employment one year before his employment agreement was due to expire. Under the
termination agreement, Koenig agreed to release any potential claims against the district
in exchange for a lump sum payment equivalent to the amount due during the balance of
the term of his employment agreement, consistent with section 53260. The district also
agreed to continue to pay health benefits for Koenig and his spouse "until Koenig reaches
age 65 or until Medicare or similar government provided insurance coverage takes effect,
whichever occurs first."
The district stopped paying Koenig's health benefits 22 months later. Koenig then
sued to rescind the termination agreement and sought declaratory relief he was entitled to
continued benefits pursuant to his underlying employment agreement, which provided
that Koenig and his spouse would continue receiving health benefits, even after the term
of the agreement expired.
1 Unless otherwise specified, statutory citations are to the Government Code. Section 53260 was subsequently amended, but the amendment is not applicable here. (See fn. 4, post.) 2
After a bench trial, the trial court determined the district's promise in the
termination agreement to pay health benefits until Koenig turned 65 violated
section 53261, was unenforceable, and rendered the termination agreement void for lack
of consideration. The trial court determined that Koenig was entitled to receive
continued benefits under the underlying employment agreement, but found that
agreement was ambiguous with respect to how long he was entitled to continue receiving
such benefits. The trial court found the parties intended the district would provide health
benefits until Koenig obtained coverage through his new employer. The trial court
concluded neither party was entitled to damages or restitution and awarded Koenig costs
as the prevailing party.
Both Koenig and the district appealed from the judgment entered after trial.
Koenig contends the trial court properly determined the termination agreement was void
but should have concluded he is entitled to continued health benefits until the age of 65.
The district contends the trial court erred when it concluded the termination agreement
was void; rather, the trial court should have severed the termination agreement's
unenforceable promise to continue paying benefits, enforced the remainder of the
termination agreement, and required Koenig to pay restitution for benefits paid beyond
the term of the original agreement. We conclude the termination agreement's unlawful
promise to pay health benefits in excess of the statutory maximum should have been
severed to comply with sections 53260 and 53261, Koenig did not establish he is entitled
to rescind the termination agreement, and the district is entitled to restitution for health
3
benefits paid beyond the statutory maximum. We therefore reverse the judgment and
direct that judgment be entered in favor of the district in the amount of $16,607.
FACTS
A. The Employment Agreement
The district hired Koenig in 2003, first as a principal at three of the district's four
schools, and subsequently as superintendent and principal of the entire district. In
December 2009, Koenig and the district entered into a four-year employment agreement.
Under this agreement, the district agreed to provide Koenig and his spouse "his
choice of medical, dental, vision and long term disability insurance offered to [d]istrict
teachers." Under the heading, "Fringe Benefits, Professional Schedule and Vacation,"
section 8.C of the agreement stated:
"The [s]uperintendent/[p]rincipal shall be entitled, at [d]istrict expense, to his choice of medical, dental, vision and long term disability insurance offered to [d]istrict teachers for himself and his spouse, if any. Upon completion of the term of this [a]greement or, in the event of early termination of this [a]greement by the [d]istrict without cause (pursuant to [s]ection 12, below), the [s]uperintendent/[p]rincipal and his spouse, if any, will be entitled to continue medical, dental and vision insurance at [d]istrict expense until the [s]uperintendent/[p]rincipal reaches age 65 or until Medicare or similar government-provided insurance coverage takes effect, whichever occurs first."
Section 12 of the agreement, titled "Termination," specified the reasons for which
Koenig could be terminated from employment for cause and stated the procedures for
effectuating the termination. This section further stated:
Notwithstanding any other provisions of this [a]greement, the [b]oard, at its sole discretion, shall, upon giving ninety (90) days
4
written notice, have the option to terminate this [a]greement. If the [b]oard elects the option to terminate the [a]greement, it shall pay the [s]uperintendent, in one lump sum payment within ninety (90) days of giving written notice of termination, an amount equal to the salary for eighteen (18) months under the [a]greement, or the salary of the remainder of the term of the [a]greement if such remainder is less than eighteen (18) months . . . . In addition, the health insurance benefits will be maintained by the [d]istrict for the [s]uperintendent throughout the term of the [a]greement, unless the [s]uperintendent is provided with health insurance benefits under other employment."
