Schmidt v. Board of Trustees

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.

Rather than involving promissory fraud, Schmidt's claim of fraud here invokes a long line of cases involving fraudulent inducement to sign an overly broad release. Frusetta v. Hauben, supra, 217 Cal.App.3d at page 551—the case Schmidt cited in the trial court in support of her claim of fraud—falls within that line of cases. As the court in Frusetta explained, “The California Supreme Court, in Casey v. Proctor (1963) 59 Cal.2d 97 [28 Cal.Rptr. 307, 378 P.2d 579], stated, ‘It has often been held that if the releaser was under a misapprehension, not due to his own neglect, as to the nature and scope of the release, and if this misapprehension was induced by the misconduct of the releasee, then the release, regardless of how comprehensively worded, is binding only to the extent actually intended by the releaser.’ ” (Frusetta, at p. 557.)

“[A] release because of ... deception practiced upon the claimant must be construed as a settlement of those matters only as to which the minds of the parties met, and may not be considered to be in satisfaction of anything not consented to by the plaintiff.... [¶] [I]n any case it is for the trier of the facts to determine what the plaintiff understood was covered by the writing and whether his understanding different from the writing was induced by the defendant. If a misconception be found and that the defendant was responsible therefor, the contract insofar as it purports to release claims other than those understood by the plaintiff to be included, is ineffective to that extent, and rescission and tender as to the excluded items are unnecessary.... [¶] It is the province of the jury to determine whether the circumstances furnished the opportunity for overreaching, whether the defendant or his agent took advantage of it, and whether the plaintiff was thereby misled.” (Jordan v. Guerra (1943) 23 Cal.2d 469, 475–476.)

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.

As we have previously explained, on January 21, 2010, Salinas, in his capacity as director of labor relations at the university, transmitted a written settlement offer to Schmidt through her union representative, Soares, that specifically proposed to resolve all six grievances Schmidt had filed with the university, as well as the complaints she had filed with the Department of Education and the EEOC, in exchange for $7,244, restoration of 15 days of sick leave, removal of the letter of reprimand from her file, a copy of Nix–Baker's investigative report, relief from teaching course 680, and sensitivity training within the college of behavioral & social sciences. The draft global settlement agreement included a broadly worded release provision under which both sides released “all ... liabilities of any kind whatsoever arising out of” the six grievances and the two complaints. Schmidt was able to have that draft reviewed by an attorney, who proposed various revisions to it, and Schmidt transmitted the proposed revisions back to Salinas a few days later. In sending the agreement back to Salinas, Schmidt communicated that his draft was “overly broad and vague” and she wanted the agreement to “only address grievances and causes of action pending at this point in time.”

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.

Five more days passed. Finally, at 10:50 a.m. on the morning of February 8, Soares sent Schmidt an e-mail (copied to Salinas) with a summary of a new, limited settlement offer from the university. According to Soares, the university was willing to remove the reprimand letter and associated reports from her file and provide her with Nix–Baker's investigative report in exchange for “elimination of your grievances ending in 395, 396, 433, and 022.” Soares told her the university was still willing to commit to the previous global settlement agreement after she agreed to this new one. He reminded her that “[t]ime [wa]s of the essence since [she] ha[d] one of [her] hearings for [grievances] 395/396 on Feb. 17th.”

Schmidt told Soares she wanted to discuss the university's new proposal with an attorney, but she was able to speak with the attorney who had reviewed the previous global settlement proposal for her only briefly on February 10, and she did not have a draft of the university's new proposal at that time. Following that conversation, in an e-mail at 10:15 a.m. on February 10, which was copied to Salinas, Schmidt told Soares that she could accept “expunge[ment] of the reprimand letter and associated reports from all files” and provision of the investigative report “[i]n exchange for eliminating grievances 395, 396, and 433.” She said she would not agree to include grievance 022 in the partial settlement because “[g]rievance 022 is part of the full settlement of all claims and is not related to grievance 395 or 396 for which we have hearings set up to resolve. Grievance 433 is related to the reprimand, and while it asks for a stop to the discrimination, it also asks for removal of the reprimand, so I reluctantly accept elimination of it as well.”

Following this e-mail, there was confusion about what was to happen to the remainder of the global settlement proposal. In an e-mail to Soares and Salinas at 2:39 p.m., Schmidt posed the following question directly to Salinas:

“[W]hat exactly is CSU offering? Is it:

“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.

“Option C: Accept the new offer (settle 395, 396, 433 etc[.]) with the opportunity for a final settlement including the monetary and non-monetary offers available in the global settlement once I have reviewed the Leslie report and if I'm willing to accept the global settlement terms.”

In response, in an e-mail at 3:15 p.m., Salinas wrote as follows: “This offer calls for resolution of grievances: 433, 395, and 396. In exchange for removal of the Letter of Reprimand, Workplace Violence Committee Report from your official personnel file and all department files. In addition, we would provide you with the 2008 Investigation report from Leslie Nix Baker. The other grievances and suits that you have will continue forward and will not be affected by this Settlement Agreement & Release. [¶] We can continue to have discussions about a global settlement should we reach agreement on these matters. We have made a global settlement offer and we would be willing to continue to explore these options.”

Schmidt understood from this e-mail that the agreement was limited to dropping only the three specific grievances, and if she still wanted to file a lawsuit she was free to do so. Still, she sought further clarification, asking Salinas in an e-mail at 3:35 p.m. if the university was offering her “Option C,” which she characterized as encompassing “resolution of grievances: 433, 395, and 396” along with the opportunity to continue discussions about a global settlement including monetary and nonmonetary offers. Salinas responded at 3:55 p.m., “YES.” He further asserted that while the reprimand “would no longer exist in [her] personnel file or any other department file on campus,” he would still have a copy because “there is still pending litigation.”

Understanding that the terms of the settlement did not preclude her from pursuing litigation that could encompass all of her complaints, including those involving the reprimand, Schmidt responded to Salinas at 4:03 p.m., saying, “Well then, yes! Send me the document and I'm happy to sign it with these understandings and provisions.” Less than an hour later, at 4:50 p.m., Salinas e-mailed her the proposed settlement agreement, saying, “We can sign this agreement right now. Let's get this resolved.”

Schmidt was unable to discuss the proposed agreement with her attorney or retain another attorney to assist her before she signed the agreement the next day. She signed the agreement in reliance on Salinas's representation that “[t]he other grievances and suits that [she had would] continue forward and [would] not be affected by this Settlement Agreement & Release.”

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.

To the extent defendants contend Schmidt “represented to Salinas and ... Soares [that] she had reviewed a draft of the Agreement ‘with counsel,’ ” defendants are mistaken. From the e-mail chain on February 10, 2010, it clearly appears that all Schmidt had reviewed “with counsel” as of 10:15 that morning, when she made that statement, was Soares's summary of the terms of the university's new offer, which he had sent to her two days earlier. It was not until nearly 5:00 that evening that Salinas finally provided Schmidt with a draft of the new partial settlement agreement, only after Schmidt had agreed to sign it based on her understanding (confirmed by Salinas) that it would encompass only the “resolution of grievances: 433, 395, and 396.”

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.