After months or years of litigation against multiple defendants, you’ve finally reached a settlement for your client with one of the defendants. But, despite the settlement with one defendant, your client or the remaining defendants want to continue to litigate the case. Drafting the settlement agreement with the settling defendant should be as easy as preparing a simple release and getting the settling defendant to sign it, right? Not exactly. In drafting a settlement agreement with one defendant in a multi-defendant litigation, a lawyer must take great care to protect his client’s rights against the remaining defendants and to avoid the pitfall of inadvertently releasing claims against the non-settling defendants.
Many Illinois lawyers do not know that at common law, where a plaintiff suffers a single legal injury, settling with one defendant and giving him an unconditional release of claims automatically released those claims against the remaining defendants, unless a contrary intent appeared from the release. Cherney v. Soldinger, 299 Ill. App. 3d 1066, 1070 (1st Dist. 1988). The purpose of the common law rule was to prevent the plaintiff from obtaining multiple recoveries in excess of the amount needed to make him whole. Id. at 1071. The common law rule was so engrained that it applied not only to tortfeasors, but also to co-parties to a contract. Id.
Thus, at common law, if two different drivers negligently collided with you and injured you, but you settled only with one of the drivers for less than the full amount of your demand, you would not be able to recover the balance of your damages from the other driver. Similarly, at common law, if two of your tenants breached a lease and you settled with one tenant who agreed to pay you some but not all of the outstanding rent, you could not pursue the other tenant for the remaining outstanding rent.
The Illinois General Assembly has attempted to scale back this harsh rule, but only in the context of tort claims like the car accident example above. Pursuant to Section 2(c) of the Illinois Joint Tortfeasor Contribution Act, the General Assembly has made clear that when a tort plaintiff releases one of multiple tortfeasors, the release given to one tortfeasor does not automatically release the other tortfeasors. 740 ILCS 100/2(c). However, the Illinois General Assembly nor the Courts have displaced the rule in any other context. Thus, the common law rule that an unconditional release given to one defendant releases all other defendants still applies in the context of breach of fiduciary duty claims (Cherney, 299 Ill. App. 3d at 1070-72), contract claims (El Funding Partnership v. Voegel, 2012 IL App (1st) 113712-U), and other non-tort claims causing the plaintiff to suffer a single injury.
If you are settling a multi-defendant, non-tort, single injury claim against fewer than all defendants, there are a few tips you can follow to minimize the risk of inadvertently releasing claims against the remaining defendants:
Know the underlying substantive law upon which your claim is based. For example, many lawyers are mistaken that a breach of fiduciary duty claim is a tort claim. It is not. See Cherney, 299 Ill. App. 3d at 1070-72. If you approach settlement of a breach of fiduciary claim with the incorrect understanding that it is a tort claim within the meaning of Section 2 of the Joint Tortfeasor Contribution Act, then giving an unconditional release to one defendant will likely inadvertently release all other defendants. Knowing the substantive law upon which your claim is founded helps to avoid this pitfall.
The plain language of the release given to the settling defendant should make clear that the release is not unconditional, it is only for the settling defendant’s share of the damages and/or is for partial reimbursement of the damages that the plaintiff suffered, it is not intended to release any other persons or entities other than the settling defendant, and the plaintiff holds the non-settling defendants for the balance of his claim. To the extent the release is a general release, it should specifically carve out the claims against the other defendants. This is the most important step to follow. Making clear that the document is NOT intended to unconditionally release all parties should be sufficient to take the release outside the scope of the common law rule.
Related to the last point, avoid using "full and final" settlement language in the release. Do not state that the settlement agreement with the settling defendant is in "full satisfaction and settlement of a disputed claim." This will contradict the other language you use to demonstrate that the settlement agreement is not unconditional. At worst, it will make it clearly apparent from the face of the document that you did intend to release the non-settling defendants. Or it at least gives the non-settling defendants an argument that the release is ambiguous as written, and the defendants need discovery to determine the intent and scope of the release, leading to potentially more expensive and unnecessary litigation.
Assuming there is a proper basis and an agreement between the parties to do so, add a confidentiality provision to the release given to the settling defendant. This may help to protect from the other defendants learning about the terms of the release. However, adding a confidentiality provision does not un-release claims that you inadvertently released due to poor drafting, and ultimately the court may require you to produce the settlement agreement to the other parties. Adding a confidentiality provision at least gives you a legally justifiable basis to resist producing the release. That extra time spent fighting over whether to produce the settlement agreement just may buy you time to secure settlements from the remaining defendants.