B. The Termination Agreement
In 2012, shortly after Koenig disclosed a medical condition, the district placed him
on paid leave and expressed interest in terminating his employment agreement.2 The
parties entered into a termination agreement which contemplated that the parties would
terminate the employment agreement one year early—in December 2012. Koenig agreed
to release any employment-related claims he might have against the district in exchange
for a lump sum payment of $130,727.92, a sum "which represents the value of monthly
salary, [retirement plan] contributions and monthly stipend for service on [a charter
school management team], that would be due during the balance of the term of the
[e]mployment [a]greement, and accrued but unused vacation." The termination
agreement contemplated that "[t]his payment is intended to be within the provisions of
Government Code section 53260."
The district also agreed to continue paying Koenig's health benefits. Specifically,
the termination agreement provided, "[p]ursuant to [s]ection 8.C and [s]ection 12 of the
[e]mployment [a]greement, Koenig and his spouse shall continue to receive medical,
2 The parties stipulated at trial that Koenig's termination was "not for cause." 5
dental, and vision insurance at the [d]istrict's expense [hereinafter "health benefits"], until
Koenig reaches age 65 or until Medicare or similar government provided insurance
coverage takes effect, whichever occurs first."
The termination agreement contained a severability clause that provided, "[i]f any
provision of this [a]greement is held to be void, voidable, or unenforceable, the remaining
portions of the [a]greement shall remain in full force and effect." The agreement further
contemplated that, "[t]his [a]greement constitutes the entire agreement and understanding
of the [p]arties," and that "[a]ll prior understandings, terms, or conditions . . . are
superseded by this [a]greement." Finally, the agreement provided that "[e]ach party shall
bear his/its own attorneys' fees and costs arising out of or related to the development of
this [a]greement. Notwithstanding the foregoing, the prevailing [p]arty in any action
brought to enforce the terms of this [a]greement may recover its reasonable costs and
attorneys' fees expended in connection with such an action from the other [p]arty."
C. Events Leading to Filing of Lawsuit
Koenig obtained new employment with another school district in August 2014. In
October of that year, he received notification that the district was cancelling his health
benefits effective November 1. Koenig obtained health insurance through his then-
current employer. This coverage continued through June 30, 2016, when he retired.
Since then, he has been covered under a COBRA plan.
After submitting a written demand for reinstatement of health benefits, Koenig
filed this action to rescind the termination agreement. The district cross-complained,
arguing the termination agreement's promise to continue paying health benefits was void
6
and unenforceable under Government Code sections 53260 and 53261, and the payments
made in excess of the statutory maximum should be returned as an impermissible gift of
public funds in violation of the California Constitution, Article XVI, section 6. The
district sought declaratory relief, reformation of the termination agreement to excise the
unenforceable promise to provide continued benefits, and attorneys' fees under the
reformed termination agreement.
D. Trial
The case proceeded to a bench trial where Koenig testified he considered the
continuation of health benefits provision to be an "essential" provision in his employment
agreement. He testified that completing work under the agreement was a "longevity
requirement" on which the promise to continue paying health benefits was conditioned:
"Q. Was there any longevity requirement for you as part of the [employment agreement] prior to receiving benefits?
"A. Yes. I believe that the longevity requirement was going to be to complete the . . . employment agreement, and that would entail me being the superintendent and principal from 2009 until December 13th, 2013."
Koenig further testified the termination agreement's promise to continue providing
health benefits was "essential or crucial," and he would not have signed the termination
agreement without the health benefit provision. His understanding under the parties'
termination agreement was that he and his spouse would continue receiving health
insurance benefits until he turned 65.
Two former district board members also testified at trial. C. Magill testified that
she was a district board member when Koenig was initially hired and was still on the
7
board when Koenig's termination agreement was negotiated. She testified that her
understanding of Koenig's employment agreement was that he and his wife received
health benefits under the agreement, and had he worked to the end of the contract, he
would have continued to receive full benefits through the age of 65 or until he was
offered other insurance. Magill further testified that her understanding of Koenig's
termination agreement was that he and his wife were to receive full health benefits until
they were 65 unless he obtained health benefits through another employer.
G. Doxey, who was a board member when Koenig was elevated to superintendent,
testified he was not involved in negotiating the employment agreement. He testified the
district decided to "buy out" Koenig's employment agreement and intended to pay him
the full value on the remainder of that agreement. Doxey "specifically remember[ed]"
the district agreed to "pay [Koenig's] benefits until he was reemployed."
