Opinion ID: 688767
Heading Depth: 2
Heading Rank: 2

Heading: Equitable Indemnity

Text: 35 State law questions are reviewed de novo. Salve Regina College v. Russell, 499 U.S. 225, 231-34, 111 S.Ct. 1217, 1221-22, 113 L.Ed.2d 190 (1991).
36 The district court held that to establish a right to equitable indemnity under California law, National Union had to show 1) that its contribution to the settlement was reasonable in light of its own potential liability to the Campos family, and 2) that Showa also had exposure to the Campos family so that it was equitable to have Showa contribute to the settlement. The district court cited Mullin Lumber v. Chandler, 185 Cal.App.3d 1127, 1131-34, 230 Cal.Rptr. 122, 124-26 (1986), and Tatum v. Armor Elevator Co., 203 Cal.App.3d 1315, 1320, 250 Cal.Rptr. 775, 779 (1988), to support this proposition. The court held that a finding of actual negligence on Showa's part was not necessary to support an equitable indemnity claim. Showa contests this conclusion. 37 No California case has directly ruled on the issue of whether a party seeking contribution under a theory of equitable indemnity must prove the actual fault of the party from whom he seeks contribution. The Mullin Lumber and Tatum courts merely held that in the interest of promoting settlement, a settling defendant need not prove its own fault before seeking indemnity against others whom it alleges contributed to the plaintiff's injury. Mullin Lumber, 185 Cal.App.3d at 1132, 230 Cal.Rptr. at 124; Tatum, 203 Cal.App.3d at 1321, 250 Cal.Rptr. at 779. Thus, these cases do not resolve the issue of the necessity of proving the potential indemnitor's actual negligence. 38 Based on the available California equitable indemnity case law, we conclude that National Union must prove more than mere potential liability in order to obtain contribution from Showa for the settlement it reached in the underlying action. 39 California courts adopted the equitable indemnity rule to ensure that liability for an indivisible injury caused by concurrent tortfeasors [would] be borne by each individual tortfeasor 'in direct proportion to [his] respective fault....'  GMC v. Doupnik, 1 F.3d 862, 865-66 (9th Cir.1993) (citing American Motorcycle Ass'n v. Superior Court, 20 Cal.3d 578, 598, 146 Cal.Rptr. 182, 195, 578 P.2d 899 (1978)); see also Tatum, 203 Cal.App.3d at 1319-20, 250 Cal.Rptr. at 778 (equitable indemnity is intended to prevent unjust enrichment of one party at the expense of another). However, California law permits a concurrent tortfeasor to obtain equitable indemnity only from another concurrent tortfeasor. GMC, 1 F.3d at 866 (citing Munoz v. Davis, 141 Cal.App.3d 420, 524, 190 Cal.Rptr. 400, 403 (1983) (There can be no indemnity without liability[;] ... [u]nless the prospective indemnitor and indemnitee are jointly and severally liable to the plaintiff there is no basis for indemnity.)); see also GEM Developers v. Hallcraft Homes of San Diego, Inc., 213 Cal.App.3d 419, 430, 261 Cal.Rptr. 626, 632 (1989). In order to obtain contribution, [t]he settling defendant would still have to prove fault on the part of the nonsettling defendant contributed to the plaintiff's injuries.... [T]he obligation to indemnify is triggered by proof the party from whom indemnity is sought was itself at fault in causing the injury. Mullin Lumber, 185 Cal.App.3d at 1134, 230 Cal.Rptr. at 126 (citing American Motorcycle, 20 Cal.3d at 607, 146 Cal.Rptr. 182, 578 P.2d 899). These cases indicate that to obtain indemnity from an alleged joint tortfeasor, the settling defendant must show that the nonsettling defendant is at fault. Fault must mean more than potential liability; if the nonsettling party were only potentially liable, there would be no unjust enrichment. Absent unjust enrichment, there is no need for equitable indemnity. 40 Mullin Lumber and Tatum emphasize that settlements should be encouraged and that each party should be allowed to make a reasonable assessment of his potential liability when deciding to settle the case. See Mullin Lumber, 185 Cal.App.3d at 1134, 230 Cal.Rptr. at 125-26. If a party chooses to settle, he should not be penalized by being precluded from seeking indemnity from other parties who are also liable. However, by the same token, other potentially liable parties should not be penalized by one party's decision to settle its own claims. Each nonsettling party is entitled to make an assessment of its potential liability and possibility of success at trial; it should not be forced to pay a settlement to which it did not agree in the absence of a showing of actual fault and liability on its part. 41 In the instant case, the district court found only that the Campos family had an arguable theory of liability against Showa. National Union chose to settle with the Campos family due to its belief that it was exposed to liability in the underlying action. National Union had no authority to decide for Showa the extent, if any, of Showa's exposure in the lawsuit. Absent a showing of the actual liability of Showa, Showa is not unjustly enriched at National Union's expense. Accordingly, the district court erred in finding that potential liability was a sufficient basis for an equitable indemnity claim. 42 On appeal, both parties spend a great deal of time arguing the issue of whether Showa was negligent. 8 While the district court found that there was a custom that prevented trailers from being interchanged without a written agreement and such a custom was evidence of negligence, custom is not dispositive of the issue of negligence. Accordingly, we remand the issue of Showa's negligence as it turns on factual issues more properly decided by a trier of fact.