California Supreme Court Issues Important New Wage and Hour Decision

On July 13, 2017, the California Supreme Court issued a decision that California employment law attorneys have been anticipating for over two years. Williams v. Superior Court (Marshalls of California, LLC) (S227228 7/13/17). The Williams decision significantly impacts the nature and extent of the information employers may be forced to give employees who sue their employers on what are commonly called “PAGA” claims. But before explaining that decision, a bit of background information is required.

In California, employees have at least four different ways to make claims against their current or former employers for unpaid wages and penalties: (1) They can make an administrative claim with the State Labor Commissioner (a “wage claim”); (2) they can file an individual lawsuit in court; (3) they can file a wage and hour class action on behalf of themselves and other current and former employees; or (4) they can file a “representative” action under California’s Labor Code Private Attorneys General Act of 2004, commonly known as a PAGA Claim. The first two options, the wage claim and the individual lawsuit, typically seek recovery only of wages and penalties due to an individual claimant or plaintiff. The other two options seek wages or penalties, or both, for a much wider group of employees, represent a risk of far greater liability for the employer and a far greater potential attorney fee reward for the plaintiff’s attorneys. Thus, plaintiff attorneys prefer to bring class actions and PAGA claims rather than wage claims and individual lawsuits. Not surprisingly, class actions and PAGA claims tend to strike fear in employers.

Under the current state of California and federal law, wage and hour class actions may well be less scary for employers than PAGA claims. It used to be the other way around, because in a PAGA claim all that can be recovered are the myriad penalties assessable under the California Labor Code for violation of the wage and hour provisions of the Labor Code. While those penalties can be substantial they are typically (but not always) far, far less than the unpaid wages resulting from an employer’s wage and hour violations.

There are two reasons why PAGA claims have become more problematic for employers relative to class actions. First, the California Supreme Court has held that plaintiffs in PAGA claims do not have to meet certain requirements that they must meet in class actions. Arias v. Superior Court (2009) 46 Cal.4th 969. So PAGA claims can be more difficult to defend against than class actions. Second, as a result of developments in federal law over the last several years, employers can frequently require employees to sign mandatory arbitration agreements that require them to arbitrate all wage and hour claims and give up any right to bring a wage and hour class action in court or in arbitration. Thus, for many employers, the risk from wage and hour class actions has been greatly reduced – in fact almost eliminated.

Employers have argued that PAGA claims are also subject to mandatory arbitration under federal law. They have also argued that they should be able to avoid “representative” PAGA claims in the same way they can avoid class actions. In other words, they have argued that they should be able require employees to sign mandatory arbitration agreements that require them to arbitrate all PAGA claims and give up any right to bring a PAGA claim in court or in arbitration on behalf of anyone other than themselves. However, in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the California Supreme Court noted that PAGA claims are a form of government action – with the plaintiff acting as a “private attorney general” on behalf of the state of California to collect Labor Code penalties. The California Supreme Court reasoned that forcing plaintiffs to arbitrate their PAGA claims and preventing PAGA claims on behalf of other employees would really be preventing California from bringing such claims, thereby frustrating the purpose of the PAGA law. Therefore, the California Supreme Court held that employees cannot be forced to arbitrate PAGA claims and cannot be forced to give up their right to bring such claims on behalf of other employees.

That brings us to the decision issued on July 13, 2017 by the California Supreme Court, Williams v. Superior Court (Marshalls of California, LLC) (S227228 7/13/17). In Williams, the plaintiff, Mr. Williams, had worked in a single Marshalls store in California. He brought a PAGA claim, asserting that Marshalls had violated California wage and hour laws including those governing employee meal and rest breaks. Apparently, Marshalls had over 16,000 current and former employees in the time period covered by Mr. Williams’ lawsuit, spread across a large number of stores across the state. In the course of pretrial discovery, Mr. Williams asked Marshalls for the names and contact information for all of those thousands of employees. Marshalls refused Mr. Williams’ request, claiming the request was unfairly burdensome and would violate the privacy rights of those employees. Marshalls argued that until Mr. Williams had demonstrated that his claim of alleged wage and hour violations had some merit he should only be given information on the employees who had worked at the same store as Mr. Williams. The trial court and the court of appeal (in a 2015 decision) agreed with Marshalls. Mr. Williams sought and obtained review by the California Supreme Court.

