Source: https://law.justia.com/cases/california/supreme-court/3d/43/858.html
Timestamp: 2019-05-19 21:17:27
Document Index: 524451286

Matched Legal Cases: ['§ 877', '§ 877', 'art 2', '§ 4', '§ 1', '§ 1', '§ 2', '§ 4', 'art 2', '§ 875', '§ 875']

Abbott Ford, Inc. v. Superior Court (1987) :: :: Supreme Court of California Decisions :: California Case Law :: California Law :: US Law :: Justia
Justia › US Law › Case Law › California Case Law › Cal. 3d › Volume 43 › Abbott Ford, Inc. v. Superior Court (1987)
Abbott Ford, Inc. v. Superior Court (1987)
[L.A. No. 32138. Supreme Court of California. September 3, 1987.]
No appearance for Respondent. [43 Cal. 3d 863]
The issue presented here is whether a "sliding scale recovery agreement," fn. 1 entered into by plaintiffs and one of several defendants in a personal injury action, represents a "good faith" settlement within the meaning of sections 877 and 877.6 of the Code of Civil Procedure, fn. 2 so as to relieve the settling defendant of any liability for contribution or equitable comparative indemnity to other defendants in the action. The trial court concluded that the agreement in question was not a good faith settlement and denied the settling defendant's motion to bar cross-complaints by the remaining defendants. The settling defendant then sought review by writ of mandate, and ultimately the Court of Appeal -- after remand by this court -- concluded that while the "good faith" of such a sliding scale agreement must properly be measured by the standard set forth in our recent decision in Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal. 3d 488 [213 Cal. Rptr. 256, 698 P.2d 159], the agreement at issue here satisfied that standard as a matter of law. We granted review to consider the question of the appropriate application of the statutory "good faith" requirement in the context of sliding scale agreements. [43 Cal. 3d 864]
(2) With regard to Abbott -- a car dealer which had purchased the van used, had "customized" it by replacing the original wheels and tires with "deep dish mag wheels" and oversized tires, and had then resold it to Sneed -- plaintiffs sought recovery on both negligence and strict liability theories. With regard to the negligence claim, discovery revealed that Ford, the manufacturer of the van, had provided a warning in its owner's manual -- which Abbott received -- cautioning against the installation of "aftermarket wheel assemblies," like the "deep dish mag wheels," on the van. Despite the warning, Abbott had installed the customized wheel assembly, had failed to give the owner's manual or provide any other warning to Sneed, and had failed to advise Sneed of the need to retighten the lug nuts on the wheel assembly periodically because of their tendency to become loose. [43 Cal. 3d 865]
In addition to these numerous claims arising out of the accident itself, plaintiffs' second amended complaint -- filed in November 1982 -- contained three additional causes of action against Abbott alone, relating to Abbott's loss of evidence which was critical to plaintiffs' case. After the accident, the van had been towed to Abbott's place of business, and Abbott had agreed with plaintiffs' counsel that it would preserve the evidence until plaintiffs could retain an expert to examine it. When plaintiffs' counsel later attempted to obtain the evidence, however, Abbott informed him that much of the evidence had been lost. Plaintiffs then added the three additional causes of action to their complaint, alleging, inter alia, that Abbott had intentionally destroyed or lost the evidence. The trial court initially sustained Abbott's demurrer to plaintiffs' "intentional spoliation of evidence" count, relying on the fact that no California decision had previously recognized such a cause of action. Plaintiffs sought writ relief from the trial court's ruling, and the Court of Appeal ordered the trial court to reinstate the challenged cause of action, holding that the allegations of intentional spoliation would support a tort action for both compensatory and punitive damages. (Smith v. Superior Court (1984) 151 Cal. App. 3d 491 [198 Cal. Rptr. 829].) Within weeks of the Court of Appeal's decision, Abbott informed plaintiffs that it had discovered the evidence that ostensibly had been lost.
With the case in this posture, a mandatory settlement conference was set for March 26, 1984. In anticipation of that conference, representatives of [43 Cal. 3d 866] Abbott, Ford and Sears met on March 14, 1984. fn. 4 At that meeting, Abbott's counsel stated that he believed a reasonable settlement value for the case was $2.5 million and that Abbott was willing to contribute 70 percent of that sum. fn. 5 Counsel for Ford and Sears, however, maintained that their clients had only minimal, if any, responsibility for the accident and were unwilling to bear 30 percent -- $750,000 -- of such a settlement.
The agreement -- which took the form of two separate contracts, one with each plaintiff, twenty-two and twenty pages in length respectively -- contained three key and interrelated elements: (1) Abbott's insurer guaranteed Phyllis Smith an ultimate recovery of $2.9 million, and her husband an ultimate recovery of $100,000; if, at the conclusion of the lawsuit, plaintiffs had not collected the guaranteed amounts from the remaining defendants, Abbott's insurer would pay the balance up to the guaranteed sum. Thus, if plaintiffs recovered $3 million or more from Ford and Sears, Abbott would not bear any ultimate liability to plaintiffs; if plaintiffs recovered less than [43 Cal. 3d 867] $3 million from Ford and Sears, Abbott would be obligated to pay plaintiffs the difference. In return for these guaranties, plaintiffs agreed (a) to dismiss all of their actions against Abbott and (b) to continue to prosecute their action against Ford and Sears fn. 6 in the same way that they would have in the absence of the agreement -- through appeal, if necessary -- "except that [plaintiffs] shall not settle all or any portion of this litigation with defendants Ford and Sears Roebuck for less than the amount of [their] guaranty, without the express written consent of" Abbott's insurer.
On September 10, 1984, the trial court held a hearing on Abbott's section 877.6 motion. At the conclusion of the hearing, the court entered a minute [43 Cal. 3d 868] order denying Abbott's request to have the agreement declared a good faith settlement so as to bar Ford's and Sears' indemnity cross-complaints against it. The court's order stated that its determination was based "on the fact that Abbott Ford has not paid any amount in settlement and that the guarantee agreement does not constitute a settlement, but rather constitutes a gambling transaction."
Abbott thereafter sought review of the trial court's order in the present writ proceeding, as authorized by section 877.6, subdivision (e). The Court of Appeal issued an alternative writ and, relying on a line of Court of Appeal decisions which had interpreted the "good faith" standard of sections 877 and 877.6 to require simply that settling parties refrain from "tortious or other wrongful conduct" (see, e.g., Dompeling v. Superior Court (1981) 117 Cal. App. 3d 798, 809-810 [173 Cal.Rptr. 38]), concluded that the agreement in this case was a good faith settlement as a matter of law. Thereafter, we granted a hearing and retained the matter while we considered the general question of the appropriate interpretation of the "good faith" settlement standard. In Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal. 3d 488 (hereafter Tech-Bilt), we disapproved the lines of cases that had been relied on by the Court of Appeal in its earlier decision in this case, finding that those cases had adopted an improperly narrow view of "good faith." We concluded that "[a] more appropriate definition of 'good faith,' in keeping with the policies of American Motorcycle [Assn. v. Superior Court (1978) 20 Cal. 3d 578 (146 Cal. Rptr. 182, 578 P.2d 899)] and the statute, would enable the trial court to inquire, among other things, whether the amount of the settlement is within the reasonable range of the settling tortfeasor's proportional share of comparative liability for the plaintiff's injuries." (38 Cal.3d at p. 499.) Thereafter, we remanded this matter to the Court of Appeal, directing the court to consider "whether and to what extent the principles enunciated in Tech-Bilt ... may be applicable to an agreement of [the] type [involved in this case.]"
