Release Deemed To Encompass Unknown Claims (Including Fraud) In Trump Family Dispute

• Published date: 26 July 2023
• Subject Matter: Litigation, Mediation & Arbitration, Criminal Law, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Meyer Suozzi English & Klein
• Author: Mr Kevin Schlosser

Inartful or imprecise language of releases can lead to needless and costly litigation. The abundance of cases challenging the scope of releases that have been drafted and entered into with the intention of settling disputes underscores how important it is to take care in using precise language when crafting the release.

Release of Fraud and Unknown Claims

Principal sources of litigation over the scope of releases are whether the release at issue covers fraud claims and/or "unknown" claims. The Appellate Division, First Department's new decision arising out of the Trump family dispute in Trump v Trump, 2023 NY Slip Op 03427 (1^stDep't Decided June 22, 2023) provides not only insight into what language to use in a release, but also authority supporting the enforcement of a release over unknown claims, including for fraud, even without actually stating that the release encompasses "known and unknown" claims.

The leading New York Court of Appeals decision laying out the governing principles and standards concerning the scope and enforceability of releases is Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d 269 (2011). As stated there, in essence, a release, like any other contract, may be challenged and rescinded based upon any of the traditional grounds to void an agreement, including fraud. Moreover, a release may be deemed to encompass fraud claims unless the fraud allegedly relied upon to enter into the release is separate from the underlying fraud claims that were part of the existing dispute. Further, the release may be deemed to cover "unknown" claims, including of fraud, if the court finds the release was intended to encompass such unknown claims and "fairly and knowingly" made. I have explained these principles in prior posts. See,e.g., Challenging Releases and Settlements Based on Fraudulent Inducement is a Challenge.

In view of these principles, if a settlement results and is truly intended to resolve and extinguish both any type of fraud claims as well as any claims that are not even known at the time the release is entered into, it would be prudent to make sure the release explicitly states that it covers those claims. Thus, the release should state that among the claims to be released are "any and all claims of fraud, misrepresentation or the like, including but not limited to fraud or misrepresentation relating to the release itself," as well as "known and unknown" claims. It would also be wise to include in the release...