TECH-BILT, INC., Cross-complainant and Appellant, v. WOODWARD-CLYDE & ASSOCIATES, Cross-defendant and Respondent.
L.A. No. 31826
Supreme Court of California
May 2, 1985
38 Cal.3d 488 | 213 Cal.Rptr. 256 | 698 P.2d 159
Gibson & Kennerson and Paul R. Kennerson for Cross-complainant and Appellant.
Eric N. Winter as Amicus Curiae on behalf of Cross-complainant and Appellant.
Daley & Heft and Dennis W. Daley for Cross-defendant and Respondent.
Leonard Sacks, Robert E. Cartwright, Victoria J. De Goff, Wylie A. Aitken, Harlan Arnold, Glen T. Bashore, Ray Bourhis, Richard D. Bridgman, Edwin Train Caldwell, David S. Casey, Jr., Douglas K. deVries, H. Greig Fowler, Sanford M. Gage, Ian Herzog, G. Dana Hobart, Stanley K. Jacobs, Harvey R. Levine, John C. McCarthy, Timothy W. Peach, Joseph Posner, Robert H. Sulnick, John M. Van Dyke, Arne Werchick, Stephen I. Zetterberg and Anderson, McPharlin & Conners as Amici Curiae on behalf of Cross-defendant and Respondent.
OPINION
GRODIN, J.—This case requires us to consider the meaning of the phrase “settlement . . . made in good faith” as used in
I.
Tech-Bilt, Inc. (Tech-Bilt) appeals from a judgment which granted a motion for summary judgment and dismissed its cross-complaint against Woodward-Clyde & Associates (Woodward-Clyde). Plaintiffs in the underlying action, Mr. and Mrs. Andrew Fabula (hereinafter referred to as the plaintiffs), owners of a residential property, brought this action against Tech-Bilt (the developer), Woodward-Clyde (soils engineers), and others on various theories to recover damages for structural defects in their residence.
During informal discovery in the early stages of litigation, counsel for Woodward-Clyde informed counsel for plaintiffs that Woodward-Clyde had completed its services on the subject development more than 10 years before plaintiffs filed their complaint in this action. Plaintiffs’ action against Woodward-Clyde was therefore barred by the applicable 10-year statute of limi
In April 1981, Tech-Bilt filed an amended cross-complaint for indemnity and declaratory relief, and in June named Woodward-Clyde as a party cross-defendant. Woodward-Clyde then brought motions for an order to confirm its agreement with the plaintiffs as a good faith settlement under the terms of
As a preliminary matter, it should be noted that, had Woodward-Clyde obtained a summary judgment on plaintiffs’ claim on the basis of
II.
The statutes which govern this case are sections 877 and 877.6.
To fully appreciate the meaning of
At the same time, the common law provided a powerful disincentive to settlements between plaintiffs and individual tortfeasors in a multiple defendant action since the plaintiff‘s release or dismissal of one joint tortfeasor for consideration released all the others. The theory behind this rule was that there could be only one compensation for a joint wrong and since each joint tortfeasor was responsible for the whole damage, payment by any one of them satisfied plaintiff‘s claim against all. Whether this rule applied also to concurrent tortfeasors was open to question. (See 4 Witkin, Summary of Cal. Law (8th ed. 1974) Torts, § 38, pp. 2336-2337.)
California‘s tort contribution legislation (pt. 2, tit. 11, in which §§ 877 & 877.6 now appear) was sponsored by the State Bar and originally introduced in 1955 as Senate Bill No. 412. The primary purpose of the bill was
It is significant that, as originally proposed, the bill did not address the effect of a release or a covenant not to sue given to one of several joint tortfeasors.
(1) As the Court of Appeal in River Garden Farms, Inc. v. Superior Court observed, “[t]he major goals of the 1957 tort contribution legislation are, first, equitable sharing of costs among the parties at fault, and second, encouragement of settlements.” (River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 993 [103 Cal.Rptr. 498] [hereafter River Garden Farms].)
In interpreting this legislation, the courts therefore properly attempted to accommodate both objectives, even though the goals of equitable sharing and encouragement of settlements are not always necessarily harmonious. “[I]f the policy of encouraging settlements is permitted to overwhelm equitable financial sharing, the possibilities of unfair tactics are multiplied. Neither statutory goal should be applied to defeat the other.” (Id., at p. 998.)
