Illinois Appellate Court Reverses on Ambiguous Contracts and General Release Language

In October 2006, Stericycle Inc. entered into a contract with RQA Inc. to buy a segment of its business for $8 million.

Stericycle acquired the unlimited right to use RQA’s software. In addition, the two companies entered into a non-competition agreement. In 2010, the two companies contracted again, this time entering into an asset purchase agreement for $18 million.

One of the assets purchased was RQA’s “Recall and Retrieval Business Services Unit,” which was called the RR assets. The agreement made note that Stericycle would be refunded a portion of the purchase price if Stericycle did not achieve certain pre-set revenues.

On the same day, the two companies executed an “amended and restated software license agreement” that was similar to the 2006 agreement, but more restrictive on RQA. Stericycle paid in part and executed a promissory note for the balance of the purchase price of the company.

Stericycle failed to make the pre-set revenues and informed RQA that following the terms of the agreement, it would not be fulfilling its promissory note. Stericycle also asked for a refund of $3 million from the purchase price.

RQA claimed that the refund was valid only against the promissory note. The two parties reached a settlement agreement for money in which both would drop their legal claims against each other.

However, the agreement did not discuss the non-competition agreement or software license that was also in place. The agreement did contain a “mutual general release.” RQA’s attorney interpreted this release to end all obligations of the parties to each other.

Stericycle’s lawyer interpreted this release to end all obligations from the contract in question but leaving all the other contracts in place. Stericycle claimed that it never intended to terminate the non-competition or software agreements and that RQA knew this. Stericycle sued for the enforcement of these contracts, a rescission of the settlement and its reformation.

RQA filed a Section 2-615 motion to dismiss the complaint claiming that the unambiguous agreement released RQA from all of its contracts with Stericycle which the trial court reclassified to a Section 2-619 motion and granted, finding the contract unambiguous. Stericycle filed this appeal to the Illinois Appellate Court.

On appeal, Stericycle claimed that the trial court was wrong in converting the motion to a Section 2-619 and prejudiced its case. Stericycle said that there remained a question of fact as to whether the release was ambiguous. The appellate court found that Stericycle suffered no prejudice by the trial judge by converting the motion to a Section 2-619.

Stericycle also argued that it would have presented evidence to establish ambiguity, but the court pointed out that according to precedent, “if the language of the contract is clear and unambiguous, the judge must determine the intention of the parties solely from the plain language of the contract and may not consider extrinsic evidence.”

The appeals panel reasoned that the trial judge’s conclusion that the contract was unambiguous and that Stericycle would have been barred from presenting extrinsic evidence anyway. The appellate court then examined whether the contract was unambiguous as the trial court had concluded. The appellate court said that since the parties were dealing with a general release, “the courts will restrict the release to the thing or things intended to be released and will refuse to interpret generalities so as to defeat a valid claim not then in the minds of the parties.”

Because there remained an open question as to whether this was a valid claim not in the minds of the parties “requires a determination of the parties’ intent based on an examination of extrinsic evidence by the trier of fact.” Accordingly, the appellate court reversed the judgment of the trial judge and remanded the case for further proceedings.

Stericycle Inc. v. RQA Inc., 2014 IL App (1st) 133776-U, Sept. 25, 2014.

Kreisman Law Offices has been handling contract disputes, commercial litigation, employment litigation and business litigation for individuals and businesses for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Palos Heights, Palatine, Justice, LaGrange Park, Lansing, Lincolnwood, Markham, Matteson, Maywood, Melrose Park, Morton Grove, Norridge, Northbrook, Northlake, North Riverside, Oak Lawn, Olympia Fields, Orland Hills, Wilmette, Stickney, South Holland and Skokie, Ill.

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