Supreme Court Declines to Hear Villacres Appeal;
Battle to Define Proper Scope of Class Action Releases Endures

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Despite a compelling dissent by Justice Victoria Chaney, the California Supreme Court has decided not to grant the Petition for Review in the closely watched Villacres v. ABM Indus., Inc., 117 Cal. Rptr. 3d 398 (Cal. Ct. App. 2010). In Villacres, a divided Second Appellate District panel held that res judicata barred the plaintiff’s claims under the Private Attorneys General Act of 2004 (PAGA), CAL. LAB. CODE §§ 2698-99.5, even though the settlement agreement and release in the preceding class action (of which the plaintiff was a class member) did not list PAGA claims among those released. In fact, no PAGA claims were ever pleaded or litigated in the previous class action. The Villacres majority reasoned that what “could have” been pleaded and litigated, or “could have” been settled and released controls over the actual settled and released claims that parties list in their settlement agreements. See Villacres at 409.

The Supreme Court’s denial of review was thus met with some surprise, particularly after the Court had extended its deliberations (see Villacres v. ABM Indus., Inc., No. S188659, 2011 Cal. LEXIS 1301 (Cal. Jan. 24, 2011)) and the decision continued to attract considerable coverage and interest from journalists, bloggers, and non-parties. Capturing the broad sentiment, the Villacres decision was characterized as “unprecedented” and a “threat[]” to “all class action settlement[s].” Amicus letter from Michael D. Singer, of Cohelan Khoury & Singer, to the California Supreme Court, on behalf of the California Employment Lawyers Association (CELA) (Jan. 4, 2011) (available here).

Given the infinitely elastic “could have” standard adopted by the Villacres majority, it is inevitable that another employer that has settled, say, a back overtime claim based on a theory of misclassification will posit that it cannot owe PAGA civil penalties for unreimbursed business expenses because such claims certainly “could have” been a part of the case that settled the misclassification/overtime claims. However, that same enticement might operate to cause the Supreme Court to choose the right case, at the right time, to articulate the rule of law advocated by Justice Chaney: that it is the claims listed in parties’ operative settlement agreements—not what might be conceived in an ex post “could have” exercise—that determines what has or has not been released in a class action settlement.

The Villacres petition was denied; formally, its status is “case closed.” However, the scope and definition of class action releases remains very much an open issue. Plaintiff practitioners would be well-advised to craft releases that clearly delimit the boundaries of the release and avoid any language similar to the “could have been” clause in Villacres.