RIVERSIDE STEEL CONSTRUCTION COMPANY, Cross–Complainant and Appellant, v. WILLIAM H. SIMPSON CONSTRUCTION COMPANY, Cross-Defendant and Respondent.
Cross-Complainant Riverside Steel Construction Company (hereafter Riverside) appeals from “the judgment ․ dismissing defendant, cross-complainant and cross-defendant WILLIAM H. SIMPSON CONSTRUCTION CO. [hereafter Simpson] from the action and also appeals from the order of January 19, 1984, finding that the settlement between WILLIAM H. SIMPSON CONSTRUCTION CO., LIBERTY MUTUAL INSURANCE COMPANY, and their agents, servants, successors, heirs, executors, ․ and plaintiff ROBERT SEWARD was a good faith settlement; ․ as to defendant WILLIAM H. SIMPSON CONSTRUCTION CO. only; that the Cross-Complaint of WILLIAM H. SIMPSON CONSTRUCTION CO. be dismissed with prejudice as to all cross-defendants; and that the Cross–Complaint of RIVERSIDE STEEL CONSTRUCTION be dismissed with prejudice as to the cross-defendant WILLIAM H. SIMPSON CONSTRUCTION CO. only.” 1
After our original opinion was filed in this case the Supreme Court 243 Cal.Rptr. 369, 748 P.2d 307, granted a petition for review and then transferred the matter to us for reconsideration in light of Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 239 Cal.Rptr. 626, 741 P.2d 124.
Plaintiff was injured when he fell from the eighth floor of the Allstate Savings and Loan Association building in Glendale, California, during its construction. At the time of his fall, plaintiff was employed as an iron worker for the H.H. Robertson Construction Company (hereafter Robertson), the steel decking subcontractor for the construction project.
Plaintiff filed a complaint for his personal injuries and damages against respondent Simpson, the general contractor, and appellant Riverside Steel Construction Company, the structural steel subcontractor on the construction project, and Does 1–50 for their negligence in the maintenance, operation, control, custody, supervision, and direction of said work on said jobsite involved in the accident herein, in that among other things, the defendants, and each of them, knew that workmen were working on a portion of said construction site which did not have perimeter guard rails, safeguards, and building procedures and inspections, so that as a proximate result thereof, plaintiff, during the course and scope of his employment, fell off the edge of said building and was injured.
Riverside filed a general denial to the allegations of the complaint and a cross-complaint for complete or partial indemnity against Simpson and Does 1–10.
Simpson denied generally the allegations of plaintiff's complaint and the allegations of Riverside's cross-complaint and filed “a Cross–Complaint for Express and Implied Indemnity, Equitable and Implied Contribution, Breach of Contract, Credit and Declaratory Relief” against Robertson, Liberty Mutual Life Insurance Company (hereafter Liberty Mutual) and Does 1–20. Thereafter Simpson amended its cross-complaint naming Riverside as Doe 1 and dismissed without prejudice its cross-complaint against Robertson and Liberty Mutual. Riverside filed a general denial to the allegations of Simpson's cross-complaint.
Plaintiff and Simpson then entered into a sliding scale recovery agreement which provided in pertinent part:
“FOR AND IN CONSIDERATION of the sum of THREE HUNDRED FIFTY THOUSAND & NO/100 ($350,000.00) [Exclusive of any Workers' Compensation Lien], as a Guarantee against any verdict rendered against defendant RIVERSIDE STEEL, ․ plaintiff, ROBERT E. SEWARD, ․ release[s] ․ WILLIAM H. SIMPSON CONSTRUCTION COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, ․ from any and all claims, actions, causes of action, ․ which the undersigned now have or which may hereafter accrue on account of ․ the accident, casualty or event which occurred on the 11th day of September, 1978, at or near the Allstate Savings building under construction in the City of Glendale. ․
“Said guarantee is to operate as follows: [¶] 1. In the event plaintiff obtains a verdict against RIVERSIDE STEEL in the amount of $350,000.00 or above, defendant SIMPSON will owe plaintiff nothing; [¶] 2. In the event of a defense verdict in favor of RIVERSIDE STEEL and against plaintiff, SIMPSON will pay plaintiff $350,000.00; [¶] 3. In the event of a verdict in favor of plaintiff SEWARD and against defendant, RIVERSIDE STEEL, in an amount less than $350,000.00, SIMPSON will pay plaintiff the difference between the verdict and $350,000.00.
“Plaintiff is to dismiss, with prejudice, the complaint filed against SIMPSON, and each side to this agreement is to bear their [sic ] own costs.
“The foregoing agreement is contingent on the following: [¶] 1. That the Court determine the above settlement to be in ‘GOOD FAITH’; [¶] 2. That the Court order RIVERSIDE's cross-complaint against SIMPSON dismissed in its entirety; [¶] 3. That in the event plaintiff chooses to settle with RIVERSIDE prior to a verdict, for a sum less than $350,000.00, the above Guarantee becomes null and void. SIMPSON may, at its option, attempt to settle with plaintiff for a sum that will not exceed the difference between the settlement with RIVERSIDE and $350,000.00; [¶] 4. In the event plaintiff chooses to settle with RIVERSIDE prior to a verdict for the sum of $350,000.00, or above, defendant SIMPSON will pay plaintiff nothing.”