At this point, it bears noting that if Mr. Williams had brought his law suit as a class action (assuming he had not signed a mandatory arbitration agreement giving up his right to bring a class action), he probably would have been entitled to the names and contact information for all of the thousands of current and former employees. But Marshalls’ argument was that, as the California Supreme Court has held, a PAGA claim is not a class action. So, logically, the rules governing a PAGA claim should be different. The trial court and the court of appeal agreed.

Yesterday, the California Supreme Court disagreed with each of Marshalls’ arguments, and reversed. Therefore, at least for the foreseeable future, plaintiffs in PAGA actions, just like plaintiffs in wage and hour class actions, can require the defendant employers to provide the names and contact information of potentially thousands of current and former employees impacted by the plaintiffs’ PAGA claims.

Ezer Williamson Law – 2016 Year in Review

In 2016, Ezer Williamson continued to achieve excellent results for its clients, opened a second office, and expanded into the area of labor and employment law.

The Firm is excited to announce the completion of our newly remodeled South Bay office and our expanded team, including the addition of Robert C. Hayden, Esq., as Senior Counsel, and Dominique Stango and Heather Domingo, the Firm’s new legal assistants.  The addition of Mr. Hayden, Ms. Stango, and Ms. Domingo reflects both the Firm’s commitment to providing exemplary service to our clients, as well as the growth and success the Firm has experienced throughout the 2015 and 2016 periods.

In 2016, the Firm achieved many favorable outcomes for our clients, including, (1) securing a settlement valued in excess of $1 million for the plaintiff in a commercial lease dispute, (2) resolving claims valued in excess of $20 million stemming from a Federal Multidistrict litigation matter regarding mortgage-backed securities, (3) resolving claims made against a real estate investor by an alleged employee, for less than 1% of the multi-million dollar amount sought, (4) successfully negotiated a complicated settlement transaction of a partnership dispute that included several business entities, and (5) favorably resolved a substantial wage and hour class action brought on behalf of individuals who claimed to be improperly classified as independent contractors rather than employees.

As we look forward to 2017, Ezer Williamson plans to further deepen and expand the services offered to our clients, including growing the Firm’s Labor and Employment practice group, as well as continuing to develop the Firm’s presence in our Century City office.

Ninth Circuit Rules Employer’s Mandatory Arbitration Agreement Violates the National Labor Relations Act

The Ninth Circuit recently ruled that an employer’s mandatory arbitration agreement that included a class action waiver violated the National Labor Relations Act (the “Act”) and therefore was unenforceable. Morris v. Ernst & Young LLP (9th Cir. August 22, 2016) 834 F.3d 975. The Ninth Circuit’s ruling endorses the position taken by the National Labor Relations Board (the “Board”) on this issue and is consistent with the position taken by the Seventh Circuit. However, the Ninth Circuit’s ruling is in conflict with the position taken by the Second, Fifth and Eighth Circuits, each of which has held that the Federal Arbitration Act requires that class action waivers contained in employers’ mandatory arbitration provisions must be enforced under the recent arbitration decisions of the United States Supreme Court. This split among the Circuits renders a future United States Supreme Court decision on this issue all but inevitable.

Stephen Morris and Kelly McDaniel brought a wage and hour class action against their employer, Ernst & Young (“E&Y”). E&Y moved to compel arbitration pursuant to a “concerted action waiver” signed by Morris and McDaniel. The concerted action waiver required employees (1) to pursue all claims against E&Y in arbitration and (2) to arbitrate only as individuals. The effect of the two provisions was that employees were prohibited from bringing class action claims “in any forum – in court, in arbitration proceedings, or elsewhere.” 834 F.3d at 979.

The Second, Fifth and Eighth Circuits have held that the Federal Arbitration Act requires that such arbitration agreements be enforced. However, the Ninth Circuit characterized the issue in a very different way: “The problem with the contract at issue is not that it requires arbitration; it is that the contract term defeats a substantive federal right to pursue concerted work-related legal claims.” 834 F.3d at 985. The court also said, “The same provision in a contract that required court adjudication as the exclusive remedy would equally violate the [Act].” 834 F.3d at 984.

Two years ago, the California Supreme Court addressed the identical issue in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 366-374. In Iskanian, the California Supreme Court performed an independent analysis of the issue and concluded that such waivers are enforceable. The California Supreme Court’s analysis was similar to that of the Fifth Circuit, whose decisions the court cited. Since the California Supreme Court’s holding on this issue is contrary to that of the Ninth Circuit, it is likely that California’s trial and appellate courts will follow the California Supreme Court’s lead, and will enforce class action waivers contained in employers’ mandatory arbitration provisions, unless either the California Supreme Court changes its mind or the United States Supreme Court decides the issue.

