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Sadia, S.A., v. Hubbard Farms, Inc.

2008 WL 5416398 (U.S. Dist. Ct. D. N.J. 2008) (Unpublished)

CONTRACTS; SETTLEMENTS — A settlement agreement, in general, not only extends to matters to which parties refer explicitly, but also the natural consequences of such matters.

A Brazilian importer was in the business of breeding and selling offspring of chickens that at one time had been supplied by an American supplier. The supplier was a Delaware company engaged in the business of breeding poultry for sale to domestic and foreign breeders. The supplier did business in New Jersey. Pursuant to their original business agreement, the importer agreed to hold its supplier harmless from any and all claims arising from the conduct of the importer. Significant issues with the supplier’s chickens began almost twenty years later when the supplier’s stock allegedly became infected with a virus. After the importer complained about the ill health of the chickens, the parties entered into another business agreement. The supplier agreed to partially reimburse the importer for proven diseased flocks and, in return, the importer agreed that all claims related to the virus would be settled for flocks supplied up to the date of the second agreement. Approximately six months later, in light of the continuing virus problem, the parties entered into a third agreement. The supplier extended the time for payment of invoices due and the importer agreed to release its claims against the supplier. The release stated that there would be no additional penalties or damages to either party against the other relating to any of the supplier’s chickens before the date of the agreement. This agreement also provided for the termination of the parties’ business relationship.

Eight years later, a successor-in-interest to the importer filed suit in federal district court against the supplier, seeking indemnification and contribution for claims brought by three of the importer’s Brazilian customers, two of which had been settled. The United States District Court dismissed the complaint by granting the supplier’s motion for summary judgment. The Court found that the two successive agreements, by their unambiguous language, extinguished any rights of contribution or indemnification by settling certain claims between the importer and its supplier. The Court concluded that the three customer claims of injuries arose from stock supplied by the supplier before the two later agreements. The Court held that by the unambiguous language of the two later agreements, the importer and supplier had agreed that any and all claims arising from flocks supplied up to the last agreement were settled by those agreements. The Court said that the agreements did not link the release to damages incurred by the date of the agreements, but rather encompassed any damages that could ensue as a result of the flocks supplied to that date. It favorably remarked that a settlement agreement, in general, not only extends to matters to which parties refer explicitly, but also to the natural consequences of such matters. The Court found nothing hypothetical or uncertain about the claims made by the three customers of the importer, such that the claims should fall outside the settlement agreements. In doing so, it indicated that the importer knew the types of claims that could ensue, who its customers were, and the diseased flocks’ potential in the marketplace. Accordingly, the Court found that the parties unambiguously settled potential claims in the two later agreements in order to prevent uncertain results of litigation, and the supplier did not have a legal duty to indemnify, or contribute to, the claims asserted by the importer’s former customers.

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