Intellectual Property | Real Estate | Technology | Software

How to “bust” a 1542 waiver in California

Nov 16th, 2014 | By | Category: Litigation Warrior

Litigation Warrior – Does Cal. Civ. Code Section 1542 waive all my rights to bring a future lawsuit?  Should you sign the settlement agreement?  Can you VOID a 1542 release of unknown claims?

how to challenge a 1542 settlement release of unknown claims

Introduction

This is general legal information only and not legal advice or a substitute for legal advice.  Do not rely on this information.  Contact a California litigation attorney to discuss your case.

When you enter into a settlement agreement, a typical clause you will see in the settlement agreement is a “1542 clause.”  This is based on Section 1542 of the California Civil Code.  This section is often misunderstood by Plaintiff’s, Defendants, Attorneys and the Courts.  This blog will provide a general legal overview of what section 1542 actually means in real life practice of law and some potential grounds to get around, set aide, void, or defeat application of the waiver in certain cases.

California Civil Code Section 1542

Let’s start this blog by taking a look at the code section, Section 1542 reads:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” 

But just what does this section mean? The language is a bit confusing and cryptic.  For example, just what do the following terms mean?

a.  What is a general release?

b.  What is a claim?

c.  What is a creditor?

d.  What does it mean “in his or her favor”

e.  What constitutes “materially affected his or her settlement?

f.  What if there is no “creditor” or “debtor”?  For example, what if the lawsuit involves personal injury settlement (which features an “injured party” and a liable party”) or a wrongful foreclosure settlement (which deals with a “borrower” and a “trustee” or “loan servicer” or “securitized loan trust”?

These are the basic questions that come to mind, and which need to be defined and understood in order to know what you are actually waiving (if you are waiving at all) in a settlement agreement that contains this type of “standard” language.

California Civil Code 1542 bust the waiver

BONUS MATERIALS:  Click on the picture above to watch a short video clip on section 1542 releases.  Make sure to subscribe to our litigation channel by Clicking on the RED “V”

What is the purpose of California Civil Code section 1542?

In Winet v. Price, 4 Cal. App. 4th 1159, 1170, 6 Cal. Rptr. 2d 554, 560 (1992) the California court noted the main reason for section 1542 and what it means:
“The court concluded the intent of section 1542 was to prevent a releasor from inadvertently waiving unknown claims merely by signing a general release.”

LITIGATION SETTLEMENT TIP #1: Keep in mind, in some settlement contracts, there might be additional language (besides the 1542 waiver) that seeks to have Plaintiff waive their rights to a future lawsuit.  For example, a settlement agreement that separately says “Plaintiff releases Defendant from liability of all claims known and unknown, anticipated or unanticipated…”  Again, this language needs to be reviewed to see whether or not it will hold water in all settlement agreements.

Can you break it down Attorney Steve?

In short, it is important to understand at the outset that:

a.    Civil code section 1542 creates rights  (the right of a releasing party to a settlement agreement NOT to waive claims that are NOT known – so that you can file a new lawsuit of new claims or new legal violations are uncovered);

b.  Settlement agreements typically request a party to “waive” these rights (generally speaking a waiver is a voluntary relinquishment of a known and appreciated right).  A settlement agreement will typically request that you “WAIVE” these section 1542 rights (meaning that you will not bring any claims in the future, and that the settlement will be final).  But as this blog points out, this “waiver” is not always 100% effective.  As the Casey case (discussed below) recognized:

“There are competing policies involved. On the one hand, the policy of the law is to encourage out-of-court settlements. To further this policy the parties to a dispute should be encouraged to negotiate settlements and to enter into releases. In the absence of unfair conduct of the part of the releasee, the law should extend its protection to the stability of the transaction by holding the parties to the express terms of the release. If later discovered injuries may be asserted, no release would be final and free from attack until the statute of limitations has run…..on the other hand, if the releaser is bound by the literal terms of the release, it has been recognized that he is left to suffer personal injuries without compensation, while the releasee, who usually is an insurer, has received a windfall in avoiding liability for a risk it has been paid to assume.”