E. Judgment
After trial and a round of supplemental briefing, the trial court issued a written
statement of decision concluding the termination agreement was void because "part of the
consideration for Koenig's termination"—the promise to continue paying health benefits
until Koenig turned 65—"was unlawful." The trial court alternatively found Koenig was
entitled to rescind the termination agreement under Civil Code section 1689,
subdivision (b)(4) because there was a material failure of consideration, as the continued
payment of health coverage was central to the termination agreement. The trial court
found that the termination agreement's provision for continued health benefits could not
be severed and the remainder of the contract enforced because doing so would be
8
inconsistent with the parties' intent that Koenig would continue to receive benefits, as
evidenced by the witnesses' testimony at trial.
Having determined the termination agreement was void and unenforceable, the
trial court concluded that Koenig must disgorge anything he received under that
agreement unless he was entitled to receive it under the employment agreement. The
court declared it "appears undisputed" that Koenig was entitled to the lump-sum payment
under the employment agreement; the only dispute centered on the district's promise to
continue paying for health benefits. The trial court found the employment agreement was
ambiguous on this issue because section 8.C contemplated that, upon completion of the
term of the agreement or in the event of early termination by the district without cause,
Koenig and his spouse would be entitled to continued health benefits until Koenig
reached age 65 or government-provided insurance coverage took effect, while section 12
provided, in the event of early termination, "the health insurance benefits will be
maintained by the [d]istrict for the [s]uperintendent throughout the term of the
[a]greement, unless the [s]uperintendent is provided with health insurance benefits under
other employment." (Italics added.) Faced with this conflict, the trial court determined
that neither provision applied. Rather, the trial court found that "because the
[t]ermination [a]greement is void, the [e]mployment [a]greement did not terminate
'before the end of the contract term'[;] it simply came to an end as a fact of time." The
trial court further found that "Koenig did not complete the term of the [employment
agreement] and the [d]istrict did not terminate early without cause pursuant to
[s]ection 12 [of the employment agreement]. Instead, the parties simply agreed that
9
Koenig would end his term before the end of the contract." The trial court considered the
testimony of Koenig and both board members and concluded that the parties intended the
employment agreement to provide health insurance benefits until such benefits were
provided under other employment. The trial court therefore concluded the district did not
overpay when it provided benefits to Koenig through October 2014.3 The trial court also
concluded Koenig was not entitled to damages for underpayment of benefits. It found
Koenig did not adequately prove his claim of damages and he did not request damages
under his declaratory relief cause of action. Finally, the trial court declined to award
attorney fees under the provision in the (void) termination agreement. The trial court
entered judgment in Koenig's favor and awarded him costs, excluding attorney fees.
F. Cross Appeals
Both Koenig and the district appealed from the judgment. Koenig argues that,
because the termination agreement is void, the employment agreement is revived and
"must be deemed to have run [its] course." Koenig therefore contends he is entitled,
pursuant to the revived employment agreement, to health benefits until he reaches the age
of 65 or until Medicare or similar government-provided insurance takes effect, whichever
occurs first. Koenig additionally argues the trial court should have awarded him damages
for the amounts paid for COBRA coverage and for out-of-pocket premium payments
under his complaint's prayer for "further relief."
3 Koenig obtained health coverage through his new employer effective November 2014. 10
The district, on the other hand, contends the trial court erred when it declined to
sever the void provision relating to continued health benefits from the remainder of the
termination agreement. The district argues the trial court should have severed just the
portion of the agreement inconsistent with sections 53260 and 53261 and preserved or
reformed the remainder of the terms to provide that Koenig was entitled to health
benefits only through December 2013. The district alternatively argues that if the
entire termination agreement is void, the same limitation of health benefits under
sections 53260 and 53261 applies under the employment agreement. Under either theory,
the district contends Koenig should make restitution for overpayment of benefits after
December 2013.
DISCUSSION
I.
The trial court determined the termination agreement's provision promising
continued health benefits until age 65 violated the statutory limitations on settlements
imposed by sections 53260 and 53261. We agree.
