IMPERIAL SPA, INC., Petitioner, v. SUPERIOR COURT of the County of Los Angeles, Respondent, DOWNEY LAND LIMITED, Real Party in Interest.
Petitioner Imperial Spa, Inc. (Imperial) seeks a writ of mandate ordering the trial court to vacate its April 9, 1984, order refusing to determine that a “settlement” entered into between it and plaintiff Barbara Adkins was a good faith settlement.
We are requested to determine whether an incomplete sliding scale recovery “agreement” between a defendant tortfeasor and an injured plaintiff, which “agreement” is conditioned upon the court's determination of its good faith, can be considered to have been entered into in good faith as to a nonsettling defendant tortfeasor under California decisional law and the provisions of Code of Civil Procedure 1 sections 877.5 and 877.6. We determine that no definite and complete agreement was entered into between the “settling” parties upon which the trial court could make such a determination as to good faith.
On April 9, 1984, at the request of petitioner Imperial, this court issued its order staying the trial of this action. At the same time we issued an alternative writ of mandate directing respondent trial court to (a) vacate its order “determining that the settlement between plaintiff and defendant/cross-defendant Downey Land Limited [sic ] is not in good faith, and make a new and different order determining that that settlement is in good faith within the meaning of section 877.6 of the Code of Civil Procedure and dismissing Downey Land Limited's cross-complaint against petitioner, Imperial Spa, Inc.,” or (b) in the alternative to show cause “why a peremptory writ of mandate ordering [it] to do so should not issue.” The respondent court neither complied with alternative (a) nor entered an appearance.
In her complaint for personal injuries, plaintiff sought recovery for damages she sustained when she fell on a running track which she alleged was owned, operated, controlled, entrusted, designed, leased and inspected in a negligent manner by defendants and each of them. Downey cross-complained against Imperial for indemnity “for that percentage of plaintiff's judgment, if any, against [Downey] that was incurred by reason of the negligence of [Imperial or the other cross-defendants].” Imperial also cross-complained against Downey for indemnity. Imperial operated the running track upon which plaintiff allegedly sustained her injuries, and that track was located on property leased by Downey to Imperial. There was no allegation of the existence of an express indemnity agreement between Downey and Imperial.
The trial of the action was to commence on April 4, 1984. On or about March 19, 1984, the attorneys for plaintiff, Adkins and Imperial began discussing the possibility of entering into a Mary Carter sliding scale settlement agreement.2 Imperial alleges that on March 30, 1984, they “firmed up” the general principles of an agreement in all “substantial respects”. That “agreement” is reflected by a letter dated April 2, 1984, from Imperial's attorney to plaintiff's attorney which states:
“This letter will confirm our recent discussions with respect to the proposed sliding scale settlement as between our clients. Although some minor details may have to be worked out, it is my understanding that the agreement will run along the following lines:
“Plaintiff is to be paid $40,000.00 by my principal now plus an additional amount of $85,000.00 in the event Downey escapes liability altogether. In the event a judgment is entered against Downey, and the amount of the judgment when added to $40,000.00 is less than $125,000.00, my principal will pay plaintiff the difference up to, but not to exceed, $125,000.00. In the event judgment is entered against Downey and the judgment when added to the $40,000.00 figure exceeds $125,000.00, my principal will not pay plaintiff anything beyond the initial $40,000.00 payment. Plaintiff will not accept a settlement from Downey for less than $85,001.00 without the express written consent of my principal and, as a condition of its guarantee, my principal will reserve the right to reject any settlement between plaintiff and Downey for an amount less than $85,001.00.
“As agreed, the proposal will not be reduced to writing, but rather it will be firmed up on the record on April 4, 1984, subject to the court's ruling that it is a good faith settlement pursuant to C.C.P. Section 877.
“I have this date advised co-defendant's attorney in writing of the particulars of the foregoing proposal. Due to the shortness of time, I am submitting this letter for filing with the Court in accordance with C.C.P. Section 877.5(a)(1).” (Emphasis added.)
A copy of this letter was filed by Imperial in the trial court. On April 2, 1984, a substantially similar letter was also sent by Imperial's attorney to Downey's attorneys informing them of the terms of the “agreement.” Prior to the scheduled April 4, 1984, trial date, Downey filed a document entitled “Opposition to Motion for Good Faith Settlement and/or Bar to Cross-Complaint” in anticipation of a motion by Imperial pursuant to the provisions of sections 877 and 877.6 to find the sliding scale recovery “agreement” to be in good faith. No hearing date was noticed in that document.
On April 4, 1984, at the time scheduled for trial, a hearing was held on the oral motion of plaintiff and Imperial for the trial court's determination that the “settlement with one of the defendants [be] determined to be in good faith.” The trial court ruled that “[t]he opposition to the motion for good faith settlement will be deemed filed. The oral motion ․ to determine that it's in good faith is denied.”
Imperial then filed a verified “petition for writ of mandate and/or other extraordinary relief and for an immediate stay” (§ 1085) in this court. In response to that petition Downey filed a demurrer and answer. (§ 1089.)
Downey has provided no discussion as to why, accepting the allegations of Imperial's petition to be true, Imperial has not stated a cause of action for mandamus. We overrule Downey's demurrer and consider the merits of Imperial's petition. (Cf. Golden v. Golden (1969) 270 Cal.App.2d 401, 407–408, 75 Cal.Rptr. 735.)
Lack of Notice
Downey's initial contention is that “[t]he trial court did not abuse its discretion by denying petitioner's oral motion for a good faith determination which was made without the requisite notice or any competent showing of even the most fundamental facts.” In this part, we deal only with the question of notice.
