831 F. 2d 290 - Greenville County School District v. United States Gypsum Company Wr

Four public-school districts1 brought separate products liability actions against numerous manufacturers of construction materials containing asbestos. Three of the manufacturers named as defendants in each of the actions--United States Gypsum Company, W.R. Grace & Co., and National Gypsum Company (the Companies)--collectively executed a settlement agreement with the four school districts. The Companies now appeal from the district court's order directing specific performance of that agreement. We affirm.

* A.

The Companies manufactured construction products containing asbestos until the mid-1970s. Their products were installed to fireproof the school districts' buildings. The Greenville County School District brought suit against the Companies in 1982, demanding damages and reimbursement for the costs of removing asbestos products from its buildings. The three other school districts filed similar actions against the Companies. All of the school districts were represented by the same South Carolina law firm that represented Greenville.

On August 1, 1984, the school districts and the Companies signed a preliminary agreement "to diligently engage in settlement negotiations." The agreement provided that the district court presiding over the Greenville case would supervise the preliminary negotiations. The court granted a continuance in that litigation, pending the outcome of the negotiations.

The parties executed the settlement agreement at issue in this appeal on October 31, following three months of negotiations.2 The agreement required the Companies to establish a settlement fund3 and granted the school districts a unilateral six-month option to accept the fund.4 It also gave the district court supervisory authority over the settlement process.

In structuring the funding provision, the parties contemplated that the Companies would not be liable for abatement costs of asbestos products they did not manufacture. The Companies thus had no obligation to contribute into the settlement fund until the school districts produced product-identification evidence showing that the Companies had manufactured the products in question. Further, the Companies' specific dollar liability could not be fixed until the school districts submitted evidence of the actual or projected costs of abating the Companies' products. The parties therefore structured elaborate procedures for establishing product identification and a simple plan for verifying abatement costs.

The agreement's product-identification procedures required that the school districts submit evidence to the Companies identifying the origin of the asbestos products that had been installed in the various school buildings. The Companies' products could be identified in a number of ways5--some more definitive than others. The agreement accordingly assigned varying probative values to each of several available categories of product-identification evidence.

The parties agreed that certain forms of evidence would be considered dispositive of product-identification issues.6 Other categories of evidence would be considered sufficient under the agreement unless the Companies produced contrary product-identification evidence variously required to be "clear and convincing" or "preponderant."7 If the Companies produced contrary evidence, the agreement imposed the general obligation on all parties to attempt to resolve the dispute among themselves, but if no accord was reached within 15 days, the matter was to be referred to an arbitrator.8 If the Companies failed to produce contrary evidence, however, the school districts' otherwise non-dispositive evidence would be considered sufficient.

Prompt submissions both of evidence by the school districts and of responses by the Companies were critical to the operation of the settlement. The school districts had only six months from the execution of the agreement (October 31, 1984) to decide whether to accept the settlement or to reject the settlement and proceed with litigation.9

In January 1985, Greenville County submitted voluminous product-identification evidence concerning thirty-one school school buildings. In that same month, Richland County presented the Companies with product-identification evidence regarding the seven school buildings for which it had asserted claims. Montgomery County submitted its product-identification materials in February 1985, and in April 1985, the Companies received massive quantities of evidence from Amelia County.10

After receiving and evaluating the school districts' evidence, the Companies indicated that they would dispute product-identification for many of the submitted claims. They nevertheless refused to disclose their positions on the evidence and did not seek negotiations to resolve the disputes. The Companies produced no contrary product-identification evidence for the school districts' review. Instead, they demanded additional evidence--much of which was not in the school districts' possession. The Companies neither established a settlement fund nor contributed any money toward resolving the school districts' claims.

After discussing the lack of progress toward settlement and the approaching option deadline of April 30, 1985, the parties scheduled a mid-April meeting. At the meeting, the Companies were unprepared to discuss the schools individually and produced no contrary product-identification evidence. The parties agreed, however, to extend the school districts' option until May 31 on the condition that the Companies provide a preliminary statement of their position on the Greenville submissions by April 26 and on the other school districts shortly thereafter. They later extended the option to June 7, 1985.

The Companies submitted preliminary statements for the majority of buildings in each of the four school districts by June 5. Their statements, however, provided no basis on which the school districts could estimate the amount the Companies would contribute into the settlement fund. Although the Companies indicated their willingness to admit product identification "in part" for many school buildings, they neither defined "in part" nor identified the contrary evidence they would produce. Instead, they demanded additional evidence and indicated that they would submit contrary evidence with respect to some schools at an unspecified future date. Counsel for the school districts telephoned the district court on June 7 and informed it that the settlement had not been "consummated."11

Approximately one month later, with no intervening settlement negotiations or evidentiary exchanges, the school districts moved for specific performance of the settlement agreement. They contended that their previously submitted product-identification evidence should be considered sufficient under the agreement because the time had expired for the Companies to submit contrary evidence. The school districts also asserted that the only remaining matter was to fix the Companies' abatement cost liability. The Companies responded that the expiration of the option period automatically rendered the agreement a nullity and, alternatively, that the school districts rejected the settlement in their June 7 communication to the court.

