amicus brief employers group supporting arthur andersen

8/14/2019 Amicus Brief Employers Group Supporting Arthur Andersen

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Case No. S147190

IN THE SUPREME COURTOF THE STATE OF CALIFORNIA

RAYMOND EDWARDS II,Plaintiffand Appellant,

v.

ARTHURANDERSEN LLP,Defendant and Respondent.

AFTER A DECISIONBy THE COURT OFApPEAL,SECOND ApPELLATE DISTRICT, DIVISION THREE,

CASENo. B178246Los ANGELES SUPERIOR COURT CASE No. BC 255796,

HONORABLE ANDRIA K. RICHEY, JUDGE

APPLICATION FOR PERMISSION TO FILE BRIEF AND BRIEF OFAMICUS CURIAE EMPLOYERS GROUP IN SUPPORT OF DEFENDANTAND APPELLANT ARTHURANDERSEN LLP

O'MELVENY & MYERS LLPSCOTT H. DUNHAM (S.B. # 65683)

CHRISTOPHERW. DECKER (S.B. #229426)400 South Hope StreetLos Angeles, CA 90071-2899Telephone: (213) 430-6000

Attorneys for Amicus Curiae the Employers Group


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RAYMOND EDWARDS II,Plaintiffand Appellant,v.


AFTER A DECISIONBy THE COURT OF ApPEAL,SECOND ApPELLATE DISTRICT, DNISION THREE,

CASENo. B 178246Los ANGELES SUPERIOR COURT CASENo. BC 255796,

HONORABLE ANDRIAK. RICHEY, JUDGE

APPLICATION FOR PERMISSION TO FILE BRIEF OFAMICUSCURIAE EMPLOYERS GROUP IN SUPPORT OF DEFENDANT

AND APPELLANT ARTHURANDERSEN LLP

Pursuant to Rule 8.520(f) of the California Rules ofCourt, proposed amicuscuriae the Employers Group CAmicus") respectfully submits the enclosed briefinsupport of Defendant and Appellant Arthur Andersen LLP ("Defendant"). Theenclosed brief offers a unique perspective on one of the two issues presented bythis case: whether a contract provision releasing "any and all" claims the employee


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might have against the employer encompasses nonwaivable statutory protections,such as the employee indemnity protection ofLabor Code 2802.

For the reasons set forth below, Amicus respectfully urges this Court toreverse the Court ofAppeal's decision answering this question in the affirmative.

I. INTEREST OF AMICUS CURIAEHeadquartered in California, the Employers Group is the nation's oldest

and largest human resources management association, representing nearly 5,000California companies of all sizes and in every industry. These constituentcompanies employ approximately 2.5 million individuals. Amicus respectfullysubmits that its collective experience in employment matters, including itsappearance as amicus curiae in state and federal forums over a period ofmanydecades, gives it a unique ability to focus on the short and long-term impact andimplications of the legal issue under consideration in this case. The EmployersGroup (formerly known as "The Merchants and Manufacturers Association" and"The Federated Employers") has been involved as amicus curiae in manysignificant cases, including, but not limited to: Dyna-Med, Inc. v. FairEmployment & Housing Com., 43 Cal. 3d 1379 (1987); Foley v. Interactive DataCorp., 47 Cal. 3d 654 (1988); Newman v. Emerson Radio Corp., 48 Cal. 3d 973(1989); Rojo v. Kliger, 52 Cal. 3d 65 (1990); Shoemaker v. Myers, 52 Cal. 3d I(1990); Gantt v. Sentry Insurance, I Cal. 4th 1083 (1992); Hunter v. Up-Right,Inc., 6 Cal. 4th 1174 (1993); City ofMoorpark v. Superior Court, 18 Cal. 4th 1143(1998); Jennings v. Marralle, 8 Cal. 4th 121 (1994); Green v. Ralee EngineeringCo., 19 Cal. 4th 66 (1998); Carrisales v. Department ofCorrections, 21 Cal. 4th1132 (1999); Reno v. Baird, 18 Cal. 4th 640 (1998); White v. U l t r a m m ~ Inc., 21Cal. 4th 563 (1999); Armendariz v. Foundation Health Psychcare Services, Inc.,24 Cal. 4th 83 (2000); Guz v. Bechtel Nat 'l, Inc., 24 Cal. 4th 317 (2000); Cortez v.PurolatorAir Filtration Products Co., 23 Cal. 4th 163 (2000); Sav-on DrugStores, Inc. v. Superior Court, 34 Cal. 4th 319 (2004); Yanowitz v. L'Oreal, 36

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Cal. 4th 1028 (2005); Smith v. Superior Court, 39 Cal. 4th 77 (2006); andMurphyv. Kenneth Cole Productions, Inc., _ Cal. 4th _ (2007).

Amicus has a substantial interest in the outcome ofthis case because itsmembers regularly enter into general release agreements with employees upontheir separation from employment in exchange for a severance payment (as well asin many other circumstances). These agreements typically include the same broad"any and all" language which the Court ofAppeal found encompassednonwaivable claims in this case. Until now, all parties assumed that such releaseswere valid, lawful, and effective to release existing claims to the extent permittedby law. If this Court, however, does not reverse the decision of the Court ofAppeal that such contracts are contrary to public policy, tens of thousands ofexisting releases will be called into question. If such releases were held unlawful,then employers may face liability for conditioning the severance payment uponsuch a release. Moreover, such releases may be invalid in their entirety, possiblyreviving any number of claims which all involved thought were settled long ago.Thus, Amicus has a strong interest in correcting the erroneous holding of the Courtof Appeal in this case and respectfully requests the opportunity to submit theenclosed brief for this Court's consideration.

