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 agreements were made “in good faith,” pursuant to Code of Civil Procedure section 877.6.¹  This court previously issued an alternative writ of mandate, heard oral argument of the parties and reviewed the written material submitted by them.   On March 28, 1985, we granted the writ and directed 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.”   The case was certified for publication.

On July 18, 1985, 215 Cal.Rptr. 854, 701 P.2d 1172, the California Supreme Court granted real party in interest Ford Motor Co. et al.'s petition for review and transferred the case to us “for consideration of whether and to what extent the principles enunciated in Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 213 Cal.Rptr. 256, 698 P.2d 159 may be applicable to an agreement of this type.”   On August 23, 1985, we requested both petitioner and real parties in interest to submit letter-type briefs and prepare for additional oral argument in the case at bench.

We again grant petitioner's writ, and remand to the trial court with directions.

BACKGROUND OF THIS DISPUTE

Petitioner Abbott Ford alleged in its initial petition to this court that it was 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 was 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.

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 through the air, crashing the windshield of Phyllis Smith's car.   A large piece of the shattered windshield struck plaintiff in the face.   The damage to plaintiff, aged 39, an employed wife and mother, can only be described as egregious.   She has permanently lost her sight in both eyes.   She has a partial loss of her sense of smell.   She has required plastic surgery in an attempt to restore her facial structure and minimize the disfigurement caused by the accident.   In addition, plaintiff has suffered emotional distress and the disruption of her marital relationship.

Plaintiffs' case against defendant Ford Motor Company (real party in interest) encompassed both 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 adquately warn of the dangers of replacing the van's wheels with “deep dish mag wheels.”   With respect to plaintiff Phyllis Smith's Ford, Ford 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 defendant Abbott, petitioner herein, concerned Abbott's installation of 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 defendant Sears (real party in interest) concerned Sears' servicing of the van three months before the accident.   Defendant driver 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 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 has alleged that plaintiff Phyllis Smith has settled her claim 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.

Plaintiff Jay Smith, Phyllis' husband, sued for loss of consortium.

Attempts to settle this matter were undertaken by petitioner in March 1984, according to the petition.   The record discloses that at a meeting between representatives of petitioner and real parties in interest, petitioner expressed the opinion that the total estimated settlement value of the case was $2.5 million;  that the coverage limits on petitioner's insurance policy with Security was $3,250,000;  and that petitioner was willing to shoulder 70 percent of the proposed recovery, i.e., $1.75 million.   It was suggested that real parties in interest make up the difference.   They declined.   Plaintiffs made a sliding scale proposal to real parties, asking for a guarantee of $1.5 million.   Neither of the real parties accepted this offer.

Plaintiffs then entered into the agreements which are the subject of this litigation.   It is stated that plaintiffs entered into the agreements “to obtain assurance that grievous personal 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 petitioner's motivation was identified in the agreements as the desire “to eliminate further expense and uncertainty accruing from the continued defense of the personal injury action.”   The agreements provided for a guaranteed recovery of $2.9 million to plaintiff Phyllis Smith and of $100,000 to plaintiff Jay Smith.   Petitioner's insurer, Security, undertook to pay the difference between the guaranteed amount and plaintiffs' actual recovery, either by settlement or judgment, from the non-settling defendants at the end of the personal injury lawsuit.

The agreements also provided for periodic noninterest 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 guarantee provisions.   Specifically, the loan provisions provide as follows:

“On or before 1 July 1984, on 2 January 1985, and on each successive anniversary of 2 January 1985 until final judgment or settlement of all claims in the personal injury action, unless otherwise instructed in writing by Phyllis Smith's counsel, Security will make unsecured loans, without interest, as follows:  To Phyllis Smith, ONE HUNDRED THOUSAND and NO/100 DOLLARS ($100,000.00);  ․”

In addition, there is provision for substantially more payment to plaintiff by 1 July 1987, in the event that this litigation has not settled.   The agreements also provided that in the event that 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), the agreements provided that plaintiffs would immediately be entitled to receive the $3 million from Security, less any loans that had been made prior to that time to plaintiffs and their counsel.

