Broad Release Reaching “Any and All Claims,” Whether “Known or Unknown” Sufficient to Bar Claims For The Recovery of Money

• Posted on: Apr 19 2021

When a person releases another from claims or the threat of claims, he/she is giving up the right to sue the other in connection with the subject of the release. Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011) (“Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release.”). A release effectively eliminates all claims against another that are possessed by the party giving the release. It does not matter whether the releasor knew of the claims at the time that he/she gave the release. 

A release is generally ineffective as a bar against a claim that arises after the date the release is given. However, a plaintiff will not be barred from bringing a claim that falls within the scope of a release when he/she can demonstrate that the release was procured by fraud, duress or some other wrongdoing. Centro Empresarial Cempresa, 17 N.Y.3d at 276; Fleming v. Ponziani, 24 N.Y.2d 105, 111 (1969). Where a party “releases a fraud claim”, he/she “may later challenge that release as fraudulently induced only if [he/she] can identify a separate fraud from the subject of the release.” Centro Empresarial Cempresa, 17 N.Y.3d at 276 (citing Bellefonte Re Ins. Co. v. Argonaut Ins. Co., 757 F.2d 523 (2d Cir. 1985)). 

The foregoing principles were highlighted in Sodhi v. IAC/Interactivecorp, 2021 N.Y. Slip Op. 31220(U) (Sup. Ct., N.Y. County Apr. 8, 2021). In Sodhi, plaintiffs, former employees of Hatch Labs, Inc. (“Hatch”), a subsidiary of defendant IAC/InterActiveCorp (“IAC” or “Defendant”), filed the action to recover money claimed to be improperly withheld from them by IAC. 

Hatch was a startup incubator company that developed applications for mobile phones. Among other applications, Hatch launched Tinder, the popular mobile dating application, in 2012. At the time they were hired, plaintiffs were granted “phantom” equity units (the “Units”) in Hatch pursuant to an Equity Incentive Plan (the “Plan”), which was incorporated by reference into the letters outlining the plaintiffs’ terms of employment. The Plan provided for a one-time valuation (the “Appraisal Value”) and payout to plaintiffs, as participants in the Plan, for all vested Units on a date certain (the “Settlement Date”) in 2015.

Dinesh Moorjani (“Moorjani”), a non-party to the action and the majority holder of the Units, was designated “Senior Participant” under the Plan and authorized to act as the representative of all Plan participants. In his capacity as Senior Participant, Moorjani was empowered to review the Appraisal Value provided by IAC, obtain an alternative appraisal of the value of the Units, communicate critical information to other Plan participants, and challenge IAC’s Appraisal Value before an arbitrator, if necessary. In his capacity as majority Unitholder, Moorjani also had the right to provide consent to amend, modify, change, suspend, or terminate the Plan on behalf of all participants. Conversely, all other Plan participants, including plaintiffs, were “deemed to have joined in the actions and agreements of the Senior Participant and waived any claim with respect thereto,” pursuant to the terms of the Plan.

In March of 2014, Moorjani, in his capacity as Senior Participant and majority Unitholder, agreed with IAC to accelerate the Settlement Date. Pursuant to a written agreement submitted by defendant, Moorjani also agreed that the Appraisal Value for each Unit would be $166,566.42. Moorjani notified plaintiffs and other Plan participants of the acceleration on March 21, 2014. In accepting their payout, each of the plaintiffs signed a Settlement Letter agreeing to the Appraisal Value accepted by Moorjani, the number of vested Units to be settled, and the aggregate purchase price that IAC was to pay the participants as consideration for settling their vested Units. Each Settlement Letter further provided the plaintiffs a conditional right to an upward adjustment of the amount of their payout if, before October 15, 2014, a “Third Party Equity Financing” occurred in Tinder that implied a higher valuation of Tinder than the original Appraisal Value. Finally, each Settlement Letter included a broad, general release.

Approximately six years after plaintiffs received their payouts for their Units, plaintiffs commenced the action against IAC, asserting causes of action to recover for breach of the Plan (first cause of action), breach of the implied covenant of good faith and fair dealing contained in the Plan (second cause of action), and fraud arising from IAC’s alleged misrepresentation of the value of the Units (third cause of action). Plaintiffs contended, inter alia, that IAC misled Moorjani as to the true value of Tinder, which was the principal asset underlying the value of the Units, withheld information from Moorjani with respect to Tinder’s value, and coerced Moorjani to accelerate the Settlement Date to March 2014. Defendant asserted that the complaint should be dismissed in its entirety in light of the contractual releases that plaintiffs signed.

