Owen By and Through Owen v. U.S.

• Decision Date: 26 August 1983
• Docket Number: 82-4246,Nos. 82-4227,s. 82-4227
• Citation: 713 F.2d 1461
• Parties: Barbara M. OWEN and Natalie S. Owen, By and Through their Guardian ad Litem, Vallerie OWEN, and Vallerie Owen, individually, Plaintiffs, v. The UNITED STATES of America, Defendant/Third-Party Plaintiff/Appellant and Cross-Appellee, v. BRUCE CHURCH, INC., Third-Party Defendant/Counterclaimant/Appellee and Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1461

713 F.2d 1461

Barbara M. OWEN and Natalie S. Owen, By and Through their

Guardian ad Litem, Vallerie OWEN, and Vallerie

Owen, individually, Plaintiffs, v. The UNITED STATES of America, Defendant/Third-Party Plaintiff/Appellant and Cross-Appellee, v. BRUCE CHURCH, INC., Third-Party

Defendant/Counterclaimant/Appellee and Cross-Appellant.

Nos. 82-4227, 82-4246.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 14, 1983.

Decided Aug. 26, 1983.

Gary W. Allen, Washington, D.C., for United States.

Ralph J. LaMontagne, Jr., Kern, Wooley & Maloney, Los Angeles, Cal., for Owen.

Appeal from the United States District Court for the Northern District of California.

Before MERRILL, CHOY and ALARCON, Circuit Judges.

CHOY, Circuit Judge:

After settling a claim brought under the Federal Tort Claims Act, the United States sought partial indemnity from joint tortfeasor Bruce Church, Inc. ("BCI"), an agricultural firm. The claim for indemnity was dismissed by the district court on the ground that under California law, BCI's subsequent settlement with the original tort plaintiff precluded the United States from any indemnity. The Government appeals the dismissal of its indemnity suit, arguing that BCI's subsequent settlement with the original plaintiff was not in "good faith," as is required under the governing California statute. BCI cross-appeals the dismissal of one of its counterclaims against the Government. Both appeals are governed by California law.

We reverse the dismissal of the Government's claim for indemnity and remand it for further proceedings, and affirm the dismissal of BCI's counterclaim.

I. Background

On April 22, 1980, at approximately 5:29 p.m., an airplane owned and operated by BCI collided with the side of a mountain while approaching the Salinas, California, airport. The aircraft had been given erroneous directions by an air traffic controller. All three passengers and the pilot were killed.

The wife and children of Stephen Owen, a passenger in the plane, filed a Federal Tort Claims Act action against the United States in federal court, and a separate wrongful-death action against BCI in state court. The Government impleaded BCI in federal court for indemnity, alleging pilot error as a partial cause of the accident. ¹ BCI, as third-party defendant in federal court, counterclaimed against the Government for damages it allegedly sustained because of the death of its servant, Stephen Owen.

In August 1981, settlement negotiations between the Government and the Owen heirs began in earnest. BCI declined to participate. The fruit of the Government's negotiations with the Owen heirs was a settlement agreed to on October 6, 1981. This settlement was placed under seal by the district court, but has been accurately described in court as providing the Owen heirs over one million dollars. There is a dispute among the parties whether this settlement should be characterized as representing the full value of the Owen claim against all tortfeasors. The Government strenuously argues the affirmative; counsel for the Owen heirs, in a district court affidavit, argues the negative; and BCI correctly notes that this is a factual conclusion not made by the court below. Nevertheless, we have no difficulty in concluding that the settlement was substantially for the full value of the Owen claim since, on the undisputed facts, the Government payment represented over 95% of the eventual total recovery by the Owen heirs. ²

Subsequent to settlement with the Government, the Owen heirs and BCI entered settlement negotiations that quickly resulted in a $55,000 payment to the Owen heirs contingent upon district court certification that the agreement was made in good faith as required by Cal.Civ.Proc.Code § 877 (West 1980). This provision reads:

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.

Accordingly, if BCI's settlement with the heirs was "in good faith," the Government's indemnity action against BCI would be terminated by operation of § 877(b).

