ABBOTT FORD INC v. FORD MOTOR COMPANY (1985)

Petition for writ of mandate.   Petitioner Abbott Ford, Inc. (Abbott Ford) seeks relief from an order of respondent superior court denying Abbott Ford's motion for that court's determination that certain sliding scale settlement agreements were made “in good faith,” pursuant to Code of Civil Procedure section 877.6.¹  This court issued an alternative writ of mandate, granted leave to real party in interest Ford Motor Company to file a written return to the petition, and set the matter for oral argument.

PROCEDURAL HISTORY AND FACTUAL STATEMENT

Petitioner alleges that it is one of four defendants in a personal injury action filed in respondent superior court on November 29, 1982, by plaintiffs Phyllis Smith and Jay Smith.   The action is entitled Phyllis Smith and Jay Smith v. Ford Motor Company, Abbott Ford, Inc., Sears, Roebuck and Company, Ramsey Sneed, and Does 1 through 60, Los Angeles Superior Court No. EAC 39090.   Trial of this matter has been continued to May 8, 1985.

The Smith personal injury complaint (second amended) alleged that on September 10, 1981, plaintiff Phyllis Smith was driving her Ford vehicle when a Ford van driven by defendant Ramsey Sneed in the opposite direction lost its left rear wheel and tire.   The wheel and tire flew into the air and crashed into the windshield of Phyllis Smith's car.   Pieces of the shattered windshield struck plaintiff in her eyes and face, causing permanent blindness and loss of the sense of smell.

Plaintiffs' case against defendant (real party in interest) Ford Motor Company encompassed both the Ford vehicles involved in the accident.   With respect to the van, Ford was alleged to be liable for defects in the left rear wheel portion of the vehicle and for failing to adequately warn of the dangers of replacing the van's wheels with “deep dish mag wheels.”   With respect to plaintiff Phyllis Smith's Ford, Ford Motor Company was alleged to be liable for a defective windshield which shattered in such a way that the shards of glass were likely to cause injury.   Ford was sued for negligence, products liability, and breach of warranty.

Plaintiffs' case against Sears concerns Sears' servicing of the van three months before the accident.   Sneed had, at that time, requested Sears to check the van's brakes.   Sears was alleged to have either done a negligent inspection or to have negligently failed to inspect the brakes.   Sears was sued for negligence.

Plaintiffs' case against Abbott concerns Abbott's installation of assertedly inappropriate wheels on the van and its subsequent sale of the van to Sneed without adequate warnings eight months before the accident.   Abbott was sued for negligence and products liability.²

Plaintiffs' case against Sneed was based on the allegation that he negligently continued to drive his van after hearing sounds indicating there might be a problem with the wheels.   Petitioner Abbott Ford alleges that plaintiff Phyllis Smith has settled her claims against Ramsey Sneed for $25,000, the limits of his insurance coverage;  plaintiff Jay Smith, Phyllis' husband, has not settled with Sneed.   Sneed has filed a cross-complaint for indemnity against Abbott.

Attempts to settle this matter were undertaken by petitioner in March 1984, according to the petition for writ of mandate.   Petitioner alleges that real parties Ford Motor Company and Sears refused to contribute anything toward a total settlement.   Also, plaintiffs made a sliding scale settlement proposal to real parties Ford Motor Company and Sears, whereby either or both could settle the claims against them by guaranteeing plaintiffs $1.5 million.   Neither of the real parties accepted this offer.

Plaintiffs then entered into sliding scale agreements with petitioner's insurer, Security Insurance Company, in June 1984, with the consent of Petitioner.³  The agreements stated that plaintiffs entered into the settlement “to obtain assurance that grievous permanent injuries will be compensated” and “to mitigate the uncertainties of the litigation process and the debilitating emotional drain which this case inflicts upon [them].”  The insurer's motivation was identified in the agreements as its desire “to eliminate further expense and uncertainty accruing from the continued defense of the personal injury action.”   The agreements contemplated a guaranteed recovery of $2.9 million to plaintiff Phyllis Smith and of $100,000 to plaintiff Jay Smith.   Insurer Security undertook to pay the difference between the guaranteed amount and plaintiffs' actual recovery, either by settlement or judgment, from the nonsettling defendants at the end of the personal injury lawsuit.

