McATEE v. FIRE INSURANCE EXCHANGE (1989)

Fire Insurance Exchange ¹ (FIE) appeals from a judgment entered pursuant to the motion of respondent Dennis McAtee, individually and as executor of the will of Barbara McAtee, to enforce an alleged settlement agreement under Code of Civil Procedure section 664.6.²  We conclude that the statutory prerequisites of that section were not met and consequently we will reverse the judgment.

Factual and Procedural Background

McAtee filed his complaint against FIE in September 1985, seeking damages for bad faith arising from FIE's adjustment of McAtee's first-party claim under a homeowners insurance policy.   The complaint alleged that during the policy period, McAtee's home was damaged as a result of negligence of builders who constructed the property, and that FIE had refused to pay the claim submitted by McAtee in accordance with the policy.

On December 17, 1987, McAtee filed his motion for entry of judgment pursuant to section 664.6.³  This motion was supported by declarations of Alan Mayer, one of McAtee's attorneys, and James Schwartz and Ralph Lombardi, attorneys who participated as panel members in a “Bench Bar Settlement Conference” in this case pursuant to rule 8(c) of the Contra Costa County Superior Court Rules.

Mayer's declaration stated that he attended the court ordered settlement conference on December 14, 1987, before Judge Phelan and attorneys Schwartz and Lombardi.   In April 1987, FIE had offered $185,000 plus a waiver of subrogation rights in settlement, but this offer was later withdrawn.   During the settlement conference, Mayer was informed by Judge Phelan and the panel that FIE's previous offer was being made again and that FIE's attorney, Wallace Tice, had authorized them to make the offer.   After discussions with McAtee, Mayer informed the panel and Tice that the offer was accepted by McAtee.   At this point, various conversations took place between Mayer and Tice which disclosed McAtee's negotiating and settlement posture with regard to the case.   Mayer was then informed by Tice that FIE sought to impose the additional condition that the terms of the settlement be kept confidential.   As this was not part of the original offer relayed by the panel, Mayer informed Tice that he would seek judicial enforcement of the settlement agreement.

The matters set forth in the declarations of Schwartz and Lombardi were identical.   Each stated that he had participated as a panel member at the Bench Bar Settlement Conference in this case, that Tice offered to settle the matter on the terms described above and that the offer was accepted.   After the offer was accepted, FIE sought to impose the additional term that the settlement be kept confidential.   At all times Tice represented to the panel that the offers of settlement which he made were with the consent of his client.

Tice filed his declaration in opposition to the motion for entry of judgment.   He attended the settlement conference accompanied by FIE branch manager, Patricia Carroll.   The settlement conference statement which he filed emphasized that FIE's previous settlement offer had been withdrawn due to changed circumstances—the discovery that McAtee had recovered damages from the builder of his property and thereby impaired FIE's subrogation rights against the builder.   The panel initially asked Tice if he still had authority to settle the case (apparently for $185,000).   Due to a misunderstanding between himself and the FIE regional claims manager, Wesley Whittemore, Tice replied that he had such authority.   The panel members urged him to obtain authority to settle at a higher figure, as they viewed the previously withdrawn figure of $185,000 as inadequate.   At approximately 1 p.m. the panel urged Tice to telephone Whittemore to relay their views that FIE should settle the matter for $250,000.   Whittemore declined.   At 2 p.m. Tice relayed the panel's view that the matter be settled for $225,000.   Whittemore again declined.   Tice understood from the panel that McAtee had not moved from his demand of $300,000 and that the panel had not relayed any settlement offers to him up to this point.