II. ISSUES IN NEED OF FURTHERBRIEFINGAmicus supports the arguments submitted by Defendant regarding the

second issue presented for review (as identified by this Court in its order ofJanuary 17,2007) and does not seek merely to repeat them. Rather, Amicus willpresent additional arguments and clarifications that will assist this Court inevaluating the important legal issue presented.

The enclosed brief supplements the briefs submitted by Defendant in threeways. First, it identifies an additional error in the Court ofAppeal's reasoning thatwill have far-reaching effects ifnot corrected. Specifically, it explains that theCourt of Appeal erred in holding that a release of indemnity claims arising under

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California Labor Code 2802 eonflicts with the antiwaiver provision in LaborCode 2804 because that statute only prohibits prospective waivers of theprotections in the Labor Code, not compromises of claims arising out of pastevents. Under the Court ofAppeal's logic, nonwaivable claims cannot be settledby private agreement, an unprecedented rule that will create endless mischief forparties and the cOUlis.

Second, the enclosed brief refutes the Court ofAppeal's argument that thegeneral release at issue can only be interpreted in one manner, which wouldnecessarily include an attempted waiver of nonwaivable indemnification rights.The enclosed brief explains the basis for an alternative interpretation of the generalrelease provision, under which the release extends only to those claims which thereleasor is legally able to surrender. In this way, the brief supplementsDefendant's argument that the Court ofAppeal should have interpreted the releaseso as to make it lawful. At the same time, it also counters Plaintiff's argument thatthe plain language of the release does not allow a lawful interpretation of thatagreement.

Finally, the enclosed brief explains the negative impacts that the Court ofAppeal's holding will have on attempts to buy peace through a general release. Inparticular, it shows how the holding will greatly expand the class of claims that areimmune to settlement and ean only be resolved by a judgment entered by thecourt. It also explains the danger that the Court ofAppeal's holding will unwindexisting settlements, while also greatly complicating the drafting of an enforceablegeneral release. Amicus offers a unique perspective on these issues, based on theday-to-day experience of its members in resolving disputes arising out of theemployment relationship and attempting to achieve finality and repose.

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III. CONCLUSIONFor the aforementioned reasons, Amicus Curiae the Employers Group

respectfully requests that the Court accept the enclosed brief for filing andconsideration.

Dated: May 1'1 ,2007

LA3:1l32662.1

5

Respectfully submitted,O'MELVENY & MYERS LLPSCOTT H. DUNHAMCHRISTOPHERW. DECKER

By J r 4- 4cvSc6ttlf.DunhamAttorneys for Amicus Curiae theEmployers Group


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Case No. S147190IN THE SUPREME COURT

OF THE STATE OF CALIFORNIA


v.

ARTHUR ANDERSEN LLP,Defendant and Respondent.

AFTER A DECISION By THE COURT OF ApPEAL,SECOND APPELLATE DISTRICT, DIVISION THREE,

CASE No. B178246Los ANGELES SUPERIOR COURT CASE No. BC 255796,

HONORABLE ANDRIA K. RICHEY, JUDGE

BRIEF OF AMICUS CURIAE EMPLOYERS GROUPIN SUPPORT OF DEFENDANT AND APPELLANT

ARTHURANDERSEN LLP

O'MELVENY & MYERS LLPSCOTT H. DUNHAM (S.B. # 65683)

CHRISTOPHERW. DECKER (S.B. # 229426)400 South Hope StreetLos Angeles,CA 90071-2899Telephone: (213) 430-6000

Attorneys for Amicus Curiae the Employers Group


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TABL.E OF CONTENTSPage

INTRODUCTION 1SUMMARY OF FACTS 3ARGUMENT AND AUTHORITIES 61. THE COURT OF APPEAL ERRONEOUSLY EQUATED A

RELEASE OF CLAIMS ARISING OUT OF PRIOR EVENTSWITH AN ADVANCE WAIVER OF STATUTORY RIGHTS 6A. A Release OfClaims Arising Out Of Prior Events Is Not AWaiver For Purposes OfLabor Code 2804 And Other

Antiwaiver Rules 6B. The TONC Is An Enforceable Release OfClaims Arising Out

Of Past Events, Not An Invalid Advance Waiver Of StatutoryProtections 11

II. THE COURT OF APPEAL'S HOLDING THAT A RELEASE OF"ANY AND ALL" CLAIMS INCLUDES NONRELEASABLECLAIMS IGNORES SETTLED PRINCIPLES OF CONTRACTINTERPRETATION 12

III. THE COURT OF APPEAL'S HOLDING WILL HAVENEGATIVE CONSEQUENCES FOR EMPLOYERS ANDEMPLOYEES, JEOPARDIZING THE ENFORCEMENT OFGENERAL RELEASES AND, THEREBY, GREATLYCOMPLICATE SETTLEMENT 15A. The Court OfAppeal's Holding Greatly Expands The

Number OfClaims Which CannotBe Settled By PrivateAgreement, Fostering Litigation Over FinalityAnd Repose 15

