Settlement Agreements

A Miami-area appeals court has recently ruled that a commonly-used provision in settlement agreements is ineffective. When lawyers draft releases in settlement agreements to end lawsuits, they frequently include language to the effect that they are releasing (giving up) all claims, “whether known or unknown”. This prevents the settling party from later bringing a new action based upon facts or circumstances they learned after the settlement. In this way, it provides finality and encourages parties to settle lawsuits, secure in the knowledge that they are truly “buying peace”.

Two factors seem to have animated the court’s surprising decision. First, the settlement agreement referred to waiving “unknown” claims but not “unaccrued” claims. The parties disagreed as to whether the claim had “accrued” because they disputed whether they knew about the claim at the time of the settlement agreement.

Second, this “unknown” claim supposedly came to light during discovery in an action to enforce the settlement agreement and was asserted as a counterclaim. Although this factor was not explicitly discussed, the court was presumably more willing to entertain this claim because it was not filed out of the blue but rather in reaction to a lawsuit filed by the opposing party.

Ultimately, the analysis in this case is questionable, because to the extent the claim was “unaccrued” it would have been “unknown.” That is, the claimant asserted that the fraud claim was “unaccrued” because it was undiscovered at the time of the first settlement agreement, even though the facts giving rise to the fraud had already occurred. Because the release covered “unknown” claims, it should have been barred.

Unlike the outcome, the message for lawyers and settling parties is clear: draft broad releases covering “unaccrued” as well as “unknown” claims.

The case is Falsetto v. Liss, 3D18-794, 44 Fla. L. Weekly D1340d (Fla. 3rd DCA May 22, 2019).