Court Interpreting Settlement Agreement Holds Defendant Was Not An “Affiliate” Based Simply On A Contractual Relationship

Apr 27, 2017 | Topics: Business Litigation, Product Liability

The vast majority of cases settle.  And the vast majority of those settlements include a release encompassing everyone from “officers” to “agents” to “representatives” to “affiliates” (if Mel Brooks drafted one, it may even include his father’s brother’s nephew’s cousin’s former roommate).  But a recent Court of Appeal opinion found the term “affiliate” may not be as broad as defendants think, holding that a simple contractual relationship is often not going to be enough.

In Iqbal v. Ziadeh (2017) 10 Cal.App.5th 1, a settlement was reached between a defendant car dealership and the plaintiff, whose spine was crushed when the vehicle he was working on ran over him and dragged him through the parking lot.  The settlement released, among others, the car dealership’s “affiliates.”  A few months later, the plaintiff sued the individual who owned both the land and the car, which had been left with the dealership on a consignment basis, for negligence and premises liability.  The owner obtained summary judgment in the trial court on the basis he was an “affiliate” of the car dealership by virtue of the lease for the land and consignment agreement for the car.  The plaintiff appealed.

The Court of Appeal reversed, finding the owner was not an “affiliate,” as that term is commonly understood, because he had no type of ownership, fiduciary, agency, or dependent relationship to the car dealership.  The court rejected the owner’s assertion that an affiliate was simply “one who is in close association or connection with another.”  Instead, relying on various definitions from Merriam-Webster Collegiate Dictionary, Black’s Law Dictionary, and the Oxford English Dictionary, the court held the word “affiliate” refers to a relationship that is closer than a mere arm’s length contractual relationship.  The sources indicated an affiliate is generally one who is dependent upon, subordinate to, an agent of, or a part of a larger or more established organization or group.  The court found no evidence that either of the two contracts created such a relationship between the owner and the car dealership.  (The court also found further indicia that the initial parties did not objectively intend for the owner to be protected under the release, including other language and provisions in the settlement agreement and extrinsic evidence that was consistent with the court’s interpretation.)