The good faith provision of
By their terms, the tort contribution statutes applied only to tortfeasors against whom a money judgment had been jointly rendered. (
Our primary concern in American Motorcycle was the equitable objective of allocating the cost of loss appropriately among multiple tortfeasors. “[I]n the great majority of cases . . . equity and fairness call for an apportionment of loss between the wrongdoers in proportion to their relative culpability, rather than the imposition of the entire loss upon one or the other tortfeasor.” (Id., at p. 595.) Thus, “to attain . . . a system, in which liability for an indivisible injury caused by concurrent tortfeasors will be borne by each individual tortfeasor ‘in direct proportion to [his] respective fault,’ . . . the current equitable indemnity rule should be modified to permit a concurrent tortfeasor to obtain partial indemnity from other concurrent tortfeasors on a comparative fault basis.” (Id., at p. 598.)
“The legislative history of the 1957 contribution statute quite clearly demonstrates that the purpose of the legislation was simply ‘to lessen the harshness’ of the then prevailing common law no contribution rule. Nothing in the legislative history suggests that the Legislature intended by the enactment to preempt the field or to foreclose future judicial developments which further the act‘s principal purpose of ameliorating the harshness and inequity of the old no contribution rule.” (Id., at p. 601, fn. omitted.)
In addition, we noted that the 1957 legislation contains a specific provision which explicitly mandates that the “right of contribution shall be administered in accordance with the principles of equity.” (
Nothing in our discussion on this point, however, suggested a departure from the interpretation of
The Legislature responded to American Motorcycle in 1980 by its enactment of
This background strongly suggests that the Legislature intended the term “good faith” in
The United States Court of Appeals for the Ninth Circuit, applying California law, reached that conclusion in Commercial U. Ins. Co. v. Ford Motor Co. (9th Cir. 1981) 640 F.2d 210. Plaintiff in that case, complaining of injuries allegedly caused by a defective Ford automobile, dismissed Ford Motor Company as a defendant for tactical reasons (he wished to avoid their expert witnesses) and proceeded against the retail dealer alone. Ford evidently offered no consideration for this “settlement.” Citing River Garden Farms and American Motorcycle, the court concluded that “the expansion of
Applying this standard to the case before it, the court observed that “[t]he record reveals that the decision to dismiss was substantially a tactical maneuver by plaintiff‘s attorneys. It does not reflect the cooperative decision-making between parties which is the earmark of settlement. Nor does it reflect a consideration of relative liability. This case involves $3,250,000 in damages. Even a slight probability of liability on Ford‘s part would warrant significant contribution. There was at least one expert prepared to testify that there was a design defect. [¶] Moreover, a settlement, to the extent that it is dictated by the tactical advantage of removing a deep-pocket defendant because of the experts it could produce and the skilled trial attorneys it could retain, is not made in ‘good faith’ consideration of the relevant liability of all parties. Accordingly, the court erred in finding that the settlement absolving Ford of any liability to Meyers was made in good faith.” (640 F.2d at pp. 213-214.)6
A competing interpretation of the “good faith” requirement was suggested by the Court of Appeal in Dompeling v. Superior Court (1981) 117 Cal.App.3d 798 [173 Cal.Rptr. 38]. Plaintiff in that case, complaining of injuries from an automobile accident, sued two defendants, Dompeling and Chatom, who in turn each cross-complained against the other for partial indemnity. Plaintiff settled with Dompeling for $100,000, the limit of his insurance policy, and Chatom challenged the settlement as being in bad faith. The question before the Court of Appeal was whether Chatom should be permitted to depose Dompeling as to his personal and business assets in order to demonstrate that the plaintiff‘s prospective recovery against Dompeling was in excess of the settlement amount. In rejecting Chatom‘s claim, the court reasoned: “Bad faith is not established by a showing that a settling defendant paid less than his theoretical proportionate or fair share of the value of plaintiff‘s case. . . . [¶] Where plaintiff settles with fewer than all defendants, the defendants are clearly adverse parties. A settling defendant does not owe a legal duty to adverse parties, the nonsettling defendants, to pay the plaintiff more so that the adverse parties may pay the plaintiff less. Plaintiff and defendants are also adverse parties; the plaintiff does not owe a legal duty to the nonsettling defendants to seek more from a settling de-
But the Dompeling every-person-for-himself approach is capable of producing harsh results, as the Fifth District Court of Appeal which decided Dompeling soon recognized. In Cardio Systems, Inc. v. Superior Court (1981) 122 Cal.App.3d 880 [176 Cal.Rptr. 254], plaintiffs filed an action in medical malpractice and products liability after their decedent died on the operating table, allegedly as a result of incorrect use of a heart-lung machine. Prior to trial, plaintiffs dismissed the action against Cardio, the machine‘s distributor, in return for a waiver of costs. Plaintiffs’ attorney testified that the decision to dismiss was a tactical one: “‘I had no desire . . . to complicate a clear liability, relatively simple medical malpractice case by bringing in a products case. . . .‘” (Id., at pp. 884-885.)