On remand, the Court of Appeal concluded that the "good faith" standard embodied in Tech-Bilt does apply to sliding scale agreements. Nonetheless, the court found that even under the Tech-Bilt standard the agreement at issue here constituted a good faith settlement as a matter of law. [1] We again granted review to consider the important and difficult issues presented by the case. fn. 8 [43 Cal. 3d 869]
[2] As Ford and Sears point out, sliding scale -- or, as they are more commonly known throughout the country, "Mary Carter" fn. 9 -- agreements have engendered a considerable body of academic commentary, much quite critical of this genre of settlement agreements. fn. 10 Relying on this literature, and a few out-of-state cases (see, e.g., Lum v. Stinnett (1971) 87 Nev. 402 [488 P.2d 347]; Trampe v. Wisconsin Telephone Co. (1934) 214 Wis. 210, 218 [252 N.W. 675, 671]), Ford and Sears urge us to hold all such agreements contrary to public policy and invalid as a matter of law. [43 Cal. 3d 870]
Second, in addition to the variety of provisions that may supplement the sliding scale or "guaranty" clause of such agreements, the content and effect of the sliding scale provision itself and the factual background against which the agreement is negotiated frequently vary significantly from case to case. In some cases, like this one, the sliding scale clause may be structured so that the settling party may ultimately bear no liability to the plaintiff; in other cases, the settling party may make a substantial noncontingent payment to the plaintiff, and the sliding scale element may simply provide a supplemental guaranty of some additional recovery. (See, e.g., Dompeling v. Superior Court, supra, 117 Cal. App. 3d 798, 802; Torres v. Union Pacific R.R. Co. (1984) 157 Cal. App. 3d 499, 503 [203 Cal.Rptr 825].) fn. 12 In some cases, again like this one, the guaranty figure may be for an amount equal or close to the plaintiff's total damages; in others, the guaranty figure may represent only a relatively small share of the plaintiff's damages. (See, e.g., Rogers & Wells v. Superior Court (1985) 175 Cal. App. 3d 545, 548 [220 Cal. Rptr. 767].) fn. 13 In some cases, the settling defendant who may potentially be relieved of all liability by virtue of the agreement may be clearly the most culpable of all of the defendants, while in other cases a sliding scale agreement [43 Cal. 3d 871] may be entered into by only peripherally involved defendants in order to obtain an escape from a potentially lengthy and costly suit. (See, e.g., Rogers & Wells v. Superior Court, supra, 175 Cal. App. 3d 545, 553-555.) Finally, in some cases a sliding scale agreement may be obtained by one defendant in the early stages of negotiation without regard to the willingness of other defendants to engage in settlement negotiations in good faith, while in others such an agreement may be resorted to only as a last resort, after one or more defendants unreasonably refuse to make any settlement offer that may be commensurate with their fair share of responsibility for the plaintiff's damages, thwarting a fair and complete settlement of the litigation. These differences too may have a significant bearing on the fairness and propriety of a particular agreement.
[3] As we explained in our recent decision in Tech-Bilt, the provisions of sections 877 and 877.6 fn. 14 -- governing the effect that a settlement agreement [43 Cal. 3d 872] has on a settling defendant's potential liability to other defendants for contribution or comparative indemnity -- have two major goals: the equitable sharing of costs among the parties at fault and the encouragement of settlements. (38 Cal.3d at pp. 494-496.) fn. 15 The provisions of section 877 make [43 Cal. 3d 873] it quite clear that the two goals are inextricably linked. Section 877 establishes that a good faith settlement bars other defendants from seeking contribution from the settling defendant (§ 877, subd. (b)), but at the same time provides that the plaintiff's claims against the other defendants are to be reduced by "the amount of consideration paid for" the settlement (§ 877, subd. (a)). Thus, while a good faith settlement cuts off the right of other defendants to seek contribution or comparative indemnity from the settling defendant, the nonsettling defendants obtain in return a reduction in their ultimate liability to the plaintiff.
[4] Tech-Bilt recognized that the "good faith" requirement of sections 877 and 877.6 is the key to the harmonization of the twin statutory objectives. "The good faith provision of section 877 mandates that the courts review agreements purportedly made under its aegis to insure that such settlements appropriately balance the contribution statute's dual objectives." (38 Cal.3d at p. 494, fn. omitted.) At the same time, we explained that the "good faith" concept cannot be captured in a simple formula. "'Lack of good faith encompasses many kinds of behavior. It may characterize one or both sides to a settlement. When profit is involved, the ingenuity of man spawns limitless varieties of unfairness. Thus, formulation of a precise definition of good faith is neither possible nor practicable. The Legislature has here 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.'" (Id., at pp. 494-495 [qouting River Garden Farms, Inc. v. Superior Court (1972) 26 Cal. App. 3d 986, 997 [103 Cal. Rptr. 498], italics added in Tech-Bilt].)
Rejecting the line of cases -- beginning with Dompeling v. Superior Court, supra, 117 Cal. App. 3d 798 -- which had indicated that settling parties were free "to further their respective interests without regard to the effect of their settlement upon other defendants" (id., at pp. 809-810) so long as they refrained "from tortious or other wrongful conduct" (ibid.), we concluded in Tech-Bilt that "[a] more appropriate definition of 'good faith,' in keeping with the policies of American Motorcycle [Assn. v. Superior Court (1978) 20 Cal. 3d 578] and the statute, would enable the trial court to inquire, among other things, whether the amount of the settlement is within the reasonable range of the settling tortfeasor's proportional share of comparative liability for the plaintiff's injuries." (38 Cal.3d at p. 499, italics added.) fn. 16 Elaborating on [43 Cal. 3d 874] the parameters of the good faith concept, we observed 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, fn. 17 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].) The party asserting the lack of good faith, who has the burden of proof on that issue [citation], should be permitted to demonstrate, if he can, that 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. Such a demonstration would establish that the proposed settlement was not a 'settlement made in good faith' within the terms of section 877.6." (Id., at pp. 499-500, italics added, fn. omitted.)
[5] As Tech-Bilt emphasizes, of course, a "good faith" settlement does not call for perfect or even nearly perfect apportionment of liability. In order to encourage settlement, it is quite proper for a settling defendant to pay less than his proportionate share of the anticipated damages. What is required is simply that the settlement not be grossly disproportionate to the [43 Cal. 3d 875] settlor's fair share. As the Court of Appeal observed in Torres v. Union Pacific R.R. Co., supra, 157 Cal. App. 3d 499, 507: "If [a settling] codefendant wishes to enjoy the section 877 bar against indemnity, he must make some attempt to place the price of his settlement within a reasonable range of his relative share of the liability."