Cal Supreme Court Approves Class Action Fees Based on Settlement Percentage

California Supreme Court Approves Award of Class Action Attorney Fees Based on a Percentage of the Class Action Settlement

Earlier this month, the California Supreme Court issued its decision in a case challenging the traditional method of calculating attorney fees to be paid to the plaintiff attorneys in wage and hour class actions. Laffitte v. Robert Half International Inc., ____ Cal.4th ____, 2016 Daily Journal Daily Appellate Report 8287 (California Supreme Court August 11, 2016).  That case involved a $19 million settlement of three related wage and hour class action lawsuits against the staffing firm Robert Half International, Inc. The settlement provided that no more than one-third of the settlement amount would go to the plaintiff attorneys, also known as the “class counsel.”  The class counsel sought an award of the maximum amount, $6,333,333.33. A single member of the class objected to the requested attorney fee. Nonetheless, the trial court approved the settlement and awarded the requested attorney fee.  The objecting class member appealed, and the Court of Appeal affirmed the trial court’s rulings.  The California Supreme Court accepted the objecting class member’s petition for review for the sole purpose of deciding whether a 1977 California Supreme Court decision, Serrano v. Priest (1977) 20 Cal.3d 25, sometimes referred to as Serrano III, prohibited trial courts from calculating an attorney fee award as a percentage of the settlement amount in class action settlements. The California Supreme Court also considered whether trial courts can use various alternative methods of calculating attorney fees as a means of checking whether the percentage amount is appropriate.

The objecting class member argued that Serrano III requires that attorney fee awards by trial courts be calculated based on the amount of time spent by the attorneys on the case rather than a percentage of the settlement amount. The California Supreme Court disagreed, however, stating that Serrano III arose under a “private attorney general doctrine” that was not applicable to this wage and hour class action.

California Supreme Court – Arbitrator Decides Whether Parties Agreed To Arbitrate Class Action

California Supreme Court Says Arbitrator Decides Whether Parties Agreed To Arbitrate Class Action Claims

In a highly anticipated decision, the California Supreme Court ruled that the question of whether parties to an arbitration agreement agreed to arbitrate class action claims is a question to be decided by the parties’ arbitrator and not by a court. Sandquist v. Lebo Automotive, Inc., ____ Cal.4th ____, 2016 Daily Journal Daily Appellate Report 7663 (California Supreme Court July 28, 2016) .

Specifically, the question decided by the California Supreme Court was: when the parties to a dispute disagree over whether class action claims are subject to arbitration, “who decides whether the [arbitration] agreement permits or prohibits classwide arbitration, a court or the arbitrator?” (2016 DJDAR at 7663.) The answer to that question is of supreme importance to parties who may find themselves in arbitration, because everyone, rightly or wrongly, suspects that judges and arbitrators are likely to reach opposite conclusions when construing identical arbitration agreements, with courts more likely to find that the parties have not agreed to classwide arbitration and arbitrators more likely to find that they did agree.

The plaintiff, Timothy Sandquist, worked for defendant Lebo Automotive, Inc. Mr. Sandquist, who is African-American, sued Lebo Automotive, alleging that he and other non-Caucasian employees were subjected to racial discrimination, harassment, and retaliation. Mr. Sandquist sought to sue not only on his own behalf but also “on behalf of a class of current and former employees of color.” (2016 DJDAR at 7663.) Lebo Automotive moved to compel arbitration based on three separate yet similar arbitration agreements that Mr. Sandquist signed on his first day of employment. The trial court granted the motion. The court also concluded that the arbitration agreements did not permit class arbitration. Therefore, the court struck the class allegations from the case.  Mr. Sandquist appealed.

The court of appeal reversed the trial court and concluded that the arbitrator rather than the trial court should decide “the availability of class proceedings under an arbitration agreement.” (2916 DJDAR 7664.) Not surprisingly, Lebo Automotive sought review by the California Supreme Court, which affirmed the decision of the court of appeal.

