United States: Florida Court Says It's Not Fraud When Misrepresentations Are Made During Settlement Negotiations

When settling a case, litigators are naturally focused on avoiding "Round 2" of the litigation for their clients. Toward this goal, lawyers avoid drafting settlement agreements that include any sort of representations or warranties that could form the basis of a future claim against their own client. But as the recent Florida case of Moriber v. Dreiling confirms, under Florida law, if a party doesn't specifically incorporate the representations made by an adversary into the settlement agreement, those representations are as good as gone – as well as any potential recourse if they prove untrue. Indeed, the Florida appellate court's advice on this issue could not be clearer: when settling a case based on the existence or non-existence of some fact, deal with it specifically in the written settlement agreement.

Moriber v. Dreiling involved a settlement agreement in the probate context. In 2000, Sara Moriber entered into a settlement agreement with her mother to resolve various disputes relating to Sara's father's estate and trusts created by him. As part of the global settlement between Sara and her mother, Sara was entitled (at her mother's death) to a one-third interest in certain life insurance policies that had been purchased, years earlier, for a trust created by Sara's father.

When her mother died nearly a decade later, Sara learned that the insurance policies had lapsed prior to the execution of the settlement agreement. Sara sued her mother's estate for fraudulent inducement, claiming that her mother induced her to enter into the settlement agreement by failing to mention that the insurance policies were no longer in existence. Sara's problem was, of course, that she had agreed to a general release as part of the settlement agreement, and therefore, absent a basis to void the settlement agreement (i.e., fraudulent inducement), Sara was precluded from suing her mother's estate for claims relating to the life insurance policies.

While the court was not, in its own words, "unsympathetic" to Sara's position, it nevertheless affirmed summary judgment against Sara. Id. at 14. The court relied on long-standing precedent holding that adverse parties negotiating a settlement agreement in an attempt to avoid litigation cannot, as a matter of law, rely upon the representations of one another, and thus, cannot establish fraud. Id. at 8-9.

This does not mean, according to the appellate court, that one party may not insist upon assurances from the adverse party in the context of settlement agreements. Id. at 11. Such assurances, however, should be enforced through contract principles such as warranties or indemnities rather than fraud claims. Id. at 11.

And in addressing such assurances through contract principles, the settlement agreement must do so specifically. Thus, for example, as the Florida appellate court explained in another case, a written settlement agreement that simply states that it is "based on the representations of the parties as of the date of the settlement" is useless. Sugar v. Estate of Stern. (Among other reasons, any such representations would be in the nature of settlement negotiations, and thus typically inadmissible to prove fraud. Id. 10-11.)

Thus, Sugar v. Estate of Stern suggests that if assurances are to be addressed through contract principles, the written settlement agreement must either (a) incorporate the specific representations made by the adverse party; or, (b) attach or refer to a separate writing that details those representations. Id. For example, in Sara's case, she should have insisted that terms be inserted into the settlement agreement regarding the status and value of the life insurance policies. Moriber v. Dreiling also suggests that the parties should consider specifying the parties' remedies in the event that the incorporated representations are not accurate. (For example, in Sara's case, remedies for breach of the representations could have included rendering the release void or entitling Sara to pursue damages for her share of the value of the policies).

Sugar v. Estate of Stern alludes to another option worthy of consideration for dealing with the unknown: exclusions or carve-outs to release provisions. Id. at 5-6. (These may be a bit less unpalatable than representations and warranties since they do not create a new basis for a potential claim, but simply preserve claims that may already exist).

It goes without saying that either written representations or release carve-outs are often non-starters in any settlement negotiation. That being the case, as the Florida appellate court recognized, litigants always have the option to "stand pat and fight." Moriber at 14. But if the choice is made to settle without an adversary's specific representations incorporated into the written settlement agreement, Moriber v. Dreiling's holding is clear: the settlement agreement (and release) cannot be avoided based on a theory of fraudulent inducement.

Florida Court Says It's Not Fraud When Misrepresentations Are Made During Settlement Negotiations

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