The applicable version of section 53260 required that "[a]ll contracts of
employment between an employee and a local agency employer shall include a provision
which provides that regardless of the term of the contract, if the contract is terminated,
the maximum cash settlement that an employee may receive shall be an amount equal to
the monthly salary of the employee multiplied by the number of months left on the
unexpired term of the contract. However, if the unexpired term of the contract is greater
than 18 months, the maximum cash settlement shall be an amount equal to the monthly
11
salary of the employee multiplied by 18." (§ 53260, subd. (a); see also § 53263 ["local
agency" includes "any district, school district, community college district, . . . or any
instrumentality of any one or more of these agencies"].)4
Section 53261 provides that "[t]he cash settlement specified in [s]ection 53260
shall not include any other noncash items except health benefits, which may be continued
for the same duration of time as covered in the settlement, pursuant to the same time
limitations as provided in [s]ection 53260, or until the employee finds other employment,
whichever occurs first."
This court construed the statutory restrictions of sections 53260 and 53261 in Page
v. MiraCosta Community College Dist. (2009) 180 Cal.App.4th 471 (Page) and
concluded they applied to settlements upon termination of a local agency administrator's
contract, regardless of the circumstances surrounding the termination. In that case, a
taxpayer challenged a community college district's agreement with the college's former
president to settle potential claims the president had against members of the district's
board of trustees, contending the payments to the president in connection with the
termination of her contract exceeded the cash and noncash limitations contained in
sections 53260 and 53261. Page emphasized that section 53260 uses "unqualified
language to limit 'settlement[s]' upon an employee's contract termination," and concluded,
"the Legislature's purpose was to set strict limits on cash and 'noncash items' payable in
4 Section 53260 was subsequently amended such that, for employment contracts for a district superintendent of schools, the temporal maximum for cash settlements was reduced from 18 months to one year. (Stats. 2015, ch. 240, § 1, (Assem. Bill No. 215), eff. Jan. 1, 2016.) The parties agree the amended version is not applicable here. 12
settlements upon termination of a local agency administrator's contract, without regard
for the circumstances existing at the time of termination, the reasons, if any, for
termination, or the nature of the disputes between the parties. . . . If that employee and
employer nevertheless elect to terminate employment in the face of those claims (or the
employer unilaterally terminates the contract), the employee's cash settlement, if any, is
capped at 18 months of salary as specified in section [53260], and noncash benefits are
limited to health benefits as specified in section [53261]." (Page, at p. 492.)
Similarly, here, sections 53260 and 53261 clearly limit the cash settlement (i.e.,
monthly salary) and noncash benefits (i.e., health benefits) payable to Koenig under the
termination agreement. Because the termination agreement was intended to settle the
parties' disputes, and resulted in the early termination of Koenig's employment, it
triggered the "strict limits on cash and 'noncash items' payable in settlements upon
termination" without regard to the circumstances or reasons for Koenig's early
termination or the nature of the parties' dispute. (Page, supra, 180 Cal.App.4th at
p. 492.) Indeed, neither party disputes that the district's promise to continue paying
health benefits until the age of 65 violates section 53261's prohibition on providing
benefits beyond the term of the original employment agreement. Under the plain
language of the statute and Page, this portion of the termination agreement—the
continued benefits beyond the term of the original employment agreement—is unlawful.
We next consider what effect this illegal provision has on the termination agreement.
13
II.
The trial court determined that the termination agreement's promise to pay
continued health benefits in violation of sections 53260 and 53261 was not severable
from the remainder of the agreement and concluded the entire termination agreement was
void for illegality. We conclude the court erred.
Whether the termination agreement is capable of being severed is reviewed de
novo pursuant to established rules governing contract interpretation. (Parsons v. Bristol
Development Co. (1965) 62 Cal.2d 861, 865-866 [unless the interpretation of a written
instrument turns upon the credibility of extrinsic evidence, it is a question of law that we
review de novo].) If an agreement can be severed, the trial court has discretion to do so
and we apply an abuse of discretion standard of review to that decision. (MKB
Management, Inc. v. Melikian (2010) 184 Cal.App.4th 796, 803 (MKB); see Dotson v.
Amgen, Inc. (2010) 181 Cal.App.4th 975, 985-986 (Dotson) [applying abuse of discretion
standard but noting that clear preference is to sever, particularly where "only one
provision of an agreement is found to be unconscionable and that provision can easily be
severed without affecting the remainder of the agreement"].)
The principles governing contract interpretation are well settled. " ' " '[A] contract
must receive such an interpretation as will make it lawful, operative, definite, reasonable,
and capable of being carried into effect, if it can be done without violating the intention
of the parties.' (Civ. Code, § 1643; see also id., § 3541.) Pursuant to this rule, we will
not construe a contract in a manner that will render it unlawful if it reasonably can be
construed in a manner which will uphold its validity." [Citation.]' [Citation.] A contract
14
is unlawful if it is '[c]ontrary to an express provision of law.' (Civ. Code, § 1667,
subd. 1.) Unlawful contracts are considered void. (Civ. Code, §§ 1598, 1599.)"
