Sometimes, at the end of a lawsuit, in the final draft of a settlement agreement that has been months or years in the making, one of the parties will casually throw in a global mutual liability release that is not limited to the transactions or occurrences that are the subject of the litigation. Sometimes, this clause is non-negotiable and sometimes, the party inserting the clause waits until the last possible moment to add the clause to the draft, knowing that the other side will probably sign it rather than throw away months or years of negotiations. The clause is inserted when the settlement momentum is at its peak.
When so much work has been done to reach a resolution and the end is in sight, a firm desire arises to simply sign to the clause now and litigate over it later if it becomes a problem. Since the released claims are often unknown or speculative, it is easy to assume that you cannot possibly release something that you do not know about regardless of what the settlement paperwork says.
In California, at least, this is true. You cannot settle claims that a “creditor does not know or suspect to exist in his or her favor at the time of executing the release.” Cal. Civ. Code § 1542. California courts have, however, held that Civil Code Section 1542 is waivable, which sort of defeats the purpose of the statute. Mundy v. Lenc, 203 Cal. App. 4th 1401, 1405 (Cal. App. 2d Dist. 2012); Perez v. Uline, Inc. 157 Cal App 4th 953 (2007, 4th Dist.).
At least in some states, you may not be able to prospectively release liability. “[P]rovisions for release from liability for personal injury which may be caused by future acts of negligence are prohibited ‘universally.’” Hiett v. Lake Barcroft Community Ass’n, 244 Va. 191, 195 (Va. 1992).
A release of a negligence claim can be contested on the grounds of fraud, ambiguity, mistake, or fair notice (“express negligence” and conspicuousness). Newman v. Tropical Visions, Inc., 891 S.W.2d 713, 720 (Tex. App. San Antonio 1994). The express negligence doctrine states that a party seeking indemnity from the consequences of that party’s own negligence must express that intent in specific terms within the four corners of the contract. Dresser Indus. v. Page Petroleum, 853 S.W.2d 505, 508 (Tex. 1993).
A release of gross negligence or intentional misconduct is probably unenforceable on public policy grounds. See Restatement (Second) of Contracts § 195 (1979) (“A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy.”); but see Newman v. Tropical Visions, Inc., 891 S.W.2d 713, 721 (Tex. App. San Antonio 1994) (gross negligence sometimes is not separable from regular negligence such that a waiver of regular negligence, in some cases, may also waive gross negligence).
It also bears mentioning that, in Texas, waivers of Deceptive Trade Practices Act claims are enforceable only if the consumer is not in a significantly disparate bargaining position, is represented by legal counsel, and waived rights under an express provision signed by both consumer and consumer’s attorney. Tex. Bus. & Comm. Code Ann. § 17.42(a).
Escaping a liability release based on unilateral mistake is tough. In Texas, you must show four factors: “(1) the mistake is of so great a consequence that to enforce the contract would be unconscionable; (2) the mistake relates to a material feature of the contract; (3) the mistake occurred despite ordinary care; and (4) the parties can be placed in status quo, i.e., the rescission must not prejudice the other party except for the loss of the bargain.” In re Green Tree Servicing LLC, 275 S.W.3d 592, 599 (Tex. App.—Texarkana 2008).
Mutual mistake, meanwhile, is easier. However, “[u]nilateral mistake by one party, and knowledge of that mistake by the other party, is equivalent to mutual mistake.” Givens v. Ward, 272 S.W.3d 63, 71 (Tex. App.–Waco 2008). “The question of mutual mistake is determined not by self-serving subjective statements of the parties’ intent, which would necessitate trial to a jury in all such cases, but rather solely by objective circumstances surrounding execution of the release, such as the knowledge of the parties at the time of signing concerning the injury, the amount of consideration paid, the extent of negotiations and discussions as to personal injuries, and the haste or lack thereof in obtaining the release. See Restatement (Second) of Torts § 152 comment f (1981).” Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990). In Texas, under certain circumstances parties may release future personal injury claims. See, e.g., Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990); Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996). If causes of action are never discussed by the parties in the mediation or settlement process, then the lack of discussion constitutes some evidence that the parties may not have intended those claims to be released. Bolle, Inc. v. Am. Greetings Corp., 109 S.W.3d 827, 834 (Tex. App. Dallas 2003). In any situation where a cause of action is not specifically released, the aggrieved party should consider raising mutual mistake allegations and providing evidence of whether the parties “mutually agreed to a release agreement which differed from the one which was ultimately reduced to writing.” Matlock v. National Union Fire Ins. Co., 925 F. Supp. 468, 475 (E.D. Tex. 1996). “If it can be established that a release sets out a bargain that was never made, it will be invalidated.” Williams v. Glash, 789 S.W.2d 261, 265 (Tex. 1990). “Pursuant to the doctrine of mutual mistake, when parties to an agreement have contracted under a misconception or ignorance of a material fact, the agreement will be voided.” Holmes v. Graham Mortg. Corp., 449 S.W.3d 257, 265 (Tex. App. Dallas 2014). “Even if certain claims exist when the release is executed, claims not clearly within the subject matter of the release are not discharged.” City of Brownsville v. AEP Tex. Cent. Co., 348 S.W.3d 348, 354 (Tex. App. Dallas 2011). “This court has held that a trial court may properly refuse to enforce an [Mediated Settlement Agreement (MSA)] that otherwise complies with the statute if a party procures the agreement by intentionally failing to disclose material information, and other courts have held that a trial court need not enforce an MSA that is illegal or that was obtained through fraud, duress, coercion or other dishonest methods. Additionally, the Dallas Court of Appeals has appeared to recognize that the absence of a meeting of the minds would justify a trial court’s rejection of an MSA, which is logical, given that a meeting of the minds is a required element of a valid contract.” Milner v. Milner, 360 S.W.3d 519, 523-524 (Tex. App. Fort Worth 2010).
To avoid a release based on unconscionability and adhesion, there must be a showing of both procedural and substantive unconscionability. Doing so is difficult. See Ramirez v. 24 Hour Fitness United States, Inc., 2013 U.S. Dist. LEXIS 69451, *15 (S.D. Tex. May 16, 2013).
Copyright 2017, Ian Ghrist, All Rights Reserved.
Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney. Also, this information may be out-of-date.