As noted above, the Court of Appeal -- after remand from this court -- concluded that the "good faith" standard articulated in Tech-Bilt applies to sliding scale agreements. Abbott has not challenged that conclusion here and, in any event, we agree with the Court of Appeal's conclusion on this point. Neither section 877 nor section 877.6 exempts sliding scale agreements from its "good faith" requirement, and nothing in section 877.5 fn. 18 -- a provision which was enacted to protect against the unfair consequences that may flow from undisclosed sliding scale agreements (see, e.g., Moreno v. Sayre (1984) 162 Cal. App. 3d 116, 125 [208 Cal.Rptr. 444]) -- indicates that such agreements need not meet the generally applicable good faith standard. Indeed, the legislative history of section 877.5 suggests that the Legislature contemplated that a broad good faith standard -- as first articulated in River Garden Farms, supra, 26 Cal. App. 3d 986 -- would apply to such agreements. fn. 19
The crucial question presented by this case is how Tech-Bilt's good faith standard should apply to sliding scale agreements. Ford and Sears claim broadly that sliding scale agreements can never satisfy the good faith standard of Tech-Bilt, asserting that such agreements, by their very nature, irreconcilably conflict with both goals -- fair apportionment of loss and encouragement of settlement -- sought to be advanced by the statutory scheme. In addition, they argue that even if some sliding scale agreements [43 Cal. 3d 876] may properly be found to be good faith settlements, the agreements at issue here clearly cannot. We first consider the claims with respect to apportionment of loss.
Although the scenario outlined by Ford and Sears does seem difficult to reconcile with the fair apportionment objective, a review of the facts of other cases suggests that Ford and Sears have overstated the argument in claiming that sliding scale agreements invariably conflict with a fair apportionment of loss. The sliding scale agreement in Dompeling v. Superior Court, supra, 117 Cal. App. 3d 798, for example, required the settling defendant to pay $100,000 outright and included an additional $10,000 sliding scale guaranty; though the settling defendant's ultimate payment was thus dependent, to some extent, on the plaintiff's recovery from the nonsettling defendant, the nonsettling defendant received an offset for the $100,000 noncontingent payment and thus the agreement as a whole did not necessarily undermine a fair apportionment of loss. Similarly, although the sliding scale agreement in Rogers & Wells v. Superior Court, supra, 175 Cal. App. 3d 545, provided for no noncontingent payment by the settling defendants and therefore could result in no ultimate out-of-pocket cost on their behalf, because the settling defendants in that case apparently bore only minimal, if any, responsibility for the plaintiffs' injuries, the Rogers & [43 Cal. 3d 877] Wells court concluded that the agreement was not at odds with the fair apportionment objective.
[7] In analyzing the apportionment problem, it is important to keep in mind that, under the terms of section 877, a settlement -- if found to be in "good faith" -- has two interrelated consequences: (1) it discharges the settling tortfeasor from all liability to other defendants for contribution or indemnity, and (2) it reduces the plaintiff's claims against the other defendants by "the amount of consideration paid for it." Although past cases have often overlooked the interrelationship of these two features (see fn. 21, post), in our view the ultimate analysis of the effect of the sliding scale agreement resolves itself to a consideration of fairness to the nonsettling defendants. If a court finds that a settling defendant, by entering into a sliding scale agreement, has realistically paid a "consideration" that is within its Tech- Bilt "ballpark," and if the nonsettling defendants obtain a reduction in the plaintiff's claims against them in an amount equal to that consideration, the statutory fair apportionment objective should be satisfied. fn. 21 Accordingly, [43 Cal. 3d 878] the analysis of whether a sliding scale agreement conflicts with the fair apportionment objective lies in "the amount of consideration" which is attributed to the settling defendant as the "payment" for his release from liability by entering into the sliding scale agreement. Since the sliding scale agreement is given by the settling defendant in exchange for the plaintiff's release and the immunity from contribution or indemnity from the claims of the nonsettling cotortfeasors, we should assume the exchange is of equivalents. If we focus, then, not on what the settling defendant gave up, but rather what he received, then we have a simple application of the Tech-Bilt rules. This is so because one of the principal difficulties in this area has been the attempt to arrive at an accurate evaluation of the "price" or "consideration" which has been paid by a settling defendant who enters into a sliding scale arrangement.
The economic reality, we believe, lies between these two extreme positions. Contrary to the arguments of Ford and Sears, a guaranty agreement, even if totally contingent, is not completely cost-free from the point of view of the guarantor. At the same time and contrary to the position of Abbott, however, the "cost" or "price" of such an agreement is not equal to the maximum amount that the guarantor may possibly be required to pay [43 Cal. 3d 879] under the agreement. Accordingly, given the nature of sliding scale agreements, we believe the court should not be burdened with the obligation to determine the actual value of such an agreement by the use of actuarial or other valuation methods. Rather, the parties to such an agreement, since they are in the best position to place a monetary figure on its value, should have the burden of establishing the monetary value of the sliding scale agreement.
Once the parties to the agreement have declared its value, a nonsettling defendant either (1) can accept that value and attempt to show that the settlement is not in good faith because the assigned value is not within the settling defendant's Tech-Bilt ballpark, or (2) can attempt to prove that the parties' assigned value is too low and that a greater reduction in plaintiff's claims against the remaining defendants is actually warranted. fn. 23 [43 Cal. 3d 880]
Although it is somewhat paradoxical, we think there is considerable merit in both of the parties' arguments on this point. In some circumstances, the availability of sliding scale agreements can facilitate the settlement process; at the same time, particular sliding scale agreements may operate to thwart or impair the full settlement of the case. Our task is to attempt to identify the different situations, and to regulate the use of sliding scale agreements so as to further the state interest in fostering the full settlement of litigation. [43 Cal. 3d 881]
At the same time, however, we think that there must properly be limits on the consequences that may be visited on a defendant who is found to have been unreasonably recalcitrant in settlement negotiations. Because it may be difficult to distinguish between defendants who unreasonably or in bad faith refuse to make a fair contribution to a settlement fund and defendants who in good faith honestly and reasonably believe that they bear no liability for a plaintiff's injury, a rule which permits settling defendants to thrust the entire economic responsibility for an injury on a single defendant through a sliding scale agreement is likely to have an unduly coercive effect on defendants who may be acting in good faith, unfairly compelling them to settle to avoid a financial disaster whenever there is any risk that their conduct might later be viewed as unreasonable. (See, e.g., Monjay v. Evergreen School Dist. No. 114, supra, 13 Wn. App. 654 [537 P.2d 825, 829].) Instead, we believe a more measured sanction is called for.
In Tech-Bilt we observed that in determining whether the amount of a settlement was within the good faith "ballpark," a trial court should properly [43 Cal. 3d 882] recognize "that a settlor should pay less in settlement than he would if he were found liable after a trial." (38 Cal.3d at p. 499.) In a similar manner, we think that the trial court's "ballpark" determination may also appropriately be adjusted to take into account any unreasonable or bad faith conduct of a nonsettling party which may have impeded the settlement process. If the court finds that the party challenging the settlement engaged in such conduct, it may reduce the lower threshold of the "ballpark" cutoff, and find a settlement in good faith even if the "consideration" paid for, i.e., the "value" of, the sliding scale agreement is somewhat lower than the court would otherwise have found acceptable. (See Pollak, supra, 8 Civ. Litigation Rptr. at pp. 126-127.) Through this approach, a nonsettling defendant who unreasonably impedes settlement can be saddled with a greater portion of economic responsibility than it would otherwise have borne; the sanction, however, should not be so out of proportion to the hold-out defendant's conduct as to be unduly coercive. In this way, a court can give recognition to the positive role sliding scale agreements may have in deterring unreasonable nonparticipation in settlement negotiations.
