On June 30, 2022, the California Supreme Court decided Grande v. Eisenhower Medical Center, _ Cal. 5th _ (2022). On the surface, the question before the Supreme Court was whether a settlement agreement entered into by a staffing agency was broad enough to extinguish claims against the agency and its client, a hospital to which it assigned nurses. Because the Supreme Court determined that it was not broad enough, the agreement did not prevent the nurse from bringing a separate lawsuit against the hospital. In the course of reaching this conclusion, it examined several sophisticated legal issues, such as questions regarding the legal principles of “claim preclusion” and “privity.” The decision includes troubling features as well as important lessons for staffing agencies and other employers seeking to settle employee disputes, including class action lawsuits.

1. Background

A staffing agency, FlexCare LLC, arranged for a nurse, Lynn Grande, to work at a hospital, Eisenhower Medical Center, on a temporary assignment. She performed work at the hospital for a very brief period in 2012. The nurse sued the staffing agency (but not the hospital) in Santa Barbara for alleged violations of California law, including the Labor Code. The parties settled the Santa Barbara lawsuit and the court entered judgment upon the settlement. The hospital was not a party to that initial lawsuit and, critically, the settlement agreement did not name the hospital as a released party.

The nurse then sued the hospital in Riverside based on the same alleged violations. The hospital argued that, because of the first judgment, “claim preclusion” foreclosed the nurse’s second suit. The court of appeal disagreed with another court of appeal decision that found claim preclusion existed based on similar facts. The Supreme Court granted review to resolve the tension in the case law resulting from the conflicting court of appeal decisions. It ultimately ruled that the nurse was able to bring the second lawsuit, this time against the hospital, and allege the same claims. The merits of her claims were never addressed.

2. The Concept Of “Privity”

The Supreme Court stated the core of the dispute concerned privity. It explained that judgments bind not only parties, but also “those persons in privity with parties.” It also explained that the nurse was a party to the initial judgment and the judgment could be used against her whether or not she was in privity with some other party. But for “claim preclusion,” the affirmative defense asserted by the hospital, that is not enough. The Supreme Court noted that claim preclusion can be asserted only by a party in the first action or someone in privity with a party in the first action. In the case before it, the hospital, a non-party to the first action, argued that it is in privity with a party (the staffing agency) so as to benefit from the claim-preclusive effect of a judgment that undoubtedly binds an opposing party (the nurse).

The Supreme Court disagreed with this argument, stating that privity requires the sharing of an identity or community of interest, with adequate representation of that interest in the first suit, and circumstances such that the non-party should reasonably have expected to be bound by the first suit. It determined that there was no such privity because of the hospital and staffing agency’s different legal interests. It thus affirmed the judgment of the court of appeal, clearing a path to the nurse’s Riverside action against the hospital.

3. The Scope Of The Release

The Supreme Court began its analysis by examining the text of the agreement giving rise to the first judgment in Santa Barbara. The agreement released the staffing agency, several individuals, a number of related entities, and the staffing agency’s “agents” and “representatives.” Significantly, the release did not name the hospital or specify a group of clients of the staffing agency, even though the underlying Santa Barbara complaint mentioned the facilities at which the plaintiff nurses worked. Nor was the hospital unambiguously an “agent” within the meaning of the agreement, notwithstanding the hospital’s participation in the nurse’s employment.

The Supreme Court also observed that the class defined in the Santa Barbara settlement agreement was different than the proposed class in the Riverside lawsuit filed against the hospital. Because the hospital was not released by the provisions in the settlement agreement or in privity with the staffing agency, the decision permits the nurse to pursue her wage-hour claims against the hospital. The Supreme Court reiterated the principle that claim preclusion can be asserted only by a party in the first action or someone in privity with a party in the first action. Even though the nurse can pursue her claims, the determination has no bearing on the merits of the nurse’s claims, including the class certification and substantive legal claims associated with her brief work assignment by a single staffing agency.

4. The Supreme Court’s Drafting Advice

The Supreme Court offered some practical advice to future litigants, noting they can specify that their releases extend both to the staffing agency and the agency’s clients when that result is intended. This lesson may prove useful to those who seek comprehensive settlements of disputes in the future, whether they involve a single plaintiff’s claims or class action claims. Employers who work with staffing agencies and those who use temporary employees who assert legal disputes should discuss these issues with their legal counsel. They are not limited to wage-hour disputes and can arise in connection with many different types of claims, such as discrimination, harassment, retaliation and wrongful termination claims.

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About The Author

Richard J. Simmons is a Partner in the law firm of Sheppard, Mullin, Richter & Hampton LLP in Los Angeles. He represents employers in various employment law matters involving litigation throughout the country and general advice regarding state and federal wage and hour laws, employment discrimination, wrongful discharge, employee discipline and termination, employee benefits, affirmative action, union representation proceedings, and arbitrations. Mr. Simmons received his B.A., summa cum laude, from the University of Massachusetts, where he was a Commonwealth Scholar and graduated in the Phi Kappa Phi Honor Society. He received his J.D. from Berkeley Law at the University of California at Berkeley where he was the Editor-in-Chief of the Industrial Relations Law Journal, now the Berkeley Journal of Employment and Labor Law.

Mr. Simmons argued the only case before the California Supreme Court that produced a victory for employers and business in 2018. He was recently recognized as the Labor and Employment Attorney of the Year by the Los Angeles Business Journal and was inducted into the Employment Lawyers Hall of Fame. He has lectured nationally on wage and hour, employment discrimination, wrongful termination, and other employment and labor relations matters. He is a member of the National Advisory Board to the Berkeley Journal of Employment and Labor Law, published by Berkeley Law at the University of California at Berkeley. He was also appointed by the California Industrial Welfare Commission as a member of three Minimum Wage Boards for the State of California.