Litigation among family-business owners often ends with a negotiated settlement agreement instead of a trial and entry of judgment on the parties’ claims.  Through a settlement, the parties have the flexibility to agree upon any applicable business terms, including any payment to be made to the claimant and the scope of any release to be provided in exchange for the payment.  However, settling parties should document any settlement agreement clearly so they know what rights, if any, are being released and, what rights, if any, they can continue to assert against each other after the settlement is finalized.

A United States District Court in Florida recently issued a decision in Veltheim v. International Bodytalk Association, Inc. which highlights the importance of careful drafting in settlement agreements in order to clearly define the scope of a release of claims and the effect such a release may have on later claims.  The Court began its decision by noting: “For the second time, a son has sued his father, his former stepmother, and the family company in the context of corporate litigation regarding a family business.”  Since 2007, Christopher Veltheim had been working in Australia in a division of the family-owned company.  By 2014, Christopher’s relationship with his father, John Veltheim, the company’s president, and his then-stepmother, Esther Veltheim, the company’s treasurer, had deteriorated.  John and Esther terminated Christopher’s employment from the company.  Christopher claimed that as of the date of his termination, he held a 20% ownership interest in the company.

Christopher filed an unfair dismissal claim in Australia against the company, John, and Esther.  The parties later settled that claim through a settlement agreement in which the parties agreed to Christopher’s dismissal of the employment termination lawsuit in exchange for certain monetary payments to Christopher.  As a condition to the settlement, Christopher also signed a release agreement, through which he released “all Claims which may arise out of his Employment or the termination of his Employment.”  The release contained a separate provision through which Christopher “acknowledge[d] and agree[d] that he is releasing the releasees from any and all Claims which may include, but are not limited to, Claims in Australia and the United States . . . whether arising under statute . . ., contract (express or implied), tort, constitutional provision, common law, public policy or otherwise, from the beginning of time through the date [of] the release agreement.”

As a condition to the settlement, Christopher also signed a release agreement…

Nine months after signing the release agreement, Christopher sued the company, John, and Esther in a Florida court, alleging mismanagement and waste of corporate assets and seeking damages, an accounting, and an order of dissolution of the company.  The company, John, and Esther filed a summary judgment motion, arguing that the earlier release agreement barred Christopher from asserting these new claims.  The Court agreed, holding that, while the release agreement originally arose in the context of Christopher’s unfair dismissal lawsuit, “a plain reading of the Release Agreement show[ed] that the parties intended to effect a global settlement of all pending matters.”  To that end, the Court noted that the parties defined the released “Claims” broadly so as to include all complaints or causes of action that Christopher could have asserted.  The Court also noted that the time period for the released “Claims” was “from the beginning of time” until the date of the release.  Finally, the Court commented that, had the parties wanted to limit the nature of the “Claims” being released or the time period applicable to such “Claims,” they could have done so; but they did not.

After reviewing the scope of the release, the Court rejected Christopher’s argument that the release only addressed his employment-related claims.  The Court also noted that Christopher signed the release in his attorney’s presence, had the benefit of legal representation, and understood that he was giving up certain legal rights. The Court thus concluded that the new claims Christopher asserted fell within the scope of the release, both in terms of subject matter and timing.  Based on the language of the release agreement, the Court entered summary judgment as to all of Christopher’s claims against the company, John, and Esther arising from his alleged ownership interest.

This decision provides as least three takeaways to consider when settling claims among family-business owners:

• First, even where a release explicitly covers certain categories of claims, a released party may still face a later claim that falls within the scope of the release. The released party thus will need to defend against such claims by invoking the release terms.  In addition to carefully drafting the release language to bar future claims, a party receiving a release may want to consider including a provision for the award of attorney’s fees in the event of a successful defense of a released claim, as further discouragement to a claimant’s later assertion of a released claim.

• Second, from the releasing party’s perspective, that party should fully understand the scope of the claims being released. If he or she wishes to limit the scope of the subject matter or time period of the released claims, the best time to push for such limitations is usually during settlement negotiations and not in the context of later arguments to a court for a favorable interpretation of a finalized and signed agreement.

• Third, if there already has been one dispute between owners of a family-business, such as an employment dispute or a claim of mismanagement, there are likely to be grounds (real or imagined) for other later disputes and litigation. Thus, once one dispute arises among family-business owners, it may be worthwhile to try to reach an agreement that separates the claimant/owner from the business entirely, for example through a purchase of that claimant’s ownership interests by the company or a co-owner.  Such an agreement could better position the owners for a global resolution of all potential claims between them.