(Citizens for Amending Proposition L v. City of Pomona (2018) 28 Cal.App.5th 1159,
1188.)
A contract must have a lawful object, and the consideration exchanged between
the parties must also be lawful. (Civ. Code, § 1596 [the object of a contract must be
lawful when the contract is made]; id., § 1607 [the consideration for a contract must be
lawful].) Although Civil Code section 1598 invalidates an entire contract when it "has
but a single object, and such object is unlawful," Civil Code section 1599 states that if "a
contract has several distinct objects, of which one at least is lawful, and one at least is
unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest."
Similarly, where a portion of the consideration promised for a single contractual object is
unlawful, the entire contract is void. (Civ. Code, § 1608 ["If any part of a single
consideration for one or more objects, or of several considerations for a single object, is
unlawful, the entire contract is void."]; see McIntosh v. Mills (2004) 121 Cal.App.4th
333, 344 [where the illegal consideration goes to the "whole of the promise," the entire
contract is illegal].) However, where the consideration is only partly illegal, the legal
portion may be enforced if the contract is severable. (Keene v. Harling (1964) 61 Cal.2d
318, 320; see MKB, supra, 184 Cal.App.4th at p. 805 [a contract that failed to allocate
consideration between lawful and unlawful services is not void as a matter of law; the
doctrine of severability may apply where the contract did not have a single unlawful
object and the illegality did not so permeate the entire agreement as to render it void].)
15
Indeed, "[i]t has long been the rule in this state that ' "When the transaction is of such a
nature that the good part of the consideration can be separated from that which is bad, the
Courts will make the distinction, for the . . . law . . . [divides] according to common
reason; and having made that void that is against law, lets the rest stand." ' " (Keene, at
pp. 320-321.)
In deciding whether a contract is severable, " '[t]he overarching inquiry is whether
" 'the interests of justice . . . would be furthered' " by severance.' [Citation.] 'Courts are
to look to the various purposes of the contract. If the central purpose of the contract is
tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is
collateral to the main purpose of the contract, and the illegal provision can be extirpated
from the contract by means of severance or restriction, then such severance and
restriction are appropriate.' " (Marathon Entertainment, Inc. v. Blasi (2008) 42 Cal.4th
974, 996; see id. at pp. 991, 998 [the doctrine of severability "is equitable and fact
specific" and it "preserves and enforces any lawful portion of a parties' contract that
feasibly may be severed"].)
"California cases take a very liberal view of severability, enforcing valid parts of
an apparently indivisible contract where the interests of justice or the policy of the law
would be furthered." (Adair v. Stockton Unified School Dist. (2008) 162 Cal.App.4th
1436, 1450; see Dotson, supra, 181 Cal.App.4th at p. 986 [" 'the strong legislative and
judicial preference is to sever the offending term and enforce the balance of the
agreement' "].) Severance is favored in order "to prevent parties from gaining undeserved
benefit or suffering undeserved detriment as a result of voiding the entire agreement—
16
particularly when there has been full or partial performance of the contract."
(Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 123-
124 (Armendariz).)5
Applying these principles, we conclude the unlawful provision governing health
benefits was capable of being severed from the remainder of the termination agreement
and severance was clearly warranted here. The stated object of the termination
agreement was to "compromis[e] and settl[e] any potential disputes" between the parties
with respect to Koenig's employment. The parties agreed that Koenig's employment
would end prior to the expiration of the term set by the underlying employment
agreement. Koenig agreed to release any potential claims against the district in exchange
for a lump-sum payment in excess of $130,000 that was "intended to be within the
provisions of Government Code section 53260" and a promise to pay continued health
benefits. The sole illegality, as explained ante, arose from the provision for continued
payment of health benefits beyond the employment agreement's original December 2013
expiration date. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 666
["One relevant factor in assessing severability is whether the agreement contains more
than one objectionable term."], citing Armendariz, supra, 24 Cal.4th at p. 124.) This
portion of the agreement is easily separated from the remaining, lawful, provisions and
5 The Armendariz court also identified the conservation of a contractual relationship between the parties as another reason for severing or restricting illegal terms rather than voiding the entire contract. (Armendariz, supra, 24 Cal.4th at p. 124.) Because Koenig is no longer employed by the district, and there is no ongoing contractual relationship to preserve, this basis for favoring severance does not appear applicable here. 17
does not taint the agreement as a whole. (McManus v. CIBC World Markets Corp.
