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The words "successors," "members," and "designees," as used in a Release were at issue in Judge Bledsoe's Opinion last week in TaiDoc Technology Corp. v. OK Biotech Co., 2015 NCBC 71 [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].
Plaintiff TaiDoc had settled a related lawsuit previously pending in the Western District of North Carolina in which Defendant OK was not a party. One of the settling parties, an LLC known as Prodigy, obtained a release from TaiDoc that released Prodigy's "predecessors, successors, directors, officers, managers, members . . . and their respective heirs, executors and designees . . . from any and all claims whatsoever brought in, or that could have been brought in the Action. . . whether known or unknown. . . ." Op. ¶4.
OK moved for summary judgment on TaiDoc's claims against it based on the Release. It said that it was a "successor" to Prodigy, a "member" of Prodigy, and also its "designee."
OK argued that it was a successor to Prodigy, and therefore entitled to avail itself of the protection of the Release, because it had purchased a 45% membership interest in Prodigy (a year) after the Release was obtained by Prodigy.
Judge Bledsoe rejected all three of OK's arguments. As to the "successor" argument, he held:
the term 'successors,' as used in the context of the Release Agreement . . . contemplates either a successor legal entity, which stands in the shoes of a party typically through merger, acquisition, or other legal means of succession, or a successor to a person in the testamentary sense, which typically involves a successor standing in the shoes of a predecessor upon a predecessor's incapacity or death.
Particularly astute readers might wonder why it would even make a difference if OK was deemed to be Prodigy's "successor," since TaiDoc's settled claims against Prodigy were undoubtedly different from those which it was bringing against OK. Judge Bledsoe dealt with that point too, holding that:
even if OK Biotech became a legal 'successor' to the release that [the members of Prodigy] obtained under the Release Agreement, that release was only a release of the claims TaiDoc had against [the members of Prodigy] -- not a release of any claims TaiDoc had against OK Biotech at the time of the Release Agreement, or, in particular, of the claims TaiDoc has asserted against OK Biotech in this action.
OK then argued that since it had acquired a membership interest in Prodigy -- a year after the Release was executed -- it was included in the "members" of Prodigy released a year before by TaiDoc.
Judge Bledsoe dismissed that argument as "fully absurd," stating that this contention:
leads to the implausible and fully absurd construction that the parties intended that any non-party to the Release Agreement could purchase a release of its liability to TaiDoc -- on any claim whatsoever -- by purchasing a membership interest. . . in Prodigy, without TaiDoc having bargained for or contemplated that party's release from liability.
The word "members" didn't mean "future members," it meant only those persons or entities which were members of Prodigy at the time the Release was signed. Op. ¶¶37-38.
OK hadn't run out of arguments why it was entitled to the benefit of the Release. OK said that it was a "designee" of Prodigy because Prodigy had assigned to it Prodigy's rights under an application to the FDA for a medical device.
That argument had some surface appeal, as the definition of a "designee" in Black's Law Dictionary is a "person who has been designated to perform some duty or carry out some specific role." Op. ¶43 (quoting Black's Law Dictionary 478 (8th ed. 2004)).
Although Judge Bledsoe didn't say that this argument was "fully absurd," or even that it was "pure applesauce," he did say it was "without merit" and scoffed at it a bit, stating that:
[i]n short, OK Biotech argues that Prodigy had the unfettered right to designate any person or entity in the world as its designee for purposes or receiving the benefits of the [Release] and it chose OK Biotech for these purposes.
In the context of the Release, in which the word "designee" appeared in conjunction with "heirs, executors and designees," the Court held that "it is clear that, in context, these three words are intended as similar and related legal terms used to describe types of representatives or successors to a natural person after death." Op. ¶44.
Given that the posture of this ruling was a denial of a Motion for Summary Judgment as opposed to the granting of a Motion to Dismiss the affirmative defense of release, it's not clear whether the issue of the Release remains alive in this case. But it seems pretty much dead, at least to me.
Read other articles on the North Carolina Business Litigation Report, a blog for lawyers focusing on issues of North Carolina business law and the day-to-day practice of business litigation in North Carolina courts.
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