ROMERO v. DERMENDZHAYAN (1992)

Appeal and cross-appeal from a judgment of the Los Angeles County Superior Court, the Honorable Burton Bach, Judge Presiding.

I.

INTRODUCTION

This appeal and cross-appeal involve a judgment entered following a jury trial.   The jury rendered a special verdict in favor of plaintiffs against certain nonsettling defendants.   Following the verdict, a hearing was conducted by the court in which the court allocated “offsets” against the verdict as a result of pre-trial settlements by some defendants in implementation of Civil Code section 1431.1 et seq., commonly referred to as Proposition 51, and Code of Civil Procedure section 1 877.   Neither side of the action being satisfied with the allocations made by the trial judge, this appeal and cross-appeal followed the judgment entered October 9, 1991.   Affirmed in part and reversed in part.

II.

FACTUAL AND PROCEDURAL SYNOPSIS

Plaintiff, Linda Romero, sustained serious and permanent injuries on May 11, 1988, when her 1973 Ford LTD stationwagon burst into flames after being fueled at Harry's Texaco service station (owned by defendant Artutyun Dermendzhayan) with propane furnished by defendant Petrolane Corporation.   The stationwagon's fuel system had been converted from gasoline to propane by defendant Lloyd's Equipment Company and subsequently sold to Linda Romero and John Romero by defendants Robely C. Brown and Reba Arleene Brown.

The cause was tried before the Honorable Burton Bach, Judge of the Superior Court, Los Angeles County, commencing June 20, 1991.   On August 2, 1991, the jury returned a verdict finding plaintiff Linda Romero had sustained economic damages of $1,000,000 and non-economic damages of $3,500,000.   The jury also awarded her husband, plaintiff John Romero, non-economic damages of $250,000 for loss of consortium.   The jury apportioned fault 5 percent to plaintiffs, 5 percent to the Browns, 15 percent to Dermendzhayan, 20 percent to Petrolane, and 55 percent to Lloyd's.   Adjusted for comparative fault, plaintiffs' net award was $4,512,500.

Petrolane and Lloyd's had settled before the verdict for $2,250,000 and $1,500,000, respectively.   Another defendant, J.E. DeWitt, against whom no liability was assessed, had settled for $40,000.   The total of all settlements was $3,790,000.

In post-verdict proceedings to calculate and apportion “setoffs” to the judgments, plaintiffs argued that the nonsettling defendants' liability for non-economic damages must be calculated without regard to the amounts of the settlements.   Nonsettling defendant Dermendzhayan argued that the verdict should be reduced by the amount of the prior settlements and that he was only responsible for a portion of the non-economic damages remaining after reduction.

Dermendzhayan further argued that pursuant to section 877, the pre-trial settlements for cash and the non-cash assignment of the bad faith cause of action to plaintiffs by the Brown defendants must be reflected dollar for dollar as an offset in order to prevent any double recovery to the plaintiffs.

Prior to trial, the Honorable William McVittie, Judge of the Superior Court, declared to be in good faith and approved a settlement in which plaintiffs received an assignment of the rights of the Browns to sue the Browns' automobile insurance carrier, which had denied a defense, in return for a covenant not to enforce any judgment against the Browns.   When the matter was assigned for trial before the Honorable Burton Bach, Judge Bach declined to keep knowledge of the settlement from the jury.   Accordingly, plaintiffs' counsel maintained that the settlement was invalidated.   While the jury was deliberating, but before verdict, plaintiffs' counsel negotiated and made a like agreement on behalf of plaintiffs and the Browns.   The trial court refused to give the nonsettling defendants (i.e., Dermendzhayan and the Browns) any credit for the economic value of the pre-verdict settlement between plaintiffs and the Browns.

On appeal, plaintiffs' counsel concedes that at the post-verdict hearing before Judge Bach, a settlement was reached between plaintiffs and the Browns, a settlement which included a covenant not to enforce judgment in return for assignment to plaintiffs of any rights the Browns had against their automobile insurance carrier.   The issue of an offset against the judgment for the value of the assignment was raised in a letter by Dermendzhayan's counsel and in a memorandum of points and authorities filed with the court.

Plaintiffs' counsel argued that there was no economic value to the assignment or, alternatively, that the economic value at its maximum cannot exceed the amount of the judgment entered against the Browns.   At the post-verdict hearing, the court stated:  “I don't see how we can possibly put a figure on this potential cause of action that's out there somewhere.”

The trial court then proceeded to calculate the nonsettling defendants' proportionate liability for the judgment by reducing the verdict by the amounts of the prior settlements.

Pursuant to section 998, plaintiffs and Dermendzhayan each sought costs pertaining to pre-trial settlement offers.   The determination of what constituted a “more favorable judgment” depended upon the offset method adopted by the court in calculating the proportionate responsibility for the judgment.   Costs were awarded to Dermendzhayan based upon the trial court's calculations.

Judgment was entered on October 9, 1991.   Plaintiffs and Dermendzhayan filed timely notice of appeal and cross-appeal.

III.

