Aloma Lena ANDERSON, Plaintiff and Respondent, v. INTERNATIONAL HARVESTER COMPANY, Defendant and Respondent, General Motors Corporation, Defendant and Appellant.
This is an appeal by defendant General Motors from a judgment for damages for personal injury in a products liability action. Principally at issue in this appeal is the soundness of the trial court's pretrial ruling that a sliding scale recovery agreement between plaintiff and General Motor's codefendant, International Harvester, was made in good faith. Although there is decisional discord as to the proper legal standard to be applied in deciding this question, we are satisfied on the record before us that the trial court correctly resolved the matter. Since we also reject General Motor's other contentions in the unpublished portion of this opinion, we shall affirm the judgment.1
During daylight hours on November 21, 1977, plaintiff was driving an International Harvester truck on Highway 16 in Yolo County. She entered a curve inclining to the right, but failed to make the turn, continuing across the road and crashing into a steep embankment. The truck rolled over a full 360 degrees. There was no evidence of brake or tire failure, hazards on the road, excessive speed or other failure to operate the truck in a safe manner.
As a result of the accident plaintiff sustained severe and permanent injuries. Because of the seriousness of her injuries, plaintiff was unable to testify at trial.
Post accident testing and investigation by experts disclosed that the steering wheel on the truck would “lock” as a result of a loose screw in the turn signal assembly, an integral part of the steering column. When the loosened screw became wedged in a slot of the anti-theft locking plate, located directly above the turn signal assembly, the steering wheel would not turn to the right of center.
General Motors designed, manufactured and assembled the entire steering column, except for the turn signal lever and its attaching screw. International Harvester purchased the assembled column from General Motors as a component part and, without disassembly, attached a turn signal lever inside the steering column by means of a screw. General Motors had adapted the steering column assembly to accommodate attachment of the turn signal lever by providing a pre-cast hole through which the attaching screw could be inserted. In the opinion of plaintiff's experts the design of the steering column was defective because of the possibility that a loose screw could engage the locking mechanism and interfere with steering.
Plaintiff brought suit against International Harvester, the manufacturer of the vehicle, and General Motors, the manufacturer of the vehicle's steering column. The principal theory of plaintiff's case against General Motors was strict liability for a design defect in its steering column. Plaintiff also sued Westerterp Brothers, a dealership which had done warranty work and other repairs on the vehicle, and plaintiff's fiance David Mahoney, the owner of the vehicle.
Prior to trial, David Mahoney settled with plaintiff for $100,000 and was dismissed from the case. Plaintiff and International Harvester entered into a sliding scale recovery agreement whereby International Harvester guaranteed plaintiff a minimum recovery of $900,000 over and above the $100,000 she received from Mahoney. In exchange, plaintiff covenanted not to execute on a judgment against International Harvester unless the amount she received pursuant to a judgment against the nonsettling defendants was less then $900,000 and then only to that extent. The agreement further provided that International Harvester would not be dismissed or released from the action until after “The final conclusion of the case and after the judgment becomes final and is paid and upon full and complete performance of this agreement.” The sliding scale agreement was disclosed to the trial court (see Code Civ.Proc., § 877.5, subd. (a)(1)), after which the court conducted a hearing and found the settlement was made in good faith. (See Code Civ.Proc., § 877.6.)
At trial, the terms of the sliding scale agreement were fully disclosed to the jury. The jury rendered a general verdict in favor of defendant Westerterp Brothers and against General Motors and International Harvester jointly and severally in the amount of $1,750,000 for plaintiff's injuries. As a consequence of the sliding-scale recovery agreement, General Motors is obligated to pay the entire amount of the judgment, less the $100,000 plaintiff received in settlement with Mahoney. (See Code Civ.Proc., § 877.)
Under Code of Civil Procedure sections 877 and 877.6 (all references hereafter to sections of an unspecified code are to the Code of Civil Procedure), a good-faith settlement between a plaintiff and one of several joint tortfeasors before verdict or judgment absolves the settling tortfeasor from contribution to or indemnification of the nonsettling tortfeasors. (See American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 604, 146 Cal.Rptr. 182, 578 P.2d 899.) 2 Such a settlement can take the form of an outright release or dismissal or a covenant not to sue or enforce judgment. (§ 877; see also Pellett v. Sonotone Corp. (1945) 26 Cal.2d 705, 712–713, 160 P.2d 783.) In an attempt to re-establish contribution and indemnity rights against International Harvester, General Motors argues that the trial court should have disapproved the settlement between plaintiff and International Harvester as lacking good faith.3
As manifesting bad faith, General Motors contends the settlement was “unreasonably cheap”; that it is contrary to fundamental public policy favoring equitable apportionment of loss among joint tortfeasors; and that the retention of International Harvester as a nominal defendant unfairly skewed the adversarial nature of the trial. So far as General Motors is concerned, the sliding scale agreement never reduced liability “by a penny” and, notwithstanding the finding of joint and several liability, impressed upon General Motors the entire burden of the $1,750,000 judgment and effectively discharged International Harvester from all financial responsibility for its joint culpability.
