Judge Davis’s recent denial of an anti-SLAPP motion to dismiss provides helpful guidance on how to distinguish between counterclaims used as solely as a “cudgel” and meritorious claims in breach of contract cases. The ruling also underscores the importance of drafting clear release language in a settlement agreement.
In Stephen Scott Roth v. Grail Partners LLC et al., the plaintiff, a former investor in the defendant, Chalice Fund, L.P. (and its partner), filed an action for the defendant’s violation of the terms of their Limited Partnership Agreement (LPA). The defendants, in response, asserted a breach of contract counterclaim alleging that the plaintiff’s suit breached a settlement agreement executed by the parties in connection to a separate lawsuit that the plaintiff filed in California Superior Court regarding the redemption of his investment from those partnerships.
According to § 2.7 of the settlement agreement, the parties agreed to “release all claims, known and unknown, against one another” in accordance with the “mutual release … more fully set forth” in § 3.1. Section 3.1 is, however, more narrow:
[T]he parties release and discharge, any and all claims, demands, debts, covenants not to compete, confidentiality and causes of action that might occur or exist, and arising from or in any way connected with the matters referred to in the Recitals set forth above at Part I, including without limitation all claims, demands, debts, covenants, confidentiality and causes of action of whatever kind or nature, whether known or unknown, suspected or unsuspected, mature or immature, which each party has against the other.
The plaintiff filed a special motion to dismiss the defendants’ breach of contract counterclaim under the Anti-SLAPP statute, G.L. c. 231, § 59H, asserting that the settlement agreement does not apply to his claim and that defendants’ counterclaim was merely a device to chill plaintiff’s right to petition to the courts. Judge Davis found that the “broad language of Section 2.7, viewed in conjunction with the conflicting and more restrictive ‘arising from or in any way connected with’ language of Section 3.1, rendered the Settlement and Release patently ambiguous as to its intended scope.” Accordingly, because the contract was ambiguous, the plaintiff could not meet his initial burden under the anti-SLAPP law to show that defendants’ counterclaim had no substantial basis.