Defining the Scope of Releases in Settlement Agreements: “Unnamed Third Parties” Exception Clarified

Introduction

This commentary examines the 2025 North Dakota Supreme Court decision in ICON HD, LLC v. National Sports Opportunity Partners, LLC & Michael R. Kuntz (2025 ND 95). In this appeal, ICON HD sued its former member Michael Kuntz and his wholly owned entity NSOP for breach of contract, unjust enrichment, and veil-piercing. The district court granted summary judgment in favor of Kuntz and NSOP, holding (1) ICON HD’s claims were released by a prior settlement agreement, and (2) res judicata barred relitigation. ICON HD appealed both rulings. The Supreme Court affirmed dismissal of claims against Kuntz, reversed dismissal vis-à-vis NSOP, and rejected the sua sponte res judicata finding.

Summary of the Judgment

The Supreme Court of North Dakota dissected two major issues:

1. Release of Claims: The settlement agreement’s broad release language unambiguously discharged Kuntz from all claims “arising out of the operations of ICON and HD.” However, the agreement carved out an exception for “any claims arising out of conduct relating to unnamed third parties.” The Court held that whether NSOP falls within that exception is ambiguous as a matter of contract interpretation, precluding summary judgment for NSOP.
2. Res Judicata: Because Kuntz and NSOP did not plead res judicata in their answer, the district court improperly raised claim preclusion sua sponte. The Court reversed the res judicata ruling as a violation of the party-presentation principle.

Analysis

1. Precedents Cited

• Overbo v. Overbo (2024 ND 233): The Court reaffirmed that courts are passive instruments and may not raise affirmative defenses—such as res judicata—not timely pleaded by the parties.
• Shark v. City of Fargo (442 N.W.2d 903): Confirmed that failure to plead an affirmative defense under N.D.R.Civ.P. 8(c)(1) constitutes waiver.
• Great West Cas. Co. v. Butler Mach. Co. (2019 ND 200): Reiterated res judicata is an affirmative defense and elaborated privity principles when corporate control gives rise to claim preclusion.
• Kuperus v. Willson (2006 ND 12): Established that settlement agreements are contracts and interpreted under general contract principles; such agreements are disfavored for dissection except on grounds of fraud, duress, or ambiguity.
• Heitkamp v. Kabella (2019 ND 96): Clarified that unambiguous contract language is a question of law fit for summary judgment, while ambiguous language creates factual disputes.

2. Legal Reasoning

The Court’s core reasoning unfolds in two strands:

1. Interpretation of the Release: Under North Dakota law, a settlement agreement is enforced like any other contract. The release clause broadly discharged “any and all claims” arising from ICON HD’s operations, while a single exception preserved claims against unnamed third parties in which Kuntz has an interest. Because Kuntz is named throughout the agreement, no ambiguity exists as to his discharge. In contrast, NSOP’s status as an “unnamed third party” can be fairly disputed: NSOP was not explicitly named in the settlement’s caption or release paragraphs but was mentioned in prior pleadings. Reasonable minds could differ on whether the exception covers NSOP, creating a genuine issue of material fact.
2. Improper Sua Sponte Res Judicata: Summary judgment on res judicata was reversed because Kuntz and NSOP never pleaded it. Citing Overbo and Shark, the Court held that raising res judicata sua sponte violates the party-presentation principle and N.D.R.Civ.P. 8(c)(1), which requires affirmative defenses to be pleaded or they are forfeited.

3. Impact on Future Cases

This decision has significant repercussions:

• It reinforces strict adherence to pleading requirements for affirmative defenses. Parties may not rely on summary judgment judges to raise unpleaded defenses.
• It signals careful scrutiny of “catch-all” release provisions. Litigants drafting settlement agreements must expressly name or exclude entities to avoid ambiguity and preserve intended claims.
• The ruling clarifies privity under res judicata: corporate entities and their controllers are in privity only when the affirmative defense is properly invoked, not at a court’s discretion.

Complex Concepts Simplified

• Affirmative Defense: A legal argument that, if proved, defeats a plaintiff’s claim even if the allegations are true. Under Rule 8(c)(1), failing to plead such defenses results in waiver.
• Res Judicata (Claim Preclusion): Prevents relitigation of claims that were or could have been raised in a prior action between the same parties or their privies, once a final judgment is rendered.
• Contract Ambiguity: Exists when a contract term is reasonably open to more than one interpretation. Ambiguities must be resolved by the fact-finder, often using extrinsic evidence.
• Settlement Agreement as Contract: When parties settle litigation, the resulting agreement is construed under contract-law principles: clear terms are enforced; ambiguous terms create factual disputes.

Conclusion

The Supreme Court of North Dakota in ICON HD v. NSOP makes three pivotal holdings: (1) a settlement agreement’s broad release unambiguously discharged claims against a named party (Kuntz); (2) a carve-out for “unnamed third parties” can give rise to ambiguity warranting trial (NSOP); and (3) courts may not raise res judicata sua sponte where the defense is not pleaded. This decision underscores the meticulous drafting required in releases, the inviolability of pleading rules, and the necessity of distinguishing clear contractual language from terms requiring extrinsic fact-finding. Future litigants and counsel will look to this case when negotiating releases and when structuring affirmative defenses in complex commercial disputes.