Tice's declaration further stated that at the end of the discussion in which the panel urged him to request authority from FIE to settle for $225,000, the panel asked whether they could go ahead and offer the previously withdrawn $185,000.   Tice mistakenly replied that they could.   He did not recall any discussion of a waiver of subrogation nor any waiver of FIE's right to file a cross-complaint against McAtee, which Tice had indicated to the panel he planned to do.   While Tice was on the telephone with Whittemore concerning the panel's suggested figure of $225,000, one of the panel members apparently relayed some form of offer to McAtee's counsel, using the $185,000 figure.   When Tice returned to the courtroom with FIE's rejection of the $225,000 figure, Michael Bloom, one of McAtee's attorneys, told him that Mayer, Bloom's co-counsel, was discussing the $185,000 offer with McAtee.   A few minutes later, Mayer returned to the courtroom and informed Tice that McAtee had accepted the $185,000 figure, against his advice.   While Mayer went back into the judge's chambers to indicate that the parties had agreed upon the $185,000 figure, Tice conferred with Patricia Carroll concerning other important terms of settlement and they decided to call Whittemore concerning those terms.   On the way to the telephone, Tice asked Mayer his views on keeping the settlement confidential, an issue which they had discussed in prior settlement meetings.   Mayer stated that McAtee would agree to keep the settlement confidential only if FIE paid an additional $15,000.   Carroll then told Whittemore by telephone of the outstanding settlement proposal.   He informed her that she and Tice lacked authority to settle on that basis and he rejected McAtee's demand for an additional $15,000.   When this information was relayed to McAtee's counsel and the settlement conference panel, Judge Phelan ordered that Whittemore appear personally in order to explain the situation to the court.

After Whittemore's arrival, the parties again attempted to reach a settlement of the matter.   By this time, the two bar panelists had left.   In discussions with Judge Phelan and McAtee's counsel, Whittemore and Tice continued to assert the need for a confidentiality agreement and a preservation of FIE's rights regarding subrogation.   The parties were unable to recite settlement terms to Judge Phelan with the $185,000 figure since they could not agree on provisions regarding the subrogation issues.   Tice stated that he asked Judge Phelan about his understanding of the settlement offer that had been conveyed by one of the bar panelists to McAtee's counsel earlier in the afternoon, and he stated that he did not believe the settlement proposal included subrogation issues.   The conference then adjourned.

FIE also filed a declaration from Whittemore in opposition to the motion.   He stated that he received several telephone calls from Carroll and Tice concerning the settlement conference during the afternoon of December 14, 1987.   He instructed Tice to reject the proposed figures of $250,000 and $225,000.   He believed that Carroll and Tice understood that they did not have authority to settle without his approval.   When Carroll telephoned him to discuss the more specific terms of a settlement (apparently for $185,000), Whittemore realized there was a miscommunication on settlement authority.   He instructed that McAtee's demand for an additional $15,000 be rejected and the panel informed of the lack of settlement authority.   In response to Judge Phelan's order, Whittemore arrived at the courthouse after 4:30 p.m.   He conferred with Carroll and Tice.   Thereafter an offer was made to McAtee's counsel to settle the case for $185,000, contingent upon a confidentiality agreement and a reservation of FIE's rights to pursue its claims regarding subrogation.   McAtee's counsel rejected this offer.   The conference adjourned without any agreement being reached.

A reply declaration of Michael Bloom was filed.   He stated that he was present in chambers when Tice questioned Judge Phelan concerning his understanding of the settlement proposal and further stated:  “Contrary to the statement made by Mr. Tice, Judge Phelan at no time indicated that ‘he did not believe it (the settlement) included subrogation issues as part of the settlement proposal.’   Rather, Judge Phelan indicated to all counsel that he did not remember if subrogation issues were part of the settlement proposal.”   Bloom also stated that his client, believing a valid offer had been made, compromised the integrity of his settlement position by revealing to FIE's counsel a willingness to settle at a certain level.   Bloom further stated that at no time prior to the settlement conference was the issue of confidentiality ever raised by FIE or its counsel.

The trial court filed a notice of decision on February 22, 1988.   It stated that Judge Phelan's testimony would be barred by Evidence Code section 703.5 ⁴ and that the matter was therefore being submitted without a request that he submit a declaration or testify.   The court then noted that both of the bar panelists unequivocally stated that there was a complete offer and acceptance of the following terms:  (1) FIE would pay to plaintiff the sum of $185,000 in addition to any and all sums already paid, and (2) FIE would waive any subrogation rights it may have by virtue of any payments made to plaintiffs.   Judgment was entered accordingly on March 30, 1988.   This timely appeal followed.

Discussion

 FIE first contends that there was no stipulation for settlement made either “in writing or orally before the court” within the meaning of section 664.6.   We agree.

