Judges: disparagement provision not violated

The 7th Circuit Court of Appeals twice declined to certify questions to the Indiana Supreme Court a litigant raised in his appeal of a suit involving alleged violations of a non-disparagement clause in a settlement agreement.

David N. Rain sued Rolls-Royce Corp. in federal court claiming the company breached a non-disparagement agreement in a settlement agreement Rolls-Royce and Rain’s company Paramount International Inc. entered into following an earlier lawsuit. Paramount and Rolls-Royce are direct competitors regarding helicopter engines.

They have a contentious history and after a 2005 lawsuit involving intellectual property disputes, the two companies entered into a settlement agreement that contained a provision stating “None of the Parties will disparage the other.” A breach of this will entitle the prevailing party to attorney’s fees and damages.

Two incidents in 2007 led to Rain filing the suit alleging a violation of the settlement agreement. Rolls-Royce filed a complaint in federal court in Texas alleging Rain and Paramount conspired with other defendants to use Rolls-Royce's proprietary information. In that suit, the company referred to Rain and Paramount as “Mr. Doe” and “Principal Corporation.” Also that year, Rain attended an expo as a guest of an authorized maintenance center. A Rolls-Royce vice president asked Rain to leave because he was concerned Rain would bait a Rolls-Royce employee into saying something disparaging. Rain left, which upset the organization that had paid for his ticket to attend.

The District Court granted partial summary judgment for Rolls-Royce on Rain’s breach of contract claim regarding the Texas lawsuit and after a bench trial, ruled in favor of Rolls-Royce on his breach of contract claim regarding the expo incident.

In David N. Rain and Paramount International Inc. v. Rolls-Royce Corp., No. 10-1290, the 7th Circuit found the requirements for applying Indiana’s absolute privilege were satisfied because the allegations made in the Texas court were made in the course of a judicial proceeding to which they were relevant. Rain argued the immunity doesn’t extend beyond defamation and other tort claims to encompass breach of contract claims – an issue Indiana state courts haven’t addressed. Looking to other jurisdictions, the 7th Circuit concluded that the Indiana Supreme Court would conclude that the absolute litigation privilege is applicable to breach of contract actions, at least where immunity from liability is consistent with the purpose of the privilege, wrote Judge Joel Flaum.

The judges also affirmed the judgment in favor of Rolls-Royce on the claim involving the expo event. They concluded, after using dictionary definitions of the term “disparage,” that the word in the settlement agreement properly is limited to actions dishonoring, discrediting, denigrating, or belittling the parties’ economic, business, or professional interests. Rain had argued the District Court erred by not including the sort of personal embarrassment he suffered at the expo event.

He also wanted the 7th Circuit to certify two questions to the Indiana Supreme Court: whether Indiana’s absolute litigation privilege applies to the breach of contract claims, and what the proper definition of disparagement is under the circumstances of the case. The appellate judges declined to certify either question, finding certification to be inappropriate regarding the disparagement definition and unnecessary for his first suggested question.

“If and when it arises again, the state courts will be free to reach their own conclusion, of course, and can tell us if our prediction of Indiana law was correct. Without seeing an obstacle to future state court resolution of the issue, we see no need to require the parties to go through another round of briefing and argument in this litigation,” wrote Judge Flaum.