ISSUES PRESENTED

A. Whether the liability of the nonsettling defendants is based upon their proportionate share of the non-economic damages awarded by the jury or upon their proportionate share of the non-economic damages unsatisfied after reduction for settlements.

B. Did the court properly reduce the verdict in its judgment by the amount of cash settlements prior to verdict?

C. Did the court err by failing to assign a value to the non-cash settlement reached between plaintiffs and the Browns, prior to verdict, in which plaintiffs received an assignment of the rights of the Browns to pursue a first party bad faith claim against the Browns' insurance carrier in return for a covenant not to enforce judgment?

D. Did the court properly allocate in its judgment the percentages of fault pertaining to non-economic damages?

IV.

DISCUSSIONA. The court properly took into account the offset for the cash settlements made prior to verdict in making its computations. 2

 As plaintiffs' counsel correctly notes, prior to the verdict, there were cash settlements in the total amount of $3,790,000.   Plaintiffs seem to argue that there should not be an automatic credit for the prejudgment cash settlements.

Pertaining to the $3,790,000 prejudgment cash settlements, at the time of settlement, Dermendzhayan was one of a number of tortfeasors “claimed to be liable for the same tort,” and as such is entitled to the protection of section 877, which states:

“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, or to one or more other co-obligors mutually subject to contribution rights, it shall have the following effect:

“(a) It shall not discharge any other such party 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.

“(b) It shall discharge the party to whom it is given from all liability for any contribution to any other parties.

“(c) This section shall not apply to co-obligors who have expressly agreed in writing to an apportionment of liability for losses or claims among themselves.

“(d) This section shall not apply to a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment given to a co-obligor on an alleged contract debt where the contract was made prior to January 1, 1988.”

Pursuant to section 877, subdivision (a), the nonsettling defendants should receive a reduction by the amount of the consideration paid in settlement prior to the verdict for plaintiffs.

Pursuant to Civil Code section 1431.2,³ the judgment for several liability (non-economic damages) against defendants who proceeded through trial, does not negate the provisions of section 877 or the judicial policy to see that no double recovery to plaintiffs occur.   The letter of plaintiffs' counsel dated June 6, 1991, proposing a method to computate the judgment, reflects a credit for the entire pre-verdict cash settlements of $3,790,000.   The letter of defendants' counsel proposing a judgment also reflects a credit for the full $3,790,000 prior cash settlements.   The formula used by the trial court echoes full credit under section 877.

In addition, plaintiffs in their pleadings in the superior court always provided for a full dollar for dollar offset as required by section 877 on the $3,790,000 cash pre-verdict settlements.

We discern that plaintiffs' argument against an automatic credit for the prejudgment cash settlements is made “tongue in cheek,” and we conclude that there was no error in the trial court's calculations in this regard.   We hold that section 877 requires an offset for preverdict settlements, regardless of the applicability of Civil Code section 1431.2, in order to prevent “double recovery.”

B. Dermendzhayan is entitled to an offset for the value of the assigned bad faith claim as a result of settlement prior to verdict.

 Dermendzhayan, as a cross-appellant, contends the judgment should also reflect a credit to nonsettling defendants regarding the settlement reached by plaintiffs and the Browns prior to verdict, whereby the Browns' rights to a first party bad faith claim against their insurance carrier were assigned to the plaintiffs in return for a covenant not to enforce any judgment against the Browns.   The case law is supportive of Dermendzhayan's position, and we conclude that the trial court erred in failing to evaluate and give credit for the value of that assignment in a present sum.

In Southern Cal. Gas Co. v. Superior Court (1986) 187 Cal.App.3d 1030, 1034–1036, 232 Cal.Rptr. 320, the court held that an assignment of a tort cause of action has a value.   The value of those assigned rights may be determined either by declaration, by expert testimony, or by agreement.   The settling parties, plaintiffs here, have the burden of setting the value of the consideration involved in the settlement.  (Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 875, 239 Cal.Rptr. 626, 741 P.2d 124.)

Plaintiffs' counsel cites two cases for the proposition that the punitive damages and emotional distress aspects of the bad faith case cannot be assigned by the Browns to the plaintiffs.   According to Dermendzhayan, under plaintiffs' reasoning, the maximum of the Browns' damages (the total judgment against them) which could be recovered by plaintiffs on assignment would be $260,713.14.

It is ironical that plaintiffs are placed in a position of arguing that the value of their assigned claim for bad faith against Browns' carrier has a “minimal” value, and just as ironical that a defendant in the action is in a position of arguing a “maximum” value for the claim.

There is some appeal in the contention which would “cap” the value of the assigned bad faith claim at the amount of the verdict against the Browns, but we cannot say as a matter of law that such a result must follow.   Thus, we remand the matter to the trial court for further hearing to determine the value of the assignment of the bad faith claim to plaintiffs by the Browns in consideration for the covenant not to enforce the judgment against the Browns.

C. The trial court's decision regarding non-economic damages fairly reflects the percentage of fault.

 The precise steps to be taken in reducing a jury's verdict to judgment under Civil Code section 1431.2 appears to be one of first impression.