Simpson then filed a “Notice of Hearing on Issue of Good Faith Settlement and on Request for Order that Such Settlement Bars the Indemnity Claim of Riverside Steel Construction Co. as directed to William H. Simpson Construction Co. by way of cross-complaint for indemnity and on Request for Order Dismissing the Cross-Complaint for Indemnity of Riverside Steel Construction Co. as directed to William H. Simpson Construction Co.; ․”
Riverside opposed Simpson's motion supported by the declaration of Stephen Flaherty, counsel for Riverside as its sole evidence. That declaration stated in pertinent part that:
The subcontract between Robertson and Riverside provided that Robertson was to have Riverside named as an additional insured in its policy with Liberty Mutual.
When Liberty Mutual acknowledged its duty to defend Simpson, Simpson dismissed its cross-complaint against Robertson and Liberty Mutual and added Riverside as a cross-defendant.
“[A]t the eve of trial” Simpson decided to settle. The contract between Allstate, the owner, and Simpson made Simpson responsible for the safety of the premises and the workers.
Mr. Flaherty's declaration characterized the deposition testimony of one Mr. Wells, a Simpson supervisor, as follows: “[T]he decking contractor [Robertson] was responsible for coordinating with the steel erectors [Riverside] to effect the use of the deck as safety planking for areas covered by decking. [I]t was [Mr. Wells'] understanding that the decking was to be used by the people to string the perimeter cables to work from as they actually strung the cables.”
His declaration also included the following excerpt from plaintiff's deposition: “As far as working on the perimeter, laying deck, you can't hook off, you will get hurt. But if you are going to be there for a couple of minutes or so, then you hook off. But if you are just going to be there for a second and then move on, you don't want to hook off.”
He then set forth a portion of the deposition of one Bobby Ray Ragan, “the only eyewitness to the accident,” which stated: Plaintiff “had been asked by Mr. Ragan to move a piece of decking onto the mark and was walking over to the piece of decking, still in motion, when he reached down to move it with his hand. He then fell over the edge of the building.”
Mr. Flaherty's declaration concluded that “it is clear that the contract required Riverside to install the perimeter safety cable, but that Riverside was complying with the provisions of the contract requiring that the decking be laid first. Riverside was also complying with the instructions of Wells in using the decking as a safety planking from which to work while stringing the cables. Riverside therefore complied with all contractual and written contractual requirements regarding the stringing of the cables and the timing of the stringing of the cables. Plaintiff now complains that if the cable had been in place, he would have hooked off to it in order to prevent the fall. Such is not the case by the plaintiff's own testimony, and therefore is no proximate causal relationship between the lack of the cable in the happening of plaintiff's accident.” 2
Before the hearing on the determination of the good faith of the sliding scale recovery agreement, two very able and experienced trial judges had independently expressed their opinion to all counsel that the total value of plaintiff's case against all parties for settlement purposes was $350,000.
After the hearing the trial court granted Simpson's motion, ruling in an order filed January 19, 1984, that “the settlement between WILLIAM H. SIMPSON CONSTRUCTION CO., Liberty Mutual Insurance Company ․ and plaintiff ROBERT SEWARD was a good faith settlement. [¶] Based upon the foregoing, it is hereby ORDERED: [¶] 1. That the complaint of ROBERT SEWARD be dismissed with prejudice as to defendant WILLIAM H. SIMPSON CONSTRUCTION CO. only; [¶] 2. That the cross-complaint of WILLIAM H. SIMPSON CONSTRUCTION CO. be dismissed with prejudice as to all cross-defendants; and [¶] 3. That the cross-complaint of RIVERSIDE STEEL CONSTRUCTION be dismissed with prejudice as to cross-defendant WILLIAM H. SIMPSON CONSTRUCTION CO. only.” From that order (judgment) of dismissal Riverside appeals.
Riverside raises the following contentions on appeal: (1) “Code of Civil Procedure section 877.5 violates the equal protection clauses of the state and federal Constitutions in that there is no rational basis for allowing non-settling defendants under Code of Civil Procedure section 877 to reduce a judgment against them by the amount of settlement while prohibiting non-settling defendants under Code of Civil Procedure section 877.5 from recovering any such set-off.” (2) “The sliding scale agreement, which allowed Simpson to escape all liability, was not in good faith under Code of Civil Procedure section 877, and Simpson must therefore contribute to the judgment entered against Riverside.” (3) “It constitutes collusion and bad faith for an insurer to control one of its insureds to remove another one of its insureds, a primarily culpable party, from a lawsuit.”
After this matter was remanded to us by the Supreme Court appellant moved this court to “simply remand this case to the Superior Court at this time” ․ “for further determination in light of Abbott Ford ” for it to ascribe a value to the sliding scale agreement.
Riverside first contends that “Code of Civil Procedure section 877.5 violates the equal protection clauses of the state and federal constitutions in that there is no rational basis for allowing non-settling defendants under Code of Civil Procedure section 877 to reduce a judgment against them by the amount of settlement while prohibiting non-settling defendants under Code of Civil Procedure section 877.5 from recovering any such set-off.” 3
No “suspect classification” or “fundamental right” is involved in the case at bench. The “rational relation test” is therefore the appropriate one we use to determine whether the classification in the case at bench is violative of equal protection. (Citizens Against Forced Annexation v. Local Agency Formation Com. (1982) 32 Cal.3d 816, 822, 187 Cal.Rptr. 423, 654 P.2d 193.)
