United Commercial Ins. Service, Inc. v. Paymaster Corp.

• Decision Date: 14 April 1992
• Docket Number: No. 90-56108,90-56108
• Citation: 962 F.2d 853
• Parties: UNITED COMMERCIAL INSURANCE SERVICE, INCORPORATED, d/b/a United Checkwriter Services; Burton D. Rayden; Jeffrey L. Rayden; Joel Rayden, Plaintiffs, v. The PAYMASTER CORPORATION, Defendant. The PAYMASTER CORPORATION, Counterclaim Appellant, v. Burton D. RAYDEN, et al., Counterclaim Defendants, and American Bankers Insurance Company of Florida, Counterclaim Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 853

962 F.2d 853

UNITED COMMERCIAL INSURANCE SERVICE, INCORPORATED, d/b/a

United Checkwriter Services; Burton D. Rayden;

Jeffrey L. Rayden; Joel Rayden, Plaintiffs, v. The PAYMASTER CORPORATION, Defendant.

The PAYMASTER CORPORATION, Counterclaim Appellant, v. Burton D. RAYDEN, et al., Counterclaim Defendants, and American Bankers Insurance Company of Florida, Counterclaim

Defendant-Appellee.

No. 90-56108.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 10, 1991.

Decided April 14, 1992.

Dennis M. Perluss, Hufstedler, Kaus & Ettinger, Los Angeles, Cal., for appellant.

James F. Jorden, Jorden, Schulte & Burchette, Miami, Fla., for appellee.

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

Before FLETCHER, W. NELSON, and BRUNETTI, Circuit Judges.

D.W. NELSON, Circuit Judge:

Appellant Paymaster Corp. was awarded a judgment in excess of $11 million in compensatory and punitive damages against several defendants, including appellee American Bankers Insurance Corp. (American). Paymaster settled with all defendants other than American for $1.7 million in compensatory damages. Concurrent with this settlement, Paymaster executed a partial satisfaction of judgment in favor of American claims that this agreement was separate from the underlying settlement, and that it is therefore entitled to a $1.7 million reduction in compensatory damages (for which it was jointly and severally liable) pursuant to the settlement and a $1.7 million reduction in its punitive damages pursuant to the satisfaction. Paymaster claims that it agreed to reduce American's punitive damage liability by $1.7 million instead of reducing compensatory damages. The district court found that American was entitled to a $3.4 million setoff on the basis of two separate satisfactions. We affirm.

                American.   The agreement provided that American's punitive damage liability would be reduced by $1.7 million, in exchange for American dropping its claim against the other defendants for indemnification. 1
                

FACTS

Paymaster sued American, United, and several individual defendants (the Raydens) for violations of the Lanham Act and California unfair competition law. In 1987, Paymaster was awarded a judgment against all defendants for roughly $6.0 million in compensatory damages and costs. All defendants were jointly and severally liable for these damages. In addition, United was held liable for $3.0 million in punitive damages and American for nearly $2.4 million in punitive damages. American and the other defendants maintained cross-claims against each other for indemnification.

All defendants appealed the district court's judgment on the merits to the Ninth Circuit. While that appeal was pending, Paymaster agreed with United and the Raydens to settle their portion of the case. Pursuant to the Settlement Agreement, the Raydens would pay $500,000 and United's insurers would pay $1.2 million to Paymaster. However, the Raydens and United conditioned their settlement with Paymaster on receiving a full release from American of its cross-claim for indemnity. Thus, Paymaster could not recover its $1.7 million from United unless it could somehow persuade American to give up its cross-claim against United for the full amount of the judgment.

American demanded consideration in exchange for relinquishing its cross-claim against United and the Raydens. Accordingly, Paymaster executed a Partial Satisfaction of Judgment in favor of American, which provided that American's punitive damage liability would be reduced in an amount equal to the amount United and the Raydens ended up paying Paymaster. This partial satisfaction was expressly "in consideration of [American] entering into its contingent settlement agreement and mutual release with [United] ..." Paymaster letter to American, Nov. 11, 1988.

In return, American executed a Settlement Agreement and Mutual Release with United in which each agreed to drop its claims against the other. This mutual release was expressly contingent upon American receiving the partial satisfaction of judgment. Id. at 1.1.

Paymaster and American subsequently disputed the amount remaining due on the judgment. American filed a Motion for Partial Relief from Judgment under Rule 60(b)(5), claiming that the combined effect of the agreements was to reduce its liability by $3.4 million ($1.7 million each in compensatory and punitive damages). The trial judge received declarations from counsel involved in negotiating the agreements, and heard oral argument. Relying on the two agreements, the partial satisfaction, and Paymaster's November 11 letter, as well as on two of the declarations of counsel, the trial court concluded that two separate satisfactions occurred--one between United and Paymaster, and another between American and Paymaster. It therefore concluded that American's liability should be reduced by $3.4 million, and entered judgment accordingly. Paymaster appeals.

