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A staffing agency (FlexCare LLC) arranged for a nurse (Lynn Grande) to work at a hospital (Eisenhower Medical Center), which she did for about a week in February 2012.

Under the terms of an agreement between the staffing agency (FlexCare) and the hospital (Eisenhower), the staffing agency purportedly “retain[ed] . . . exclusive and total legal responsibility as the employer of Staff,” including “the obligation to ensure full compliance with and satisfaction of” wage and hour requirements. The hospital retained discretion to assign shifts.

The nurse who filed the present case (Grande) joined the prior action against FlexCare as a named plaintiff, alleging wage and hour violations during the time she worked at the hospital. The hospital was not named as a defendant in this prior action and did not intervene in it.

The parties settled the prior action with the staffing agency to pay no more than $750,000, and the court entered judgment upon the settlement. The settlement did not name the hospital as a released party. For purposes of the judgment, the court certified a class of ” ‘all persons who at any time from or after January 30, 2008 through April 8, 2014 were non-exempt nursing employees of [the staffing agency] employed in California’ “

The nurse then sued the hospital based on the same alleged violations. The staffing agency filed a complaint in intervention, seeking declaratory relief. The staffing agency and the hospital argued both that the hospital was entitled to the benefit of the earlier release, and that the first judgment precludes the nurse from bringing this second suit.

The trial court found that “the language in the release clause cannot reasonably be construed to extend to claims Plaintiff may have against [the hospital] in this case.” The court further concluded that because the hospital “is not in privity with [the staffing agency], as that term is understood for claim preclusion (res judicata) purposes, Plaintiff’s claim against [the hospital] in this case is not barred by the Final Judgment” in the first action.

A divided panel of the Court of Appeal affirmed the trial court in Grande v. Eisenhower Medical Center (2020) 44 Cal.App.5th 1147 (Grande I ). The California Supreme Court agreed to hear the case, and affirmed the judgment of the Court of Appeal in Grande v. Eisenhower Medical Center, (Grande II) S261247 (June 2022).

The core of this dispute concerns the issue of privity. Judgments bind not only parties, but also “those persons ‘in privity with’ parties.Questions about privity typically arise when a litigant attempts to use a judgment against someone who was not party to that judgment The circumstances recognized as creating privity have evolved in appellate decisions over time.

The hospital and staffing agency contend that their position is supported by the Court of Appeal’s decision in Castillo v. Glenair, Inc. (2018) 23 Cal.App.5th 262. Castillo concerned a temporary staffing agency (GCA), the agency’s employees, and its client (Glenair), and two sequential lawsuits filed against the parties for labor code wage violations similar to the Grande II case here.

The Supreme Court distinguished the facts in Castillo such that it was not on point in this case The scope of the (putative) class at issue in this second action against the hospital differs from the class at issue in the first case against the staffing company.

Unlike the first suit, which concerned nonexempt employees of the staffing agency placed throughout the state (not just at Eisenhower), this second suit concerns nonexempt employees of the hospital placed by any staffing agency (not just by FlexCare).

The Supreme Court concluded by say that “For these reasons, the hospital and staffing agency have not demonstrated that the Court of Appeal erred in rejecting their claim preclusion argument. We do not decide whether preclusion would have been appropriate on any other ground.”

It is worthy of note that had the settlement documents and release been drafted with different language, the second action here may have been precluded. In this respect the Supreme Court said “The trial court’s fact-specific determination – construing this particular release, based on the evidence adduced at this particular trial – is supported by substantial evidence. We affirm on that basis. Our decision on this issue is thus fact- and case-specific.”

The lesson here for employers is that the wording of a settlement agreement in anticipation of possible avenues of additional litigation and liability is critical.