(2003) 109 Cal.App.4th 76, 101-102 [single unconscionable provision did not make
entire agreement permeated with unconscionability and was therefore severable].)
Severance would further the interests of justice because it would allow Koenig to retain
the lawful benefits to which he is entitled under the termination agreement, while
preventing Koenig from obtaining an additional windfall in the form of health benefits
past December 2013 which he clearly is not entitled to receive. (See Benjamin, Weill &
Mazer v. Kors (2011) 195 Cal.App.4th 40, 59 [where effect of invalid provision in
written agreement was "unintended and indeed unknown to the parties, severing it from
the agreement would not impose on either of them any undeserved benefit or detriment"
and enforcing "the remainder of the clause . . . achieves the paramount purpose of their
contractual relationship"].)
Severing the invalid provision to pay health benefits beyond the statutory
maximum also is consistent with the parties' expressed intent. Section 18 of the
agreement provides: "If any provision of this [a]greement is held to be void, voidable, or
unenforceable, the remaining portions of the [a]greement shall remain in full force and
effect." This clause "evidence[s] the parties' intent that, to the extent possible, the valid
provisions of the [agreement] be given effect, even if some provision is found to be
invalid or unlawful." (Baeza v. Superior Court (2011) 201 Cal.App.4th 1214, 1230.) We
thus conclude that the portion of section 4 of the termination agreement that contravenes
sections 53260 and 53261 inasmuch as it promises benefits "until Koenig reaches age 65
or until Medicare or similar government provided insurance coverage takes effect,"
18
should be severed from the termination agreement and the remainder of the agreement
enforced.
We reject Koenig's arguments against severance. Koenig contends severance was
not warranted because he would not have agreed to the termination agreement but for its
promise to continue paying benefits.6 Where an agreement is not ambiguous, however,
the intent of the contracting parties is discerned from the contract itself. " 'The
fundamental rule is that interpretation of . . . any contract . . . is governed by the mutual
intent of the parties at the time they form the contract. [Citation.] The parties' intent is
found, if possible, solely in the contract's written provisions. [Citation.] "The 'clear and
explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,'
unless 'used by the parties in a technical sense or a special meaning is given to them by
Residential, Inc. (2012) 207 Cal.App.4th 1115, 1129.) It is the parties' expressed
objective intent, not their unexpressed subjective intent, that governs. (In re Tobacco
Cases I (2010) 186 Cal.App.4th 42, 47.) Thus, " 'extrinsic evidence is not admissible to
contradict express terms in a written contract or to explain what the agreement was. . . .
The agreement is the writing itself. . . . Parol evidence cannot . . . be admitted to show
6 Throughout the litigation, Koenig emphasized that he would not have entered the termination agreement had it not provided for the continued benefits he was eligible to receive upon completion of the term of the employment agreement. He testified that, given his and his wife's health concerns, health benefits were his "primary concern," and he "[a]bsolutely" would not have signed the termination agreement had it not contained the promise to continue paying benefits. Both board members testified that they understood the termination agreement to mean that the district intended to continue paying Koenig's health benefits. 19
intention independent of an unambiguous written instrument.' " (Wagner v. Columbia
Pictures Industries, Inc. (2007) 146 Cal.App.4th 586, 592.) Here, the unambiguous
agreement reflects that the unenforceable promise to pay continued benefits was only a
portion of the consideration provided and the parties agreed that unenforceable provisions
of the agreement should be severed. We therefore reject Koenig's claim, which is not
reflected in the agreement itself, that he would not have agreed to the termination
agreement but for its promise of continued benefits after December 2013.
We also reject Koenig's argument that there is insufficient consideration to support
the agreement absent the continued payment of health benefits. The lawful consideration
exchanged pursuant to the termination agreement included the $130,000 lump-sum
payment and 12 months of paid health benefits—representing the maximum cash
settlement permitted upon termination of Koenig's employment agreement. (Gov. Code,
§§ 53260, 53261.) We find this consideration was legally sufficient to support the
termination agreement. (Civ. Code, § 1605 [consideration is any benefit given or
detriment suffered by a person to induce another to make a promise].)