DISCUSSION

Standard of Review

District court decisions under Rule 60(b) are normally reviewed only for an abuse of discretion. Browder v. Director, Illinois Dep't of Corrections, 434 U.S. 257, 263, 98 S.Ct. 556, 560, 54 L.Ed.2d 521 (1978). However, we review de novo the district court's decision of questions of law. Pekarsky v. Ariyoshi, 695 F.2d 352, 354 (9th Cir.1982), cert. denied 464 U.S. 1052, 104 S.Ct. 735, 79 L.Ed.2d 194 (1984).

"The construction and enforcement of settlement agreements are governed by principles of local law which apply to interpretation of contracts generally." Jeff D. v. Andrus, 899 F.2d 753, 759 (9th Cir.1989). This is true even though the underlying cause of action is federal. Id.; In re Beverly Hills Bancorp, 649 F.2d 1329, 1332-33 (9th Cir.1981). Under California law, the interpretation of a contract is a question of law subject to de novo review. If interpretation requires the resolution of disputed facts or a determination of the credibility of extrinsic evidence, the appellate court will defer to the district court's resolution of those issues if it is supported by substantial evidence. But once the facts are resolved, the interpretation of the agreement in light of those facts is a question of law. Parsons v. Bristol Dev. Co., 62 Cal.2d 861, 44 Cal.Rptr. 767, 770, 402 P.2d 839, 842 (1965).

In this case, the district court relied primarily on the language of three contracts--the Settlement Agreement between United and Paymaster, the Settlement Agreement and Mutual Release between United and American, and the November 11 letter from Paymaster to American. The court also considered the declarations of the parties' attorneys regarding the meaning of the letter, resolving the conflict in their testimony in favor of American. Finally, it considered issues of public policy in interpreting the contract. The resolution of the credibility dispute regarding the meaning of the letter must be upheld unless clearly erroneous, while the remainder of the district court's conclusions are subject to de novo review.

Contract Interpretation

A settlement agreement is treated as any other contract for purposes of interpretation. Adams v. Johns-Manville Corp., 876 F.2d 702, 704 (9th Cir.1989). Under California law, the intent of the parties determines the meaning of the contract. Cal.Civil Code §§ 1636, 1638. The relevant intent is "objective"--that is, the intent manifested in the agreement and by surrounding conduct--rather than the subjective beliefs of the parties. Lawyer's Title Ins. Co. v. U.S. Fidelity & Guar. Co., 122 F.R.D. 567, 569 (N.D.Cal.1988); Beck v. American Health Group Int'l, 211 Cal.App.3d 1555, 260 Cal.Rptr. 237, 242 (1989). For this reason, the true intent of a party is irrelevant if it is unexpressed. Union Bank v. Winnebago Indus., 528 F.2d 95, 99 (9th Cir.1975); Mill Valley v. Transamerica Ins. Co., 98 Cal.App.3d 595, 159 Cal.Rptr. 635, 639 (1979).

Applying these principles to this case is not simple. The relevant documents are silent on whether the $1.7 million reduction in American's punitive damages was meant to replace or supplement the compensatory damage reduction. ²

The general legal rule is that a settlement with one defendant reduces the liability of all other defendants by an equal amount. Krusi v. Bear, Stearns & Co., 144 Cal.App.3d 664, 192 Cal.Rptr. 793, 798 (1983). This rule prevents a plaintiff from obtaining several satisfactions of its judgment--one from each party. Paymaster contends that this rule supports its position, since the legal presumption is that liability is reduced by an amount equal to Paymaster contends that the agreement did modify the normal rule, since it provided for the $1.7 million to be credited towards American's punitive rather than compensatory damage liability. ³ But since Paymaster claims it intended to modify the normal rule (by replacing American's credit for compensatory damages), one would expect that at least one of the four documents at issue would mention the modification explicitly. No indication of such an intent to substitute punitive for compensatory damages can be found. Under well-established principles of California law, we cannot rely in interpreting the contract on Paymaster's unexpressed intent to deviate from the normal legal rule. See Mill Valley, 159 Cal.Rptr. at 639. In short, because it is Paymaster rather than American whose interpretation deviates from the normal operation of law, it is Paymaster who must pay the price for failing to specify what the contract meant. ⁴

                the settlement ($1.7 million).   What Paymaster ignores is the fact that American's liability is reduced by $1.7 million as a matter of law, without any agreement being signed.   It would be redundant to draft an agreement which produced exactly the same result as would occur absent the agreement
                

That the parties in fact intended there to be two separate satisfactions is suggested by the change in the language of the letter...