Opinion ID: 2584095
Heading Depth: 3
Heading Rank: 1

Heading: The Tech-Bilt proportionate liability standard of good faith

Text: In Tech-Bilt, the California Supreme Court addressed the meaning of the phrase settlement ... made in good faith as it appeared in Cal.Civ.Proc.Code (CCPC) §§ 877 and 877.6 (West 1980 and Supp. 2003), [17] as a matter of first impression, and essentially adopted the standard of good faith previously formulated by the California Court of Appeal in River Garden Farms, Inc. v. Superior Court, 26 Cal.App.3d 986, 103 Cal.Rptr. 498 (1972), which has come to be known as the proportionate liability test. The plaintiffs in Tech-Bilt were homeowners who filed a complaint, inter alia, against Tech-Bilt (their developer) and Woodward-Clyde (their soil engineers) seeking damages for structural defects in their residence. 213 Cal.Rptr. 256, 698 P.2d at 161. The plaintiffs' action against Woodward-Clyde was barred by the applicable statute of limitations. Id. Rather than file a motion for summary judgment, however, Woodward-Clyde offered to waive any claims against the plaintiffs for costs incurred in defending the action, which amounted to $55.00, if the plaintiffs agreed to dismiss their claim against Woodward-Clyde with prejudice. [18] Id. Woodward-Clyde subsequently moved for (1) a determination that the settlement was given in good faith under the terms of CCPC § 877.6 and (2) summary judgment with respect to Tech-Bilt's cross-claim for indemnity and declaratory relief, pursuant to CCPC § 877. Id. The trial court conducted a hearing, determined that the settlement was given in good faith, and granted summary judgment in Woodward-Clyde's favor and against Tech-Bilt on the latter's cross-claim. Tech-Bilt appealed. Id. The California Supreme Court began its analysis by reviewing the legislative history of CCPC §§ 877 and 877.6. Relying upon River Garden Farms, the Tech-Bilt majority asserted that `[t]he major goals of the 1957 tort contribution legislation,' which promulgated CCPC § 877, were `equitable sharing of costs among the parties at fault, and ... encouragement of settlements.' [19] Id. 213 Cal.Rptr. 256, 698 P.2d at 163 (quoting River Garden Farms, Inc., 103 Cal.Rptr. at 503). The majority noted that the good faith provision of CCPC § 877 substantially parallels the language of section 4 of the proposed [UCATA] as revised in 1955 and maintained, once again relying upon River Garden Farms, that [t]he commissioners' comment to section 4, see infra note 32, clearly indicates that the good faith language was added to give the courts occasion to review settlements between a plaintiff and one of several tortfeasors to determine whether they prejudiced the interests of a nonsettling tortfeasor. Id. 213 Cal.Rptr. 256, 698 P.2d at 163 n. 4 (citing River Garden Farms, 103 Cal.Rptr. at 505). Accordingly, the Tech-Bilt majority reasoned that [t]he 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. Id. 213 Cal.Rptr. 256, 698 P.2d at 163 (quoting River Garden Farms, Inc., 103 Cal.Rptr. at 506). Moreover, the Tech-Bilt majority noted that the legislature's 1980 enactment of CCPC § 877.6 codified the court's recent holding in American Motorcycle Ass'n v. Superior Court, 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899 (1978), to the effect that a section 877 settlement bars claims for partial or comparative indemnity as well as for contribution and reiterated the proviso that settlements must be given in good faith in order to bar such claims. Id. 213 Cal.Rptr. 256, 698 P.2d at 164. American Motorcycle had cited River Garden Farms to explicate the meaning of the phrase `good faith settlement' under section 877. Id. (citing American Motorcycle, 146 Cal.Rptr. 182, 578 P.2d at 899). Therefore, the Tech-Bilt majority concluded that the relevant legislative history strongly suggests that the Legislature intended the term `good faith' in section 877.6 [also] to bear the meaning ascribed to that term in section 877 by the Court of Appeal's decision in River Garden Farms[.] Id. In River Garden Farms, 103 Cal.Rptr. at 505, the California Court of Appeal held that [p]revention of collusion is but a means to the end of preventing unreasonably low settlements which prejudice a nonparticipating tortfeasor. The price of a settlement is the prime badge of its good or bad faith. The lawsuit in River Garden Farms arose from a fire that killed both parents of two minor children, who themselves suffered serious and permanent disfigurement and physical handicaps. 