B. The Court OfAppeal's Holding Creates Potential TortLiability, Jeopardizing The Enforcement OfGeneral ReleasesAnd, Thereby, Greatly Complicates Settlement. 16

CONCLUSION 19

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TABLE OF AUTHORITIESPage

CASESAdams v. Philip Morris, Inc.,67 F.3d 580 (6th Cir. 1995) 8Alexander v. Gardner-Denver Co.,415 U.S. 36 (1974) 8Armendariz v. Foundation Health Psychcare Services, Inc.,24 Cal. 4th 83 (2000) 7,8,9, 10, 17Axa S.A. v. Union Pacific R.R. Co.,269 F. Supp. 2d 863 (S.D. Tex. 2003) 8Baker Pacific Corp. v. Suttles,220 Cal. App. 3d 1148 (1990) 5, 6, 7, 9California Bank v. Stimson,89 Cal. App. 2d 552 (1949) 9Callen v. Pennsylvania R.R. Co.,332 U.S. 625 (1948) 8, 9Constant v. Continental Tel. Co. ofIllinois,745 F. Supp. 1374 (C.D. Ill. 1990) 9County ofRiverside v. Sup. Ct.,27 Cal. 4th 793 9D'sa v. Playhut, Inc.,85 Cal. App. 4th 927 (2000) 7Edwards v. Arthur Andersen LLP,47 Cal. Rptr. 3d 788 (2006) 4, 5, 13, 14Farnham v. Superior Court (Sequoia Holdings, Inc.),60 Cal. App. 4th 69 (1997) 8Hamilton v. Oakland School Dist. ofAlameda County,219 Cal. 322 (1933) 9In re Retirement Cases,110 Cal. App. 4th 426 (2003) 12Jefferson v. California Dep 't ofYouth Authority,28 Cal. 4th 299 (2002) 7,8,18Latona v. Aetna u.s. Healthcare Inc.,

82 F. Supp. 2d 1089 (C.D. Cal. 1999) 7Little v. Auto Stiegler, Inc.,29 Cal. 4th 1064 (2003) 17McClure v. McClure,100 Cal. 339 (1893) 16,18People v. Parmar,86 Cal. App. 4th 781 (2001) 12

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TABLE OF AUTHORITIES(continued)Page

Plaza Hollister Ltd. Partnership v. County ofSan Benito,72 Cal. App. 4th 1 (1999) 16, 18Rogers v. General Elec. Co.,781 F.2d 452 (5th Cir. 1986) 8Safeco Ins. Co. ofAmerica v. Robert s.,26 Cal. 4th 758 (2001) 13,18Swenson v. File,3 Cal. 3d 389 (1970) 12Thompson v. Municipal Bond Co.,23 Cal. App. 2d 402 (1937) 8

STATUTES49 U.S.C.A. 11706(c)(1) 8Business & Professions Code 16600 7Cal. Civ. Code 1668 7,8, 10 1751 10 1789.19 10 1801.1 10 3513 10,16,18Cal. Gov't Code 12900 et seq 7Cal. Lab. Code 219(a) 10 2800-2810 10 2804 passimCal. Unemp. Ins. Code 1342 10

OTHER AUTHORITIES1West's California Civil Code Forms, Obligations(3d ed. 1989) 5Black's Law Dictionary (8th ed. 2004) 13Justice Ming W. Chin, et aI.,

Cal. Prac. Guide: Employment Litigation (The Rutter Group2003) 5, 18

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v.


AFTER A DECISIONBy THE COURT OF ApPEAL,SECONDApPELLATE DISTRICT, DIVISION THREE,

CASENo. Bl78246Los ANGELES SUPERIOR COURT CASENo. BC 255796,

HONORABLE ANDRIAK. RICHEY, JUDGE

BRIEF OFAMICUS CURIAE EMPLOYERS GROUPIN SUPPORT OF DEFENDANT AND APPELLANTARTHURANDERSEN LLP

INTRODUCTIONEvery day, employers and employees throughout California enter into

agreements whereby the employee abandons any lawsuit the employee may havebased on past alleged violations of the employee's rights in exchange for amonetary payment or some other valuable consideration. The purpose of suchagreements is to "buy peace" - i.e., to resolve fully and finally all claims whichthe employee may have against the employer so that the parties may go their

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separate ways. To achieve that end, these agreements typically employ the mostexpansive language possible, in order to ensure the released party that it isreceiving that for which it bargained - peace. That peace will prove elusive,however, unless this Court corrects the unprecedented (and erroneous) holding ofthe Court ofAppeal that the standard form language employed in these agreementsmakes them invalid and unlawful.

In this case, the Court ofAppeal held that typical form language releasing"any and all" claims based on events prior to the date of the release made theagreement unlawful because it would necessarily encompass rights which arenonwaivable as a matter oflaw. That holding was in error for two reasons. First,the Court ofAppeal confused the distinction between a compromise of disputedclaims and an advance waiver of future claims. The various antiwaiver rulespronounced by the legislature and the courts generally invalidate only advancewaivers, not settlements of claims arising out ofprior events. Were it otherwise, itwould be legally impossible to settle any claim which the legislature or courtshave declared nonwaivable. No California eourt has so held and this Court 'sreeent deeisions reflect precisely the opposite.

