Strategically Worded Release Obliterates All Fraud and Other Claims Attempted to be Asserted

Releases are contracts that are treated as such by the courts. That means, among other things, that the parties to the release are the masters of the agreement and can choose whatever language they wish to describe the intended deal. Oftentimes, however, parties use prefabricated forms of releases without carefully considering the scope and legal effect of the language. As I have often counseled, it is critical to be precise in describing the intended scope of the release and particularly the claims and parties that are to be encompassed.

Much litigation arises when the party who has released claims (the releasor) subsequently tries to sue the party who was released (the releasee), claiming that the release was fraudulently induced or that claims were unknown when the release was given and therefore were not actually released. As I have suggested, if a settlement is truly intended to resolve and extinguish any type of fraud claims as well as any claims that are not even known at the time the release is entered into, it would be prudent for the releasee to make sure the release explicitly states that it covers those claims. Thus, the release should state that among the claims to be released are “any and all claims of fraud, misrepresentation or the like, including but not limited to fraud or misrepresentation relating to the release itself,” as well as “known and unknown” claims. It would also be wise to include in the release an acknowledgement that it was “fairly and knowingly” entered into. If in fact the release is not intended to cover such claims, obviously, the releasor should resist any such language in the release. Intentions and leverage should dictate the content of the release relating to such claims, rather than assumptions.

When such language is not explicitly contained in the release, the releasor may have some wiggle room to create issues and potentially re-litigate or raise claims that were intended to be extinguished. In the new decision of the Appellate Division, First Department, in LMM Capital Partners, LLC v Mill Point Capital, LLC, 2024 NY Slip Op 00806 (1^st Dep’t Decided Feb.15, 2024), both the Commercial Division and the First Department relied upon the broad terms of a release to reject claims attempted to be asserted, thereby granting and affirming, respectively, defendants’ motion to dismiss all claims.

Read the full blog here.