Castelo v. Xceed Financial Credit Union

Filed 5/18/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
ELIZABETH CASTELO, B311573
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 19STCV28608)
v.
XCEED FINANCIAL CREDIT
UNION,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of
Los Angeles County. Michael L. Stern, Judge. Affirmed.
Rastegar Law Group, Farzad Rastegar, Douglas W.
Perlman and Thomas S. Campbell for Plaintiff and Appellant.
Schimley Althouse and Paul F. Shimley for Defendant and
Respondent.
_______________________
INTRODUCTION
Elizabeth Castelo sued her former employer Xceed
Financial Credit Union (Xceed) for wrongful termination and age
discrimination in violation of the Fair Employment and Housing
Act (FEHA) (Gov. Code, § 12900 et seq.) The case was submitted
to binding arbitration pursuant to the stipulation of the parties.
The arbitrator granted summary judgment in favor of Xceed on
the ground Castelo’s claims were barred by a release in her
separation agreement. The arbitrator rejected Castelo’s assertion
that the release violated Civil Code section 1668, which prohibits
pre-dispute releases of liability in some circumstances. Castelo
moved to vacate the arbitration award, arguing the arbitrator
exceeded his powers by enforcing an illegal release. The trial
court denied the motion to vacate and entered judgment
confirming the arbitration award.
We affirm. We review the arbitrator’s ruling for clear
error. The arbitrator correctly ruled the release did not violate
Civil Code section 1668. Castelo signed the separation
agreement after she was informed of the decision to terminate
her but before her last day on the job. At the time she signed, she
already believed that the decision to terminate her was based on
age discrimination and that she had a valid claim for wrongful
termination. The alleged violation of FEHA had already
occurred, even though the claim had not yet fully accrued.
Accordingly, the release did not violate section 1668 because it
was not a release of liability for future unknown claims.
2
FACTUAL AND PROCEDURAL HISTORY
1. Castelo’s Termination and Separation Agreement
Castelo was employed by Xceed as its Controller and Vice
President of Accounting. In November 2018, Xceed informed
Castelo her employment would be terminated effective
December 31, 2018. On November 19, 2018, the parties entered
into an agreement entitled “Separation and General Release
Agreement” (Separation Agreement), in which, among other
things, Xceed agreed to pay Castelo a severance payment in
consideration for a full release of all claims, including “a release
of age discrimination claims that she has or may have under
federal and state law, as applicable.”
Paragraph 2 provided that for the agreement “to become
effective and enforceable,” Castelo had to meet certain conditions,
including the following: “As of the Employee’s Separation Date,
Employee must sign Exhibit ‘A’ to this Agreement reaffirming
Employee’s commitment to abide by the terms of this Agreement
and effectuating a full release of claims through Employee’s
Separation Date,” which was December 31, 2018.
Paragraph 4 provided: “In consideration of the provisions
of this Agreement, including Employee’s waiver and release of
claims and the other promises of Employee set forth in the
Agreement, [Xceed] will pay Employee the amount of . . .
$137,334.00 less appropriate federal and state withholdings.”
The sum was to be paid in two installments, with $5,000.00 to be
paid shortly after the expiration of a revocation period and the
remaining $132,334.00 to be paid shortly after Castelo’s
separation date. The second payment was to be made only if
Castelo “sign[ed] and d[id] not revoke the Reaffirmation of
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Severance and General Release Agreement attached as
Exhibit A.”
The release extended to all claims known and unknown
“arising directly or indirectly from Employee’s employment with
[Xceed] [and] the termination of that employment” including
(among many other listed claims) “wrongful discharge[;] violation
of public policy[;] . . . [and] violation of the California Fair
Employment and Housing Act.” The parties agreed to waive the
protections of Civil Code section 1542.
Castelo and Xceed signed the Separation Agreement on
November 19, 2018.
Attached as Exhibit A to the Separation Agreement was a
document entitled “Reaffirmation of Separation and General
Release Agreement” (Reaffirmation). The Reaffirmation recited
that Castelo and Xceed had entered into the Separation
Agreement dated November 19, 2018; that the Separation
Agreement contemplated a complete release of all claims up to
and including the effective date of November 19, 2018; and that
Castelo had continued to work with Xceed as an at-will employee
until Castelo’s separation date of December 31, 2018. The
Reaffirmation then stated: “[T]he intent of this Reaffirmation of
Separation and General Release Agreement . . . is to effectuate a
complete release of all claims of whatever kind or nature . . .
while extending the timeframe of those releases up to and
including the date of Employee’s signature below.”
