General Release Bars Claim Relating to Settled Claims

On November 7, 2018, Justice Ostrager of the New York County Commercial Division issued a decision in Lam Pearl St. Hotel LLC v. Golden Pearl Constr. LLC, 2018 NY Slip Op. 32852(U), holding that a general release barred a claim regarding settled claims, explaining:

GPC argues that the implied covenant of good faith and fair dealing cannot be used to circumvent the clear and unambiguous terms of the Termination Agreement to require GPC to pay the alleged refund to Lam. The Termination Agreement does not explicitly mention anything regarding insurance premiums, however, it does contain a broad, general release of GPC"s liabilities as to Lam. The Termination Agreement states:

Lam Pearl releases GPC and its officers, directors, members, agents, affiliates and subsidiaries from and against any and all liabilities, damages, promises, covenants, agreements, causes of action, judgments, claims, or determinations, in law or in equity, or any costs or expenses, inclusive of legal fees, whether known or unknown arising out of or related to work performed under the Trade Contracts, responsibility for ongoing operations including conditions at the Project site, and any warranties or guarantees of GPC under the Contract.

(emphasis added).

Lam argues in opposition that it is not re-writing the Termination Agreement, but rather seeking the benefits to which it is entitled because GPC failed to disclose that it did not procure the legally required project-specific insurance.

When parties set down their agreement in a clear, complete document. their writing should as a rule be enforced according to its terms. The meaning and coverage of a general release depends on the controversy being settled and upon the purpose for which the release was actually given.

Here, Lam entered into the Termination Agreement and Settlement Agreement terminating the Pearl Street Contract and providing for a settlement payment to GPC-allegedly under the false belief that GPC had procured project-specific insurance in accordance with the Pearl Street Contract and applicable City of New York rules. Lam asserts that it pre-paid GPC for the purpose of purchasing project-specific insurance which would purportedly run with the life of the Project regardless of the general contractor working on the Project. There is evidence in the record indicating that Lam could have learned that GPC had used the pre-paid funds to cover GPC's practice policy instead of a project-specific insurance premium, but Lam contends it took no notice of the single sheet of paper indicating the type of insurance GPC purchased. After the parties terminated their relationship, GPC allegedly received a premium refund of over $900,000. Lam, meanwhile, did not receive the project-specific insurance covering the life of the Project it claims it was led to believe GPC had procured before the parties entered into the Termination Agreement and Settlement Agreement. While these agreements do not explicitly address the insurance premium-and thus there is no breach of contract claim asserted-the agreements both contain broad releases of all claims, whether known or unknown. arising out of work performed for the Project. If the parties had intended to limit the scope of the release, particularly as to insurance related claims, the Termination Agreement would have stated such in explicit terms. Ultimately, however, the parties terminated their relationship and exchanged broad releases covering all claims related to the Project. For this reason, Plaintiff's breach of the implied covenant claim is precluded by the release in the parties' Termination Agreement and must therefore be dismissed.

(Internal quotations and citations omitted).

Settlement agreements are treated just like any other contract in New York, and as this decision shows, if you release all claims against a party, the court will enforce that promise. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a settlement agreement.