Part 3--THE SETTLEMENT RELEASE
A release is the abandonment or relinquishment of a right or claim to the person against whom it could have been asserted. As such, it extinguishes the underlying cause of action against the person to whom it is given. Pellett v. Sonatone Corp. (1945) 26 Cal. 2d 705, 711. It is considered to be an essential part of any settlement agreement as it brings finality to the matter. A release is a contract and as such is governed by general contract principals regarding interpretation, enforcement and rescission. Civil Code Section 1541 provides that a written release does not require any additional consideration to extinguish an obligation.
The Specific Release
A specific release waives the identified claims relating to a particular transaction or incident only. In re Estate of McLellan, 35 Cal. App. 2d 18,2194 P.2d 408, 409 (1939). Where there is an ongoing relationship between the parties, or there have been multiple business transactions over a period of time, a specific release may be more appropriate because the parties may only intend to release the matters referenced in the complaint.
This situation can arise in various contexts. Illustratively, where a party settled an Uninsured Motorist Claim but did not preserve the right to sue the insurer in a subsequent bad faith action, the release barred the subsequent lawsuit. Edwards v. Comstock Ins. Co, (1988) 205 Ca. App. 1164, 1169, 252 Cal. Rptr. 807. Likewise, where an employee settled a workers’ compensation claim without reserving rights to pursue a potential civil claim against his employer for an FEHA action, the right was lost. Jefferson v. Dpt’t of Youth Auth. (2002) 28 Cal. 4th 299, 310, 121 Cal. Rptr. 2d 391, 48 P. 3d 423.
The General Release
A general release, on the other hand, extinguishes all causes of action against the persons to whom it is given-not just those specified in the complaint. A general release customarily contains language that waives “ any and all claims” in the broadest possible terms. See Neubauer v. Goldfarb, 108 Cal. App. 4th 47, 133 Cal. Rptr. 2d 218 (2003).
In most tort cases a general release typically is utilized as a matter of course and presents no problems. However, a caution is raised in an article designated as the “Dangers of a General Release in Class Actions” by Timothy P. Dillon in the Consumer Attorneys of California Forum (December 2003), Vol. 33, No. 10 pp. 28—30. The commentary contains a warning to class counsel to negotiate the terms of the release with vigor to make them as narrow as possible to avoid inadvertent waiver of items not specifically covered in the litigation and states that “Only claims which have been identified and fully investigated should be released”. Thus, the scope of the release could be an issue in securing court approval of the class action settlement or in subsequent litigation.
Release of Unknown Claims--Civil Code Section 1542.
Civil Code Section 1542 reads as follows: “ A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” The purpose of section 1542 is to prevent the inadvertent barring of a later discovered claim by a mere boiler- plate recital in the release. Thus, it has been held that the mere recital in a release that a party waives unknown claims is not sufficient. Casey v. Proctor, 59 Cal 2d 97, 110, 113-115, 28 Cal. Rptr. 307; 378 P.2d 579 (1963). However, “If the evidence, independent of the words of the release, indicates that the parties have consciously contracted in reference to unknown claims, the release is, of course, binding.” 59 Cal. 2d 110.
Waiver of Civil Code Section 1542
In practice, the protection afforded by Section 1542 for a party who is unaware of a claim or injury and inadvertently signs away rights relating to such unknown matters or unknown parties has been eviscerated by permitting a waiver of that code section. Indeed, the waiver of “claims, known or unknown” is even provided for as a matter of course in the Court Stipulation for Settlement Form utilized at Mediation. Customarily, this waiver is one of the items that the defendant bargains for to eliminate future litigation. Obviously, a plaintiff should not enter into settlement negotiations before he or she has become sufficiently aware of the nature and extent of his or her claims and should avoid a waiver of CC Sect. 1542 where there is a reasonable likelihood of additional injury/damages arising in the future.
The validity of a waiver of CC 1542 depends upon the type of matter under consideration. Illustratively, public policy considerations apply in a personal injury case. Thus, where the plaintiff asserts the existence of an injury not known or anticipated at the time of the release, the intent of the parties controls and despite broad waiver language, it is a question of fact as to whether the plaintiff intended to waive such unknown or unanticipated claims. Casey v. Proctor, (1963) 59 Cal 2d 97, 110, 113-115.
However, there is no similar public policy consideration that applies to commercial transactions and a general release of claims and waiver of Section 1542 is valid. Winet v. Price (1992) 4 Cal. App. 4th, 1159, 1163-4, 1169 (uncommunicated subjective intent not to release other claims did not raise a triable issue of fact in light of the express, unambiguous language in the release); Carmichael v. Industrial Acc. Com. (1965), 234 CA 2d 311, 314-5; San Diego Hospice v San Diego (1995) 31 CA 4th 1048, 1053. Larsen v Johannes (1970) 7 Cal Ap 3d 491,506.
