RIPPLE, Circuit Judge.
The plaintiff-appellant, PPG Industries, Inc. (PPG), and the defendant-appellee, George Russell, entered into a covenant and agreement not to sue in connection with Mr. Russell's failed attempt to purchase PPG's Plastic Fabricating Division. In this diversity action, PPG alleges that Mr. Russell breached this agreement when he later sued the successful purchaser of the Division in state court and PPG was joined as a third-party defendant. The district court determined that the agreement was unambiguous and granted Mr. Russell's motion for summary judgment. PPG now appeals. We reverse the judgment of the district court and remand for further proceedings.
In 1979, PPG decided to sell its Plastic Fabricating Division (the Division). Mr. Russell, then vice-president of PPG and the general manager of the Division, began negotiations with PPG in an effort to purchase the Division. To obtain financing for the acquisition, Mr. Russell also commenced negotiations with Mr. C.W. Jackson. On August 15, 1980, PPG entered into a written agreement with Mr. Russell that stated the terms for his purchase of the Division. The agreement, referred to as the Restated Agreement, provided that the PPG/Russell closing would take place on September 30, 1980. On the morning of the closing, Mr. Russell informed PPG that he did not have the money for the purchase price because he and Mr. Jackson had been unable to agree on financing terms.
Mr. Russell had arranged to sell Ideal Mold — part of the Division — to Decatur Mold, Tool and Engineering, Inc. on the PPG/Russell closing date. Because the
After the collapse of the PPG/Russell closing on September 30, Mr. Jackson approached PPG and expressed an interest in purchasing the Division. Subsequently, during October 1980, PPG negotiated with Mr. Jackson, Mr. Russell, and other prospective purchasers. Mr. Russell's efforts to raise the money were unsuccessful. As a result, on or before October 20, 1980, PPG sold the Division to Mr. Jackson. "As part of the sale, PPG warranted and represented to Jackson that it had an unencumbered right to sell the [Division] and that the sale of the [Division] to Jackson did not constitute a breach of any other agreement." Mem. op. at 4.
When Mr. Russell learned that PPG was negotiating a sale of the Division to Mr. Jackson, he notified in writing PPG and Mr. Jackson that he objected to these dealings, and threatened to sue if PPG sold the Division to Mr. Jackson. Consequently, after PPG and Mr. Jackson had signed a sales agreement, PPG and Mr. Russell negotiated and signed a Covenant and Agreement, dated October 28, 1980 (the covenant). This covenant provided for the termination of Mr. Russell's employment and contained certain undertakings not to sue.
B. The Underlying State Court Litigation (The "State Court Litigation")
In December 1981, more than a year after PPG and Mr. Russell had entered into the covenant, Mr. Russell filed a ten-count complaint against Mr. Jackson and C. W. Jackson Co. in the Circuit Court of Marion County, Indiana.
In response to Mr. Russell's allegations, on May 5, 1982, Mr. Jackson filed a third-party complaint against PPG seeking indemnification for the company's alleged breach of representations and warranties set forth in the contract executed by PPG and Mr. Jackson to effectuate Mr. Jackson's purchase of the Division. Mr. Jackson alleged that, to the extent Mr. Russell had the exclusive right to purchase the Division after September 30, 1980, PPG had misrepresented that it had an unencumbered right to sell the Division.
In January 1983, PPG answered the third-party complaint and, pursuant to Indiana Trial Rule 14(A), filed a claim against Mr. Russell alleging that he had violated provisions of the covenant not to sue. The basis for this allegation was Mr. Russell's promise to refrain from making claims that could cause PPG to be in breach of its warranties in connection with the sale of the Division to Mr. Jackson. PPG alleged that Mr. Russell's initiation of the state court litigation against Mr. Jackson had breached this covenant. In March 1984, Mr. Russell amended counts VI and VIII to allege a separate agreement made with PPG on September 30, 1980. Mr. Jackson then amended his third-party complaint to conform to the new "separate agreement" theory.
In September 1984, PPG elected to withdraw the Rule 14(A) claim without prejudice. The state case still proceeded to trial and resulted in a $2,000,000 verdict in favor of Mr. Russell against Mr. Jackson and a verdict in favor of PPG with respect to Mr. Jackson's third-party complaint. The trial court decision was affirmed by the Indiana court of appeals. See Jackson v. Russell, 498 N.E.2d 22 (Ind.Ct.App.1986).
C. This Litigation
Basing jurisdiction on diversity, PPG's complaint in this action alleged that Mr.
