A federal court in California recently found that releases executed by former distributors were unenforceable and therefore denied a summary judgment motion filed by distributors Earthgrains Distribution, LLC and Bimbo Bakeries USA, Inc. in Munoz v. Earthgrains Distrib., LLC, 2025 WL 2932647 (S.D. Cal. Oct. 15, 2025).
The plaintiffs were former distributors who had entered into distribution agreements with Earthgrains and Bimbo Bakeries that allowed the plaintiffs to sell their distribution rights so long as they agreed to release claims against Earthgrains and Bimbo Bakeries upon the sale of the distribution rights. The plaintiffs eventually sold their distribution rights and signed the releases but then sued Earthgrains and Bimbo Bakeries, asserting independent contractor misclassification and Private Attorneys General Act claims.
Earthgrains and Bimbo Bakeries sought summary judgment, arguing the suit was barred by the releases signed by the plaintiffs, but did not otherwise argue summary judgment on the merits of the plaintiffs’ underlying claims. The court denied the motion, finding that the releases were unenforceable and unconscionable under California law because California law prohibits prospective waivers of certain employment-related claims. Although the releases were signed at the end of the parties’ relationship, the court deemed them prospective in nature because they were effectively required under the distribution agreement signed at the outset of the parties’ relationship. The court also found the releases procedurally and substantively unconscionable, relying in part on the Ninth Circuit’s interpretation of the distribution agreements in Munoz v. Earthgrains Distrib., LLC, 2024 WL 4144081 (9th Cir. Sept. 11, 2024). Applying that analysis, the court concluded that the releases exhibited a moderate degree of procedural unconscionability, as they were contracts of adhesion—preprinted on standardized forms, nonnegotiable, and signed without the benefit of legal counsel. The court found the releases to be substantively unconscionable because they were one-sided and unreasonably favorable to Earthgrains and Bimbo Bakeries.