FAR WEST FINANCIAL CORPORATION v. COMPANY INC (1987)

Cross-complainants and appellants Far West Financial Corporation and Far West Savings & Loan Association (Far West) appeal the dismissal of their cross-complaint following a finding of a good faith settlement (Code Civ.Proc., § 877.6) ¹ among the plaintiff in the underlying action and cross-defendants and respondents D & S Company, Inc. (D & S), Pacific Roofing Company, Del Rey Electronics, Builders Sheet Metal, Inc., Taylor and Storvis Concrete, Inc., Albert & Clark Construction, Ken Harges Plastering Company, Dave's Perma Roofing Corporation, Darrow Heating & Air Conditioning, Corp., and W.J. Mihich Company, Inc. (collectively, respondents).²

Despite Far West's contention that its liability, if any, is solely vicarious, Far West's cross-complaint for total indemnity is barred by the finding of a good faith settlement.   The order/judgment is affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

On October 21, 1980, the Studio Village Homeowners Association (HOA), filed a third amended complaint to recover damages for alleged construction defects.   Named as defendants were Far West, D & S, various architectural, engineering and surveying firms, and Does 1 through 130.

The complaint alleged, inter alia, Far West was the owner, developer and seller of the Studio Village Townhouse Development, and D & S was the builder of said project.   Causes of action were plead for fraudulent concealment, negligent and intentional misrepresentation, strict liability in tort, breach of express and implied warranty, negligence, cancellation of instrument, and fraud and deceit.

The gravamen of the action was that the HOA sought to set aside a 1976 settlement agreement and release entered into with these defendants due to defendants' failure before settlement to disclose fully all relevant facts, and because of the HOA's discovery in 1979 of several latent defective conditions.

On March 17, 1983, Far West filed a first amended cross-complaint for indemnification and declaratory relief.   It sought complete indemnification or partial contribution from respondents in the event Far West were held vicariously liable at trial to the HOA in any sum.

In early 1984, Far West and the HOA entered into an agreement whereby Far West would pay the HOA $315,000 to settle all claims.   Far West brought a motion pursuant to section 877.6, and on March 27, 1984, the trial court entered its order finding the settlement to have been made in good faith.

In August 1984, a settlement was agreed to between the HOA and respondents in the amount of $450,000.   The settlement was made subject to a judicial determination of good faith and dismissal of all cross-complaints against the settling parties.   While Far West did not contest the good faith of the proposed settlement, it did oppose the dismissal of its cross-complaint, which it contended was not barred by such a settlement.

Concurrently with its opposition to the dismissal of its indemnity claims, on September 14, 1984, Far West moved for leave to file a second amended cross-complaint to add causes of action for implied contractual indemnity and express indemnity.

On September 21, 1984, the trial court granted respondents' motion for an order finding their settlement in good faith and dismissing all cross-complaints.

On September 27, 1984, respondents filed opposition to Far West's pending motion for leave to file a second amended cross-complaint on the ground, inter alia, that Far West's cross-complaint had already been dismissed.   Far West's motion was denied on October 5, 1984.   On October 15, 1984, the trial court entered its order finding the settlement between the HOA and respondents in good faith within the meaning of section 877.6, and dismissing all cross-complaints against the settling parties.

Far West now appeals.

CONTENTIONS

Far West contends:  (1) it is not a joint tortfeasor within the meaning of section 877.6;  (2) a cause of action for total equitable indemnity is not barred by section 877.6;  and (3) the trial court abused its discretion in denying leave to file a second amended cross-complaint.

DISCUSSION

The issue before us is a narrow one, namely, whether a defendant whose liability is vicarious only may pursue a claim for total indemnity after its co-defendants have entered into a good faith settlement with the injured party.   For the reasons stated below, we conclude in the negative.³

 1. Far West is a joint tortfeasor for the purposes of section 877.6.

Section 877.6 provides in pertinent part:  “(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.”  (Italics added.)

