Source: https://www.norcalappeals.com/significant-cases/schmidt-v-board-of-trustees
Timestamp: 2019-04-26 04:09:40+00:00

Document:
Schmidt v. Board of Trustees (June 25, 2014, C069835, unpub.) involved an appeal from a motion for summary judgment that had been granted against our client, Dr. Schmidt. The issue involved the enforceability and interpretation of a settlement agreement in an employment grievance proceeding. Ms. Conrad assisted Kimball J.P. Sargeant, who was lead counsel on this case. The Court of Appeal found that there were disputed issues of material fact regarding the cause of action for fraud, requiring reversal of the summary judgment and remand for trial on the merits.
In this action, plaintiff Diane Schmidt, a professor in political science at California State University, Chico, sued the Board of Trustees of the California State University1 and several individuals for disability discrimination, harassment, retaliation, and other causes of action. Defendants sought summary judgment on the ground that Schmidt had released all of the claims asserted in this action by signing a settlement agreement two months before she commenced the action. The trial court agreed and entered judgment for defendants.
On appeal, Schmidt primarily contends that when the extrinsic evidence she offered of the negotiations leading up to the settlement agreement is considered, the release provisions in the agreement are ambiguous and thus there is a triable issue of fact as to whether those provisions encompassed the claims asserted in this action. We disagree. Even considering the evidence of the negotiations, the release language in the settlement agreement is not reasonably susceptible to the interpretation Schmidt offers because her interpretation would require us to ignore a substantial part of that language, whereas the interpretation the university advances gives meaning to all of the release language in the agreement. Thus, we conclude the trial court did not err in construing the settlement agreement as encompassing the claims asserted here.
We do, however, agree with Schmidt that the evidence she offered of the negotiation of the settlement agreement raises a triable issue of fact as to whether her release of the claims asserted here was procured by fraudulent misrepresentations made to her by a representative of the university. If Schmidt can prove such fraudulent inducement to sign the settlement agreement, then she will be entitled to enforce her understanding of the release, rather than its broader, more comprehensive terms, and will therefore be allowed to proceed with her claims in this action. Accordingly, we will reverse.
In the trial court, citing Frusetta v. Hauben (1990) 217 Cal.App.3d 551, Schmidt argued—albeit in an abbreviated manner—that the extrinsic evidence she offered raised a triable issue of fact as to fraud.4 She renews that argument in somewhat greater detail on appeal. Specifically, she contends there is a triable issue of fact as to the validity of the settlement agreement based on false representations Salinas made to her in the negotiations leading up to the signing of the agreement. For their part, defendants contend there is no evidence the university made a promise without the intent to perform it and any reliance by Schmidt on promises Salinas made to her was unjustifiable as a matter of law.5 For the reasons that follow, we agree with Schmidt.
At the outset, we observe that to the extent both sides discuss this issue as though Schmidt were asserting fraud in the nature of a “false promise”—that is, “[a] promise made without any intention to perform”—they are mistaken. The gist of Schmidt's fraud claim is that Salinas “misled her concerning the scope and effect of the settlement agreement he drafted,” specifically, the scope and effect of the release language in the agreement. Such a claim does not invoke principles of promissory fraud; although there was valuable consideration for the release, the release that Schmidt gave the university did not require the university to do anything or refrain from doing anything in the future, and thus Salinas cannot be understood to have misled Schmidt about what the university would or would not do.
Here, viewing the evidence in the light most favorable to Schmidt (as we must do) (Lackner v. North, supra,135 Cal.App.4th at p. 1196), we conclude there is a triable issue of fact as to whether the university's representative, Salinas, was responsible for Schmidt's failure to understand that the broad release language in the settlement agreement Salinas drafted did far more than release the university from the three grievances specifically mentioned in the agreement.
On February 2, 2010, more than a week after she had returned the proposed agreement to Salinas, without having heard anything from him, Schmidt learned that the hearings on her most recent grievances (395 and 396) had been scheduled for February 17 and 26—about two and three weeks in the future, respectively. At the same time, she also received her right-to-sue letter from the EEOC, which gave her 90 days to commence a civil action against the university. The right-to-sue letter was dated January 26, 2010, and showed that it had been copied to the university. Schmidt assumed that Salinas was aware of the right-to-sue letter in the negotiations that followed.
On February 3, Soares asked Schmidt for her “final say” on the university's settlement offer, and she responded to Soares and Salinas that she “ha[d]n't seen anything in writing from the administration concerning [her] revisions” to the global settlement agreement. To make some progress, she suggested narrowing the agreement to cover only grievance 396, which would be resolved by giving her a copy of Nix–Baker's investigative report.
“Option A: Accept the previous offer (global settlement) as is.
“Option B: Accept the new offer (settle 395, 396, 433 etc[.] ) without any opportunity for a final settlement including the monetary and non-monetary offers available in the global settlement.
