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NYCAL CORP. v. INOCO PLC

December 12, 1997

NYCAL CORPORATION, Plaintiff, against INOCO PLC and DOWNSHIRE N.V., Defendants.


The opinion of the court was delivered by: KAPLAN

 LEWIS A. KAPLAN, District Judge.

 This lawsuit involves a claim by Nycal Corporation ("Nycal") that it was defrauded by Inoco PLC and Downshire N.V. (collectively, "Inoco") in connection with Nycal's 1991 purchase of a majority interest in Gulf Resources and Chemical Corporation ("Gulf") from Inoco. Inoco seeks summary judgment dismissing the complaint on the ground that it is barred by a release contained in a settlement agreement previously executed by Nycal. Nycal rejoins that the release does not cover its present claim and, in any case, itself was obtained by fraud.

 Facts

 The essential facts in this dispute are as follows. *fn1"

 Problems developed almost immediately after the closing. On July 15, 1991, Messrs. Lacey and William Horn were informed by Lawrence Mehl, Gulf's general counsel, that Gulf-Pac, a Gulf subsidiary, had received a $: 3.5 million loan from Interallianz Bank Zurich prior to the closing. *fn2" Mr. Lacey, outraged by this revelation, which he believed to be a violation of the terms of the SPA, stopped payment on a check to Inoco in the amount of $: 360,000. *fn3" This prompted a lawsuit by Inoco in the United Kingdom against a Nycal subsidiary and led Mr. Lacey to begin an investigation and audit of a variety of Gulf transactions that took place during Mr. Rowland's tenure as Gulf's president. *fn4" Negotiations between all parties began, culminating in a series of settlement agreements, including one between Nycal and Inoco (the "Settlement Agreement"), on October 4, 1991. *fn5"

 The Settlement Agreement between Inoco and Nycal contained the following language:

 
"Following the aforesaid [price] reduction, each party to the [SPA] hereby acknowledges that it has no further claims arising out of the SPA or the transactions contemplated thereby or any guarantee given in relation thereto by any person against any other party or guarantor or any officer or any other party or guarantor and hereby waives any such claim as may now exist or as may arise after the date hereof." *fn6"

 Despite this release, litigation between Nycal and Inoco has broken out again. *fn7" Nycal filed this suit in August 1996, alleging among other things that Inoco fraudulently induced Nycal to enter into both the SPA and the Settlement Agreement. Inoco now moves for summary judgment on these claims.

 Discussion

 I. Alleged Fraudulent Inducement of the Stock Purchase Agreement

 According to Inoco, the release contained in the Settlement Agreement precludes Nycal's claim that it was fraudulently induced into the SPA. Nycal responds that this release does not extend to claims of fraudulent inducement. Since the question of the scope of the release is presented in the context of a motion for summary judgment, it is important as a threshold matter to identify the circumstances in which courts may resolve disputes over contract interpretation at the summary judgment stage.

 Summary judgment on a contract interpretation dispute is clearly permissible when the language of the contract provision in question is unambiguous. *fn8" In fact, it is not uncommon for courts to use language suggesting that this is the only scenario in which summary judgment on a contract interpretation dispute is appropriate. *fn9" Such suggestions are not entirely correct, however, as the Second Circuit recently has noted. *fn10" Rather, summary judgment is appropriate in a contract interpretation dispute whenever there is no genuine issue of fact, a situation that obtains not only when the language is unambiguous, but also when the language is ambiguous and there is relevant extrinsic evidence, but the extrinsic evidence creates no genuine issue of material fact and permits interpretation of the agreement as a matter of law. *fn11" The Court therefore properly may decide whether the release comprehends Nycal's claim of fraudulent inducement into the SPA if it finds either that the Settlement Agreement is unambiguous on this point *fn12" or that it is ambiguous but any extrinsic evidence fails to create a genuine issue of material fact as to the parties' intent. With this in mind, the next task is to determine whether the Settlement Agreement is ambiguous, a matter clearly within the province of the Court. *fn13"

 A. Is the Settlement Agreement Ambiguous as to Fraudulent Inducement Claims?

 "Contract language is ambiguous if it is reasonably susceptible of more than one interpretation . . ." *fn14" Under Inoco's proposed interpretation, the plain language of the release encompasses any and all claims having to do with the SPA, including claims of fraudulent inducement. In light of the broad language employed in the release, a reasonable person could conclude that it encompasses more than just claims which presuppose the validity of the SPA. On the other hand, Nycal suggests that the language "arising out of" does not extend to claims attacking the validity of the SPA, which arguably is a reasonable interpretation as well. The language alone simply does not dictate that one interpretation or the other is the only reasonable conclusion, as this Court previously ...


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