Living Designs, Inc. v. E.I. Dupont De Nemours and Co.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LIVING DESIGNS, INC. and PLANT 

EXCHANGE, INC., Hawai‘i

corporations,

Plaintiff-Appellant, No. 02-16947

v.  D.C. No.

CV-99-00660-MLR

E.I. DUPONT DE NEMOURS AND

COMPANY, a Delaware corporation,

Defendant-Appellee.



ANTHURIUM ACRES, a Hawai‘i 

general partnership, successor in

interest to Island Tropicals;

MUELLER HORTICULTURAL PARTNERS,

a Hawai‘i limited partnership, No. 02-16948

Plaintiffs-Appellants,  D.C. No.

v. CV-00-00615-MLR

E.I. DUPONT DE NEMOURS AND

COMPANY, a Delaware corporation,

Defendant-Appellee.



MCCONNELL, INC., a California 

corporation,

Plaintiff-Appellant, No. 02-16951

v.  D.C. No.

E.I. DUPONT DE NEMOURS AND CV-00-00328-MLR

COMPANY, a Delaware corporation,

Defendant-Appellee.



15635

15636 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

LIVING DESIGNS, INC. and PLANT 

EXCHANGE, INC., Hawai‘i

corporations; DAVID MATSUURA,

individually and dba Orchid Isle

Nursery; STEPHEN MATSUURA,

individually and dba Hawaiian

Dendrobium Farm; FUKU-BONSAI, No. 04-16354

INC.; DAVID W. FUKUMOTO; LIVING D.C. Nos.

DESIGNS, INC. and PLANT CV-96-01180-MLR

EXCHANGE, INC.; MCCONNELL, INC.,

a California corporation;  CV-97-00716-MLR

CV-99-00660-MLR

ANTHURIUM ACRES, a Hawai‘i CV-00-00328-MLR

general partnership, successor in CV-00-00615-MLR

interest to Island Tropicals;

MUELLER HORTICULTURAL PARTNERS, OPINION

Plaintiffs-Appellants,

v.

E.I. DUPONT DE NEMOURS AND

COMPANY, a Delaware corporation,

Defendant-Appellee.



Appeal from the United States District Court

for the District of Hawai‘i

Manuel L. Real, District Judge, Presiding

Argued and Submitted

July 11, 2005—San Francisco, California

Filed December 5, 2005

Before: Sidney R. Thomas, Barry G. Silverman, and

Richard R. Clifton, Circuit Judges.

Opinion by Judge Thomas

15640 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

COUNSEL

Stephen T. Cox, Cox & Moyer, San Francisco, California, for

the plaintiffs-appellants.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15641

C. Stephens Clay and James F. Bogan III, Kilpatrick Stockton

LLP, Atlanta, Georgia, for defendant-appellee.

OPINION

THOMAS, Circuit Judge:

In these consolidated cases, Plaintiffs Living Designs,

McConnell, Inc., Anthurium Acres, Matsuura, and Fuku-

Bonsai allege that Defendant E.I. DuPont de Nemours and

Company (“DuPont”) fraudulently induced the settlement of

their prior products liability litigation. We reverse the district

court’s grant of judgment on the pleadings in favor of DuPont

on Plaintiffs’ claims under the Racketeer Influenced and Cor-

rupt Organizations Act, 18 U.S.C. §§ 1961-1968 (“RICO”),

and the district court’s grant of summary judgment in favor of

DuPont on Plaintiffs’ state tort claims.

I

A

Outside of the agricultural community, plant disease-

causing fungi are rarely the subject of casual dinner conversa-

tion, much less contentious litigation. Yet to farmers world-

wide, the problems posed by white mold, virulent black leg,

foot rot, and scab are extremely serious matters. In the late

1950s and early 1960s, DuPont developed a systemic fungi-

cide to combat these problems, which it marketed under the

name of Benlate. At the zenith of its use, Benlate was one of

DuPont’s most successful commercial products.

However, into every product’s life, a little rain must fall. In

the case of Benlate, the rain became a torrent of litigation

alleging that Benlate had become contaminated with the her-

bicide sulfonylureas (“SUs”) during the manufacturing pro-

cess, resulting in widespread crop damage.

15642 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

In previous litigation filed in 1992 and 1993, Plaintiffs,

who are commercial nurserymen, separately sued DuPont

alleging that contaminated Benlate had killed their plants.

Matsuura v. Altson & Bird (Matsuura I), 166 F.3d 1006,

1007, amended by 179 F.3d 1131 (9th Cir. 1999).

Many similar suits were filed by commercial grow-

ers across the nation. In early trials, DuPont falsely

represented that soil tests had produced no evidence

of contamination. During consolidated discovery

proceedings in Hawai‘i, which included the [Plain-

tiffs’] suits, DuPont falsely denied withholding evi-

dence of Benlate contamination, and improperly

invoked work product protection to resist disclosure

of testing data.

Id.

Plaintiffs, represented by Florida attorney Kevin Malone,

settled their Benlate product liability cases against DuPont in

April of 1994.1 Plaintiffs did not dismiss their claims with

prejudice until October and November of 1994. Matsuura v.

E.I. du Pont de Nemours & Co. (Matsuura III), 330 F. Supp.

2d 1101, 1120 (D. Haw. 2004). After Plaintiffs settled their

product liability claims against DuPont, it became clear that

DuPont had not revealed to Plaintiffs during discovery dam-

aging test results that indicated that Benlate was indeed con-

taminated with SUs. There are three different categories of

tests concealed, withheld, and lied about by DuPont in the

course of litigating Benlate cases across the country.

1. Alta Test Results. The results of tests conducted

1

Plaintiff Fuku-Bonsai signed a settlement agreement with DuPont on

April 22, 1994. The month prior, on March 6, 1994, Fuku-Bonsai had

been forced to file for bankruptcy under Chapter 11. The settlement

between Fuku-Bonsai and DuPont was approved by the bankruptcy court

on May 16, 1994.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15643

by Alta Analytical Laboratories (“Alta”) showed that

farms where Benlate had been used were contami-

nated with SUs. “Alta laboratories was one of the

few laboratories, if not the only one, capable of per-

forming the sophisticated soil and water analysis to

determine if Benlate was contaminated with [SUs].”

Matsuura v. E.I. du Pont de Nemours & Co. (Matsu-

ura II), 73 P.3d 687, 689 n.5 (Haw. 2003).

2. Costa Rica field tests. DuPont conducted field

tests of Benlate in Monte Vista, Costa Rica in 1992.

During the Costa Rica field tests, the plants treated

with Benlate died, demonstrating that Benlate was

harmful to plants. DuPont destroyed the plants sub-

jected to these field tests and withheld evidence of

the field test results. Productora de Semillas, S.A. v.

E.I. du Pont de Nemours, & Co., No. 97-12186 CA

23 (Fla. Cir. Ct. June 30, 2001) (order on Plaintiff’s

motion to strike defendant DuPont’s pleadings and

on Plaintiff’s motion for sanctions against DuPont

for the destruction of the Monte Vista Benlate test).

3. BAM results. These tests were performed on

behalf of DuPont by A&L Midwest laboratories and

by DuPont’s in-house testing facilities. These tests

also showed that Benlate was contaminated with

SUs. Kawamata Farms, Inc. v. United Agri Prod-

ucts, 948 P.2d 1055, 1065 (Haw. 1997) (referring to

the Keeler documents).

DuPont first produced Alta test results showing Benlate

contamination in May 1994 to Benlate plaintiffs who had not

yet settled their cases, such as to plaintiffs in the Kawamata/

Tomono case,2 over which Judge Ibarra presided in the Third

2

See Kawamata Farms, 948 P.2d at 1065. In Kawamata Farms, the

plaintiffs, sellers and distributors of agricultural products in Hawai‘i,

alleged that their plants, soil, and farm structures had been damaged by

Benlate. In January 1995, a jury issued a verdict in favor of the plaintiffs

on their negligence and products liability claims, awarding $1,180,000 in

compensatory damages and $1,770,000 in punitive damages.