In determining whether a statute passes the rational relation basis test for equal protection “there is a presumption of constitutionality ‘requir [ing] merely ․ that ․ distinctions drawn by a challenged statute bear some rational relationship to a conceivable legitimate state purpose.’ (Gray v. Whitmore (1971) 17 Cal.App.3d 1, 22 [94 Cal.Rptr. 904].)” (Goggin v. State Personnel Bd. (1984) 156 Cal.App.3d 96, 107, 202 Cal.Rptr. 587.) The Legislature had wide discretion in enacting sections 877, 877.5, and 877.6,4 and any possible resulting classifications that resulted from the enactment of those sections may only be overthrown by a clear affirmative showing that they were palpably arbitrary and beyond rational doubt, erroneous. (Johnson v. Superior Court (1958) 50 Cal.2d 693, 699, 329 P.2d 5.) There has been no such showing here.
Numerous articles and several cases have discussed the wisdom of this legislation. The wisdom of the legislation involved is, of course, a matter for the Legislature and not for the courts. (See Fein v. Permanente Medical Group (1985) 38 Cal.3d 137, 157–164, 211 Cal.Rptr. 368, 695 P.2d 665, app. dism. 474 U.S. 892, 106 S.Ct. 214, 88 L.Ed.2d 215; American Bank & Trust Co. v. Community Hospital (1984) 36 Cal.3d 359, 368–369, 204 Cal.Rptr. 671, 683 P.2d 670.)
Riverside urges that sliding scale recovery agreements discourage the complete settlement of cases because they make the price of settlement too high for the parties who are not parties to the sliding scale agreement. This is a mistaken belief which has crept into some law review articles and even into a few cases. To the contrary, experienced trial judges, and particularly those who have spent a great deal of time in settlement work, know that only a small percentage of multi-defendant cases ever go on through a completed trial once there has been a settlement or a sliding scale recovery agreement by one or more, but less than all, of the defendants in any given case. In fact before the decision in Abbott Ford the argument was often used by defendants who were not parties to sliding scale recovery agreements that by virtue of them they are subjected to acute financial pressures bordering on extortion to settle to avoid an unshared judgment. (See, e.g., River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.3d at p. 994, 103 Cal.Rptr. 498, and Note, Settlement in Joint Tort Cases (1966) 18 Stan.L.Rev. 486, 490 and see discussion of this subject in Abbott Ford, Inc. v. Superior Court, supra, 43 Cal.3d 858, 239 Cal.Rptr. 626, 741 P.2d 124.)
More importantly, appellant's equal protection contention must fail because of our Supreme Court's recent decision in Abbott Ford v. Superior Court, supra, 43 Cal.3d 858, 239 Cal.Rptr. 626, 741 P.2d 124 in which it decided that “the plaintiffs' claims against the remaining defendants must be reduced by the amount of the ‘consideration paid’ by the settling defendant.” (Id., at pp. 886–887, 239 Cal.Rptr. 626, 741 P.2d 124.) This is a complete answer to this contention of appellant since it does away with the supposed disparate treatment afforded nonsettling defendants under sections 877 and 877.5.
Sliding scale recovery agreements are rationally related to the state's legitimate interest in the disposition of cases. Regardless of the Abbott court's abolition of the hierarchy between the following recognized goals of the State of California, they are rationally related to the maximization of recovery to injured plaintiffs, the encouragement of complete settlement and do not defeat equitable apportionment of liability 5 among joint or concurrent tortfeasors. (See Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal.App.3d 492, 496, 147 Cal.Rptr. 262.) Accordingly, we conclude that section 877.5 does not violate the equal protection clauses of either the California or federal Constitutions.
Riverside next contends that “the sliding scale agreement, which allowed Simpson to escape all liability, was not in good faith under Code of Civil Procedure section 877, and Simpson must therefore contribute to the judgment entered against Riverside.”
In Tech–Bilt, Inc. v. Woodward–Clyde & Associates, supra, 38 Cal.3d 488, 213 Cal.Rptr. 256, 698 P.2d 159, the Supreme Court was faced with the necessity of making a determination of whether a settlement, not a sliding scale recovery agreement, between the plaintiff and a defendant who had an absolute defense to plaintiff's action was made in good faith. The sole consideration from defendant for the settlement was its waiver of any costs incurred in defending the action. Despite the fact that the settling defendant had an absolute defense to the plaintiff's case against it, a codefendant had a potentially meritorious claim for indemnity against the settling defendant. The Tech–Bilt court determined that the settlement was not in good faith within the meaning of sections 877 and 877.6. In so doing it 6 disapproved cases which held that the sole meaning of good faith as used in those sections was the absence of collusive or tortious conduct. The Tech–Bilt court concluded:
“A more appropriate definition of ‘good faith,’ in keeping with the policies of American Motorcycle [Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899] 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 the settling defendant paid less than his theoretical proportionate or fair share.’ (Cf. Dompeling [v. Superior Court (1981) ] supra, 117 Cal.App.3d  at p. 809 [173 Cal.Rptr. 38].) 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․’ (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 [173 Cal.Rptr. 38] ).” (38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159.)
The Tech–Bilt court went on to state a number of factors that must be taken into account in determining good faith, concluding that “[f]inally, practical considerations obviously require that the evaluation be made on the basis of information available at the time of the settlement.” (38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159.)