Far West urges its roles herein were as a financial institution and real estate developer, and it took no affirmative steps to contribute to the HOA's harm.   Contending its liability arises purely by operation of law as a result of its status as lender and developer, Far West argues it is neither a joint, concurrent, nor successive tortfeasor.⁴  Accordingly, because its liability is wholly vicarious, Far West maintains section 877.6 does not bar its cross-complaint against respondents for total indemnity.

Historically, the term “joint tortfeasors” applied only to those acting in concert in causing an injury.  (Turcon Construction, Inc. v. Norton-Villiers, Ltd. (1983) 139 Cal.App.3d 280, 282, 188 Cal.Rptr. 580.)

However, the scope of the term has been expanded.  Standard Pacific of San Diego v. A.A. Baxter Corp. (1986) 176 Cal.App.3d 577, 591–592, 222 Cal.Rptr. 106, construed section 877.6 and determined “reason and logic compel the conclusion that equitably interpreted the statute's broad language includes such parties whose legal responsibilities are derivative or vicarious in nature.”

As our Supreme Court explained in Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499, 213 Cal.Rptr. 256, 698 P.2d 159, section 877.6 is designed to further two equitable policies:  (1) encouragement of settlements and (2) equitable allocation of costs among joint tortfeasors.   The Tech-Bilt court cautioned “[t]hose policies would be disserved by an approach which emphasizes one to the virtual exclusion of the other.”  (Ibid.)

In enacting section 877.6, the Legislature must have intended to include as joint tortfeasors all tortfeasors claimed to be liable for the same tort.   A contrary interpretation, namely, that a vicariously liable defendant is not a joint tortfeasor would frustrate “the legislative policy of encouraging settlements.   It would effectively preclude settlements by primarily liable defendants where vicarious liability of a defendant was involved.”   (Standard Pacific of San Diego v. A.A. Baxter Corp., supra, 176 Cal.App.3d at p. 588, 222 Cal.Rptr. 106;  see also Turcon Construction, Inc. v. Norton-Villiers, Ltd., supra, 139 Cal.App.3d at pp. 282–283, 188 Cal.Rptr. 580.)

Further, notwithstanding Far West's argument asserting the injustice of barring a vicariously liable defendant's cross-complaint for total equitable indemnity, “[u]nder Tech-Bilt the settlement will not be found in good faith unless the amount is reasonable in light of the settling tortfeasor's proportionate share of liability.   This procedure requires accounting for the comparative lack of fault of a vicariously liable defendant who may have a right of total indemnification against the settlor absent any settlement.” ⁵  (Standard Pacific of San Diego v. A.A. Baxter Corp., supra, 176 Cal.App.3d at p. 589, 222 Cal.Rptr. 106, italics added.)

Consequently, including vicariously liable defendants as joint tortfeasors within the meaning of section 877.6 reasonably accomplishes the twin goals of section 877.6, and works no unfairness on such defendants.

We hold Far West is a joint tortfeasor within the meaning of the statute.

2. A claim for total equitable indemnity does not survive a good faith settlement.

 Taking a different tack, Far West argues section 877.6, subdivision (c), by its terms, does not preclude claims for total indemnity.   As set forth above, the statute refers to “equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.”   (§ 877.6, subd. (c).)

Ample authority exists for Far West's position.  Huizar v. Abex Corp. (1984) 156 Cal.App.3d 534, 541, 203 Cal.Rptr. 47, held that if the distributor of an allegedly defective product could prove its liability was wholly vicarious, it could obtain total indemnity from the manufacturer despite the manufacturer's good faith settlement with the plaintiff under section 877.6.

Similarly, Angelus Associates Corp. v. Neonex Leisure Products, Inc. (1985) 167 Cal.App.3d 532, 542, 213 Cal.Rptr. 403, found total equitable indemnity survives “in those situations where the indemnitee's liability is vicarious or derivative and he is entitled to total, not partial, indemnity.”