The standard form from the Superior Court provides for mutual releases by the parties concluding a mediation settlement. In general that is a beneficial provision that helps to resolve all aspects of the litigation and any potential future litigation. However, each party must consider to whom and to what such a release applies.
Release of less than all parties to the litigation
A plaintiff may settle with fewer than all defendants and release only those parties from further liability, while preserving the right to proceed against the nonsettling defendants. Since partial settlements are not uncommon in multi-party cases such as products liability, construction defects, mold litigation, malpractice, employment disputes and many other business and tort situations, care should be taken to insure that the release language is clearly limited to the specific parties intended to be released. The intent of the parties as expressed by the terms of the release controls. McCall v Four Star Music Co. (1996) 51 Ca. App. 4th 1399-1401, 59 Cal. Rptr. 2d 829; and see Civ. Code Sect 1543. Accordingly it is a question of fact whether a broadly worded release was intended to release one who was not a party to the release agreement. Vahle v. Barwick (20011) 93 Cal. App. 4th 1323; Neverkovec v. Fredericks (1999) 74 Cal. App. 337, 349, 354; also see City of Hope v. Bryan Cave, L.L.P. (2002) 102 Cal. App. 4th 1356, 1369-1371
CCP Section 877 provides the basic framework governing settlements in multiparty litigation. That section establishes that a settlement in good faith between the plaintiff and one or more, but not all, tortfeasors, discharges the settling defendants from all liability for contribution to any other party and further provides that a release of one tortfeasor no longer operates to discharge any other tortfeasor unless covered by the terms of the agreement. Instead, it provides that payment by one joint tortfeasor diminishes pro tanto the amount of the claim against the others. Likewise, a dismissal with prejudice filed against one tortfeasor does not discharge any other tortfeasors unless it so provides. (Code Civ. Proc. Sections 877(a); 1031-1032. The court has the authority to determine the good faith of the settlement. CCP Sect. 877.6). See River Garden Farms v. Superior Court (1972) 26 Cal App. 3d 986,1000 concerning a challenge to such an agreement on the grounds that it unfairly discriminated against a party.
Sliding Scale Agreements
Where less than all parties to a matter are being released, consideration needs to be given to a situation where there is a sliding scale type agreement. Named a Mary Carter agreement, after the case of J.D. Booth v. Mary Carter Paint Company, 202 So. 2d 8 (Fla. App 1967), it applies to a situation where one or more, but not all defendants, agree to settle with the plaintiff for a specific amount of money. If the plaintiff recovers more than this amount from the non-settling parties in the court action, the payment owed by the settling defendant is reduced in a proportionate amount. CCP Sect. 877.5 (b) provides that where the parties have entered into a sliding scale recovery agreement, they have a duty promptly to notify the court of the terms and provisions of the agreement. Moreover, they also have a duty to advise nonsignatory alleged defendant tortfeasors of their intent to enter into such an agreement within 72 hours prior to entering into the agreement or it is invalid.
The use of such agreements has been impacted by the effect of Proposition 51(Civil Code Sections 1431.1 et. seq.) which abolished the rule of joint and several liability for certain “noneconomic” damages and replaced that rule with proportionate fault. For a more detailed discussion of the interaction of these provisions, see “Settling Multiparty Actions” California Torts, by Levy, Golden & Saks at pages 74.20-74.28 .
Release of third parties not named in the complaint—plaintiff’s considerations
“The injured party may sue all or any of the joint tortfeasors or concurrent wrongdoers, either by separate actions, or by joining them as defendants in a single action.” Witkin (9th ed) Torts, Sect. 56, p. 116. Care should be taken that the release designates the correct capacity of parties released and that it does not extend to unnamed persons against whom there might by a claim. A release form which by its language releases the named defendants “and all others” from all claims arising out of a specified transaction or occurrence may result in a waiver of claims against all persons connected with the transaction or occurrence, even if the parties or claims were unknown at that time. Leaf v City of San Mateo (1980) 104 Ca. App. 3d 398, 410-411, 163 Cal. Rptr. 711.
In Lama v Concast Cablevision (1993), 14 Cal. App. 4th 59, 64 the plaintiff released the defendant and “any other person, corporation, association, or partnership” responsible for the injury arising from a car accident and dismissed the lawsuit with prejudice. The dismissal with prejudice was held to constitute a common law retraxit that served as a judgment on the merits and the release applied to bar a suit against the defendant’s employer alleging respondeat superior.
In Gen. Motors. Corp. v. Superior Court (1993) 12 Cal. App. 4th 435, 441, the plaintiff in an automobile accident case released the owner of the car that struck the plaintiff and “all other persons, firms and corporations”. The court held that it also released General Motors. (This unintended result occurred because plaintiff presented no evidence of contrary intent and the court held that the plain language of general form release also released manufacturer of automobile, even though not specifically named in release.”)