As Ford and Sears point out, the most obvious conflict between sliding scale agreements and a subsequent settlement of the balance of the lawsuit is posed by explicit provisions contained in most sliding scale agreements which purport to grant the settling defendant a "veto power" over any subsequent settlement which would affect the settling defendant's ultimate out-of-pocket costs under the guaranty agreement. The provision contained in the agreement in the present case is fairly typical in this regard, providing that "[plaintiffs] shall not settle all or any portion of this litigation with defendants Ford and Sears Roebuck for less than the amount of [their] [43 Cal. 3d 883] guarant[eed recovery], without the express written consent of [Abbott's insurer]." (Italics added.)
[6c] Ford and Sears additionally contend that even in the absence of an express veto provision, sliding scale agreements have the inherent tendency to impair subsequent settlements and should generally be found not in good faith for that reason. All sliding scale agreements, however, do not invariably deter further settlement. The sliding scale agreement at issue in Rogers & Wells v. Superior Court, supra, 175 Cal. App. 3d 545, for example, created no realistic obstacle to the full settlement of that litigation. In that case, as noted above, the sliding scale agreement was entered into by two peripherally responsible defendants and guaranteed the plaintiffs a recovery of $3.9 [43 Cal. 3d 884] million; because the total amount of the plaintiffs' claims was over $90 million and the remaining defendants were clearly the more culpable tortfeasors, the agreement was not likely to deter a subsequent settlement since it was obvious that any such settlement would greatly exceed the $3.9 million guaranty.
We recognize that some sliding scale agreements -- by establishing a high guaranty figure and by mandating that the proceeds of any subsequent settlement up to the guaranty figure shall be credited in toto to the earlier settling defendant -- may effectively eliminate any incentive a plaintiff has to settle with the remaining defendants, at least within a range commensurate with those defendants' fair share of responsibility. We do not decide at this time whether the potential antisettlement effect of such an agreement is sufficient, in itself, to warrant a finding that the agreement is not a good faith settlement for purposes of sections 877 and 877.6; that issue was not raised below and is not addressed in the briefs on appeal. (Cf. In re Waverly Acc. of Feb. 22-24, 1978 (M.D.Tenn. 1979) 502 F. Supp. 1, 5, with Bass v. Phoenix Seadrill/78, Ltd. (5th Cir. 1985) 749 F.2d 1154, 1165.) We do note, however, that settling parties may be able to obviate such a challenge in the future by providing some mechanism for the sharing of subsequent settlement proceeds between the earlier settling defendant and the plaintiff, thereby assuring that the plaintiff retains at least some incentive to entertain reasonable settlement offers from the remaining defendants. (See, e.g., Pollak, supra, 8 Civ. Litigation Rptr. at p. 127.)
Abbott first emphasizes that sliding scale agreements like those at issue here -- and, in particular, the no-interest loan provisions of the agreement -- provide injured victims with a speedy source of revenue which enables such victims both to support themselves immediately and to litigate their claims against other defendants. It points out that a number of courts and commentators have taken note of these beneficial aspects of such agreements. [43 Cal. 3d 885] (See, e.g., American Transport Co. v. Central Indiana Ry. Co. (1970) 255 Ind. 319, 323 [264 N.E.2d 64, 67]; Comment, supra, 1977 Ariz.St. L.J. 117, 152.)
We agree that affording an injured person prompt payment of funds for his losses serves a very important state interest. But nothing we have said above is inconsistent with that purpose. We have not suggested that it is improper for a settlement agreement to take the form of a noninterest loan from the settling defendant to the plaintiff, repayable out of the proceeds of any recovery; fn. 26 rather, we simply note that the value of such a loan will realistically be considered by the parties to the agreement in arriving at the agreement's value. Of course, if a plaintiff chooses to release his or her claims against a defendant for less than that defendant's "ballpark" figure, the plaintiff remains free to do so; if, however, the settling defendant wishes to obtain immunity from potential claims for comparative indemnity or contribution under sections 877 and 877.6, (1) the "consideration" paid by it must not be grossly disproportionate to its fair share of responsibility and (2) the remaining defendants are entitled to have the plaintiff's claims against them reduced by the amount of the consideration paid. Although plaintiffs may be less willing to enter into such agreements once they recognize that their claims against the nonsettling defendants will be reduced by the value of the agreement, fn. 27 we do not believe that consequence can itself justify a contrary result. Offsets have been routinely required in normal settlement agreements since the inception of section 877, and we can find no justification for exempting the more questionable sliding scale agreements from similar treatment. [43 Cal. 3d 886]
Abbott further contends that the agreement at issue should be upheld because, at the time it was entered into, existing authority indicated that such a sliding scale agreement was a good faith settlement for purposes of sections 877 and 877.6. (See, e.g., Burlington Northern R.R. Co. v. Superior Court (1982) 137 Cal. App. 3d 942 [187 Cal. Rptr. 376].) Although Abbott recognizes that the reasoning of Burlington was specifically disapproved in Tech-Bilt (38 Cal.3d at p. 500, fn. 7), it claims that it is unfair to deprive it of the benefits of a "good faith" determination on the basis of a subsequent interpretation of the good faith standard.
This claim is unfounded for a number of reasons. In the first place, at the time the agreements were formally signed there was already a conflict in Court of Appeal decisions interpreting the "good faith" standard, and a number of Court of Appeal decisions (Torres v. Union Pacific R.R. Co., supra, 157 Cal. App. 3d 499; River Garden Farms v. Superior Court, supra, 26 Cal.App.3d 986) had enunciated the standard we ultimately endorsed in Tech-Bilt. Second, the terms of the sliding scale agreement in this case themselves make it quite clear that the parties entertained a serious question whether the agreement would be found to be in good faith; as we have seen, the agreement specifically provided that if it were found not in good faith, Abbott's insurer would pay plaintiffs $3 million outright. Finally, there would appear to be little reason, in any event, to deprive Ford and Sears of the protection which the statutory good faith standard was intended to afford them; they timely objected to the agreements at issue here, and the trial court sustained their objection. Even if Abbott reasonably relied on then-existing decisions in entering into the agreement, it appears that, at most, Abbott could simply seek to rescind its agreement with plaintiffs; of course, since the agreement in this case specifically contemplated that it might be found not in good faith and provided a remedy for that contingency, Abbott could not properly deprive plaintiffs of the benefit of that provision at this point. Accordingly, the earlier Court of Appeal decisions would provide no basis for Abbott to escape from the application of the proper good faith standard.
In sum, we conclude: (1) that Tech-Bilt's good faith standard applies to sliding scale agreements, (2) that to satisfy the statutory objective of a fair apportionment of loss (i) the "consideration" paid by a defendant who enters into a sliding scale agreement must fall within the Tech-Bilt "ballpark" and (ii) the plaintiffs' claims against the remaining defendants must be reduced by the amount of the "consideration paid" by the settling defendant, [43 Cal. 3d 887] (3) that any unreasonable or bad faith conduct of the nonsettling defendants which impeded the settlement process and led to the sliding scale agreement may be taken into account in determining whether the agreement satisfies the "ballpark" standard, and (4) that any provision which purports to give a settling defendant a "veto" over subsequent settlements is valid only if it is limited to settlements which would leave the earlier settling defendant to bear more than its fair share of liability for the plaintiff's damages.
