One of the big selling points for settling disputes is finality: you may not have gotten everything you wanted, but at least it’s over. The value of finality is especially high in the technically demanding and emotionally charged world of inheritance litigation. But to deliver on that promise you need to consider the special rules governing settlement agreements between beneficiaries and their fiduciaries. These rules tell us how to both conduct these negotiations and then draft these agreements to make sure they’re not undone.
Link to Fiduciary settlement agreements Fiduciary settlement agreements
The general rule is that litigants deal with each other at arm’s length when settling disputes, so a settlement agreement can’t be invalidated because one side misleads the other or makes false representations during a mediation conference.
Not so when one side’s a personal representative or trustee and the other’s a beneficiary. In those cases the fact that a litigant owes fiduciary duties to another — even while being sued — changes everything. For example, if your client’s a trustee negotiating a settlement with a beneficiary, the burden is on you to make sure [1] your beneficiary has full knowledge of all material facts related to the deal and [2] that the deal’s “fair and reasonable” (from the beneficiary’s point of view).
Link to What about fraudulent inducement claims? What about fraudulent inducement claims?
Fraud in the inducement occurs when a person tricks another into signing an agreement to one’s disadvantage by using fraudulent statements and representations. A beneficiary that’s fraudulently induced to sign a settlement agreement can ask a court to void it, sending everyone back to court. Settlement agreements involving personal representatives or trustees are especially vulnerable to getting voided (rescinded) on fraudulent inducement grounds because a beneficiary is legally entitled to rely on the good faith of his or her fiduciary. To make sure your settlement agreement survives this line of attack you need to do two things.
First, start with the obvious: make sure no one’s fraudulently inducing anyone to do anything. Here are the elements of a fraudulent inducement claim as explained in an excellent Florida Bar Journal article entitled The ELR and Fraudulent Inducement Claims:
Fraud in the inducement requires proof of: 1) a false statement of material fact; 2) that the defendant knew or should have known was false; 3) that was made to induce the plaintiff to enter into a contract; and 4) that proximately caused injury to the plaintiff when acting in reliance on the misrepresentation.
Second, make sure your agreement includes a clause expressly waiving fraud as a ground for rescission of the agreement. In other words, as the personal representative in the Udell case learned, if your beneficiary wants out of her or his settlement agreement, a general all purpose global release clause won’t cut it; your contract also has to include a specific fraud waiver.
Link to Case Study Case Study
Udell v. Udell, 397 So.3d 1050 (Fla. 4th DCA November 27, 2024)
This case involved a trust that was funded with the proceeds of a wrongful-death claim. The wrongful-death claim was settled by the decedent’s personal representative. This personal representative is also the trustee of a life-time trust for the estate’s sole beneficiary. The beneficiary of the estate and trust grew dissatisfied with the settlement, so he hired an attorney to secure additional funds from the trust. Those negotiations resulted in a settlement agreement between the trustee and the beneficiary.
Eight months later the parties were back in court. The beneficiary alleged that he’d been defrauded based upon the trustee’s failure to disclose material facts related to their deal. The trustee cried foul, pointing to the waiver contained in the agreement signed by the beneficiary — negotiated with the aid of separate independent counsel. Generally speaking this defense should have worked. In this case it didn’t: because of the trustee’s fiduciary duties.
Link to How to conduct these negotiations How to conduct these negotiations
First, if the trustee didn’t fully disclose all of the related material facts, as alleged by the beneficiary, he’s breached his fiduciary duties, which means he’s guilty of fraud on this basis alone. So saith the 4th DCA:
Further, “[i]n any transaction with a beneficiary, a fiduciary has an obligation to make full disclosure to the beneficiary of all material facts.” First Union Nat’l Bank v. Turney, 824 So. 2d 172, 188 (Fla. 1st DCA 2001). Breaches of this duty of disclosure have been held to be fraud. Id. at 188–89 (citing Donahue v. Davis, 68 So. 2d 163, 171 (Fla. 1953)).
This rule informs how you need to conduct these negotiations. Think: full disclosure and objective fairness.
Link to How to draft these agreements How to draft these agreements
Second, the absence of an express waiver of fraud in the agreement means the beneficiary is free to litigate this claim. In other words, no matter how broad the agreement’s general waiver clause might be, if it doesn’t contain these magic words you’re going to be dragged back into court. So saith the 4th DCA:
“[O]ur supreme court has spoken clearly that no contract provision can preclude rescission on the basis of fraud in the inducement unless the contract provision explicitly states that fraud is not a ground for rescission.” Mantilla v. Fabian, 284 So. 3d 575, 575 (Fla. 4th DCA 2019) (per curiam) (alteration in original) (quoting Lower Fees, Inc. v. Bankrate, Inc., 74 So. 3d 517, 520 (Fla. 4th DCA 2011)). If a party “want[s] to contractually avoid a fraud claim, it should [ ] specifically state[ ] that in the contract[.]” Lower Fees, Inc., 74 So. 3d at 520. “Though a party may waive any right to which he is legally entitled, [including a right] secured by contract … such a proposition does not apply where there is an allegation of fraud.” D & M Jupiter, Inc. v. Friedopfer, 853 So. 2d 485, 488 (Fla. 4th DCA 2003). Applying this law to the Private Agreement and the waivers in the estate before it, all signed by appellant, none contained a specific release or waiver for fraud.
This rule informs how you need to draft these agreements. Think: contract provision explicitly stating that fraud is not a ground for rescission.