In response to Downey's objection as to lack of notice, the trial court originally held: “The parties settling the thing, they don't have to come running in here to have the court determine whether or not its in good faith. Its the persons that are complaining its bad faith who have to file the written motion.” The trial judge initially announced that he would treat Downey's opposition papers as “a motion to allege that the settlement was in bad faith,” although later ruling that “[t]he oral motion ․ to determine that it's in good faith is denied.”
Section 877.6, subdivision (a) provides: “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, upon giving notice thereof in the manner provided in Sections 1010 and 1011 at least 20 days before the hearing. Upon a showing of good cause, the court may shorten the time for giving the required notice to permit the determination of the issue to be made before the commencement of the trial of the action, or before the verdict or judgment if settlement is made after the trial has commenced.” (Emphasis added.) Thus, either of the settlors or the nonsettlor Downey could have brought a motion for a determination of the good faith of the settlement.
At the hearing in the trial court, plaintiff's attorney stated that he was “not aware of a requirement that a motion of this sort be made in writing.” The language in section 877.6, subdivision (a) makes clear, however, that the motion is made “upon giving notice thereof in the manner provided in Sections 1010 and 1011.” Section 1010 provides in pertinent part that “[n]otices must be in writing, and the notice of a motion, other than for a new trial, must state when, ․ it will be made, ․”
Downey called the notice defect to the attention of the trial court in both its written opposition filed in the trial court and orally at the hearing, but before Downey's counsel could complete his oral objection as to lack of notice the trial judge announced that he would consider that Downey filed the motion. The trial court thus impliedly held that Downey's oral motion satisfied the notice requirement. It did not. The trail Court's later ruling that it was denying the settlor's oral motion did nothing to supply the missing notice. Such lack of the requisite notice, absent a waiver or the stipulation of the parties, violates the notice requirement of section 877.6, and denies the opposing party that meaningful opportunity to be heard which is deemed essential to due process. (See Kash Enterprises, Inc. v. City of Los Angeles (1977) 19 Cal.3d 294, 307–308, 138 Cal.Rptr. 53, 562 P.2d 1302 and County of Ventura v. Tillett (1982) 133 Cal.App.3d 105, 112, 183 Cal.Rptr. 741, cert. den., 460 U.S. 1051, 103 S.Ct. 1497, 75 L.Ed.2d 929, disapproved on other grounds in County of Los Angeles v. Soto (1984) 35 Cal.3d 483, 492, fn. 4, 198 Cal.Rptr. 779, 674 P.2d 750.)
The trial court's error in permitting the hearing to go forward without the requisite notice was compounded by the fact that the two letters made clear that some particulars of the purported “agreement” were only to be made clear on the morning of the April 4th trial at which time the “agreement” would be “firmed up.” This failure to meet the essential requirement of providing notice to the nonsettling defendant tortfeasor Downey of the terms of the agreement placed Downey at an impermissibly unfair disadvantage in its attempt to sustain its difficult burden of proving that the settlement was not entered into in good faith. It follows that the trial court erred in holding the hearing in the absence of the requisite notice or a waiver of the notice requirement.
Lack of a Definite and Complete Agreement
“Upon the trial of the ‘good faith’ settlement issue, the burden of proving that there has been a settlement is on the settlor who asserts that settlement as a bar to all claims for contribution or comparative (equitable) indemnity by any other tortfeasor. Proving the settlement is not ordinarily a problem. Once there is a showing made by the settlor of a settlement, we are of the opinion that the burden of proof on the issue of ‘good faith’ shifts to the nonsettling tortfeasor who asserts the claim that the settlement was not made in good faith.” (Fisher v. Superior Court (1980) 103 Cal.App.3d 434, 447, 163 Cal.Rptr. 47; Schultz v. Superior Court (1980) 104 Cal.App.3d 250, 252, 163 Cal.Rptr. 504; Lopez v. Blecher (1983) 143 Cal.App.3d 736, 739, fn. 2, 143 Cal.App.3d 736, 192 Cal.Rptr. 190.) Section 877.6, subdivision (d) provides: “The party asserting the lack of good faith shall have the burden of proof on that issue.” That subdivision, however, does not relieve the settling parties of their initial burden of proving that there has been a settlement.
Imperial failed at the time of the April 4 hearing to sustain its burden of proving that there was a settlement or a complete and definite sliding scale agreement.
Compromise settlements are generally governed by the legal principles applicable to contracts. (Folsom v. Butte County Assn. of Governments (1982) 32 Cal.3d 668, 677, 186 Cal.Rptr. 589, 652 P.2d 437.) “Where a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable.” (Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 481, 289 P.2d 785; Civ.Code, § 1598.)
The letter of Imperial's attorney, Mr. Holmberg, to the plaintiff's attorney dated April 2, 1984, demonstrates that there was not yet a firm agreement complete as to all material particulars. It states in the parts pertinent to this discussion that “[a]lthough some minor details may have to be worked out, it is my understanding that the agreement will run along the following lines․ [¶] As agreed, the proposal will not be reduced to writing, but rather it will be firmed up on the record on April 4, 1984 ․” (Emphasis added.) The letter Imperial's attorney wrote Downey's attorney dated April 2, 1984, indicated that “the decision to enter into a sliding scale agreement with plaintiff was quite recent. It will not be reduced to formal writing, but will be firmed up on the record at the time of trial. [¶] Although some minor details may have to be firmed up, the proposal is as follows: ․” (Emphasis added.) Those letters reflect neither a complete definite agreement nor a definite method of, or formula for, resolving any remaining differences between the settlors.