Pursuant to Cal.Civ.Proc.Code § 877.6 (West Supp.1983), ³ the Government requested a hearing to determine whether the BCI-Owen settlement was made in good faith. At the § 877.6 hearing, the district court stated its intent to deny BCI the protections of § 877(b). Its reasoning, expressed at the hearing, was that the case had been terminated by the Government's settlement, and that any payment by BCI in the case should be given to the Government, and not to the Owen heirs. The court said of the settlement, "It pulls the rug out from under the Government's claim without any offsetting benefit to them, and that is not the way the statute [§ 877] was designed." C.R. 90 at 10. However, the court later reversed itself on the basis of Mill Valley Refuse Co. v. Superior Court, 108 Cal.App.3d 707, 166 Cal.Rptr. 687 (1980), ⁴ and certified the BCI-Owen settlement as in conformity with § 877.

The court had previously dismissed BCI's counterclaim against the Government on the ground that under California law, an employer does not have an action based on the death of a servant.

Both parties appeal.

II. The Government's Appeal

A. Good Faith Settlement Under California Law.

This court has previously interpreted § 877 in Commercial Union Insurance Co. v. Ford Motor Co., 640 F.2d 210 (9th Cir.), cert. denied, 454 U.S. 858, 102 S.Ct. 310, 70 L.Ed.2d 154 (1981). In Commercial Union, we made a thorough canvass of the California case law construing § 877. We found that "the expansion of § 877 to prevent a party from seeking indemnification from another should apply only when the policy of settlement has been furthered and a settlement is made in good faith." 640 F.2d at 213. We defined the test of § 877 good faith as follows:

Section 877 applies to settlement made in good faith only. Individuals not participating in the settlement are barred from seeking contribution only if the settling parties acted in good faith with respect to them. Hence, good faith of the dismissal alone is not sufficient. The dismissal must represent a settlement which is a good faith determination of relative liabilities. Only in this situation are both policies behind § 877--equity and settlement--furthered.

Id. The Government argues that BCI and Owen did not act in good faith with respect to the Government because the $55,000 settlement does not reflect a good-faith determination of BCI's relative liability to the other parties in this action.

BCI argues that the Commercial Union good-faith test has been superseded by subsequent opinions of the California courts of appeal. In particular, they argue that the standard for § 877 good faith was redefined in Dompeling v. Superior Court, 117 Cal.App.3d 798, 173 Cal.Rptr. 38 (1981). In Dompeling, a divided court of appeal held for the first time that

[t]he settling parties owe the nonsettling defendants a legal duty to refrain from tortious or other wrongful conduct; absent conduct violative of such duty, the settling parties may act to further their respective interests without regard to the effect of their settlement upon other defendants.

Id. at 809-10, 173 Cal.Rptr. at 45. ⁵ The Dompeling court further decided that § 877 did not impose upon settling tortfeasors any duty to pay a proportionate amount of their liability. Id. The Dompeling test has been followed in Cardio Systems, Inc. v. Superior Court, 122 Cal.App.3d 880, 176 Cal.Rptr. 254 (1981); Burlington Northern Railroad Co. v. Superior Court, 137 Cal.App.3d 942, 187 Cal.Rptr. 376 (1982); and Leverton v. Wysong & Miles Co., 143 Cal.App.3d 278, 191 Cal.Rptr. 671 (1983).

These recent decisions by the California courts of appeal that have appeared subsequent to our Commercial Union decision require us to reconsider the proper interpretation of § 877. Our interpretation in Commercial Union was only binding in the absence of any subsequent indication from the California courts that our interpretation was incorrect. See Broussard v. Southern Pacific Transportation Co., 665 F.2d 1387, 1389 (5th Cir.1982) (en banc); Newell v. Harold Shaffer Leasing Co., 489 F.2d 103, 107 (5th Cir.1974). The recent decisions from the courts of appeal cast a new light on the question. "In the absence of a pronouncement by the highest court of a state, the federal courts must follow the decision of the intermediate appellate courts of the state unless there is ' "convincing evidence that the highest court of the state would decide differently." ' " Andrade v. City of Phoenix, 692 F.2d 557, 559 (9th Cir.1982) (per curiam) (quoting Community National Bank v. Fidelity & Deposit Co., 563 F.2d 1319, 1321 n. 1 (9th Cir.1977)).

We feel that this case presents one of those rare instances where convincing evidence exists that the highest court of a state will not follow the result reached by some of that state's inferior appellate courts. It appears manifest that the unduly restrictive Dompeling test is but a temporary stop on the path of California law. For several reasons, we will adhere to Commercial Union as the authoritative expression of § 877 as it will be interpreted by the California Supreme Court.

Dompeling's first defect is its plain conflict with River Garden Farms, Inc. v. Superior Court, 26 Cal.App.3d 986, 103 Cal.Rptr. 498 (1972), which is still described as "the seminal authority for...