Second, the Court ofAppeal misinterpreted the general release at issue hereas extending to claims which cannot be surrendered as a matter oflaw. In sodoing, it disregarded settled rules for the interpretation of contracts which requiredit to construe the contract in accordance with existing law, if possible. Indeedsuch an interpretation was possible, as the critical language "employee herebyreleases and forever discharges" can be interpreted to mean "employeeextinguishes those legal obligations which he or she is legally able to extinguish."The Court ofAppeal overlooked this possible interpretation because it focusedexclusively on what was being released, as opposed to the meaning of "releaseand . . . discharge" in the first place. Thus, it incorrectly held that the release wasonly susceptible to one interpretation and an unlawful one at that.

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employment. Like countless other employees, at the time of his separationPlaintiff executed a broad general release (the "Release") in favor of his formeremployer which provided:

"Employee does hereby release andforever discharge [Defendant}from any and all actions, causes of action, claims, demands, debts,damages, costs, losses, penalties, attorney's fees, obligations,judgments, expenses, compensation or liabilities of any naturewhatsoever, in law or equity, whether known or unknown,contingent or otherwise, that Employee now has, may have ever hadin the past or may have in the future against any of the ReleasedParties by reason ofany act, omission, transaction, occurrence,conduct, circumstance, condition, harm, matter, cause or thing thathas occurredfrom the beginning of time up to and including the datehereof, including, without limitation, claims that in any way arisefrom or out of, are based upon or relate to Employee's employmentby, association with or compensation from [Defendant] or any of itsaffiliated firms, except for claims (i) arising out of [Defendant's]obligations set forth in this Agreement or (ii) for any accrued andunpaid salary or other employee benefit or compensation owing toEmployee as of the date hereof." (App. 579 (TONC led))(emphasis added).)The Court ofAppeal held that this commonplace language contravened

public policy because it covered the employee's statutory indemnification rights,which are nonwaivable as a matter oflaw under California Labor Code 2804. 1The court reasoned that, although the language did not expressly mentionindemnification rights, "[t]hey were necessarily encompassed within the cleartern1S of the broad release. A broadly worded release covers all claims within thescope of its language, even if the particular claim is not expressly listed."Edwards v. Arthur Andersen LLP, 47 Cal. Rptr. 3d 788,807 (2006) (depublished)(internal citations omitted). According to the court, since the statutes providingemployees with indemnification rights for expenses incurred in the course of their

I All statutory references in this amicus brief are to the California Codes, unlessotherwise noted.4


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employment embody public policy and inure to the public benefit, a release ofthose rights violates public policy and is void. Id. at 808-09. Moreover, requiringan employee to execute such a release is a wrongful act, which can be the basis fortort liability. Id. at 809.

The language which the Court ofAppeal invalidated is standard formlanguage employed in countless agreements between employers and employees.At the time of separation, it is commonplace for employers to offer the employee aseverance payment in exchange for a general release of all claims arising out ofthe now-concluded employment relationship. The common practice in draftingsuch releases is to use the broadest language possible without separatelyidentifying rights which cannot be surrendered as a matter oflaw. Indeed, this isthe practice recommended by widely-used and respected practice aids, such as theone authored by Justice Chin of this Court. See, e.g., Justice Ming W. Chin, et aI.,Cal. Prac. Guide: Employment Litigation) Forms 8:A & 8:B, at 8-86 & 8-107(The Rutter Group 2003) (containing a form general release agreement releasingall "claims" defined as "any and all manner of action or actions, cause or causes ofaction . . . of any nature whatsoever, known or unknown, fixed or contingent . . .by reason of any matter, cause, or thing whatsoever from the beginning of time tothe date hereof . . . ."); 1 West's California Civil Code Forms, Obligations 1541,form 3, at 573 (3d ed. 1989) (containing a form general release agreementproviding for release "of and from all claims . . . ofwhatever kind or nature . . .relating to any matter whatsoever . . . . ); see also Baker Pacific Cop. v. Suttles,220 Cal. App. 3d 1148, 1156-57 (1990) (acknowledging that "'all' and 'any andall' language . . . is common to virtually every form release contemporarily andheretofore used by practitioners").

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ARGUMENT AND AUTHORITIES

I. THE COURT OF APPEAL ERRONEOUSLY EQUATED ARELEASE OF CLAIMS ARISING OUT OF PRIOR EVENTS WITHAN ADVANCE WAIVER OF STATUTORY RIGHTS.A. A Release OfClaims Arising Out Of Prior Events Is Not A

Waiver For Purposes Of Labor Code 2804 And OtherAntiwaiver Rules.The Court ofAppeal held that the language of the TONC to "release and

forever discharge" Defendant from any and all claims based on prior eventsconflicted with the prohibition in Labor Code 2804 of agreements "to waive thebenefits of this article." This holding was in error because Section 2804, likesimilar antiwaiver provisions found throughout the California Codes, merelyprevents a party from entering into an advance waiver of future claims assertingrights covered by the antiwaiver provision. It does not prohibit a party fromsettling existing claims asserting those same rights arising out of a prior event.Indeed, prior to the decision of the Court ofAppeal in this case, no Californiacourt had applied any antiwaiver statute to invalidate a compromise of claimsasserting such rights. The Court ofAppeal, however, blurred this criticaldistinction between an unenforceable advance waiver and an enforceablesettlement agreement, leading to its erroneous conclusion.