The Reaffirmation further provided, in consideration of the
mutual promises and agreements between the parties, Castelo
“reaffirmed” the Separation Agreement. Further, “[i]n
reaffirming the Agreement, [Castelo] covenants and agrees that
she will not bring any action against [Xceed] . . . as a consequence
4
of any matter from the beginning of time up to and including the
date of her signature below. [¶] . . . Employee further
understands and acknowledges that the complete release of all
matters described in this Reaffirmation includes, but is not
limited to, [all claims] . . . from the beginning of time up to and
including the date of her signature below.”
The Reaffirmation further stated: “[Castelo] understands
and agrees that provided (i) her Separation Date occurs no later
than December 31, 2018[,] (ii) she is otherwise in compliance with
the terms of this Agreement, (iii) she executes this Reaffirmation,
and (iv) she does not revoke this Reaffirmation within the
timeframe provided below, [Xceed] will pay [Castelo] the balance
of the Separation Pay in the amount of . . . $132,334.00, less
applicable withholdings, on the tenth . . . day after the expiration
of the revocation period under this Reaffirmation.”
It is undisputed Xceed management intended that Castelo
would sign the Reaffirmation on the date of her separation.
However, Castelo signed it on the same date she signed the main
Separation Agreement, on November 19, 2018, and Xceed did
nothing to correct that error.
Castelo remained employed by Xceed until December 31,
2018. In January 2019, Xceed paid Castelo the remaining
$132,334.00 and Castelo accepted the payment. Castelo made no
attempt to revoke the Separation Agreement or Reaffirmation at
any time before or after receiving payment.
2. Castelo’s Lawsuit and Subsequent Arbitration
On August 13, 2019, Castelo filed a complaint against
Xceed alleging age discrimination and wrongful termination in
violation of FEHA. On October 3, 2019, the parties stipulated the
5
action would be submitted to binding arbitration pursuant to an
arbitration agreement executed in 2013. The court then
dismissed the action without prejudice but retained jurisdiction
to enter judgment on any arbitration award.
The matter was submitted to binding arbitration before
Hon. Enrique Romero (ret.). Xceed filed a response to Castelo’s
complaint alleging, among other things, Castelo’s action was
barred by the release. Xceed also filed a cross-complaint and first
amended cross-complaint, asserting claims for (1) breach of the
Separation Agreement and Reaffirmation; (2) unjust enrichment;
(3) reformation; (4) declaratory relief; and (5) promissory
estoppel.
The parties filed cross-motions for summary judgment, or,
in the alternative, summary adjudication. Castelo sought
summary judgment on Xceed’s first amended cross-complaint and
summary adjudication of Xceed’s affirmative defense of release.
Xceed sought summary judgment on the ground that the release
barred Castelo’s claims in their entirety.
Castelo argued that, under the plain language of the
Reaffirmation, claims were released only to the extent they
accrued on a date “up to and including the date of her signature,”
which was November 19, 2018. Castelo contended the wrongful
termination claim was not within the scope of this release
because the claim accrued on the date of her separation, which
was December 31, 2018. Castelo further argued that even if the
release could be construed as extending beyond the date of her
signature to the date of her separation, the release could not be
enforced because it was void under Civil Code section 1668,
which, according to Castelo, prohibits any agreement which seeks
to exempt a party from future statutory violations.
6
Xceed argued undisputed extrinsic evidence established
that the parties intended the release to extend to claims that
accrued as of the date of Castelo’s separation and that applying
the release to Castelo’s claims would not violate Civil Code
section 1668.
The arbitrator considered the extrinsic evidence submitted
by the parties and ruled the parties intended the release to
extend to all claims that accrued through December 31, 2018.
The arbitrator further concluded that applying the release to
claims that accrued after the date of signing would not violate
Civil Code section 1668. Accordingly, on December 4, 2020, the
arbitrator granted summary judgment in favor of Xceed and
against Castelo on all claims in Castelo’s complaint and issued an
award in Xceed’s favor.
