TEMPLETON GRADING EXCAVATING v. STANDARD PACIFIC OF SAN DIEGO (1990)

Templeton Grading & Excavating (Templeton) petitions for a writ of mandate to vacate a $999 sanction imposed by the superior court (the court).   At a settlement conference after Templeton signed a form stating there was a “substantial opportunity for settlement,” Templeton offered $25,000 in what was claimed to be a $1 million exposure case.   An attorney on the settlement panel accused Templeton of “wasting” his time,¹ and the court fined Templeton $999, not because the court evaluated the case differently from Templeton, but on the ground Templeton had requested a settlement conference and then not negotiated in good faith.

Initially, we focused on the ground stated by the trial court as well as Templeton's petition and viewed the sanction order as dependent on whether Templeton objected to signing the form requesting a “voluntary” settlement conference or whether Templeton was ordered to sign the form despite its oral objections.   We have now determined this focus is misdirected.   It is immaterial whether a party requests a settlement conference or it is ordered to attend.   The issue is:  did Templeton attend the settlement conference, and if so, did it participate in the discussions in good faith?   We hold it did.

In sanctioning a party for participating in a settlement conference in bad faith, whether one calls the conference voluntary, special or mandatory, the record must reflect a party refused to attend the conference, or, if the party attended either personally or through another with full authority to bind the party, the party refused to listen to others, evaluate and discuss (1) liability, (2) damages, and (3) compromise.   Because none of these elements of bad faith by Templeton are present in this record, we reverse the sanction order.

FACTS AND PROCEDURE

Templeton, a grading company, is a cross-defendant in a consolidated action for construction defects in which the plaintiffs have settled for almost $1 million.   Apparently, if found liable on the cross-complaint, Templeton faced considerable monetary exposure for indemnity.   At a status conference in February 1990, the court vacated the March 1990 trial date and ordered “[a]ll parties ․ to participate and appear at the April Panel Settlement Conference ² as per the attached Order.”   The status conference was unreported.   According to Templeton's verified petition, the court ordered the parties to participate in the settlement conference “despite TEMPLETON'S strenuous objections that such a conference was likely to prove unproductive given the respective positions of the parties.”

In any event, in conjunction with the settlement conference, the court directed the parties to execute two related forms.   One form, entitled “Request for Special Settlement Conference,” was apparently presented to the parties by the court at the conclusion of the status conference.   All parties executed it, including Templeton.   The form states:  “A judicially supervised settlement conference presents a substantial opportunity for settlement.”

The other form is entitled “Settlement Conference Statement.”   Accompanying this form is a preprinted court “order” stating:  “The attached case has been ordered to a panel settlement conference on the date indicated.   You are hereby ordered to submit ․ the enclosed panel settlement conference statement ․ at least five (5) days prior to the scheduled conference.”   The Settlement Conference Statement contains several questions, one of which reads, “[S]tate the terms of your offer to settle this matter.”   Templeton responded:  “Dismissal with prejudice and waiver of costs.”

Templeton appeared at the settlement conference through its counsel and offered the maximum amount of settlement authority, $25,000.   There is some evidence Templeton had made the same $25,000 offer over a month earlier.   The case did not settle at that time.   An attorney on Templeton's settlement panel said Templeton had wasted his time.   The court orally advised Templeton it would issue an order to show cause (OSC) why Templeton should not be sanctioned.   Five days later the court issued the OSC, commanding Templeton to appear and explain why it should not be sanctioned for failing to “appear and negotiate in good faith at the mandatory settlement conference.” ³

At the OSC hearing Templeton acknowledged signing the form but argued it had been ordered to participate in the settlement conference.   Templeton explained its $25,000 offer was based upon the evidence, “and it was not simply a number drawn out of the air, out of a hat.”   Templeton's attorney stated:

“My client's insurer's evaluation of this case may be wrong, and that may be proved at the time of trial, but an inaccurate or wrong evaluation of the case is certainly not something that is sanctionable by this court․  I think it's my client's right to assess the merits of their case and the case specifically be adjudicated by the trier of facts at the trial.   If they are wrong, they suffer the consequence, but it is their right under the Constitution to have it proven.”

The court was unpersuaded by Templeton's argument and imposed a $999 sanction against Templeton under Code of Civil Procedure sections 177.5 and 575.2 for failing to negotiate in good faith at the April settlement conference.   The court specifically denied it was imposing sanctions because it evaluated the case differently than Templeton.   Instead, the court took the position Templeton had falsely represented the case was amenable to settlement by requesting the “Special” settlement conference, ruling:

“The question is whether under the circumstances, with a million-dollar case and a subsidence problem, when one represents the grader, coming to court with $25,000, after indicating that all the parties are prepared to negotiate in good faith, is sanctionable.”

At oral argument before this court, we were advised this million-dollar case has, in fact, settled for substantially less than that demanded at this settlement conference.

DISCUSSION

Code of Civil Procedure section 177.5 states in pertinent part:  “A judicial officer shall have the power to impose reasonable money sanctions, not to exceed fifteen hundred dollars ($1,500) ․ for any violation of a lawful order by a person, done without good cause or substantial justification.   This power shall not apply to advocacy of counsel before the court.”  Code of Civil Procedure section 575.2 grants a trial court the power to sanction a party and/or the party's counsel for violations of local rules.