In sum, we conclude the unlawful portion of the termination agreement is
severable, and the remaining provisions of the termination agreement are enforceable
with the unlawful provision excised. Having concluded that the termination agreement's
unlawful promise to pay health benefits in excess of the statutory maximum should have
20
been severed to comply with sections 53260 and 53261, we next address Koenig's
contention that he is entitled to rescind the termination agreement.7
III.
Koenig sought to rescind the termination agreement pursuant to Civil Code
section 1689, subdivision (b), which provides in relevant part:
"A party to a contract may rescind the contract in the following cases:
[¶] . . . [¶]
"(2) If the consideration for the obligation of the rescinding party fails, in whole or in part, through the fault of the party as to whom he rescinds.
[¶] . . . [¶]
"(4) If the consideration for the obligation of the rescinding party, before it is rendered to him, fails in a material respect from any cause.
"(5) If the contract is unlawful for causes which do not appear in its terms or conditions, and the parties are not equally at fault." (Civ. Code, § 1689, subd. (b)(2), (4) & (5).)
The trial court properly recognized that Koenig was not entitled to rescission
under Civil Code section 1689, subdivision (b)(2) because any failure of consideration
was not due to the district. Indeed, Koenig testified at trial he relied on his counsel's
advice when entering the agreement, and the agreement states the agreement's language
should not be construed strictly for or against either party. We agree with the trial court
7 Because we have concluded that the illegal benefits provision should be severed and the remainder of the termination agreement enforced, we decline to address the district's alternate contention on cross appeal, that the agreement should be reformed under Civil Code section 3399. 21
that the failure of consideration here was not the fault of either party, but was due to
operation of law. This precludes Koenig from rescinding under subdivisions (b)(2) and
(b)(5), which respectively require fault of the party not rescinding or parties not equally
at fault.
The trial court determined that, even if the termination agreement were not void,
"Koenig would have prevailed on his request for rescission" under subdivision (b)(4).
We disagree. Subdivision (b)(4) applies where the consideration "fails in a material
respect from any cause" before it is rendered to the party seeking rescission. (Civ. Code,
§ 1689, subd. (b)(4).) The remedy of rescission extinguishes the contract (Civ. Code,
§ 1688) and restores the parties to their former positions by requiring them to return
whatever consideration they have received. (Nmsbpcsldhb v. County of Fresno (2007)
152 Cal.App.4th 954, 959-960; Civ. Code, § 1691, subd. (b) [upon rescission, each party
must restore to the other "everything of value which he has received from him under the
contract"].)
Here, as already noted, the district paid Koenig $130,000, and paid Koenig health
benefits throughout the duration of the employment agreement, including during the final
year when Koenig had discontinued working for the district. Koenig argued in the trial
court that this consideration failed because he "would have received the exact same
salary, STRS contributions and stipend under the terms of the [e]mployment
[a]greement." He claims "the promise of continued health benefits was the primary and
material consideration for the [t]ermination [a]greement," and he "received no other
consideration" under the termination agreement. This argument fails to acknowledge that
22
Koenig would not have been entitled to receive salary or benefits under the employment
agreement had he not continued to work for the district, and Koenig admitted he
discontinued working for the district when he entered into the termination agreement in
December of 2012—one year before the term of his employment agreement expired. The
employment agreement specified various powers and duties to be performed by the
"[s]uperintendent/[p]rincipal" throughout the term of the agreement. Having failed to
complete his duties for the duration of the employment agreement, Koenig would not
have been entitled to the full salary, stipend, or retirement contributions he received
under the termination agreement.8 We therefore reject Koenig's claim that he was
entitled to rescind the termination agreement because the consideration failed in a
material respect before it was rendered to him.
Moreover, "[r]escission requires that the aggrieved party provide the other party to
the agreement with ' "prompt notice" ' and an ' "offer to restore the consideration
received, if any." ' " (Village Northridge Homeowners Association v. State Farm Fire &
Casualty Co. (2010) 50 Cal.4th 913, 921; see Civ. Code, § 1691 [service of complaint
deemed offer to restore benefits received].) Koenig has made no effort to return to the
district the sizable payment he received under the termination agreement, nor does it
8 The trial court acknowledged that, if the termination agreement were rescinded, Koenig would be required to restore to the district everything of value he received under it, and further acknowledged that Koenig received payment of $130,000. However, without a citation to the record or the law, the trial court remarked that it "appears undisputed that he would have received this compensation under the [e]mployment [a]greement." As discussed, because Koenig discontinued working for the district in December 2012, he would not have been entitled to that payment, absent the termination agreement.
