SECURITY UNION TITLE INSURANCE COMPANY v. McKAIG (1991)

The courts try to provide a semblance of certainty in an otherwise uncertain world.   Perhaps that is why judges are reputed to feel uncomfortable about taking educated guesses;  they should not.   In fact, they are required to take educated guesses—at least when deciding whether a settlement is made in good faith.  Tech–Bilt, Inc. v. Woodward–Clyde & Associates (1985) 38 Cal.3d 488, 499–500, 213 Cal.Rptr. 256, 698 P.2d 159, tells us that good faith settlements that are in the “ballpark” are valid.  “Ballpark” is the ideal metaphor that gives us a standard, instantly recognizable.   Its relation to baseball is particularly appropriate because that quintessential American sport is based on skill, fairness, reason and pragmatism.   These are all qualities that trial judges use in making an educated guess as to whether a settlement is made in good faith.   The practice is both appropriate and necessary.

While the present matter was under submission on a motion to approve a good faith settlement, the trial judge no doubt pondered the criteria set forth in Tech–Bilt, Inc. v. Woodward–Clyde & Associates, supra, 38 Cal.3d 488, 213 Cal.Rptr. 256, 698 P.2d 159, but did not articulate reasons for denying the motion.   Without the benefit of his reasoning, we find the factors that favor a good faith settlement to be persuasive.   We therefore will grant a peremptory writ of mandate to compel the superior court to vacate its order denying a good faith settlement and to issue a new order approving the settlement.

FACTS

Mr. and Ms. Eric Bruckner owned a home in Santa Barbara.   Eric Bruckner, real party, was sued by the American International Bank (Bank) for the nonpayment of a personal loan.   He did not pay it.   On February 28, 1983, Bank attached the house.

On July 1, 1983, as part of a marital dissolution settlement, Ms. Bruckner conveyed her interest in the home to Eric Bruckner in exchange for $400,000 to be paid over a period of time.   This conveyance was secured by a second deed of trust.

On September 28, 1983, Bank obtained a judgment against Eric Bruckner in the amount of $105,093.77 and recorded an abstract of judgment.

On June 8, 1984, the first mortgagee, Santa Barbara Bank & Trust, recorded a notice of default.   Security Union Title Company acted as the trustee in foreclosure.

In August of 1987, real party George McKaig, an attorney, allegedly acting as a trustee for an undisclosed party, purchased Bank's judgment against Eric Bruckner for the sum of $55,000.   Whom could this mysterious, undisclosed party be?   We were as astonished as you, dear reader—it was Eric Bruckner.

In an audacious scheme, Bruckner obtained loans secured by the very judgment the Bank had against him.   These loans totaled almost twice the amount of Bank's original judgment, and offered rates of interest ranging from 25 percent to a reputed 100 percent.   High hopes for high interest rates are like bubbles.   For all too brief a time they sparkle and soar.   The end is inevitable and abrupt.¹

The first victim was the Dorothy Graham Trust, which loaned him $25,000 secured by what turned out to be the judgment.   On November 12, 1987, Eric Bruckner again turned adversity into benefit by using the judgment as collateral for a loan from Messrs. Karzag and McGinnis.

In February of 1988, Eric Bruckner once again used the judgment as collateral for a $97,500 loan from Sheila Fifer.   In August of 1988, Chester Harrod purchased an assignment of Ms. Fifer's interest.   It does not appear that any of these lenders took steps to investigate the nature of the security offered for their loans.

On May 6, 1988, Ms. Bruckner sold the second deed of trust to Thomas and Toni Schultheis.

On September 30, 1988, the holder of the first deed of trust held a foreclosure sale.   The Schultheises, in an effort to rescue their investment, purchased the property at the foreclosure sale for the sum of $1,445,936.   Security Union treated McKaig's interest as being junior to the Schultheises' second deed of trust and refused to pay his demand.   The foreclosure officer agreed to pay the sum of $275,475.52 in excess proceeds to the Schultheises.