There is no contention that there was a written stipulation in this case.   Consequently, the question is whether the parties stipulated “orally before the court.”   There was certainly no stipulation before Judge Dolgin, as FIE hotly disputed at the proceeding before him that any settlement had been reached.   The question remains whether there was any oral stipulation in the prior proceeding before Judge Phelan which may be enforced by the summary procedure embodied in section 664.6.

In Datatronic Systems Corp. v. Speron, Inc. (1986) 176 Cal.App.3d 1168, 222 Cal.Rptr. 658, the court held that an oral agreement recorded by a court reporter summoned for a deposition did not constitute a stipulation orally before the court nor in writing within the meaning of section 664.6.   Reviewing cases decided before the enactment of section 664.6, which became effective January 1, 1982, Justice Arguelles noted “their reluctance to enforce a judgment in the absence of an oral agreement stated on the record at a settlement conference or some other judicially supervised proceeding.”   (Id., at p. 1173, 222 Cal.Rptr. 658, italics added.)   The court continued:  “This theme, which is reinforced by the several cases decided after the effective date of the statute in which oral stipulations made on the record at a judicially supervised conference were upheld, compels us to conclude that an oral stipulation made before the court must be just that:  a statement made on the record at a judicially supervised proceeding.”  (Ibid., italics added.)   Although noting the public policy supporting pretrial settlements of lawsuits, the court observed that the requirement it imposed “would protect the interests of the parties to the agreement and ensure their full appreciation of the nature and finality of such settlement proceedings.”   (Id., at pp. 1173–1174, 222 Cal.Rptr. 658.)

Following Datatronic, City of Fresno v. Maroot (1987) 189 Cal.App.3d 755, 234 Cal.Rptr. 353 also held that a stipulation recorded by a certified shorthand reporter at a deposition could not be enforced under section 664.6.   The court there observed:  “This means of enforcing a settlement ․ should only be utilized when the circumstances in which the settlement agreement was reached, or the record of the settlement, minimizes the possibility of conflicting interpretations.”  (Id., at p. 762, 234 Cal.Rptr. 353.)

In this case, the possibility of conflicting interpretations without a stipulation made on the record is obvious.   The bar panel members apparently thought that an oral agreement had been reached which included a waiver of FIE's subrogation rights.   Judge Phelan, who was presiding, apparently could not remember whether such a provision was included in the proposal.   Furthermore, since he summoned Whittemore and continued with the conference after the bar panel members had departed, it appears that Judge Phelan must have had doubts that a binding settlement had been reached earlier in the afternoon.   Although further negotiations took place, the parties were unable to reach a stipulation to recite before Judge Phelan.   We conclude that an oral stipulation before the court must be placed on the record in order to be enforceable under the summary procedure of section 664.6.⁵  There was no such stipulation in this case.

We do not find the cases relied upon by McAtee persuasive.  Corkland v. Boscoe, supra, 156 Cal.App.3d 989, 991, 203 Cal.Rptr. 356 and Fiore v. Alvord (1985) 182 Cal.App.3d 561, 564, 221 Cal.Rptr. 400 are distinguishable because they both involved written stipulations.  Casa de Valley View Owner's Assn. v. Stevenson (1985) 167 Cal.App.3d 1182, 1186, 213 Cal.Rptr. 790 involved a stipulation placed on the record.⁶

In Richardson v. Richardson (1986) 180 Cal.App.3d 91, 225 Cal.Rptr. 370, litigation between former spouses, the husband made an offer of settlement at a mandatory settlement conference without a court reporter present, giving the wife 48 hours in which to accept the offer.   The offer was so accepted but the husband thereafter refused to comply with the agreement.   The trial judge, who was also the judge who presided over the settlement conference, granted a motion pursuant to section 664.6.   At the hearing on the motion, the judge specifically recalled the proceedings at the settlement conference as comporting with the wife's position.  (Id., at p. 95, 225 Cal.Rptr. 370.)   The Court of Appeal affirmed.  Richardson is factually distinguishable from the present case in that the judge who ruled on the motion was the same judge who presided over the settlement conference.   Additionally, it was not argued in that case that the stipulation was not made “before the court” within the meaning of section 664.6.   To the extent that the decision in Richardson is contrary to that which we reach here, we disagree with it.