15644 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

Circuit Court in Hawai‘i. Matsuura II, 73 P.3d at 689.3

Contrary to DuPont’s prior representations, the tests

confirmed that Benlate was contaminated. Addi-

tional evidence of Benlate contamination was pro-

duced in other Benlate litigation. Two district courts

held that DuPont had intentionally engaged in fraud-

ulent conduct by withholding this evidence. See

Kawamata Farms v. United Agri Prods., 86 Hawaii

214, 948 P.2d 1055, 1083, 1087-88 (1996) (impos-

ing $1.5 million punitive sanction for discovery

abuse), aff’d, 86 Hawaii 214, 948 P.2d 1055 (Haw.

1997); Bush Ranch v. E.I. DuPont de Nemours &

Co. (In re DuPont) (“Bush Ranch”), 918 F. Supp.

1524, 1556-58 (M.D. Ga. 1995) (imposing sanctions

potentially totaling $115 million), rev’d on other

grounds, 99 F.3d 363 (11th Cir. 1996). Although the

Eleventh Circuit reversed the Georgia court on the

ground that the sanctions were punitive and the court

had not followed applicable criminal procedure, the

court noted the “serious nature of the allegations”

and stated that it assumed the U.S. Attorney would

conduct an investigation, In re E.I. DuPont, 99 F.3d

at 369 n. 7. On remand, the district court asked the

United States Attorney to “investigate and prose-

cute” DuPont for criminal contempt, In re E.I. du

Pont, No. 4:95-CV-36 (HL) (M.D. Ga. Nov. 4,

1998) (order referring matter to U.S. Attorney), but

the court ultimately approved a civil settlement

resolving the matter, which required DuPont and

Alston & Bird to make payments totaling $11.25

3

The Hawai‘i Supreme Court in Kawamata Farms, describes in detail

the discovery disputes and Plaintiffs’ gradual discovery of withheld evi-

dence in this case. 948 P.2d at 1065-66. Although Plaintiffs in this case

state that the Alta test results were produced on May 17, 1994, it should

be noted that production of the test results demonstrating the Benlate con-

tamination and DuPont’s knowledge of the contamination occurred bit by

bit from May through December of 1994.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15645

million, see In re E.I. du Pont, No. 4:95-CV-36 (HL)

(M.D. Ga. Dec. 31, 1998) (consent order and final

judgment).

Matsuura I, 166 F.3d at 1007-08.

DuPont was first sanctioned by Judge Elliot, who presided

over the Bush Ranch litigation in the United States District

Court for the Middle District of Georgia, on August 21, 1995

for (1) intentionally withholding evidence of the SU contami-

nation of Benlate that was in its possession and which it was

ordered to produce and (2) for falsely representing to the court

and to plaintiffs that the Alta documents it withheld contained

no evidence of SU contamination. Bush Ranch, 918 F. Supp.

at 1555-1558.

B

After learning that DuPont fraudulently withheld evidence

of Benlate’s contamination, Plaintiffs filed the instant actions

in the United States District Court for the District of Hawai‘i,

asserting claims under RICO and state common law claims of

fraud, conspiracy, misrepresentation, abuse of process, inflic-

tion of emotional distress, interference with prospective eco-

nomic advantage, negligence, and spoliation of evidence. In

sum, Plaintiffs alleged that DuPont fraudulently withheld evi-

dence of Benlate’s contamination to induce Plaintiffs to settle

their underlying Benlate litigation. Plaintiffs allege they were

harmed by DuPont’s fraudulent conduct “because they would

have requested more money or refused to settle had they

known about the concealed data.” Matsuura II, 73 P.3d at

691.

The district court4 granted DuPont’s judgment on the plead-

ings, ruling the suit was barred by releases signed by Plain-

4

The presiding judge at this stage of the litigation was Hon. David Ezra,

Chief Judge of the District of Hawai‘i.

15646 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

tiffs as part of their settlement agreements with DuPont.

Matsuura I, 166 F.3d at 1008. Furthermore, “the court held

[Plaintiffs] could have rescinded the settlement agreements

because of DuPont’s fraud, but forfeited that remedy by fail-

ing promptly to tender the settlement proceeds.” Id.

Plaintiffs appealed. We reversed, holding that Delaware

law controlled and that the Delaware Supreme Court would

likely interpret the releases as not barring a claim for fraudu-

lent inducement. Id. at 1011. We also held that, under Dela-

ware law, plaintiffs alleging that they were fraudulently

induced to settle their claims have a choice of remedies: they

may either (1) rescind the settlement agreement or (2) affirm

their settlement agreements and sue for fraud. Id. at 1012.5

Proceedings continued on remand in federal court. As sum-

marized by the Hawai‘i Supreme Court:

On March 1, 2001, the [Plaintiffs] filed a “Motion

for Collateral Estoppel to Preclude Defendant from

Re-Litigating Previously Adjudicated Findings of

Fraud, Discovery Abuse, and Intentional Withhold-

ing of Evidence in the Kawamata Farms case”

(motion for collateral estoppel). Therein, the [Plain-

tiffs] seek to preclude DuPont from “re-litigating”

the following issues: (1) that DuPont fraudulently

and intentionally withheld the Alta test results from

Benlate litigants; (2) that DuPont intentionally with-

held the Keeler documents from Benlate litigants;

and (3) that the Alta test results included analytical

findings, which some experts would construe as evi-

dence that Benlate was contaminated with SUs. The

[Plaintiffs] claim that issues (1) and (2) have already

been decided in Kawamata Farms and that issue (3)

5

Our interpretation of Delaware law was confirmed as correct in E.I. du

Pont de Nemours & Co. v. Florida Evergreen Foliage, 744 A.2d 457 (Del.

1999).

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15647

was decided by the Eleventh Circuit in Bush Ranch

II.

Matsuura II, 73 P.3d at 691. In response, DuPont filed two

“related or counter motions.” Id. First, DuPont filed a “Mo-

tion for Judgment on the Pleadings as to All Plaintiffs’ Claims

Based on Litigation Conduct,” asserting that Plaintiffs’ claims

were barred by the doctrine of litigation immunity and that

Hawai‘i has not recognized a separate tort of spoliation of evi-

dence. Id. Second, DuPont filed a “Motion for Summary

Judgment Based on Plaintiffs’ Inability as a Matter of Law to

Establish Reasonable Reliance,” asserting that reasonable reli-

ance is an element of a fraudulent inducement claim and that

Plaintiffs were unable, as a matter of law, to establish that

they reasonably relied on DuPont’s representations made dur-

ing litigation. Id.

On May 10, 2001, less than one week before the hearing on

the substantive motions, DuPont filed a motion to certify

questions of Hawai‘i state law to the Hawai‘i Supreme Court.

Judge Ezra agreed and certified three questions to the court.

Matsuura II, 73 P.3d at 692. The Hawai‘i Supreme Court

responded on July 29, 2003. The questions and the Hawai‘i

Supreme Court’s answers are as follows.

The first question certified asked: “Under Hawai‘i law, is

a party immune from liability for civil damages based on that

party’s misconduct, including fraud, engaged in during prior

litigation proceedings?” Id. at 688. The Hawai‘i Supreme

Court submitted the following answer: “Under Hawai‘i law,

a party is not immune from liability for civil damages based

upon that party’s fraud engaged in during prior litigation pro-

ceedings.” Id. at 700.

The second certified question asked: “Where plaintiffs’

attorneys and others have accused the defendant of fraud and

dishonesty during the course of prior, related litigation, are

plaintiffs thereafter precluded as a matter of law from bring-

15648 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

ing a cause of action for fraudulent inducement to settle

because they should not have relied on the Defendant’s repre-

sentations? Id. at 688-89. The Hawai‘i Supreme Court submit-

ted the following answer: “In an action for fraudulent

inducement where plaintiffs’ attorneys and others have

accused the defendant of fraud and dishonesty during the

course of prior dealings, plaintiffs are not precluded as a mat-

ter of law from establishing that their reliance on the defen-

dant’s representations was reasonable.” Id. at 704.