On September 28, 1989, the Graham Trust filed suit against Security Union, Bruckner, the Schultheises, and McKaig for wrongful sale of real property, negligence, and for the imposition of a resulting trust.   On that same date, the Harrod Group (composed of the other group of individuals who had their loans secured by the judgment lien) filed suit against Security Union, Schultheis, and McKaig for negligence and for the imposition of a constructive trust.

Security filed an answer and cross-complaint.   McKaig filed a cross-complaint against Security and the Schultheises for declaratory relief and for the imposition of a resulting trust.   In his fourth cause of action, McKaig claims that he is entitled to be indemnified for any liability that might result from his own professional negligence.

After some discovery, the parties, with the exception of McKaig and Bruckner, entered into settlement negotiations.   They agreed that the two lawsuits against Security Union and Schultheis would be dismissed.   In exchange, the settling defendants would pay Graham Trust and Harrod the sum of $17,500 (representing litigation costs).

On August 3, 1990, Security Union and Schultheis moved for an order determining good faith settlement.  (Code Civ.Proc., § 877.6.) ² Security Union and Schultheis contended that Bruckner's purchase of Bank's judgment effectively extinguished the judgment lien.   In particular, they argued that Bruckner's acquisition of Bank's judgment interest merged into his ownership interest, thereby extinguishing Bank's lien;  and the lien could not be revived by the subsequent assignments.  (See Ralph C. Sutro Co. v. Paramount Plastering, Inc. (1963) 216 Cal.App.2d 433, 31 Cal.Rptr. 174;  O'Meara v. DeLamater (1942) 52 Cal.App.2d 665, 668–669, 126 P.2d 671.)

Security and Schultheis proclaim that the $17,500 is a “ballpark” settlement figure, inasmuch as all parties, except McKaig, agree that there is no liability.  (Tech–Bilt, Inc. v. Woodward–Clyde & Associates, supra, 38 Cal.3d 488, 213 Cal.Rptr. 256, 698 P.2d 159.)   Moreover, they contend that even should there be a determination of some liability on settlors' part, the maximum recovery would be about $140,000, and McKaig and Bruckner would be obliged to shoulder the greatest proportionate liability.  (See Widson v. International Harvester Co. (1984) 153 Cal.App.3d 45, 58, 200 Cal.Rptr. 136.)

McKaig opposed the settlement and claimed that equitable rules prevented the occurrence of a merger.   He argued that the second trust deed was recorded after the judgment lien and was, therefore, junior to the judgment lien.   Furthermore, McKaig asserted that Bruckner did not intend that a merger occur.   Because the judgment lien was not extinguished by its assignment to Bruckner, it retained its priority over the Schultheis deed of trust.

On September 4, 1990, the motion for good faith settlement was denied by respondent superior court.   As mentioned, respondent superior court did not give any indication which of the Tech–Bilt factors precluded it from granting the motion.   Security Union and Schultheis sought review by way of an extraordinary writ.  (See § 877.6, subd. (e).)  We have granted an alternative writ and have stayed the proceedings below.

DISCUSSION

A. The Law Governing Good Faith Settlements

 A settlement made in good faith by a defendant discharges the settling defendant from liability for contribution or equitable indemnity to any other joint tortfeasor or co-obligor.  (§§ 877, 877.6;  Far West Financial Corp. v. D & S Co. (1988) 46 Cal.3d 796, 809, 251 Cal.Rptr. 202, 760 P.2d 399.)  Sections 877 and 877.6 provide for “the equitable sharing of costs among the parties at fault and the encouragement of settlements.”  (Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 871–872, 239 Cal.Rptr. 626, 741 P.2d 124.)

 Good faith may be found only if there has been no collusion between the settling parties and where the settlement amount appears to be within the “reasonable range” of the settling party's proportionate share of comparative liability for a plaintiff's injuries.  (River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 103 Cal.Rptr. 498.)