103 Cal.Rptr. at 501. The children filed suit to recover damages for their own injuries and asserted claims under the state's wrongful death statute for the deaths of their parents. Id. The children reached settlements with three of the four named defendants, leaving River Garden Farms (RGF) as the sole remaining defendant. The trial court approved the settlements. Id. at 501-02. On appeal, RGF did not object to the amounts paid in settlement by its joint tortfeasors; neither did it allege collusion or other inequitable conduct on their part. Rather, RGF charged the plaintiff children with bad faith in their allocation of the settlement amounts as between their personal injury and wrongful death claims. Id. at 502. Specifically, RGF complained that the plaintiffs allocated $800,000 of their settlement proceeds to the wrongful death claims and only $490,000 to their personal injury claims, despite the fact that they were likely to recover significantly more by virtue of the latter claims. Id. The River Garden Farms court noted the linguistic similarity between the good faith clause appearing in CCPC § 877, see supra note 17, and the UCATA, § 4, see supra note 15, which it believed establishes an inference that the committee amendment sought to accomplish the `fair share' objective described in the comments of the Commissioners on Uniform laws. Id. at 505. The River Garden Farms court declared that [t]he Uniform Law Commissioners accompanied their 1955 revision with a statement declaring that the good faith clause gives the court occasion to determine whether the transaction was collusive, and if so there is no discharge; that lack of such a provision in the original draft had impeded approach to the goal 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.... Id. In light of its reading of the commissioners' comment, the River Garden Farms court concluded that [t]he notion of collusion advanced by the Uniform Law Commissioners implies something more than mere confederacy. Any negotiated settlement involves cooperation, but not necessarily collusion. It becomes collusive when it is aimed to injure the interests of an absent tortfeasor. Although many kinds of collusive injury are possible, the most obvious and frequent is that created by an unreasonably cheap settlement. Applied pro tanto to the ultimate judgment, such a settlement contributes little toward equitableeven though unequalsharing.... [U]nreasonably low settlements with the other tortfeasors and the fear of a large unshared judgment may propel the last remaining defendant into a settlement exceeding the plaintiff's remaining damages and transcending that defendant's equitable share. Id. The River Garden Farms court explained that while a precise definition of good faith was impossible to formulate, the price is the immediate signal for the inquiry into good faith, but only one of the many factors influencing the finding. Id. at 506. In order to achieve the statute's objective of encouraging settlements that are equitable, the good faith clause should not invalidate a settlement within a reasonable range of the settlor's fair share. [20] Id. In light of River Garden Farms, the majority in Tech-Bilt held that the intent and policies underlying section 877.6 require that a number of factors be taken into account including a rough approximation of plaintiffs' total recovery and the settlor's proportionate liability, the amount paid in settlement, the allocation of settlement proceeds among plaintiffs, and a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial. Other relevant considerations include the financial conditions and insurance policy limits of settling defendants, as well as the existence of collusion, fraud, or tortious conduct aimed to injure the interests of nonsettling defendants. 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. The party asserting the lack of good faith, who has the burden of proof on that issue (§ 877.6, subd. (d)), 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. 213 Cal.Rptr. 256, 698 P.2d at 166-67 (citations omitted) (brackets in original). Consequently, the Tech-Bilt majority held that the settlement between the plaintiffs and Woodward-Clyde was not made in good faith. The majority noted that plaintiffs received nothing in return for the dismissal of their action against Woodward-Clyde except relief from having to pay Woodward-Clyde's costs because they were wrongfully sued. The same net situation would have existed if, mindful of the running of the statute of limitations against them, plaintiffs had not sued Woodward-Clyde in the first place. To say that section 877.6 cloaks Woodward-Clyde with immunity from liability to joint tortfeasors under these circumstances would not serve the goal of encouraging settlement, and it would frustrate the goal of allocating costs equitably among multiple tortfeasors. Id. 213 Cal.Rptr. 256, 698 P.2d at 168. Chief Justice Bird dissented from the Tech-Bilt majority's opinion. 