Abbott Ford, Inc. v. Superior Court

• Court: United States State Supreme Court (California)
• Writing for the Court: PANELLI; LUCAS; BROUSSARD; MOSK
• Citation: 741 P.2d 124,43 Cal.3d 858,239 Cal.Rptr. 626
• Parties: ABBOTT FORD, INC., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; FORD MOTOR COMPANY et al., Real Parties in Interest. L.A. 32138.
• Decision Date: 03 September 1987

239 Cal.Rptr. 626 43 Cal.3d 858, 741 P.2d 124, 56 USLW 2167 ABBOTT FORD, INC., Petitioner,
v.
The SUPERIOR COURT of Los Angeles County, Respondent;
FORD MOTOR COMPANY et al., Real Parties in Interest. L.A. 32138. Supreme Court of California,
In Bank. Sept. 3, 1987.

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[43 Cal.3d 862]

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[741 P.2d 126] Ingall W. Bull, Jr., Shield & Smith, Los Angeles, for petitioner.

[43 Cal.3d 863] Gordon K. Wright, Kenneth R. Chiate, David S. Brown, Lillick, McHose & Charles, Los Angeles, for real party in interest Ford Motor Co.

Robert T. Hanger, Kenneth G. Anderson, Yusim, Stein & Hanger, Robert E. Hinerfeld, Timothy M. Thorton, John T. Thorton, Robert W. Rubin, Murphy, Thornton, Hinerfeld & Elson and Manatt, Phelps, Rothenberg, Tunney & Phillips, for real parties in interest.

Alan G. Martin, Greines, Martin, Stein & Richland, Jerald R. Cochran, Lee Smalley Edmon and Cheryl A. De Bari, Adams, Duque & Hazeltine, amici curiae on behalf of real parties in interest.

PANELLI, Justice.

The issue presented here is whether a "sliding scale recovery agreement," ¹ entered into by plaintiffs and one of several defendants in a personal injury action, represents a "good faith" settlement within the meaning of sections 877 and 877.6 of the Code of Civil Procedure, ² so as to relieve the settling defendant of any liability for contribution or equitable comparative indemnity to other defendants in the action. The trial court concluded that the agreement in question was not a good faith settlement and denied the settling defendant's motion to bar cross-complaints by the remaining defendants. The settling defendant then sought review by writ of mandate, and ultimately the Court of Appeal--after remand by this court--concluded that while the "good faith" of such a sliding

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scale agreement must properly be measured by the standard set forth in our recent decision in Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 213 Cal.Rptr. 256, 698 P.2d 159, the agreement at issue here satisfied that standard as a matter of law. We granted review to consider the question of the appropriate application of the statutory "good faith" requirement in the context of sliding scale agreements.

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I

To place the issue in perspective, we review the facts and the litigation background[741 P.2d 127] as revealed by the declarations and other materials that were presented to the trial court in connection with its hearing on the good faith settlement question.

The underlying personal injury action in this case arose out of a somewhat unusual automobile accident that occurred on September 10, 1981. At the time of the accident, Ramsey Sneed was driving a used 1979 Ford Econoline van that he had purchased from Abbott Ford, Inc. (Abbott). As Sneed was driving, the left rear wheel came off of the van and crashed into the windshield of an on-coming car, a 1965 Mercury station wagon driven by Phyllis Smith. The windshield shattered and Smith suffered serious injuries, including the loss of sight in both eyes and the loss of her sense of smell.

Thereafter, Smith and her husband (hereafter plaintiffs) filed the underlying lawsuit against four defendants--(1) Sneed, (2) Abbott, (3) Ford Motor Company (Ford) and (4) Sears, Roebuck & Co. (Sears)--seeking recovery on a variety of theories. ³ Plaintiffs' mandatory settlement conference statement--prepared after considerable discovery--summarized the case against each defendant as follows:

(1) With regard to Sneed, plaintiffs claimed that he had been negligent in the maintenance and operation of his van, and had continued to drive the vehicle after hearing sounds indicating that there might be some difficulty with the wheels.

(2) With regard to Abbott--a car dealer which had purchased the van used, had "customized" it by replacing the original wheels and tires with "deep dish mag wheels" and oversized tires, and had then resold it to Sneed--plaintiffs sought recovery on both negligence and strict liability theories. With regard to the negligence claim, discovery revealed that Ford, the manufacturer of the van, had provided a warning in its owner's manual--which Abbott received--cautioning against the installation of "aftermarket wheel assemblies," like the "deep dish mag wheels," on the van. Despite the warning, Abbott had installed the customized wheel assembly, had failed to give the owner's manual or provide any other warning to Sneed, and had failed to advise Sneed of the need to retighten the lug nuts on the wheel assembly periodically because of their tendency to become loose.

