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Why Put Torts into Business Deals, and How Can Disclaimers and Releases Stop the Practice? (continued)

Image 2Disclaimers can minimize subsequent tort claims when business participants are entering a deal and are initially papering it up.  Releases, on the other hand, can minimize subsequent tort claims when business participants are exiting a deal, tying up loose ends and winding down a venture.  As with disclaimers, releases are most effective when they appear in prominent writing and when both sides have acknowledged understanding the releases.

The old legal and business practice in Texas – say, before the mid-1990s – was to circumvent releases when they subsequently proved deleterious to lucrative tort claims.  The party seeking to circumvent a release would simply assert that it didn’t understand the release, or it was defrauded or coerced into signing the release.  Using the established legal concept that “fraud vitiates everything it touches,” lawyers could readily side-step releases – merely by asserting, with some evidentiary proof, that sharp and unscrupulous players on the other side of the deal had defrauded their clients, causing them to sign the releases.

Toss the releases tainted by fraud, and pursue lucrative tort damages against the sharp players.  Thus went the commonly used “fraudulent inducement” cases.

The 1990s and 2000s dramatically changed those practices in Texas.  With Texas cases like Schlumberger Technology Corp. v. Swanson and the many cases that followed in its path, defendants facing tort claims began upholding their releases in the face of fraudulent inducement claims.  Texas law began making it very difficult for plaintiffs to prove that fraud had caused them sign releases.  The lawyer who argued the Schlumberger case to the Texas Supreme Court had said, “Don’t let subsequent allegations of fraud bust releases in Texas.”  And the Court heard her.  Texas law began its consistent 20-year trend of upholding releases and absolving defendants of tort and contract liability.

Holmes PLLC’s founding member, James Holmes, was a young lawyer in the courtroom when the Texas Supreme Court heard the Schlumberger case, and he followed the case closely.  As a result, Holmes PLLC pays special attention to releases on behalf of its clients seeking to draft them, to uphold them, or, when necessary, to circumvent them.