California: Stipulated Agreements – When Can You Back Out?

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Buyer’s remorse. It is not unusual for a party to agree to the terms of a settlement and then wake up the next morning with that horrible feeling in the pit of their stomach. Maybe that was not such a great deal after all. Is there an escape hatch?  That depends. Two recent noteworthy panel decisions discussed this issue and arrived at the same conclusion. Once you sign off on a deal, you are stuck with the terms of that settlement, unless you can make a showing of fraud, mutual mistake of fact, duress or undue influence.

In the Appeals Panel decision of Miller v. Dispatch Transportation, 2012 Cal. Wrk. Comp. P.D. LEXIS 372, the parties entered into extensive negotiations over an industrial slip and fall claim. A couple of months after the settlement negotiations, the defense counsel drafted the Compromise and Release (C&R). The injured worker, the applicant attorney and the defense attorney then duly executed the C&R. An associate from the defense firm met the applicant’s attorney at their local board, and together they submitted the C&R for approval to the Workers’ Compensation Judge (WCJ).

It was not until after the Judge issued her Order Approving the C&R on November 12, 2011, that the defense attorney realized that the amount she had entered as the settlement value was incorrect. She promptly filed a Petition to Set Aside the C&R and to re-issue the Order for payment of the substantially lesser amount of $112,000.

The matter was set for hearing in front of the WCJ who had initially approved the C&R. At issue in the case was whether the judge could use her discretion, per LC § 5803, to set aside her Order Approving the C&R based on good cause. “Good cause” is defined in Civil Code §§ 1689 & 1691 and in case law as a showing of fraud, mutual mistake of fact, duress or undue influence. (See Carmichael v. IAC, (1965) 234 Cal. App. 2d 311, 44 Cal. Rptr. 470, 30 Cal. Comp. Cases 169.)

Defense counsel argued that the original settlement amount, which she had designated in the C&R, was a mutual mistake of fact. She claimed that she had lost her notes of the negotiations and mistakenly entered the wrong settlement value. Since she and applicant’s attorney had both mistakenly thought that value entered was the correct settlement amount, defense counsel argued this erroneous belief was a mutual mistake of fact.

The problem was, applicant’s attorney believed no such thing. He believed that $290,000 was the correct amount of the settlement. He believed that both parties agreed to this amount. As far as the applicant’s attorney was concerned, there was no mistake about it.

The WCJ weighed the evidence and determined the applicant’s attorney’s position to be the more credible one. If a mistake occurred, it was a unilateral one, on the part of the defense attorney and not a mutual mistake, which is required by law to set aside the C&R. The request to set aside the C&R was denied, and was upheld by the WCAB.

A similar situation occurred in the Appeals Panel decision of Houghton v. All Brands Sewing and Vacuum, 2012 Cal. Wrk. Comp. P.D. LEXIS 133. In the Houghton case, the hearing representative mistakenly accepted $1,414 as payment in full for the lien claim of $14,639. The WCJ issued an Order approving the Stipulation. Thereafter, the lien claimant realized that their hearing representative had mistakenly accepted an unacceptably low value as payment in full for the entire lien claim. Lien claimant promptly filed a Petition for Reconsideration to withdraw from the Stipulation.

In reaching their decision not to set aside the Stipulation, the WCAB relied on the seminal case of County of Sacramento v. WCAB (Weatherall) (2000) 77 Cal. App. 4th 1114, 92 Cal. Rptr. 2d 290, 65 Cal. Comp. Cases 1. The WCAB in Weatherall set forth the following standard whereby a WCJ may set aside the Stipulation of the parties:

“In an ordinary civil case we observed that ‘it is within the discretion of the trial court to disregard a stipulation that has been entered into through inadvertence or mistake of fact. [Citation.]’ (Johnstone v. Bettencourt(1961) 195 Cal. App. 2d 538, 540 [16 Cal. Rptr. 6].) The same ‘good cause’ rule should apply herein. (See Robinson v. Workers' Comp. Appeals Bd., supra, 194 Cal. App. 3d at p. 791; Huston v. Workers' Comp. Appeals Bd. (1979) 95 Cal. App. 3d 856, 865-866 [157 Cal. Rptr. 355] [lack of diligence is not good cause].)” (Weatherall, supra, at page 13)

As stated above, lack of diligence or as the WCAB stated in this Houghton case, “lack of full knowledge of the facts” does not constitute good cause to set aside the Stipulations.