Though the Court of Appeal ruled that this dismissal was a good faith settlement under the terms of
That the Legislature intended the term “good faith” in
A more appropriate definition of “good faith,” in keeping with the policies of American Motorcycle and the statute, would enable the trial court to inquire, among other things, whether the amount of the settlement is within the reasonable range of the settling tortfeasor‘s proportional share of comparative liability for the plaintiff‘s injuries. This is not to say that bad faith is “established by a showing that a settling defendant paid less than his theoretical proportionate or fair share.” (Cf. Dompeling, supra, 117 Cal.App.3d at p. 809.) Such a rule would unduly discourage settlements. “For the damages are often speculative, and the probability of legal liability therefor is often uncertain or remote. And even where the claimant‘s damages are obviously great, and the liability therefor certain, a disproportionately low settlement figure is often reasonable in the case of a relatively insolvent, and uninsured, or underinsured, joint tortfeasor.” (Stambaugh v. Superior Court (1976) 62 Cal.App.3d 231, 238 [132 Cal.Rptr. 843].) Moreover, such a rule would tend to convert the pretrial settlement approval procedure into a full-scale minitrial (cf. Dompeling, supra, 117 Cal.App.3d at p. 810).
But these considerations do not lead to the conclusion that the amount of the settlement is irrelevant in determining good faith. Rather, the intent and policies underlying
We doubt that such an approach will be detrimental to the settlement process, though ultimately that is a judgment that should be made on the basis of experience rather than speculation. The plaintiff, of course, will have at least the same incentive to settle as under the nontortious conduct rule; indeed, to the extent that the settling defendant is induced to offer more in order to bring the settlement within the bounds of fairness, the plaintiff‘s incentive to settle may be greater. Since the “reasonable range” test which we adopt leaves substantial latitude to the parties and to the discretion of the trial court, defendants will still have an incentive to get out of the litigation for a reduced amount. (See Roberts, The “Good Faith” Settlement: An Accommodation of Competing Goals, supra, 17 Loyola L.A. L.Rev. 841, 928-929.) Moreover, from the standpoint of the public interest and the legal process, a prime value in encouraging settlement lies in “remov[ing] [the case] from the judicial system, and this occurs only when all claims relating to the loss are settled.” (Id., at pp. 888-889, italics added; see also Fleming, Report to the Joint Committee of the California Legislature on Tort Liability on the Problems Associated With American Motorcycle v. Superior Court (1979) 30 Hastings L.J. 1464, 1495; Note, Settlement in Joint Tort Cases (1966) 18 Stan.L.Rev. 486, 489.)8
Nor should this approach unduly burden the parties or the trial court.
Several recent Court of Appeal opinions, while paying verbal service to Dompeling, have in fact engaged in such an analysis. In Kohn v. Superior Court (1983) 142 Cal.App.3d 323, 328 [191 Cal.Rptr. 78], the Court of Appeal quoted from Dompeling with approval, but held that the trial court “was within its discretion in finding the settlement to be in good faith” since “[a]lthough the sums paid may be grossly disproportionate to the sums prayed for in the complaint, they are not out of proportion to what the trial court might have considered the probable recovery of plaintiffs should they prove their case.”
In Widson v. International Harvester Co. (1984) 153 Cal.App.3d 45 [200 Cal.Rptr. 136], a plaintiff settled with a joint tortfeasor, Louetto, against whom his cause of action had been tolled by the statute of limitations, as here, but received in return the sum of $30,000. In affirming the trial court‘s decision that the settlement was in good faith within the meaning of
In this case, by contrast, plaintiffs received nothing in return for the dismissal of their action against Woodward-Clyde except relief from having to pay Woodward-Clyde‘s costs because they were wrongfully sued. The same net situation would have existed if, mindful of the running of the statute of limitations against them, plaintiffs had not sued Woodward-Clyde in the first place. To say that
Ordinarily, a determination as to whether a settlement is in good faith must be left to the discretion of the trial court. In this case, however, the exercise of discretion on the basis of the criteria we have identified as appropriate could yield but one conclusion: this was not a settlement in good faith within the meaning of
The judgment is reversed.
Mosk, J., Kaus, J., Broussard, J., Reynoso, J., and Lucas, J., concurred.
BIRD, C. J.—I respectfully dissent.
The new rule adopted by the majority will require trial courts to apply an unworkable standard to every settlement. It will clog our trial courts with unnecessary hearings, discourage the settlement of legitimate claims, and severely strain the resources of the parties and the trial and appellate courts of this state.