This highlight the tension in the legal issue of whether or not a section 1542 waiver is enforceable in all cases.  See Casey v. Proctor, 59 Cal. 2d 97, 111, 378 P.2d 579, 587-88 (1963) discussed below.

Typical settlement agreement

A typical settlement agreements requests that the party waiver their rights under section 1542.  Language you might see includes:

1.  This “mutual release and settlement agreement

2.  This agreement is being entered into to release “certain claims and liabilities and disputes” (this appears to mean that certain claims are being resolved while others are not)

3.  This agreement shall not be construed as, or be deemed evidence of, a waiver of any statute of limitations, defense, or plea in abatement.”

4.  The “recitals” section of the settlement agreement may contain (or list) each of the causes of action that were sued for in the Complaint.  This usually does not include all the Claims the Plaintiff “could have raised” or “would have raised” in an amended complaint, following additional discovery.  But the claims are listed usually to indicate that these are the causes of action that are being resolved with the settlement agreement.  Whether listing these causes of action leaves open room to bring a future lawsuit raising new claims, for new legal violations that arise can be a question for the Court.

5.  That “the Settling Parties further agree that as a further consideration and inducement for this compromise and release of claims that the releases contained in this Agreement shall apply to all unknown and unanticipated claims and causes of action arising from the dispute…”

6.  “It is hereby understood and agreed that all rights under section 1542 of the California Civil Code, (and any similar law of any state or territory of the United States), are hereby waived as to claims which those parties released do not know or suspect to exist at the time they execute this release. This section reads as follows:

A general release does not extend to the claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

Releasor[s] understands and acknowledges the significance and consequence of a waiver of §1542, and hereby assumes full responsibility for any future injuries, damages or losses that may later arise.

There may also be language that states that Plaintiff (releasing party has discussed the waiver provision with counsel and strictly understand they are releasing all claims).

Again, this language should not be considered absolute, especially where there are conflicting language convoluting the intent of the parties to the settlement agreement.  If you are contemplating filing a new lawsuit, contact a litigation law firm to have an attorney review your settlement contract.

LITIGATION SETTLEMENT TIP #2 – Your settlement agreement will usually indicate whether the Plaintiff will be dismissing the claims “with prejudice” (meaning the released claims cannot be brought again) or “without prejudice” (which would be rare, but which would indicate that claims could be brought again at a future date).

If you settled a personal injury case and find later injuries that you were unaware of, can you file a new lawsuit if your settlement contained a 1542 waiver?

Again, this is something that has to be reviewed.  Here is one California Supreme Court case that discussed this:

“Under the majority rule, however, a release may not ipso facto be avoided upon the ground of later discovered injuries. The essence of the rule is that the wording of the release is not conclusive; it is a question of fact whether the parties to a release actually intended to discharge such liability. As was stated in Denton v. Utley, we would not be understood as holding that it is not within one’s competence to say ‘I may have serious injuries I know nothing about. As to them I will take my chances. This, one may do. He may, if he wishes, release his rights and assume the risk of future disablement for $1 ‘and other good and valuable consideration,’ or $50, or, indeed, an old beaver hat…...whether a release bars an action for later discovered personal injuries is a question of fact and depends upon whether it was ‘knowingly’ made. Whether there is substantial evidence that it was not will depend upon the amount of consideration received compared with the risk of the existence of unknown injuries.
The Casey Court continued:

“In other words, it is possible that a reasonable, intelligent person, in full possession of all his faculties, and with knowledge that he may have serious injuries, will release a tortfeasor from all liability in return for a trifling sum of money. If such has in truth been the intention and the agreement we will not disturb the parties.”  See Casey v. Proctor, 59 Cal. 2d 97, 112, 378 P.2d 579, 588 (1963).