The Court ofAppeal relied on three cases to support its holding that arelease of indemnification rights arising out of prior events conflicted with theantiwaiver provision contained in Section 2804. In each, however, the agreementbefore the court was an advance waiver, not a retrospective compromise andrelease. For example, in Baker Pacific Corp. v. Suttles, 220 Cal. App. 3d 1148(1990), the court analyzed a pre-employment waiver ofthe right to sue thirdparties (other than the employer) for injuries arising from future workplaceexposure to asbestos. Id. at 1151. The Baker court held that the waiver was voidbecause it exculpated those third parties from liability for their future fraud and

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other intentional acts, in violation ofCivil Code 1668. Id. at 1154. Similarly, inD'sa v. Playhut, Inc., 85 Cal. App. 4th 927 (2000), and Latona v. Aetna Us.Healthcare Inc., 82 F. Supp. 2d 1089 (C.D. Cal. 1999), the courts analyzedagreements not to compete and held them invalid under Business & ProfessionsCode 16600 because they overly restricted the employees' ability to pursuefuture economic opportunities. D'sa, 85 Cal. App. 4th at 930-31; Latona, 82 F.Supp. 2d at 1091, 1094-97.

None of these cases invalidated a release of claims arising out of pastevents. Indeed, the Baker court expressly acknowledged that the release before itwould be valid if it were limited to causes of action arising from past events.Baker, 220 Cal. App. 3d. at 1156-57. Evidently, the court did not believe that theprohibition in Civil Code 1668 on contracts "to exempt anyone from theresponsibility for his own fraud or willful injury to the person or propeliy ofanother" extended to releases "expressly designed for the settlement of cases." Id.

Indeed, prior to the decision of the COUli ofAppeal in the instant case, noCalifornia couli had held that an individual may not compromise a claim asseliinga right which the legislature or the coulis have pronounced nonwaivable. To thecontrary, coulis routinely enforce compromises of such claims. The decisions ofthis Court regarding claims under the Fair Employment and Housing Act (the"FEHN'), Cal. Gov't Code 12900 et seq., provide a case in point. This Courtheld in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83,100-01 (2000), that a prospective waiver of the rights conferred by the FEHAwould be "contrary to public policy and unlawful". Yet, less than two years later,this Couli recognized that a release of claims under the FEHA arising out ofpastevents was valid, holding that a general release of claims arising out of a pastinjury barred litigation ofa FEHA claim arising out of that same injury. Jeffersonv. California Dep 't ofYouth Authority, 28 Cal. 4th 299,302,309-10 (2002). If thelogic of the Court ofAppeal were sound, the Jefferson Couli should have held thatthe FEHA claim was not barred because claims under the FEHA are nonwaivable,

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as stated in Armendariz. The fact that thc Jefferson Court enforccd a generalrelease to bar a FEHA claim despite the antiwaiver rule inArmendariz proves thatan antiwaiver rule does not invalidate a release of claims arising out of past events.

The same can be seen in the law of fraud. Contractual releases of futureliability for fraud and other intentional wrongs are unenforceable by virtue ofCivilCode 1668. See, e.g., Farnham v. Superior Court (Sequoia Holdings, Inc.), 60Cal. App. 4th 69,71 (1997). Nonetheless, claims of fraud may be settled byprivate agreement, and those agreements will be enforced by the courts. See, e.g.,Thompson v. Municipal Bond Co., 23 Cal. App. 2d 402, 410 (1937).

The federal courts have made explicit what is implicit in these Californiadecisions - a rule prohibiting waiver of statutory rights does not prevent partiesfrom contracting to settle existing claims asserting those rights. The United StatesSupreme Court held inAlexander v. Gardner-Denver Co., 415 U.S. 36 (1974), that"there can be no prospective waiver of an employee's rights under Title Vll," butthen immediately clarified that this antiwaiver rule would not preclude anemployee from releasing a cause of action under Title VII as part of a voluntarysettlement. Id. at 51-52.

Since then, the fedcral courts have repeatedly held Title VII claims barredby a release of all claims arising out of prior events, all the while acknowledgingthat a waiver of claims arising out of future events would be unenforceable. See,e.g., Rogers v. General Elec. Co., 781 F.2d 452,454,456 (5th Cir. 1986); Adamsv. Philip Morris, Inc., 67 F.3d 580, 584-85 (6th Cir. 1995). The federal courtshave drawn the same distinction in applying other antiwaiver rules as well. See,e.g., Axa S.A. v. Union Pacific R.R. Co., 269 F. Supp. 2d 863, 865-66 (S.D. Tex.2003) (antiwaiver rule in 49 U.S.C.A. 11706(c)(1) does not preclude privatesettlements of claims under that section); Callen v. Pennsylvania R.R. Co., 332U.S. 625, 630-31 (1948) (same conclusion regarding antiwaiver provision oftheFederal Employers Liability Act); Constant v. Continental Tel. Co. ofIllinois, 745

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F. Supp. 1374,1379 (C.D. Ill. 1990) (same conclusion regarding policy againstwaiver of claims under the Age Discrimination in Employment Act).