Cf. Hess v Ford Motor Co., (2002) 27Cal 4th 516, where the court held that the language in the release of automobile driver and his insurer was not intended to release the manufacturer of the car.
Release of third parties not named in the complaint—defendant’s considerations
While the above discussion focused on the concern the plaintiff has regarding inadvertently releasing a potential party defendant, there are situations where the defendant may seek to broaden the scope of the settlement by obtaining a release from persons who are not parties to the lawsuit. This may entail situations where the defendant wants to avoid future related litigation. Illustrative examples might include seeking a release from a spouse (eg. To eliminate a potential loss of consortium claim); an heir (eg. To eliminate a potential wrongful death case arising from the underlying personal injury claim.) (A release given by an injured party prior to death does not bar a wrongful death action by heirs under CCP Section 377.60. See Early v Pacific Electric Ry. Co. (1912) 176 Cal 79.) A defendant may also want a release from a person or entity united in interest or differing in capacity from the party plaintiff named in the complaint such as a partnership, corporation, principal, agent or other.
Preparation of the Release
Customarily, although not inevitably, the defendant’s attorney prepares the settlement agreement and release and circulates the draft for comments and signature. Unless specifically stated, the time for circulation and completion would be a reasonable time. If promptitude is the essence of the settlement, then a specific date should be set forth in the Memorandum of Understanding. Likewise, if the precise terms of the final document are likely to require considerable attention, it might be prudent to provide that the Mediator “retains jurisdiction” so that he/she can participate in the final processing, either in the role as Mediator or specifically given the authority to act as an arbitrator to resolve any differences that arise. This procedure may expedite the finalization of the matter. [get Judicate West Form]
Setting Aside the Release
A release is subject to challenge on the same grounds as other contracts, including duress, menace, fraud, material misrepresentation, undue influence, mutual mistake of fact, lack of capacity, illegality, unconscionability and as violative of public policy, among others. Civil. Code Section 1689. See Matthews v. Atchison, Topeka & Santa Fe RY, (1942) 54 Cal. App. 2d 549, 557, 129 P.2d. 435; Chamberlain v. Simpson, (1959) 173 CA 2d 263, 276; Meyers v. Carter (1963) 215 CA 2d 238; Tenzer v Superscope, Inc. (1985) 39 Cal 3d 18, 31,n.7 ; River Garden Farm, Inc. v. Superior Corut (1972) 26Ca. App. 3d 986, 1000, Baird v Pacific Ry. Co. (1919)39 Cal App. 512, 514; Skrbina v Fleming Cos (1996) 45 Cal. App. 4th 1353, 1366.
In an article written by Matthew S. McNicholas and Douglas A. Linde, published in the CAALA Advocate, November 2003 pp.30, et. seq. the authors describe the “Use of parol evidence to challenge the enforceability of your client’s general release of liability.” They point out the factors involved in setting aside a release in an appropriate case through the use of such evidence of intent. They refer to exceptions that exist to Code of Civil Procedure Section 1856 which generally prohibits contradicting the terms of a written document that was intended to be a final expression of agreement.
However, please keep in mind that parties cannot use oral or written evidence to explain or contradict an agreement by referring to what took place at a mediation. Section 1119 of the Evidence Code provides for the “Confidentiality, Nonadmissibility and Nondisclosure” of anything said, any writing produced or any communications taking place during or in connection with Mediation. See Evd. C. Sec. 1115 through 1128 as well as Code of Civil Procedure Sections 1775 to 1775.15; Evidence Code Section 703.5 relating to competency to testify and California Rules of Court Rules 1630 et seq. relating specifically to confidentiality regarding mediation.
Additionally, it is customary for all parties to sign a confidentiality agreement at the time of the hearing that further insures against the disclosure of anything said or produced at the hearing. Thus the Mediation process appears to provide a distinct benefit in preserving the finality of the terms of any Release agreement. For further discussion, see Ellen E. Deason, Enforcing Mediated Settlement Agreements: Contract law Collides with Confidentiality, 35 U.C. Davis L. Rev. 33 (2001)
In summary, it seems prudent for the practitioner to contemplate the specific terms of an intended release prior to attending and at a mediation. Consideration should be given to the scope, whether it is to be general or specific, the nature and extent of the claims intended to be released, whether to release both known and unknown claims, and to carefully ascertain the specific parties to be released, whether they have been named in the complaint or not, and their appropriate capacity. This additional care will ensure that the terms of the release will accurately reflect the intention of all parties to the final settlement agreement.
Copyright July 17, 2004 by Sandy Gage
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