The two noteworthy panel decisions discussed above are illustrative of the standard by which stipulations may be aside. A set aside will occur only upon a showing of “good cause,” such as fraud, mutual mistake of fact, duress or undue influence”. But what about the situation, where the parties have all properly executed the agreement, and then one party gets cold feet? May that party withdraw from the agreement, since an Order Approving has not yet issued? Interestingly, the answer is pretty much the same as in the situation where a Judge has already approved the settlement.  

LC § 5002 states that once all parties have signed the C&R, it should be filed promptly with the WCAB. Withdrawal is not an option. However, the settlement is not “valid” until an Order issues approving the C&R. (LC § 5001) Therefore, it is perfectly permissible to submit the C&R to the court and simultaneously petition the court NOT to approve the C&R based on a showing of “good cause,” i.e., fraud, mutual mistake of fact, duress or undue influence.

The caveat in these types of cases is that all parties to the agreement must be afforded their due process rights before one of the parties may be allowed to withdraw. Due process simply means there must be a duly noticed hearing and that both parties will have an opportunity to be heard. As long as the due process safeguards have been satisfied, the WCJ is then permitted to weigh the evidence and determine if good cause exists to allow one of the parties to withdraw from the settlement. (See 8 CCR §10496 and §10497.)

Two well-established cases with similar fact patterns address this issue, and arrive at different conclusions. Both are based on the same legal standards as discussed above. The case of Chavez v. IAC (1958) (Supreme Court En Bank) 49 Cal. 2d 701, 321 P.2d 449, 23 Cal. Comp. Cases 38 and the case of Light v. Summit Drilling (1979) 44 Cal. Comp. Cases 1083 (WCAB en banc), both deal with an injured worker who died shortly after the C&R was executed, but before the Judge had a chance to approve it. In both of these cases, after the death of the injured worker, the defendant wanted to rescind the C&R.

The courts in both of these cases explained that approval of the C&R was a judgment call for the WCJ, after the parties had been provided their due process rights of “notice” and an “opportunity to be heard.” As the WCAB in the Light case stated, “…It has generally been held that the Compromise and Release Agreement is binding and the parties cannot unilaterally rescind it prior to the Board's approval or disapproval.” Based on good cause, the WCJ allowed rescission of the C&R in the Chavez case. However, the WCJ did not allow it in the Light case.

The same principles were applied in the case of Ramirez v. WCAB (1997) 62 Cal. Comp. Cases 1062 (unpublished 2nd DCA). In the Ramirez case, the applicant’s attorney felt misled by a material issue in the settlement discussions. He ripped up the fully executed C&R and threw it in the trash. He then stormed out of the courtroom. The defense attorney pulled the various shreds of the C&R out of the trash and taped it back together. Then, without waiting for the applicant attorney to return, the defense counsel presented the C&R to the WCJ for approval. The WCJ’s approval of the C&R was not affirmed on appeal, because the Applicant was deprived of his due process rights. The correct procedure would have been for the WCJ to hold a hearing on this issue, and allow the applicant’s attorney to be heard on the issue of whether or not good cause existed to deny approval of the C&R. The 2nd DCA reversed the Order Approving the C&R and declared the C&R void.

CONCLUSION: The take away from all of these cases is that stipulations and settlements are encouraged, as they result in an expedient resolution of the various cases. They allow certainty for the parties and enable them to move forward and concentrate on other issues. However, before signing any document, settlement or otherwise, a party should carefully review the contents to ensure that it conforms to the wishes of the client and the essence of the negotiated settlement agreement. Because once a party signs an agreement, it is all about due process after that, and it can only be undone upon a showing of “good cause,” as defined in the cases cited above.

© Copyright 2012 LexisNexis. All rights reserved. This case summary will appear in a forthcoming issue of the California WCAB Noteworthy Panel Decisions Reporter (LexisNexis).

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