As the Court noted, there are some other factors that might be examined in a 1542 waiver case:

a.   The presence of bargaining and negotiation leading to the settlement.  See Denton v. Utley, (cited above).
b.   The closeness of the issue of liability.  See Reed v. Harvey, supra (Iowa), 110 N.W.2d 442, 447;
c.   Whether the subject of personal injuries was discussed.  See Seaboard Ice Company v. Lee, 199 Va. 243, 99 S.E.2d 721;
d.   The reasonableness of the contention that the injuries were in fact unknown at the time the release was executed.
The Court, in reaching its decision held:
“If these factors be applied to the instant case, it is clear that under the rule prevailing in the majority of jurisdictions there is substantial evidence to support a holding that plaintiff may avoid the release. Here, no consideration was paid for personal injuries, there were no negotiations leading to the settlement, the risk of the existence of unknown injuries was never discussed, there is substantial evidence that plaintiff’s belief that he had not suffered personal injuries was reasonable, and there is little doubt as to defendant’s liability.  Since the test of whether the releaser consciously discharged claims for unknown injuries is the same when the release falls within the application of Civil Code, section 1542, these factors are equally relevant to a determination of whether there is substantial evidence to support a holding that section 1542 prevents the release in the instant case from barring this action. Therefore, the case should have gone to the jury on the issue of plaintiff’s intent.”
So as this case points out, there are questions of fact that need to be developed in determining whether certain claims were “knowingly waived” or not under section 1542.  

Can you void a 1542 waiver on grounds of mistake or misapprehension?

It might be possible if the misapprehension was not due to the releasing parties neglect.  In the Casey case discussed above, the California Supreme Court discussed this point:
“It has been held that the misapprehension was not due to the neglect of the releaser when:
A.  The releasor was unable to read the release.  See Meyer v. Haas, 126 Cal. 560, 58 P. 1042; Mairo v. Yellow Cab Co., supra, 208 Cal. 350, 281 P. 66;
B.   When the release was presented to and signed by the releaser during preparation for the funeral of his son.  See Jordan v. Guerra, 23 Cal.2d 469, 144 P.2d 349;
C.  When the release was presented to the releaser within a few hours after the accident when she was still nervous and upset.  See Raynale v. Yellow Cab Co., 115 Cal.App. 90, 300 P. 991;
D.  When the release was presented to the releaser when he was still in the hospital suffering from injuries sustained in the accident.  See Smith v. Occidental etc. Steamship Co., 99 Cal. 462, 34 P. 84; Tyner v. Axt, 113 Cal.App. 408, 298 P. 537);
and;
E.  When the release was presented to the releaser soon after the accident while he was still confined to bed, though not in the hospital. See Wetzstein v. Thomasson, 34 Cal.App.2d 554, 93 P.2d 1028.

Are there any other California cases that discusses “grounds to bust 1542 waivers”?

California has some other cases that should be looked at.  For example, the following cases provide support for breaking a 1542 claims waiver:

1.  Release of unknown claims:
McCray v. Casual Corner, Inc., 812 F. Supp. 1046, 1048 (C.D. Cal. 1992) is a key case regarding enforcing “future unknown”” claim waivers in California.  This case held:
“A release is an abandonment of a claim that might otherwise be enforced; it constitutes a defense to the assertion of a claim. Releases are subject to the provisions of California Civil Code Section 1542…..If the release specifically mentions unknown claims, independent evidence must demonstrate that the releasor intended to release unknown claims.”
2.  Fraud or economic duress
In California, a party may seek to invalidate a release if the party was induced to enter the release by fraud or economic duress – See Kaufman & Broad-S. Bay v. Unisys Corp., 822 F. Supp. 1468, 1474 (N.D. Cal. 1993). As the Court noted in Kaufman:

California Civil Code section 1542 provides that a general release does not extend to unknown or unsuspected claims. The parties to a release may be bound by a waiver of the section’s protection if they understand and consciously agree to the waiver. However, if the parties have not dealt at arms’ length and the releasor has relied on fraudulent statements or misrepresentations by the releasee, then the release is binding only to the extent actually intended by the releasor. In order to void the release, the releasor must show that its entry into the release was induced by fraud, undue influence, mistake or deceit.