Paradoxically, good faith is both tangible and elusive.   Unfairness is protean.   That makes it hard to get a grasp on good faith.   Absolute certitude of the outcome of a given case is not always attainable.

As Oliver Wendell Holmes warned:  “The language of judicial decision is mainly the language of logic.   And the logical method and form flatter that longing for certainty and for repose which is in every human mind.   But certainty generally is illusion, and repose is not the destiny of man.   Behind the logical form lies a judgment as to the relative worth and importance of competing legislative grounds, often an inarticulate and unconscious judgment, it is true, and yet the very root and nerve of the whole proceeding.”   (Holmes, The Path of the Law (1897) 10 Harv.L.Rev. 457, 465.)

For this reason, judges, when confronted with motions for good faith settlements, should not yearn for the unreal goal of mathematical certitude.   And this is the reason that decisions that chart the boundaries of good faith of necessity require that the trial judge avoid a rigid application of the factors set forth in Tech–Bilt and that an educated guess be taken.   (Abbott Ford, Inc. v. Superior Court, supra, 43 Cal.3d at p. 873, 239 Cal.Rptr. 626, 741 P.2d 124.)

 Because the application of section 877.6 requires an educated guess as to what may occur should the case go to trial, all that can be expected is an estimate, not a definitive conclusion.   That estimate requires that the trial judge inquire into a number of relevant considerations, among which are:  the amount offered in settlement in relation to plaintiff's potential recovery;  the settlor's proportionate liability;  the lack of wrongful conduct;  insurance policy limits;  the settlor's financial condition;  and the allocation of settlement proceeds among the plaintiffs.   (Tech–Bilt, Inc. v. Woodward–Clyde & Associates, supra, 38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159.)

Although an offer of settlement must bear some relationship to one's proportionate liability, bad faith is not “ ‘established by a showing that a settling defendant paid less than his theoretical proportionate or fair share.’  [Citation.]”  (Tech–Bilt, Inc. v. Woodward–Clyde & Associates, supra, 38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159.)   In other words, “a ‘good faith’ settlement does not call for perfect or even nearly perfect apportionment of liability.”  (Abbott Ford, Inc. v. Superior Court, supra, 43 Cal.3d at p. 874, 239 Cal.Rptr. 626, 741 P.2d 124.)   All that is necessary is that there be a “rough approximation” between a settling tortfeasor's offer of settlement and his proportionate liability.  (Bay Development, Ltd. v. Superior Court (1990) 50 Cal.3d 1012, 1027–1028, 269 Cal.Rptr. 720, 791 P.2d 290.)

 The burden is upon the party objecting to the proposed settlement to prove an absence of good faith.  (§ 877.6.)   The challenger must prove “the settlement is so far ‘out of the ballpark’ in relation to these factors as to be inconsistent with the equitable objectives of the statute.”  (Tech–Bilt, Inc. v. Woodward–Clyde & Associates, supra, 38 Cal.3d at pp. 499–500, 213 Cal.Rptr. 256, 698 P.2d 159.)   By enacting sections 877 and 877.6, the Legislature has “incorporated by reference the general equitable principle of contribution law which frowns on unfair settlements, including those which are so poorly related to the value of the case as to impose a potentially disproportionate cost on the defendant ultimately selected for suit.”   (River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.App.3d at p. 997, 103 Cal.Rptr. 498.)

B. There Was Substantial Evidence Before the Trial Court From Which it Could Properly Find that the Settlement Tendered by Security Union and Schultheis Fell Within the Guidelines of Tech–Bilt

In making an educated guess, we must consider whether the settlement proposal was in or out of the ballpark.   The dimensions and playing surfaces of ball parks are anything but uniform.   The differences in the size of foul territory, kind of playing surface, prevailing wind direction, and depth of outfield fences affect the performance of ball players.   Consequently, certain ball parks are the favorite venue for hitters (e.g., Chicago's Wrigley Field and Boston's Fenway Park), while other parks are havens for pitchers (e.g., Oakland's Coliseum and Dodger Stadium).  (Thorn & Palmer, Total Baseball (1989) p. 2199.) ³