As to the contract interpretation issue, the arbitrator
concluded that there was no material conflict in the extrinsic
evidence and that the arbitrator could thus interpret the contract
as a matter of law. Further, the undisputed extrinsic evidence
revealed a latent ambiguity in the language of the Reaffirmation
and made clear the parties intended the release to extend to
Castelo’s separation date. Specifically, the parties “intended the
phrases ‘the date of her signature below’ and ‘the date of
[Castelo’s] signature below’ in the Reaffirmation to mean only
one thing: the ‘Separation Date’ of December 31, 2018,” and not
the date that Castelo actually signed the document.
The arbitrator explained the basis for this conclusion at
length. Among other things, the arbitrator reasoned: “[T]he
objectively-manifested intent of the Agreement was for Castelo to
release all claims as of the date of signature (defined as the
‘Effective Date’ in the Agreement) in exchange for the payment of
7
$5,000.00, and then extend that release through the Separation
Date, December 31, 2018, for an additional $132,334.00. Indeed,
the third recitation of the Reaffirmation expressly announces the
parties’ intent to ‘extend[] the timeframe’ of the releases in the
Separation Agreement. This is consistent with the intent
testified to by Xceed’s principals and employees. If the
Agreement truly contemplated that she would execute both on
the same date, the Reaffirmation Agreement (and numerous
provisions of the Separation Agreement) would be superfluous.”
Further, Castelo had testified in her deposition that at the time
she signed the agreements, she knew she was being wrongfully
terminated based on age discrimination and that the Separation
Agreement and Reaffirmation contained releases of wrongful
termination and age discrimination claims.
The arbitrator then turned to whether the release, as
interpreted, violated Civil Code section 1668 because Castelo
executed the release before the claim for wrongful termination
had fully accrued. The arbitrator stated: “Civil Code
section 1668 provides that ‘[a]ll contracts which have for their
object, directly or indirectly, to exempt anyone from responsibility
for his own fraud, or willful injury to the person or property of
another, or violation of law, whether willful or negligent, are
against the policy of the law.’ [Citations.] . . . [¶] Even assuming
arguendo that Castelo’s claim for wrongful termination did not
accrue until her termination on December 31 and that the release
affects the ‘public interest,’ this argument gains no traction. The
Agreement did not have, as its purpose, the immunization of
Xceed from liability for a future violation of law. Rather, it
clearly intended to, on December 31, 2018, effect the release of
claims which had accrued on or before that date (i.e., an accrued
8
claim for wrongful termination, and any other employment-
related claim Castelo could bring). The Arbitrator declines to
permit Castelo—who accepted the benefits under the
Reaffirmation—to use her mistakenly-premature execution of the
Reaffirmation to leverage this statute as a weapon against
Xceed.” (Italics in original.)
The arbitrator noted: “If the Arbitrator did not reach this
conclusion, then in the interest of justice and pursuant to his
interpretation of the release, he would have reformed the
Agreement as requested . . . which would negate this defense to
the release.”
3. The Trial Court’s Denial of the Motion To Vacate and
Entry of Judgment Confirming the Arbitration Award
On December 22, 2020, Xceed filed a petition to confirm the
arbitration award. On January 13, 2021, Castelo filed a petition
to vacate the award. Castelo argued the arbitrator exceeded his
authority by giving effect to a contract that was illegal under
Civil Code section 1668. On February 4, 2021, the trial court
granted the petition to confirm the award and denied the petition
to vacate.
The court stated: “One of the statutory grounds to vacate is
the arbitrator exceeded his powers because the contract upon
which the award was based is illegal.” The court concluded the
issue of illegality was for the trial court to decide and “any
preliminary determination of legality by the arbitrator, whether
in the nature of a determination of a pure question of law or a
mixed question of fact and law, should not be held to be binding
upon the trial court.”
9
The court then reasoned: “Public policy disfavoring
attempts by contract to limit liability for future torts finds
expression in Civil Code section 1668, which prevents a party to
give itself permission, through a release, to engage in future
unlawful conduct. . . . [¶] The settlement agreement at issue,
and the release contained therein, did not have, as its purpose,
the immunization of Xceed from liability for a future violation of
law. Rather, it released claims which had accrued on or before
that date such as the accrued claim for wrongful termination and
any other employment-related claim Castelo could bring. [¶]
Therefore, this Court does not find that the contract upon which
the arbitration award is based to be illegal. As such, the
arbitrator did not exceed his powers.”