213 Cal.Rptr. 256, 698 P.2d at 168-73. Chief Justice Bird believed that the standard formulated by the majority was unworkable, would discourage settlements and overburden the courts, and was contrary to the intent of the commissioners of the 1955 UCATA, upon which the California legislation was modeled. Id. Chief Justice Bird contended that the River Garden Farms court had misread the comment to section 4 of the 1955 UCATA, see infra note 32, and that the passage contained in the comments upon which the Tech-Bilt majority had based its interpretation of the purposes of the UCATA, § 4 in fact referred to the purpose of section 5 of the 1939 UCATA, which provided that a settling tortfeasor was not released from liability unless the release provided that the plaintiff's ultimate recovery would be reduced to the extent of the released tortfeasor's pro rata share of the damages. Id. 213 Cal.Rptr. 256, 698 P.2d at 169-70. But, she noted, the commissioners repealed section 5 of the 1939 act in 1955, because they found that `reports from the states where the Act is adopted appear to agree that [section 5] has accomplished nothing in preventing collusion' and its effect has been to discourage settlements in joint tort cases, by making it impossible for one tortfeasor alone to take a release and close the file. Plaintiff's attorneys are said to refuse to accept any release which contains the provision reducing the damages .... because they have no way of knowing what they are giving up. Id. 213 Cal.Rptr. 256, 698 P.2d at 170 (brackets and ellipsis points in original) (quoting 12 U.L.A. 99 (1975), comrs. com. to § 4). The commissioners concluded that `[i]t seems more important not to discourage settlement than to make an attempt of doubtful effectiveness to prevent discrimination by plaintiffs, or collusion in the suit. Accordingly[, section 4(b)] provides that the release in good faith discharges the tortfeasor outright from all liability for contribution.' Id. (brackets in original) (quoting 12 U.L.A. 99 (1975), comrs. com. to § 4). Thus, Chief Justice Bird concluded, contrary to the view of the Tech-Bilt majority and the River Garden Farms court, that [t]he commissioners abandoned as unworkable their earlier attempt to protect nonsettling parties from inequity other than that caused by collusive conduct. Id. Likewise, Chief Justice Bird believed that the California legislature had never intended to impose a legal duty upon settling parties to protect the interest of adverse parties at the expense of their own mutual benefit. Id. 213 Cal.Rptr. 256, 698 P.2d at 169. As an additional matter, Chief Justice Bird pointed out that, when River Garden Farms was decided, contribution applied only among joint judgment debtors to the extent of each debtor's pro rata share of the judgment. Id. 213 Cal.Rptr. 256, 698 P.2d at 171. In the wake of the California Supreme Court's adoption of comparative fault principles as they pertained to joint tortfeasors, a trial court could no longer divine the plaintiff's potential recovery and simply divide that figure by the number of defendants; rather, trial courts were now required to determine the comparative fault of each defendant in order to decide whether the proposed settlement was within the reasonable range of the settling tortfeasor's proportionate liability. Id. Chief Justice Bird opined that, [i]n a complicated case, the time, effort, and expense involved in presenting evidence on all these issues will be considerable. While the trial court has the discretion to determine the good faith issue on the basis of affidavits alone (§ 877.6, subd. (b)), this court cannot predict the percentage of cases in which live testimony will be necessary. The good faith hearings mandated by the majority's decision promise to be lengthy, complex and hotly contested. In my view, they will overburden the courts and severely strain the resources of the parties. Id. 213 Cal.Rptr. 256, 698 P.2d at 171. The effect of the foregoing, according to Chief Justice Bird, would be to discourage settlements because settling defendants would be faced with the prospect of having to pay a sufficient sum to ensure that the settlement would be deemed within the reasonable range of their proportionate liability, while nevertheless remaining obligated to defend the settlement in a lengthy and expensive good faith hearing. Considering the possibility that a jury or judge would find any given joint tortfeasor blameless at trial, the joint tortfeasor may often decide that he has little to gain by settling. Id. 213 Cal. Rptr. 256, 698 P.2d at 172. In light of the significant difficulties that the Tech-Bilt majority's approach would entail, Chief Justice Bird proposed that a settlement satisfies the good faith requirement if it is free of corrupt intent, i.e., free of intent to injure the interests of the nonsettling tortfeasors. A settlement is made in bad faith only if it is collusive, fraudulent, dishonest, or involves tortious conduct. Id. 213 Cal.Rptr. 256, 698 P.2d at 169. Correlatively, Chief Justice Bird preferred to let the Legislature determine whether a departure from the tortious conduct test of good faith is warranted. Id. 213 Cal.Rptr. 256, 698 P.2d at 173.