Plaintiff's attorney, Mr. Matz, testified at his deposition taken on April 5, 1984, the day after the good faith hearing. His testimony reflects the incompleteness and uncertainty of the so called “agreement.” In discussing the amount of the set off to which Downey would be entitled, he testified: “As I sit here—and I've listened to this discussion—I'm thinking that this agreement may have to be revised and defined again on this particular point․”
We conclude that the indefinite and incomplete nature of these material provisions of the purported sliding scale recovery “agreement” precluded the formation of an agreement.
Although we deny the writ for the foregoing reasons, we review the merits of this matter in order to provide guidance to the trial court should any of the parties later enter into a complete and definite sliding scale recovery or settlement agreement.
In that event the trial court shall, at the earliest possible moment, before or during the trial, separately and in advance of the trial tort issues, afford any party a hearing to determine the good faith of that agreement. (Fisher v. Superior Court, supra, 103 Cal.App.3d 434, 442, 163 Cal.Rptr. 47; River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 998, 103 Cal.Rptr. 498; §§ 877.6 and 1010.)
The April 2, 1984, letter made clear that the proposal contained in the letter “will not be reduced to writing, but rather it will be FIRMED UP on the record on April 4, 1984, SUBJECT TO THE COURT'S RULING THAT IT IS A GOOD FAITH SETTLEMENT pursuant to C.C.P. section 877”.
In enunciating its ruling, the trial court erroneously held: “I would not approve a good faith settlement based upon my determination as to whether it's good faith or not. I don't think that even comes close to being a good faith [sic ].”
Many valid contracts require or are conditioned upon court approval. (See e.g., § 372; Labor Code, §§ 3859, subd. (a) and 5001; Probate Code, § 3500, subd. (b).) Of course, as Coe v. State Farm Mut. Auto. Ins. Co. (1977) 66 Cal.App.3d 981, 992, 136 Cal.Rptr. 331, teaches: “[W]hen the approval of a third party is necessary for a contract to take effect, there is no contract until such approval has been obtained.” This is equally true where what is required or conditioned is the court's approval of the contract or the court's determination that the settlement contract is entered into in good faith.
The imposition of a condition that the settlement or sliding scale recovery agreement is subject to a court's determination that it is in good faith does not destroy its validity. Indeed, holding the settlement or proposed settlement up to the light of a judicial day for the determination of its good faith, upon notice to the nonsettling alleged tortfeasors, well serves the function of due process and helps to destroy the possibility of a collusive or otherwise tortious agreement between the settlors. Accordingly, we conclude that the conditioning of a sliding scale recovery agreement or other settlement agreement upon a court's determination of the good faith of that agreement is not evidence of any lack of good faith of any of the settlors, does not impair its validity, and does not preclude the settlors, or any of them, from sustaining their burden of proving that there has been a settlement.
Proportionality and the Sliding Scale Recovery Agreement
Downey contends that if a trier of fact finds the settlement to be wholly disproportionate to the settlor's liability, contrary to public policy or otherwise unfair, the conclusion that such a settlement is not in good faith must be upheld. It also argues that a disproportionately low settlement is against public policy.
Regardless of such argument, the statement this court made in Fisher v. Superior Court, supra, 103 Cal.App.3d 434, 444, 163 Cal.Rptr. 47, still holds true. In the now 26 years “since the effective date of the contribution statutes (i.e., Code Civ.Proc., §§ 875–880), there is no reported California case that has actually held that a settling plaintiff or tortfeasor has not acted in good faith to the nonsettling alleged joint tortfeasors in making settlement.[3 ] The nearest the courts have come to doing so is in River Garden and Lareau, each of which appeared to involve grossly improper inequitable allocations of settlement proceeds, which allocation in each case appeared to be specifically designed to injure the interest of the nonsettling remaining defendant. In neither of these cases was the total amount of the settlement questioned by the reviewing court. In both River Garden and Lareau the courts indicated that the parties were entitled to try the facts to prove or disprove the good faith of the settlement (River Garden, supra, 26 Cal.App.3d at p. 998 [103 Cal.Rptr. 498] ), and indicated some of the factors to be taken into consideration in determining the good faith of settlors (see River Garden, supra, 26 Cal.App.3d at p. 998, 103 Cal.Rptr. 498, and Lareau, supra, 44 Cal.App.3d at pp. 795–796 [118 Cal.Rptr. 837] ).” (Emphasis in original.)
The issue of the good faith of the settlement involved because of the claimed disproportionality of the settlement has been universally decided against the nonsettling defendant who raised that issue in each of the many reported California cases. As the Dompeling court states:
“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. (See Stambaugh v. Superior Court, supra, 62 Cal.App.3d 231, 238, [132 Cal.Rptr. 843].) ‘ “The law wisely favors settlements, ․” ’ (Potter v. Pacific Coast Lumber Co. (1951) 37 Cal.2d 592, 602, [234 P.2d 16]; Fisher v. Superior Court, supra, 103 Cal.App.3d 434, 441, [163 Cal.Rptr. 47].)
“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 defendant so that the nonsettling defendants may pay less.
“The 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, 173 Cal.Rptr. 38.)
As was stated in Stambaugh v. Superior Court, supra, 62 Cal.App.3d 231, 238, 132 Cal.Rptr. 843, a settling defendant's good faith “․ will not be determined by the proportion his settlement bears to the damages of the claimant. For the damages are often speculative, and the probability of legal liability is often uncertain or remote.”