The agreements also provided for periodic non-interest loans to plaintiffs and their counsel, repayable either from plaintiffs' and counsel's share of plaintiffs' recoveries or by offset from the sum otherwise payable by Security to plaintiffs and their counsel pursuant to the guarantees.   There was a provision in the agreements that all loans would be deemed cancelled and converted into payments, and any unpaid balance of plaintiffs' guarantees paid to plaintiffs by Security, in the event there was a final judicial determination that the agreements were either invalid or not in good faith within the meaning of Code of Civil Procedure sections 877, 877.6, subdivision (c) or 877.6, subdivision (d).

Petitioner further alleges that pursuant to the agreements, plaintiffs may only settle their claims against Ford and Sears, real parties in interest, with Security's consent.   Plaintiffs are also obligated under certain circumstances to make motions for new trials or to file appeals if plaintiffs do not recover at trial the amounts guaranteed by Security.

After these settlement agreements were signed by Security and plaintiffs, petitioner Abbott made a properly noticed motion in the trial court pursuant to Code of Civil Procedure section 877.6 to obtain from that court a determination that the settlement agreements had been entered into “in good faith.”   Real parties in interest Ford Motor Company and Sears opposed the motion.

On September 10, 1984, after hearing, the trial court denied Abbott's good faith motion.   The proceedings were not reported.   However, the trial court filed a minute order which stated that it “bases its decision on the fact that Abbott Ford has not paid any amount in settlement and that the guarantee agreement does not constitute settlement, but rather constitutes a gambling transaction.”   The proceedings in this court followed.

ISSUE PRESENTED

The basic question presented by this writ is whether settlement agreements of the sliding scale variety, where no unequivocal minimum payment is contemplated, and where the ultimate result may be that the settling joint tortfeasor pays nothing, are good faith settlements within the meaning of Code of Civil Procedure section 877.6.   As we shall explain, despite the current unsettled state of this area of law, we are not persuaded that the settlements we consider here were lacking in good faith.

DISCUSSION

 We note at the outset that it is well established that trial court determination concerning the good faith of settlements made pursuant to Code of Civil Procedure section 877.6 are appropriately challenged by writs for extraordinary relief such as this one.   Such a matter is, in fact, particularly amenable to pretrial review, given the legislative objectives in enacting the statute involved.  (American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 604, 146 Cal.Rptr. 182, 578 P.2d 899;  Burlington Northern R.R. Co. v. Superior Court (1982) 137 Cal.App.3d 942, 187 Cal.Rptr. 376;  see, also, Code of Civ.Proc., § 877.6, subd. (e), eff. Jan. 1, 1985.)

 We agree with real party in interest Ford Motor Company that the standard of review in this court as we assess the trial court's determinations herein has long been the abuse of discretion standard.  (Pease v. Beech Aircraft Corp. (1974) 38 Cal.App.3d 450, 474, 113 Cal.Rptr. 416.)

This court is mindful of the concerns and objectives of the Legislature in enacting the statutory law concerning pretrial settlements in multiparty personal injury litigation;  as was explained in Fisher v. Superior Court (1980) 103 Cal.App.3d 434, 447, 163 Cal.Rptr. 47, “ ‘[t]he relevant public policy considerations underlying multiparty tort litigation in decreasing order of priority are (1) the maximization of recovery to the injured party, (2) settlement of the injured party's claim, and (3) equitable apportionment of liability among concurrent tortfeasors․' ”

There is a considerable body of case law which has reviewed settlement of tort claims in terms of the “good faith” of such settlements.   Sliding scale settlements have not been viewed as settlements in bad faith, but rather have been upheld on numerous occasions by the Courts of Appeal.  (Dompeling v. Superior Court (1981) 117 Cal.App.3d 798, 173 Cal.Rptr. 38;  Cardio Systems, Inc. v. Superior Court (1981) 122 Cal.App.3d 880, 176 Cal.Rptr. 254;  Burlington Northern R.R. Co. v. Superior Court, supra, 137 Cal.App.3d 942, 187 Cal.Rptr. 376.)