The good or bad faith of a settlement agreement is a question of fact for the trial court to determine based upon the evidence. (Wysong & Miles Co. v. Western Industrial Movers (1983) 143 Cal.App.3d 278, 289, 191 Cal.Rptr. 671; Dompeling v. Superior Court (1981) 117 Cal.App.3d 798, 806, 173 Cal.Rptr. 38; River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 998, 103 Cal.Rptr. 498.) General Motors, as the party asserting lack of good faith, bears the burden of proof. (§ 877.6, subd. (d).)
The legal standard to be applied in determining the good faith of a sliding scale recovery agreement has not been definitively established. That issue is presently pending before the Supreme Court.4 The decisions are in agreement, however, that the meaning of good faith in the context of section 877 is a distillation of competing policy considerations favoring the finality of settlements on the one hand and financial sharing among jointly responsible tortfeasors on the other. Decisional discord arises from disagreement upon the relative weight to be assigned the two competing policies in evaluating a sliding scale recovery agreement. (See Torres v. Union Pacific R.R. Co. (1984) 157 Cal.App.3d 499, 505, 203 Cal.Rptr. 825.)
A decision by this court, River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d 986, 103 Cal.Rptr. 498, indicated that good faith encompasses an obligation to refrain from settling for an amount “so poorly related to the value of the case as to impose a potentially disproportionate cost on the defendant ultimately selected for suit.” (At p. 997, 103 Cal.Rptr. 498.) While the policy of encouraging pretrial settlements is inconsistent with a requirement to essay an exact appraisal of damages in advance of a jury verdict, River Garden envisioned that a section 877 good faith settlement should nonetheless be “within a reasonable range of the settlor's fair share” so as not to overwhelm equitable cost-sharing principles. (At pp. 997–998, 103 Cal.Rptr. 498.)
In a series of cases decided subsequent to River Garden, greater deference is accorded, from among the hierarchy of interests underlying multiparty tort litigation, to the repose of a consummated settlement. (See Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal.App.3d 492, 496, 147 Cal.Rptr. 262.) In varying settings, these later decisions hold that the settling parties are only obligated to “refrain from tortious or other wrongful conduct” against the nonsettling tortfeasor and otherwise “may act to further their respective interests without regard to the effect of their settlement upon other defendants.” (Fn. omitted; Dompeling v. Superior Court, supra, 117 Cal.App.3d at pp. 809–810, 173 Cal.Rptr. 38; Cardio Systems, Inc. v. Superior Court (1981) 122 Cal.App.3d 880, 890, 176 Cal.Rptr. 254; Burlington Northern R.R. Co. v. Superior Court (1982) 137 Cal.App.3d 942, 945–946, 187 Cal.Rptr. 376; see also Kohn v. Superior Court (1983) 142 Cal.App.3d 323, 327, 191 Cal.Rptr. 78; Wysong & Miles Co. v. Western Industrial Movers, supra, 143 Cal.App.3d at pp. 288–289, 191 Cal.Rptr. 671.) “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.” (Dompeling, supra, at 117 Cal.App.3d p. 809, 173 Cal.Rptr. 38; Burlington, supra, 137 Cal.App.3d at p. 946, 187 Cal.Rptr. 376.) As stated in Dompeling: “Ours is an adversary system; one who settles before trial expects to pay less than would be required if after trial the verdict were not in his favor. This is a moving factor in personal injury settlements, which afford both ‘peace and quiet’ to defendant and needed relief without delay to an injured plaintiff․ [¶] 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.” (At 117 Cal.App.3d p. 809, 173 Cal.Rptr. 38.) As expressed in Burlington: “While inequity may result, it has been thought that the policy of encouraging settlement ․ would suffer serious impairment if it were subordinated to a policy requiring equitable apportionment.” (At 137 Cal.App.3d p. 945, 187 Cal.Rptr. 376.)
