Opinion ID: 6985046
Heading Depth: 3
Heading Rank: 3

Heading: Circumstances Surrounding the Settlement Agreement and the Good-Faith Order

Text: Applying the totality-of-the-circumstances analysis to the facts here, one important circumstance that suggests that the settling parties were not acting in good faith” is the manner in which they obtained approval of the settlement agreement and the good-faith order. The record reveals that the settling parties made a calculated effort to deprive the probate court of knowledge of the entire circumstances surrounding the settlement agreement. The record also reveals that the settling parties sought to obtain the good-faith order in a manner calculated to deprive nonsettling parties, whose contribution rights were cut off by such an order, of notice and the opportunity to object to a finding that the settlement agreement was made in good faith. As stated, the parties sought a finding that their presuit settlement agreement was made in good faith even though Babb’s estate had not yet filed a tort action against any potential defendants and no contribution action was yet pending against the City. In the ordinary case, the judiciary plays no role in presuit settlement agreements and the decision to settle rests solely in the discretion of the settling parties. If the parties to a presuit settlement want to obtain a good-faith” order, they ordinarily must either wait until the injured party files a tort action or institute a declaratory judgment action (735 ILCS 5/2 — 701 (West 1992)) before they may ask the court to enter a good-faith finding. Under these ordinary circumstances, all potential parties would receive notice and an opportunity, at least, to intervene. See 7 C. Nichols, Illinois Civil Practice § 6985, at 266 (rev. 1989) (all persons whose rights or liabilities may be affected by a declaratory judgment should be brought into the action, and those whose rights and liabilities will be necessarily affected, the indispensable parties, must be subjected to jurisdiction). Here, however, a guardianship proceeding was pending in the probate court at the time the City and Babb’s estate agreed to settle. Therefore, the settling parties had access to a forum where they could bring the settlement agreement to the attention of a trial court. The parties also chose that forum to seek a finding that the settlement agreement was made in good faith, and to thereby extinguish the City’s potential contribution liability to nonsettling parties. When the settling parties first brought the settlement agreement to the probate court’s attention, however, they misrepresented the terms of the agreement. The petition to approve the settlement agreement simply alleged that Babb’s estate agreed to release the City from secondary liability in exchange for payment of $400,000 from the City’s insurer. The probate court entered an order approving the settlement based on the terms described in the petition. It was only after the City filed a petition asking the probate court to enter a good-faith order that the actual terms of the settlement agreement were disclosed to the probate court. After reviewing the terms of the actual settlement agreement, the probate court sent letters to each party informing them that the agreement was not fully — and in the court’s view, adequately— described in the March 13 Petition for Approval to Settle.” The probate court’s letter pointed out that several parts of the actual settlement agreement had not been adequately described, including the clause containing loan-receipt provisions that required Babb’s estate to repay $350,000 of the $400,000 settlement figure. The letter concluded by stating that the probate court did not grant Babb’s guardian approval to enter into the settlement agreement and would not decide whether the settlement was made in good faith. The settling parties thereafter submitted a revised petition to approve the settlement and a petition for a good-faith finding to the probate court. Although the revised petition accurately described the terms of the settlement agreement, notice of the petition and of the motion for a good-faith finding was served only upon counsel for one potential defendant, Roesch. As stated, Roesch intervened in the proceeding before the probate court and strenuously objected to the petition for a good-faith finding. The defendant/intervenors were not notified of the petition for a good-faith finding, however, even though the sole purpose of that finding was to extinguish the City’s contribution liability to those same defendant/ intervenors, whom the plaintiff planned to sue in the immediate future. Although no tort action was pending at the time of the good-faith hearing, the settling parties and the probate court were certainly aware of the fact that further litigation was contemplated. The petition to approve the settlement agreement alleged that Babb’s estate’s attorney intended to bring a tort action for Babb’s injuries. Moreover, the record reveals that the settling parties knew the identity of the nonsettling tortfeasors whose right to contribution they sought to extinguish. The petition to approve the settlement agreement stated that potential defendants in the tort action included the manufacturer of, distributor of, modifier of, and suppliers of the truck from which Babb fell. These potential defendants were also identified in court at the hearing to approve the settlement agreement. In fact, shortly after obtaining the good-faith order, Babb’s estate’s attorney filed a products liability action against those same defendants. The defendant/interveners, whose identity was known and whose right to contribution was purportedly extinguished by the good-faith order, had a financial stake in the amount of the settlement and, thus, a legitimate interest in receiving notice and an opportunity to challenge the petition for a good-faith finding. We find that the failure to notify them, in an attempt to prevent their objections to the petition for a good-faith finding, is a circumstance which suggests that the settling parties were not acting in good faith. Our courts have held that a trial court has discretion to determine what procedure to follow when settling parties request a good-faith finding. In the ordinary case, the settling parties’ desire to protect their own interests and a limited supervisory role by the trial court may be sufficient to prevent settlement agreements that are substantially unfair to nonsettling parties. The unique combination of factors in the instant case, however, is a circumstance that suggests a lack of good faith on the part of the settling parties. These factors include: (1) the fact that the settling parties sought a good-faith finding during the guardianship proceedings in the probate court, instead of instituting a declaratory judgment action or waiting until after the tort action was filed; (2) the fact that the settling parties misrepresented the terms of the settlement agreement to the probate court in the initial petition for approval of the settlement agreement; and (3) the fact that the settling parties failed to notify potential defendants whose right to contribution would be extinguished by the good-faith order, even though the parties knew the identity of those potential defendants and knew that litigation against such defendants was specifically contemplated in the future. As to this third factor, we find it significant that such notice would have been given had the settling parties sought the good-faith order after a tort action or declaratory judgment action was filed. The combination of these three factors is one circumstance that suggests that the settling parties were not acting in good faith. Because we are applying a totality-of-the-circumstances analysis, however, we do not rest our conclusion that the trial court abused its discretion in entering the good-faith order on this circumstance alone. Rather, other circumstances, including the inequitable terms included within the settlement agreement, also persuade us that the good-faith order was an abuse of discretion.