Release between Two Parties Also Released Claims against Non-Party

The language and scope of a release between two parties has been held by the South Dakota Supreme Court to encompass potential claims against a third party, releasing those claims as well. So an aggregate producer that released claims against the South Dakota DOT discovered that its claims against the testing agency – hired by the aggregate producer, and not the DOT – had also been released. This is a novel outcome turning on the language of the release in question, as releases are usually narrowly construed. The decision is in Aggregate Constr. v. Aaron Swan & Assoc., 2015 SD 79 (Oct. 28, 2015).

The aggregate producer’s material had to be tested for sodium sulfate soundness, a test used to measure resistance to disintegration of the aggregate. Although the background facts recited in the appellate decision are somewhat confusing, the aggregate producer suffered substantial losses when material it thought had passed the test was rejected, and its customers had to go elsewhere. The aggregate producer sued the state DOT, and that lawsuit was eventually settled with a payment and a release. The aggregate producer then sued the testing agent, who argued that the release of the state DOT effectively released the testing agent.

The release included the following language:

the undersigned [aggregate producer] releases and forever discharges the aforesaid Releasee {state DOT], and all others directly or indirectly liable, from any and all claims, . . . including each and every right of payment for damages said undersigned may now or hereafter have, arising from any act, occurrence or omission up to the present time and particularly on account of all loss and damages of any kind heretofore sustained, . . . in consequence of incidents that occurred during construction season 2008-2009 on [two projects in question].

There are hereby discharged and released not only the Releasee specifically named herein . . . but also in like manner and to the same extent all other persons, corporations and partnerships whatsoever as are classified as joint tortfeasors, it being intended hereby to completely bar any right of action against any of such joint tortfeasors whether or not named herein . . . (emphasis added for editorial purposes)

Whether or not one believes the South Dakota court got it wrong, the message is clear: make sure any likely or pending claims the releasing party may have against others are not swept up in the current release, or are excluded from the effect of that release.