Release of Claims Means Exactly What It Says – Even When It Doesn’t

If you’re confused by this headline, you’re not alone.  But you can’t be as confused as Debourah Mattatall must be after losing her lawsuit against her former employer, Transdermal Corporation.

The origin of Mattatall’s lawsuit, appropriately enough, was another lawsuit.  Mattatall used to own a company called DPM Therapeutics Corporation.  DPM’s minority shareholders sued her to prevent her from selling the company to Transdermal.  She went ahead with the sale anyway, and signed a Stock Purchase Agreement and Employment Agreement with Transdermal.  According to Mattatall, Transdermal didn’t fulfill its obligations under those deals, citing a lack of funds.

After Mattatall’s sale to Transdermal was final, Transdermal brought its own suit against the DPM minority shareholders.  All parties, including Mattatall, eventually settled the two shareholder cases.  Before agreeing to the settlement, Mattatall complained about the money that she was owed under the Stock Purchase Agreement and Employment Agreement.  Transdermal’s counsel assured her that her claims were “wholly extraneous” and she would be “free to pursue” her claims against Transdermal. 

In the written settlement, however, everyone released the claims that they “had, has or hereafter may have” against any other party.  Thus, even though Transdermal hadn’t sued Mattatall, according to the language of the release, she was giving up her claims against it.  The settlement also included a “merger clause,” under which all prior understandings were “merged” and “supersede[d].”

If you were confused before, perhaps now you can see the clear meaning of the headline.  Mattatall sued Transdermal, seeking to force it to honor its obligations to her under its agreements.  Transdermal, unsurprisingly, argued that Mattatall had released those claims in the shareholder settlement.  And the court sided with Transdermal, even though it was “not logical” in the circumstances that Mattatall would have intended to give up her claims, and even though Transdermal’s lawyer had told her just the opposite.  Mattatall v. Transdermal Corp., 2014 WL 1515661 (E.D. Mich. Apr. 18, 2014).  It wrote that the “unambiguous” and “broadly worded” agreement precluded any consideration of outside evidence showing that no one – not even Transdermal – meant for Mattatall to give up her claims.

Chalk this one up as another lesson in the power of general releases to mean what they say, even if employees and employers later disagree as to whether they actually meant to give up their claims.  Does Mattatall have any remedies left?  It’s not likely that she does against Transdermal.  Those who are familiar with contract law will know about the doctrine of mistake, under which a contract can be reformed when both parties are mistaken about an underlying fact (for example, the classic case in which the parties thought a cow was barren but then learned it was pregnant after they had agreed on a purchase price).  But as one court has written, “the reformation or rescission of a contract based solely upon proof of one party's mistake as to its legal effect would impose upon the other party a contract for which he had not bargained.”  Thus, it’s unlikely that the court would be able to use its power to cancel out the broader release that Transdermal received, even though Mattatall was told the settlement would not have that effect.

• Civil Litigation
• Releases
• Summary Judgment