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Being “contractually bound” by that company, without independent assent, can almost never
be good. But that appears to be exactly what happened in a recent Delaware Court of Chancery
decision, Geier v. Mozido, LLC, C.A. No. 10931-VCS, 2016 WL 5462437 (Del Ch. Sept. 29,
2016).
being a specifically named party to that agreement and without ever having actually signed the
agreement on your own behalf. Indeed, it is not uncommon for parent companies to enter into
“affiliates.” And the affiliates purported to thereby be bound, even though not specifically
named (other than as a category), and even though they did not sign on their own behalf, may
in fact be bound to the agreement signed by the parent company based on agency principles
tied to the parent company’s apparent or actual authority to bind those entities that it
controls. The convention of including affiliates in releases stems from the fact that when
parties settle claims and execute releases that are intended to resolve all potential matters
involving the actual disputants and related persons or entities against whom such claims could
be asserted, the parties desire to include those related parties as beneficiaries of the
release. And if they are beneficiaries, why should they not also be releasors? It is one thing to
extend the benefit of a release to a category of related parties, but it is quite another to purport
to bind that category of related parties by a release that is not in fact signed by each of those
related parties. This is particularly true where the related parties purported to be so bound are
not entities controlled by the parent company, but individual shareholders officers, directors,
the beneficiaries of a release was a primary issue in last year’s Delaware Court of Chancery
decision, Carlyle Investment Management L.L.C. v. Moonmouth Co. S.A., C.A. No. 7841-VCP,
2015 WL 5278913 (Del. Ch. Sept. 10, 2015). In Carlyle Investment, the court considered the
effect of a broad release of claims contained in a Transfer Agreement. It was apparently clear
that the release was intended to, and did release, not only the named parties but a list of related
entities and persons too. The question was whether those related entities and persons were also
bound by the release in favor of the other named party and their related parties. The court was
ultimately unable to decipher what it called a “case study in garbled drafting,” and therefore
called for a full trial to determine the named parties’ true intent and the actual or apparent
authority of the named parties to bind the other laundry list of persons and entities that were
collectively defined as the “Related Parties.” Importantly, however, the court made clear that
it was rejecting the argument that those entities and persons included within the laundry list of
terms collectively comprising the “Related Parties” could never be bound by the release simply
based upon the fact that they had not signed the release on their own behalf or been specifically
named a party. The term “Related Parties” was defined in the release to include each of the
named parties’ “present and former Affiliates and any agents, representatives, officers,
Now in the Mozido decision, decided on September 29th of this year, the Delaware Court of
Chancery granted a motion to dismiss a claim filed by an individual plaintiff, Philip H. Geier,
against defendants that were the beneficiaries of a release of claims that had been entered into
and signed solely by entities of which the individual plaintiff was an “affiliate,” but not by the
individual plaintiff himself. The only named releasing parties in the General Release at issue
in the Mozido decision were the Philip H. Geier Jr. Irrevocable Trust and The Geier Group,
LLC. And the person signing on behalf of both those entities was a co-trustee of the Geier
Trust and a co-manager of the Geier Group named Hope Smith. But, Philip H. Geier,
individually, was also a co-trustee of the Geier Trust and the Chairman of the Geier Group. He
also apparently controlled both entities, but the court noted that:
Even if Geier did not “control” the Geier Trust or the Geier Group, the only reasonable
construction of “affiliate” would still apply to Geier in his individual capacity. Geier
indisputably had a “close connection” and “association” with both the Geier Trust as a co-
The Geier Group and the Geier Trust had made loans to a company that had also purportedly
promised some options to Mr. Geier individually. The release had been executed in connection
with a settlement agreement related to the repayment of the loans, but it did not limit itself to
the repayment of the loans. An early draft of the release had included Mr. Geier, individually,
as a party and signatory to the release, as well as including a specific carve-out of Mr. Geier’s
individual claims respecting the undelivered options. But the final version of the release
neither included Mr. Geier individually as a party, nor contained Mr. Geier’s signature; it
similarly did not contain any carve-out respecting Mr. Geier’s individual claims respecting the
options.
The release under consideration in Mozido was governed by New York law and stated in
Philip H. Geier Jr. Irrevocable Trust and The Geier Group, LLC, as RELEASORS, … release
and discharge the RELEASEES and the RELEASEES’ affiliates, subsidiaries, parents, heirs,
any or all of the foregoing persons, from all actions, causes of action, … covenants, contracts,
… claims, and demands whatsoever, known or unknown, in law, admiralty or equity, which
against the RELEASEES, the RELEASORS and the RELEASORS’ affiliates, subsidiaries,
parents, heirs, executors, administrators, successors, predecessors and assigns ever had, now
have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the day of the date of this RELEASE.