The Court agreed with Defendant.

Plaintiffs alleged that the releases in the Settlement Letter did not cover the claims asserted in the action because the claims concerned their entitlement to a payout under the Plan, and not to their basic possessory interest in the Units. The Court rejected “[t]his narrow interpretation of the scope of the releases” as being “strained and unconvincing.” Slip Op. at 4. The Court found that the releases were broad and covered plaintiffs’ claim to the money alleged to be wrongfully withheld by IAC:

[T]he releases indicate[] the parties’ intention to bar “any and all” claims the plaintiffs “may now have, or hereinafter can, shall or may have” with respect to the plaintiffs’ interests in the Units. As the complaint makes clear, the plaintiffs’ interests in the Units are the basis for their participation in the Plan and the source of any claim they have to a payout at a certain time or in a certain amount. 

Consequently, concluded the Court, “each of the plaintiffs’ claims in this action, including their fraud claims, derive from their interests in the Units and are covered by the expansive language of the subject releases they signed. Id.

Moreover, explained the Court, the Settlement Letters “were meant to document the terms under which the plaintiffs would receive a payout as consideration for the Units.” Id. at *5. Thus, “the inclusion of releases covering only the plaintiffs’ ability to claim ownership of the Units would serve no purpose at that juncture, since the plaintiffs would no longer possess the Units after payment was made.” Id. 

Accordingly, the Court held that the releases in the Settlement Letter “cover[ed] all of the claims included in the complaint.” Id.

Notwithstanding the foregoing, plaintiffs argued that the releases did not bar their claims because they were procured by fraud. In this regard, plaintiffs alleged that “‘IAC, either in conjunction with or utilizing Dinesh Moorjani, defrauded Plaintiffs by hiding the true value of Tinder (which was known to IAC at the time to be nearly $1 Billion) at the time of the settlement and accelerating that settlement to deprive Plaintiffs of settling their phantom equity one year later, as called for in the Plan, when Tinder’s value had swelled to approximately $3 Billion.’” Id. at 5 (quoting the record). 

The Court found that plaintiffs failed to allege a fraud “separate from that which was the subject of the releases they signed, whether known or unknown to the plaintiffs at the time.” Id. at *7. In doing so, the Court rejected plaintiff’s argument that there was a lack of equal bargaining power and that they were “forced to accept the valuation and settlement date and were [sic] could not do anything about it.” Id.

In any event, plaintiffs acknowledged that the Plan, which they were parties to, provided Moorjani in his capacity as Senior Participant with exclusive responsibility for negotiating with IAC and agreeing to the final Appraisal Value, and in his capacity as holder of the majority of Units the exclusive right to provide written consent to amend the Plan on behalf of all participants. The Court held that plaintiffs made “no factual, non-speculative allegations to suggest that Moorjani had any incentive to take a position adversarial to the plaintiffs in his representation of them in his dealings with IAC.” Id. “Rather,” said the Court, “all signs point[ed] to Moorjani’s interests being wholly aligned with the plaintiffs’ interests.” Id. For those reasons, the Court “decline[d] to carve out an exception to the holding in Centro Empresarial in order to permit the plaintiffs to proceed on claims they duly released in 2014.” Id.

Takeaway

A “release is … a species of contract” that “is governed by the same principles of law applicable to other contracts.” Schuman v. Gallet, Dreyer & Berkey, L.L.P., 180 Misc. 2d 485, 487 (N.Y. Co. 1999), aff’d, 280 A.D.2d 310 (1st Dept. 2001). Therefore, in the absence of duress, illegality, fraud, or mutual mistake, as in Sodhi, a release will not be set aside. Toledo v. W. Farms Neighborhood Hous. Dev. Fund Co., Inc., 34 A.D.3d 228, 229 (1^st Dept. 2006).

In Sodhi, plaintiffs broadly released all claims that they had against defendant. The release language was expansive and released “any and all claims” whether “known or unknown” against any of the released parties that plaintiffs may have had “against IAC and [Hatch] and their respective directors, officers and employees with respect to [plaintiffs’] interest in the Units….” Such language was, as the Court noted, broad enough to cover their claims for non-payment.