The third and final certified question asked: “Does Hawai‘i

law recognize a civil cause of action for damages for inten-

tional and/or negligent spoliation of evidence?” Id. at 689.

The Hawai‘i Supreme Court responded:

Because the facts alleged cannot support their spolia-

tion claim, this court need not resolve whether

Hawai‘i law would recognize a tort of spoliation of

evidence. Therefore, insofar as the third certified

question does not appear to be “determinative of the

cause,” it was inappropriate for certification under

HRAP Rule 13. Accordingly, we decline to answer

it.

Id. at 706 (citations omitted).

Prior to the Hawai‘i Supreme Court’s response to the certi-

fied questions, visiting Judge Manuel Real of Los Angeles,

who replaced Chief Judge Ezra as the judge assigned to this

case, denied DuPont’s motion for continuance of the trial date

and for limited stay of discovery pending the Hawai‘i

Supreme Court’s ruling and invited DuPont to refile its

motions for judgment on the pleadings and for summary judg-

ment. DuPont refiled its motions. On September 4, 2002,

prior to the Hawai‘i Supreme Court’s ruling on the certified

questions, the district court granted DuPont’s motions for

summary judgment as to Plaintiffs’ fraud claim on the

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15649

grounds that Plaintiffs could not establish reasonable reliance

as a matter of law.

After the Hawai‘i Supreme Court ruled on the certified

questions, Plaintiffs moved to vacate the district court’s grant

of summary judgment. DuPont filed a counter-motion on July

16, 2003, asking the district court to re-affirm its earlier rul-

ing.

On February 25, 2004, the district court heard these

motions and other motions filed by DuPont, which included:

(1) a motion for summary judgment on the speculative nature

of Plaintiffs’ alleged damages; (2) a motion for summary

judgment on Plaintiffs’ “Alta fraud” claims; (3) a motion for

summary judgment on Plaintiffs’ “non-fraud” claims; (4) a

motion for judgment on the pleadings as to Plaintiffs’ RICO

claims; and (5) a motion for judgment on the pleadings on

Hawai‘i’s litigation privilege. The district court granted

DuPont’s motions for summary judgment and for judgment

on the pleadings. Matsuura III, 330 F. Supp. 2d at 1101. The

district court instructed DuPont to draft a proposed order,

which the district court adopted almost verbatim and then

published. Plaintiffs timely appealed.

II

We review a dismissal on the pleadings pursuant to Federal

Rule of Civil Procedure 12(c) de novo. Turner v. Cook, 362

F.3d 1219, 1225 (9th Cir. 2004). Judgment on the pleadings

is proper when, taking all the allegations in the pleadings as

true and construed in the light most favorable to the nonmov-

ing party, the moving party is entitled to judgment as a matter

of law. See id. We review a district court’s grant of summary

judgment de novo. Yakutat, Inc. v. Gutierrez, 407 F.3d 1054,

1066 (9th Cir. 2005). “We must determine, viewing the evi-

dence in the light most favorable to the nonmoving party,

whether there are any genuine issues of material fact and

whether the district court correctly applied the relevant sub-

15650 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

stantive law.” KP Permanent Make-Up, Inc. v. Lasting

Impression I, Inc., 408 F.3d 596, 602 (9th Cir. 2005). We

review the district court’s exclusion of evidence in a summary

judgment motion for an abuse of discretion. Orr v. Bank of

America, 285 F.3d 764, 773 (9th Cir. 2002).

III

The district court erred in granting judgment on the plead-

ings as to the Plaintiffs’ RICO claims.

A

[1] The district court erred in granting judgment on the

pleadings as to the RICO claims asserted by Fuku-Bonsai and

Matsuura. The elements of a civil RICO claim are as follows:

“(1) conduct (2) of an enterprise (3) through a pattern (4) of

racketeering activity (known as ‘predicate acts’) (5) causing

injury to plaintiff’s ‘business or property.’ ” Grimmet v.

Brown, 75 F.3d 506, 510 (9th Cir. 1996) (citing 18 U.S.C.

§§ 1964(c), 1962(c)).

1

[2] The district court held that Fuku-Bonsai and Matsuura

had failed to allege a distinct enterprise. Matsuura III, 330 F.

Supp. 2d at 1129-31. 18 U.S.C. § 1962(c) provides:

It shall be unlawful for any person employed by or

associated with any enterprise engaged in, or the

activities of which affect, interstate or foreign com-

merce, to conduct or participate, directly or indi-

rectly, in the conduct of such enterprise’s affairs

through a pattern of racketeering activity or collec-

tion of unlawful debt.

“[T]o establish liability under § 1962(c) one must allege and

prove the existence of two distinct entities: (1) a ‘person’; and

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15651

(2) an ‘enterprise’ that is not simply the same ‘person’

referred to by a different name.” Cedric Kushner Promotions,

Ltd. v. King, 533 U.S. 158, 161 (2001); see also Rae v. Union

Bank, 725 F.2d 478, 481 (9th Cir. 1984). The term “enter-

prise” is defined in 18 U.S.C. § 1961(4) as “any individual,

partnership, corporation, association, or other legal entity, and

any union or group of individuals associated in fact although

not a legal entity.”

[3] Perhaps taking a page out of a John Grisham novel,6

Fuku-Bonsai and Matsuura have alleged that the “person” was

DuPont and the “enterprise” consisted of DuPont, the law

firms employed by DuPont, and expert witnesses retained by

the law firms. To be sure, if the “enterprise” consisted only

of DuPont and its employees, the pleading would fail for lack

of distinctiveness. See Cedric Kushner, 533 U.S. at 164. How-

ever, there is no question that law firms retained by DuPont

are distinctive entities. See United States v. Blinder, 10 F.3d

1468, 1473-74 (9th Cir. 1993). And there is no question that

DuPont and the law firms together can constitute an “associ-

ated in fact” RICO enterprise. Id. at 1473 ((Holding that “a

group or union consisting solely of corporations or other legal

entities can constitute an ‘association in fact’ enterprise”).

[4] The more difficult question is whether the enterprise

formed by the group of DuPont, the law firms it employed,

and the expert witnesses that the law firms retained is separate

and distinct from DuPont, the RICO “person” alleged in

Plaintiffs’ complaint. We conclude that they are. The associ-

ated in fact enterprise formed by this union is “a being differ-

ent from, not the same as or part of, the person whose

behavior [RICO] was designed to prohibit.” Rae, 725 F.2d at

481. This is not a situation where the enterprise cannot be

either formally or practically separable from the person. See

6

In his novel The Firm, author John Grisham describes a law firm

owned by an organized crime family. JOHN GRISHAM, THE FIRM (Double-

day 1991).

15652 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

United States v. Benny, 786 F.2d 1410, 1416 (9th Cir. 1986).

DuPont — a company that offers products and services for

markets including agriculture, nutrition, electronics, commu-

nications, safety and protection, home and construction, trans-

portation, and apparel — retained law firms for the purpose

of defending DuPont in Plaintiffs’ lawsuits. These law firms

are required to conform to ethical rules and thus are not

merely at the beck and call of their clients. As we recently

observed:

Membership in the bar is a privilege burdened with

conditions. An attorney is received into that ancient

fellowship for something more than private gain. He

becomes an officer of the court, and, like the court

itself, an instrument or agency to advance the ends

of justice.

Gadda v. Ashcroft, 377 F.3d 934, 942-43 (9th Cir. 2004)

(citations and quotations omitted).

[5] Just as a corporate officer can be a person distinct from

the corporate enterprise, DuPont is separate from its legal

defense team. See Sever v. Alaska Pulp Corp., 978 F.2d 1529,

1534 (9th Cir. 1992); Benny, 786 F.2d at 1415-16. Indeed, the

rules of professional conduct require law firms to be distinct

entities and to maintain their professional independence.