Downey argues that a disproportionately low settlement is against public policy. However, section 877.5 specifically authorizes sliding scale recovery agreements. Under some sliding scale recovery agreements the tortfeasor may eventually end up paying little or nothing, but as such agreement guarantees a recovery in an agreed amount to the injured plaintiff they have been universally approved in each California reported case that has considered them from Pease v. Beech Aircraft, supra, 38 Cal.App.3d 450, 113 Cal.Rptr. 416, to this date.
In Cardio Systems, Inc. v. Superior Court, supra, 122 Cal.App.3d 880, 176 Cal.Rptr. 254, a unanimous panel of the Fifth District of the Court of Appeal issued a writ of mandate directing the trial court to enter an order sustaining a distributor's special defense to the nonsettlor's cross-complaint against it. In that case the plaintiff settled with the distributor by giving it a dismissal of the complaint against it in exchange for the sole consideration of the distributor's waiver of costs. The Cardio Systems court concluded that that settlement was made in good faith since it resulted from plaintiff's counsel's tactical decision not to complicate his simple malpractice case against the hospital defendant with a product liability issue. (See also § 877, subd. (b).)
As to the meaning of the words “good faith” of a settlement as used in section 877.6, we also note that the Legislature recently passed, and the Governor signed into law, Assembly Bill No. 232, which, among other things, amends section 877.6, by adding to it a new subdivision concerning writ review of good faith determinations entered into between an injured person and one or more, but less than all of the alleged tortfeasors. This amendment leaves unchanged subdivisions (a) through (d) of section 877.6, including the assignment to the party asserting that a settlement was not made in good faith of the difficult burden of proving that it was not.
“It is a well-established principle of statutory construction that when the Legislature amends a statute without altering portions of the provision that have previously been judicially construed, the Legislature is presumed to have been aware of and to have acquiesced in the previous judicial construction. Accordingly, reenacted portions of the statute are given the same construction they received before the amendment.” (Marina Point, Ltd. v. Wolfson (1982) 30 Cal.3d 721, 734, 180 Cal.Rptr. 496, 640 P.2d 115, cert. den., 459 U.S. 858, 103 S.Ct. 129, 74 L.Ed.2d 111; accord In re Jeanice D. (1980) 28 Cal.3d 210, 216, 168 Cal.Rptr. 455, 617 P.2d 1087; City of Long Beach v. Payne (1935) 3 Cal.2d 184, 191, 44 P.2d 305; Marrujo v. Hunt (1977) 71 Cal.App.3d 972, 977, 138 Cal.Rptr. 220.)
By its amendment of section 877.6, without altering its subdivisions (a) through (d), which subdivisions contain the term “good faith” of a settlement, the Legislature is thus presumed to have been aware of and to have acquiesced in the previous judicial construction of that term and its analogues given by all of the California state courts, other than the Torres v. Union Pacific R.R. Co., supra, 157 Cal.App.3d 499, 203 Cal.Rptr. 825 4 court, in all of the reported cases since the enactment of 877.6 in 1980. That the issue has been put to rest by the Legislature's recent amendment of section 877.6, without altering its existing provisions can no longer be in question. The California state courts other than Torres, universally hold that as long as a settling defendant has not acted tortiously in making the settlement in order to injure the interests of the nonsettlor, that settling defendant's good faith will not be determined by the proportion his settlement bears to the damages of the claimant.
Downey cites us to two Ninth Circuit cases in support of its position. These cases are Commercial U. Ins. Co. v. Ford Motor Co. (9th Cir.1981) 640 F.2d 210, certiorari denied, 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, both of which held settlements between an injured plaintiff and some, but not all, of the defendant tortfeasors to be in bad faith. In both those cases the “standard” those courts applied was whether there was a good faith determination of relative liabilities, not whether there had been collusive or other tortious conduct against the nonsettling defendant, as is the state standard.
We start our brief discussion of those two federal cases by first noting that federal decisions on matters of state law are at best persuasive, not controlling. (6 Witkin, Cal.Procedure (2d ed. 1971) Appeal, § 674, p. 4587.)
Second, under the provisions of section 877.6, these two cases and Torres would, were they followed, require a trial court considering the good faith of a settlement to prospectively attempt to judge the proportionate liabilities of the settling and nonsettling defendant as to the unascertained value of the plaintiff's case in a pre-tort trial evidentiary vacuum, where the evaluation of values and proportions of liability may be, and usually are, still speculative.
“If the good faith clause [of section 877] demands equitable sharing as fixed by a jury verdict which has not yet taken place, the parties cannot negotiate safely, cannot accomplish settlement with a fair assurance of finality. All involved in the personal injury settlement business are aware of its large imponderables—the risk of victory or defeat at the jury's hands, the risk of a high or low verdict, the unknown strengths and weaknesses of defenses, the inexact appraisal of damage elements, the defendant's solvency and the extent of insurance coverage. 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. (See Wheeler v. Denton, 9 N.C.App. 167 [175 S.E.2d 769, 771–772].)” (River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d 986, 997, 103 Cal.Rptr. 498.)
And as the Supreme Court later said in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 604, 146 Cal.Rptr. 182, 578 P.2d 899: “As the Court of Appeal noted recently in Stambaugh v. Superior Court (1976) 62 Cal.App.3d 231, 236 [132 Cal.Rptr. 843]: ‘Few things would be better calculated to frustrate [section 877's] policy, and to discourage settlement of disputed tort claims, than knowledge that such a settlement lacked finality and would lead to further litigation with one's joint tortfeasors, and perhaps further liability.’ This observation is as applicable in a partial indemnity framework as in the contribution context. Moreover, to preserve the incentive to settle which section 877 provides to injured plaintiffs, we conclude that a plaintiff's recovery from nonsettling tortfeasors should be diminished only by the amount that the plaintiff has actually recovered in a good faith settlement, rather than by an amount measured by the settling tortfeasor's proportionate responsibility for the injury. (See Fleming, Foreword: Comparative Negligence At Last—By Judicial Choice (1976) 64 Cal.L.Rev. 239, 258–259.)”