[43 Cal.3d 865] (3) With regard to Ford--which had manufactured both the van and the station wagon involved in the accident--plaintiffs claimed that liability could be posited on the basis of Ford's relationship with each vehicle. With respect to the van, plaintiffs relied on both strict liability and negligence theories, suggesting that, notwithstanding the warning provided in its owner's manual, Ford should have reasonably foreseen that potentially dangerous aftermarket wheel assemblies would be installed and should have taken further steps--such as attaching a warning against such installation to the vehicle itself--to minimize the problem. With respect to the station wagon, plaintiffs alleged that a defect in the design of the windshield led it to shatter on impact by the wheel and tire, aggravating plaintiffs' injuries.

(4) Finally, with regard to Sears--which had serviced the van three months before the accident--plaintiffs claimed that while Sears' service records indicated that Sneed had neither requested nor been charged for a brake check, Sneed had in fact requested such a check and Sears' employees had either negligently replaced the wheels on

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the van or had negligently failed to conduct an inspection which would have revealed the looseness of the lug nuts.

In addition to these numerous claims arising out of the accident itself, plaintiffs' second amended complaint--filed in November 1982--contained three additional causes of action against Abbott alone, relating to Abbott's loss of evidence which was critical to plaintiffs' case. After the accident, the van had been towed to Abbott's place of business, and Abbott had agreed with plaintiffs' counsel that it would preserve the evidence until plaintiffs could retain an expert to examine it. When plaintiffs' counsel later attempted to obtain [741 P.2d 128] the evidence, however, Abbott informed him that much of the evidence had been lost. Plaintiffs then added the three additional causes of action to their complaint, alleging, inter alia, that Abbott had intentionally destroyed or lost the evidence. The trial court initially sustained Abbott's demurrer to plaintiffs' "intentional spoliation of evidence" count, relying on the fact that no California decision had previously recognized such a cause of action. Plaintiffs sought writ relief from the trial court's ruling, and the Court of Appeal ordered the trial court to reinstate the challenged cause of action, holding that the allegations of intentional spoliation would support a tort action for both compensatory and punitive damages. (Smith v. Superior Court (1984) 151 Cal.App.3d 491, 198 Cal.Rptr. 829.) Within weeks of the Court of Appeal's decision, Abbott informed plaintiffs that it had discovered the evidence that ostensibly had been lost.

With the case in this posture, a mandatory settlement conference was set for March 26, 1984. In anticipation of that conference, representatives of [43 Cal.3d 866] Abbott, Ford and Sears met on March 14, 1984. ⁴ At that meeting, Abbott's counsel stated that he believed a reasonable settlement value for the case was $2.5 million and that Abbott was willing to contribute 70 percent of that sum. ⁵ Counsel for Ford and Sears, however, maintained that their clients had only minimal, if any, responsibility for the accident and were unwilling to bear 30 percent--$750,000--of such a settlement.

At about the same time, plaintiffs offered to settle with Ford or Sears if they would enter into a sliding scale agreement guaranteeing plaintiffs $1.5 million. Both Ford and Sears declined the offer.

On March 23, 1984, three days before the settlement conference, plaintiffs filed their "mandatory settlement conference statement" setting forth the facts of the case, their theories of liability against all parties, and their expected recovery. With respect to liability, the statement concluded: "The liability of Abbott Ford in this case is clear on either a products liability theory or on a negligence theory because Abbott Ford modified the van with unsafe, defective after-market wheels and tires notwithstanding Ford's warning to the contrary. Ford's and Sears' liability is not as clear as Abbott Ford's, but it is for the jury to decide whether they should be held accountable for this accident. The liability of Sneed is also clear because he had the last opportunity to avoid the accident." With respect to damages, the statement declared that--on the basis of a detailed review of damage awards in numerous cases involving similar injures--"[p]laintiffs expect a favorable verdict in this case in an amount not less than $3,000,000."

Three days later, at the mandatory settlement conference, Abbott's insurer announced that it had agreed in principle to enter into a sliding scale agreement with plaintiffs, guaranteeing plaintiffs a recovery of $3 million. Several months later, plaintiffs and Abbott's insurer formally entered into the sliding scale agreement that is the focus of the present proceeding.

The agreement--which took the form of two separate contracts, one with each plaintiff, twenty-two and twenty pages in

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length respectively--contained three key and interrelated elements:

(1) Abbott's insurer guaranteed Phyllis Smith an ultimate recovery of $2.9 million, and her husband an ultimate recovery of $100,000; if, at the...