Appellant would have us conclude 7 that the Supreme Court meant to disapprove of all sliding scale agreements that did not contain a minimal unconditional payment equal to the agreeing defendant's proportionate share, rather than merely disapproving of the language in those two cases saying good faith meant no more than refraining from collusive or tortious conduct to the other defendants. The Supreme Court obviously did not do so in Tech–Bilt and rejected that concept more explicitly in Abbott Ford, Inc. v. Superior Court, supra, 43 Cal.3d at page 878, 239 Cal.Rptr. 626, 741 P.2d 124. We reject this contention especially in light of Abbott Ford.
Appellant urges that the good faith of a sliding scale recovery agreement must necessarily be determined only by the minimum amount the defendant party to that agreement unconditionally agrees to pay, and not by the maximum amount it guarantees the injured plaintiff will recover.
Respondent Simpson, on the other hand, urges that the Tech–Bilt analysis merely focuses on the settlor's proportionate share of liability as one factor in determining whether a settlement is in good faith. It urges that in order to retain the viability of sliding scale recovery agreements, it is necessary to conclude that a sliding scale recovery agreement is not per se in bad faith merely because it does not provide for a minimum unconditional payment.
The Supreme Court in Abbott Ford laid these contentions to rest. Presented with a similar argument it said: “The parties are in sharp disagreement on this point. Ford and Sears argue that the ‘consideration paid’ should be calculated solely by reference to the amount of any noncontingent payment which the settling defendant has made to the plaintiff under the agreement; in this case, where Abbott has made no noncontingent payment, they suggest that the ‘consideration’ or cost paid by Abbott should be valued at zero. Abbott, on the other hand, points to the fact that it has guaranteed plaintiffs a $3 million recovery, and argues the consideration which it has paid should be fixed at its possible maximum payment, $3 million. [¶] The economic reality, we believe, lies between these two extreme positions. Contrary to the arguments of Ford and Sears, a guaranty agreement, even if totally contingent, is not completely cost-free from the point of view of the guarantor. At the same time and contrary to the position of Abbott, however, the ‘cost’ or ‘price’ of such an agreement is not equal to the maximum amount that the guarantor may possibly be required to pay under the agreement.” (43 Cal.3d at pp. 878–879, 239 Cal.Rptr. 626, 741 P.2d 124.)
We accordingly reject appellant's contention that all sliding scale agreements, and the one before us, must be rejected because they or it does not contain a minimal unconditional payment provision.
We also reject appellant's contention that the only figure that we should consider as the value of the agreement is the minimum amount agreed to be paid unconditionally by an agreeing defendant which minimum amount, according to appellant, must be within the reasonable range of that agreeing defendant's proportional share of the total value of the plaintiff's case against all tortfeasors.
That argument is wholly lacking in merit. It is absurd to believe that any knowledgeable defendant or insurer represented by knowledgeable counsel would enter into a sliding scale recovery agreement by the terms of which it would have to unconditionally pay as the minimum amount the full amount of its proportional share of liability and still be left with the upside risk of having to pay the total judgment or settlement value of the case against all tortfeasors. Any insurer that would agree to such a disposition might thereby also expose its insured to a possible later judgment by the plaintiff and the other tortfeasors in excess of its policy limits and might thereby also expose itself to a bad faith claim by its insured. In other words, it would make absolutely no sense for a defendant or its insurer to enter into any such an agreement.
It would also encourage greater recalcitrance to settle on the part of the least forthcoming of defendant tortfeasors and thus discourage settlements because such recalcitrant tortfeasors would have the benefit of the amount of minimum unconditional contribution by the agreeing defendant and still have the opportunity to escape all, or their proportionate part of, the liability themselves.
Abbott Ford at pages 886–887, 239 Cal.Rptr. 626, 741 P.2d 124 sets forth the guidelines that apply to the valuation of the “consideration” paid by a defendant who enters into a sliding scale recovery agreement and to the determination of the good faith standard applicable to sliding scale agreements:
“In sum, we conclude: (1) that Tech–Bilt's good faith standard applies to sliding scale agreements, (2) that to satisfy the statutory objective of a fair apportionment of loss (i) the ‘consideration’ paid by a defendant who enters into a sliding scale agreement must fall within the Tech–Bilt ‘ballpark’ and (ii) the plaintiffs' claims against the remaining defendants must be reduced by the amount of the ‘consideration paid’ by the settling defendant, (3) that any unreasonable or bad faith conduct of the nonsettling defendants which impeded the settlement process and led to the sliding scale agreement may be taken into account in determining whether the agreement satisfies the ‘ballpark’ standard, and (4) that any provision which purports to give a settling defendant a ‘veto’ over subsequent settlements is valid only if it is limited to settlements which would leave the earlier settling defendant to bear more than its fair share of liability for the plaintiff's damages.”
The trial court found that the sliding scale recovery agreement entered into between the agreeing parties was entered into in good faith and impliedly found that it met the standards later adopted by the Supreme Court in Tech–Bilt.
The only thing the trial court did not do is meet the later adopted Abbott Ford standard of valuation-paid-in-consideration-for-the-sliding scale recovery agreement and the Abbott Ford requirement that the nonsettling defendants obtain a reduction in the plaintiff's claims against them in an amount equal to the value of the sliding scale recovery agreement. (43 Cal.3d at p. 877, 239 Cal.Rptr. 626, 741 P.2d 124). But that is another story in itself.
Before we reach it, we note that after conducting settlement conferences and hearing the versions presented by the various parties, two very able and experienced trial judges separately and independently placed a settlement value on the injured plaintiff Seward's case against all parties at $350,000.00. In the face of these independent valuations Riverside saw fit to make no binding offer of settlement or contribution, but instead decided to take its chances on a trial that has now been concluded with a verdict and judgment adverse to it.