Model Rules of Prof’l Conduct R. 5.4. In addition, even in the

context of the attorney-client relationship, attorneys retain

control over important functions; for example, in litigation,

the attorney retains control over tactical and strategic deci-

sions. New York v. Hill, 528 U.S. 110, 114-15 (2000); Model

Rules of Prof’l Conduct R. 1.2 cmt. 1. Thus, the litigation

“enterprise” necessarily must be distinct from the client

retaining legal assistance. In sum, given the allegations of the

complaint, the district court erred in concluding that Plaintiffs

failed to allege a distinct RICO enterprise.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15653

2

The district court also concluded that the predicate acts

alleged by Plaintiffs did not support a RICO claim because (a)

the mail and wire fraud predicate acts failed due to Plaintiffs’

inability to establish reasonable reliance; and (b) the obstruc-

tion of justice predicate acts failed to meet the RICO require-

ments of direct injury and continuity.7 Matsuura III, 330 F.

Supp. 2d at 1128-29.

[6] The district court concluded, without analysis, that

Plaintiffs were required to prove that they reasonably relied

on DuPont’s fraudulent misrepresentations to state a meritori-

ous civil RICO case predicated on mail and wire fraud. Id. at

1128-29. Under 18 U.S.C. § 1964(c), civil RICO plaintiffs

must demonstrate causation, specifically that they were

injured “by reason of” the alleged racketeering activity of the

defendant. 18 U.S.C. § 1964(c). “It is well settled that, to

maintain a civil RICO claim predicated on mail [or wire]

fraud, a plaintiff must show that the defendants’ alleged mis-

conduct proximately caused the injury.” Poulos v. Caesars

World, Inc., 379 F.3d 654, 664 (9th Cir. 2004) (citing Holmes

v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992)).

Although, in some cases, “reliance may be a milepost on the

road to causation,” id. (quoting Blackie v. Barrack, 524 F.2d

891, 906 n.22 (9th Cir. 1975))., we have in the past declined

to announce a black-letter rule that reliance is the only way

plaintiffs can establish causation in a civil RICO claim predi-

cated on mail or wire fraud. Id. at 666. We need not address

7

We hold that the district court did not err in concluding that Plaintiffs

failed to allege a direct relationship between the injury and the alleged

wrongdoing. Plaintiffs alleged that the predicate act consisted of DuPont’s

obstruction of justice in the Bush Ranch case. “[P]laintiff[s] who com-

plain[ ] of harm flowing merely from the misfortunes visited upon a third

person by the defendant’s acts [are] generally said to stand at too remote

a distance to recover.” Oregon Laborers-Employers Health & Welfare

Trust Fund v. Philip Morris, Inc., 185 F.3d 957, 963 (9th Cir. 1999) (quot-

ing Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268-69 (1992)).

15654 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

whether this is a case where Plaintiffs can establish causation

only by demonstrating that they reasonably relied on

DuPont’s fraud,8 because Plaintiffs adequately pleaded rea-

sonable reliance in their amended complaint. Plaintiffs alleged

in their complaint that they “reasonably relied on [DuPont] to

obey statutes, court orders, court rules, rules of evidence,

written agreements, representations to the court by officers of

the court, and representations made under oath to the court by

[DuPont]’s officers and agents.” First Am. Compl. ¶ 165.

Regardless of whether Plaintiffs were required to plead rea-

sonable reliance to satisfy the causation element of their

RICO claims, they did, and thus the district court erred in

granting judgment on the pleadings on this question.

Although the district court styled its order as one granting

judgment on the pleadings, it appeared to be considering this

issue on the record. Matsuura III, 330 F. Supp. 2d at 1128-29

(“As discussed above, Plaintiffs cannot prove that they rea-

sonably relied on DuPont’s alleged fraud.”). Therefore, we

assume that the district court converted the Rule 12(c) motion

into a motion for summary judgment.9 If so, then the district

court erred, because there were genuine issues of material fact

that precluded the grant of summary judgment on this ques-

tion. The district court held that the Plaintiffs’ attorney,

Malone, knew or had knowledge of many of the alleged facts

indicating fraudulent conduct. However, this is a disputed

issue. Plaintiffs tendered evidence that Malone did not know

8

Indeed, it would be premature for us to do so, as the Supreme Court

recently granted a petition for a writ of certiorari to address the following

question: “Did the Court of Appeal for the Second Circuit err when it held

that civil RICO plaintiffs alleging mail and wire fraud as predicate acts

must establish ‘reasonable reliance’ under 18 U.S.C. § 1964(c)?” Bank of

China, New York Branch v. NBM L.L.C., 125 S. Ct. 2956 (2005).

9

If the district court considers matters outside the pleadings, the district

court treats the Rule 12(c) motion as one for summary judgment and must

give all parties a “reasonable opportunity to present all material made per-

tinent to such a motion by Rule 56.” Fed. R. Civ. P. 12(c). Plaintiffs do

not dispute that they received such an opportunity.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15655

the substance of the evidence that DuPont was withholding at

the time of settlement. Therefore, there exists a triable factual

issue as to reasonable reliance.

In sum, the district court improperly granted judgment on

the pleadings on the question of reasonable reliance and, to

the extent that the district court converted the Rule 12(c)

motion into a Rule 56 motion for summary judgment, it also

erred because there were genuine issues of material fact on

the question.

3

The district court determined that Plaintiffs did not assert

that they had suffered an injury to their business or property,

as required under 18 U.S.C. § 1964(c). Matsuura III, 330 F.

Supp. 2d at 1131. Rather, the district court determined that

because Plaintiffs’ injury consisted of “a tainted litigation pro-

cess that diminished their settlements,” Plaintiffs suffered “the

type of personal injury or injury to an intangible interest not

remediable by RICO’s civil provisions.” Id.; see also id. at

1132 (holding that Plaintiffs’ allegations “fail to allege a cog-

nizable RICO injury and therefore fail as a matter of law”).

Plaintiffs argue that they:

settled product liability claims, accepted deflated set-

tlements, and dismissed those causes of action, only

to find out later that they had been defrauded. [Plain-

tiffs’] underlying claims were specifically focused

on injury to their nursery businesses and their prop-

erty (including damaged plant inventory) caused by

defective Benlate, and DuPont’s fraud and racketeer-

ing activities further damages those business and

property interests when they were duped into accept-

ing low settlements.

Brief for Appellants at 75.

15656 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

[7] This court “typically look[s] to state law to determine

‘whether a particular interest amounts to property.’ ” Diaz v.

Gates, 420 F.3d 897, 899 (9th Cir. 2005) (en banc) (per

curiam) (quoting Doe v. Roe, 958 F.2d 763, 768 (7th Cir.

1992)). “Without harm to a specific business or property

interest—a categorical inquiry typically determined by refer-

ence to state law—there is no injury to business or property

within the meaning of RICO.” Id. at *3. Financial losses, in

and of themselves, are insufficient to confer standing under

RICO. Id. at *3 n.1.

[8] Plaintiffs allege that they suffered both a harm to a spe-

cific property interest and a financial loss. The harm Plaintiffs

allege is fraudulent inducement, which is actionable under

Hawai‘i law. Matsuura II, 73 P.3d at 700-01. The financial

loss Plaintiffs claim is that they settled their claims for a smal-

ler percentage of their alleged damages than they could have

received absent DuPont’s fraudulent inducement. See Matsu-

ura III, 330 F. Supp. 2d at 1131. Therefore, the district court

erred in determining that Plaintiffs’ “allegations . . . fail to

allege a cognizable RICO injury and therefore fail as a matter

of law,” Matsuura III, 330 F. Supp. 2d at 1132.

4

The district court determined that Plaintiffs’ RICO claims

fail as a matter of law because they are based on immune liti-

gation conduct. Matsuura III, 330 F. Supp. 2d at 1133. The

district court reasoned that (1) Plaintiffs’ “RICO claims are

based on DuPont’s conduct in Benlate litigation;” (2) “federal

litigation immunity . . . bars subsequent civil litigation based

on a party’s litigation conduct;” and (3) “there is no stated or

clear Congressional intent to abrogate litigation immunity.”