The majority opinion concludes: "Once the parties to the agreement have declared its value, a nonsettling defendant either (1) can accept that value and attempt to show that the settlement is not in good faith because the assigned value is not within the settling defendant's Tech-Bilt [38 Cal. 3d 488] ballpark, or (2) can attempt to prove that the parties' assigned value is too low and that a greater reduction in plaintiff's claim against the remaining defendants is actually warranted." (Maj. opn., p. 879; see also p. 883, fn. 25; p. 885.)
In Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal. 3d 488 [213 Cal.Rptr 256, 698 P.2d 159], we adopted the "ballpark" rule after pointing out the numerous considerations which enter into the determination of a settlor's proportionate liability. (Id. at pp. 499-500.) The "ballpark" [43 Cal. 3d 888] rule is itself an attempt to make only a "rough approximation of plaintiffs' total recovery and the settlor's proportionate liability" modified by several considerations. (Id. at p. 499.) To evaluate a sliding scale agreement, we compare many of the same considerations to the amount of the guaranty and the likelihood that the guaranty will be reduced by recovery from a nonsettling defendant. Because we start with a "rough approximation," the further calculations become exceedingly complex with some discount allowed for the roughness of the approximation. Factoring the additional considerations mentioned in Tech-Bilt into the equation will be a substantial undertaking. We must bear in mind that in trying to roughly approximate the amount that the settling defendant will have to pay under his guarantee, we must determine the likely amount that the nonsettling defendant will have to pay which will be deducted in part or in toto from the guarantee.
The majority opinion's central holding is as follows: The "good faith" required by Code of Civil Procedure section 877 (hereafter section 877) to relieve a defendant, settling under a sliding scale recovery agreement, from [43 Cal. 3d 889] liability for contribution or comparative equitable indemnity demands that the settling defendant pay an amount within the reasonable range of his proportional share of comparative liability for the plaintiff's injury. (Ante, at pp. 871-884.) As I shall explain, this holding is fundamentally unsound. Section 877 requires nothing more than that the plaintiff and the settling defendant simply refrain from collusive conduct intended to prejudice the interests of the nonsettling defendants. Accordingly, I would affirm the judgment of the Court of Appeal which correctly found such "good faith" as a matter of law on the facts of this case.
Chapter 1 of title 11 of part 2 of the Code of Civil Procedure, which is entitled "Releases From And Contribution Among Joint Tortfeasors," includes sections 875 through 880 of that code. The provisions of sections 877, 877.5, and 877.6 are set forth in the margin. fn. 1 [43 Cal. 3d 890]
That the Legislature intended the phrase "good faith," which appears in the "substantive" section 877 and the "procedural" section 877.6, to refer simply to noncollusive conduct is suggested by the words themselves. "The phrase 'good faith' in common usage has a well-defined and generally understood meaning, being ordinarily used to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one's duty or obligation." (People v. Nunn (1956) 46 Cal. 2d 460, 468 [296 P.2d 813], citing authorities; accord, Gunter v. City of Stockton (1974) 43 Cal. App. 3d 203, 211 [117 Cal. Rptr. 601]; Appel v. Morford (1943) 62 Cal. App. 2d 36, 40 [144 P.2d 95].) There is nothing in the language of the statutory provisions that in any way supports an inference that the Legislature intended the phrase to bear a meaning other than that which it commonly bears. [43 Cal. 3d 891]
Several hearings on S.B. 412 were held before the Senate Committee on Judiciary. (Fourth Progress Rep. to the Legis. by the Sen. Interim Com. on Judiciary, Explanation to Interim Com., p. 129, 1 Appen. to Sen. J. (1957 Reg. Sess.) [hereafter Jud. Com. Fourth Prog. Rep.].) No objections were made to the principle of the bill. (Ibid.) Some suggestions, however, were made -- including a suggestion that the bill should provide for the effect of a release given by the plaintiff to a settling defendant. (Ibid.) The bill was [43 Cal. 3d 892] finally referred to the Senate Interim Judiciary Committee for further study. (Ibid.)
Section 4 was plainly the sole and immediate source of proposed section 877: section 877 parallels section 4 almost word for word, and research has not disclosed the existence of any other model. Indeed, as of January 22, [43 Cal. 3d 893] 1957, the date on which S.B. 1510 was introduced (Jud. Com. Fourth Prog. Rep., supra, p. 128), no jurisdiction had yet adopted section 4 (12 U.L.A., U. Contrib. Act, supra, Table of Juris. Wherein Act Has Been Adopted, p. 57).
"The idea underlying the 1939 provision was that the plaintiff should not be permitted to release one tortfeasor from his fair share of liability and mulct another instead, from motives of sympathy or spite, or because it might be easier to collect from one than from the other; and that the release from contribution affords too much opportunity for collusion between the plaintiff and the released tortfeasor against the one not released. Reports from the state where the Act is adopted appear to agree that it has accomplished nothing in preventing collusion. In most three-party cases two parties join hands against the third, and this occurs even when the case goes to trial against both defendants. 'Gentlemen's agreements' are still made among lawyers, and the formal release is not at all essential to them. If the plaintiff wishes to discriminate as to the defendants, the 1939 provision does not prevent him from doing so. [43 Cal. 3d 894]
The foregoing history of section 877 establishes that the Legislature intended the phrase "good faith" simply to require noncollusive conduct. First, section 877 was directly modeled on section 4 of the Uniform Act. Second, in drafting section 4 the National Conference of Commissioners had as their express purpose the facilitation of settlement and accordingly expressly intended the phrase in question simply to require noncollusive conduct. (12 U.L.A., U. Contrib. Act, supra, § 4, Comrs. Com. on subsec. (b), pp. 99-100.) Third, it must be presumed that the Legislature shared the purpose and intent of the National Conference of Commissioners. It has been stated that the intention of the drafters of a uniform act becomes the intention of the legislature upon enactment. (Layne-Minnesota Co. v. Regents of Univ. of Minn. (1963) 123 N.W.2d 371 [Minn. 284, 290-291, fn. [43 Cal. 3d 895] 13].) This rule is sound: that the legislature has adopted the words of a uniform act supports, if not compels, the conclusion that it has adopted as well the purpose and intent of those who drafted that act. There is no evidence even suggesting that the rule should not apply here.
In American Motorcycle Assn. v. Superior Court (1978) 20 Cal. 3d 578 [146 Cal. Rptr. 182, 578 P.2d 899], we held that under section 877 a "good faith" settlement discharges the settling defendant from liability not only for contribution but also for comparative equitable indemnity. (Id. at p. 604.)
In Fisher v. Superior Court (1980) 103 Cal. App. 3d 434 [163 Cal. Rptr. 47], the court concluded that in order to further section 877's goal of encouraging settlements, "the issue of the good faith settlement between the plaintiff and the settling tortfeasor should be tried separately and in advance of the trial of the tort issues, and upon motion of any party to the action should be tried as soon after the settlement as the court's calendar permits." (Id. at pp. 438-439.)