23
appear he is willing to do so. He maintains he is entitled to that payment under the
employment agreement, despite his failure to fully perform his duties thereunder. Koenig
has failed to establish how he would be entitled to this payment absent the termination
agreement. (See Page, supra, 180 Cal.App.4th at p. 491 [reviewing legislative history of
Government Code sections 53260 and 53261, noting "local governments should not pay
their former executives not to work"].) Koenig's failure to restore the consideration
received under the termination agreement further precludes his rescission claim. (Little v.
Pullman (2013) 219 Cal.App.4th 558, 566-567.)9
IV.
Having determined the termination agreement's promise to pay health benefits in
excess of the statutory maximum should have been severed and the remainder of the
agreement enforced in a manner that complies with sections 53260 and 53261, we
conclude that Koenig was entitled to payment for health benefits only for the duration of
the term of his original employment agreement—until December 2013—the maximum
duration permitted under sections 53260 and 53261. Any payments made for health
benefits by the district after December 2013 were made in excess of the statutory
maximum, and the district is entitled to repayment of that amount under its first and
second causes of action for unjust enrichment and impermissible gift of public funds,
respectively. (See Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018)
9 Because we conclude Koenig is not entitled to rescind the termination agreement and revive the employment agreement, we decline to address Koenig's additional arguments regarding interpretation of the employment agreement or entitlement to additional damages. 24
29 Cal.App.5th 230, 238 ["one who is unjustly enriched at the expense of another is
required to make restitution"]; Page, supra, 180 Cal.App.4th at p. 496 [settlement
payments in excess of statutory maximums established by sections 53260 and 53261 are
made "in violation of the gift clause"]; Cal. Const., art. XVI, § 6.)
At trial, the district established it paid $16,607 in benefits for the period from
January 2014 through October 2014. Koenig does not dispute this. Thus, judgment
should be entered in favor of the district in the amount of $16,607.
V.
The district contends, and we agree, that remand is required to allow the trial court
to determine the district's entitlement to attorney fees under the termination agreement.
We express no opinion as to whether the district is entitled to fees under the agreement
or, if so, in what amount.
25
DISPOSITION
The judgment is reversed. Judgment shall be entered in favor of the district in the
amount of $16,607, and the matter shall be remanded to the trial court to determine the
district's entitlement to attorney fees under the termination agreement. The district is
entitled to its costs on appeal.
GUERRERO, J.
WE CONCUR:
HUFFMAN, Acting P. J.
IRION, J.
26
Filed 10/11/19 CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
RON KOENIG, D072463
Plaintiff, Cross-defendant, and Appellant, (Super. Ct. No. 37-2015-00015380- v. CU-CO-CTL)
WARNER UNIFIED SCHOOL DISTRICT, ORDER CERTIFYING OPINION FOR PUBLICATION Defendant, Cross-complainant, and Appellant.
THE COURT:
The opinion in this case filed September 19, 2019, was not certified for
publication. It appearing the opinion meets the standards for publication specified in
California Rules of Court, rule 8.1105(c), the request pursuant to rule 8.1120(a) for
publication is GRANTED.
IT IS HEREBY CERTIFIED that the opinion meets the standards for publication
specified in California Rules of Court, rule 8.1105(c); and
ORDERED that the words "Not to Be Published in the Official Reports" appearing
on page 1 of said opinion be deleted and the opinion herein be published in the Official
Reports.
HUFFMAN, Acting P. J.
Copies to: All parties
2
AI Brief
AI-generated · verify before citing
Holding. The court held that the termination agreement's unlawful promise to provide health benefits beyond the statutory maximum was severable, and therefore the agreement was not void in its entirety. The court directed that the unlawful provision be severed and that the district be awarded restitution for benefits paid in excess of the statutory limit.
Issues
Whether the termination agreement's promise of health benefits beyond the statutory maximum violated Government Code sections 53260 and 53261.
Whether the unlawful health benefit provision was severable from the remainder of the termination agreement.
Whether the district is entitled to restitution for health benefits paid beyond the statutory maximum.
Disposition. reversed
Quotations verified verbatim against the opinion
“We conclude the termination agreement's unlawful promise to pay health benefits in excess of the statutory maximum should have been severed to comply with sections 53260 and 53261”
“the strong legislative and judicial preference is to sever the offending term and enforce the balance of the agreement”