After an extensive evidentiary hearing, the district court granted the school districts' motion. It found that the settlement agreement constituted a binding contract. Moreover, although the agreement set no express timetable for the evidentiary transfers, the court found that the Companies' obligation to act promptly within the time frame of the school districts' option was implied in the contract. "Otherwise," the court stated, the school districts "would gain nothing by participating in the settlement process and would have no basis upon which to intelligently exercise their option to accept the settlement." The court also concluded that since the Companies had failed to produce any contrary product-identification evidence, "[t]he issues of product identification [were] deemed established as dictated by the terms of the settlement agreement."12 The court then referred all outstanding abatement cost issues to arbitration.13

On appeal, the Companies contend that the school districts never exercised their option and that the agreement expired before the school districts moved for specific performance. They also argue that the agreement specified no time limit for their production of contrary evidence. Furthermore, the Companies challenge the scope of the court's remedy, which precluded them from presenting contrary product-identification evidence to the arbitrator and from nominating to the list of arbitrator candidates.

The school districts contend that the Companies were required to furnish their contrary evidence, if any, during the option period. Citing South Carolina law, they assert that the Companies prevented the exercise of the option by failing to produce contrary evidence, and therefore forfeited any right to object to the schools' delay in exercising it.14 They reason that their product identification was sufficient under the agreement when the Companies failed to respond to their submissions with contrary evidence. They contend that they timely exercised their option to adopt the settlement based on this product-identification evidence. The district court agreed, holding:

Defendants [could not] force Plaintiff to reject the settlement by refusing to supply any contradictory evidence, thereby depriving Plaintiff of the opportunity to make an informed decision on whether to accept the settlement. The agreement clearly provides that Plaintiff's submissions on product identification are sufficient "unless" Defendants produce contrary evidence. Defendants repeatedly failed to produce such evidence. Defendants may not seize upon their own dilatory conduct and unilaterally assert that the settlement agreement was terminated when the time to submit contrary evidence expired.

Accordingly, the Court finds the deadline for Defendants presenting their contrary evidence has passed. The issues of product identification are hereby deemed established as dictated by the terms of the settlement agreement.

The overriding principle governing our consideration of this appeal is that a district court has inherent equitable authority to enforce integrated agreements to settle litigation pending before it. Ozyaqcilar v. Davis, 701 F.2d 306, 308 (4th Cir.1983); Millner v. Norfolk & Western Railway, 643 F.2d 1005, 1009 (4th Cir.1981). The parties reinforced that principle in this case by specifically agreeing to grant the court authority to oversee the settlement procedures. In our view, the district court's enforcement of the settlement agreement was a reasonable exercise both of its inherent equitable discretion and of the authority to supervise the agreement that the parties expressly vested in it. See Ozyaqcilar v. Davis, 701 F.2d at 308; Millner v. Norfolk & Western Ry., 643 F.2d at 1009; Wood v. Virginia Hauling Co., 528 F.2d 423, 425 (4th Cir.1975); see also SEC v. Moss, 644 F.2d 313, 316 (4th Cir.1981), cert. denied, 455 U.S. 1023 (1982).

In reaching that determination, we first conclude that the Companies breached their obligations under the agreement by acting in a manner that was inconsistent with a bona fide attempt to resolve product-identification disputes and with the implied duty of good faith and fair dealing. See Tharpe v. G.E. Moore Co., 174 S.E.2d 397, 399 (S.C.1970) (a covenant of good faith and fair dealing is implied in every contract). The district court found that the Companies deliberately failed to finalize product identification prior to June 7 and frustrated the schools' ability to exercise their option. This finding is not clearly erroneous. The record amply supports the conclusion that the Companies breached both their specific and implied duties by steadfastly refusing to negotiate or otherwise respond meaningfully to the school districts' evidentiary submissions. The Companies' conduct during the option period demonstrates that they regarded the agreement's evidentiary-exchange process as little more than a gratuitous discovery device. The schools submitted voluminous product-identification materials,15 but the Companies, rather than responding with contrary evidence, repeatedly demanded additional evidence--even when faced with the immediate running of the option. In our view, the district court correctly held that the Companies' misconduct excused the school districts from exercising the option by June 7.16