The court entered judgment confirming the arbitration
award on February 16, 2021. Castelo filed a timely notice of
appeal on February 26, 2021.
DISCUSSION
Castelo does not challenge the arbitrator’s interpretation of
the release in the Reaffirmation as extending to claims that
accrued as of the date of Castelo’s separation. Instead, Castelo
contends the release, as interpreted and applied by the
arbitrator, violates Civil Code section 1668 because it purported
to release claims that accrued after Castelo signed the document.
Castelo claims that the arbitrator exceeded his authority in
giving effect to the illegal release and that this court must review
the arbitrator’s and trial court’s decisions de novo.
10
1. Whether the Arbitrator’s Decision That the Release Did
Not Violate Civil Code Section 1668 Is Reviewable and,
If So, What Standard of Review Applies
The parties disagree as to the proper scope of our review.
“Where, as here, an arbitrator has issued an award, the decision
is ordinarily final and thus ‘is not ordinarily reviewable for error
by either the trial or appellate courts.’ [Citation.] The exceptions
to this rule of finality are specified by statute. As relevant here,
the [California Arbitration Act (CAA)] provides that a court may
vacate an arbitration award when ‘[t]he arbitrators exceeded
their powers and the award cannot be corrected without affecting
the merits of the decision upon the controversy submitted.’ (Code
Civ. Proc., § 1286.2, subd. (a)(4)).” (Sheppard, Mullin, Richter &
Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal.5th
59, 72 (Sheppard, Mullin).) “[T]he question whether the
arbitrator exceeded his powers and thus whether the [appellate
court] should vacate his award on that basis is generally
reviewed on appeal de novo.” (Richey v. AutoNation, Inc. (2015)
60 Cal.4th 909, 918, fn. 1 (Richey).)
Castelo asserts an arbitrator exceeds his or her powers
under Code of Civil Procedure section 1286.2 any time an
arbitrator enforces an illegal provision in a contract. This is
incorrect. A “contention that the parties’ contract or transaction
was illegal provides a ground for judicial review of the arbitration
award only where the party claims the entire contract or
transaction is illegal, not just one provision of the contract.”
(SingerLewak LLP v. Gantman (2015) 241 Cal.App.4th 610, 616.)
Here, Castelo does not claim the entire Separation
Agreement and Reaffirmation is illegal. She does not seek to
rescind the agreement and does not propose she return the
11
$137,334.00 she received as consideration. Rather, she seeks to
invalidate only the release, and only to the extent the arbitrator
applied the release to claims that accrued on or after the date of
its execution. Castelo’s argument that the arbitrator’s decision is
subject to judicial review simply because the release is alleged to
be illegal thus fails.
Nonetheless, there are “‘some limited and exceptional
circumstances justifying judicial review of an arbitrator’s decision
when a party claims illegality affects only a portion of the
underlying contract. Such cases would include those in which
granting finality to an arbitrator’s decision would be inconsistent
with the protection of a party’s statutory rights.’” (Sheppard,
Mullin, supra, 6 Cal.5th at p. 77 [explaining and reaffirming the
holding in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1].) More
generally, even outside the context of an illegal contract, in
certain limited and exceptional circumstances, “[a]rbitrators may
exceed their powers by issuing an award that violates a party’s
unwaivable statutory rights or that contravenes an explicit
legislative expression of public policy.” (Richey, supra, 60 Cal.4th
at p. 916.)
