Can Overly Aggressive Sales Tactics be Used to Get Out of a Contract?

In general, California courts will enforce contracts as written and based on the intent of the contracting parties as expressed in the contract. Rarely, a contracting party tries to make the argument that the contract is void for abusive sales practices or what is legally called “undue influence.” California courts will only entertain the defense in the most abusive and aggressive circumstances. A recent federal case from San Francisco gives a good example in which, as usual, the court rejected the claim of undue influence. See Kennedy v. Columbus Man’f’ing, Inc., Case No. 17-cv-03379-EMC (US District Court, N.D. California 2018) (applying California law). Nonetheless, the case is interesting because it sets out a list of factors that courts consider when evaluating undue influence.

In that case, the plaintiff, Hakan Kennedy, sued his former employer based on claims that he had been discriminated against in violation of the Americans with Disabilities Act of 1990 and other claims. When he separated from his former employer, he was asked to sign a severance agreement in exchange for his severance monies and benefits. This is standard practice for employers and employees.

However, later, Kennedy was unhappy with the severance agreement, and, as part of his lawsuit, he attempted to have the severance agreement voided on the grounds of undue influence.

Under California law, “undue influence” is where one party to a contract takes an unfair advantage of another person’s “weakness of mind” or takes “a grossly oppressive and unfair advantage of another’s necessities or distress.” See Cal. Civ. Code § 1575. To prove undue influence, one must also prove that there was “excessive pressure” applied to secure the agreement. With respect to excessive pressure, the court identified seven or eight factors that can establish such excessive pressure:

• The aggressive party discussed the transaction at an unusual or inappropriate time
• The contract was agreed to/signed an unusual place — such as the home of the party being pressured
• Insistent demands that the contract be finished immediately
• Repeated statements that there was no time to consult advisers — like lawyers or accountants
• Extreme and repeated emphasis that delay would have very negative consequences
• The aggressive party using multiple persons to “gang up” on the party being pressured
• The absence of third-party advisers — such as a lawyer — for the party being pressure
• Absence of any “cooling off” period before the agreement was signed

The courts are clear that not ALL of these factors must be present, and the courts make room for other fact patterns. Further, no one factor is more important than the others. But these are the types of facts that could lead a court to determine that the contract was not entered into freely and properly.

In Mr. Kennedy’s case, the court held that he had not signed his severance agreement because of undue influence. None of the typical high-pressure sales tactics were present. The agreement was negotiated over several weeks, Mr. Kennedy consulted with an attorney on multiple occasions prior to signing the severance agreement. The agreement was not even “pushed” aggressively by his former employer. On multiple occasions, Mr. Kennedy initiated negotiation efforts after periods of stagnation.

The court also rejected the idea that Mr. Kennedy was “weak of mind” or overly “susceptible” to the influence of his former employer. The fact that the severance agreement was negotiated over several months and that Mr. Kennedy obtained many concessions from his former employer both suggested that he was far from “weak of mind.” Furthermore, the fact that he consulted with attorneys several times also defeated a claim of “weakness of mind.”

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email.