The trial court, as reflected in its memorandum (appendix hereto) setting forth the steps it took in fixing liability for non-economic damages, proceeded reasonably.   There is no significant controversy among the parties until the 11th step taken by the court.   The controversy regards only the 11th step, relating to the several judgment for non-economic damages.   The joint and several award for unsatisfied economic damages as reflected in the court's 12th step is not challenged.   We conclude that there is no error in the reasoning of the trial judge as to the 11th step.

V.

DISPOSITION

We reverse and remand the case to the trial court for further proceedings to determine the value of the non-cash pre-verdict settlement reached between the plaintiffs and the Browns and to give appropriate credits against the judgment once such a determination of value has been made.

In all other respects the judgment is affirmed.   Costs on appeal are awarded to Dermendzhayan.

APPENDIX

Superior Court of the State of CaliforniaFor the County of Los Angeles, East DistrictLinda Romero and John Romero, Plaintiffs,v.Harry's Texaco Service Station, et al., Defendants.Case No. EAC 70708Filed Oct. 9, 1991.JUDGMENT ON SPECIAL VERDICT AND FINANCIAL ALLOCATIONS AND PERCENTAGES

This action came on regularly for trial on June 28, 1991, in the East District of the Los Angeles County Superior Court, the Honorable Burton Bach, Judge presiding.

A jury of twelve persons was impaneled and sworn.   Witnesses were sworn and testified.   After hearing the evidence and arguments of counsel, the jury was duly instructed by the Court and the cause was submitted to the jury to render a special verdict.   The jury selected a foreman, deliberated, and thereafter returned into court with a special verdict as follows:

Without taking into consideration the reduction of damages due to the negligence of the plaintiffs, the jury found the total amount of damages, including economic and non-economic damages, suffered by plaintiffs as a legal result of the accident to be as follows:

With 100 percent representing the total negligence which was the legal cause of the plaintiffs' damages, the following percentages were allocated by the jury to represent the contributory negligence of the plaintiffs and the negligence of the defendants and all others:

A special hearing to determine financial allocations and percentages was held on September 4, 1991, the Honorable Burton Bach presiding, and the following judgment was rendered:

As to defendants ARTUTYUN DERMENDZHYAN, also known as HARRY'S SERVICE STATION, and MR. and MRS. ROBLEY C. BROWN, a joint and several verdict for the economic damages was rendered in the amount of $153,213.14.

As to defendant ARTUTYUN DERMENDZHYAN, also known as HARRY'S SERVICE STATION, a verdict as to the unpaid non-economic damages was rendered in the amount of $113,518.02.

Defendant, ARTUTYUN DERMENDZHYAN, also known as HARRY'S SERVICE STATION, was awarded his costs of suit herein in the amount of $13,588.13.

As to defendants MR. and MRS. ROBLEY C. BROWN, a verdict as to the unpaid non-economic damages was rendered in the amount of $37,839.34.

Plaintiffs were awarded their costs of suit as against defendants MR. and MRS. ROBLEY C. BROWN in the amount of $52,863.81.

Attached as Exhibit “A” and incorporated as a part of this Judgment on Special Verdict is a copy of the court's figures and analysis.

In a special verdict, the jury found that defendants HARRY'S SERVICE STATION and ARTUTYUN DERMENDZHYAN were not the actual or ostensible agents of defendant TEXACO, INC.   Therefore, judgment was found in favor of defendant, TEXACO, INC., and against plaintiffs, LINDA ROMERO and JOHN ROMERO.   Defendant TEXACO, INC., was awarded costs of suit against plaintiffs in the amount of $9,999.37.

     /s/BURTON BACH

     HON. BURTON BACH

     Judge of the Superior Court

FOOTNOTES

FN1. Unless otherwise noted, all statutory references are to the Code of Civil Procedure..  FN1. Unless otherwise noted, all statutory references are to the Code of Civil Procedure.

2.   The appendix to this opinion contains the “Judgment on Special Verdict and Financial Allocations and Percentages” with the 13 steps utilized by the trial court in arriving at the financial allocations and percentages contained in the judgment of October 9, 1991.

3.   Civil Code section 1431.2 provides:“(a) In any action for personal injury, property damage, or wrongful death, based upon principles of comparative fault, the liability of each defendant for non-economic damages shall be several only and shall not be joint.   Each defendant shall be liable only for the amount of non-economic damages allocated to that defendant in direct proportion to that defendant's percentage of fault, and a separate judgment shall be rendered against that defendant for that amount.“(b)(1) For purposes of this section, the term ‘economic damages' means objectively verifiable monetary losses including medical expenses, loss of earnings, burial costs, loss of use of property, costs of repair or replacement, costs of obtaining substitute domestic services, loss of employment and loss of business or employment opportunities.“(2) For the purposes of this section, the term ‘non-economic damages' means subjective, non-monetary losses including, but not limited to, pain, suffering, inconvenience, mental suffering, emotional distress, loss of society and companionship, loss of consortium, injury to reputation and humiliation.”

FRED WOODS, Associate Justice.

LILLIE, P.J., and JOHNSON, J., concur.