One example of when this occurs is when an arbitrator
commits a “clear error of law” that prevents a party from
obtaining a hearing on the merits of a FEHA claim. Specifically,
when “an employee subject to a mandatory employment
arbitration agreement is unable to obtain a hearing on the merits
of [the employee’s] FEHA claims, or claims based on other
unwaivable statutory rights, because of an arbitration award
based on legal error, the trial court does not err in vacating the
award. Stated in other terms, construing the CAA in light of the
Legislature’s intent that employees be able to enforce their right
12
to be free of unlawful discrimination under FEHA, an arbitrator
whose legal error has barred an employee subject to a mandatory
arbitration agreement from obtaining a hearing on the merits of a
claim based on such right has exceeded his or her powers within
the meaning of Code of Civil Procedure section 1286.2,
subdivision (a)(4), and the arbitrator’s award may properly be
vacated.” (Pearson Dental Supplies, Inc. v. Superior Court (2010)
48 Cal.4th 665, 680, italics added.)
In Pearson, the arbitrator committed a “clear error of law”
by failing to give effect to the tolling provision in Code of Civil
Procedure section 1281.12 and erroneously concluding that the
plaintiff’s claims were time-barred. (Pearson, supra, 48 Cal.4th
at pp. 673-676.) The court found this was a sufficient basis for
vacating the arbitration award because the arbitrator exceeded
his powers by depriving the plaintiff of a hearing on the merits of
his FEHA claim through a clearly erroneous ruling. (Id. at
pp. 675-680.) “[Pearson’s] legal error standard d[oes] not mean
that all legal errors are reviewable,” but is narrowly applicable
where the alleged legal error kept a plaintiff from receiving a
hearing on the FEHA claim’s merits. (Richey, supra, 60 Cal.4th
at p. 918.)
Neither party addresses Pearson. However, Castelo
argues, in effect, that she was deprived of a hearing on the merits
of her FEHA claim because the arbitrator enforced a release that
was illegal under Civil Code section 1668. The arbitrator’s ruling
in this case (that the FEHA claim was barred by the release) has
the same effect as the arbitrator’s ruling in Pearson (that the
FEHA claim was barred by the statute of limitations); in each
case, the arbitrator ruled in favor of the defendant without
reaching the merits of the discrimination claim. The alleged
13
error here should thus be subject to same standard of review as
the alleged error in Pearson.
Under Pearson, the arbitrator’s ruling that deprived the
claimant of a hearing on the FEHA claim is reviewed by the
appellate court for clear legal error. (Pearson, supra, 48 Cal.4th
at p. 680; see also Comerica Bank v. Howsam (2012)
208 Cal.App.4th 790, 817 [“[A]n award may be vacated where an
arbitrator commits clear legal error which denies a litigant a
hearing on an unwaivable important statutory right.”].) The trial
court’s order denying the motion to vacate is reviewed de novo.
(Richey, supra, 60 Cal.4th at p. 918, fn. 1.) We thus review the
arbitrator’s decision to determine whether the arbitrator
committed clear legal error in concluding that the release was not
barred by Civil Code section 1668.
2. Whether the Arbitrator Committed Clear Legal Error by
Concluding That the Release Did Not Violate Civil Code
Section 1668
Civil Code section 1668 (section 1668) provides: “All
contracts which have for their object, directly or indirectly, to
exempt anyone from responsibility for his own fraud, or willful
injury to the person or property of another, or violation of law,
whether willful or negligent, are against the policy of the law.”
Courts have not applied this statute literally but have
interpreted it to give effect to its purpose and to promote public
policy. (See, e.g., Farnham v. Superior Court (1997)
60 Cal.App.4th 69, 74 [despite its language suggesting otherwise,
statute does not bar “contractual indemnity or insurance,
notwithstanding that (aside from semantics) the practical effect
of both is an ‘exempt[ion]’ from liability for negligence”]; see also
14
City of Santa Barbara v. Superior Court (2007) 41 Cal.4th 747,
755 [statute does not bar general releases of future claims for
ordinary negligence when the “‘exculpatory provision’” does not
“‘involve [and impair]” the public interest”’].)
The purpose of the statute is to prohibit parties from
granting themselves licenses to commit future aggravated wrongs
(or future negligent acts when certain public policies are
implicated). (City of Santa Barbara v. Superior Court, supra,
41 Cal.4th at p. 755.) Courts have therefore held the statute does
not prevent parties from agreeing to settle disputes or to release
claims relating to past conduct. (Watkins v. Wachovia Corp.
(2009) 172 Cal.App.4th 1576, 1587-1588, fn. 12 [“[T]his provision
is meant to prohibit contracts releasing liability for future torts
[citation] not to prohibit settlements of disputes relating to past
conduct.”]; accord, Daneshmand v. City of San Juan Capistrano
(2021) 60 Cal.App.5th 923, 935 (Daneshmand).)