Section 877.6, subdivision (d) provides that “[t]he party asserting the lack of good faith shall have the burden of proof on that issue.” The Supreme Court majority in Abbott Ford nevertheless placed the burden of establishing the monetary value of the sliding scale agreement on the parties to it, stating: “Accordingly, given the nature of sliding scale agreements, we believe the court should not be burdened with the obligation to determine the actual value of such an agreement by the use of actuarial or other valuation methods. Rather, the parties to such an agreement, since they are in the best position to place a monetary figure on its value, should have the burden of establishing the monetary value of the sliding scale agreement.” (43 Cal.3d at p. 879, 239 Cal.Rptr. 626, 741 P.2d 124.)
In language difficult to reconcile with the clear language of section 877.6, subdivision (d),8 the Abbott Ford majority says in the pertinent part of footnote 22 (at p. 879) that “[r]equiring the parties to a sliding scale agreement to set a value on the agreement is not inconsistent with section 877.6, subdivision (d)․ Section 877.6, subdivision (d) is not addressed to the question of who should establish ‘the amount of consideration’ which the settling party has paid to the plaintiff.”
It is difficult to conceive how anything could be more central or integral to the determination of good faith than the determination in the first instance of the value of the agreement or “ ‘the amount of consideration’ which the settling party has paid to the plaintiff.” It would therefore logically appear to us to fall wholly within the burden imposed on the party asserting the lack of good faith by the terms of section 877.6, subdivision (d). We nevertheless, of course, follow the dictate of Abbott Ford in that regard. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 20 Cal.Rptr. 321, 369 P.2d 937.)
The Abbott Ford court goes on to state: “Once the parties to the agreement have declared its value, a nonsettling defendant either (1) can accept that value and attempt to show that the settlement is not in good faith because the assigned value is not within the settling defendant's Tech–Bilt ballpark [i.e., within the reasonable range of proportionality], or (2) can attempt to prove that the parties' assigned value is too low and that a greater reduction in plaintiff's claims against the remaining defendants is actually warranted. [Fn. omitted.]” (Id., 43 Cal.3d at p. 879, 239 Cal.Rptr. 626, 741 P.2d 124.) It requires no great prescience to see such attempts by most nonsettling defendants in the future. It is perhaps for that reason that the Supreme Court in Abbott Ford at page 879, footnote 23, 239 Cal.Rptr. 626, 741 P.2d 124, goes on to say: “In those cases in which the trial court is called on to assess the accuracy of the settling parties valuation of the guaranty, the court may not be able to do more than simply make its best estimate, taking into account the size of the guaranty figure and the likelihood that the settling defendant will actually have to pay out either that amount or some lesser sum. [Citation.]”
Without a minitrial, a procedure expressly eschewed by Tech–Bilt and impliedly by Abbott Ford, that is indeed the best the trial court can do. Our busy trial courts certainly should not be required to hold “minitrials” on the subject of valuation.
Yet this appears to be precisely what appellant is asking us to command the trial court to do by its “Motion to Remand Cause For Further Proceedings,” in fact, asking us to send this case to the trial court again for what amounts to a second good faith determination. In its motion appellant states in pertinent part:
“THIS COURT [SIC] SHOULD ORDER THE COURT OF APPEAL TO REMAND THIS CASE TO THE SUPERIOR COURT FOR FURTHER FACTUAL FINDINGS IN LIGHT OF THE ABBOTT FORD DECISION․
“The key feature of the opinion was the court's holding that a ‘value’ must be ascribed to a sliding scale settlement agreement even where that agreement contains no minimum unconditional payment. The court announced a new rule of law on this subject; no case had previously held that a sliding scale agreement must be ‘valued.’ Recognizing this, the Abbott Ford decision stated:
“ ‘In the present case, of course, the settling parties place no value on the sliding scale agreement. Accordingly, if the case had not been settled, we would have ordered the Court of Appeal to remand the matter to the trial court for further consideration of this issue.’ (43 Cal.3d at p. 880, 239 Cal.Rptr. 626, 741 P.2d 124; emphasis added.)
“Just as in Abbott Ford, the parties in the present case placed no value on the sliding scale agreement, since this was not the law at the time the agreement was consummated. Therefore, this case is in the same procedural posture as Abbott Ford would have been had not the parties in Abbott Ford settled. Of course, no settlement has ever been reached in this case, and further factual determination must therefore be made in the superior court.”
“Appellant requests that this court simply remand this case to the Superior Court at this time” ․ “for further determination in light of Abbott Ford.”
Appellant's statement that “this case is in the same procedural posture as Abbott ” is, as respondent points out in its opposition to the motion, inaccurate. The Abbott Ford case had settled, making “valuation” moot. The case at bench has progressed far beyond that point, having gone through a trial to a verdict and a final judgment in favor of plaintiff Seward against Riverside with a satisfaction of that judgment having been filed after the payment by Riverside of a settlement of that judgment.
Two other factors are also of great importance leading to our decision not to remand to the trial court. In Abbott Ford the Supreme Court said (at p. 880, 239 Cal.Rptr. 626, 741 P.2d 124) that “if the case had not been settled, we would have ordered the Court of Appeal to remand the matter to the trial court for further consideration of this [valuation] issue.”