The Burlington decision states the traditional view of good faith in the following terms:  “We cannot agree that good faith is absent whenever in sliding scale agreements equitable apportionment or final settlement of litigation are not achieved.  [Citations.]  Rather, the requirement of good faith is meant to insure that the settling parties do not tortiously injure the nonsettling parties.”  (Id., at pp. 945–946, 187 Cal.Rptr. 376;  emphasis original.)   This view has prevailed rather uniformly in assessment of the good faith of settlements which have been considered by reviewing courts.

However, in Fisher, supra, 103 Cal.App.3d at page 445, 163 Cal.Rptr. 47, it was recognized that there was an area of conflict in the objectives dictated by public policy:  “ ‘The goals of equitable sharing and settlement finality compete with each other.’ ”

In Torres v. Union Pacific R.R. Co. (1984) 157 Cal.App.3d 499, 203 Cal.Rptr. 825, the Court of Appeal referred to the conflict in California law concerning the priorities involved in assessing the good faith of a settlement among tort litigants.   It declared that the conflict was “brought to light when the only fault attributed to a settlement is that its price is disproportionate to the settling party's fair share of the damages.”  (Id., at p. 504, 203 Cal.Rptr. 825.)   The Torres court further stated that “Earlier and better-reasoned cases make clear that the Legislature did indeed strike a balance between the policy of fairness and the policy of promoting settlements;  the fulcrum of this balance is the requirement of good faith.   [Citations.]  The balance struck by this good faith requirement is in fact optimal.   As explained below, in most cases where the settlement involves no tortious conduct or motive, the policy of promoting settlements will be indulged;  any moderate disparity between a defendant's settlement price and his fair share of the damages will be tolerated, and the good faith requirement will cause the balance to tip in favor of the settlement.   In some cases, however, the disparity between what was paid and what is fair will be so egregious as to constitute bad faith per se;  in these cases the good faith clause will require that the balance be struck in favor of fairness․”  (Id., at p. 506, 203 Cal.Rptr. 825.)

Torres determined that “Section 877, then, requires that the settling codefendant look beyond the immediate prospect of a favorable deal with the plaintiff.   Rather, the codefendant must ‘make a good faith determination of the relative liabilities' in the case.  [Citation.]”  (Id., at p. 507, 203 Cal.Rptr. 825.)

 Of course, it is ultimately the function of the trial court and a reviewing court to assess the good faith of a settlement made by the party litigants, whatever their determinations of good faith may be—in terms of price or any other element.   There are certain practical considerations inherent in the Torres approach which may cause concern in already burdened trial courts.   As was said in Henderson v. Superior Court (1984) 162 Cal.App.3d 297, 299–300, 208 Cal.Rptr. 484, “it is pure speculation to place a ruling on a guess as to the ultimate liability of either the settling defendant or the amount of the nonsettling defendant's ultimate judgment, if any.”   We agree.

 The law in this area remains unsettled;  a recent case on the subject has been taken over by the California Supreme Court and may produce a definitive statement on the procedures to be employed in balancing the policy encouraging settlement and problems of equitable apportionment of damages among joint tortfeasors.   However, in our view the settlement agreements in the case at bench were not gambling contracts, as perceived by the trial court;  they were certainly not regarded as such by the injured plaintiffs, who obtained a guarantee of a $3 million recovery for their injuries, which were serious, permanent and contributed to by more than one of the defendants named in their complaint.   The fact that petitioner's insurer may ultimately not have to pay any damages or may pay a less than equitable share of the damages award is the type of speculation which does not lend itself to meaningful consideration and rulings by the courts.

Nothing in the record before us suggests collusion or the type of tortious behavior which renders these settlements agreements made in bad faith.   Real party in interest Ford Motor Company argues here, in addition to the potential disproportionality of the agreements, that they are tortious to Ford Motor Company as a nonsettling defendant (1) because they violate the “good faith and fair dealing” covenant inherent in Ford Motor Company's dealership agreement with Abbott Ford and (2) constitute a “violation” of some principles concerning settlements assertedly embraced by petitioner's insurer's parent company, acting in concert with other insurance companies.   These assertions of “tortious” misconduct by petitioner's insurer toward the nonsettling defendants do not have any direct bearing on the good faith aspect of the settlements as the doctrine has developed in present case law.

