VIRGINIA CASE FOR BUSINESS LITIGATION

Facts:

In a previous action, plaintiffs, who held a minority interest in a cellular telephone company, filed two lawsuits against defendant, the managing general partner, alleging that it was guilty of improper and fraudulent acts. Those suits were settled, and plaintiffs assigned their interests to defendant and signed a general release. Subsequently, plaintiffs filed another action against defendant, contending that the release should be set aside, alleging that defendant’s failure to disclose the fact that it was negotiating to sell plaintiffs’ interest for a higher price during settlement negotiations was fraudulent. The trial court held that plaintiffs’ instant action was barred by the settlement release. Plaintiffs appealed the judgment of the Circuit Court of the City of Virginia Beach which dismissed their action against defendant, holding that it was barred by the prior settlement of litigation between the same parties or their privies.

Issue:

Whether the trial court erred in refusing to rescind the release for fraud in its inducement?

Discussion:

This court held that when one party, under these circumstances, freely and for consideration, releases and promises not to sue for failure to disclose material facts and for misrepresentation, that party will not be heard to claim that the promise was fraudulently induced because material information was, in fact, not disclosed. In other words, when negotiating or attempting to compromise an existing controversy over fraud, dishonesty, and self-dealing, it is unreasonable to rely on the representations of the allegedly dishonest party. The “past acts” recited in the release which underlay the prior litigation, were precisely the same type of conduct that furnishes the basis of the present litigation. The only difference is that the present specific acts of self-dealing, although following the same pattern of activity, were not discovered until after the settlement had been consummated. The release, however, was intended to bar “all claims regardless of nature or source,” according to the mailgrams, and to discharge all claims “of whatever nature or kind, whether known or unknown . . . from any matter or source whatsoever,” according to the release. Plaintiffs were not entitled to the release’s rescission because they had no right to reasonably rely upon any misrepresentations or concealment of facts by defendant in connection with the release. Defendant was not required to make full disclosure to plaintiffs, prior to settlement, of all of its wrongful acts in connection with the prior litigation in order to bind plaintiffs by the release. In sum, because the plaintiffs had no legal right to reasonably rely upon the alleged misrepresentations in connection with the compromise and settlement, this court held that that the trial court did not err in refusing to rescind the release for fraud in its inducement. Thus, the valid release bars the present litigation.

Judgment:

This court hence affirmed the trial court judgment. Plaintiffs were not entitled to recission of their release because they had no right to reasonably rely upon defendant’s alleged misrepresentations or concealment of facts related to the release.

Disclaimer:

These summaries are provided by the SRIS Law Group.  They represent the firm’s unofficial views of the Justices’ opinions.  The original opinions should be consulted for their authoritative content