The California Supreme Court noted that all three arbitration agreements contained “comprehensive” language describing what claims were subject to arbitration. For example, one of the agreements encompassed “any claim, dispute or controversy . . . which would otherwise require or allow resort to any court or other governmental dispute resolution forum” “arising from, related to, or have any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Company . . . .” (2016 DJDAR at 7665.) Since the dispute over who decides whether class claims are arbitrable is related to claims arising from Mr. Sandquist’s employment, the California Supreme Court concluded that the language of the arbitration agreements “suggests” that the question is for the arbitrator, but is “by no means conclusive.” (2016 DJDAR at 7665.) The Court, therefore, looked to California law “applicable to the interpretation of arbitration clauses and contracts generally.” (2016 DJDAR at 7665.)

The Court noted that two principles of contract interpretation favor leaving the question to the arbitrator: (1) “when the allocation of a matter to arbitration or the courts is uncertain, we resolve all doubts in favor of arbitration”; and (2) “ambiguities in written agreements are to be construed against the drafters” (in this case, the employer, Lebo Automotive). (2016 DJDAR at 7666.) Thus, the Court concluded, “as a matter of state contract law, the parties’ arbitration provisions allocate the decision on the availability of class arbitration to the arbitrator, rather than reserving it for a court.” (2016 DJDAR at 7666.)

If Mr. Sandquist’s lawsuit were governed solely by California law, this would have been the end of the Court’s analysis. However, each of the three arbitration agreements between Mr. Sandquist and Lebo Automotive invokes the coverage of the Federal Arbitration Act. Therefore, the California Supreme Court also looked to recent decisions of the U.S Supreme Court relating to arbitration.

The Court noted that in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 (“Green Tree”) a plurality of the U.S. Supreme Court concluded that the question of whether the parties had agreed to arbitrate class claims should be decided by the arbitrator rather than the courts.

But here’s the rub: Green Tree was a plurality decision, not a majority decision. Therefore, Green Tree does not constitute controlling precedent. As the California Supreme Court noted, the U.S. Supreme Court “has twice reiterated” this fact. (2016 DJDAR at 7667.) In addition, notwithstanding the Green Tree decision, all of the federal appellate courts that have been confronted with this question, have ruled that the trial court rather than the arbitrator must decide whether the parties agreed to class arbitration.

Justice Kruger dissented in Sandquist v. Lebo Automotive, in an opinion joined in by Justices Chin and Corrigan. She conceded that the majority’s decision is supported by the plurality opinion in Green Tree. However, but she noted that the U.S. Supreme Court appears to be heading in a direction contrary to Green Tree, which has resulted in the federal appellate decisions holding that a court rather than the arbitrator should decide whether the parties agreed to conduct the classwide arbitration. Justice Kruger concluded by saying, “unless and until the [U.S. Supreme Court] revisits the issue, I would follow where the court has led. Because the majority today charts a different path, I must respectfully dissent.” (2016 DJDAR 7675.)

The California Supreme Court majority in Sandquist v. Lebo Automotive is on solid ground analytically. However, Justice Kruger and her fellow dissenters may well have correctly divined where the U.S. Supreme Court is headed on this issue. Thus, this case could well be headed to the U.S. Supreme Court.

Employers, if Your Employees Stand to Work, You Better Sit Down

Lots of employees work while standing. You see them on an almost daily basis – cashiers in department stores and big box retailers, bank tellers, retail clerks, and numerous other employees performing countless jobs that, on reflection, perhaps could be performed while seated. Why are they standing? The answer, of course, is because their employers instructed them to stand while working.

For decades, there has been a provision in various California Industrial Welfare Commission Wage Orders that says, “All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” The Wage Orders have the force of law. But this provision has been all but ignored for the last 40 years. Earlier this month, though, the California Supreme Court, relying on this provision in the Wage Orders, effectively ruled that “If the tasks being performed . . . reasonably permit sitting, and provision of a seat would not interfere with performance of any other tasks that may require standing, a seat is called for” – meaning that the employer is required by law to provide a seat and permit the employee to sit while working. Kilby v. CVS Pharmacy, Inc., 2016 WL 1296101 (California Supreme Court April 4, 2016).

What’s going on? What prompted this decision after all these years?

Up until 2004, the Wage Orders could only be enforced by the California Labor Commissioner, whose office was too understaffed to properly perform its enforcement activities. So, a little over a decade ago, California enacted the Labor Code Private Attorneys General Act of 2004, better known as “PAGA.” PAGA permits employees to take on the government’s enforcement role by suing to collect penalties from employers who violate the Labor Code and the Wage Orders. PAGA allows those employees keep to 25% of the penalties, with the balance going to the State of California. And the employers can be ordered to pay the employees’ attorneys.