It appears such protection for defendants whose liability is merely derivative grew out of the perceived injustice of saddling an innocent party with liability.   The Angelus court suggested its holding would deter “only those settlements by defendants who are clearly at fault and attempt to buy peace too cheaply at the expense of codefendants who are merely vicariously liable.”   (Ibid.)  Similarly, Huizar reasoned “absent statutory authority to the contrary, justice demands total indemnity where the liability of a completely blameless party is premised solely upon the tortious act or omission of another.”  (Huizar v. Abex Corp., supra, 156 Cal.App.3d at p. 542, 203 Cal.Rptr. 407.)

However, these appellate court rulings preceded the Supreme Court's pronouncements in Tech-Bilt.   Following Tech-Bilt, Standard Pacific of San Diego v. A.A. Baxter Corp., supra, 176 Cal.App.3d at page 589, 222 Cal.Rptr. 106, observed that a settlement which fails to account for the comparative lack of fault of a vicariously liable defendant who may have a right of total indemnity will no longer be found in good faith.   Consequently, after Tech-Bilt, with its broad definition of good faith, vicariously liable defendants are afforded sufficient safeguards.⁶

We find persuasive Standard Pacific of San Diego's rejection of the quantum distinction between total and partial indemnity.  “Total indemnification is nothing more than equitable allocation of all of the loss to another party.   Thus a distinction based on ‘comparative negligence’ or ‘comparative fault’ is artificial.  [¶]․  [¶] ․ Comparative equitable indemnity includes the entire range of possible apportionments, from no right to any indemnity to a right of complete indemnity.   Total indemnification is just one end of the spectrum of comparative equitable indemnification.”  (Standard Pacific of San Diego v. A.A. Baxter Corp., supra, at pp. 587–588, 222 Cal.Rptr. 106.)

After Tech-Bilt, the rationale for permitting claims for total equitable indemnity to survive a good faith settlement no longer applies.   We hold Far West's cross-complaint against respondents is barred by the statute.⁷

3. Trial court acted within its discretion in denying Far West leave to file a second amended cross-complaint.

 In addition to total equitable indemnity, Far West contends a claim for implied contractual indemnity is not barred by a good faith settlement.   However, we need not reach this issue because Far West's first amended cross-complaint, the operative pleading before the trial court, did not allege such a claim.   Far West's motion for leave to file an amended pleading conceded its first amended cross-complaint did not state a claim for implied contractual indemnity, as the motion sought leave to add that cause of action.

Accordingly, our inquiry is limited to whether the trial court abused its discretion in denying Far West leave to amend.

Briefly reviewing the relevant facts, the original complaint in the underlying action was filed on December 13, 1979.   Far West's first appearance was by way of demurrer filed March 10, 1980.   Far West filed its answer to the HOA's third amended complaint on December 22, 1980, and its first amended cross-complaint on March 21, 1983.   On September 14, 1984, Far West moved for leave to file a second amended cross-complaint.   Trial of the action was set for November 26, 1984, with the five-year mark rapidly approaching.

While the granting or denial of leave to amend a pleading is within the discretion of the trial court, a long unexcused delay may provide the basis for denying permission to amend, particularly where the proposed amendment interjects a new issue which may require further discovery.  (Rainer v. Community Memorial Hospital (1971) 18 Cal.App.3d 240, 257–258, 95 Cal.Rptr. 901.)

Far West had been a party to the action over four and one-half years before it raised its potential entitlement to indemnity based on the contractual relationship.   The papers in support of the motion to amend did not state any reason for the delay.   The opposition papers urged, inter alia, that in reliance on the pleadings, no discovery had been conducted on any party's right to indemnity based on a contractual theory.

The trial court properly denied Far West's eleventh hour motion to amend.

CONCLUSION

A party whose liability is solely derivative is a joint tortfeasor for the purposes of section 877.6.   A claim for total equitable indemnity does not survive a good faith settlement.  Tech-Bilt affords reasonable protection to a vicariously liable defendant by requiring the comparative lack of fault of such a defendant to be taken into consideration.

