When a lawsuit settles, in exchange for the settlement funds the defendant typically requires the plaintiff to sign a release by which the plaintiff releases its claims against the defendant. The terms of a release are therefore critical to the protection of the defendant and its affiliates from further litigation. As a result, it is important to consider the specific facts of each case while drafting the release language.
When a defendant is an entity with a parent company, subsidiaries, or otherwise related entities, it is important to consider the release of those related entities to ensure the plaintiff does not file a separate lawsuit against them after settling with the defendant. In order to address this concern, releases often state that the plaintiff releases all claims against the defendant’s “affiliates.” A recent decision from California’s Third District Court of Appeal provides clarity as to the scope of the term “affiliate” and highlights the need for a release to list specific released entities or persons that are potentially outside of that scope.
In Izbal v. Ziadeh, Muhammad Iqbal sued Yosemite Auto and its owners for personal injuries. Yosemite Auto had previously retained Iqbal to determine why a vehicle it owned would not start. Unknown to Iqbal, Yosemite Auto had disconnected the transmission shift linkage to tow the vehicle and failed to reconnect the shift linkage after the car arrived at the yard. As a result, after Iqbal confirmed the vehicle was in “park” and climbed under the vehicle to determine why it would not start, the vehicle began to move and ran over him, crushing his spine.
Iqbal reached a settlement with Yosemite Auto and its owners for their insurance policy limit of $1,000,000. Iqbal dismissed the action with prejudice and released from liability all defendants, their “affiliates,” and “all other persons, firms, or corporations, with whom any of the former have been, are now or may hereafter be affiliated.”
Months after he settled the first action, Iqbal brought a second action against Imran Ziadeh. At the time of the accident, Yosemite Auto leased the land for its business from Ziadeh. Ziadeh had previously operated a used car dealership on the property. Upon leasing the property to Yosemite Auto, Ziadeh entered into an agreement with Yosemite Auto under which he left several vehicles from his used car dealership on the property on a consignment basis for Yosemite Auto to sell. The vehicle that injured Iqbal was one of those vehicles. Ziadeh was the person who recommended Iqbal to Yosemite Auto to fix that vehicle. Iqbal sued Ziadeh for negligence and premises liability based on the same facts as his previous action against Yosemite Auto.
Ziadeh filed a motion for summary judgment. He argued he was an “affiliate” of Yosemite Auto for purposes of the release, and thus could not be held liable for any claim arising out of the accident. The trial court granted the motion, but the Court of Appeal reversed.
The Court of Appeal held that the common meaning of “affiliate” is “one who is dependent upon, subordinate to, an agent of, or part of a larger or more established organization or group.” The Court therefore determined the contractual relationship between Yosemite Auto and Ziadeh did not qualify Ziadeh as an “affiliate” of Yosemite Auto. There was “no evidence [the] contracts, a lease and a consignment agreement, made [Ziadeh] dependent upon, under the control of, an agent of, or a part of Yosemite Auto.” The Court therefore held that Ziadeh was not protected by the release.
The Izbal decision serves as a reminder that each settlement agreement and release must be crafted to account for the specific facts of a given case. In order to ensure claims against Ziadeh were released, Yosemite Auto should have specifically included Ziadeh, or the more generic term “lessor,” in the release. Defendants should not rely on the word “affiliates” as a catch-all.
For more information regarding settlement agreements and releases, contact Rich Reese in LGC’s San Diego office.