The majority hold that in determining whether a settlement was made in good faith within the meaning of
Such a rule will not only discourage settlements, but will place an intolerable burden on our trial courts. Moreover, the Legislature never intended to impose a legal duty upon settling parties to protect the interests of adverse parties at the expense of their own mutual benefit. In accordance with a long line of California appellate court decisions, I would hold that a settlement satisfies the good faith requirement if it is free of corrupt intent, i.e., free of intent to injure the interests of the nonsettling tortfeasors. A settlement is made in bad faith only if it is collusive, fraudulent, dishonest, or involves tortious conduct. (See, e.g., Ford Motor Co. v. Schultz (1983) 147 Cal.App.3d 941, 950 [195 Cal.Rptr. 470]; Burlington Northern R.R. Co. v. Superior Court (1982) 137 Cal.App.3d 942, 945-946 [187 Cal.Rptr. 376]; Dompeling v. Superior Court (1981) 117 Cal.App.3d 798, 809-810 [173 Cal.Rptr. 38].)
The court in River Garden Farms purported to base its interpretation of the good faith clause upon the legislative history of
The commissioners’ notes to section 4 explained that the purpose of the good faith clause was a narrow one. The clause was intended only to give the court “occasion to determine whether the transaction was collusive . . . .” (12 Uniform Laws Annot. (Master ed. 1975) p. 99.) However, the court in River Garden Farms contended that the good faith requirement was designed to prohibit “many kinds of behavior” other than collusive conduct “aimed to injure the interests of an absent tortfeasor.” (River Garden Farms, supra, 26 Cal.App.3d at pp. 996, 997.) The court cited no authority for this conclusion, but suggested that section 4 was revised to include the good faith clause because the ” ’ “plaintiff should not be permitted to release one tortfeasor from his fair share of liability and mulct another instead, from motives [of] sympathy or spite, or because it might be easier to collect from one than from the other. . . .” ’ ” (Id., at pp. 995-996; 12 Uniform Laws Annot. (Master ed. 1975) p. 99, comrs. com. to § 4.)
The commissioners noted that “[r]eports from the state where the Act is adopted appear to agree that [section 5] has accomplished nothing in preventing collusion.” (Ibid.) Moreover, its effect “has been to discourage settlements in joint tort cases, by making it impossible for one tortfeasor alone to take a release and close the file. Plaintiff‘s attorneys are said to refuse to accept any release which contains the provision reducing the damages . . . because they have no way of knowing what they are giving up.” (Ibid.)
Therefore, in 1955 the commissioners abandoned section 5 of the uniform act in favor of permitting release from contribution where the settlement is made in good faith. “It seems more important not to discourage settlements than to make an attempt of doubtful effectiveness to prevent discrimination by plaintiffs, or collusion in the suit. Accordingly [section 4(b)] provides that the release in good faith discharges the tortfeasor outright from all liability for contribution.” (Id., at p. 100.) Thus, contrary to River Garden Farms’ broad interpretation of the good faith clause, the 1955 revisions to the uniform act represented a policy decision to encourage settlement. The commissioners abandoned as unworkable their earlier attempt to protect nonsettling parties from inequity other than that caused by collusive conduct.
The court in River Garden Farms also based its “fair share” good faith test on an analogy to contract law. The court relied upon insurance cases holding that the implied covenant of good faith and fair dealing in an insurance contract requires the insurer to consider the insured‘s interests in deciding whether to settle. (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 430 [58 Cal.Rptr. 13, 426 P.2d 173]; Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 793-794 [41 Cal.Rptr. 401, 12 A.L.R.3d 1142]; see River Garden Farms, supra, 26 Cal.App.3d at p. 997.) “The carrier‘s duty of good faith extends beyond fraud or dishonesty and encompasses any kind of unfair dealing.” (Ibid.)
The obvious flaw in this analogy is that the relationship between the settling parties and the nonsettling parties is not contractual. Their relationship is simply not comparable to the fiduciary relationship between an insurance carrier and the insured who has contracted for the carrier‘s protection. In
Absent a contractual or other special relationship, the settling parties do not have a duty to protect the interests of the nonsettling tortfeasors. They have a duty only to settle in good faith, i.e., with “‘honest, lawful intent‘” (People v. Nunn (1956) 46 Cal.2d 460, 468 [296 P.2d 813]). “‘As understood in law the phrase “in good faith” has a settled and well-defined meaning, which generally imports that in any given case the transaction involved was honestly conceived and consummated without collusion, fraud, or knowledge of fraud, and without intent to assist in a fraudulent or otherwise unlawful design.‘” (Appel v. Morford (1943) 62 Cal.App.2d 36, 40 [144 P.2d 95].)
