In NY, Get Discovery Before You Sign a General Release
I’ve always counseled clients that releases are construed narrowly by New York courts. Maybe they still are for consumers, but if you are a corporation or a “sophisticated” person, be very, very wary of signing any release of all "claims known or unknown" if you think the person you are releasing isn’t as honest as George Washington. That is the message that I get from decisions handed down yesterday by the NY Court of Appeals in Centro Empresarial Cempresa S.A. v. America Movil and Arfa v. Zamir.
In each of these cases plaintiffs allegedly learned that the facts were markedly different from those represented by the defendants at the time the releases were signed. The court upheld the dismissal of fraud claims. For a claim to survive the release, the court required that plaintiffs allege that the releases were induced by a separate fraud; misrepresentations during negotiation are not the basis of a subsequent fraudulent misrepresentation or fraudulent inducement claim.
A few other points from the decisions:
- The existence of a fiduciary relationship doesn’t change this rule if the “fiduciary relationship is no longer one of unquestioning trust”. My query: Does a breakdown of trust in a relationship destroy the a person's right to rely on a fiduciary, or a fiduciary's obligations?
- Dismissal of the fraudulent inducement or misrepresentation claim connected to a release can be granted on a motion to dismiss – usually, a high burden for a defendant even where fraud is involved. (The Appellate Division decision in Arfa reveals the decision was on a motion to dismiss. It has a longer discussion of the facts.)
- Demonstrating justifiable reliance requires that you investigate any alleged misconduct if you determine that the party you are dealing with isn’t trustworthy.
Two (maybe, three) key learnings:
- If you suspect that the person you have a dispute with is not trustworthy, be really careful of signing a release that doesn’t carefully list what you are releasing.
- Choice of law may be important in releases.
- If you sleep with dogs, you get fleas.
I think the goal here is to have finality in resolving disputes, but the result may be prolonged disputes and increased litigation. After reading these decisions, unless unusual considerations existed, I would not recommend signing a release of all claims without the sort of discovery that you can get in litigation.
