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MCLE Self-Assessment Test

The California Supreme Court’s 2012-2013 term: Clearing away the underbrush

By J. Clark Kelso

Clark KelsoHigh courts are appropriately reluctant to overrule their own precedents. Respect for prior decisions lies at the heart of stare decisis and is one of the distinguishing features of judicial reasoning. At the same time, courts have an obligation to review their prior work to determine whether it still serves the public interest. If the needs of today’s generation require improvements or changes to the law, the courts should not hesitate in making those improvements. Also, it sometimes happens that a court simply gets it wrong the first time around, and courts should not hesitate to correct their own mistakes. This year, the California Supreme Court had a number of important brush-clearing decisions.

The fraud exception to the parol evidence rule

Our first case this year is a good example of a decision that clears away some old underbrush and corrects an old error. In Riverisland Cold Storage v. Fresno-Madera Production Credit Association, 55 Cal.4th 1169 (2013), the court overruled its 77-year-old decision in Bank of America v. Pendergrass, 4 Cal.2d 258 (1935). The issue involved the fraud exception to the parol evidence rule. As a general matter, the parol evidence rule protects the integrity of written contracts by making their terms the exclusive evidence of the parties’ agreement. Under the rule, parol evidence is inadmissible to vary the terms of a contract.

However, like all good rules, it has a number of exceptions. One of the well-established exceptions to the parol evidence rule allows a party to present extrinsic evidence to show that the agreement was tainted by fraud. The reason for this exception seems obvious. Fraud is a serious enough allegation that if fraud can be proven, it should trump the writing. Although this exception is generally stated in broad terms around the country and in the Restatement of Contracts, in 1935 the California Supreme Court adopted in Pendergrass a limitation on the fraud exception pursuant to which evidence offered to prove fraud “must tend to establish some independent fact or representation, some fraud in the procurement of the instrument or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing.” Pendergrass, 4 Cal.2d at 263.

This so-called Pendergrass limitation on the fraud exception to the parol evidence rule has been criticized for decades, but lower courts have continued to apply it, as is their constitutional mandate. In Riverisland, the California Supreme Court unanimously overturned Pendergrass, noting that its holding really wasn’t supported by California law even at the time it was decided, appeared to be inconsistent with California’s parol evidence statute which codified the fraud exception, was not followed by other jurisdictions and was rejected by the restatement and most treatises. The rule also may actually have provided a shield for fraudulent conduct, which is precisely the opposite of what the fraud exception was supposed to accomplish. For all these reasons, the court rejected the Pendergrass decision and brought California’s version of the fraud exception to the parol evidence rule back into the mainstream of contracts law around the country.

The common law release rule

Another example of clearing away some old, bad law is found in Leung v. Verdugo Hills Hospital, 55 Cal.4th 291 (2012), where the court abandoned the common law release rule pursuant to which a release of one joint tortfeasor automatically released all other joint tortfeasors as a matter of law. Six days after his birth, the plaintiff suffered irreversible brain damage. Through his mother as guardian ad litem, he sued his pediatrician and the hospital in which he was born. Before trial, the plaintiff and the pediatrician agreed to a settlement of $1 million, the limit of the pediatrician’s malpractice insurance policy. After a jury trial, the plaintiff was awarded both economic and noneconomic damages. The jury found that the pediatrician was 55 percent at fault, the hospital 40 percent at fault and the parents 5 percent at fault. On the hospital’s appeal, a major contention was that under the common law release rule, the plaintiff’s settlement with the pediatrician also released the non-settling hospital from liability for the plaintiff’s economic damages. The Court of Appeal reluctantly agreed, correctly recognizing that under the common law rule, the release of one joint tortfeasor released all joint tortfeasors as a matter of law.

The California Supreme Court granted review to consider the continuing viability of the release rule, and it decidedly unanimously to abandon the rule. The rationale for rule had been the theory that there can be only one compensation for a single injury and because each joint tortfeasor is liable for all of the damage, any joint tortfeasor's payment of compensation in any amount satisfied the plaintiff's entire claim. The basic problem with the rule, among other things, is that it assumes – contrary to fact in many cases – that when a plaintiff settles with one defendant in exchange for a release, it has received full compensation for its injuries. But there can be many reasons for settling with a defendant for less than full compensation including, as in this case, the fact that the defendant has a cap on insurance.