In remanding the case at bench to this court the Supreme Court did not order or direct us to remand the matter to the trial court for further consideration of the valuation issue. We do not know whether they based their decision not to direct or order us to remand to the trial court on the appellant's failure to sustain its burden of proof on the proportionality issue, or on the basis that the plaintiff's case against Riverside had already been tried to a verdict and judgment against Riverside, which judgment had been entered and satisfied without a recorded offset by a settlement for an amount less than the judgment but in excess of $1 million, or on a combination of those factors.
We do know, however, as appellant concedes at page 2 of its petition for rehearing in this court, that there was no evidence presented on the proportionality issue at the good faith determination hearing at a time (1984) when some courts were already holding that issue relevant to a determination of the issue of good faith. (See, e.g., River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d 986, 103 Cal.Rptr. 498; Commercial U. Ins. Co. v. Ford Motor Co. (9th Cir.1981) 640 F.2d 210, cert. den. 454 U.S. 858, 102 S.Ct. 310, 70 L.Ed.2d 154 and Owen v. United States (9th Cir.1983) 713 F.2d 1461, 1465–1466.) It follows then that even were we to remand to the trial court on the issue of the value of the consideration paid for the sliding scale recovery agreement such remand would be purposeless since the trial court could still not find the agreement to be in bad faith since it had already determined the proportionality issue adversely to appellant and would have no reason or authority to reconsider that question.
Moreover, as we have heretofore noted, two very able and experienced trial judges including the one conducting the good faith hearing had expressed their independent opinions that the total value of plaintiff's cases against all parties for settlement purposes was $350,000. (§ 877.6, subd. (d).) The determination of whether the sliding scale recovery agreement was entered into in good faith was a question of fact for the trial court to determine.9 (Widson v. International Harvester Co. (1984) 153 Cal.App.3d 45, 58, 200 Cal.Rptr. 136.) Issues of fact must be raised in the trial court or they are waived on appeal. Riverside contends that even though it did not raise proportionality below that the facts are undisputed and that this is purely a question of law which we, as an appellate court, may consider for the first time on appeal without it having been raised below. First, the facts are not undisputed. Reading appellant counsel's declaration and the opposition papers leads to an opposite conclusion. Second, the rule that an appellate court may consider a question of law for the first time on appeal without it having been raised below applies only to the rights and interests of the litigant which could not have been cured in the trial court. (See 9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, § 315 at p. 326.) This defect could have been cured below, thus making the suggested rule inapposite.
The Abbott Ford majority 43 Cal.3d at page 887, 239 Cal.Rptr. 626, 741 P.2d 124 stated, too, “that any unreasonable or bad faith conduct of the nonsettling defendants which impeded the settlement process and led to the sliding scale agreement may be taken into account in determining whether the agreement satisfies the ‘ballpark’ [i.e. reasonable range] standard.”
Two important factors which should be considered in determining the good faith of a settlement or sliding scale recovery agreement are (1) what amount of money the party objecting to the determination of good faith then sets as the total value of the injured plaintiff's case for settlement purposes is, and (2) what amount of money that party then stands ready to contribute toward an overall settlement. Despite some speculative remarks by appellant's counsel at the hearing, the record on appeal discloses no unconditional offer by appellant.
As we have said, Riverside failed to raise proportionality in the trial court. We cannot conclude that the trial court erred in determining that the settlement was in good faith despite the fact that Simpson made no unconditional minimum payment and that there was no valuation. It would, moreover, be useless to remand to the trial court for another reason.
After the trial court determined that the parties entered into the sliding scale recovery agreement in good faith, plaintiff Seward tried his case against Riverside and obtained a judgment against it for $1,200,000.00. Riverside satisfied that judgment by settling with plaintiff Seward for a sum which appellant's counsel represented at oral argument was in excess of $1 million but was for less than the amount of the judgment. The record on appeal does not reflect whether the settlement for a lesser sum of money of the judgment and the claims of Seward against Riverside reflected a reduction (or setoff) in plaintiff's claims against Riverside by “the amount of consideration paid for” the sliding scale recovery agreement to Seward, or for other reasons, or for a combination of those reasons. (See Abbott Ford v. Superior Court, supra, 43 Cal.3d. at pp. 877, 879, 885, 886–887, 239 Cal.Rptr. 626, 741 P.2d 124.) The payment by Riverside of that settlement to plaintiff Seward and the satisfaction of judgment with or without the setoff in plaintiff Seward's claim against nonsettlor Riverside, moots Riverside's claim in this regard. We, therefore, reject Riverside's contention to the contrary.
Appellant asserts that “[t]he trial court in this action determined only that there was an absence of collusion in this case.” (Italics in original.) That assertion is patently incorrect. The trial judge who presided at the hearing to determine the good faith of the sliding scale recovery agreement, after commenting on his long familiarity with the case and with the settlement negotiations and after having expressed his opinion as to the total value of plaintiff's case against all defendants, stated:
“THE COURT: No. I have heard this matter. I don't say anybody was acting in bad faith during the negotiations, at least in my dealings. I think we all worked long and hard on it․
“Under the circumstances, I don't think there's any collusion. I don't think there's any bad faith. I think that everyone dealt at arm's length.
“I'm going to grant the motion. I'm going to call it a good-faith settlement.”
In the sliding scale recovery agreement with plaintiff was the following provision: “3. That in the event plaintiff chooses to settle with RIVERSIDE prior to a verdict, for a sum less than $350,000.00, the above Guarantee becomes null and void.”