The foregoing evidence is sufficient to raise a triable issue of fact as to whether Salinas wrongfully induced Schmidt to sign the partial settlement agreement in which he had included broad release language encompassing all claims whatsoever “arising out of the events, facts, ... and circumstances surrounding” grievances 433, 395, and 396, when he knew that she believed, based on his representations to her, that the release was going to encompass only resolution of the grievances themselves. There is evidence that Salinas knew Schmidt was operating under time pressure, because the first hearing on her most recent grievances was only a week away and because she had received her 90–day right-to-sue letter from the EEOC, and the trier of fact could find that he deliberately sought to take advantage of that pressure. (Recall his closing exhortation: “We can sign this agreement right now. Let's get this resolved.”) From the draft of the partial settlement agreement Salinas ultimately provided, along with the earlier draft of the global settlement agreement he had prepared, the trier of fact could also find that all along Salinas intended to keep in the draft the broad release language regarding the release of all claims whatsoever “arising out of the events, facts, ... and circumstances surrounding” the named grievances, but at the same time he harbored the intent to keep this language in the agreement he was telling Schmidt that the partial settlement agreement provided only “for resolution of grievances: 433, 395, and 396.... The other grievances and suits that you have will continue forward and will not be affected by this Settlement Agreement & Release.” (Italics added.) The trier of fact could reasonably conclude that this statement was calculated to lead Schmidt to believe that only the three grievances themselves were being resolved by the partial settlement—particularly given the narrow scope of the relief that was being offered: removal of the letter of reprimand and provision of the investigative report. Indeed, it is particularly telling that at no time in the exchange of e-mails that occurred on February 10, the day before the parties signed the settlement agreement, did Salinas ever tell Schmidt that the partial settlement agreement was going to include the broad release language contained in the previous global settlement proposal with only slight modification. Instead, he represented, and confirmed Schmidt's understanding, that the partial settlement agreement would involve only the resolution of grievances 433, 395, and 396, and in exchange all she was going to get was the investigative report and removal of the reprimand from her file. He never told her the partial agreement would also involve the more sweeping resolution of any claims whatsoever arising out of the events, facts, and circumstances surrounding those grievances, which would be sufficient to also preclude any lawsuit that she might seek to bring based on the right-to-sue letter she had recently received.
To the extent defendants contend Schmidt “read and underst[oo]d the Agreement when she signed it,” the evidence they cite consists only of Schmidt's admission that she read the agreement before she signed it and “believe[d]” she understood it. This evidence certainly does not support the suggestion that Schmidt's understanding of the agreement when she signed it was consistent with our construction of the agreement now, four years later.
Finally to the extent defendants rely on Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at page 394, that reliance is misplaced because Rosenthal involved a claim of fraud in the execution, which is distinguishable from a claim of fraud in the inducement. (See id. at pp. 402, 415.) Defendants fail to show that the principles articulated in Rosenthal applicable to the former type of fraud can be rightfully applied to the latter fraud at issue here. In the absence of such a showing, we are guided by the principles articulated in Frusetta, Casey, and Jordan.
Under those cases, on the evidence here, it is for the trier of fact to decide whether the circumstances furnished the opportunity for overreaching by the university, whether the university or its agent took advantage of that opportunity, and whether Schmidt was thereby misled. (Jordan v. Guerra, supra, 23 Cal.2d at p. 476.) If Schmidt prevails on this claim of fraudulent inducement, then the release provisions in the 2010 settlement agreement are binding only to the extent Schmidt actually intended (Frusetta v. Hauben, supra, 217 Cal.App.3d at p. 557), and under that circumstance the release provisions would not bar this action.
By the foregoing, we do not intend to suggest that a finding of fraudulent inducement is a foregone conclusion here. Depending on all of the evidence that is ultimately presented, a trier of fact could conclude that Salinas did not intentionally mislead Schmidt as to the scope of the release in the proposed agreement. As we have noted, Salinas told Schmidt the “suits that you have will continue forward and will not be affected by this Settlement Agreement & Release.” (Italics added.) A trier of fact could find that because Schmidt had not yet filed the present lawsuit, she did not “have” this suit at the time she signed the settlement agreement, and thus there was no misrepresentation. It would also be possible for a trier of fact to find that Salinas simply did not understand the legal import of the release language, and thus did not intend to mislead Schmidt or misrepresent the effect of the proposed agreement.
“The elements of fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.) “Fraud in the inducement is a subset of the tort of fraud.” (Ibid.) Fraud in the inducement occurs when the promisor knows what she is signing but her consent is induced by fraud. (Id. at pp. 294–295.) Mutual assent is present and a contract is formed, but the contract is voidable by virtue of the fraud. (Id. at p. 295.) Here, following a full presentation of the evidence at trial, it could be determined that the elements for fraud in the inducement are not present. For our purposes, however, it is sufficient to conclude that there is a triable issue of material fact that precludes summary judgment.

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