The California Legislature recognized the harshness of the common law rule and in 1957 enacted Code of Civil Procedure Section 877, which rejected the release rule in the context of good faith settlements. According to Section 877, where a plaintiff enters into a good faith settlement with one or more joint tortfeasors, that settlement merely reduces, by the settlement amount, the damages that the plaintiff may recover from the non-settling joint tortfeasors. But Section 877 applies by its terms only to good faith settlements. In Verdugo, the trial court determined that the settlement had not been made in good faith and held that, since Section 877 did not apply, the old common law release rule came into play.

In its opinion, the Supreme Court finished the work begun by the Legislature in 1957. Recognizing that the rule resulted in unjust and inequitable results even as applied to a bad faith settlement, the court abandoned the release rule in its entirety. Now, any settlement with a joint tortfeasor will reduce the plaintiff’s damages by the amount of the settlement but will not entirely bar recovery against another joint tortfeasor. Having rejected the release rule, the court then had to choose how to apportion damages among the joint tortfeasors, and it adopted a “setoff-with-contribution” approach to this problem, pursuant to which the money paid by the settling tortfeasor is credited against any damages assessed against the non-settling tortfeasors, who are allowed to seek contribution from the settling tortfeasor for damages they have paid in excess of their equitable shares of liability.

Assumption of risk

Our next case involves a slightly different type of brush-clearing. In Nalwa v. Cedar Fair, 55 Cal.4th 1148 (2012), the court did not need to overrule any prior decisions, but it did successfully clarify the scope of its prior decisions dealing with the primary assumption of risk doctrine.

Some 20 years ago, in Knight v. Jewett, 2 Cal.4th 296 (1992), the California Supreme Court rationalized the tension in California law between the doctrine of assumption of risk and the doctrine of comparative fault. The problem was that assumption of risk is an all-or-nothing defense that is triggered when the plaintiff exposes him or herself to certain risks of injury, and comparative fault is a limited defense that simply reduces the plaintiff’s recovery when the plaintiff’s own unreasonable conduct has contributed to the accident. The two defenses appear to have a significant degree of overlap.

In Knight, the court rejected the argument that comparative fault had entirely replaced assumption of risk, but language in the decision appeared to limit the assumption of risk doctrine to certain types of sports and sports-related injuries. Knight itself involved an injury that occurred during an informal game of touch football. The issue before the Supreme Court in Nalwa v. Cedar Fair was whether primary assumption of risk applied to a plaintiff who suffered a fractured wrist, which resulted from a head-on collision in a bumper car ride at Great America. The Court of Appeal held that the doctrine did not apply because it concluded a commercial bumper car ride was not a sport and was therefore outside the scope of the defense.

The Supreme Court quite sensibly reversed. The whole point of the primary assumption of risk defense is that people intentionally and reasonably engage in risky behavior as a central part of many recreational activities. If the courts were to impose the same standards on those activities as they impose in other contexts, much of the fun of the activity would be squeezed out. Low-speed collisions are essential to the bumper car ride experience, and the jostling that occurs from those collisions is the very reason the ride is fun. The plaintiff in this case suffered a very unusual injury, apparently because at the very moment of the collision, she had placed her hand on the dashboard of the bumper car at an angle where the head-on collision fractured her wrist. For the Supreme Court, that was still a type of injury within the reasonable scope of the recreational activity. The decision in Nalwa makes it clear that Knight and its progeny are not limited to sports and that primary assumption of risk is a more general doctrine dealing with any type of voluntary participation in risky recreational activities.

Half remedies

Sometimes, it is better to receive half a loaf than receive nothing at all. That fairly describes the result in Harris v. City of Santa Monica, 56 Cal.4th 2103 (2013), which involved the issue of remedies for employment discrimination. A rather common factual defense in employment discrimination cases is that even if the plaintiff had been subjected to some degree of discriminatory treatment, the employer also had perfectly legitimate, non-discriminatory reasons for taking the adverse employment action complained of by the plaintiff. The problem is essentially one of mixed causation, a topic that courts often struggle to accommodate to the all-or-nothing nature of most civil judgments.