Consistent with the purpose of the statute, courts have
interpreted section 1668 as precluding releases of liability only
for future violations of law, that is, where the facts giving rise to
the offense have not yet occurred. (Daneshmand, supra,
60 Cal.App.5th at 935; SI 59 LLC v. Variel Warner Ventures, LLC
(2018) 29 Cal.App.5th 146, 152 (Variel) [“The statute prohibits
exculpation from future torts.”]; Frittelli, Inc. v. 350 North Canon
Drive, LP (2011) 202 Cal.App.4th 35, 43 [“[T]he public policy
disfavoring attempts by contract to limit liability for future
torts . . . finds expression in section 1668.”]; Watkins v. Wachovia
Corp., supra, 172 Cal.App.4th at p. 1587, fn. 12 [section 1668 only
applies to contracts that release liability for future torts]; Health
Net of California, Inc. v. Department of Health Services (2003)
113 Cal.App.4th 224, 227 [section 1668 prevents a party from
15
imposing a contractual prohibition against the recovery of
damages for any future violations of statutory or regulatory
law].)1
Further, the doctrine generally applies to invalidate
releases only when the provision at issue purports to contract
away liability for future unknown claims, such as when a party is
required to sign a pre-dispute release of liability against future
unknown acts in order to obtain services from a provider. For
example, the Supreme Court has held a release was void as
against public policy when a hospital required patients, as a
condition of admittance, to release the hospital from liability for
future acts of negligence by employees. (Tunkl v. Regents of
University of California (1963) 60 Cal.2d 92.) Patients were
required to execute the release before they received any
treatment and before any negligent act had occurred.
Accordingly, the patient had no way of knowing at the time of
execution whether the hospital employees would act negligently
or what the negligent acts would be.
Virtually all cases in which releases have been invalidated
under section 1668 have arisen in similar factual scenarios,
where the release is executed before a dispute has arisen between
the parties or when the future claim is not known to the releasing
party. (See, e.g., City of Santa Barbara v. Superior Court, supra,
41 Cal.4th at p. 757 [citing cases that have invalidated releases of
1 Not all pre-dispute releases of future tort claims are
invalid. Courts allow pre-dispute releases of future claims for
ordinary negligence when the contract does not affect the public
interest, such as in the recreational context. (See Hass v.
RhodyCo Productions (2018) 26 Cal.App.5th 11, 28-29 [collecting
cases].)
16
liability for future ordinary negligence; all cases involve pre-
dispute releases of unknown future claims.]; Manderville v.
PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1501 [party
who fraudulently induces a contract “cannot absolve himself or
herself from the effects of his or her fraud” by a waiver of liability
in the contract].)
Castelo has not cited a single case in which section 1668
was invoked to invalidate a release of a claim that was known to
the releasor at the time the release was executed and after a
dispute had already arisen between the parties, and our review
has revealed none.
Here, at the time Castelo signed the Separation Agreement
and Reaffirmation, Xceed had already made the decision to
terminate her. Castelo already knew the basic facts that would
later form the basis for her wrongful termination and age
discrimination claims. Castelo testified that by the time of
signing she already had concluded she was being wrongfully
terminated and the wrongful termination was based on age
discrimination. She already understood she had (or would have
as of the date of her separation) claims for those wrongful acts.
She already understood that her “job [was] gone” and therefore
she was focused on the money she would get as a severance
payment. She knew that her last day on the job would be
December 31, 2018. She agreed to accept, and did accept, a
payment of $137,334.00 to release those claims, including
wrongful termination and age discrimination, which are
specifically identified in the agreement. Castelo made no attempt
to revoke the agreement either before or after receiving payment.
Castelo’s claims all arise out of, or flow from, the decision to
terminate that is embodied in the Separation Agreement.
17
Castelo does not allege Xceed engaged in any new, independent
acts of discrimination after the date she signed. Castelo’s actual
discharge in December flowed inextricably from the decision
made and communicated to Castelo before she signed the
agreement in November. Because Castelo knew the facts
underlying her claims at the time she entered into the
agreement, the release does not implicate the policies that have
led courts to invalidate releases under section 1668. The
separation agreement includes a settlement of her existing (albeit
not yet fully accrued) wrongful termination claim, not a release of
future unknown claims.
