the basis of fraud or misrepresentation, the party seeking rescission must show both misrepresentation of a material fact and its reliance upon such misrepresentation. O'Brien v. Omni Pro Electronics, 1996 U.S. Dist. LEXIS 11725, 1996 WL 459853, at *6 (N.D. Ill.). If a fiduciary relationship exists between the contracting parties, a duty to disclose material information exists, and a party's breach of this duty is considered the same as a false statement. Campbell v. Eagle Service Corp., 1995 U.S. Dist. LEXIS 9717, 1995 WL 413459, at *2 (N.D. Ill.).
Under Illinois law, a showing of bad faith is also grounds for invalidating a settlement agreement. Illinois courts have declared that every contract implies good faith and fair dealing between its parties. Beraha v. Baxter Health Care Corp., 956 F.2d 1436, 1443 (7th Cir. 1992) (citing Martindell v. Lake Shore Nat'l Bank, 15 Ill. 2d 272, 154 N.E.2d 683, 690 (Ill. 1958); First Nat'l Bank of Cicero v. Sylvester, 196 Ill. App. 3d 902, 554 N.E.2d 1063, 1069, 144 Ill. Dec. 24 (Ill. App. 1 Dist. 1990), appeal denied, 561 N.E.2d 690 (Ill. 1990)). The obligation of good faith, however, is not an "independent source of duties for parties to a contract." Beraha, 956 F.2d at 1443. Rather, it guides the construction of explicit terms of an agreement. Id. Where a claim has been resolved by settlement agreement and the terms of the agreement have been disclosed to the court, there has been a preliminary showing of good faith that creates a presumption of validity. Amoco Oil Co., 594 N.E.2d at 1216. In accordance with the public policy favoring the voluntary resolution of disputes through settlement, any claim of bad faith must be proved by clear and convincing evidence by the party claiming absence of good faith. Id.
In this case, defendants do not allege that plaintiff made any misrepresentation with respect to the pendency of other lawsuits or otherwise. Thus, with respect to rescission of the agreement by reason of fraud, the only issue is whether plaintiff had a duty to disclose the existence of the Michigan action at the time the settlement agreement was reached on July 19, 1995.
No case has been cited, and the court can find no authority that would create such a duty in the context of the instant case. The parties are not in a fiduciary relationship, the defendants do not claim that they asked plaintiff to disclose all potential or actual litigation involving the invoices in question, and the Michigan action became a matter of public record prior to the July 19, 1995 settlement conference. See Glassman, 628 N.E.2d at 672-73 (finding that, in reaching settlement agreement with the defendant, the plaintiff had no duty to disclose its prior communication with the IRS regarding the defendant's wrongdoing because the defendants did not ask the plaintiff about such communication or otherwise demonstrate serious concern about such issue); Matter of Cotton, 127 Bankr. 287 (Bankr. M.D. Ga., May 13, 1991), aff'd, In re Cotton, 136 Bankr. 888 (M.D. Ga. 1992), rev'd on other grounds, 992 F.2d 311 (11th Cir. 1993) (finding that bank, in reaching settlement with debtor, had no duty to disclose its filing of lawsuit against vice-president for wrongful acts, including those related to debtor's account, because lawsuit against vice-president was a matter of public record and debtor did not ask bank about such action).
With respect to the implied covenant of good faith, the parties in the instant case are adversaries and bargained at arm's length in reaching a settlement agreement. As already stated, defendants, although they had an opportunity to do so, did not ask plaintiff about all potential or actual litigation involving the invoices at issue in this case, and the Michigan action became a matter of public record prior to the July 19, 1995 settlement conference. Based on these findings and the fact that defendants make no other allegations of bad faith, this court finds that the agreement between parties reached at the July 19, 1995 pretrial conference was entered into in good faith, was performed by plaintiff, and is enforceable by the court.
For the reasons stated above, the court finds that the settlement agreement reached at the pretrial conference on July 19, 1995, as modified by the parties with respect to the amount and terms of payment, is enforceable. The court therefore grants plaintiff's Motion to Enforce Settlement Agreement and orders defendants to pay the sum of $ 152,500.00 to plaintiff within thirty days of the date of this order, upon which payment the parties will be mutually and generally released from any and all claims they may have against each other. Plaintiff is ordered to prepare a final judgment order incorporating this order and including appropriate release language, for presentation to the court on September 18, 1996, at 9:00 a.m.
ENTER: September 11, 1996
United States District Judge