Also, pursuant to the agreements, plaintiffs cannot settle with real parties in interest, the nonsettling tort-feasors, for an amount less than $3 million without Security's consent.   Plaintiffs are also obligated to make motions for new trials or to file appeals under certain circumstances during the litigation with the nonsettling defendants, real parties in interest.

Petitioner Abbott Ford, after these agreements had been executed, made a 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 opposed the motion.   On September 10, 1984, the trial court denied Abbott's good faith motion.   The proceedings were not reported.   The trial court filed a minute order which stated that the denial was based “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.”

We have set forth the proceedings which followed.   The matter of petitioner's writ is again before us for disposition.

ISSUES PRESENTED IN THIS PROCEEDING

The issues are of necessity determined largely in this case by the direction of our Supreme Court when it transferred the matter here for reconsideration.   First, we review the principles enunciated in Tech-Bilt, and conclude they are not limited to straight settlement agreements, but encompass sliding scale recovery agreements as well.   Secondly, we discuss the application of Tech-Bilt principles to the case before us, with the resulting determination that the sliding scale recovery agreements with which we are concerned do not violate those principles.   Finally, we address the question of law presented in making an appropriate disposition of petitioner's request for extraordinary relief.

I.

As was explained in Fisher v. Superior Court (1980) 103 Cal.App.3d 434, 447, 163 Cal.Rptr. 47, “ ‘The 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. ․ ’ ”  While there may be some modification in the “order” of importance of these three factors, they are still the overriding elements to be considered in situations where a plaintiff has a claim against multiple defendant tortfeasors, and settles with one but not all of them.

Tech-Bilt more specifically addresses the conflict which may arise between the second and third prongs of the extant public policy considerations.   It points out in its preliminary discussion that at common law there was no provision for apportionment of liability among joint tortfeasors on the premise that each would have to attend to his (or her) interests and protect them as well as possible.   Recognizing the harsh consequences of this doctrine, our Legislature enacted the 1957 provisions concerning contribution among joint tortfeasors.   In 1980, our Legislature enacted Code of Civil Procedure section 877.6, which essentially provided a system of judicial review of settlements between plaintiffs and joint tortfeasors where plaintiffs' action involved other parties not settling.   The focus of judicial review was to be the “good faith” of the settlement made.   If “good faith” was found, the settlement protected the settling defendant from claims of contribution by nonsettling defendants.

What was principally addressed in Tech-Bilt was the standard to be employed by the trial courts in conducting “good faith” review.   Two incompatible approaches had been adopted by the Courts of Appeal in their decisional law on the subject.   The “laissez-faire” approach dictated that in the absence of tortious misconduct during the settlement proceedings and agreement, the “good faith” nature of the settlement was presumed.   Indeed, Code of Civil Procedure section 877.6, subdivision (d) declares that “[t]he party asserting the lack of good faith shall have the burden of proof on that issue.”

The other point of view was that the critical inquiry should extend beyond an absence of wrongdoing into assessment of the actual fairness of apportionment, bearing in mind the other competing factors of maximum recovery to the plaintiff and encouragement of settlement of disputes.

Tech-Bilt holds that there should be extension of the critical inquiry into fair apportionment;  that “good faith” as intended by the Legislature encompasses a broader range of considerations than the absence of palpable wrongdoing.   Neither adherence to the policy favoring settlement nor equitable apportionment may operate to exclude the other.  (Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159.)   In our view, the crucial direction of Tech-Bilt is that portion of the opinion which states that “the intent and policies underlying section 877.6 require that a number of factors be taken into account 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].”  (Ibid.)

Tech-Bilt, itself, of course, concerned a settlement rather than a sliding scale recovery agreement.   In essence, Tech-Bilt involved a situation where the plaintiff and codefendant Woodward-Clyde settled a nonexistent claim for almost nothing;  the objective of this “settlement” was obviously to injure Tech-Bilt, the codefendant who had not settled, by creating the bar of a “good faith” settlement to prevent Tech-Bilt from pursuing still viable indemnity against the settlor, Woodward-Clyde.   The California Supreme Court held, as a matter of law, that such a settlement lacked “good faith.”