DISPOSITION

Let a writ issue, directing the trial court to vacate its order of September 10, 1984, denying petitioner's motion to have the settlements determined to be in good faith;  rather, the trial court is to enter an order stating that the settlements are good faith settlements within the meaning of Code of Civil Procedure section 877.6.

FOOTNOTES

1.   Code of Civil Procedure section 877.5 provides:“(a) Where an agreement or covenant is made which provides for a sliding scale recovery agreement between one or more, but not all, alleged defendant tortfeasors and the plaintiff or plaintiffs:“(1) The parties entering into any such agreement or covenant shall promptly inform the court in which the action is pending of the existence of the agreement or covenant and its terms and provisions;  and“(2) If the action is tried before a jury, and a defendant party to the agreement is a witness, the court shall, upon motion of a party, disclose to the jury the existence and content of the agreement or covenant, unless the court finds that such disclosure will create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury.“The jury disclosure herein required shall be no more than necessary to be sure that the jury understands (1) the essential nature of the agreement, but not including the amount paid, or any contingency, and (2) the possibility that the agreement may bias the testimony of the alleged tortfeasor or tortfeasors who entered into the agreement.“(b) As used in this section a ‘sliding scale recovery agreement’ means an agreement or covenant between a plaintiff or plaintiffs and one or more, but not all, alleged tortfeasor defendants, where the agreement limits the liability of the agreeing tortfeasor defendants to an amount which is dependent upon the amount of recovery which the plaintiff is able to recover from the nonagreeing defendant or defendants.   This includes, but is not limited to, agreements within the scope of Section 877, and agreements in the form of a loan from the agreeing tortfeasor defendant to the plaintiff or plaintiffs which is repayable in whole or in part from the recovery against the nonagreeing tortfeasor defendant.Code of Civil Procedure section 877.6 provides in pertinent part:“(a) Any party to an action wherein it is alleged that two or more parties are joint tortfeasors shall be entitled to a hearing on the issue of the good faith of a settlement entered into by the plaintiff or other claimant and one or more alleged tortfeasors, 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.“(b) The issue of the good faith of a settlement may be determined by the court on the basis of affidavits served with the notice of hearing, and any counter affidavits filed in response thereto, or the court may, in its discretion, receive other evidence at the hearing.“(c) A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor from any further claims against the settling tortfeasor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.“(d) The party asserting the lack of good faith shall have the burden of proof on that issue.”

2.   The Smiths' complaint also stated three causes of action against Abbott concerning Abbott's alleged loss of evidence critical to plaintiffs' case.   After a successful demurrer by Abbott to one of those causes of action, plaintiffs petitioned this court for relief by writ.   Division Three of this court held that the count stated a cause of action for intentional spoliation of evidence.  (Smith v. Superior Court (1984) 151 Cal.App.3d 491, 198 Cal.Rptr. 829.)   Thereafter, the evidence that supposedly was lost was found.

3.   When real parties in interest, Ford Motor Company and Sears, opposed the motion below, they insisted that the settlement agreements were not agreements at all within the pertinent statute, Code of Civil Procedure section 877.6, because Abbott Ford had not agreed to the agreements and had not executed them with the plaintiffs.   The trial court did not base its decision on this argument, according to its minute order.   Real party in interest Ford Motor Company repeats this assertion in its unverified return to the petition for writ of mandate in this court.   In response to the assertion, petitioner states that it is not correct, and has, by verified petition, insisted that the insurer, Security, has at all times acted with the consent of petitioner Abbott Ford.We are told, by way of explanation of this collateral dispute, that Abbott Ford's corporate counsel, attorney Spar, indicated in a letter of June 8, 1984 to Security's counsel (appearing herein for petitioner), attorney Bull, Jr., that a sliding scale agreement would be acceptable but that Abbott Ford was reluctant to execute the agreement with plaintiffs because of the possibility of some future sole (uninsured) liability on the part of Abbott Ford with respect to the agreements.   We decline to decide the matter before us with reference to any dispute that may have arisen over this litigation between Abbott Ford as a dealer, and its contractual partner, Ford Motor Company, on the basis of the record presented to us here.   Any such disagreement is, in our view, immaterial to the issues presented here, and would have to be resolved in another forum, at some later time, should it continue.

L. THAXTON HANSON, Associate Justice.

SPENCER, P.J., and DALSIMER, J., concur.