Only one recent case, Torres v. Union Pacific R.R. Co., supra, 157 Cal.App.3d 499, 203 Cal.Rptr. 825, has departed from the currently prevailing view that tortious injury is necessary to establish bad faith and, in the context of a sliding scale agreement, has applied the River Garden rationale that the requirement of good faith in section 877 is intended to strike a balance between the policy of fairness and the policy of promoting settlements. (At 157 Cal.App.3d p. 506, 203 Cal.Rptr. 825.) To meet the test of good faith, Torres holds that the settlement figure cannot be “grossly disproportionate to what a reasonable person, at the time of the settlement, would estimate the settling defendant's liability to be.” (At p. 509, 203 Cal.Rptr. 825.) The Torres court reasoned that this more flexible standard “should discourage fraudulent or sham settlements, as well as settlements which are unfair because they are simply ‘too cheap’ ” and “should encourage defendants, who really do wish to ‘close the book’ on a matter, to arrive at a settlement figure which bears some relationship to what is fair.” (Ibid.)
We abstain from entering the controversy as to whether or to what degree proportionality is a relevant consideration in the determination of good faith in respect to sliding scale agreements, for we believe the Legislature has supplied the answer to the case at hand. Although their fairness has been subject to much criticism, sliding scale recovery agreements are legislatively recognized in California in section 877.5.5 As defined in section 877.5, subdivision (b), such agreements limit “the liability of the agreeing tortfeasor defendants to an amount which is dependent upon the amount of recovery” which plaintiffs are “able to recover from the nonagreeing ․ defendants․” 6 The possibility or risk that the settling defendant will be released from its proportionate share of damages is an inherent aspect of this type of authorized agreement. Legislative approval of sliding scale agreements bespeaks an intent to relegate to a subordinate role in the determination of good faith considerations of equitable cost sharing as among joint tortfeasors. (See Burlington, supra, 137 Cal.App.3d at pp. 946–947, 187 Cal.Rptr. 376.)
The River Garden decision predated the enactment in 1977 of section 877.5. To the extent that the River Garden reasoning cannot be accommodated to the legislative policy manifested by section 877.5, the latter must be accorded primacy. Given the legislative sanction of sliding scale agreements, General Motors has no basis for complaining that such agreements, considered in the abstract, are entered in bad faith because their price is “too cheap”, however accurate in a relative sense that observation may be. When the Legislature has spoken, public policy is a legislative, not a judicial matter.
In terms of its cost, the International Harvester settlement is distinct from other sliding scale agreements only in the amount of its minimum guarantee. There was no evidence at the good faith hearing to suggest that at the time of settlement, $900,000 was grossly disproportionate to International Harvester's potential or theoretical fair share of liability. Judged from the perspective before trial, the guarantee was substantial and served to maximize plaintiff's recovery for her injuries, an objective deemed by the courts to be of cardinal importance in multiparty tort litigation. (See Sears, Roebuck & Co. v. International Harvester Co., supra, 82 Cal.App.3d at p. 496, 147 Cal.Rptr. 262.) In ruling on the good faith issue, the trial court found that “this settlement is an excellent one from the point of view of Plaintiff.” If the outcome of trial had been different and General Motors, taking its chances with the jury, had won a defense verdict, then International Harvester would have been obligated to pay the $900,000 and General Motors would pay nothing. Whatever remains of the River Garden formulation in the aftermath of the enactment of section 877.5 would not justify a finding here of bad faith based on disproportionality.
Nor does the provision that International Harvester not be released or dismissed from suit necessitate a finding of bad faith. To counter the potentially unfair impact of a sliding scale agreement on the trial of nonsettling tortfeasors, the Legislature has mandated disclosure of such agreements. Section 877.5 requires that the parties to a sliding scale recovery agreement promptly inform the court of the existence of the agreement and of its terms and provisions. (Subd. (a)(1).) Section 877.5 does not expressly speak to participation of the settling defendant as a party in the trial, but it anticipates that possibility by requiring greater disclosure when the settling defendant is called as a witness before a jury. In these circumstances, the trial court must grant a motion to disclose to the jury the existence and essential nature of the agreement unless such disclosure will “create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury.” (Subd. (a)(2).)
As sliding scale agreements typically contain the settling defendant's promise to remain a party to the action until verdict is rendered (see 47 So.Cal.L.Rev., supra, at p. 1396; 12 Pacific L.J., supra, at p. 136), section 877.5 reflects a legislative policy decision that disclosure to the court and jury will suffice to avert the potential for prejudice at trial. If there is no secrecy, the settling defendant is not free to manipulate with impunity the presentation of evidence so as to maximize the verdict in excess of the agreed minimum guarantee and thereby deny the nonsettling defendant its fair day in court.