I agree with the court in Dompeling that “[t]he settling parties owe the nonsettling defendants a legal duty to refrain from tortious or other wrongful conduct; absent conduct violative of such duty, the settling parties may act to further their respective interests without regard to the effect of their settlement upon other defendants.” (Dompeling v. Superior Court, supra, 117 Cal.App.3d at pp. 809-810, fn. omitted.)
The persuasiveness of River Garden Farms is also undermined by the fact that in 1972, when the case was decided, contribution applied only among joint judgment debtors to the extent of each debtor‘s pro rata share of the judgment. (See
Under a pro rata approach, once the court has estimated plaintiff‘s damages, it need only divide that amount by the number of defendants to determine each defendant‘s “fair share.” The good faith inquiry is rendered much more complex by the added burden of determining the comparative fault of each defendant in order to decide if the settlement is within a “reasonable range” of the tortfeasor‘s proportionate liability.
The majority rely on River Garden Farms for their conclusion that the proportionate liability test of good faith should not “unduly burden the parties or the trial court.” (Maj. opn., ante, at p. 500.) I disagree. Under the majority‘s rule, the trial court will have to make a pretrial determination of plaintiff‘s potential recovery. “[R]elevant to this inquiry are the strengths
In addition, the trial court must determine the comparative fault of the settling tortfeasor with reference to all the parties. “Thus, the court should not look merely to the settlor‘s liability to the plaintiff, but also to the settlor‘s liability to his fellow joint tortfeasors under a partial indemnity theory had there been no settlement.” (Id., at p. 920.) Finally, in some situations the trial court will have to inquire into the financial condition of the settling defendant. (See maj. opn., ante, at p. 499.)
In a complicated case, the time, effort, and expense involved in presenting evidence on all these issues will be considerable. While the trial court has the discretion to determine the good faith issue on the basis of affidavits alone (
Moreover, when the majority acknowledge that an overly strict proportionate liability standard would “unduly discourage settlements,” (maj. opn., ante, at p. 499, italics added) they impliedly concede that their rule will discourage settlements to some degree. Both plaintiffs and defendants will be discouraged from settling if faced with the spectre of an expensive and lengthy hearing on the good faith issue.
A defendant who settles gives up his right to contest his liability at trial and forgoes the possibility that a jury will find him completely blameless. If he must nonetheless pay plaintiff an amount “within the reasonable range of [his] proportional share of comparative liability” and defend the settlement amount in a lengthy pretrial proceeding, he may often decide that he has little to gain by settling. (See Burlington Northern R.R. Co. v. Superior Court, supra, 137 Cal.App.3d at p. 945.)
As the cases and commentators note, settlement is dependent upon the degree to which the settling defendant can be assured of the settlement‘s
Although the majority only briefly mention the policy favoring settlements, it is “[p]erhaps the principal and most often discussed policy relevant to the issue of a ‘good faith’ settlement . . . .” (Roberts, The “Good Faith” Settlement: An Accommodation of Competing Goals, supra, 17 Loyola L.A. L.Rev. at p. 883.) The policy‘s importance is strongly reflected in
Nevertheless, the majority argue that in American Motorcycle this court accepted the River Garden Farms definition of good faith despite its inhibitory effect on settlements. (See maj. opn., ante, at p. 496.) Indeed, the court in American Motorcycle cited River Garden Farms in holding that
Moreover, with the exception of the recent decision in Torres v. Union Pacific R.R. Co. (1984) 157 Cal.App.3d 499 [203 Cal.Rptr. 825], no case
In sum, neither the decision in American Motorcycle nor the legislative history of the good faith clause supports the majority‘s conclusion that the clause requires a settlement to be “within the reasonable range of the settling tortfeasor‘s proportional share of comparative liability for plaintiff‘s injuries.” (Maj. opn., ante, at p. 499.) Contrary to the majority‘s assertions, such a rule will unduly discourage settlements and severely burden the trial courts by “convert[ing] the pretrial settlement approval procedure into a full-scale mini-trial.” (Maj. opn., ante, at p. 499.)
Unlike the Legislature, this court lacks “the facilities and the forum to hear from all interested parties” and determine whether the inequity presented by this case is a common enough occurrence to warrant the decline in settlements and the burden on the legal system that the majority‘s rule will entail. (Cardio Systems, Inc. v. Superior Court (1981) 122 Cal.App.3d 880, 891 [176 Cal.Rptr. 254]; see also Burlington Northern R.R. Co. v. Superior Court, supra, 137 Cal.App.3d at p. 946.)
I would let the Legislature determine whether a departure from the tortious conduct test of good faith is warranted.