Equally diverse are the multifaceted elements, talents, personalities, and luck that shape the outcome of a given case or game.   For a list of players who would attest to this principle, see Flood v. Kuhn (1972) 407 U.S. 258, 262–263, 92 S.Ct. 2099, 2102–2103, 32 L.Ed.2d 728;  Philadelphia Ball Club Ltd. v. Lajoie (1902) 202 Pa. 210, 51 A. 973;  commentary, In re Brett:  The Sticky Problem of Statutory Construction (1983) 52 Fordham L.Rev. 430;  for lawyers, see People v. Callahan (1985) 168 Cal.App.3d 631, 634, 214 Cal.Rptr. 294.

Bearing the foregoing in mind, we consider the likelihood that the holders of the judgment lien would have prevailed against Security and Schultheis had the matter gone to trial.

 On the one hand, there is the argument that Bank's judgment lien was discharged by merger.  (3 Witkin, Summary of Cal.Law (9th ed. 1987) Security Transactions in Real Property, § 107, p. 608.)   Merger takes place when the owner of a parcel of realty acquires the interest in a lien against that property;  the lien interest becomes merged into the ownership of title, and is thereby extinguished.  (Ralph C. Sutro Co. v. Paramount Plastering, Inc., supra, 216 Cal.App.2d 433, 31 Cal.Rptr. 174.)   Thus, the judgment lien had been eliminated when it merged with Bruckner's ownership interest.

Equity, however, will prevent merger when it is necessary to protect the interests of innocent third parties.  (See Sheldon v. La Brea Materials Co. (1932) 216 Cal. 686, 691, 15 P.2d 1098;  Johnson v. Razy (1919) 181 Cal. 342, 184 P. 657.)   The determination of the existence of merger is governed by the precept of fairness.  (Civ.Code, § 3517;  6424 Corp. v. Commercial Exchange Property, Ltd. (1985) 171 Cal.App.3d 1221, 1224, 217 Cal.Rptr. 803.)

In keeping with the baseball motif, we are reminded of the infield fly rule.   It, too, has its roots in the ethical and moral precept that a party, whether an infielder or litigant, will not be permitted to enjoy the fruits of his or her devious conduct.⁴  (Civ.Code, § 3517;  aside, The Common Law Origins of the Infield Fly Rule, supra, at pp. 1478–1479.)

Just as equity will prevent a merger when required, so too should equity work to effect a merger “as will best subserve the purposes of justice” in the appropriate case.  (Jameson v. Hayward (1895) 106 Cal. 682, 688, 39 P. 1078.)   As petitioners point out, cases that support an exception to the merger rule should not apply when the prevention of merger will create an injustice.

 Here, Bruckner devised a crafty scheme to obtain loans using Bank's judgment against him as collateral for these loans.   What is more, the amount of the loans greatly exceeded the amount of the judgment.   A judicial determination of no merger might allow Bruckner to escape liability for repayment of those loans collateralized by assignments of his satisfied judgment.   In other words, Bruckner's investment scheme could give him an undeserved advantage. Given the facts here, it is therefore likely a court would rule that merger occurred because the equities run in favor of the Schultheises.

Prediction of the outcome here was hampered by lack of precedent, i.e., the question as to whether a borrower may purchase a judgment lien against his property and use it as collateral for loans.   Bruckner's device, in one way, was like many a pitch tossed by Satchel Paige.   It was one that “ ‘․ ain't never been seen by this generation.’ ”  (Dickson, Baseball's Greatest Quotations (1991) p. 331.) ⁵

Counsel for the purchasers of Bank's judgment lien may have come to the realization that:  (1) equity would not block the merger, (2) their clients' security interests were null, and (3) settlement for litigation costs was in their clients' best interest.   Under such circumstances, an educated guess is that the settlors' proportionate liability, if any, would be small.   Their conduct in settling was not aimed to injure the nonsettling parties.   It was, in fact, the conduct of the nonsettling parties that caused injury to the settling parties.   Given these factors, the settlement offer falls well within the confines of any reputable ball yard and ought to have been approved by the trial court.  (Tech–Bilt, Inc. v. Woodward–Clyde & Associates, supra, 38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159.)