In the early days of the PAGA statute, most PAGA lawsuits were class actions against employers who were not paying minimum wages or overtime, misclassified their employees as exempt from overtime, or treated their workers as independent contractors rather than as employees. But, more recently, attorneys representing employees have filed PAGA lawsuits against big retailers and banks, claiming that they are violating the Wage Orders by not allowing their employees to sit while working.

Up until now, employers have been aggressively defending themselves against these lawsuits based on the failure to permit employees to sit while working. But, now that the California Supreme Court has said, in effect, that the Wage Orders mean what they say, many of these cases are likely to settle. And, more importantly for many smaller employers, the attorneys bringing these cases are likely to start turning their attention to smaller employers who require their employees to stand while doing work that could be performed while seated.

So now is a time for employers to be proactive if they have employees who work while standing. Ask yourself, can any of that work be performed while seated? Do they perform work similar to that of bank tellers or retail clerks and cashiers? Or do they perform other functions that would easily be accomplished while seated? If the answer is either yes or maybe, then now is the time to take action to comply with the Wage Orders. Otherwise, you might find yourself in a class action lawsuit, having to defend yourself against the same claims as the big banks and retailers.

Ezer Williamson Law proudly announces Robert C. Hayden as Senior Counsel

Ezer Williamson Law proudly announces the addition of Robert C. Hayden as Senior Counsel.

Mr. Hayden brings with him over 37 years of legal experience and expertise in the areas of labor and employment law, as well as extensive experience in business and commercial litigation, including contract and intellectual property disputes.

Prior to joining Ezer Williamson, Mr. Hayden was a partner at RG Lawyers LLP where he practiced for over six years representing both employees and companies in employment litigation, including wage and hour class actions, wrongful termination, and employment litigation.

Prior to RG Lawyers, Mr. Hayden was a partner with K&R Law Group LLP. At K&R, Mr. Hayden created and headed the employment law group for approximately 11 years, until the firm’s dissolution. While at K&R, Mr. Hayden also worked on complex commercial, business, contract, and intellectual property litigation.

Mr. Hayden began his career in 1978 in the Labor and Employment Department of Kindel & Anderson and moved with the head of that department to Overton, Lyman & Prince to develop a Labor & employment practice at that firm. He became a partner in 1985 and left in 1989 upon the firm’s dissolution. During his time at Kindel & Anderson and Overton, Lyman & Prince, Mr. Hayden represented employers in all aspects of union organizing campaigns, unfair labor practice proceedings before the National Labor Relations Board, and state and federal litigation.  Following the dissolution of Overton,  Mr. Hayden spent over six years at Lewis, D’Amato, Brisbois & Bisgaard (now Lewis, Brisbois, Bisgaard & Smith), leaving as a partner in 1995 to develop the Employment Law group at K&R Law Group.  While at Lewis, D’Amato, Mr. Hayden worked on a wide range of civil litigation matters, including real estate, construction, contract, and commercial disputes.

Mr. Hayden graduated from Stanford University in 1975 with a Bachelor of Science degree.  He then received his legal education at University of California at Berkeley – Boalt Hall School of Law, where he was awarded a Juris Doctor degree in 1978.

To read more about Mr. Hayden, please visit his attorney page here.

Ezer Williamson Law Announces Affiliation With Leven & Seligman, LLP

Ezer Williamson Law is proud to announce its formal affiliation with Century City’s Leven & Seligman, LLP.  With this association, both firms build on their reputations for superior quality, client service, and results.

The association will enable both firms to add depth and breadth to their existing practice areas of Real Estate Law and Litigation, Business and Corporate Transactions, Business and Commercial Law and Litigation, Partnership and Member Disputes, Shareholder Rights, Business Formation, and Estate Planning and Administration.

As part of the affiliation, Ezer Williamson Law gains a physical presence at Leven & Seligman, LLP’s offices in Century City, located at 1801 Century Park East, Suite 1460, Los Angeles, California to further serve Ezer Williamson Law’s West Los Angeles and Valley clients.  The association will also provide Leven & Seligman, LLP with the Ezer Williamson Law South Bay office.

Tenant Security Deposits and “Deduct-and-Return” Under Civil Code Section 1950.5

Subject to certain limitations, a landlord may withhold tenant security deposits in order to clean, repair, and make ready a rental unit for new tenants.  In fact, California Civil Code Section 1950.5 provides that the landlord may use summary “deduct-and-return” procedures (that is, procedures that do not require formal legal process) as long as certain rules are followed.

