A new Appellate Division, Second Department, decision in Applewhite v 112 Liberty Assoc., LLC, 2024 NY Slip Op 06323 (2d Dep’t Decided Dec. 18, 2024) continues the lenient approach that courts sometimes take when releases have been signed under questionable circumstances. Even when actual fraud is not established, courts have been willing to consider grounds to avoid a written release of claims where it appears the individual releasor may not have “fairly and knowingly” signed the release.
In Insurance Rep Overreaching Could Prevent Release from Being “Fairly and Knowingly” Made, I explained that particularly when insurance company representatives allegedly pressure an injured person to signed a release of the insured, courts will not hesitate to relieve the injured party from the legal effects of the release—even when the elements of fraudulent inducement have not been established or even alleged. As I explained:
As the Court of Appeals noted in the leading case of Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d 269 (2011), there is no question that because a signed release is a contract, it can be challenged on any of the traditional grounds for avoiding an agreement, “‘namely, duress, illegality, fraud, or mutual mistake.’” (quoting Mangini v McClurg, 24 NY2d 556 (1969)).
But the Court in Mangini explained a broader basis to avoid a release even if actual fraud had not been employed, based on the premise that the release must have been “fairly and knowingly made”:
In Farrington v. Harlem Sav. Bank ( 280 N.Y. 1), it was established that a release could be made covering both known and unknown injuries, “provided the agreement was fairly and knowingly made” ( id., at p. 4). This limitation on releases for unknown injuries, first applied to a claim that the plaintiff thought he was signing a mere receipt for money to pay a doctor’s bill, was applied in other cases of fraud ( Wheeler v. State of New York, 286 App. Div. 310; Scheer v. Long Is. R.R. Co., 282 App. Div. 724). Fraud, however, had long been a ground for setting aside a release (see Fleming v. Brooklyn Hgts. R.R. Co., 95 App. Div. 110). The requirement of an “agreement fairly and knowingly made” has been extended, however, to cover other situations where because the releasor has had little time for investigation or deliberation, or because of the existence of overreaching or unfair circumstances, it was deemed inequitable to allow the release to serve as a bar to the claim of the injured party (see, e.g., Duch v. Giaquinto, 15 A.D.2d 20; Landau v. Hertz Drivurself Stas., 237 App. Div. 141; Castenada v. Ruderman, 48 Misc.2d 321).
Mangini v McClurg, 24 NY2d 556, 563 (1969)(emphasis added).
As I reported, in Wei Qiang Huang v Llerena-Salazar, 22 AD3d 1033 (2d Dep’t 2023), the Second Department rejected a defense of release because of what it considered to be overreaching of the insurance representative in obtaining the release. The Second Department continued that same reasoning in a slightly different context in the recent case of Applewhite.
In Applewhite, the plaintiff brought an action for personal injuries he allegedly sustained while working at a construction site when a scaffold fell on him. After he brought the action, one of the defendants caused him to sign a release of his claims. Both defendants then moved to amend their answers to include the release as a defense, and to dismiss the complaint, while plaintiff cross-moved to void the release. The court below granted the motions to amend, but denied the other motions without prejudice to renewal on summary judgment.
One of the defendants appealed the denial of its motion to dismiss. The Second Department affirmed, accepting plaintiff’s description of what he claimed were the unfair circumstances under which he signed the release (even though he obtained $20,000 in exchange for the release).
Following the reasoning in its decision in Wei Qiang Huang v Llerena-Salazar, the Second Department reiterated the law as follows:
“‘Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release'” (Wei Qiang Huang v Llerena-Salazar, 222 AD3d 1033, 1033, quoting Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d 269, 276). “A release may be invalidated, however, for any of the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake” (id. [internal quotation marks omitted]; see Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d at 276; Miller v Brunner, 215 AD3d 952, 953). “In addition, a release may be set aside on the ground that it was not ‘fairly and knowingly made'” (Wei Qiang Huang v Llerena-Salazar, 222 AD3d at 1033, quoting Haynes v Garez, 304 AD2d 714, 715 [internal quotation marks omitted]; see Mangini v McClurg, 24 NY2d 556, 566). “This basis for setting aside a release may be applied in situations ‘falling far short of actual fraud’ such as when, ‘because the releasor has had little time for investigation or deliberation, or because of the existence of overreaching or unfair circumstances, it was deemed [*2]inequitable to allow the release to serve as a bar to the claim of an injured party'” (Wei Qiang Huang v Llerena-Salazar, 222 AD3d at 1033-1034, quoting Haynes v Garez, 304 AD2d at 715 [internal quotation marks omitted]; see Mangini v McClurg, 24 NY2d at 567-568). “‘Although a defendant has the initial burden of establishing that it has been released from any claims, a signed release shifts the burden going forward . . . to the [plaintiff] to show that there has been fraud, duress or some other fact which will be sufficient to void the release'” (Wei Qiang Huang v Llerena-Salazar, 222 AD3d at 1034, quoting Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d at 276 [internal quotation marks omitted]; see Fleming v Ponziani, 24 NY2d 105, 111; Miller v Brunner, 215 AD3d at 953).
“‘In resolving a motion for dismissal pursuant to CPLR 3211(a)(5), the plaintiff’s allegations are to be treated as true, all inferences that reasonably flow therefrom are to be resolved in his or her favor, and where, as here, the plaintiff has submitted an affidavit in opposition to the motion, it is to be construed in the same favorable light'” (Wei Qiang Huang v Llerena-Salazar, 222 AD3d at 1034, quoting Sacchetti-Virga v Bonilla, 158 AD3d 783, 784).
The Second Department then affirmed, accepting plaintiff’s affidavit describing what he claimed caused him to sign the release, and why it was not fairly or knowingly made:
Here, in support of its motion, Liberty submitted, among other things, a copy of a release signed by the plaintiff, which, by its terms, purportedly barred this action against Liberty. In opposition, however, the plaintiff’s affidavit alleged that he signed the release under circumstances that indicated unfairness and that the release was not fairly or knowingly made (see id.; Sacchetti-Virga v Bonilla, 158 AD3d at 784; Cabibi v Lundrigan, 7 AD3d 556, 557). The plaintiff averred that he was told by two supervisors that he needed to sign a document before returning to work and was told by the supervisors that signing the document would not jeopardize the action he had already commenced. The plaintiff also averred that he was forced to sign the document without a chance to read it or share the document with his attorney, that he felt pressured and under economic duress to sign the document because he would not be able to obtain a similar job, and that he and his family would be incapable of surviving without access to the income from the job. The plaintiff further averred that no notary was present when the document was signed.
Commentary
Although in the area of fraud claims, courts do scrutinize what the alleged victims of fraudulent conduct have done to protect themselves, including whether their reliance on misrepresentations was reasonable, it appears that a more lenient approach is taken when injured parties have been pressured to sign releases in circumstances that seem to be unfair.