DISPOSITION

The order/judgment is affirmed.   Each party to bear respective costs on appeal.

FOOTNOTES

1.   All subsequent code section references are to the Code of Civil Procedure, unless otherwise indicated.

2.   Orders of dismissal have the effect of final judgments in terminating an action and are appealable as final judgments.  (§ 581d;  9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, § 75, p. 99.)

3.   “In general, ‘[i]ndemnity may be defined as the obligation resting on one party to make good a loss or damage another party has incurred.  [Citation.]  This obligation may be expressly provided for by contract [citation], it may be implied from a contract not specifically mentioning indemnity [citation], or it may arise from the equities of particular circumstances [citations].’  (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628 [119 Cal.Rptr. 449, 532 P.2d 97].)”  (Bear Creek Planning Com. v. Title Ins. & Trust Co. (1985) 164 Cal.App.3d 1227, 1236, 211 Cal.Rptr. 172.)

4.   In view of the allegations in the HOA's third amended complaint, Far West's liability in this matter may have been more than merely vicarious.   Nevertheless, for purposes of this discussion, we assume Far West's liability to the HOA arises solely because of its status as a matter of law.

5.   To guide trial courts, our Supreme Court in Tech-Bilt set forth various factors relevant to determining whether a settlement was made in good faith under section 877.6, including:  “a rough approximation of plaintiffs' total recovery and the settlor's proportionate liability, the amount paid in settlement, the allocation of settlement proceeds among plaintiffs, and a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial.   Other relevant considerations include the financial conditions and insurance policy limits of settling defendants, as well as the existence of collusion, fraud, or tortious conduct aimed to injure the interests of nonsettling defendants.   [Citation.]  Finally, practical considerations obviously require that the evaluation be made on the basis of information available at the time of settlement.  ‘[A] defendant's settlement figure must not be grossly disproportionate to what a reasonable person, at the time of the settlement, would estimate the settling defendant's liability to be.’   (Torres v. Union Pacific R.R. Co. (1984) 157 Cal.App.3d 499, 509 [203 Cal.Rptr. 825]․)”  (Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159.)

6.   The law in this area is, to say the least, unsettled.  IRM Corp. v. Carlson (1986) 179 Cal.App.3d 94, 108–109, 224 Cal.Rptr. 438, and Standard Pacific of San Diego v. A.A. Baxter Corp., supra, 176 Cal.App.3d at pages 587–588, 222 Cal.Rptr. 106, held total equitable indemnity was subsumed within and replaced by comparative indemnity.   Diametrically opposed are Huizar and Angelus Associates which allow claims for total indemnity in favor of a vicariously liable tortfeasor.   All the foregoing cases remain published, none has been disapproved, and our Supreme Court has yet to resolve this conflict.

7.   Far West calls attention to the fact that it settled with the HOA in 1984, before Tech-Bilt clarified the standards for good faith settlements.Apparently, Far West entered into the sizeable settlement with the HOA to avoid being held liable at trial for a disproportionate share of the damages.   Presumably, Far West did so with the expectation of being later indemnified.   Far West's real complaint therefore is not that good faith standards have changed, but rather, that the indemnification right of vicariously liable defendants has shifted.As noted, appellate courts are divided on the issue, which remains unsettled in California.   Far West argues it could not have been prescient as to the development of the law in this area.   However, Lopez v. Blecher (1983) 143 Cal.App.3d 736, 192 Cal.Rptr. 190, was on the books one year prior to Far West's settlement with the HOA.  Lopez held the owner of a vehicle, whose liability was solely vicarious, does not retain the right to partial or comparative indemnity against a joint tortfeasor who has entered into a good faith settlement with an injured plaintiff.   (Id., at pp. 740–741, 192 Cal.Rptr. 190.)   We recognize the result in this instant case may appear harsh as to Far West.   However, in light of Lopez, it was not entirely unforeseeable.

KLEIN, Presiding Justice.

LUI and ARABIAN, JJ., concur.