A. Governing Principles of Law
In examining the district court's grant of summary judgment, our duty is to review de novo the record and the controlling law. "`[W]e must decide whether the record shows that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.'" Dribeck Importers, Inc. v. G. Heileman Brewing Co., Inc., 883 F.2d 569, 573 (7th Cir.1989) (quoting Colan v. Cutler-Hammer, Inc., 812 F.2d 357, 360 (7th Cir.) (per curiam), cert. denied, 484 U.S. 820, 108 S.Ct. 79, 98 L.Ed.2d 42 (1987)); see also DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir.1987). As we recently reiterated in Dribeck Importers, "[a] genuine issue of material fact exists only where `there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.'" Dribeck Importers, supra, 883 F.2d at 573 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)).
Since our jurisdiction is based on diversity of citizenship, see 28 U.S.C. § 1332, state substantive law must govern the rights and liabilities of the parties. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties agree that the applicable law is the law of Indiana. Indeed, in the covenant, PPG and Mr. Russell agreed that "it is the intent of the parties ... that [the Agreement] is to be construed under the laws of the State of Indiana." Plaintiff's Ex. B at 5. In applying state law in a diversity action, while mindful of our duty to review determinations of law de novo, see Cross v. American Country Ins. Co., 875 F.2d 625, 628 (7th Cir.1989); Bandura v. Orkin Exterminating Co., Inc., 865 F.2d 816, 819 (7th Cir.1988); see also Afram Export Corp. v. Metallurgiki Halyps, S.A., 772 F.2d 1358, 1370 (7th Cir.1985), we accord great weight to the determination of the district court sitting in the state whose law is to be applied. See Palace Entertainment, Inc. v. Bituminous Casualty Corp., 793 F.2d 842, 846 (7th Cir.1986); see also Hager v. National Union Elec. Co., 854 F.2d 259, 262 (7th Cir.1988). Here, our colleague in the district court has provided us with an exhaustive treatment of the governing principles. We find ourselves in agreement with respect to the statement of these governing principles. In Indiana, "[t]he construction of a written contract is generally a question of law for the trial court, not a question of fact." Pittman v. Max H. Smith Farms, Inc., 506 N.E.2d 1139, 1141 (Ind.Ct.App.1987). If the terms of a contract are not ambiguous, construction of those terms is a matter of law for the court to determine. Kleen Leen, Inc. v. Mylcraine, 174 Ind.App. 579, 369 N.E.2d 638, 640-41 (Ind.Ct.App.1977).
Indiana law also provides firm guidance for determining whether an ambiguity exists. "[A]n ambiguity is not established by the mere fact the parties assert different interpretations of the contract." Tucker v. Richey, 448 N.E.2d 1206, 1210 (Ind.Ct.App. 1983), vacated on other grounds, 460 N.E.2d 964 (Ind.1984). If, however, "reasonable men would find the contract susceptible
Tucker, 448 N.E.2d at 1210 (quoting Ethyl Corp. v. Forcum-Lannom Assoc., Inc., 433 N.E.2d 1214, 1218 (Ind.Ct.App.1982)).
Sometimes, the ambiguity arises by reason of the language used, and can be resolved by the trial judge. Tucker, 448 N.E.2d at 1210. However, if the intent of the parties "is not spelled out, and the evidence is conflicting, the issue as to their intent is a question of fact." Adult Group Properties, 505 N.E.2d at 466. When additional facts are necessary in order to determine the intent of the parties, "`the particular ambiguity should be selected and submitted to the jury under proper instructions.'" Indiana Broadcasting Corp. v. Star Stations, 180 Ind.App. 207, 388 N.E.2d 568, 572 (Ind.Ct.App.1979) (quoting Wilson v. Kauffman, 156 Ind.App. 307, 296 N.E.2d 432, 437 (Ind.Ct.App.1973)).
B. Application of the Governing Principles
1. The Problem Presented
The difference between the parties centers on the following language from the covenant:
Plaintiff's Ex. B at 3-4 (emphasis supplied).
In PPG's view, Mr. Russell breached this covenant by including counts VI and VIII in his complaint in the state court litigation. In the original version of the complaint, Mr. Russell alleged that Mr. Jackson had interfered with his exclusive right to purchase the Division because the Restated Agreement remained in effect after September 30, 1980. In the amended complaint, Mr. Russell asserted that, after September 30, 1980, he and PPG had a separate agreement that gave him the right to purchase the Division. Because Mr. Jackson contracted with PPG to purchase the Division free from encumbrances, Mr. Jackson joined PPG as a third-party defendant in the state court litigation in order to have PPG indemnify and hold him harmless. Although it was exonerated from any liability to Mr. Jackson in the state court litigation, PPG continues to seek reimbursement for its expenses in defending these allegations. In its view, the plain language of the agreement permits recovery because Mr. Russell violated the covenant when he asserted claims that "sought to impose liability upon PPG or caused PPG to become embroiled in [Division]-related litigation." Appellant's Br. at 19.