It is true that the agreement specified no time frame either for the school districts to submit their evidence to the Companies or for the Companies' submission of contrary evidence to the school districts. The schools simply were given six months from October 31, 1984, to decide whether to accept the amounts contributed according to the procedures described in the agreement. The courts of South Carolina, however, apply the traditional common law rule that in the absence of express agreement, the time for actions to be taken under a contract is a reasonable time. See Cloniger v. Cloniger, 193 S.E.2d 647, 651 (S.C.1973); Oxweld Acetylene Co. v. Davis, 106 S.E. 157, 159 (S.C.1921); cf. S.C.Code Ann. 36-2-309(1) (Law. Co-op.1976) (adopting U.C.C. 2-309(1): "The time for shipment or delivery or any other action under a contract if not ... agreed upon shall be a reasonable time.") Our review of the circumstances, the contract itself, and the school districts' performance of their obligations convinces us that the option period presented a reasonable calendar for the execution of product-identification procedures.

The record demonstrates that the Companies had adequate time to assemble and submit contrary product-identification evidence prior to and within the option period. The parties in the Greenville case had engaged in discovery for over a year and a half and were on the eve of trial when settlement negotiations began. The Richland litigation was commenced six months before the Greenville case and the Richland parties had undertaken substantial discovery before executing the settlement agreement. The Montgomery case was filed in July 1983--over one year before settlement negotiations began--and the parties had exchanged numerous interrogatories and requests for the production of documents. The production of contrary evidence for these cases would have involved little more than transferring materials the Companies' already had obtained--a minimal burden.17 It is true that the parties engaged in no discovery in the Amelia case prior to executing the settlement agreement. Amelia County nonetheless submitted substantial quantities of product-identification evidence to the Companies more than two months before the extended option deadline. The Companies' idleness in the other three cases prompts the reasonable conclusion that even if they had more time to respond to the Amelia submissions, they would not have done so. In summary, the district court acted within the terms of the contract and within the bounds of its remedial discretion in concluding that the school districts' product-identification evidence was sufficient under the agreement and in precluding the Companies from introducing product-identification evidence at arbitration.

The Companies next argue that the district court abused its discretion in ordering the Companies to choose an arbitrator to resolve the outstanding abatement cost issues exclusively from the school districts' list of arbitrator nominees. The Companies failed to submit their list of arbitrator candidates by January 16, 1985--the date on which the list was due under the parties' supplemental agreement.18 At the hearing before the district court, counsel for the Companies testified that after he received the school districts' list he had been called out of the office on business and family matters. Counsel offered this as an excuse for the Companies' failure to submit their list of arbitrators by January 16. The Companies, however, did not receive the school districts' list until January 16 and counsel, by his own admission, was not called out of the office until after that date. We find no abuse of discretion in this action by the district court.

In their final argument, the Companies assert that the district court judge should have disqualified himself because he participated in an ex parte telephone conversation with the school districts' attorney. The conversation in question was the school districts' June 7 communication that the settlement had not been consummated. The Companies contend that recusal was mandatory under 28 U.S.C. Sec. 455(b)(1) because the trial judge received "personal knowledge of disputed evidentiary facts" in that conversation.19 Such knowledge, they assert, violated the statute and resulted in the denial of their due process right to an impartial decisionmaker. We disagree.

The fact that the settlement had not been consummated by June 7 is not the type of "personal knowledge" that implicates 28 U.S.C. Sec. 455(b)(1).20 See In re Beard, 811 F.2d 818, 829 n. 16 (4th Cir.1987). Section 455(b)(1) requires recusal only when disputed evidentiary information comes from an extrajudicial source. See United States v. Widgery, 778 F.2d 325, 328 (7th Cir.1985). "Knowledge acquired by the judge while he performs judicial duties does not constitute grounds for disqualification [under Section 455(b)(1) ]." United States v. Coven, 662 F.2d 162, 168 (2d Cir.1981), cert. denied, 456 U.S. 916 (1982) (citing United States v. Grinnell Corp., 384 U.S. 563, 583 (1966)). Here, the district court judge was acting within the scope of his judicial capacity as well as the supervisory authority conferred on him by the parties' agreement when he spoke to the school districts' counsel on June 7. Participation in this telephone conversation did not require him to recuse himself because it was within his judicial responsibilities to be informed of the status of the pending settlement.21

In an action consolidated with the principal appeal, the Greenville County School District appeals from the district court's award to it of only minimal prejudgment interest22 on a separately settled claim against the United States Gypsum Company (USG). The court computed interest from the date USG was informed of the amount of Greenville's claim against it. Greenville contends that it should have received interest from the date it paid to have USG's asbestos products removed from its school building. We find that the district court accurately applied South Carolina law relating to the calculation of prejudgment interest.23 Accordingly, we affirm its award.

AFFIRMED.