Third, experienced trial judges, lawyers and insurance claims people recognize that the jury verdict value of a plaintiff's case is often higher than the amount for which it could have been settled before trial. They recognize further that where two or more adverse tortfeasors remain in the case as defendants at the trial, the amount of the verdict or judgment is often inflated by the efforts of each to ascribe fault to the other in order to extricate itself from, or minimize the effect on itself of, a judgment. For that reason, what may at first blush appear to be a disproportionately low settlement by the settling tortfeasor before or during trial results only from the wisdom of the settling tortfeasor in making an early settlement without the attendant risk of having the trier of fact decide his liability at the close of a full blown trial.
More importantly, these two federal cases and the Torres case fail to recognize or follow the hierarchy of interests recognized by the California courts. That hierarchy of interests was recognized by Justice Robert Thompson, writing for a unanimous court in Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal.App.3d 492, 496–497, 147 Cal.Rptr. 262, to be as follows: “We analyze the Supreme Court decisions as creating a hierarchy of interests. First in the hierarchy is maximization of recovery to the injured party for the amount of his injury to the extent fault of others has contributed to it. (See Li v. Yellow Cab Co., supra, 13 Cal.3d 804 [119 Cal.Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393], eliminating the bar to recovery of contributory negligence, and American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d 578 [146 Cal.Rptr. 182, 578 P.2d 899], retaining the rule of joint liability of concurrent tortfeasors and holding named defendants liable for damage assessable against unnamed persons.) Second is encouragement of settlement of the injured party's claim. (American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d at pp. 603–604 [146 Cal.Rptr. 182, 578 P.2d 899].) Third is the equitable apportionment of liability among the tortfeasors. (Id., 20 Cal.3d at pp. 603–605 [146 Cal.Rptr. 182, 578 P.2d 899].)” (Accord, American Bankers Ins. Co. v. Avco-Lycoming Division (1979) 97 Cal.App.3d 732, 733, 736, 159 Cal.Rptr. 70 and Fisher v. Superior Court, supra, 103 Cal.App.3d 434, 163 Cal.Rptr. 47.)
Downey's argument implied that all of the reported California Court of Appeal cases on the subject, starting with Stambaugh v. Superior Court, supra, 62 Cal.App.3d 231, 238–239, 132 Cal.Rptr. 843, except Torres were wrongly decided. We disagree and follow the rule of the California cases and statutes. Accordingly, such settlements will be determined to be in good faith unless the nonsettling defendant sustains its burden of proving that the settlement is the product of collusive or other tortious conduct designed to injure that nonsettling tortfeasor. A low price or inequality in the ultimate cost may be the immediate signal for an inquiry into good faith, but does not by itself constitute bad faith. (See River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d at p. 997, 103 Cal.Rptr. 498.)
Downey urges further that American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899, and this court's decision in Fisher v. Superior Court, supra, 103 Cal.App.3d 434, 163 Cal.Rptr. 47, cite “as the definitive authority on the issue of good faith settlements the case of River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d 986 [103 Cal.Rptr. 498].” Neither American Motorcycle Assn. nor this court's decision in Fisher cites River Garden “as the definitive authority on the issue of good faith settlements” but each did discuss River Garden as one of the few then extant California cases on the subject.
Few cases have been as misconstrued on the subject of the duty of a settling defendant to a nonsettling defendant as has River Garden. Some writers have seemingly overlooked the fact that River Garden Farms, Inc. v. Superior Court, supra, was written in 1972 before the Li v. Yellow Cab (1975) 13 Cal.3d 804, 119 Cal.Rptr. 858, 532 P.2d 1226 and American Motorcycle Assn. v. Superior Court, supra, decisions enunciated the rule that “a concurrent tortfeasor whose negligence is a proximate cause of an indivisible injury remains liable for the total amount of damages, diminished only in ‘proportion to the amount of negligence attributable to the person recovering.’ (13 Cal.3d at p. 829 [119 Cal.Rptr. 858, 532 P.2d 1226].)” (American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d at p. 590, 146 Cal.Rptr. 182, 578 P.2d 899.) River Garden was also written in light of the contribution statutes (§§ 875–880) as they then existed before they were reconciled with comparative indemnity principles by the American Motorcycle Association court, and before the enactment of sections 877.5 and 877.6.
Sections 875 and 876 at the time River Garden was written provided for pro rata contribution among joint judgment tortfeasors. Section 875 “applie[d] specifically to post-judgment contribution efforts and [was] not designed as a standard for prejudgment settlements.” (River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d at p. 995, 103 Cal.Rptr. 498, fn. 7.) Section 875 specifically provided that it did not impair the right of a plaintiff to satisfy his judgment in full against any tortfeasor judgment debtor (§ 875, subd. (g)) and did not impair any right of indemnity under the then existing law except for providing that where one tortfeasor judgment debtor was entitled to indemnity from another there was no right of contribution between them (§ 875, subd. (f)). Of course, the American Motorcycle Association decision had an enormous effect on the contribution statutes and interwove with those statutes equitable principles of comparative indemnity, which taken together with the enactment of sections 877.5 and 877.6, require a consideration of River Garden in its proper historical perspective.
