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1/21/2013 | Construction Blog

Releases of claims are commonly negotiated and signed by parties involved in the construction process. But the content of a release has significant bearing on the rights of the parties relative to claims between them and should be carefully negotiated. This principle was recently highlighted in a case decided by the Supreme Court of Delaware (Riverbend Community LLC et al. v Greenstone Engineering LLC et al.).

In Riverbend, a subdivision developer hired an engineering firm to perform defined site evaluation and wetland restoration designs relative to a property to be developed, as well as attend certain regulatory meetings. In addition, the engineering firm agreed to provide design services for specific site work, storm water collection, and sanitary sewer systems.

After the engineering firm performed some of the services, it left the project. The developer hired a new engineering firm to complete the design work, which desired to use the design work of the original engineer. The original engineer would not permit its engineering work to be used unless the developer signed a “Receipt and General Release”. That Release contained very broad language releasing any and all claims related in any way to the original engineer’s work.

Subsequently, the Army Corps of Engineers determined that certain wetlands work being performed on the property violated applicable regulations and it issued “cease and desist” letters stopping all work. This process materially interrupted development of homes on the property that prevented them from being sold and resulted in a foreclosure by the lender to the project. The developer sued the original engineer for breach of contract and professional negligence to recover damages and costs, which were considerable. The engineer successfully filed a Motion for Summary Judgment alleging that the General Release signed by the developer barred all claims.

On appeal, the Delaware Supreme Court affirmed the dismissal of the developer’s claims. The court concluded that the language of the release was specific and unambiguous in releasing all claims related to the original engineer’s work. The fact that the release was titled a “General Release” and that it specifically referred to the release of claims related to anything having to do with the original engineer’s work persuaded the court that the developer had knowingly waived its claims against the original engineer.

If parties to a “General Release” require that certain types of claims be excluded from the release, there should be an explicit “carve out” for such claims. Otherwise, execution of a General Release like the one in the Riverbend case will result in a complete waiver of claims.