Id. at 1132-33.

[9] Common law immunizes witnesses in judicial proceed-

ings from subsequent litigation based on their testimony. See

Briscoe v. LaHue, 460 U.S. 325, 330-31 (1983); Franklin v.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15657

Terr, 201 F.3d 1098, 1101 (9th Cir. 2000); Holt v. Castaneda,

832 F.2d 123, 124 (9th Cir. 1987). Plaintiffs allege that

DuPont’s RICO liability is predicated on its falsification,

destruction, and misrepresentation of evidence. DuPont has

not cited any federal case which holds that a party’s litigation

conduct in a prior case is entitled to absolute immunity and

cannot form the basis of a subsequent federal civil RICO

claim. See Florida Evergreen Foliage v. E.I. DuPont de

Nemours & Co., 336 F. Supp. 2d 1239, 1267 (S.D. Fla. 2004).10

In fact, the RICO statute, itself, provides that conduct relating

to prior litigation may constitute racketeering activity. 18

U.S.C. § 1961(1)(B) (defining racketeering activity as includ-

ing an act indictable under 18 U.S.C. § 1512, which relates to

tampering with a witness, victim, or informant). Therefore,

the district court erroneously determined that Plaintiffs’

“RICO claims, which are based on immune litigation conduct,

fail as a matter of law.” Matsuura III, 330 F. Supp. 2d at

1133.

B

The district court erred in holding that the statute of limita-

tions precluded relief as to Plaintiffs Living Designs, McCon-

nell, Inc., and Anthurium Acres. Living Designs, McConnell,

Inc., and Anthurium Acres did not file their complaints assert-

10

The two cases cited by DuPont — United States v. Pendergraft, 297

F.3d 1198 (11th Cir. 2002), and Raney v. Allstate Ins. Co., 370 F.3d 1086

(11th Cir. 2004) — are inapposite, as they deal with whether certain con-

duct is wrongful within the meaning of the Hobbs Act, 18 U.S.C. § 1951,

which criminalizes interfering with commerce through the use of threats

or violence. In Pendergraft, the Eleventh Circuit held that defendants’

“threat to file litigation against Marion County, even if made in bad faith

and supported by false affidavits, was not ‘wrongful’ within the meaning

of the Hobbs Act.” 297 F.3d at 1208. In Raney, the Eleventh Circuit, rely-

ing on Pendergraft, affirmed the dismissal of plaintiff’s RICO claim

because conspiracy to extort money through the filing of malicious law-

suits is not wrongful within the meaning of the Hobbs Act, 18 U.S.C.

§ 1951, and therefore plaintiff failed to allege a predicate act cognizable

under RICO. 370 F.3d at 1088.

15658 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

ing their RICO claims until, respectively, September 24,

1999, May 5, 2000, and September 21, 2000. The district

court determined that Plaintiffs had constructive notice of

DuPont’s fraud no later than August 21, 1995, the date that

DuPont was sanctioned for fraud by Judge Elliott in the Bush

Ranch case. Living Designs, Inc. v. E.I. du Pont de Nemours

& Co., No. 99-00660 MLR/LER (D. Haw. Sep. 5, 2002)

(order granting DuPont’s motion for summary judgment as to

plaintiffs’ RICO claims based on the statute of limitations).

Therefore, the district court concluded that Plaintiffs’ RICO

claims were barred by the four year statute of limitations. Id.

[10] The limitations period for civil RICO actions begins to

run when a plaintiff knows or should know of the injury

which is the basis for the action. Id. at 1109. Thus, Plaintiffs’

RICO claims accrued when Plaintiffs had actual or construc-

tive knowledge of DuPont’s fraud. “Ordinarily, [this court]

leave[s] the question of whether a plaintiff knew or should

have become aware of a fraud to the jury.” Beneficial Stan-

dard Life Ins. Co. v. Madariaga, 851 F.2d 271, 275 (9th Cir.

1988). “The plaintiff is deemed to have had constructive

knowledge if it had enough information to warrant an investi-

gation which, if reasonably diligent, would have led to dis-

covery of the fraud.” Pincay, 238 F.3d at 1110 (quoting

Beneficial Standard Life, 851 F.2d at 275) (internal quotation

marks omitted).

[11] Plaintiffs have tendered sufficient evidence to raise a

genuine issue of material fact as to when they knew of or

should have discovered the fraud. The district court relied

solely on the entry of Judge Elliot’s sanction order. However,

the district court erred in determining that, as a matter of law,

the attention received by Judge Elliott’s ruling could be

imputed to the Plaintiffs. O’Connor v. Boeing North Ameri-

can, Inc., 311 F.3d 1139, 1152-53 (9th Cir. 2002) (“The dis-

trict court erred in concluding as a matter of law that

newspaper reports concerning the Defendants’ facilities were

sufficiently ‘numerous and notorious’ to impute knowledge of

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15659

them to Plaintiffs. The district court held that a ‘reasonable,

prudent subscriber’ of newspapers in the area, and a ‘reason-

ably diligent person living in the area for a substantial period

of time between’ 1989 and 1991 would have become aware

of the release of contaminants from SSFL. This evaluation of

the awareness in Plaintiffs’ various communities of a specific

fact or event was uniquely an issue for the jury to resolve.”).

Further, Plaintiffs tendered evidence that their attorney did

not realize the import of the order until much later. This,

along with other evidence in the record, is sufficient to create

a triable factual issue as to whether these parties should have

known about the alleged fraud when Judge Elliot’s sanction

order was issued.

C

[12] For these reasons, the district court erred in granting

judgment on the pleadings as to the RICO claims. We express

no opinion on the merits of the claims, but simply conclude

that DuPont is not entitled to judgment on the pleadings for

the reasons given by the district court.

IV

The district court erred in holding that DuPont was entitled

to summary judgment under Hawai‘i law because of Plain-

tiffs’ “inability to prove either the fact or amount of damages

with reasonable certainty.” Matsuura III, 330 F. Supp. 2d at

1125.

[13] Under Hawai‘i law, in order to maintain a claim for

relief grounded in fraud, “the plaintiff must have suffered sub-

stantial actual damage, not nominal or speculative.” Zanakis-

Pico v. Cutter Dodge, Inc., 47 P.3d 1222, 1233 (Haw. 2002)

(quoting Prosser, Law of Torts at 648 (3d ed. 1964)) (empha-

sis omitted). “[P]laintiffs suing in fraud are required to show

both that they suffered actual pecuniary loss and that such

damages are definite and ascertainable, rather than specula-

15660 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

tive.” Id. The aim of compensation is to place the plaintiffs in

the same position they would have occupied had they not

been defrauded. Id. In the context of a breach of contract case,

the Hawai‘i Supreme Court stated regarding the amount of

proof needed to establish the fact and amount of damages:

[A] distinction is made in the law between the

amount of proof required to establish the fact that the

injured party has sustained some damage and the

measure of proof necessary to enable the jury to

determine the amount of damage. It is now generally

held that the uncertainty which prevents a recovery

is uncertainty as to the fact of damage and not as to

its amount. However, the rule that uncertainty as to

the amount does not necessarily prevent recovery is

not to be interpreted as requiring no proof of the

amount of damage. The extent of plaintiff’s loss must

be shown with reasonable certainty and that

excludes any showing or conclusion founded upon

mere speculation or guess.

Chung v. Kaonohi Ctr. Co., 618 P.2d 283, 290-91 (Haw.

1980) (emphasis added), abrogated on other grounds by

Francis v. Lee Enters., Inc., 971 P.2d 707 (Haw. 1999) (quot-

ing Ferreira v. Honolulu Star-Bulletin, 356 P.2d 651, 656

(Haw. 1969).