The River Garden court freely acknowledged that “the Uniform Law Commissioners pointed to collusion as the prime motivator of the good faith clause” but then stated that “the language of the clause is far broader” and concluded that “formulation of a precise definition of good faith is neither possible nor practicable.” (River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d at p. 997, 103 Cal.Rptr. 498.)
The River Garden court went on to cite three cases as the foundation for its statement that “[i]n the decisions involving wrongful refusal to settle, price is the immediate signal for an inquiry into good faith, but only one of the factors influencing the finding. [Citations.] So it is here.” (26 Cal.App.3d at p. 997, 103 Cal.Rptr. 498.) Those three cases are Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173; Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 41 Cal.Rptr. 401 5 and Brown v. Guarantee Ins. Co. (1957) 155 Cal.App.2d 679, 319 P.2d 69. Each of those three cases involved the tortious breach by an insurance company of its contractual duty to its own insured by its wrongful refusal to settle a claim against that insured within the policy limits.
Moreover, River Garden itself involved a tortious act on the part of the plaintiff there involved—the improper allocation of the settlement proceeds so as to injure the nonsettling defendant. River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d 986, 997, 103 Cal.Rptr. 498, states: “The carrier's duty of good faith extends beyond fraud or dishonesty and encompasses any kind of unfair dealing.” (Citing Crisci v. Security Ins. Co., supra, 66 Cal.2d 425, 435, 58 Cal.Rptr. 13, 426 P.2d 173.) That statement is insupportable. In Crisci, the defendant insurance carrier, in wrongfully refusing to accept an offer of settlement within the policy limits, engaged in egregious bad faith to its 70 year-old immigrant widowed policyholder to whom it owed a contractual duty. As a result of the insurer's bad faith, she became indigent, her decline in her financial condition was accompanied by a decline in her physical health, hysteria and suicide attempts. In Crisci, the insurance company had a contractual duty to its insured. In every contract, including a contract of insurance there is an implied covenant of good faith and fair dealing. That implied covenant is grounded in the contract, not merely by virtue of the insurer and the insured both being exposed to liability to a plaintiff.
There is no comparable duty of one defendant to another in considering whether to make a settlement with a plaintiff merely by virtue of being parties to the same lawsuit. Their sole duty to one another is to refrain from committing a tortious act against the nonsettlor. Were the rule to be otherwise, it could just as “logically” be argued that one defendant could recover from another because the latter tried to reduce its own exposure to a plaintiff judgment by introducing evidence that the second defendant was more culpable than it was, or was solely liable for a plaintiff's injury or damage. Happily, that is not the law. Not only should a defendant be able to make a non-tortious settlement considering only its own interest, but an insurance company should be, and is, allowed to settle a claim against its own insured by giving consideration to its insured's interest to the total exclusion of the other defendant's interests so long as in so doing it does not engage in tortious conduct toward that second defendant. Were that rule to be otherwise an insurance company could be caught on the horns of an impossible dilemma—that is between its good faith duty to its own insured not to wrongfully refuse a settlement offer of a plaintiff and its supposed duty to adverse concurrent tortfeasors.
In American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d at page 604, 146 Cal.Rptr. 182, 578 P.2d 899, the California Supreme Court enunciated for the first time the rule that “․ to preserve the incentive to settle which section 877 provides to injured plaintiffs, we conclude that a plaintiff's recovery from nonsettling tortfeasors should be diminished only by the amount that the plaintiff has actually recovered in a good faith settlement, rather than by an amount measured by the settling tortfeasor's proportionate responsibility for the injury.” (Emphasis added.) That statement can hardly be reconciled with or considered supportive of a view that proportionality of payment between settlors and nonsettling defendants is required as a test of good faith.
Downey contends that a sliding scale recovery agreement such as the one the settlors here believed they entered into should be held void as it claims that such an agreement is against public policy and discourages settlement. It also contends that the “agreement” should be disallowed because it allowed the settling defendant to exercise a veto over a plaintiff's ability to settle with another defendant.
The only four reported California cases since River Garden on sliding scale agreements are Pease, Burlington Northern R.R., Dompeling and Torres. None of these cases held that a sliding scale recovery agreement violated the public policy or law of this state. None disapproved or held in bad faith the sliding scale recovery agreement reached therein. None has the most pernicious aspect of the Mary Carter agreement, which is secrecy. In fact, by its enactment of section 877.5, the Legislature has wisely protected against such possible secrecy in cases involving sliding scale recovery agreements.
Of these four cases, only in Dompeling and Torres was an actual unequivocal payment made to the plaintiff in addition to the other terms of the agreement. In Dompeling, the settling defendant entered into a settlement with plaintiff for $100,000, which was his insurance policy limit, plus a possible $10,000 more to be paid by the defendant personally on a sliding scale depending on plaintiff's recovery from the remaining nonsettling defendant.
Dompeling held that “[t]he sliding scale recovery agreement does not in itself constitute a settlement in bad faith.” (Dompeling v. Superior Court, supra, 117 Cal.App.3d at p. 807, 173 Cal.Rptr. 38.) That court noted that the validity of a sliding scale recovery agreement is recognized by section 877.5, and held that “the 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.” (117 Cal.App.3d at pp. 809–810, 173 Cal.Rptr. 38.)