Castelo argues the release improperly exonerates Xceed for
future conduct because a cause of action for wrongful termination
does not accrue until the date of termination and thus any
release executed before that date necessarily constitutes a waiver
of a future violation of the law. Castelo is correct that a claim for
wrongful termination does not accrue for statute of limitations
purposes until the employee is actually discharged, and that
Castelo’s claim had not accrued at the time she signed the
release. (Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th
479 (Romano).) But that does not necessarily mean the release
violates section 1668.
In Romano, the court gave several reasons for its
conclusion that a wrongful discharge claim accrued for statute of
limitations purposes at the time of discharge and not at the time
the employee was unequivocally informed he or she would be
discharged on a date certain in the future. First, the actionable
adverse employment decision in a wrongful discharge case is the
actual discharge, not the communication of the decision.
(Romano, supra, 14 Cal.4th at pp. 492-493.) Second, concluding
18
that the statute of limitations runs from the time of discharge
“has the obvious benefit of simplicity” because, unlike the date of
notification, the date of discharge is not likely to be the subject of
dispute. (Id. at p. 494.) Third, a holding that a wrongful
discharge claim accrues at termination would eliminate the need
for an employee to file a suit while he or she was still employed,
when the employer could still change its mind. (Ibid.) By
contrast, “a holding that the statute of limitations on a claim
under the FEHA runs from the time of notification of termination
would promote premature and potentially destructive claims, in
that the employee would be required to institute a complaint . . .
while he or she still was employed, thus seeking a remedy for a
harm that had not yet occurred. . . . [S]uch a rule would reduce
sharply any chance of conciliation between employer and
employee.” (Ibid.)
But these reasons for holding that the claim does not
accrue until the date of separation do not support a conclusion
that an employee should not be permitted to release or
compromise claims arising out of an impending termination at an
earlier time. The Supreme Court recognized as much in Romano,
supra, 14 Cal.4th 479. The employer had argued the accrual rule
ultimately adopted by the court would “represent[ ] poor public
policy” because it would “discourage employers from providing
advance notice or other severance benefits . . . to cushion the
economic blow of employment termination. [The employer
argued], too, that such a rule would be unfair because it would
permit employees ‘to have their cake and eat it too’—to retain
severance benefits and wait to sue until actual termination.” (Id.
at p. 500.)
19
In response to this argument, the court said it did not
“believe it [is] likely that such a rule will discourage employers
from offering generous severance packages. We perceive minimal
connection between severance benefits and the statute of
limitations, apart from a hope on the part of the employer that
the severance package will forestall any claim of wrongful
termination. If the employer’s object in offering such a package
is, as [the employer] suggests, to purchase exoneration from any
claim of wrongful termination, such an object may be secured
directly through an express agreement in which the employee
waives any potential claims.” (Romano, supra, 14 Cal.4th at
p. 500.)
In so ruling, the court implicitly recognized the public
policy benefits of allowing an employer to offer severance benefits
in exchange for a release of a wrongful termination claim when
the decision to terminate is made before the actual termination
date. (Romano, supra, 14 Cal.4th at p. 500.) As previously noted,
courts have interpreted section 1668 to give effect to its
underlying policies; there is no reason to interpret the statute to
prevent employers from offering severance benefits before an
employee’s last day on the job or to prevent employers from
conditioning the payment of benefits on the release of wrongful
termination claims based on the decision to terminate that had
already occurred.
Castelo further argues that Variel, supra, 29 Cal.App.5th
at page 148 compels the conclusion that section 1668 prohibits
the release of a statutory claim before the claim had fully
accrued. But Variel does not purport to address a situation when
the claims to be released are known to the releasing party.
Further, the language that Castelo relies on is dicta.
20
In Variel, the plaintiff was the assignee of a buyer of a
commercial building that had recently been improved. In the
purchase agreement, the buyer had released certain claims
regarding the condition of the building, including claims arising
out of construction errors, omissions or defects. (Variel, supra,
29 Cal.App.5th at p. 149). After the close of escrow, the buyer’s
assignee discovered problems with the building and sued the
seller and general contractor for negligence and negligent
misrepresentation. (Id. at p. 150.) On demurrer, the defendants
contended that the claims were barred by the release. The
plaintiff did not dispute that the claims fell within the scope of
the release but argued that the application of the release was
barred by section 1668. (Ibid.) The trial court sustained the
demurrer, concluding that section 1668 did not bar the release.