So as you can see, 1542 releases are not absolute, and depending upon your case various legal arguments might exist.  This is especially important in personal injury and financial elder abuse cases.  Senior citizens in California (those over 65 at the time of entering into the settlement agreement) can be subject to victimization, lies and abuse.  Especially where a lawsuit is settled while the elder is “in pro per” (meaning representing themselves).  In these cases, contacting a lawyer is particularly important  to attacking the 1542 waiver on public policy or other grounds.

If I am settling a case should I just “cut and paste” a section 1542 clause off the internet into my settlement contract?

No.  A settlement of any case is a big deal which needs to be thought through, and the terms of the settlement agreement need to protect your interests to the fullest exptent possible.  Cutting and pasting settlement langage off the internet could have serious future ramifications.  Consult a business and litigation attorney to help you draft these agreements.  Fill out the form below.

Does Arizona have a similar waiver of all claims known and unknown provision?

Here is a sample of typical language you might see in an Arizona settlement agreement:

“The Borrower expressly waives the benefits and provisions of the law of any state, or of the United States, which provides that a general release does not extend to claims which a creditor does not know or suspect to exist in its favor at the time of executing the release, which if known to it, would have materially affected its settlement. Additionally, it is the intent of this release that the Borrower forever discharges and releases the Bank from all unknown, undiscovered, or inchoate claims as may presently exist or may hereafter come into existence, whether such claims arise under the laws of Arizona, or any state, or under federal law.”

And some more sample mutual release and settlement language for Arizona lawsuit settlements:

“Upon payment of the settlement check and performance of the other terms and conditions of the settlement agreement, all obligations between the parties shall be deemed satisfied in full, and releases and forever discharges the other and their attorneys, agents, servants, representatives, successors and assigns from any and all liability, causes of action, demands, or obligations of any kind whatsoever, whether known, unknown, accrued or un-accrued, absolute or contingent, liquidated or unliquidated, determined or undetermined, patent or latent, that the other may have had, or may have against the other arising out of, or related to the subject matter of the underlying dispute. Each part waives the benefits and provisions of the law of any state, or of the United States, which provides that a general release does not extend to claims which a creditor does not know or suspect to exist in its favor at the time of executing the release, which if known to it, would have materially affected its settlement. It is the intent of this release that the the parties each discharge and release the other from all unknown, undiscovered, or inchoate claims as may presently exist or may hereafter come into existence related to the subject matter of the lawsuit whether such claims arise under the laws of Arizona, or any state, or under federal law.”

Contact us for a “second look” before you sign a settlement agreement or to investigate whether you have grounds to file a new lawsuit.

If you are not sure whether or not you have waived all your rights to bring a subsequent lawsuit after signing a settlement agreement with a 1542 release, or to get a second opinion before you sign a settlement contract, call one of our litigation attorneys to review your case.   We can help you make the tough decisions as to what to do your in your case.  We can be reached at (877) 276-5084 or fill out the contact form below.

 

 

[contact_form]

 

 

 

 

 

 

 

 

 

 

The following two tabs change content below.
We are a business and civil litigation firm with a focus on copyright infringement cases involving illegal movie downloads (torrent cases such as London Has Fallen and Malibu Media defense), software audits (ex. Microsoft audits, SPLA, Autodesk audit notification letter, Siemens PLM defense, SIIA, Adobe and Business Software Alliance defense) and other software vendors threatening piracy and infringement. We also handle cases involving internet law, anti-SLAPP, media law, right of publicity, trademarks & domain name infringement, and we have a niche practice area handling California BRE licensing disputes, accusations, subpoena response, statement of issues and investigations. We have offices in San Francisco, Beverly Hills, Newport Beach, San Diego & Phoenix, Arizona and accept federal copyright and trademark cases nationwide. All content on our website is general legal information only and not a substitute for legal advice, and should not be relied upon. Decisions to hire counsel should not be based on advertising alone. Blogs, videos and podcasts are authored by Steve Vondran, Esq. unless otherwise noted. We can be reached at (877) 276-5084.

Comments are closed.