Given the vagaries of a trial, especially the unique issues tendered, there was no way in which counsel could have predicted with certainty the outcome.   Even an attorney rarely has powers to “prophesy with a wink of his eye, peep with security into futurity․” ⁶

Although we speak with authority about guessing when it comes to deciding the good faith of a settlement, we are less bold about predicting the outcome at trial.   That is a whole new ball game.   The evidence at trial could shed a different light on the issues and dictate a result not anticipated at the hearing to approve a good faith settlement.   Therefore, nothing we say here should be construed as suggesting how the trial court should rule at trial.   Or, in the words of Yogi Berra, “ ‘[i]t ain't over 'til it's over.’ ”   (Dickson, Baseball's Greatest Quotations, supra, at p. 43.)

CONCLUSION

The alternative writ is discharged.   Let a writ of mandate issue commanding respondent superior court to set aside its order dated September 4, 1990, denying petitioners' request for approval of a good faith settlement, and to enter a new order approving said settlement in accordance with the views expressed in this opinion.   The temporary stay is dissolved.

FOOTNOTES

1.   By way of comparison, consider the infamous South–Sea Bubble.   The South–Sea Company was formed in 1711, for the purpose of gaining a monopoly on trade with Spain's American colonies.  (Mackay, Extraordinary Popular Delusions and the Madness of Crowds (Bonanza 1981 ed.) p. 46.)   In 1720, the company agreed to take over the British national debt.   A rush of speculative investment in the company by otherwise conservative investors caused company share prices to rise from 128.5 to 1,000 pounds in a matter of months.   The hope of boundless wealth for tomorrow made investors heedless and extravagant today.   In August of 1720, “[t]he bubble was then full-blown, and began to quiver and shake preparatory to its bursting.”  (Id., at p. 65.)   In September, the bubble burst, causing the collapse of banks and the financial ruin of thousands of investors.  (Id., at p. 69.)

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

3.   For example, in 13 seasons, Joe DiMaggio of the New York Yankees hit 361 home runs.  (See James, Historical Baseball Abstract (1986) p. 600;  Thorn & Palmer, Total Baseball, supra, p. 1071.)   DiMaggio might have hit as many as 600 home runs had he played for the Boston Red Sox.   (See James, Historical Baseball Abstract, supra, p. 390.)   This is because many a fly ball hit by DiMaggio out to the cavernous reaches of left-center field at Yankee Stadium (otherwise known as “Death Valley”) would have been home runs because of the much shorter distance to the left field wall at Boston's Fenway Park (the “Green Monster”).

4.   Prior to the enactment of this rule, base runners would be given a Hobson's choice that was dependent upon the actions of an infielder.   If they were to run and the ball were caught, they could easily be tagged out for having left the base before the catch;  if they were to stay on the base and the ball were intentionally dropped, they would have to run and thereby be forced out at the next base.   Thus, a devious infielder could start a rally-killing double play by simply intentionally allowing an easy pop fly to drop.   This situation gave the defense “an advantage that it did not deserve and that the offense could not have prevented.”  (Aside, The Common Law Origins of the Infield Fly Rule (1975) 123 U.Pa.L.Rev. 1474, 1477.)

5.   “ ‘Satchelfoot.   Satchel.  Satch.   Long, lean, canny.   Threw the ball from any of three directions.   Had four different windups.   Had more pitches than a catcher has fingers․' ”  (Rex Lardner, quoted in Dickson, Baseball's Greatest Quotations, supra, at p. 237.)

6.   Gilbert & Sullivan, The Sorcerer, Act 1.

GILBERT, Associate Justice.

STEVEN J. STONE, P.J., and YEGAN, J., concur.