 In the case at bench, real parties in interest argue that the sliding scale recovery agreements in question here are not settlements and thus do not come within the purview of “good faith” requirements at all.   If the finality of an agreement is the key to resolving the semantic argument, even finality, in terms of particular agreements, is a relative term.   While real parties obtain some conceptual support from the recent holding in Riverside Steel Construction Company v. William H. Simpson Construction Company (1985) 181 Cal.App.3d 411, 227 Cal.Rptr. 424 that Court of Appeal panel concluded, as we do, that sliding scale recovery agreements must be entered into in good faith.  (P. 427 fn. 7, 227 Cal.Rptr. 424.)   The same considerations apply to sliding scale agreements as to settlements involving joint tortfeasors generally, and the Tech-Bilt analysis is equally feasible when so applied.   (We understand that litigation involving sliding scale recovery agreements is currently being reviewed by the California Supreme Court.   It may be that there are additional relevant factors that will be enunciated with respect to the “good faith” of such agreements).   We hold, however, that at this point in time, we are compelled to follow the Tech-Bilt choice of an expanded definition of “good faith;”  that it is equally applicable to sliding scale recovery agreements described in Code of Civil Procedure section 877.5, and that Tech-Bilt principles have practical application to the agreements under review here.

II.

 As Tech-Bilt makes clear, “a rough approximation of plaintiffs' total recovery” is a proper subject of inquiry in the trial court.  (Tech-Bilt v. Woodward-Clyde & Associates, supra, 38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159;  emphasis added.)   In the instant case, the record below included a survey of verdicts in personal injury litigation in this country where a plaintiff had lost the sight of both eyes.   The range was from approximately $2 million to a ceiling figure of $7.5 million, with most of the verdicts in the $2 million range.   Real parties in interest have conceded that the $3 million guarantee of Security would be a fair settlement of plaintiffs' claims, when converted from negotiated settlement to cash.

Although the trial court characterized the agreements as a gambling transaction, from the plaintiffs' points of view, it most assuredly was not.   The agreements remove uncertainty from the litigation for plaintiffs who have already sustained traumatic injury in the first instance and then were confronted by the harsh realities of maintaining life in a handicapped state while pursuing the tortfeasors through what might be an obstacle course of litigation.   As has often been observed, justice delayed may be justice denied.   Sliding scale recovery agreements have been attacked in some quarters, but they have evolved at least in part to equalize the bargaining power, the negotiating stance, of innocent claimants.   References to such agreements as maintaining or promoting litigation may have substance in the limited sense that one practical effect is to ensure the survival of the injured plaintiff while negotiating for a fair settlement of the claim or a jury verdict that affords “maximum recovery.”   The benefits to plaintiffs cannot be ignored;  their adequate compensation is also a primary public policy consideration.   The case at bench illustrates the point.   Plaintiff Phyllis Smith has been severely injured through no fault of her own.   The agreements properly reflect concern for her well-being while the apportionment dispute is resolved.

The major dispute herein is over apportionment.   It was made clear in Tech-Bilt (and Riverside Steel is in accord) that ultimate disproportionate allocation in and of itself was not necessarily a mark of bad faith.   Riverside involved a sliding scale recovery agreement, albeit one without some of the special features of the settlement agreements before us.   Riverside held that the fact that the settlor might ultimately pay nothing did not do violence to equitable allocation principles under the circumstances of that case.  Riverside, too, points to the dilemma created for a potential settlor when his codefendant tortfeasors decide to wait it out, and offer nothing by way of settlement, not to mention the hardship that might be imposed upon an injured plaintiff by such recalcitrance.

Again, the case before us illustrates the point.   Real parties would not settle.   Petitioner concededly faced great exposure in terms of a jury verdict.   Recognizing that fact, it made a proposal which contemplated that it would pay a large share of the recovery.   Real parties were still not interested.   It is important to understand that it is against this background that these agreements with plaintiffs were negotiated on petitioner's behalf.   Tech-Bilt referred to Commercial U. Ins. Co. v. Ford Motor Co. (9th Cir.1981) 640 F.2d 210, 213, cert. den., 454 U.S. 858, 102 S.Ct. 310, 70 L.Ed.2d 154, where the federal appeals court observed, among other things, that “[i]n determining whether the policy of settlement has been furthered, we look to the conduct of the parties.”

