auth. v. Mergentime Corp., 626 F.2d 959, 961 (D.C.Cir.1980) (“the question of interpreting the plain language of a contract is a question of law ... and appellate courts are not limited to the clearly erroneous standard of review unless extrinsic evidence was [properly] utilized”).

We conclude that the Release is unambiguous. Its clear, comprehensive language provides for the release and discharge of “any and all Claims” (¶ 2, ¶ 6), “of any kind or nature whatsoever, whether known or unknown, whether specifically mentioned herein or not, which may exist or might be claimed to exist ... or which may in the future arise by reason of any association or relationship ... among the parties.” ¶ 6. This terminology echoes paragraph 1(d), which defines “Claims” to include debts, liens, contracts, promises, and obligations “of any kind or nature whatsoever, known or unknown, tangible or intangible, fixed or contingent.” As if to remove any possible doubt as to the scope of the Release, the parties waived the right to “assert that any Claim of any nature or kind whatsoever has been, through oversight or error, or intentionally or unintentionally, omitted.” ¶1 6.

Despite this sweeping language, appel-lees argue that paragraph 6 does not resolve two ambiguities. First, they contend that it is unclear whether the Release discharged “all Claims” as expansively defined in paragraph 1(d) or only those specific matters “in dispute” (i.e., the lawsuits enumerated in paragraph 4). Second, ap-pellees assert that paragraph 6 is at odds with paragraph 12 which, they argue, provides that there are no express or implied promises or agreements, except as set forth in the Release and its integrated documents and transactions — all of which pertain to disputed items, and none of which mention the Dupont condominium notes and deeds.

We are unpersuaded by these arguments. We find nothing in paragraphs 4 or 12 that can reasonably be interpreted to except the Dupont obligations from the expansive reach of paragraph 6, which declares that “[e]xcept as herein set forth, it is the specific intent and purpose of the parties ... to release and discharge each and the other from any and all Claims of any kind or nature whatsoever, ... whether specifically mentioned herein or not ” (emphasis added). The fact that paragraph 4 listed pending litigation, or that the integrated documents referred to in paragraph 12 settled certain disputed matters and debts, does not mean that obligations and documents not expressly mentioned or integrated were not released. Clearly, if the parties had intended to exclude the Dupont notes and deeds from the scope of the Release, it was incumbent upon them to identify those debts explicitly, as they did in paragraph 2 with respect to certain accounting bills. Appellees must accept the consequences of their failure to do so.

The dissent mistakenly relies upon ejus-dem generis, a doctrine invoked where specific words are followed by more general terms in the same sentence or provision, which presumes that parties intended to include within the general phrase only items like those mentioned in the specific listing. This maxim is inapplicable here, because the general and specific language appear in separate paragraphs of the Release. Moreover, the dissent cites no Maryland case where a court employed ejus-dem generis to modify or restrict the unambiguous terms of a contract. Cf. LeRoy v. Kirk, 262 Md. 276, 277 A.2d 611 (1971) (applying rule peculiar to construction of wills that term “personal property” will be given its popular meaning — i.e., tangible goods, rather than its legal meaning — i.e., all property except real estate).

In short, Release paragraphs 1, 4, 6, and 12 are not mutually exclusive. Read in pari materia, these provisions reveal unmistakably that the parties released and discharged all claims and debts — including the Dupont promissory notes and deeds of trust. Under settled principles of contract interpretation, this court must hold the parties to the plain meaning of the terms of the agreement and must ignore as irrelevant any extrinsic evidence that might show that the language did not properly reflect their intent. Accordingly, we find that the trial court erred in ruling that the Release was ambiguous and in using parol evidence to alter the clear meaning of its words. See, e.g., Hershon v. Gibraltar Bldg. & Loan Ass’n, Inc., D.C.Civ.Action Nos. 84-3591 and 85-0020, transcript of bench opinion at 17 (D.D.C. Mar. 25, 1986) (after examining extrinsic evidence, district court “could not find any intent that the deeds of trust ... would be released ... despite the terms of the agreement which are very strong”) (emphasis added).

We acknowledge that the application of the objective test and its corollary, the par-ol evidence rule, can lead to harsh consequences, and this may well be such a case. Nonetheless, it is fundamentally important that parties be able to rely on the explicit language of written contracts. The public interest in certainty and finality is too critical to allow every agreement to be subjected to collateral attack.

This policy applies with special force to releases, which are designed to resolve disputes out of court — not to spawn litigation. Parties will enter settlement agreements only if they are assured that the language contained in such releases will be treated as definitive and final. As the Maryland Court of Appeals explained, in holding the parties to the terms of their release agreement discharging “any and all claims, demands, actions ... or suits of whatever kind or nature,”

... in this era of burgeoning litigation, compromise and settlement of disputes outside of court is to be encouraged and, thus, a release evidencing accord and satisfaction is a jural act of exalted significance which without binding durability would render the compromise of disputes superfluous, and accordingly unlikely.

Bernstein v. Kapneck, 290 Md. 452, 459, 430 A.2d 602, 606 (1981).

In sum, we simply enforce the bargain that the parties themselves freely made, as unambiguously expressed in their agreement. Our decision is thus consistent with basic contract law principles and serves their underlying policy goals.

III. Conolusion

The Release executed between appellants and appellees contained clear language providing for the release and discharge of all claims. The district court erred in ruling that the agreement was ambiguous and in using parol evidence to contradict its plain meaning. Accordingly, we dismiss Gibraltar’s cross-appeal, reverse the district court’s judgment, and remand with instructions to enter judgment in favor of plaintiffs.

SO ORDERED.