The Truth And Nothing But The Truth, But Not Necessarily In Settlement Negotiations, Says The North Carolina Court Of Appeals

Lawyers don't have any obligation to disclose information harmful to their client's position during settlement discussions, the North Carolina Court of Appeals ruled today in Hardin v. KCS International, Inc.

The parties in Hardin had settled an earlier lawsuit involving plaintiff's claims over problems with his new yacht. Plaintiff then was dissatisfied with the repairs to the yacht undertaken pursuant to the settlement, and filed a second lawsuit notwithstanding the settlement agreement's full release.

The plaintiff asserted that the release had been procured by fraud. He pointed to documents produced in the second lawsuit which showed that his yacht had been involved in a collision while being delivered to North Carolina. Plaintiff said he had never been told that his yacht had hit a tree while being transported down the road (really), and that he should have been informed of this fact during the settlement negotiations. He said he wouldn't have settled in the first place if he had known about the accident.

Judge Geer disagreed that the defendants had any obligation to disclose the fact of the collision, observing that plaintiff had been obligated to use reasonable diligence to find out about the damage and that he could have easily done so through discovery. She furthermore emphasized the arms length nature of the settlement negotiations, and said that "no negotiation could be more arms length" than negotiations during "the course of on-going litigation."

The Court held that Plaintiff:

cites no authority — and we have found none — requiring opposing parties in litigation to disclose information adverse to their positions when engaged in settlement negotiations. Such a requirement would be contrary to encouraging settlements. One of the reasons that a party may choose to settle before discovery has been completed is to avoid the opposing party's learning of information that might adversely affect settlement negotiations. The opposing party assumes the risk that he or she does not know all of the facts favorable to his or her position when choosing to enter into a settlement prior to discovery. On the other hand, the opposing party may also have information it would prefer not to disclose prior to settlement.

On a first impression point of appellate procedure, the Court held that a motion to enforce a settlement agreement should be reviewed under the same standard applicable to a motion for summary judgment.

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