Regarding the requirement that the amount of damages be

shown with reasonable certainty, the Hawai‘i Supreme Court

has recognized that “[t]he problem of how to measure dam-

ages, and how to establish them in fraud cases, is always a

difficult one since the person defrauded has, because of the

fraud, not pursued alternative courses of action, and the

results of those untaken courses therefore remain specula-

tive.” Leibert v. Finance Factors, Ltd., 788 P.2d 833, 837

(Haw. 1990). Thus, the Hawai‘i Supreme Court has stated that

the evidence necessary to show damages with reasonable cer-

tainty depends on the circumstances of each individual case.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15661

Chung, 618 P.2d at 291 (rejecting other jurisdictions’ per se

rule that the absence of prior income and expense experience

of a new or unestablished business renders the loss of antici-

pated profits too speculative to be proven with reasonable cer-

tainty and holding that “where a plaintiff can show future

profits in a new or unestablished business with reasonable

certainty, damages for loss of such profits may be awarded”).

Where the fact of damage is established, Hawai‘i law will not

insist upon a higher degree of certainty as to the amount of

damages than the nature of the case admits, particularly where

the uncertainty was caused by the defendant’s own wrongful

acts. Coney v. Lihue Plantation Co., 39 Haw. 129, 1951 WL

7080, at * 5 (1951); see also Chung, 618 P.2d at 291. Thus,

the Hawai‘i Supreme Court has stated that “[d]amages which

cannot be accurately measured should not for that reason be

denied, but the amount should be left to the jury.” Id. at *4

(quoting Ah Quai v. Puuki, 11 Haw. 158 (1897)).

[14] Although the Hawai‘i state courts have not articulated

what must be proven in order to bring a meritorious settle-

ment fraud claim, the district court, relying on a 1911 New

York case, determined that “a ‘settlement fraud’ plaintiff must

prove . . . that the settled claim had merit.” Matsuura III, 330

F. Supp. 2d at 1123.11 That plaintiffs must demonstrate that

their settled claim had merit is inconsistent with the aim of

compensation in fraud cases, which is to restore plaintiffs to

the position they would be in absent the fraud and to provide

plaintiffs with the benefit of the bargain, see Leibert, 788 P.2d

at 836-37, particularly as a party’s decision to settle is often

made as a result of a cost-benefit analysis rather than an

assessment of the claim’s merits.

In DiSabatino v. United States Fidelity & Guaranty Co.,

11

The other case cited by the district court to support this assertion is a

1944 case decided by the Indiana Supreme Court, Automobile Underwrit-

ers, Inc. v. Rich, 53 N.E.2d 775, 777 (Ind. 1944). Matsuura III, 330 F.

Supp. 2d at 1123 n.19.

15662 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

635 F. Supp. 350, 355 (D. Del. 1986),12 the United States Dis-

trict Court for the District of Delaware explained why the

court does not require plaintiffs alleging that the settlement of

their tort claim was procured by fraud to prove that they had

a good cause of action against the tortfeasor at the time of the

fraud:

Whether a good cause of action existed at the time

of the settlement was a material fact that the parties

already considered in reaching a settlement. Requir-

ing a plaintiff to prove in a court of law the existence

of a good cause of action for a tort would be incon-

sistent with affirmance of a settlement agreement.

Evidence of the legal and factual strength of the

claim merely goes to the value of the claim that was

compromised in determining damages from the

fraud.

[15] The sound approach is one in which the trier of fact

determines “the probable amount of settlement in absence of

fraud after considering all known or foreseeable facts and cir-

cumstances affecting the value of the claim on the date of set-

tlement . . .” Id. at 355; see also Matsuura I, 166 F.3d at 1008

n.4 (citing DiSabatino, 635 F. Supp. at 354-55 for the asser-

tion that “damages for fraud are conceptually different from

damages for the underlying tort claims and are not too specu-

lative to calculate”). To put it another way, the relative

strength of the claim in the absence of fraud should be used

by the trier of fact to determine the amount of the defrauded

party’s damages. Whether the defrauded party could have

won its case if it proceeded to trial is irrelevant to this calcula-

12

We favorably cited DiSabatino the first time this case was before us.

Matsuura I, 166 F.3d at 1008 n.4.

The district court in DiSabatino expressed its disapproval of Automobile

Underwriters, supra at n.3, to the extent that it required a plaintiff in an

action based on settlement fraud to prove that he or she had a good cause

of action against the tortfeasor at the time of settlement.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15663

tion. The critical consideration is the settlement value of the

case on the date settlement was reached. Such a determination

is not beyond the power of a jury to determine. The use of

probability analysis, for example, in calculating settlement

values is not uncommon.

[16] Here, the district court erroneously required Plaintiffs

to present admissible evidence regarding the merits of their

underlying product liability claims. Matsuura III, 330 F.

Supp. 2d at 1124 (“Plaintiffs had made no effort, however, to

prove either the merits of their underlying product liability

claims or what those claims would have been worth had their

[sic] been no fraud by DuPont.”). DuPont is also wrong in

suggesting that Plaintiffs were required to provide such evi-

dence.

Therefore, the question becomes whether there is a genuine

issue of fact regarding whether Plaintiffs suffered damages as

a result of DuPont’s fraud. Plaintiffs have tendered evidence

that knowledge of the withheld evidence on the date of settle-

ment would have increased the settlement value of the case

substantially. They cite comparable settlements of much

larger amounts13 and expert testimony.14 This evidence is suf-

13

DuPont argues that evidence of these settlements and verdicts is inad-

missable under FED. R. EVID. 408. However, DuPont did not raise this

issue before the district court and the district court did not rule on the

admissibility of this evidence. Therefore, DuPont has waived this argu-

ment for the purposes of this appeal. Doi v. Halekulani Corp., 276 F.3d

1131, 1140 (9th Cir. 2002). However, DuPont is not precluded from

asserting the argument on remand, and we express no opinion on the mer-

its of the question.

14

Assuming that the district court concluded that the testimony of J.

Anderson Berly, III — a trial attorney retained by Plaintiffs to render

expert opinions about the materiality and impact of DuPont’s withholding

of evidence — was inadmissible under FED. R. EVID. 702, see Matsuura

III, 330 F. Supp. 2d at 1124, 1124 n.21, such constituted an abuse of dis-

cretion.

“Rule 702 allows admission of ‘scientific, technical, or other special-

ized knowledge’ by a qualified expert if it will ‘assist the trier of fact to

15664 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

ficient to create a triable issue of fact and is not so speculative

that damages are incapable of calculation.

[17] DuPont argues that attorney Malone settled the cases

with the belief that he would have won at trial. That Malone

believed he could win against DuPont before DuPont’s fraud

was exposed is not particularly relevant to the issue of how

much more Malone could have settled Plaintiffs’ cases for if

he, at the time of settlement, had the test data that DuPont had

fraudulently withheld. Malone also testified that he believed

the Plaintiffs received “full value” for their cases. This is cer-

tainly relevant evidence, but it does not establish full settle-

ment value as a matter of law. Malone also testified that if the

understand the evidence or to determine a fact in issue.’ ” Daubert v. Mer-

rell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and Kumho Tire

Co., Ltd. v. Carmichael, 526 U.S. 137 (1999), require the district court to

perform its gatekeeping role to determine the admissibility of all forms of

expert testimony, even the non-scientific testimony at issue here. Han-

garter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1017 (9th Cir.

2004). The Supreme Court has emphasized that “[t]he inquiry envisioned

by Rule 702 is . . . a flexible one,” Daubert, 509 U.S. at 594, and must

be “tied to the facts of a particular case,” Kumho Tire, 526 U.S. at 150

(quotation marks omitted). “Concerning the reliability of non-scientific

testimony such as [Berly’s], the ‘Daubert factors (peer review, publica-

tion, potential error rate, etc.) simply are not applicable to this kind of tes-

timony, whose reliability depends heavily on the knowledge and

experience of the expert, rather than the methodology or theory behind

it.’ ” Hangarter, 373 F.3d at 1017 (quoting Mukhtar v. California State

Univ., 299 F.3d 1053, 1169 (9th Cir. 2002)) (emphasis in original).

