Since Lance Armstrong confessed to Oprah last week that he used performance enhancing drugs, speculation about the legal consequences came faster than Dave Stoller drafting the 18-wheeler in Breaking Away. Some of the speculation is about SCA Promotions’ demand that Armstrong return the $7.5 million that it paid him to settle a lawsuit. Armstrong brought the lawsuit after SCA (an insurer of a sponsor) refused to pay him bonuses for his Tour de France victories, citing doping allegations. Armstrong’s lawyer has said that SCA is out of luck: “When SCA decided to settle the case, it settled the entire matter forever. No backs. No re-dos. No do-overs. SCA knowingly and independently waived any right to make further claims to any of the money it paid.”
Is Armstrong’s lawyer right? Is his settlement with SCA always and forever final? Are settlements of employment disputes always and forever final? It depends on the law that applies, the terms of the settlement agreement and the facts surrounding the settlement.
Courts sometimes undo settlement agreements and revisit the underlying dispute if they find that a party to the agreement was fraudulently induced by the other side to enter into the settlement – that is, that the other side lied to the party at the time of the settlement and that the party never would have agreed to the settlement had the party known the truth.
Can this result be avoided by including some provision in the settlement agreement? In Texas, where Armstrong and SCA are, the answer is yes. The Texas Supreme Court has held that, where the parties expressly provide in an agreement that they disclaim any reliance on representations by the other side in entering into the agreement, courts should not later set aside the agreement as fraudulently induced.
We have no idea whether Texas law governs the settlement between Armstrong and SCA or whether, in their settlement agreement, the parties expressly disclaimed reliance on each other’s representations. But, their dispute reminds us that one important consideration in settling an employment dispute or any kind of dispute is whether or not you want to leave the door open to you or the other side later claiming that the settlement should be undone due to fraudulent inducement.