Dayton Legal News
Daily Court Reporter
December 15, 2010
Supreme Court reverses on couple’s claim arising after execution of settlement
Keith Arnold
Daily Reporter Staff Writer
Ohio Supreme Court justices ruled recently that a party to a tort claim in which a settlement agreement has been executed may not subsequently initiate a separate cause of action for fraud in the inducement of the settlement agreement without first seeking relief from the consent judgment and rescinding the agreement.
The 5-2 court, in a reversal of the 8th District Court of Appeals, found that an Ohio couple who filed a complaint alleging fraud and misrepresentation against the Cleveland law firm with which they already had executed a settlement agreement in a legal malpractice action was prohibited from such recourse.
"Clearly, our long line of cases regarding the appropriate method for rescinding settlement agreements requires reversal in this case," Justice Evelyn Lundberg Stratton wrote for the court majority.
"The plaintiffs alleged fraud in the inducement, which, if true, would render the settlement agreement voidable and require the releaser to tender back the consideration paid before attacking the agreement.
"The appropriate method to seek relief was through Civ.R.60 (B). Accordingly, we reverse the judgment of the court of appeals and reinstate the judgment of the trial court..."
Robert and Diane Berry filed in 2000 a legal malpractice action against Javitch, Block & Rathbone LLP, according to case summary. One of the Berrys' interrogatories in that case requested "the name of insurer, type of policy/policies, policy number/numbers, and limits of coverage of each and every insurance policy that may cover your alleged liability in this action, including umbrella coverage."
The firm replied with the details the Berrys sought. However, a few months later Javitch supplemented its response, amending its answer to state as follows: "Since providing our original answer to this interrogatory we have been advised by representatives of Legion Insurance Company that there is no coverage for plaintiffs' claim."
The parties Dec. 21, 2001, negotiated a settlement agreement in which Javitch consented to judgment in the amount of $195,000, with Javitch paying $65,000 by February 2002, summary continued.
The Berrys, who were represented by counsel, were to dismiss with prejudice all of their claims against the individual attorneys in the lawsuit and provide a full release of all claims against them.
Dismissal was to be held and not filed until Javitch completed the installment payments totaling $65,000 or until a settlement was agreed to with Legion for settlement of this case, or at such earlier time as the parties may agree.
Additionally, Javitch was to prepare the dismissal with prejudice of the counterclaim they asserted against the Berrys. The dismissal was to be held and not filed with the court until the Berrys filed their notice of dismissal of their claims against Javitch.
The agreement stipulated that "under no circumstances will Javitch...pay Plaintiffs under this agreement or under any judgment on the subject claim more than a total of $65,000."
Javitch was unable to persuade Legion to pay the balance of the settlement, and the parties executed and filed the consent judgment on April 1, 2002, summary continued. The Berrys also were unsuccessful in their attempt to collect from Legion.
The Berrys in 2006 filed the current action against Javitch, alleging fraudulent misrepresentation, fraudulent concealment, gross negligent misrepresentation, and gross negligent concealment on grounds that Javitch did not disclose a claims-made policy from Clarendon National Insurance Co. in effect from Oct. 12, 1998, to Oct. 12, 1999.
The time for reporting a claim under the Clarendon policy expired Oct. 22, 1999, summary provided.
The Berrys alleged that the first time they became aware of the Clarendon policy was in July 2004. They alleged Javitch's interrogatory responses, which did not identify the Clarendon policy, were knowingly false and/or incomplete, and were made intentionally to mislead the Berrys and that the Berrys ultimately had relied on those responses to their detriment by entering into the settlement agreement.
Javitch responded by filing a motion for summary judgment, on the basis the couple's claims were barred by the one-year statute of limitations for relief from judgment set forth in Civ.R. 60(B)(3), that the Berrys could not elect to affirm the settlement agreement and consent judgment and then separately sue for fraud, and that the Berrys could not establish the requisite elements of their claims.
The reason for non-disclosure of the Clarendon policy, Javitch argued, was because no claim had been made during the effective dates of the policy, summary detailed.
Because the time for reporting claims to trigger the Clarendon policy had long since expired, even had Javitch identified the policy in its answers to the interrogatory and the Berrys' counsel had immediately used that information, Clarendon would have owed neither coverage nor an indemnity obligation to Javitch or the Berrys, the firm argued.
The trial court granted Javitch's summary judgment motion without opinion.
The 8th District Court of Appeals, however, relied on the Frederickson v. Nye (1924), 110 Ohio St. 459, 144 N.E. 299, to reverse the lower court, having found that Civ.R.. 60(B)(3) does not apply, because the Berrys could and did choose to bring a separate action for fraud without rescinding the settlement agreement and seeking relief from the consent judgment entry.
The appellate court also ruled that a material issue of fact remained as to whether Javitch purposefully withheld the existence of the Clarendon policy.
"Applying the doctrine of election of remedies from Frederickson in the context of this settlement agreement and consent judgment would permit the Berrys to enforce part of a tort claim that it accepted consideration not to enforce," Stratton continued.
"The Berrys cannot be permitted to retain the benefit of the settlement agreement and at the same time attack the validity of that agreement. The appellate court's judgment not only ignores long-standing precedent of this court but also endangers the finality of judgments."
Cleveland attorney Paul Grieco of the firm Landskroner, Grieco, Madden LLC, was disappointed in the high court's holding.
"Our opinion was that caselaw does in fact support (the Berrys' action) as an appropriate remedy," he said on behalf of his clients.
Had the Supreme Court affirm the appellate court, Javitch's attorney, Roger Synenberg of the Cleveland firm Synenberg & Associates LLC, said the implications would have been far-reaching.
"There would never be any closure," he said, suggesting that no matter what settlement agreement may be arrived at between two parties, the threat of subsequent action would linger.
A client can't carry that sort of liability indefinitely, Synenberg said.
Justices Terrence O'Donnell, Judith Ann Lanzinger and Robert Cupp joined Stratton's opinion, while Justice Paul Pfeifer concurred in judgment alone.
Chief Justice Eric Brown and 2nd District Court of Appeals Judge Jeffrey Froelich, who was seated for Justice Maureen O'Connor, dissented from the majority opinion.
The case is cited as Berry v. Javitch, Block & Rathbone, L.L.P., Slip Opinion No. 2010-Ohio-5772
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