(Ibid.)
On appeal, the court upheld the trial court’s decision that
section 1668 did not invalidate the release of the claim for
negligence because the claim had already accrued by the time the
release was signed. The court stated section 1668 prohibited
releases only for future or concurrent torts, not for torts that had
already occurred. (Variel, supra, 29 Cal.App.5th at pp. 152-153.)
The claim had already accrued because the alleged negligence
had already given rise to “some form of economic or physical
damage”; the fact that more damage could later occur was
irrelevant to the question of whether the release was effective.
(Id. at p. 148.)
In analyzing the application of section 1668 to the
negligence claim, the court considered whether section 1668
would ever apply to releases of torts that had already accrued
prior to the execution of the release. The court reviewed cases
21
holding that a contracting party cannot escape liability for
fraudulent inducement by inserting a release of liability into the
fraudulently induced contract. (Variel, supra, 29 Cal.App.5th at
pp. 152-153.) The court concluded that those cases did not
involve past torts because even though the misrepresentations
occurred prior to signing, the elements of reliance and damages
“cannot possibly be past events.” (Id. at p. 153.) “We are not
aware of any case law applying section 1668 to torts where all
elements are past events. Under these circumstances, we follow
the weight of authority recognizing that section 1668 applies only
to concurrent or future torts.” (Ibid.)
The court summarized its holding as follows: “In affirming
[the court’s order sustaining the demurrer], we hold that
section 1668 negates a contractual clause exempting a party from
responsibility for fraud or a statutory violation only when all or
some of the elements of the tort are concurrent or future events
at the time the contract is signed. Contrariwise, we hold that
section 1668 does not negate such a clause when all the elements
are past events. Regarding the element of damages, which is
necessary for tort liability, this means that at least some form of
economic or physical damage has occurred.” (Variel, supra,
29 Cal.App.5th at p. 148.)
Castelo relies on that language to support her assertion
that section 1668 bars the release of any statutory claim that had
not fully accrued by the time the release is executed. However,
since the facts underlying each of the elements of the negligence
claim at issue in Variel had already occurred at the time the
release was signed, the language regarding future or concurrent
torts was dicta. The court did not have the occasion to consider
whether and to what extent section 1668 barred releases of
22
claims that had partially accrued at the time of execution because
the negligence claim had already fully accrued.
Moreover, Variel has no relevance to whether and to what
extent section 1668 applies to future claims that had partially
accrued and are known to the releasor at the time the release is
signed. The language Castelo relies on arose in the court’s
discussion of cases involving the fraudulent inducement of
contracts that include releases for all claims of fraud. Courts
have concluded such releases are invalid. In those cases, the
misrepresentations were made before the agreements were
signed, but the releasing parties did not know the
misrepresentations were false. That situation is entirely
different from the one here, where Castelo already believed she
was being wrongfully terminated when she signed the release.
Thus, contrary to Castelo’s argument, Variel does not stand
for the proposition that parties cannot agree to compromise
claims for wrongful termination after the decision to terminate is
made and communicated to the employee but before the
employee’s last day on the job.
For the foregoing reasons, we conclude the arbitrator did
not commit clear legal error in enforcing the release and the trial
court did not err in denying the motion to vacate. The
arbitrator’s enforcement of the release did not violate
section 1668 because Castelo signed the release after the
allegedly discriminatory decision was made and after Castelo had
already concluded that she was being wrongfully terminated
because of age discrimination. Castelo did not revoke the release
after the date of her discharge but instead accepted the
consideration for which she had bargained. Enforcement of the
release does not undermine the policies underlying section 1668
23
and promotes the strong public policy in favor of settling
disputes.
DISPOSITION
The judgment of the trial court is affirmed. Xceed is to
recover its costs on appeal.
ESCALANTE, J.*
We concur:
PERLUSS, P. J.
SEGAL, J.
* Judge of the Los Angeles County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
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