The so-called “gambling” aspects of the settlements at bench were confirmed to the trial court's satisfaction because Security was, at that point in time, only obligated to pay a “loan” to plaintiff Phyllis Smith of $100,000, pursuant to the agreements.   The structuring of loans and periodic payments provided for in the agreement have been set forth infra;  it appears plaintiffs have already received some payment, according to the time frame of the agreement.   The benefit to plaintiff is obvious;  plaintiffs have not gambled;  they have secured an agreement that they will not only receive $3 million, but will be able to maintain themselves while the matter is being resolved;  in addition, they are not subject to divestiture by miscalculations on the part of their counsel as to the outcome of litigation concerning the agreements;  it was agreed, in advance, that if the agreements fail judicial scrutiny, plaintiffs would be paid.   Considering the unsettled state of the law in this area at the time, if petitioner gambled, it was understandable.

Real parties in interest urge us to affirm the trial court and secure immediate payment of a straight settlement to plaintiffs which can then be deducted by real parties from any overage achieved by plaintiffs at trial against real parties in interest.   Such a result would come close to realizing the goal of real parties of seeking maximum advantage by refusing to settle for any amount while the settlor, facing potentially the greatest liability, was left to resolve its situation as best it could.

Multiparty litigation is often complex.   Estimates of recovery and equitable apportionment are often speculative.   These settlement agreements, however, reflect as careful consideration of petitioner's practical position at the time they were executed as could be achieved.   They are noteworthy also in the extent to which they also serve the interests of the plaintiffs.   It does not appear, as it did in Tech-Bilt, that the overriding purpose of the agreements was to injure the nonsettling defendants.   Unless a potentially totally favorable result, i.e., a large jury verdict against real parties, or the continued control by Security over, and interest in, the settlement and litigation process as it affects the nonsettling defendant tortfeasors, is demonstrated lack of “good faith” per se, we perceive no lack of “good faith” in the agreements made.   Taking into account all the circumstances, we find no violation of Tech-Bilt principles in upholding the settlements in the case at bench.

III.

We turn next to the appropriate disposition of this matter.  Tech-Bilt states, in a concluding paragraph, that “[o]rdinarily, a determination as to whether a settlement is in good faith must be left to the discretion of the trial court.   In this case, however, the exercise of discretion on the basis of the criteria we have identified as appropriate could yield but one conclusion:  this was not a settlement in good faith within the meaning of section 877.6”  (Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d at p. 502, 213 Cal.Rptr. 256, 698 P.2d 159.)

Both Tech-Bilt and Riverside recognize that establishing the criteria for “good faith” settlements is factual in nature, suggesting that the trial court is the appropriate place to conduct fact-finding and make suitable determinations of “good faith” or lack thereof.   We have been strongly urged by real parties to uphold the trial court's minute order dispensing with these complex and interesting agreements as merely a “gamble,” as a proper exercise of judicial discretion.

We decline to uphold the determination made as a proper exercise of discretion.   The real question presented is whether it is necessary and appropriate to follow the direction of Tech-Bilt to leave such determinations to the trial courts and remand for further inquiry and possibly the making of a live testimonial record concerning the efficacy of these settlement agreements.   Our review of the record persuades us that additional fact-finding will not shed more light on a situation where the basic facts and figures are not in controversy between the parties.   The question of the “good faith” nature of these agreements appears to us, at this point in time, to require resolution of a legal rather than a factual issue.

We have concluded, in light of the whole record, that the trial court abused its discretion in determining that these sliding scale recover agreements were not made in “good faith.”

DISPOSITION

Let a writ issue, directing the trial court to vacate its judgment denying petitioner relief and to enter a judgment granting petitioner's motion.

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.

L. THAXTON HANSON, Associate Justice.

SPENCER, P.J., and LUCAS, J., concur.