More than two decades of proven excellence

+1 858.622.7878

GOOD FAITH SETTLEMENTS IN MULTI-PARTY LITIGATION

By Fritz Reich | January 11th, 2017 | Tags: , , , | 0 Comments.

In multi-party litigation, settlements become tricky when not all the parties agree to resolve the case in its entirety.  On the one hand, a party should be free to resolve the matter in the party’s best interest, regardless of the interests of the other parties.  On the other hand, a joint wrongdoer should not be free to shift responsibility to a co-wrongdoer by a nominal settlement.  To moderate these competing interests, the law of good faith settlements has evolved so having a good litigation attorney is always in your best interest.

Code of Civil Procedure § 877 provides in part:

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, or to one or more other co-obligors mutually subject to contribution rights, it shall have the following effect:

(b) It shall discharge the party to whom it is given from all liability for any contribution to any other parties.

(c) This section shall not apply to co-obligors who have expressly agreed in writing to an apportionment of liability for losses or claims among themselves.

“The purpose of this legislation is to provide for equitable sharing of damages among the parties at fault and to encourage settlement.”  Great Western Bank v. Converse Consultants, Inc. (1997) 58 Cal.App.4th 609, 613.  “In addition, the offset provided for in section 877 assures that a plaintiff will not be enriched unjustly by a double recovery, collecting part of his total claim from one joint tortfeasor and all of his claim from another.”  Reed v. Wilson (1999) 73 Cal.App.4th 439, 444.

Code of Civil Procedure § 877 defines the rights of all persons jointly responsible for the same wrong or the same loss. “As long as the settlement is reached before rather than after judgment …, it matters not whether the tortfeasors acted in concert to create a single injury, or successively to create distinct and divisible injuries …, or whether the injured party filed a single action against the tortfeasors.”  Bob Parrett Const., Inc. v. Sup.Ct. (Northrop Grumman) (2006) 140 CA4th 1180, 1187-1188.

Further, Code of Civil Procedure § 877.6 states:

(c) A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor or co-obligor from any further claims against the settling tortfeasor or co-obligor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.

The Supreme Court has suggested that section 877.6, subdivision (c) should be interpreted so as to encourage settlements.  Far West Financial Corp. v. D & S Co., Inc. (1988) 46 Cal.3d 796, 810.

The California Supreme Court set forth several factors to be considered in making a good faith settlement determination.  These factors are “a rough approximation of plaintiff’s 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 than he would if he were found liable after trial.”  Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499.

As Gackstetter v. Frawley (2006) 135 Cal.App.4th 1257, makes clear:

Under section 877.6, if the injured party settles with one of the parties alleged to have caused its damages and the settlement is confirmed to be in good faith “other joint tortfeasors (parties who the injured party also alleges to have caused its damage) are barred from bringing equitable indemnity or contribution actions against the settling tortfeasor. This result achieves the primary objectives of section 877.6:         promoting the ‘equitable sharing of costs among the parties at fault and the encouragement of settlements.’ ” (Maryland Casualty Co. v. Bailey & Sons, Inc. (1995) 35 Cal.App.4th 856, 877, 41 Cal.Rptr.2d 519.) Gackstetter v. Frawley (2006) 135 Cal.App.4th 1257, 1271.

Furthermore, “claims for indemnification can include other claims not labeled as indemnity claims, but that in reality are ‘disguised’ indemnity claims.”  Id. (citations omitted).

Viewed differently, a good faith settlement does not eliminate separate and distinct claims of the non-settling party.  “[A] good faith settlement does not bar a claim that the trial court would not contemplate in determining the proportionate liability of a settling tortfeasor. A good faith settlement would not preclude a claim by a tortfeasor who committed a tort separate and distinct from the tort committed by the settling tortfeasor. Under this circumstance, there could be no right to indemnity.”  Gackstetter, supra at 1274 (citations omitted).

While the law appears clear to any litigation attorney, its application to any given multi-party settlement situation is often cloudy.  Prior to the acceptance of a proposed settlement, the court will carefully analyze it in terms of reasonableness and its effect on the remaining parties. Only after the court is satisfied that the competing interests of the parties are protected will it determine that the settlement has been made in good faith.

For more information on how you can retain a knowledgeable litigation attorney contact Teeple Hall, LLC.

Leave a Reply

Your email address will not be published. Required fields are marked *