Recent Decision Highlights the Potential Pitfalls in General Releases

Cohen Seglias Pallas Greenhall & Furman PC
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In its recent decision in T.H.R. Enterprises, Inc., the Court of Federal Claims reminds contractors to read claim release language carefully before executing any agreement or modification. T.H.R. Enterprises, Inc. involved an IDIQ contract for renovation work at Langley Air Force Base. The government issued various task orders (TOs) under the overarching IDIQ, and disputes arose between T.H.R. and the government under three of these orders: TOs 22, 25, and 26.

Claims under TOs 22 and 25 were the subject of a contracting officer’s final decision, the denials of which T.H.R. appealed to the Armed Services Board of Contract Appeals (ASBCA). The parties ultimately reached a settlement agreement regarding these claims. While these appeals were pending but before the execution of the settlement agreement, T.H.R. submitted a claim seeking a contracting officer’s final decision under TO 26. Per T.H.R., the contracting officer, rather than issuing a decision, informed the company that the agency would address that claim after the claims under TOs 22 and 25, which were still pending before the ASBCA, had been disposed of. Thereafter, T.H.R. brought suit in the Court of Federal Claims on the TO 26 claim. The government moved for judgment on the pleadings, effectively asserting that the ASBCA settlement agreement concerning TOs 22 and 25 also barred the TO 26 claims. The Court agreed with the government and entered judgment in its favor.

The critical language in the ASBCA settlement agreement for TOs 22 and 25 stated the following:

a) Upon execution of this Agreement, the modification to the Contract incorporating this Agreement and payment of the Settlement Amount, each Party hereby generally and specifically releases, discharges and acquits the other Party, its officers, officials, administrators, members, directors, managers, employees, attorneys, agents, representatives, affiliates, predecessors and successors, from any and all claims, demands, liabilities, actions, causes of action, damages, expenses and obligations whatsoever, including without limitation those arising out of or in any way related to the Appeal including, without limitation, claims for attorney’s fees, interest, and any and all other fees and costs associated with the Appeal and defenses of every nature, character and description whatsoever, including Indemnity claims, whether known or unknown, suspected, or claimed (collectively the Released Claims), provided, however, that this release shall not affect or extinguish any claim arising from a breach of this Agreement or violation of the laws of the United States. (bolding added).

T.H.R., understandably, argued that the settlement agreement concerned only TOs 22 and 25 and should not have any impact on its claim arising out of TO 26. However, the Court disagreed with T.H.R. that the release pertained only to claims under TO 22 and 25. Rather, the Court held that T.H.R.’s position ignored the clause preceding the reference to the appeal. That clause stated that the parties released “any and all claims … whatsoever.” Stated differently, the Court found that the settlement agreement contained “a general release that covers all claims, and then an additional clause that makes it clear that anything arising out of the appeal is covered.” Of critical note, T.H.R. knew of the dispute over TO 26 when it executed the ASBCA settlement agreement. Thus, the Court opined that T.H.R. needed to reserve expressly its rights related to TO 26; otherwise, “the general release ends every matter arising out of the contract.” Here, the “contract” was the overarching IDIQ.

T.H.R. also argued that a particular “Whereas” clause in the settlement agreement clarified the parties’ intention that the release related only to TOs 22 and 25. The Court was unmoved by this assertion. Instead, it observed that “Whereas clauses are not contractual; they are recitations laying out the background understandings of the parties.” While the Court did acknowledge that in the face of an ambiguity, “Whereas” clauses may be used to discern the meaning that the parties attached to ambiguous language, it found that the release in the settlement agreement here was unambiguous in its scope. Thus, the Court did not need to resort to the “Whereas” clauses of the agreement to interpret the release.

T.H.R. Enterprises, Inc. teaches a crucial lesson—carefully review any proposed agreement in which you are being asked to waive or release any claims you have (or may have). If you have any doubts about the breadth of the waiver/release language you are being asked to accept, you should consult an attorney. We will be keeping a close eye on this decision and, in particular, whether the contractor elects to appeal it.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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