While sliding scale agreements have been condemned by some courts as distorting the normal adversarial relationship between plaintiff and a settling defendant so as to deny the nonsettling defendant its right to a fair trial (see Lum v. Stinnett (1971) 87 Nev. 402, 488 P.2d 347; Cox v. Kelsey-Hayes Co. (Okla.1978) 594 P.2d 354, 359), the prevailing view in the jurisdictions which have considered the question declines to hold such agreements facially invalid or to require dismissal of the settling defendant from the action. Rather, it is required that such agreements be subject to pretrial discovery and be admitted into evidence on the request of the nonsettling defendant. (Ward v. Ochoa (Fla.1973) 284 So.2d 385, 387; Grillo v. Burke's Paint Company, Inc. (1976), 275 Or. 421, 551 P.2d 449, 452; Taylor v. DiRico (1980) 124 Ariz. 513, 606 P.2d 3, 6; General Motors Corp. v. Lahocki (Md.App.1980) 286 Md. 714, 410 A.2d 1039, 1046–1047; Firestone Tire & Rubber Co. v. Little (1982) 276 Ark. 511, 639 S.W.2d 726, 728; see also Pellett v. Sonotone Corp., supra, 26 Cal.2d at p. 713, 160 P.2d 783.) Eliminating the secrecy aspect of these agreements avoids the primary mischief that the factfinder will misperceive the true alignment of interests among the litigating parties and their witnesses. (See General Motors Corp. v. Lahocki, supra, at 410 A.2d p. 1043.) Section 877.5 represents a codification of this mainstream judicial thought.
Here, the trial court provided for procedural safeguards beyond the requirements of section 877.5. Informed of the existence and terms of the International Harvester agreement with plaintiff, the trial court considered the alternatives either of granting General Motor's motion to exclude International Harvester from actively participating as a defendant in the case or of exposing the complete details of the sliding scale agreement to the jury. Even though International Harvester was not to testify as a trial witness, the court opted for the latter course. General Motors acquiesced in this approach rather than insisting that the court rule on its pending motion to deny International Harvester party status at trial.
The jury was fully apprised of the terms of the sliding-scale agreement as well as its effect on the relationship among the parties, including the fact that it was in International Harvester's best interest for plaintiff to obtain a judgment of more than $900,000. The parties also stipulated to certain other procedures in an attempt to prevent unfairness. For example, General Motors was alloted six peremptory challenges, with one challenge given to Westerterp Brothers and another to International Harvester; General Motors was given the additional advantage of exercising the last jury challenge and being the last party to present evidence, cross-examine witnesses, and argue its case.
Despite its acquiescence in these pretrial arrangements, General Motors now maintains that the trial court proceedings, purportedly adversarial in character, proved a sham and highly unfair because International Harvester, nominally a defendant, acted at various stages in the trial as “plaintiff's helper.” We note, however, that International Harvester's counsel represented to all parties before trial that he would attempt to maintain a neutral stance as between plaintiff and General Motors and requested the court or counsel to call to his attention the appearance of anything less than neutrality. Nothing in the record of which we are aware indicates that General Motors ever raised any appropriate and timely objection sufficient to preserve the fairness of any specific act or conduct of International Harvester at trial as a matter for review on appeal. (See generally 6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, § 272, pp. 4260–4261.) When making its pretrial rulings, the trial court necessarily lacked the percipience to foretell whether or in what manner International Harvester's participation in the trial would result in unfairness to General Motors. As a reviewing court, we shall not exercise hindsight on the matter in the face of General Motors' own failure timely to object at trial. The bare possibility that a nonsettling defendant may be prejudiced at trial where the settling defendant is contractually bound to remain a defendant in the action will not support a finding that a sliding scale settlement is entered in bad faith.
Outside of the claim of unfairness inherent in any sliding scale agreement where the settling defendant remains a party in the case, General Motors points to no specific acts of tortious or wrongful conduct directed toward it which would make this the “rare case” in which a trier of fact could find a settlement agreement to have been entered in bad faith. (See Dompeling v. Superior Court, supra, 117 Cal.App.3d at p. 806, 173 Cal.Rptr. 38; Stambaugh v. Superior Court (1976) 62 Cal.App.3d 231, 328, 132 Cal.Rptr. 843.) General Motors presented evidence at the good faith hearing that plaintiff and International Harvester both had estimated plaintiff's damages in the one- to two-million-dollar range. International Harvester's counsel also was very pessimistic about his client's chances of escaping liability if the steering column was found defective and, overall, he assessed his client's situation as “very dangerous” because plaintiff was in a very sympathetic position and had suffered serious injuries. These facts, however, do not compel an inference of bad faith.