The different treatment of advance waivers and compromises of claimsarising out ofprior events flows from the differing public policies at stake in eachsituation. Where the legislature enacts a law for a public purpose, advancewaivers of those statutory protections undermines the public benefit to be gainedby the law, and makes it possible to avoid the law entirely by private agreement.California Bank v. Stimson, 89 Cal. App. 2d 552, 555 (1949) (holding advancewaiver of statutory protections void under Section 3513 because "if [a party] couldbe permitted to waive the provisions of the statute, the effect of the section couldbe entirely nullified."); County ofRiverside v. Sup. Ct., 27 Cal. 4th 793,805(allowing advance waivers of statutory rights would render those rights"nugatory"). On the other hand, a compromise and settlement of a claim underthat law does not avoid the law but rather gives effect to it since there would be noclaim to compromise but for the existence of the law. See Callen, 332 U.S. at 63031 ("It is obvious that a release is not a device to exempt from liability, but is ameans of compromising claimed liability and to that extent recognizing itspossibility.").

Moreover, the strong public policies favoring settlement of disputes andrepose provide additional reasons to enforce such compromises, even though anadvance waiver of the same claims would be unenforceable. See Baker, 220 Cal.App. 3d at 1157 (policy of repose justifies enforcement ofprovisions in settlementagreement that would not be enforceable in an advance waiver); Hamilton v.Oakland School Dist. ofAlameda County, 219 Cal. 322,329 (1933) ("[l]t is thepolicy of the law to discourage litigation and to favor compromises of doubtfulrights and controversies, made either in or out of court."). This Court made asimilar point in Armendariz when it commented that a pre-dispute agreement toarbitrate FEHA claims that did not meet certain minimum requirements wastantamount to a prohibited waiver ofFEHA rights, while a post-dispute agreement

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to arbitrate that same claim need not meet those same requirements to beenforceable. Armendariz, 24 Cal. 4th at 103 n.8.

The error in reading antiwaiver rulcs to prohibit releases of claims arisingout of prior events is evident if one considers the implications of the Court ofAppeal's holding. If it were indeed the law that a release of claims arising out ofpast events is a "waiver" for purposes of any antiwaiver rule, then any privateagreement releasing such claims will be unenforceable, making it impossible tosettle these claims outside of court. Thus, the only way to resolve a claimasserting a nonwaivable right will be to bring suit and enter judgment, either byconsent of the parties or by judicial decision. But, there are easily dozens ofstatutory antiwaiver provisions both inside and outside the employment lawcontext,2 some ofwhich are extremely broad.3 If each of these pronouncementswere also a bar to settlement of such claims, then not only would there be quite anumber of claims that henceforth can only be resolved by judicial action, butexisting settlements of such claims are void, re-opening any number of disputeswhich the parties thought settled long ago. The fact that, up until now, partieshave freely settled these claims by private agreement demonstrates a widespread

2See, e.g., Cal. Unemp. Ins. Code 1342 (rights or benefits under theUnemployment Insurance Act cannot be waived); Cal. Lab. Code 219(a)(statutory provisions regulating the payment ofwages cannot be altered by privateagreement); Cal. Lab. Code 2804 (any agreement to waive the employer'sobligations under Lab. Code 2800-2810 is "null and void"); Cal. Civ. Code 1751 (any waiver by a consumer of the provisions of the Consumers LegalRemedies Act is "unenforceable and void"); Cal. Civ. Code 1801.1 (buyer maynot waive the protections of the Unruh Act governing retail installment sales); Cal.Civ. Code 1789.19 (buyer may not waive the protections of the CreditServices Act of 1984).3 See, e.g., Cal. Civ. Code 1668 (declaring void "[a]ll contracts which have fortheir object, directly or indirectly, to exempt anyone from responsibility for hisown fraud, or willful injury to the person or propeliy of another, or violationoflaw, whether willful or negligent"); Cal. Civ. Code 3513 (prohibitingagreements to waive the benefits of any law established for a public reason).

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understanding among practitioners that the various antiwaiver rules are no bar tocompromising a claim asserting nonwaivable rights.

B. The TONC Is An Enforceable Release Of Claims Arising Ont OfPast Events, Not An Invalid Advance Waiver Of StatntoryProtections.

As shown above, given that Labor Code 2804, like other antiwaiverstatutes, only prohibits advance waivers, the TONC could only run afoul of thatstatute if it purported to waive claims for indenmification arising out of futureevents. In fact, by its express language, the TONC only covers claims which theemployee has, had or will have "by reason of any act, omission, transaction,occurrence, conduct, circumstance, condition, hann, matter, cause or thing thathas occurredfrom the beginning of time up to and including the date hereof"(App. 579 (TONC l e d ~ (emphasis added).) Nothing in the TONC purports tosurrender legal rights arising out of future events. Thus, the TONC is not anadvance waiver, and the antiwaiver rule ofLabor Code 2804 does not come intoplay.

Although the Court ofAppeal did not distinguish between advance waiversand settlement of claims arising out ofpast events, it did at one point suggest thatthe TONC extended to "past, present andfuture" claims. This is a misreading ofthe TONC. In fact, it covers claims which the Plaintiffmight have in the future,but only if Plaintiffhas that claim "by reason of any act . . . that has occurred fromthe beginning of time up to and including the date hereof" (App. 579 (TONC l(d.) Claims which Plaintiffmay have in the future arising out of future eventsare not included. This, in tum, is precisely the distinction between anunenforceable advance waiver and a valid compromise of claims. Defendant didnot ask Plaintiff to surrender his right to indemnification for expenses he mightincur in the future related to his employment, but only to settle any claim he mighthave for expenses already incurred. Thus, the TONC did not implicate theconcerns of the antiwaiver rule in Labor Code 2804 and the Court of Appealerred in invalidating the TONC on that basis.