Torres v. Union Pacific R.R. Co., supra, 157 Cal.App.3d 499, 203 Cal.Rptr. 825, involved a sliding scale recovery agreement and the payment of monies, a portion of which was unequivocal. That court announced that an egregiously low settlement price may itself constitute a sufficient finding of bad faith “where a defendant settles by paying a sum which is grossly disproportionate to that defendant's fair share of the damages.” That is a holding with which we disagree. The Torres court nevertheless found the sliding scale recovery agreement there involved to be in good faith notwithstanding the fact that the settlor and nonsettlor had already made one joint offer of $200,000 to the injured plaintiff to be split evenly between them, which offer the plaintiff Torres rejected. It was only after that rejection and the breakdown in cooperation between the defendants that the settling defendant entered into the sliding scale recovery agreement with the plaintiff. Under that sliding scale recovery agreement, the settling defendant paid Torres $200,000, $50,000 of which was for an outright settlement and “the remaining $150,000 was a guarantee ensuring that if Torres' suit against [the nonsettling defendant] failed, or fell short of $150,000, Torres would be entitled to keep the portion of the advance necessary to bring his total recovery, including the $50,000 outright settlement, to $200,000. In return for this settlement [plaintiff] promised diligently to pursue his claim against [the nonsettling defendant] and to return to [the settling defendant] the first $150,000 of any recovery from [the nonsettlor]; ․” (Id., at p. 503, 203 Cal.Rptr. 825.) In Torres, the plaintiff later settled with the three nonsettlors for $300,000. His ultimate settlement thus amounted to a total of $350,000 of which the original settlor paid $50,000 and the original nonsettlor paid $300,000. The Torres court nevertheless held the original sliding scale recovery agreement to be in good faith.
Burlington Northern R.R. Co. v. Superior Court, supra, 137 Cal.App.3d 942, 946–947, 187 Cal.Rptr. 376, in holding a sliding scale recovery agreement to be in good faith states:
“[T]he question of public policy is in our view solely a legislative matter. Our courts have regularly upheld settlements found free of tortious effect on the nonsettling party, irrespective of their overall fairness. (Fisher v. Superior Court, supra, 103 Cal.App.3d at p. 444, 163 Cal.Rptr. 47; Cardio Systems, Inc. v. Superior Court, supra, 122 Cal.App.3d at pp. 889–890, 176 Cal.Rptr. 254.) Here the trial court expressly found no specific tortious conduct directed toward [the nonsettlor], a finding equivalent to the finding of good faith required by statute. Instead, the court found that the sliding scale agreement completely ignored [the nonsettlors'] interests. Given the legislative approval of sliding scale agreements, however, the trial court's finding of unfairness cannot support a conclusion that the settlement was not made in good faith. This is so even where a nonsettling tortfeasor has been required to pay the entire compensation, without contribution or indemnity from the settling joint tortfeasor.”
The Burlington court (137 Cal.App.3d at p. 946, 187 Cal.Rptr. 376) laments the perceived possible unfairness of such a result, but ours is an adversary system of justice and we find no difficulty in following the legislative directives expressed in sections 877.5 and 877.6. Even were we to disagree with the wisdom of those sections, which we do not, the wisdom of legislation that does not interfere with the federal or state Constitution is a matter for determination by the Legislature and not by the courts.
Public policy is a legislative matter. The Legislature has approved sliding scale recovery agreements by its enactment of section 877.5. In doing so, the Legislature clearly indicated its rejection of the requirement of proportionality. Where, as here, legislation does not violate constitutional proscriptions, it is not for the courts to attempt to thwart the expressed intent of the Legislature. Accordingly, as long as the parties do not design their sliding scale recovery agreements or settlement agreements to tortiously injure the nonsettlors, but merely ignore them, nothing violative of the legislatively set public policy results.
The Right to Veto
We note for the guidance of the trial court in the future handling of this matter that had the sliding scale recovery agreement been complete and definite on the terms the settling parties represented it to be, without any additional terms of a tortious nature, it would have constituted a good faith settlement agreement, even though it provided a right to the settling defendant to veto any settlement between plaintiff and Downey that did not total $85,001. (See Burlington Northern R.R. Co. v. Superior Court, supra, 137 Cal.App.3d 942, 187 Cal.Rptr. 376, holding in good faith a sliding scale recovery agreement which provided the settling defendant tortfeasor a right to reject, or veto any settlement agreement between the injured plaintiff and the nonsettling defendant for an amount less than $2 million.)
It seems specious to us to argue that a sliding scale recovery agreement should be rejected merely because it contains a provision that the settling defendant may veto a plaintiff's future settlement with the then nonsettling tortfeasor unless certain dollar limitations are met. That is so, not because we approve of such a condition, but because a more artfully drawn sliding scale recovery agreement can accomplish the same result by providing that the recovery is guaranteed only in the event of a final judgment for or against the nonsettling defendants.
The policy of section 877 to encourage settlements is well served by a proper sliding scale recovery agreement. Downey impliedly argues that sliding scale recovery agreements do not encourage settlements as to the nonsettling tortfeasors because they leave cases still to be tried. The short answer to that argument is that that part of the case left to be tried has less parties, less tort issues and results in judicial economy. Further, experience teaches us that once some, but less than all, tortfeasors have settled, or entered into a sliding scale recovery agreement, the remaining nonsettling defendants are more likely to be motivated to settle with the plaintiff. Downey argues that that is a form of blackmail of the nonsettlor, but we think it is no more blackmail than is the filing and continued prosecution of any other properly filed and prosecuted action against any defendant. Lastly and most importantly, sliding scale recovery agreements serve the hierarchy of interests established in Sears, Roebuck & Co. v. International Harvester Co., supra, and its progeny.
