Because over 95 percent of civil disputes are resolved without a final judgment, parties routinely enter into settlement agreements that include releases. Further, for those disputes that do not spawn formal litigation, it is not uncommon for in-house counsel or senior business executives to take the lead in a settlement. As such, it is important for anyone dealing with a settlement to understand how even a few words in a settlement agreement can make a big difference in the scope of a release.
As an initial matter, there essentially are two types of releases: a general release, which waives “everything,” and a limited release, which waives a party’s ability to take action with respect to defined conduct or matters. A general release typically includes language such as the following:
Releasor fully and forever releases, acquits and discharges Releasee from any and all claims, demands, damages, actions, contracts, accountings, rights of action and liabilities of whatever kind or nature, in law or equity, which any of them have, ever had, or might have had, whether known or unknown, from the beginning of time to the date hereof, including but not limited to all claims arising out of the facts alleged in the Litigation.
Often the Releasor believes that the dispute that has been settled encompasses the only possible wrongdoing in which the Releasee could have engaged. If so, providing a general release like this one presents no issue. In other instances, however, the Releasor may not be certain that the full scope of the Releasee’s wrongdoing has been uncovered. If that is the case, in-house counsel need to explain to their internal business clients that only a limited release should be given. Assuming the Releasee will agree to this conceptually, all it takes to convert the above general release into a limited release is to change the language “including but not limited to all claims arising out of the facts alleged in the Litigation” to “only with respect to the claims asserted in the Litigation.”
Another aspect of the above general release that bears scrutiny is the “boilerplate” litany of items being released. In this case, one of the items is “contracts.” Again, while many times this is not an issue, suppose the parties had previously entered into a contract that contained a post-termination covenant, requiring the Releasee to maintain in confidence what it learned about the Releasor’s proprietary software. If the above language were incorporated into a settlement agreement, the Releasor might very well be waiving its right to sue the Releasee if it thereafter breached its obligation of confidentiality.
It also is important to keep in mind that even if you want to grant or obtain a general release, issues of public policy may preclude certain claims from being released and/or mandate that specific language be employed to make a release enforceable. One common area where this comes into play is in the context of obtaining a general release of all claims that a former employee might have.
Finally, it is worth including in your release not just that claims are being waived, but also that the Releasee “covenants not to sue” on claims that are being released. While this may sound like a “belt and suspenders” approach, there is law that may allow you to recover legal fees if you are sued in the face of a covenant not to sue that would not apply if you simply had a release.
So the next time you are drafting a release, take an extra minute or two to be sure that you have the right type of release and have the right language to effect your intent.