The release was determined to be a “general release;” i.e., a release that purported to release
all claims of any description rather than being limited to a particular matter. As a result, the
court began by noting that, under New York law, a “general release” is a type of release that is
construed broadly in favor of the beneficiaries of the release and against the releasors. Seizing
upon the fact the named releasors had purported to release not only their own claims, but also
any claims of any of their “affiliates,” the court then determined that Mr. Geier, as an
individual, was an affiliate of the named releasors because he fit into the common definitions
of the term “affiliate,” which include “an affiliated person or organization,” “being close in
controls, is controlled by, or under common control with [another person or entity].” Because
he was an affiliate of the releasors, then, he was in effect a “releasor” despite the fact that he
was not named in or defined as a releasor in the release, and he did not sign the release in any
Unlike the Carlyle Investment decision, there was no discussion of agency principles or how a
trust and a company could be the agent of or have apparent authority to bind an
individual. Similarly, there was no suggestion that there was a need to develop the facts as to
how this authority had been derived or implied. On what basis were these releasing entities
agents of Mr. Geier as an individual or otherwise authorized actually or impliedly to bind Mr.
Geier?
New York law is actually very clear that an individual should not be easily found to have
there is language in the agreement purporting to bind that individual. Indeed, in Salzman Sign
Co. v. Beck, 176 N.E.2d 74, 76 (N.Y.1961), the New York Court of Appeals declared that:
In modern times most commercial business is done between corporations, everyone in business
knows that an individual stockholder or officer is not liable for his corporation’s engagements
unless he signs individually, and where individual responsibility is demanded the nearly
universal practice is that the officer signs twice — once as an officer and again as an individual.
There is great danger in allowing a single sentence in a long contract to bind individually a
person who signs only as a corporate officer. In many situations the signing officer holds little
or no stock and if the language of the agreement makes him individually liable his estate may
be stuck for a very large obligation which he never dreamed of assuming. We think the better
rule is the one used here — that is, that the statement in the contract purporting to bind the
signing officer individually is not sufficient for Statute of Frauds purposes without some direct
In Mozido, Mr. Geier did not sign the release at all, never mind in his individual capacity;
instead, Hope Smith did so solely on behalf the Geier Trust and the Geier Group. In Carlyle
Investment, in contrast, the court noted that the individual affiliate had at least signed the release
in some capacity, but that the facts still needed to be developed to show that the entity on whose
behalf the individual signed had apparent or actual authority to bind the individual
affiliate. In Mozido, however, Ms. Hope’s signature on behalf of the two named releasor
entities, of which Mr. Geier was deemed an affiliate, was apparently enough to make Mr. Geier
A 2015 New York case, Garriot v. O’Neil Condominium Assoc., 2015 WL 5728245 (N.Y. Sup.
Sept. 23, 2015), appears to be contrary to the holding in Mozido, and more consistent with the
holding in Carlyle Investment. In O’Neil Condominium, the court was faced with a release that
was signed by a condominium association on behalf of itself “and all of its unit holders.” The
individual unit holders, however, were not signatories to the release. The court, therefore,
noted that there was an obvious distinction to be drawn between the condominium association,
which had actually signed the release, and the individual unit holders, who although referred
to in the release, did not actually sign the release. Accordingly, the court dismissed the claims
brought by the condominium association against the releasees covered by the release, but did
not dismiss the claims brought by the individual unit holders against those releasees pending
additional development of the facts as to whether the condominium association had the
authority to execute the release on behalf of the individual unit holders. After all, said the
court, “[g]enerally, ‘questions of agency and of its nature and scope … are questions of fact.’”
In 1897, in an essay published in the Harvard Law Review, Oliver Wendell Holmes, Jr.
famously said that “the making of a contract depends not on … the parties’ having meant the
same thing but on their having said the same thing.” Fair enough! Holmes’ statement is a short
summary of the contractarian approach to the interpretation of written agreements that both
Delaware and New York purport to follow. But when the person doing the saying is an entity
that qualifies as your affiliate, and that entity party purports to bind all of its affiliates, which
includes you, without “you” having actually “said” anything that would constitute personal
assent to be so bound, that contractarian doctrine is turned on its head. Part of the contractarian
approach also includes the recognition of the distinction between entities and those that control
them.
Whether this case is an anomaly or somehow limited to the realm of “general releases” and
therefore not applicable to other contracts, draftspersons should be cautious with the use of the
particularly true in in the private equity space where it is a fundamental tenet of private equity
practice to limit those persons potentially liable for the obligations of portfolio companies or
acquisition vehicles to those entities only (for a fuller description of that tenet see an early Weil
Private Equity Insights blog posting here). Being known by those with whom you associate is
potentially bad enough, but mere association with an entity that thereby makes you that entity’s
affiliate should not cause you to be contractually bound by that entity’s contract entered into