In enacting section 877.6 (Stats. 1980, ch. 562, § 1, p. 1549; amended by Stats. 1984, ch. 311, § 1, p. 1551; Stats. 1985, ch. 621, § 2), the Legislature codified both Fisher's procedures for the determination of the issue whether [43 Cal. 3d 896] a settlement was in "good faith" within the meaning of section 877 and American Motorcycle's holding extending the bar raised by a "good faith" settlement to claims for comparative equitable indemnity. (Roberts, The Good Faith Settlement: An Accommodation of Competing Goals (1984) 17 Loyola L.A. L.Rev. 841, 867-869 [hereafter Roberts, Good Faith Settlement].)
The foregoing history of section 877.6 confirms that the Legislature intended the phrase "good faith" -- which originally appeared in section 877 [43 Cal. 3d 897] and was repeated in section 877.6 -- simply to require noncollusive conduct. No more and no less.
In concluding that section 877 requires more of the parties to a sliding scale recovery agreement than simply noncollusion, the majority rely on the decision in Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal. 3d 488 [213 Cal. Rptr. 256, 698 P.2d 159]. The premise fundamental to the [43 Cal. 3d 898] analysis of both Tech-Bilt (38 Cal.3d at pp. 494-496) and the majority opinion (ante, at pp. 871-872) is that section 877 "ha[s] two major goals: the equitable sharing of costs among the parties at fault and the encouragement of settlements" (id. at p. 872). It is on this premise that their construction of the phrase "good faith" rests: since, they assume, section 877 serves "the equitable sharing of costs among the parties at fault" as well as "the encouragement of settlements," the phrase must be interpreted not simply to require that the plaintiff and the settling defendant refrain from collusive conduct intended to prejudice the interests of the nonsettling defendants, but also to require that the "'amount of the settlement is within the reasonable range of the settling tortfeasor's proportional share of comparative liability for the plaintiff's injuries'" (maj. opn., ante, p. 873, italics deleted [quoting Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d at p. 499]).
Moreover, there is nothing in the language of section 877 suggesting that it was intended to further the equitable sharing of costs among parties adjudged liable for the plaintiff's injury. Contrary to the majority's implication (ante, at pp. 872-873), subdivision (a) of section 877 -- declaring that a good faith settlement "shall reduce the claims against [the nonsettling defendants] 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" -- does not establish that the provision serves equitable sharing as well as the encouragement of settlements. Rather, subdivision (a) reveals only a legislative intent to bar double recovery. (De Cruz v. Reid (1968) 69 Cal. 2d 217, 225-226 [70 Cal. Rptr. 550, 444 P.2d 342].)
There is also nothing in the history of section 877 suggesting that it was intended to further the equitable sharing of costs among parties adjudged liable for the plaintiff's injury. It is true that the official explanation presented by the State Bar together with its 1955 legislative proposal and adopted by the Senate Committee on Judiciary for S.B. 412 (Jud. Com. Third Prog. Rep., supra, pp. 52-53) -- and reprinted for S.B. 1510 in 1957 (Jud. Com. Fourth Prog. Rep., supra, pp. 130-131) -- evidences the equitable-sharing [43 Cal. 3d 899] goal. That text, however, cannot be understood to refer in any way to what was to become section 877: the State Bar's 1955 legislative proposal dealt only with contribution among joint tortfeasors and not with release from contribution, and specifically did not contain a source-provision for section 877. Further, an intent to promote equitable sharing is plainly absent from the comment of the National Conference of Commissioners on section 4 of the Uniform Act. (12 U.L.A., U. Contrib. Act, supra, § 4, Commrs. Com., pp. 98-100.)
The statutory scheme codified in chapter 1 of title 11 of part 2 of the Code of Civil Procedure abrogrates the common law's rule that barred contribution -- and thereby prevented equitable sharing -- postjudgment. (Code Civ. Proc., §§ 875, 876, 878.) By dealing only with the situation that obtains "Where a money judgment has been rendered" (id., § 875), the statutory scheme "leav[es] the common law anti-contribution rule to prevail before judgment." (River Garden Farms, Inc. v. Superior Court (1972) 26 Cal. App. 3d 986, 999 [103 Cal. Rptr. 498]; accord, Guy F. Atkinson Co. v. Consani (1963) 223 Cal. App. 2d 342, 344 [35 Cal. Rptr. 750]; American Can Co. v. City & County of San Francisco (1962) 202 Cal. App. 2d 520, 523 [21 Cal. Rptr. 33]; see also Note, Sliding Scale Agreements and the Good Faith Requirement of Settlement Negotiation (1980) 12 Pacific L.J. 121, 126 ["The restriction of the right of contribution to judgment debtors meant an equitable allocation was not available to ... [other] parties"].) It follows that since the Legislature failed to abrograte the common law rule, which prevents equitable sharing, insofar as that rule operates prejudgment, it must not have intended section 877 -- which expressly governs only releases given "before verdict or judgment" -- to further equitable sharing.
The legislative history of section 877 confirms what the statutory scheme clearly implies -- i.e., the provision was not intended to promote the goal of equitable sharing. As explained above, on the basis of all the available evidence it must be presumed that in enacting section 877 the Legislature had the same intent that the National Conference of Commissioners had in drafting section 4 of the Uniform Act. Contrary to what the Tech-Bilt court suggested (38 Cal.3d at p. 494 & fn. 4), the commissioners did not intend the provision to further equitable sharing and did not intend the phrase "good faith" to require anything more of the plaintiff and the settling defendant than that they simply refrain from collusive conduct intended to prejudice the interests of the nonsettling defendants. [43 Cal. 3d 900]
The unsoundness of the construction of the phrase "good faith" that the majority opinion and Tech-Bilt have adopted is revealed by its consequences -- which are plainly contrary to what the Legislature intended. If the phrase is read to require the settling defendant to pay an amount within the reasonable range of his proportional share of comparative liability for the plaintiff's injury, rather than simply to require the plaintiff and the settling defendant to refrain from collusive conduct intended to prejudice the interests of the nonsettling defendants, then the section 877.6 "good faith" hearing -- as even Professor Roberts, who agrees with the broad construction [43 Cal. 3d 901] of the phrase, is compelled to admit (see Roberts, Good Faith Settlement, supra, 17 Loyola L.A. L.Rev. at pp. 910, 932) -- is rendered more complex, thereby discouraging settlement and increasing court congestion and causing complex trials to proliferate. fn. 2 Such consequences, however, are the very evils the Legislature sought to eradicate by enacting section 877.6.
Therefore, the fundamental premise shared by Tech-Bilt (38 Cal.3d at pp. 494-496) and the majority opinion (ante, pp. 871-872) is unsound: as explained above, section 877 was not intended to further the goal of equitable sharing of costs among parties adjudged liable for the plaintiff's injury. [43 Cal. 3d 902]
FN 1. Section 877.5, subdivision (b) of the Code of Civil Procedure defines "sliding scale recovery agreement" for purposes of that section as "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."
FN 2. Unless otherwise noted, all section references are to the Code of Civil Procedure.
FN 3. Smith's husband's cause of action against all defendants was based on loss of consortium.
FN 4. There was no objection at the good faith hearing to the court's consideration of evidence relating to the settlement negotiations of the parties.
FN 5. Abbott's liability insurance policy provided coverage of $3.25 million.
