It is not uncommon for attorneys, or parties alike, to treat settlement discussions as being concluded with only ministerial acts remaining once key traded terms have been drafted and agreed upon. This sometimes results in the overlooking of what may be considered more boilerplate or generic terms of the settlement, such as mutual release provisions.
However, settlements should not be drafted casually. Attention should be paid to miscellaneous or boilerplate provisions as well. Release provisions specifically can present a critical danger zone and should be carefully reviewed and drafted to ensure that they reach the proper intended scope. Too broad, and they may release claims or parties not intended to be released. Too narrow, and they may not fully and finally resolve the claims and issues intended to be settled.
This case from the Texas Supreme Court illustrates how parties, and non-parties alike, can have differing views as to the scope of release provisions. In this case, the Court reviewed a mineral exchange agreement that was entered into between a prior lessee and a top lessee. The agreement contained a release provision that extended to claims against each company’s “predecessors.” At issue was whether the release provision extended to the parties’ predecessors in title or only to their corporate predecessors. The Court interpreted the provision to refer only to the company’s “corporate predecessors,” and not the company’s “predecessors in title.”
The Court acknowledged that the word “predecessor” has several meanings, some of which are quite broad, and that the word is often used in reference to “predecessors in interest.” It also emphasized, however, that context within the agreement is significant in determining which specific definition is intended. In the context of the mineral exchange agreement, the Court found that the grammatical use of the word referred to the entities released and not the tract of land at issue, signaling a relation to corporate predecessors, and not predecessors in title.
Further, taking a close look of the release provision at issue, the Court noted that the word “predecessors” appeared in a laundry list of words that named categories of class members that were being released (i.e., the release applied to the company’s “affiliates and their respective officers, directors, shareholders, employees, agents, predecessors and representatives”). The Court also observed that the categories of entities listed were authorized to act, in one way or another, on behalf of the other entities. According to the Court, that attribute would not apply to a mere predecessor in title. Rather, in the Court’s view, the context showed that the parties meant for the word “predecessors” to mean corporate predecessors only.
Potentially of note, the Court’s analysis begins by mentioning a threshold of clarity that must be met to release claims as to classes of persons that are not expressly named—they must be readily identifiable. The Court suggested that the threshold was not met with regard to predecessors in title, but it was met with respect to corporate predecessors. Also notable was the Court’s discussion on the parties’ sophistication and position during the negotiation of the mineral exchange agreement. Given the circumstances that gave rise to the parties’ agreement, the lack of specific reference to the predecessor in title despite a looming threat of litigation was significant. Near the end of the opinion, however, the Court stressed that the threshold and external context of the mineral exchange agreement did not lead to its conclusion, and that its conclusion was instead based on its observations regarding “linguistic and grammatical context.”
Although the release of claims is a useful tool in resolving disputes, such a provision will only have the intended effect if it is thoughtfully negotiated and drafted to fully protect each party’s rights and interests.