“Deduct-and-Return” Under Civil Code Section 1950.5

Under California law, after a tenant has vacated the premises a landlord has 21 days or less to notify the tenant either (1) that the landlord will provide a full refund of the security deposit, or (2) mail or personally deliver to the tenant an itemized statement listing the amounts of any deductions from the security deposit and the reasons for the deductions, together with a refund of any amounts not deducted. Civil Code Section 1950.5(g)(1).  The landlord must include copies of receipts for the charges that were incurred to repair or clean the rental unit with the itemized statement, or, if the landlord or their employees performed the work or repairs, then the itemized statement must describe the work performed, including the time spent, the hourly rate charged, and the hourly rate must be reasonable. Civil Code Section 1950.5(g)(2).

Failing to Follow the Section 1950.5 Procedure and Potential Penalties

When a landlord fails to follow the timeline and steps identified in Section 1950.5 in good faith, the landlord loses the ability to use the summary procedure.  Put differently, the landlord cannot simply “deduct-and-return” the tenant’s security deposit, but, instead, must return the security deposit in full and bring an action for damages to recover amounts owed to clean and/or repair the rental units.

If the landlord withholds the tenant’s security deposit in bad faith then the tenant may bring an action against the landlord and the landlord may be forced to pay “statutory damages of up to twice the amount of the security, in addition to actual damages.” Civil Code Section 1950.5(l).

Riverisland, Parol Evidence, and the Fraud Exception

We recently wrote about contract integration clauses, which will usually state that the contract is “completely integrated,” and the parol evidence rule, which works to keep out prior or contemporaneous statements or writings that would modify the contract.  In this post we discuss Riverisland Cold Storage, Inc. v. Fresno–Madera Production Credit Assn., 55 Cal. 4th 1169 (2013).   In short, Riverisland states that the parol evidence rule is not a bar to evidence that goes to show fraud in connection with the contract, and the court may look to, for example, prior statements and emails, to determined what agreement was made by the parties.

In Riverisland, the plaintiffs restructured and reaffirmed a debt owed to the Fresno-Madera Production Credit Association (“Credit Association”).  The restructuring agreement provided that the Credit Association would take no enforcement action for three months if the plaintiffs made specified payments and pledged eight (8) parcels of land as additional collateral.

Later, the plaintiffs fell behind on payments and the Credit Association instituted foreclosure proceedings. Eventually, the plaintiffs repaid the loan and the Credit Association dismissed its foreclosure proceedings.

However, the plaintiffs filed an action seeking damages for fraud and negligent misrepresentation, and included causes of action for rescission and reformation of the restructuring agreement. In their complaint, the plaintiffs alleged that the Credit Association’s vice president told them two weeks before the agreement was signed that the Credit Association would extend the loan for two years in exchange for two “ranch properties” as the additional real-property collateral, but the written contract actually allowed for only an additional three months of forbearance and identified eight (8) parcels as additional collateral.

The plaintiffs did not read the agreement, but simply signed it at the locations tabbed for signature. The Credit Association moved for summary judgment, contending that the plaintiffs could not prove their claims because the parol evidence rule barred evidence of any representations contradicting the terms of the written agreement.

At the time that the plaintiffs brought their complaint, California had operated under the longstanding rule set forth in Bank of America etc. Assn. v. Pendergrass, 4 Cal. 2d 258 (1935), which prohibited the use of parol evidence in cases where fraud is alleged in connection with a purportedly “integrated” contractual agreement.

In Riverisland the Supreme Court concluded that the limitations Pendergrass placed on the fraud exception to the parol evidence rule were not supported by the language of the statute establishing that exception (CCP § 1856(f)(g)) or consistent with prior case law. (55 Cal.4th at 1182)  Further, it held that “Pendergrass failed to account for the fundamental principle that fraud undermines the essential validity of the parties’ agreement. When fraud is proven, it cannot be maintained that the parties freely entered into an agreement reflecting a meeting of the minds. . . . Parol evidence is always admissible to prove fraud, and it was never intended that the parol evidence rule should be used as a shield to prevent the proof of fraud.” (Id. at 1180–1182)

How will this affect contract related litigation in California?   Riverisland leans against a court granting dispositive motions, like demurrers, motions for summary judgment, and motions for judgment on the pleadings, where the plaintiff alleges or can show that there is parol evidence supporting their claims, even if the contract is “fully integrated” and/or has an integration clause.