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Badmouthing Pacts Aren’t Absolute: California High Court (1)

Jan. 13, 2022, 7:08 PMUpdated: Jan. 13, 2022, 8:15 PM

An agreement for parties not to disparage each other doesn’t bar a later civil lawsuit arising from the same alleged incident, the California Supreme Court held Thursday.

The unanimous ruling focuses on whether and under what circumstances California’s litigation privilege, which prohibits admitting into evidence any communication made in a judicial or quasi-judicial proceeding, applies to contract claims. The court’s opinion has implications for a variety of cases, including employment where recently enacted California laws about nondisclosure agreements targeted the pacts in sexual abuse and discrimination cases.

The ruling will help courts determine how to review nondisparagement agreements that arise out of restraining order applications.

Steve Krongold, a business litigation attorney in Irvine, Calif., said the decision can’t be read broadly as it dealt with an anti-harassment injunction “very much like you’d see in sexual harassment cases brought by women in the workplace.”

“I think it gives some direction, but I think what it’s saying is in the context of civil harassment or restraining order procedure, they’re going to be reluctant to find that the victim has waived a right to bring a subsequent legal action,” Krongold said.

The mediation agreement “as a whole, the statutory context in which it was negotiated, and the fact that it implicates constitutionally protected petitioning activity lead us to conclude that the nondisparagement clause does not apply to the circumstances here,” Justice Goodwin Liu wrote for the court.

Justices rejected arguments to constrain an individual’s ability to seek protections for harassment, including filing another petition or utilizing the “other existing civil remedies” that the law preserves.

To rule otherwise would mean a party who prevailed on a sexual battery claim could still be forced to pay out on a breach of contract claim, Liu said. “There are strong public policy reasons to refrain from such an interpretation.”

‘Be Very Specific’

The case involves alleged sexual harassment and assault by a residential building’s owner against a condominium owner. A mediation agreement between the two parties to stay away from each other included a nondisparagement provision. The condominium owner going by the name of Jane Doe later filed a civil lawsuit that included the same claims as in the filing seeking a restraining order and a complaint filed with the U.S. Department of Housing and Urban Development that the federal agency referred to the California Department of Fair Employment and Housing. Building owner Curtis Olson countersued, claiming Doe violated the original agreement.

Doe claimed Olson’s countersuit was a strategic lawsuit against public participation, or SLAPP suit, designed to chill her speech. The court held Doe “had no obligation under the contract to refrain from making disparaging statements in litigation. Olson thus cannot defeat Doe’s anti-SLAPP motion.”

Justices agreed with an appeals court unpublished opinion saying the law blocked Olson from his breach of contract claim based on Doe’s statements included in her administrative complaints.

The high court sided with two mediators who in a brief supporting Doe said the appeals court erred in holding that the woman, by entering into a mediated stay-away agreement in civil harassment restraining order proceedings, may have waived her right to bring civil claims. The Family Violence Appellate Project, California Women’s Law Center, American Civil Liberties Union of Southern California, and others argued survivors’ rights shouldn’t be taken away absent clear and compelling language.

The ruling provides a few lessons about crafting nondisparagement clauses, “which is if you want them to have a chance to cover a broad range of activity, it’s important to be very specific,” said Eric Boorstin, a Horvitz & Levy partner in Burbank, Calif.

If you want the clause “to function like a release of liability, it’s much better to include a specific release of liability rather than rely on a nondisparagement clause to serve that function,” Boorstin said.

The court’s ruling returns the case to the appeals court.

The case is Olson v. Doe, Cal., No. S258948, opinion 1/13/22.

(Updated with quotes by Steve Krongold in fourth and fifth paragraphs and Eric Boorstin in 13th and 14th paragraphs.)

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Tina May at tmay@bloomberglaw.com