That provision in the sliding scale recovery agreement is obviously designed to interfere with the settlement of plaintiff's case against the nonsettling defendants and is in violation of the public policy of this state, which is to encourage settlements.
In Abbott Ford the sliding scale recovery agreement provided that “ ‘[plaintiffs] shall not settle all or any portion of this litigation with defendants Ford and Sears Roebuck for less than the amount of [their] guarant [eed recovery], without the express written consent of [Abbott's insurer].’ (Italics added.)” (43 Cal.3d at pp. 882–883, 239 Cal.Rptr. 626, 741 P.2d 124.) The Abbott Ford majority concluded “that to be valid and enforceable, such a veto provision must, by its terms, be confined only to those subsequent settlements that will require the earlier settling defendant to bear more than its fair ‘ballpark’ share of damages. [Fn. omitted.]” (Id., at p. 883, 239 Cal.Rptr. 626, 741 P.2d 124.)
In view of the fact that the provision in the sliding scale recovery agreement in the case at bench is even stronger and more pernicious than the right-to-veto provision of the Abbott Ford agreement and takes into consideration no valuation of that sliding scale recovery agreement we hold that provision, to wit “3. That in the event plaintiff chooses to settle with RIVERSIDE prior to a verdict, for a sum less than $350,000.00, the above Guarantee becomes null and void” is invalid and unenforceable.
Riverside finally contends that “[i]t constitutes collusion and bad faith for an insurer to control one of its insureds to remove another one of its insureds, a primarily culpable party, from a lawsuit.”
Riverside urges that the subject settlement was the result of backstage maneuvering of Liberty Mutual in order for it to exculpate its named insured Robertson of any liability.
In support of this assertion, Riverside relies primarily on our decision in Henderson v. Superior Court (1984) 162 Cal.App.3d 297, 208 Cal.Rptr. 484. Henderson is totally inapposite to appellant's contention against Liberty Mutual Insurance Company.
In Henderson, plaintiff John Fallon sued one Zimmelman for injuries allegedly inflicted by Zimmelman in the course of a gang encounter. Zimmelman cross-complained against one Henderson and against Karen Fallon for injuries he allegedly sustained in the same incident. Henderson and Karen Fallon settled with John Fallon for $10,000 and $8,000 respectively. The settlors made a motion in the trial court for a determination that the settlement was in good faith, which motion the trial court denied.
We affirmed the trial court's ruling reasoning as follows: Karen Fallon is the sister of John Fallon. Henderson and John Fallon are close personal friends, seeing each other ordinarily every day. Henderson and both Fallons are members of, or affiliated with, the gang against which Zimmelman is alleged to have driven his car. At no time had John Fallon ever suggested that he had any claim for damages against either Henderson or Karen Fallon. Moreover, John Fallon did not join either of them as defendants in the action against Zimmelman. The only possible motive for the settlement in that case was to insulate John Fallon's sister and friend from possible liability to Zimmelman on the cross-complaint. In Henderson, we described that as “exactly the ‘collusion’ which earlier cases have held amounts to bad faith.” (Henderson v. Superior Court, supra, 162 Cal.App.3d at p. 300, 208 Cal.Rptr. 484.)
Henderson is clearly distinguishable from the case at bench. In Henderson we upheld the trial court's determination of bad faith based solely on the clearly collusive nature of that settlement. In the case at bench, while Riverside purports to envision a possible collusive scheme behind the subject settlement, the evidence of that collusion in the record is nonexistent. Simpson and Liberty Mutual exposed themselves to payment of $350,000, in the event Riverside was successful in persuading a jury that it in fact was not required to put up the perimeter safety cable until after the decking had been laid. Furthermore, the trial court was entitled to resolve any possible conflicting inferences in the evidence to conclude that the settlement was not collusive.
Were we to agree with appellant's contention, we would have to extend the bad faith doctrine a long step beyond its present limits. Appellant would have us hold that a third party joint tortfeasor can bring direct claim for bad faith against the insurer of another joint tortfeasor in the absence of a claim under Insurance Code section 790.03, for a violation of that section. Where an insurer is not itself a joint tortfeasor, no California case has ever so held,10 and we decline to so hold now.
To the contrary, a unanimous California Supreme Court in Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 940, 132 Cal.Rptr. 424, 553 P.2d 584, held that while “ ‘[i]n every contract there is an implied covenant of good faith and fair dealing that neither party [to the contract] will do anything which injures the right of the other to receive the benefits of the agreement’ (Brown v. Superior Court (1949) 34 Cal.2d 559, 564 [212 P.2d 878] )” that duty on the part of the insurer runs only to the direct benefit of the insured and not to the direct benefit of the third party claimant.11
The Murphy court therefore held that the third party claimant could not sue the liability insurer directly in the absence of an assignment of the insured's cause of action for the insurer's breach of its duty to its insured. (Murphy v. Allstate Ins. Co., supra, 17 Cal.3d at p. 942, 132 Cal.Rptr. 424, 553 P.2d 584.) We, accordingly, conclude that the trial court did not err by impliedly finding that the subject settlement was not collusive and reject Riverside's contention to the contrary.
That provision of the sliding scale recovery agreement which reads: “3. That in the event plaintiff chooses to settle with RIVERSIDE prior to the verdict, for a sum less than $350,000.00 the above Guarantee becomes null and void” is invalid and unenforceable. With that exception the order finding the sliding scale recovery agreement in good faith is affirmed.