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The Court ofAppeal failed to apply any of these principles, asserting that,by its plain language, the TONC clearly purports to waive indemnification rights.Edwards, 47 Cal. Rptr. 3d at 807 (depublished). The Court ofAppeal- andPlaintiff- reached this conclusion by focusing entirely on what the TONCpurports to "release and forever discharge," namcly: "any and all . . . claims . . .whether known or unknown, contingent or otherwise, that Employee now has,may have ever had in the past or may have in the future." (App. 579 (TONC l(d)).) Neither, however, analyzed what it means to "release and foreverdischarge" a claim in the first place. As a result, both the court and plaintiffoverlooked an alternative reading that would not encompass indemnificationrights - or any other nonwaivable right - and, thus, would avoid any conflict withLabor Code 2804 and the public policy it expresses.

According to Black's Law Dictionary, "release" and "discharge" may beconsidered synonyms, both meaning "to extinguish a legal duty." Black's LawDictionary at 495, 1315 (8th ed. 2004). That definition, in tum, limits the terms toduties which can be extinguished, since, by definition, one cannot extinguish alegal duty which the law does not allow one to extinguish. Thus, it is possible toread the operative verbs in the TONC as meaning, in effect: "Employeeextinguishes those claims which the Employee is legally able to extinguish byentering into this release." That interpretation would avoid any conflict withLabor Code 2804 (or any other antiwaiver rule) and would incorporate existinglaw into the contract, in accordance with the presumed intent of the parties. Itwould also render the general release provision entirely lawful and enforceable.Given the rules of interpretation set forth above, since this interpretation ispossible, it is also required.

This alternative interpretation is also entirely consistent with the commonunderstanding of a general release of claims, as well as the presumed (if notactual) intent of the parties to such agreements. Cf Safeco Ins. Co. ofAmerica v.Robert s., 26 Cal. 4th 758, 763 (2001) ("The goal of contractual interpretation is to

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detennine and give effect to the mutual intention of the parties."). Employers donot typically ask employees to surrender rights which they are legally incapable ofsurrendering, which is why one rarely sees express waivers of futureindemnification rights, workers' compensation claims or any of the other myriadrights which the courts and legislature have pronounced nonwaivable. Rather,employers draft releases to cover "any and all claims" which can be surrendered.These releases do not state the obvious that they do not extend to claims whichthe employee is legally incapable of surrendering because that rule is alreadyincorporated into the contract itselfboth by operation oflaw and by the meaningof the words "release" and "discharge." Moreover, expressly excluding thesenonwaivable claims would be an unreasonable burden given the long list ofnonwaivable rights employees enjoy.4 It must also be presumed that employeesshare their employer's intent, since employees are presumed to know the law andto contract in light of it.

The Court ofAppeal hesitated to charge Plaintiffwith knowledge of therelevant law, expressing concern that a broad, unqualified release would have anin terrorem effect on unsophisticated employees who would not realize that itcould not affect rights which the courts and legislature had declared nonwaivable.Edwards, 47 Cal. Rptr. 3d at 810 (depublished). In essence, this amounts to anargument that the court should construe the contract to make it unlawful and void,because some employees might misinterpret it in that manner.

Moreover, if the Court ofAppeal's goal was to place the burden onemployers to avoid language which "unsophisticated" employees mightmisinterpret, the court chose the wrong path to follow. Under the Court ofAppeal's ruling, "any and all . . . claims" is unacceptably broad and, thus, draftersmust list each covered claim separately (or, alternatively, expressly exclude eachnonwaivable right), making the language of a general release even morecomplicated for unsophisticated parties and, hence, even more prone to4 See statutes identified at notes 2 & 3, supra.14


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misinterpretation. Plaintiff's proposed solution - adding the phrase "to the extentenforceable by law" - does not address the court's concern, since unsophisticatedparties do not know where the limits oflegal enforcement lie. A laundry list of allof the potentially nonwaivable claims would hardly make the release moreaccessible to those the Court ofAppeal seeks to protect. Rather, the true solutionis to encourage parties to seek legal advice before entering into a general release,not to abandon the settled rules for the interpretation of such agreements.

III. THE COURT OF APPEAL'S HOLDINGWILL HAVE NEGATIVECONSEQUENCES FOR EMPLOYERS AND EMPLOYEES,JEOPARDIZING THE ENFORCEMENT OF GENERALRELEASES AND, THEREBY, GREATLY COMPLICATESETTLEMENT.A. The Court OfAppeal's Holding Greatly Expands The Number

Of Claims Which Cannot Be Settled By Private Agreement,Fostering Litigation Over Finality And Repose.As explained above, the Court ofAppeal's holding that an antiwaiver

statute such as Labor Code 2804 prohibits retrospective releases of those claimsit covers makes it impossible to settle any such claim by private agreement. Suchagreements will now be unenforceable since, by the Court ofAppeal's logic, they"waive" a right which the legislature or the courts have declared nonwaivable.Hence, existing settlements of such claims are void and, in the future, the onlyway to resolve such a claim will be to obtain a final judgment or order from acourt of law. Both results greatly undermine the public policies favoring thesettlement of claims without any corresponding benefit.