Mr. Russell also asserts that the contract terms are unambiguous and that he is entitled to judgment as a matter of law. Mr. Russell submits that he cannot be found to have breached the covenant not to sue unless his assertion that the Restated Agreement was in effect after September 30,
The district court determined, as Mr. Russell had urged, that the contract was unambiguous and imposed liability on him only in the event that his allegations in the state court litigation resulted in PPG's actual liability for breach of covenant. Furthermore, held the district court, while the original complaint alleged that the Restated Agreement existed beyond September 30, 1980, the amended complaint, alleging a separate agreement, did not. Thus, in the district court's view, any liability imposed on PPG would not have been a result of an assertion that the Restated Agreement remained in force beyond September 30, 1989.
2. Our Resolution
The district court's task of construing this covenant was indeed a formidable one. The phraseology is tortuous and the organization not self-evident. Indeed, to a large extent, it is these characteristics of the covenant that lead us to conclude, in respectful disagreement with the district court, that the instrument is ambiguous. In our view, the language can be construed to support the position of either party. It is possible to construe the term "would impose liability" to "mean `to the extent that such assertion imposes liability upon PPG,' with the auxiliary `would' inserted because such liability, at the time of drafting the covenant and agreement, was a future or prospective event." Mem. op. at 16. However, PPG's assertion that the clause was meant to permit recovery "from Russell to the extent that Russell's assertions caused PPG to expend funds for legal representation to defend a third-party claim for breach of warranties," Mem. op. at 17, is also a reasonable reading of the text.
In reaching the conclusion that the contract is ambiguous, we necessarily must acknowledge that there is textual support for the view of the district court. For instance, in an earlier part of the covenant, the language states that Mr. Russell "covenants and agrees not to make a claim, take action or commence any legal or other proceeding, directly or indirectly ... that would, or seeks to, interfere with the possession, use, ownership, or enjoyment of the assets and properties...." Plaintiff's Ex. B at 2 (emphasis supplied). Additionally, the covenant states that "Russell further ... covenants and agrees not to make any claim ... that would, or seeks to, delay, obstruct, prevent, enjoin or otherwise interfere with the sale of all or any part of the remaining assets...." Id. at 3 (emphasis supplied). The district court was of the view that the phrase "or seeks to" in conjunction with the word "would" is significant because it reveals an intent to avoid the occurrence of a future event. By contrast, in the clause at issue here, the use of "would" alone seeks to indemnify only if liability is actually imposed. However, in the contexts in which the covenant uses the phrase "would, or seeks to," the object was to ensure that Mr. Russell did not stop or delay the sale. By contrast, in the section at issue, the focus is PPG's reimbursement for costs incurred in connection with any legal action after the sale. The difference in language therefore is not dispositive.
While there is support for the district court's view, PPG's reading of the covenant cannot be characterized as unreasonable. The plain wording of the contract will support the interpretation that PPG contracted for Mr. Russell's forbearance with respect to any claim that would necessarily implicate PPG and expose it to greater liability. Moreover, the covenant's structure and organization, inasmuch as it is ascertainable, lends some support to PPG's view that the parties intended to eliminate completely the possibility that
Nor do we believe that a grant of summary judgment can be sustained on the ground that Mr. Russell's amended complaint in the state court litigation only alleged that an agreement — not the Restated Agreement — existed after September 30, 1980. On this record, it cannot be established definitively whether the covenant was intended to preclude suits based only on an assertion that the Restated Agreement existed beyond September 30 or whether the covenant was also meant to preclude claims that the substance, if not the form, of the Restated Agreement remained in force beyond that date. It is significant that, at the time the covenant was executed, "Russell view[ed] the Restated Agreement as not having terminated" on September 30, 1980. Plaintiff's Ex. B at 3. Therefore, it is understandable that his obligation not to sue would be expressed in terms of the Restated Agreement. However, it is not at all clear that the parties understood that Mr. Russell could place in jeopardy PPG's warranties to Mr. Jackson by the simple expedient of not mentioning the Restated Agreement but nevertheless claiming it had been extended. In short, it would be reasonable to conclude that, by the language employed, the parties intended to avoid any suit in which Mr. Russell could call into question the right of PPG to sell the Division to Mr. Jackson after September 30, 1980. Under these circumstances, the district court must conduct additional proceedings to ascertain the intent of the parties.
Because we believe that the covenant is ambiguous, we must conclude that further proceedings in the district court are necessary. Accordingly, the judgment of that court is reversed and the case is remanded for further proceedings. Each party shall bear its own costs of this appeal.
REVERSED AND REMANDED.
Plaintiff's Ex. B at 2-4 (emphasis supplied).