As a last resort, General Motors argues that the trial court failed to make a finding on the good faith issue because it operated under the erroneous assumption that the good faith requirements of sections 877 and 877.6 do not apply to sliding scale agreements pursuant to section 877.5. Our reading of the record reveals no such misconception of the law. In deciding the good faith issue, the court stated: “In summary, it is this Court's opinion that despite reservations it may have it would appear the legislative intention is to permit sliding scale agreements so long as the provisions contained in § 877.5 are followed․” However, the court went on to say within the very same sentence that: “․ in view of the recent cases of Dompeling and Cardio Systems, it will be found that the agreement in this case was in good faith.” (Emphasis in original.) The court's reasons for making the good faith determination are set forth in detail in its written opinion. It is clear the court understood the legal principles involved and no reason has been shown here to disturb its application of those principles to the evidence before it.
The judgment is affirmed.
1. Part II of this opinion dealing with General Motors' other contentions does not meet any of the criteria for publication (rule 976, Cal. Rules of Court). Accordingly, we order published all parts of this opinion except Part II (rule 976.1, Cal. Rules of Court).
2. Section 877 provides: “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—“(a) It shall not discharge any other such tortfeasor from liability unless its terms so provide, but it shall reduce the claims against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it whichever is the greater; and“(b) It shall discharge the tortfeasor to whom it is given from all liability for any contribution to any other tortfeasors.”Insofar as relevant section 877.6 provides: “(a) Any party to an action wherein it is alleged that two or more parties are joint tortfeasors shall be entitled to a hearing on the issue of the good faith of a settlement entered into by the plaintiff or other claimant and one or more alleged tortfeasors, ․“(b) The issue of the good faith of a settlement may be determined by the court on the basis of affidavits served with the notice of hearing, and any counteraffidavits filed in response thereto, or the court may, in its discretion, receive other evidence at the hearing.“(c) A determination by the court that the settlement was made in good faith shall bar 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.“(d) The party asserting the lack of good faith shall have the burden of proof on that issue.”
3. That International Harvester remained in the case until after a verdict was returned does not render the provisions of section 877 inapplicable. Section 877 expressly covers “a covenant ․ not to enforce judgment ․ given in good faith before verdict or judgment․” (Cf. Halpin v. Superior Court (1971) 14 Cal.App.3d 530, 543, 92 Cal.Rptr. 329, where settlement was reached after a liability determination.)
4. Tech-Bilt, Inc. v. Woodward-Clyde & Associates, 146 Cal.App.3d 1146, 194 Cal.Rptr. 729, hg. granted Nov. 10, 1983 (L.A. 31826); City of Los Angeles v. Superior Court, 160 Cal.App.3d 489, 206 Cal.Rptr. 674, hg. granted Nov. 21, 1984.
5. For scholarly commentaries on the subject, see Comment, Sliding Scale Agreements and the Good Faith Requirement of Settlement Negotiation (1980) 12 Pacific L.J. 121; Note, The Mary Carter Agreement—Solving the Problems of Collusive Settlements in Joint Tort Actions (1974) 47 So.Cal.L.Rev. 1393, 1398–1404; see also Annot., 65 A.L.R.3d 602.)
6. Section 877.5 provides in full: “(a) Where an agreement or covenant is made which provides for a sliding scale recovery agreement between one or more, but not all, alleged defendant tortfeasors and the plaintiff or plaintiffs:“(1) The parties entering into any such agreement or covenant shall promptly inform the court in which the action is pending of the existence of the agreement or covenant and its terms and provisions; and“(2) If the action is tried before a jury, and a defendant party to the agreement is a witness, the court shall, upon motion of a party, disclose to the jury the existence and content of the agreement or covenant, unless the court finds that such disclosure will create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury.“The jury disclosure herein required shall be no more than necessary to be sure that the jury understands (1) the essential nature of the agreement, but not including the amount paid, or any contingency, and (2) the possibility that the agreement may bias the testimony of the alleged tortfeasor or tortfeasors who entered into the agreement.“(b) As used in this section a ‘sliding scale recovery agreement’ means an agreement or covenant between a plaintiff or plaintiffs 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. This includes, but is not limited to, agreements within the scope of Section 877, and agreements in the form of a loan from the agreeing tortfeasor defendant to the plaintiff or plaintiffs which is repayable in whole or in part from the recovery against the nonagreeing tortfeasor defendant.”
FOOTNOTE. See footnote 1 ante.
PUGLIA, Presiding Justice.
SPARKS and SIMS, JJ., concur.