The motion of appellant Riverside to remand to the trial court is denied.
The judgment (order of dismissal) is affirmed.
1. This order (judgment) was entered prior to the effective date of the amendment of Code of Civil Procedure section 877.6 by the inclusion of new subdivision (e) which provides that the party aggrieved by a determination of the good faith or lack of good faith of settlement may petition the proper court to review the determination by writ of mandate.
2. Pursuant to Riverside's request, we take judicial notice of the relevant portions of the superior court file. (Evid.Code, § 452.) In its brief Riverside summarizes the results of the trial between it and plaintiff. Because the evaluation of whether a settlement is in good faith is “made on the basis of information available at the time of settlement” (Tech–Bilt, Inc. v. Woodward–Clyde & Associates (1985) 38 Cal.3d 488, 499, 213 Cal.Rptr. 256, 698 P.2d 159), and not at a later time, we do not consider the results of the subsequent trial in determining whether the sliding scale agreement was entered into in good faith, as that then unknown result obviously could not possibly have entered into the determination of the good faith of the sliding scale recovery agreement. Moreover, as was stated in River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 997, 103 Cal.Rptr 498: “In advance of a jury verdict, most cases permit only a rough assessment of value. When one tortfeasor chooses to settle and another chooses to litigate, inequality in the ultimate cost does not signalize bad faith. [Citation.]”
3. All further statutory references will be to the Code of Civil Procedure unless otherwise indicated.The record is devoid of any indication that Riverside raised this contention in the trial court. While constitutional questions in civil cases must normally be raised at the earliest opportunity or be waived, because this issue concerns a noncurable defect of substance, concerns public interest and because Simpson has not asserted a waiver of this contention in its brief, we decide this contention on its merits. (See Hale v. Morgan (1978) 22 Cal.3d 388, 394, 149 Cal.Rptr. 375, 584 P.2d 512.)
4. Section 877.5, subdivision (b), as extant as the time of the good faith hearing, defined a sliding scale recovery agreement as “an agreement or covenant between a plaintiff ․ and one or more, but not all, alleged tortfeasor defendants, where the agreement limits the liability of the agreeing tortfeasor defendants to an amount which is dependent upon the amount of recovery which the plaintiff is able to recover from the nonagreeing defendant or defendants.”Section 877, as extant at the time of the good faith hearing, provided in the part pertinent to this discussion: “Where a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment is given in good faith before verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort—[¶] (b) It shall discharge the tortfeasor to whom it is given from all liability for any contribution to any other tortfeasors.”Section 877.6, subdivision (c) “bar[s] any other joint tortfeasor from any further claims against the settling tortfeasor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.”
5. Appellant equates the act of a defendant who enters into a settlement or a sliding scale recovery agreement to avoid further exposure to the necessity of paying a later sum of money with an “escape” from “all liability” for its acts of negligence. Not so! A settlement by a defendant simply sets a limit on a plaintiff's recovery against it by the payment of a sum of money or some other consideration. At least until the Abbott Ford decision, a sliding scale recovery agreement accomplished the same thing by limiting the amount that can be recovered against that defendant in exchange for the consideration of that defendant's guaranteeing plaintiff's recovery of a certain sum of money. In some agreements that guarantee is coupled with the unconditional payment of a minimum amount of money and in some it is not. The giving of that consideration is no more an “escape of all liability” than is a defendant's payment of the full amount of a judgment in exchange for a satisfaction of judgment.
6. Tech–Bilt, Inc. v. Woodward–Clyde & Associates, supra, 38 Cal.3d at page 500, footnote 7, 213 Cal.Rptr. 256, 698 P.2d 159 states: “We disapprove of Dompeling and its progeny, including Cardio Systems [, Inc. v. Superior Court (1981) 122 Cal.App.3d 880, 176 Cal.Rptr. 254] supra, and Burlington Northern R.R. Co. v. Superior Court (1982) 137 Cal.App.3d 942 [187 Cal.Rptr. 376], to the extent that those cases are inconsistent with this opinion.”
7. Asked at oral argument whether, in light of the Supreme Court's decision in Abbott Ford, appellant wished to abandon any of its contentions, appellant's counsel stated that it did not.
8. Section 877.6, subdivision (d) provides: “The party asserting the lack of good faith shall have the burden of proof on that issue.”
9. Merely because the Legislature had delineated the procedure for the disclosure of sliding scale recovery agreements in section 877.5, does not automatically render them in good faith for purposes of sections 877 and 877.6. A sliding scale recovery agreement must still be entered into in good faith Abbott Ford v. Superior Court, supra, 43 Cal.3d at p. 858, 239 Cal.Rptr. 626, 741 P.2d 124.
10. In factual terms, this would mean that in this case appellant Riverside, which concedes that it is barred from bringing a direct claim against plaintiff's employer, Robertson, could bring a direct action against Liberty Mutual Insurance Company, Robertson's and Simpson's liability insurer for bad faith for so acting as to procure Robertson's dismissal from the express written indemnity claims of Simpson against Robertson.
11. Royal Globe, Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, later allowed a third party claimant to sue an alleged tortfeasor's insurance company directly for unfair claims practices under Insurance Code section 790.03 after the conclusion of the underlying case, but no claim under or for violation of the provisions of that section was made in the case at bench.
McCLOSKY, Associate Justice.
WOODS, P.J., and ROTHMAN, J.*, concur.