There is no indication that the district court weighed Berly’s knowledge

and experience in reaching its decision as to whether the testimony was

admissible. The district court applied an incorrect legal analysis in assess-

ing the reliability of Berly’s testimony in accordance with Rule 702, and

thus abused its discretion in excluding Berly’s testimony. For the same

reason, we conclude that the district court also abused its discretion in

excluding the report of Plaintiffs’ expert James F. Ventura. We remand to

the district court to allow it to determine whether Ventura’s and Berly’s

expert testimony is admissible in the first instance, applying the correct

legal framework. See Sullivan v. U.S. Dept. of Navy, 365 F.3d 827, 834

(9th Cir. 2002). We express no opinion as to the merits of that inquiry.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15665

Alta data that DuPont had fraudulently withheld had been

revealed to Plaintiffs at the time of settlement, Plaintiffs’

cases would have been stronger and their settlement value

would have been higher.15 Indeed, the import of Malone’s tes-

timony is the subject of vigorous debate between the parties,

and the record can support inferences for each position. It is

not our task to weigh the evidence. Rather, at this stage of the

proceedings, we are required to view the evidence in the light

most favorable to the Plaintiffs. Doing so, we conclude there

is a genuine issue of material fact regarding whether Plaintiffs

suffered damages as a result of DuPont’s fraud. The district

court erroneously granted summary judgment for DuPont

based on its determination that Plaintiffs failed to prove the

fact of damages with reasonable certainty.

V

The district court erred in granting summary judgment on

the common law fraud claim on the basis that the Plaintiffs

could not establish that the alleged fraud was material or that

the Plaintiffs reasonably relied upon DuPont’s representations

to their detriment.

15

Although some of Malone’s testimony concerns how the threat of

punitive damages would have affected the settlement value of Plaintiffs’

cases, most of Malone’s testimony concerns how the evidence withheld by

DuPont would have weakened DuPont’s defenses, particularly its argu-

ments that no SUs had ever been found in their field testing or analytical

chemical testing of Benlate and that Plaintiffs were comparatively negli-

gent, and thus would have increased the settlement value of Plaintiffs’

cases. Thus, the district court erroneously characterized Malone’s testi-

mony as suggesting only “that DuPont’s alleged wrongdoing, if known,

would have provided [Malone] with the opportunities to seek punitive

sanctions and punitive damages against DuPont” and therefore “would

have provided him with enhanced bargaining power in the settlement

negotiations.” Matsuura III, 330 F. Supp. 2d at 1124. Likewise, DuPont’s

assertion that Plaintiffs seek only the enhanced sanctions value of having

discovered the fraud, rather than the honest settlement value in the absence

of fraud, is erroneous.

15666 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

A

“The materiality of undisclosed information . . . cannot be

determined in a vacuum.” TSA Int’l Ltd. v. Shimizu Corp., 990

P.2d 713, 728 (Haw. 1999) (internal quotation marks omit-

ted). “An omitted fact is material if there is a substantial like-

lihood that, under all the circumstances, the omitted fact

would have assumed actual significance in the deliberations

of the reasonable [claimant].” Id. (internal quotations omit-

ted). Here, the Plaintiffs have tendered sufficient evidence to

create a triable issue of fact on materiality. As we have dis-

cussed, Plaintiffs tendered evidence that the settlement value

of their cases would have increased substantially had the

withheld information been produced on the date of settlement.

DuPont argues that the information was available elsewhere,

that Plaintiffs’ attorney had access to the information, and that

the Plaintiffs deliberately chose to settle without obtaining the

information, but these defenses are fact questions to be

resolved by a jury.

B

Under Hawai‘i law, Plaintiffs’ reliance on DuPont’s mis-

representation must be reasonable. Matsuura II, 73 P.3d at

701. “As a general principle . . . the question of whether one

has acted reasonably under the circumstances is for the trier

of fact to determine.” Id. (quoting Richardson v. Sport Shinko,

880 P.2d 169, 178 (Haw. 1994)). “[W]here reasonable minds

might differ as to the reasonableness of plaintiff’s conduct,

the question is for the jury.” Id. (quoting Young v. Price, 388

P.2d 203, 208 n.10 (Haw 1963)) (internal quotation marks

omitted).

The Hawai‘i Supreme Court, answering the certified ques-

tion posed to it by the district court of whether Plaintiffs were

unable as a matter of law to establish that their reliance on

DuPont’s representations was reasonable, stated that “we are

persuaded that reasonable minds could differ as to the reason-

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15667

ableness of the [Plaintiffs’] reliance on DuPont’s representa-

tions.” Id. at 704. Although the record has been developed

more fully since the Hawai‘i Supreme Court considered this

matter, our analysis is the same. Although DuPont has raised

serious questions about the reasonableness of the reliance and

about whether Plaintiffs actually relied upon DuPont’s repre-

sentations, these are factual questions to be resolved by a jury.

VI

The district court also erred in granting summary judgment

on Plaintiffs’ non-fraud common law claims other than the

claims of negligence and spoliation.

A

[18] The settlement agreement does not preclude Plaintiffs’

non-fraud causes of action. Delaware laws governs the con-

struction and effect of Plaintiffs’ settlement contracts with

DuPont. Matsuura I, 166 F.3d at 1008 n.3. The district court

determined that E.I. DuPont de Nemours & Co. v. Florida

Evergreen Foliage, 744 A.2d 457 (Del. 1999), in which the

Delaware Supreme Court determined that the general release

in the settlement agreement between DuPont and a similarly

situated plaintiff did not bar plaintiff’s subsequent action

against DuPont for fraud in the inducement of the release, did

not control the question of whether Plaintiffs’ non-fraud

claims were barred by the terms of the settlement agreements

between DuPont and Plaintiffs. Matsuura III, 330 F. Supp. 2d

at 1126-27. The district court reasoned that (1) Plaintiffs’

“non-fraud do not satisfy the ‘fraud exception’ articulated by

the Delaware Supreme Court,” and (2) the covenants not to

sue that are contained in the settlement agreements and which

are broader than the general release clauses bar any claims

related to the settled claims and therefore Plaintiffs’ non-fraud

claims. Id. at 1126-27.

DuPont’s argument that the decisions of this court in Mat-

suura I and the Delaware Supreme Court in Florida Ever-

15668 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

green “unambiguously were limited to the scope of the

release clause, and nowhere mentioned the separate covenant

not to sue in the parties’ settlement agreements” is erroneous.

Although the covenant not to sue is not quoted in our decision

in Matsuura I, DuPont argued that the covenant not to sue

barred Matsuura’s fraud claims in its brief to the Matsuura I

court. 1997 WL 33547005 (arguing in its brief that “[t]he

Matsuuras further agreed not to commence any action against

DuPont ‘based upon or in any way related to any causes of

action, claims, demands, actions, obligations, damages, or lia-

bilities which are the subject of this Release,’ ” and that

“Plaintiffs agreed not to commence or participate in any

action based upon or ‘in any way related to’ a released claim

against DuPont in the future.”). We rejected DuPont’s argu-

ment. Thus, the covenant not to sue does not bar Plaintiffs’

non-fraud claims.

In addition, although the Delaware Supreme Court does in

some instances refer to a “fraud exception,” Florida Ever-

green, 744 A.2d at 461, the court’s reasoning for creating the

fraud exception applies to non-fraud claims arising out of

fraudulent conduct. As stated by the Delaware Supreme

Court:

There is some merit to the contention that parties

entering into a general release are chargeable with

notice that any uncertainty with respect to the con-

tours of the dispute which led to the litigation,

including that which is provable and that which is

not, is resolved through the release. See Hob Tea

Room v. Miller, Del. Supr., 89 A.2d 851, 856 (1952)

(construing the effect of a general release that the

Court characterized as “unmistakably lucid”). It is

quite another thing, however, to conclude that a per-

son is deemed to have released a claim of which he

has no knowledge, when the ignorance of such a

claim is attributable to fraudulent conduct by the

released party. 66 Am. Jur.2d Release § 30 (1973).