FN 6. The settlement agreements disclose that plaintiffs had previously settled their case against Sneed for $25,000, the amount of Sneed's liability insurance.
FN 7. In the papers filed in the trial court, Ford and Sears both conceded that if the sliding scale agreements were held not to be "good faith" settlements, and thus -- by virtue of the terms of the agreements -- Abbott became obligated to pay plaintiffs $3 million outright, that $3 million payment would be proportional to Abbott's fair share of the damages and would constitute a good faith settlement, absolving Abbott of any further liability to either Ford or Sears.
FN 8. While this matter was pending here, the parties informed us that the case has been fully settled. Nonetheless, noting the importance of the issue and the need for a prompt decision on the question from this court, the parties have urged us to retain the case and decide the general legal issues presented.
Past decisions make it clear that, in appropriate circumstances, we may retain and decide a case even when the particular controversy is technically moot. "There is ample precedent for appellate resolution of important issues of substantial and continuing public interest which otherwise may have been rendered moot and of no further immediate concern to the initiating parties. [Citation.]" (DeRonde v. Regents of University of California (1981) 28 Cal. 3d 875, 880 [172 Cal. Rptr. 677, 625 P.2d 220]; John A. v. San Bernardino City Unified School Dist. (1982) 33 Cal. 3d 301, 307 [187 Cal. Rptr. 472, 654 P.2d 242].) We have concluded that it is appropriate to follow that course here.
FN 9. The term "Mary Carter" agreement is derived from the name of one of the earliest cases involving such an agreement, Booth v. Mary Carter Paint Company (Fla.App. 1967) 202 So. 2d 8. In Maule Industries, Inc. v. Rountree (Fla.App. 1972) 264 So. 2d 445, 446, footnote 1, the court observed that the term "appears to be used rather generally to apply to any agreement between the plaintiff and some (but less than all) defendants whereby the parties place limitations on the financial responsibility of the agreeing defendants, the amount of which is variable and usually in some inverse ratio to the amount of recovery which the plaintiff is able to make against the nonagreeing defendant or defendants."
Such agreements are also occasionally referred to by other terms. In Arizona, this type of agreement is generally known as a "Gallagher covenant," from the case of City of Tucson v. Gallagher (1971) 14 Ariz.App. 385 [483 P.2d 798] which dealt with such an agreement. At least one commentator has referred to such an agreement as a "guaranteed verdict agreement." (Bodine, The Case Against Guaranteed Verdict Agreements (1980) 29 Def.L.J. 233.) Where the agreement takes the form of a loan, it is sometimes called a "loan receipt agreement" (McKay, Loan Agreement: A Settlement Device that Deserves Close Scrutiny (1976) 10 Val.U.L.Rev. 231), though the "loan receipt" terminology derives from a distinct device developed in the admiralty insurance field. (See Luckenbach v. W.J. McCahan Sugar Ref. Co. (1918) 248 U.S. 139 [63 L. Ed. 170, 39 S. Ct. 53, 1 A.L.R. 1522]; see also Bolton v. Ziegler (N.D.Iowa 1953) 111 F. Supp. 516, 527.)
FN 10. The titles of many of the law review articles make this quite clear. (See, e.g., Bodine, The Case Against Guaranteed Verdict Agreements, supra, 29 Def.L.J. 233; Freedman, The Expected Demise of "Mary Carter": She never Was Well!: (1975) 633 Ins.L.J. 602; McKay, Loan Agreement: A Settlement Device that Deserves Close Scrutiny, supra, 10 Val.U.L.Rev. 231; Scoby, Loan Receipts and Guaranty Agreements (1975) 10 Forum 1300; Note, Are Gallagher Covenants Unethical?: An Analysis Under the Code of Professional Responsibility (1977) 19 Ariz.L.Rev. 863; Comment, Gallagher Covenants, Mary Carter Agreements and Loan Receipt Agreements: Unsettling Contributions to Conflict Resolution, 1977 Ariz.St.L.J. 117; Note, Mary Carter in Arkansas: Settlements, Secret Agreements, and Some Serious Problems (1983) 36 Ark.L.Rev. 570; Comment, Blending Mary Carter's Colors: A Tainted Covenant (1977) 12 Gonz.L.Rev. 266; Comment, Sliding Scale Agreements and the Good Faith Requirement of Settlement Negotiation (1980) 12 Pacific L.J. 121; Note, The Mary Carter Agreement -- Solving the Problems of Collusive Settlements in Joint Tort Actions (1974) 47 So.Cal.L.Rev. 1393; Comment, Mary Carter Agreements: Unfair and Unnecessary (1978) 32 Sw.L.J. 779; Comment, Mary Carter Agreements: A Viable Means of Settlement? (1979) 14 Tulsa L.J. 744; Note, "Mary Carter" Limitation on Liability Agreements Between Adversary Parties: A Painted Lady Is Exposed (1974) 28 U. Miami L.Rev. 988.)
FN 11. As one court observed: "[T]he number of variations of the so-called 'Mary Carter Agreement' is limited only by the ingenuity of counsel and the willingness of the parties to sign." (Maule Industries, Inc. v. Rountree, supra, 264 So. 2d 445, 447.)
FN 12. In Dompeling, the settling defendant made a noncontingent payment of $100,000 -- the limits of his insurance policy -- and guaranteed plaintiff up to an additional $10,000 under a sliding scale arrangement. In Torres, the settling defendant made a noncontingent payment of $50,000 and provided an additional $150,000 guaranty on a sliding scale basis.
FN 13. In Rogers & Wells, the settling defendants provided guaranties totaling $3.9 million; plaintiffs' claims against all defendants in that litigation exceeded $90 million.
FN 14. Section 877 provides in full: "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 -- [¶] (a) It shall not discharge any other such tortfeasor 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; and [¶] (b) It shall discharge the tortfeasor to whom it is given from all liability for any contribution to any other tortfeasors."
FN 15. Although several Court of Appeal opinions have suggested that there is an established "hierarchy" or "priority" to the various public policy objectives in this area that can be applied in all contexts (see, e.g., Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal. App. 3d 492, 496 [147 Cal. Rptr. 262]; Fisher v. Superior Court (1980) 103 Cal. App. 3d 434, 446-447 [163 Cal.Rptr. 47]), our decisions have never embraced any such mechanical hierarchical approach. Instead, we have generally attempted to harmonize the competing public policies, taking into account the specific context in which the potential conflict between the various policies appears. Accordingly, the fact that we have determined, in one setting, that a particular goal should properly give way to another objective, does not mean that the goal that prevailed should always "trump" the competing objective when a conflict arises between the two in a different setting. For example, while we determined in American Motorcycle Assn. v. Superior Court, supra, 20 Cal. 3d 578, that the long-established joint-and-several-liability doctrine should be preserved in part because it furthered the state interest in ensuring that an injured plaintiff is adequately compensated for his loss (see 20 Cal.3d at p. 590), in that same decision we also held the injured party's interest in "maximizing" his recovery could not justify preserving the plaintiff's control over litigation by prohibiting a defendant from joining other tortfeasors who were also responsible for damages. (See 20 Cal.3d at p. 606.)
