Undue influence claim revives challenge to city sewer backup settlement

The 4th U.S. Circuit Court of Appeals held that a reasonable jury could find a city obtained a settlement release through undue influence after an elderly homeowner signed away her claims following extensive sewage damage to her home.

The plaintiff, an elderly widow of limited means, suffered major damage when raw sewage backed up into her house from the defendant’s sewer system. The defendant first offered $15,000 under its sewer backup policy in exchange for a release of claims. After the plaintiff obtained a repair estimate that exceeded that amount and tried to negotiate through counsel, the defendant later increased the offer to $45,000 after revising its policy. The plaintiff accepted, though the payment still did not fully cover her asserted losses, including repairs, damaged personal property and temporary housing.

The U.S. District Court limited discovery to the undue influence issue and then granted summary judgment to the defendant, concluding the plaintiff’s decision to settle was voluntary. The 4th Circuit agreed the discovery limitation was proper but said summary judgment was not.

Applying North Carolina law, the court said undue influence turns on a highly fact specific inquiry into whether improper pressure overcame a party’s free will. The court pointed to evidence that the plaintiff was especially vulnerable because of her age, financial distress and urgent housing crisis, including the risk of homelessness. It also noted evidence that the defendant knew of her precarious circumstances and required a full release as a condition of payment. The plaintiff’s claim that she signed from fear and necessity, along with evidence that the settlement did not cover substantial categories of loss, was enough to create a triable issue. Although the plaintiff had counsel, the court said that factor was not dispositive.

The 24 page opinion is Walker v. City of Charlotte, North Carolina, Lawyers Weekly No. 101-118-26.