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15669

At a minimum, if one party is to be held to release

a claim for fraud in the execution of the release

itself, the release should include a specific statement

of exculpatory language referencing the fraud.

Florida Evergreen, 744 A.2d at 460-61. In addition, just as

DuPont’s fraudulent inducement of settlement “subsists sepa-

rate from, and necessarily occurred after, any conduct DuPont

may have engaged in with respect to its manufacture or distri-

bution of Benlate,” id. at 462, so do other claims stemming

from the same fraudulent conduct. Also similar to a claim for

fraudulent inducement, other tort claims stemming from the

same fraudulent conduct are not ones that ordinarily would be

knowingly released. Matsuura I, 166 F.3d at 1011.

[19] In sum, it appears probable that, under Delaware law,

the settlement contracts do not bar Plaintiffs’ non-fraud

claims.

B

[20] The district court did not err in dismissing Plaintiffs’

negligence claims, stating “[t]here is no basis for allowing

derivative litigation over claims that an opponent’s prior liti-

gation conduct in another case amounted to negligence.” Mat-

suura III, 330 F. Supp. 2d at 1128. In a footnote, Plaintiffs

argue only that “Hawai‘i common law creates a duty not to

make negligent misrepresentations, and a breach of such a

duty is actionable.” Brief for Appellants at 79 n.47 (citing

Zanakis-Pico v. Cutter Dodge, Inc., 47 P.3d 1222, 1234

(Haw. 2002)).

[21] Because “litigation conduct is governed by statute,

rules of procedure, and ethical rules,” Matsuura III, 330 F.

Supp. 2d at 1127, the statutes and rules themselves, must

impose a duty of care on parties or their legislative history

must manifest an intent on the part of the legislature to do so.

Lee v. Corregedore, 925 P.2d 324, 342-43 (Haw. 1996); Huls-

15670 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

man v. Hemmeter Dev. Corp., 647 P.2d 713, 719-20 (Haw.

1982). Plaintiffs have not argued or demonstrated that the pro-

cedural rules create a duty of care or that their legislative his-

tory manifest an intent to do so. As the district court’s

judgment lays out, the Federal Rules of Civil Procedure do

not create duties on which an opposing party may base a neg-

ligence claim. Matsuura III, 330 F. Supp. 2d at 1127-28 (cit-

ing 28 U.S.C. § 2702(b)). A violation of Hawai‘i Rules of

Civil Procedure, which appear to be modeled on the Federal

Rules of Civil Procedure, Swink v. Cooper, 881 P.2d 1277,

1282 (Haw. 1994) (noting that HRCP 26(e) is modeled on

FRCP 26(e)), likewise appears not to create a separate cause

of action.

C

The district court also erroneously dismissed Plaintiffs’

non-fraud claims on the grounds of the litigation privilege.

Matsuura III, 330 F. Supp. 2d at 1128. In Matsuura II, the

Hawai‘i Supreme Court stated that “Hawai‘i courts have

applied an absolute litigation privilege in defamation actions

for words and writings that are material and pertinent to judi-

cial proceedings.” 73 P.3d at 692. The court examined the

policy considerations behind the privilege and decided not to

expand the protection of the privilege to claims outside of def-

amation actions, holding that “[u]nder Hawai‘i law, a party is

not immune from liability for civil damages based upon that

party’s fraud engaged in during prior litigation proceedings.”

Id. at 700, 706. The court appears to emphasize that many of

the policies weighing against the application of the privilege

do so only when fraud was committed in the prior proceed-

ings. Id. at 693-99. In accordance with the Hawai‘i Supreme

Court’s analysis, so long as a cause of action for fraud is

asserted, the litigation privilege does not protect subsequent

litigation asserting other causes of action stemming from the

fraud allegedly committed in prior proceedings. Thus, we

hold that Plaintiffs’ non-fraud claims are not barred by the lit-

igation privilege under Hawai‘i law.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15671

D

In their opening brief, Plaintiffs do not raise the issue that

the district court erroneously dismissed Plaintiffs’ spoliation

claims, and only briefly assail the district court’s ruling in its

reply brief. As such, Plaintiffs have waived this claim.

VII

Plaintiffs request that this court exercise its supervisory

power under 28 U.S.C. § 2106 to reassign this case to a differ-

ent district court judge on remand. In the ordinary course,

Absent allegations of bias, the factors this court con-

siders in deciding whether “unusual circumstances”

exist and remand to a different judge is appropriate

are: (1) whether the original judge would reasonably

be expected upon remand to have substantial diffi-

culty in putting out of his or her mind previously-

expressed views or findings determined to be errone-

ous or based on evidence that must be rejected, (2)

whether reassignment is advisable to preserve the

appearance of justice, and (3) whether reassignment

would entail waste and duplication out of proportion

to any gain in preserving the appearance of fairness.

United States v. Atondo-Santos, 385 F.3d 1199, 1201 (9th Cir.

2004) (quoting United States v. Working, 287 F.3d 801, 809

(9th Cir. 2002)). A finding of either the first or second factor

supports remanding to a different district court judge. Id.

Although we do not question the impartiality of the visiting

district judge, there are some unusual factors that indicate to

us that a reassignment is advisable to preserve the appearance

of justice. The visiting district judge adopted the 64 page pro-

posed summary judgment order tendered by DuPont with only

a few minor changes. Those changes consisted of additional

language complaining about the volume of material involved.

15672 LIVING DESIGNS v. E.I. DUPONT DE NEMOURS

The judge then directed that the ghost-written order be pub-

lished. Although adopting findings or an order drafted by the

parties is not prohibited, we have criticized district courts that

“engaged in the ‘regrettable practice’ of adopting the findings

drafted by the prevailing party wholesale.” Maljack Produc-

tions, Inc. v. GoodTimes Home Video Corp., 81 F.3d 881, 890

(9th Cir. 1996) (quoting Sealy, Inc. v. Easy Living, Inc., 743

F.2d 1378, 1385 n.3 (9th Cir. 1984)).

In addition, the visiting district judge took the highly

unusual step of reversing sub silento the thoughtful certifica-

tion order previously entered by the district court. In its

lengthy order, the district court analyzed the pending disposi-

tive motions in detail and concluded that case involved novel

issues of state law. It therefore certified the questions to the

Hawai‘i Supreme Court and stayed further proceedings, find-

ing in its order that “[t]he viability of the state causes of

action in this case turns on the answers to these questions.”

When the case was reassigned to the visiting judge, the

judge reversed course. Rather than waiting for the Hawai‘i

Supreme Court to respond to the questions propounded by the

district court, the visiting district judge decided that the litiga-

tion should proceed. The visiting district judge then denied

motions to stay the proceedings pending the certification

response by the Hawai‘i Supreme Court, invited DuPont to

renew its summary judgment motion, and then acted without

waiting for the Hawai‘i Supreme Court to issue its decision.

After the Hawai‘i Supreme Court issued its lengthy opinion

responding to the certification request, the visiting district

judge declined to take the Hawai‘i Supreme Court’s opinion

into consideration, observing that “I’m not a trial court of the

Hawai‘i courts of appeal.” Transcript of Proceedings Before

Manuel L. Real, February 25, 2004 at 24. The district court

took this action even though the previous judge had certified

to the Hawai‘i Supreme Court that the viability of the state

causes of actions depended on the Hawai‘i Supreme Court’s

response.

LIVING DESIGNS v. E.I. DUPONT DE NEMOURS 15673

[21] Considering these actions in the aggregate, we con-

clude that the appearance of justice requires reassignment on

remand. We are also mindful of the expense involved in uti-

lizing visiting judges. Therefore, we remand this case to the

Chief Judge of the District of Hawai‘i to determine the assign-

ment of the case on remand.

Given the resolution of this case, we need not reach any of

the other questions urged by the parties. We need not, and do

not, reach the merits of any of the issues remanded to the dis-

trict court.

REVERSED AND REMANDED.