Downey contends that its cross-complaint cannot properly be summarily dismissed because a good faith determination would not bar Downey's right to total equitable indemnity.
That question is not presently before us as we have held that there was no settlement agreement or complete sliding scale agreement in existence. We note, however, that Downey's cross-complaint against Imperial is not for total equitable indemnity but only seeks indemnity “for that percentage of plaintiff's judgment, if any, against [Downey] that was incurred by reason of the negligence of [Imperial or the other cross-defendants].” (See § 877, subd. (b).) It follows, therefore, that had there been a definite and completed agreement with no further terms of a tortious nature, and had a determination of its good faith been made at a properly noticed hearing, that determination would have served as the predicate to granting a properly noticed motion to dismiss Downey's cross-complaint against Imperial in accordance with the provisions of section 877.
We do not conclude that the petition was frivolously filed and we, therefore, deny the request of Downey Land Limited for attorneys' fees.
The alternative writ of mandate is discharged and the petition for a peremptory writ of mandate is denied. The matter is remanded to the superior court to allow such time as that court shall determine is reasonably necessary (1) to Imperial and Adkins to present that court and Downey with a written, complete and definite settlement agreement or sliding scale recovery agreement, (2) to allow any party to bring a motion to determine the good faith of such agreement and (3) to allow any party to file opposition thereto if such motion be made.
The trial court is further ordered to continue in effect the temporary stay of trial issued by this court on April 6, 1984, and continued in effect by our order of April 9, 1984, until after all parties have had a reasonable opportunity to have such determination made in accordance with the provisions of sections 877.5 and 877.6 and for such reasonable time thereafter as the court shall fix. During the period the trial of the action is stayed, the provisions of section 583 and each of its subdivisions shall be tolled.
The request of real party in interest, Downey Land Limited, for attorneys' fees is denied.
FN1. All statutory references are to the Code of Civil Procedure unless otherwise expressly stated.. FN1. All statutory references are to the Code of Civil Procedure unless otherwise expressly stated.
2. So named as a result of the case of Booth v. Mary Carter Paint Company (Fla.App.1967) 202 So.2d 8, overruled in Ward v. Ochoa (Fla.1973) 284 So.2d 385, 388. For an up-to-date review of Mary Carter law, see Vermont Union School District No. 21 v. H.P. Cummings Construction Co. (1983) 143 Vt. 416, 469 A.2d 742.
3. While several of the following cases were critical of the “good faith” of the settlements involved in the particular case, none held the settlement there involved to be in bad faith.Easton v. Strassburger (1st Dist.1984) 152 Cal.App.3d 90, 199 Cal.Rptr. 383; Kohn v. Superior Court (1st Dist.1983) 142 Cal.App.3d 323, 191 Cal.Rptr. 78; Burlington Northern R.R. Co. v. Superior Court (1st Dist.1982) 137 Cal.App.3d 942, 187 Cal.Rptr. 376; Stambaugh v. Superior Court (1st Dist.1976) 62 Cal.App.3d 231, 132 Cal.Rptr. 843; Lareau v. Southern Pac. Transportation Co. (1st Dist.1975) 44 Cal.App.3d 783, 118 Cal.Rptr. 837; Ford Motor Co. v. Schultz (2d Dist.1983) 147 Cal.App.3d 941, 195 Cal.Rptr. 470; Wysong & Miles Co. v. Western Industrial Movers (2d Dist.1983) 143 Cal.App.3d 278, 191 Cal.Rptr. 671; Turcon Construction, Inc. v. Norton-Villiers, Ltd. (2d Dist.1983) 139 Cal.App.3d 280, 188 Cal.Rptr. 580; Fisher v. Superior Court (2d Dist.1980) 103 Cal.App.3d 434, 163 Cal.Rptr. 47; Huizar v. Abex (2d Dist.1984) 156 Cal.App.3d 534, 203 Cal.Rptr. 47; Torres v. Union Pacific R.R. Co. (2d Dist.1984) 157 Cal.App.3d 499, 203 Cal.Rptr. 825; River Garden Farms, Inc. v. Superior Court (3rd Dist.1972) 26 Cal.App.3d 986, 103 Cal.Rptr. 498; Widson v. International Harvester Co. (4th Dist.1984) 153 Cal.App.3d 45, 200 Cal.Rptr. 136; Lopez v. Blecher (4th Dist.1983) 143 Cal.App.3d 736, 144 Cal.App.3d 785, 192 Cal.Rptr. 190; Pease v. Beech Aircraft Corp. (4th Dist.1974) 38 Cal.App.3d 450, 113 Cal.Rptr. 416; Cardio Systems, Inc. v. Superior Court (5th Dist.1981) 122 Cal.App.3d 880, 176 Cal.Rptr. 254; Dompeling v. Superior Court (5th Dist.1981) 117 Cal.App.3d 798, 173 Cal.Rptr. 38.
4. Which case we discuss at a later point in this opinion.
5. In Crisci v. Security Ins. Co., supra, 66 Cal.2d 425, 432, 433, 58 Cal.Rptr. 13, 426 P.2d 173, the Supreme Court, citing Comunale Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198, with approval, expressly recognizes that “wrongful refusal [of an insurance company] to settle has generally been treated as a tort” and also expressly disapproved “language in Critz v. Farmers Ins. Group, supra, 230 Cal.App.2d 788, 799, 41 Cal.Rptr. 401 [which] might be interpreted as providing that the action for wrongful refusal to settle sounds solely in contract.”
McCLOSKY, Associate Justice.
WOODS, P.J., and KINGSLEY, J., concur.