In Harris v. City of Santa Monica, the California Supreme Court dealt with a case where a bus driver alleged that she was fired because of her pregnancy in violation of the prohibition on sex discrimination in the Fair Employment and Housing Act. The city claimed that she had been fired for poor job performance. At trial, the city asked the court to instruct the jury that if it found a mix of discriminatory and legitimate motives, the city could avoid liability by proving that a legitimate motive alone would have led it to make the same decision to fire her. The trial court refused the instruction, and the jury returned a substantial verdict for the employee. The Court of Appeal reversed, holding that the requested instruction was legally correct and that refusal to give it was prejudicial error.

The Supreme Court agreed in part with the Court of Appeal, holding that under the Fair Employment and Housing Act, when a jury finds that unlawful discrimination was a substantial factor motivating a termination of employment, and when the employer proves it would have made the same decision absent such discrimination, a court may not award damages, back pay or an order of reinstatement. However, the court also held that the employer does not entirely escape liability. In light of the act’s express purpose of not only redressing but also preventing and deterring unlawful discrimination in the workplace, the court held that the plaintiff could still be awarded, where appropriate, declaratory relief or injunctive relief to stop discriminatory practices. If awarded such relief, that also might make the plaintiff eligible for reasonable attorney’s fees and costs, giving the plaintiff, at most, a half remedy and half a loaf.

Things not to do with a parolee

We close this year with a pair of cases involving parolees. Parolees find themselves in between full imprisonment and freedom. Although parolees have much greater freedom to move about, their rights have not been fully restored. And that can make it risky to associate with parolees, as our final two cases demonstrate.

First, in People v. Schmitz, 55 Cal.4th 909 (2012), we see the driver of a car who learns that having a parolee as a passenger can have some serious consequences, particularly if you are carrying illegal drugs in the car. The law of search and seizure in the context of automobiles is wonderfully complex, and when that law intersects with the law related to searches of a parolee, you can be sure to get some interesting results.

That’s what we see in Schmitz where a police officer, aware that the front-seat passenger was on parole, searched the back seat of defendant’s car and recovered drugs and drug paraphernalia from a chips bag and a pair of shoes. The defendant, the driver, sought to suppress that evidence. The majority concluded that the search was reasonable under the Fourth Amendment, which permits a search of those areas of the passenger compartment where the officer reasonably expects that the parolee could have stowed personal belongings or discarded items when aware of police activity. Additionally, the officer may search personal property located in those areas if the officer reasonably believes that the parolee owns those items or has the ability to exert control over them. So if you bring a parolee with you as a passenger, you can pretty well expect the entire inside of the car to be fair game for a search.

It gets worse if you help a parolee abscond from parole. According to Section 32 of the Penal Code, an accessory is a person “who, after a felony has been committed, harbors, conceals or aids a principal in such felony, with the intent that said principal may avoid or escape from arrest, trial, conviction or punishment, having knowledge that said principal has committed such felony or has been charged with such felony or convicted thereof.”

In People v. Nuckles, 56 Cal.4th 601 (2013), the Supreme Court addressed the question whether a person who intentionally aids a parolee in absconding from parole supervision qualifies as an accessory to the crime for which the parolee had originally been sentenced to prison. The court held that such a person was indeed an accessory. The defendant argued that there was not a sufficient nexus between the original crime and aiding a parolee in absconding from parole. But the court disagreed, noting that so long as the defendant intentionally helped a parolee avoid some aspect of his punishment for his felony conviction, that help established the sufficient nexus between her aid and the original felony. Section 32, after all, expressly refers to aiding a felon avoid punishment.

So, although it may be a little surprising, when you help a felon abscond from parole, you have become an accessory to the underlying felony. Another thing not to do with a parolee.

J. Clark Kelso is a professor at the University of the Pacific McGeorge School of Law and he serves as the federally appointed receiver responsible for California’s prison medical care system. The views expressed in this article are solely the personal views of the author.