As noted above, there are easily dozens of statutory protections which thelegislature or courts have declared nonwaivable. Moreover, the list continues toexpand since, in many instances, no court has yet determined whether a particularstatute was enacted for a public purpose and, thus, is nonwaivable by virtue of

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Th e Court Of Appeal's Holding Creates Potential Tort Liability,Jeopardizing The Enforcement O f General Releases And,Thereby, Greatly Complicates Settlement.

Civil Code 3513.5 Under the holding of the Court ofAppeal, all existingsettlements of claims arising under these statutes are void and the claimsthemselves revived for further litigation. Naturally, one can expect that a largenumber of these claims will be litigated, and even if they were not, the releasedparty will no longer be able to rely on the settlement agreement to protect it. Thus,the peace which thc released party attempted to purchase is destroyed and willonly be restored once the applicable statute oflimitations has expired. Moreover,in the future, settling such claims outside of court will not be a viable means ofresolving them. Rather, each one will have to proceed to judgment, either byconsent o f the parties or by judicial action. The increased burden on the courts,and inefficiencies for the parties, are evident.These consequences undermine settlement, finality and reposc, each ofwhich is an important public benefit. McClure v. McClure, 100 Cal. 339, 343(1893) (settlement agreements "are highly favored as productive of peace andgoodwill in the community, and reducing the expense and persistency oflitigation."); Plaza Hollister Ltd. Partnership v. County ofSan Benito, 72 Cal.App. 4th 1, 12 (1999) (same, quotingMcClure). Moreover, they do so withoutproviding any offsetting benefit to parties, the public or the courts. Unwinding (orpreventing) negotiated settlements o f these claims is not necessary to uphold theunderlying rights: the very fact that the releasor obtained something of value inexchange for a surrender of those rights demonstrates that the rights have beenupheld.

B.

By holding that a typical general release of "any and all claims" includesclaims which cannot be released as a matter oflaw, the Court of Appeal has

5 Section 3513 states in its entirety: "Anyone ma y waive the advantage of a lawintended solely for his benefit. But a law established for a public reason cannot becontravened by a private agreement." Cal. Civ. Code 3513.16


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the bargain intended by the parties. Certainly, both intended that the releaseewould receive at least some protection against future litigation in exchange for theconsideration it paid to the releasor. Cf Safeco, 26 Cal. 4th at 763 (the intent ofthe contracting parties should guide the interpretation of the contract).

Given the widespread use of standard form releases covering "any and all"claims, see, e.g., Justice Ming W. Chin et aI., Cal. Practice Guide: EmploymentLitigation at 8-86 & 8-107, the potential for controversy and litigation arising outofpreviously-settled disputes is substantial. Moreover, to avoid these problems inthe future, practitioners will have to abandon the shorthand "any and all" and,instead, specifically identify each and every claim to be released, or expresslyexclude each and every nonreleasable claim. Neither solution is workable,however. It is not always certain whether a particular claim is releasable. Evenwhere a statute does not include an antiwaiver provision, it may still be covered bythe general antiwaiver rule in Civil Code 3513, but the COUlis have not yetconsidered that issue for every single statute in the California Codes. In addition,even if reasonable certainty could be achieved, the resulting list of claims wouldbe long and cumbersome, rendering the release indecipherable. This Courtrecognized in Jefferson v. California Dep 't ofYouth Authority the importance ofavoiding such a requirement:

"[I]fcourts did not enforce general releases, an employer . . . seekinga comprehensive settlement, would have to struggle to enumerate allclaims the employee might plan to allege. The employer wouldnever be able to know for sure that it had thought of every claim, andtherefore it would never be able to put a definitive end to the matter.Employers would then be disinclined to enter into settlements,because certainty as to the full extent ofliability is one factor thatmotivates employers to choose settlement over litigation." Id. at306.

In the end, both past and future settlements would becomemuch more precarious,ifnot impossible, undermining the public interest in the resolution of disputes,

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CERTIFICATE OF COMPLIANCEPURSUANTTO RULE OF COURT 8.204(c)(1)

I, Scott H. Dunham, declare:

I. I am an attorney at law duly licensed to practice before all Courts ofthe State ofCalifornia and am a partner ofO'Melveny & Myers LLP, attorneys ofrecord for Amicus Curiae the Employers Group.

2. According to the computer program used to prepare this brief, theword count, including footnotes, of this brief is 6,441 words.

I declare under penalty of perjury under the laws of the State ofCaliforniathat the foregoing is true and correct.

11EXECUTED this day ofMay 2007, at Los Angeles County,California.

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Jeffrey A. Berman, Esq.Sidley Austin LLP555 W. Fifth Street, Suite 4000Los Angeles, CA 90013-1010

Clerk of the CourtCalifornia Court ofAppealSecond District, Division ThreeRonald Reagan State Building300 South Spring StreetSecond FloorLos Angeles, CA 90013

Clerk of the CourtSuperior Court ofLos AngelesIII N. Hill StreetLos Angeles, CA 90012

I declare under penalty of petjury under the laws of the State ofCaliforniathat the above is true and correct.

Executed on May 14, 2007, at Los Angeles, California.

Carol R. Hawkins

amicus brief employers group supporting arthur andersen

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