FN 16. The dissent takes issue with our interpretation of the term "good faith" as it is used in section 877. According to the dissent, "good faith" under section 877 "simply requires noncollusive conduct" on the part of the settling parties. However, as noted above, we considered and rejected that very contention in our recent decision in Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal. 3d 488 [213 Cal. Rptr. 256, 698 P.2d 159]. We find no compelling reason to reexamine or overturn the conclusions reached in Tech-Bilt.
FN 17. For a comprehensive examination of this factor, see Roberts, The Financial Condition and Insurance Policy Limits of a Joint Tortfeasor Wishing to Settle in Good Faith: Problems of Discovery and Confidentiality (1986) 26 Santa Clara L.Rev. 63.
FN 18. Section 877.5, subdivision (a) 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."
FN 19. The documents considered by the relevant legislative committees referred to section 877's good faith requirement and to the application of the good faith standard in River Garden Farms. (See, Comment, Sliding Scale Agreements and the Good Faith Requirement of Settlement Negotiation, supra, 12 Pacific L.J. 121, 139.)
FN 20. During settlement negotiations, it will be recalled, Abbott agreed to bear 70 percent of its proposed $2.5 million settlement, and plaintiffs' settlement conference memorandum clearly designated Abbott as the principal tortfeasor.
FN 21. Past California cases involving sliding scale agreements have generally suggested that where the settling defendant has made no noncontingent payment to the plaintiff, but has simply guaranteed a certain recovery or provided a loan, no deduction from the plaintiff's claims against other defendants is warranted on the ground that "there was no amount or consideration actually paid" to the plaintiff. (See, e.g., Pease v. Beech Aircraft Corp. (1974) 38 Cal. App. 3d 450, 473 [113 Cal. Rptr. 416].) Indeed, some Court of Appeal decisions have suggested that because no outright "payment" is made in such a sliding scale transaction, the agreement should not be considered a "settlement" for purposes of section 877 at all. (See, e.g., Riverside Steel Construction Co. v. William H. Simpson Construction Co. (1985) 190 Cal. App. 3d 1175, 1191.) As explained below, however, we conclude that from a realistic standpoint a settling defendant does "pay" some "consideration" whenever it enters into a sliding scale agreement and that it is both proper and necessary for a trial court to assess the accuracy of the parties' valuation of consideration in determining whether the settlement is in good faith so as to relieve the settling defendant of liability for comparative indemnification or contribution. The past cases which have permitted plaintiffs to obtain the benefits of such agreements without recognizing the necessity of a corresponding reduction in the plaintiffs' claims against the remaining defendants have overlooked the relationship between the "immunity" from contribution afforded by section 877, subdivision (b) and the reduction in the plaintiff's claims against the remaining defendants provided by section 877, subdivision (a).
A number of out-of-state decisions have recognized the potential unfairness to nonsettling defendants if an offset is not permitted in this setting, and have reduced the plaintiff's claims against the remaining defendants by the amount of the loans or repayable "advances" that the plaintiff has received from the settling defendant. (See, e.g., Bolton v. Ziegler, supra, 111 F. Supp. 516; Cullen v. Atchison, Topeka & Santa Fe Railway Co. (1973) 211 Kan. 368, 377 [507 P.2d 353]; Monjay v. Evergreen School Dist. No. 114 (1975) 13 Wn. App. 654 [537 P.2d 825].) However, for the reasons stated in this opinion, we believe that the value placed on the sliding scale agreement by the parties to the agreement -- assuming it meets the Tech-Bilt standards -- is the proper amount of set off under section 877.
FN 22. Requiring the parties to a sliding scale agreement to set a value on the agreement is not inconsistent with section 877.6, subdivision (d), which provides that "[t]he party asserting the lack of good faith shall have the burden of proof on that issue"; under the proposed approach, the nonsettling defendant or defendants would still bear the burden of proving the lack of good faith. Section 877.6, subdivision (d) is not addressed to the question of who should establish the "amount of the consideration" which the settling party has paid to the plaintiff. Inasmuch as an assessment of the amount of the consideration may turn on facts within the peculiar knowledge of the parties to the agreement, it appears appropriate to place on them the burden of assigning a value to the consideration.
FN 23. In those cases in which the trial court is called on to assess the accuracy of the settling parties valuation of the guaranty, the court may not be able to do more than simply make its best estimate, taking into account the size of the guaranty figure and the likelihood that the settling defendant will actually have to pay out either that amount or some lesser sum. (Pollak, Sliding Scale Recovery Agreements After Tech-Bilt (Cont.Ed.Bar 1986) 8 Civ. Litigation Rptr. 121, 124-125 [hereafter Pollak].)
FN 24. In evaluating the "reasonableness" or "good faith" of a nonsettling defendant's negotiating conduct, it may be particularly appropriate for the court that is making the good faith settlement determination to take into account whether the sliding scale agreement was the product of the efforts of a settlement judge.
FN 25. That "ballpark" figure may or may not be the same as the "value" of the sliding scale agreement, depending on the specifics of the sliding scale agreement and the facts of the particular case. Although -- as we have explained above -- the consideration which a settling defendant pays by entering into a sliding scale agreement must at a minimum fall within the "ballpark" of its fair share of comparative liability if the settling defendant is to gain immunity from its codefendants' claims for comparative indemnity, in some cases the plaintiff may be unwilling to settle for the settling defendant's minimum ballpark figure and the parties may agree to a sliding scale agreement that is more costly to the settling defendant. In those cases, the "value" of the sliding scale agreement and the settling defendant's minimum "ballpark" figure will differ, and a veto provision may be valid even if it is pegged to a figure that differs from the value of the sliding scale agreement. As noted above, however, a settling defendant may only reserve the right to veto a subsequent settlement that will result in its bearing an unfair share of the plaintiff's damages.
FN 26. Some out-of-state decisions have found such loan agreements invalid as violative of the common law doctrines of champerty and maintenance, which generally preclude a "stranger" to a lawsuit from financing the litigation in return for a portion of any recovery. (See, e.g., Lum v. Stinnett, supra, 87 Nev. 402 [488 P.2d 347].) California, however, has never adopted the common law doctrines of champerty and maintenance (see, e.g., Estate of Cohen (1944) 66 Cal. App. 2d 450, 458 [152 P.2d 485]; Cain v. Burns (1955) 131 Cal. App. 2d 439, 443 [280 P.2d 888]; Muller v. Muller (1962) 206 Cal. App. 2d 731, 733 [23 Cal.Rptr. 900]), and thus the fact that a settlement takes the form of such a loan does not in itself render the settlement invalid.
FN 27. The rapid increase in the attractiveness of such agreements to plaintiffs in recent years may have been based, in large part, on the fact that prior decisions have permitted plaintiffs to receive the substantial benefits of sliding scale agreements without any corresponding reduction in their claims against the remaining defendants.
FN 1. Section 877 provides as follows: "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 --
FN 2. Contrary to Tech-Bilt's implication, the Legislature's enactment of section 877.6 does not affect the correctness of the "noncollusion" reading of the phrase "good faith." The relevant discussion in that opinion is as follows.
FN 3. I find the repeated use of the expression "in the ballpark" in both the majority and concurring opinions to be disturbing. While it may be accepted in current vernacular, I suggest it may puzzle the reader of this text 25 or 50 years from today. We are, of course, writing not merely for the moment but for future guidance of the bench and bar.