Reported / Citable
Background
Jessica Garcia filed a wage-and-hour class action against her former employer, The Merchant of Tennis, Inc. After Garcia moved for class certification in 2024, Merchant entered into approximately 954 individual settlement agreements (ISAs) with current and former employees, paying out more than $875,000. Each ISA released the employee’s wage claims in exchange for a cash payment.
Garcia moved to invalidate the ISAs as procured by coercion and fraud. The trial court did not invalidate them outright but found they were voidable, and ordered the parties to draft a curative notice that would inform the 954 putative class members they could revoke their ISAs and join the class action. The parties could not agree on the notice’s content. The trial court ultimately approved a notice that did not require revoking class members to return their settlement payments, although it did mention that any future class recovery would be offset by what the employees had already received.
Merchant filed a writ petition challenging the curative-notice ruling, arguing that California’s rescission statutes (Civil Code sections 1689 and 1691) require that anyone rescinding a contract restore the consideration received.
The Court’s Holding
The Court of Appeal granted the petition. The court held that when a putative class member exercises a court-recognized right to revoke an ISA, the revocation operates as a rescission under California law, and the rescission statutes squarely apply. Under Civil Code sections 1689 and 1691, a party seeking rescission must restore (or offer to restore) everything of value received under the contract, promptly upon discovering the grounds for rescission.
The trial court’s curative notice was therefore inadequate. By failing to inform putative class members that they would have to return the settlement payment to revoke the ISA, the notice misled class members about the actual consequences of revocation. Telling class members only that future recoveries ‘may be offset’ by past payments did not satisfy the rescission statutes’ restoration requirement.
The court directed the trial court to vacate the February 2025 curative-notice order and to issue a new curative notice that complies with sections 1689 and 1691, including a clear statement that revoking class members must return the settlement amount.
Key Takeaways
- Voiding an individual settlement agreement in a class action operates as a rescission, and California’s rescission statutes apply.
- A curative notice that fails to disclose the obligation to return consideration upon rescission is materially misleading and will be set aside.
- Defendants who pay individual settlements should structure them with rescission consequences in mind, but should expect courts to enforce restoration requirements.
- Plaintiffs’ class counsel should not understate the practical cost of revocation; doing so risks reversal of class-certification orders and curative-notice rulings.
- Trial courts must give clear and accurate notice of legal consequences when modifying or invalidating settlement agreements at the class-certification stage.
Why It Matters
The decision is significant for both employer-side and plaintiff-side class-action practice in California. Defendants who use individual settlements to reduce putative-class exposure now have stronger appellate protection against curative notices that allow class members to keep settlement money while still joining the class. Plaintiffs’ counsel and trial courts must structure rescission options in compliance with the Civil Code rescission statutes.
For trial courts handling complex wage-and-hour class actions, the case is a procedural reminder: any order that effectively unwinds individual settlements must address all the legal consequences, including the obligation to restore consideration. Carefully drafted curative notices — vetted by both sides and reviewed against the rescission framework — will reduce the risk of writ review and reversal.