 We hold that the requirement that, to be enforceable by motion under section 664.6, a stipulation be “on the record” is satisfied when in the presence of the judge it is either set forth in the minutes of the court or placed on the record taken by a court reporter.   This requirement ensures against the very type of proceeding which occurred here—a mini-trial on motion before the court to determine the alleged terms of a stipulation for settlement which is neither in writing nor recorded in any way, followed by a time-consuming appeal.   Adherence to this requirement will encourage counsel to make sure their settlements are placed on the record and will “minimize [ ] the possibility of conflicting interpretations” of settlements.  (City of Fresno v. Maroot, supra, 189 Cal.App.3d 755, 762, 234 Cal.Rptr. 353.)

 We are aware of no reported decision in which an alleged oral settlement agreement was enforced by any judge other than the one before whom the stipulation was allegedly made.   We note that even with the requirement we impose that a stipulation be made on the record in order to be enforceable under section 664.6, it is highly desirable that a motion under that section be heard by the judge who heard the alleged stipulation.   Even with a statement on the record, there is disagreement as to the enforceability of the stipulation by virtue of the fact that a motion under section 664.6 was brought.   While we impose the requirement that a settlement be placed on the record in part to spare busy judges with heavy caseloads the sometimes difficult task of recalling what occurred orally at a settlement conference or other prior proceeding, it is obvious that when the motion is before the same judge who heard the stipulation the judge may have some recollection helpful to resolution of the motion.   Our disposition of this appeal does not require us to determine whether a motion under section 664.6 must be heard before the same judge who heard the alleged stipulation.   However, we believe that such a motion should be heard before that judge unless he or she is unavailable.

Our determination herein renders moot FIE's contention that the trial court should have granted it relief from the alleged settlement pursuant to section 473.⁷

Disposition

The judgment is reversed.

FOOTNOTES

FOOTNOTE.  

1.   Fire Insurance Exchange was erroneously sued as Farmers Insurance Group and its correct name was later added by an amendment to the complaint.   In this appeal, we refer to Fire Insurance Exchange by the company's actual name.

2.   All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

3.   Section 664.6 provides:  “If parties to pending litigation stipulate, in writing or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.”

4.   At the time of the hearing herein, this section provided in pertinent part:  “No person presiding at any judicial or quasi-judicial proceeding shall be competent to testify, in any subsequent civil proceeding, as to any statement or conduct occurring at the prior proceeding․”  As amended effective January 1, 1989, it provides:  “No person presiding at any judicial or quasi-judicial proceeding, and no arbitrator, shall be competent to testify, in any subsequent civil proceeding, as to any statement, conduct, decision or ruling, occurring at or in conjunction with the prior proceeding․”

5.   In addition to making a motion under section 664.6, a party may seek to enforce a settlement agreement by filing an independent action in equity or, in the case of a defendant seeking to enforce an agreement, by amending the pleadings and asserting the settlement as a supplemental affirmative defense.  (See Corkland v. Boscoe (1984) 156 Cal.App.3d 989, 993, 203 Cal.Rptr. 356.)

6.   Citing Fiore and Casa de Valley View Owner's Assn., McAtee urges that the standard of appellate review of a proceeding under section 664.6 is whether the trial court's determination is supported by substantial evidence.   That is not so, however, when the appellate court determines as a threshold issue that the stipulation sought to be enforced does not, as a matter of law, meet the prerequisites of section 664.6.   This case is thus like Datatronic Systems Corp. v. Speron, Inc., supra, 176 Cal.App.3d 1168, 222 Cal.Rptr. 658 and City of Fresno v. Maroot, supra, 189 Cal.App.3d 755, 234 Cal.Rptr. 353, in which the appellate courts determined as a matter of law that the prerequisites of section 664.6 had not been met.

7.   Our resolution of this appeal also requires no discussion of the trial court's ruling that Evidence Code section 703.5 precluded the submission of a declaration by Judge Phelan and we express no view as to that ruling.

McCARTY **, Associate Justice. FN** Retired judge of the superior court sitting under assignment by the Chairperson of the Judicial Council.

KLINE, P.J., and PETERSON, J., concur.