 Templeton contends the court abused its discretion in awarding sanctions.   We review the imposition of monetary sanctions for a prejudicial abuse of discretion.  (Moyal v. Lanphear (1989) 208 Cal.App.3d 491, 501, 256 Cal.Rptr. 296.)   Where a trial court has discretion to decide an issue, it will be reversed on appeal only where it clearly appears that a prejudicial abuse of discretion has occurred.  (Mission Imports, Inc. v. Superior Court (1982) 31 Cal.3d 921, 932, 184 Cal.Rptr. 296, 647 P.2d 1075.)   However, trial court discretion is not unlimited, and reviewing courts have never ascribed to judicial discretion a potential without restraint.   In Bailey v. Taaffe (1866) 29 Cal. 422, the court delineated the limits of judicial discretion stating:  “The discretion intended, however, is not a capricious or arbitrary discretion, but an impartial discretion, guided and controlled in its exercise by fixed legal principles.   It is not a mental discretion, to be exercised ex gratia, but a legal discretion, to be exercised in conformity with the spirit of the law, and in a manner to subserve and not to impede or defeat the ends of substantial justice.”  (Id. at p. 424.)   In this limitation of judicial discretion, discretion is abused whenever in the exercise of its discretion, the court exceeds the bounds of reason, all of the circumstances before it being considered.  (Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 527, 67 Cal.Rptr. 761, 439 P.2d 889.)

Here, the trial court sanctioned Templeton following settlement discussions stating as its reason Templeton's signing of a form purportedly requesting a “voluntary” settlement conference.   We conclude the court's stated reason does not justify an award of sanctions.   It is undisputed Templeton was ordered to attend a settlement conference, and the court's phraseology for the name of that ordered conference is immaterial.   Notwithstanding the importance of settlement to parties as well as the courts, we have found no case which defines what is good faith during settlement discussions.   We find instructive the discussion in Slobodin, Civil Procedure Before Trial (Cont.Ed.Bar 1990) sections 65.1 through 66.9.

 We hold a party and counsel are participating in good faith at settlement conferences if:  (1) a party personally attends the conference or is represented at such conference by someone with authority to bind the party at that time;  (2) during the settlement discussions, a party listens to opposing counsel and the court as to the settlement value of the case and expresses its view as to such settlement value based on evaluation of the case;  and (3) the party's view on settlement value considers liability, damages and compromise.

 The superior court here made no findings establishing Templeton's lack of good faith.   Specifically, the court did not find:  (1) Templeton was not represented at the settlement conference by counsel with authority to bind it;  (2) Templeton did not listen to opposing counsel and the court as to the settlement value of the case or Templeton did not express its view as to the settlement value;  and (3) Templeton's view on settlement value did not consider liability, damages and compromise.   Thus, the trial court erred in awarding sanctions, because the amount a party offers to settle a case is not the dispositive factor of good or bad faith settlement negotiations.

DISPOSITION

Petition granted.   The order sanctioning Templeton is vacated.

Because there is insufficient evidence to support the trial court's ruling I agree the order imposing sanctions should be set aside.   I have concern, however, that the majority's discussion of ‘good faith’ including its rather blanket definition of that phrase along with its implied suggestion the trial court must make findings before it can impose sanctions might be misleading.   (See maj. opn. p. 21.)

Although findings might assist appellate review there is no requirement that a trial court do so in order to enforce a valid order for sanctions.   And even though a lawyer may be obligated to act in good faith in all of the lawyer's professional dealings there is no mention of that requirement in Code of Civil Procedure section 177.5.   Thus the narrow issue before us is not with counsel's good faith, but whether counsel acted ‘without good cause or substantial justification’ in failing to increase an earlier settlement offer.

Increasing an offer at a continued settlement conference does not necessarily establish counsel acted ‘without good cause or substantial justification.’   There may be valid reasons for counsel's decision to keep the offer the same.   For example, further settlement discussions may have resulted in increased contributions from other tortfeasors eliminating the need for additional sums thereby legitimately reinforcing counsel's view the earlier offer was correct.   In addition, further research and/or discovery may have uncovered new information materially affecting the settlement value of the case.   Moreover, even though counsel may be unwilling to increase an offer, counsel can still constructively participate at the conference furnishing the court additional insight and added perspective on the case.

In light of the foregoing an absence of good cause can not be drawn solely from counsel's unwillingness to increase the ante at a continued settlement conference.   Here, since counsel's failure to increase the offer was the only articulated basis for the trial court's ruling I agree the order must be reversed.

FOOTNOTES

1.   We emphasize many settlement conferences, as well as other proceedings in every court, may initially be perceived as “wasted” time and effort only to result in long-term substantial benefits to the court and parties.

2.   Periodically, the court conducts three-member settlement panels, consisting of one judge and two trial attorneys who volunteer their time to assist the court in attempting to settle cases.

3.   The order to show cause is a preprinted form.   The court typed the phrase “mandatory settlement conference” on the blank line.   The court then handwrote “and negotiate in good faith.”

NARES, Associate Justice.

BENKE, J., concurs.