Far West Financial Corp. v. D & S Co.

• Decision Date: 15 September 1988
• Docket Number: No. S000606,S000606
• Citation: 46 Cal.3d 796,251 Cal.Rptr. 202
• Court: California Supreme Court
• Parties: , 760 P.2d 399 FAR WEST FINANCIAL CORPORATION et al., Cross-complainants and Appellants, v. D & S COMPANY, INC., et al., Cross-defendants and Respondents.

Page 202

251 Cal.Rptr. 202

46 Cal.3d 796, 760 P.2d 399

FAR WEST FINANCIAL CORPORATION et al., Cross-complainants and Appellants, v. D & S COMPANY, INC., et al., Cross-defendants and Respondents.

No. S000606.

Supreme Court of California,

In Bank.

Sept. 15, 1988.

Roy G. Weatherup, Peter Q. Ezzell, Kenneth C. Byrne, Santa Monica, Joseph R. Zamora, Los Angeles, and Haight, Dickson, Brown & Bonesteel, Santa Monica, for cross-complainants and appellants.

Melvin F. Seifert, Carol A. Stroup, Santa Ana, Ives, Kirwan & Dibble, Kelley K. Beck, Michael M. Youngdahl, Hawkins, Schnabel & Lindahl, Galen F. Griepp, Kegel, Tobin, Hamrick & Truce, Mario A. Iorillo, Steven M. Karp, Iorillo & Karp, Los Angeles, David B. Pillemer, Mandel, Pillemer & Schwab, Woodland Hills, Paul F. Sowa, Stockdale, Peckham & Werner, Los Angeles, Mark D. Rutter, Buck, Molony & Ammirato, Long Beach, Jonathan G. Maile, Christopher S. Maile, Tharpe & Howell, Los Angeles, William C. Howison, Williams, Berges & Sanford, North Hollywood, Steven R. Jensen, Barmasse & Cohen, Westlake Village, for cross-defendants and respondents.

ARGUELLES, Justice.

California has adopted a variety of statutes to promote the voluntary settlement of litigation. One of these provisions, section 877.6, subdivision (c) of the Code of Civil Procedure, ¹ provides that when a defendant in a tort action enters into a settlement agreement with the plaintiff and the trial court determines that the settlement was made in "good faith," the trial court's good faith determination "shall bar any other joint tortfeasor from any further claims against the settling tortfeasor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault." The issue presented here is whether, under this statutory scheme, a defendant who has entered into a good faith settlement remains vulnerable to a claim by a nonsettling defendant for "total equitable indemnity," or whether such a claim is covered by the statute and is barred by the good faith settlement.

The great majority of Court of Appeal decisions which have addressed this question have concluded that a claim for total equitable indemnity, like other equitable indemnity claims, is barred by a good faith settlement. ² A few Court of Appeal decisions however, have ruled that a claim for total equitable indemnity survives such a settlement. ³ We granted review to resolve this conflict.

As we shall explain, in light of both the legislative history and the fundamental purposes of section 877.6, subdivision (c), we agree with the majority of Court of Appeal decisions that the statute must properly be interpreted as barring nonsettling tortfeasors from pursuing a claim for total equitable indemnity against a defendant who has entered into a good faith settlement. A contrary conclusion would leave a defendant who has entered into a good faith settlement vulnerable to further litigation and additional liability in many cases and would thereby substantially impair the statutory objective of promoting voluntary settlements. Furthermore, as we shall see, this interpretation of the provision does not place a unique or undue burden on the rights of defendants seeking total equitable indemnity, for the interests of such defendants--like the interests of all other defendants who may potentially be harmed by a proposed settlement agreement--may be properly protected through the trial court's determination of whether the proposed settlement agreement satisfies the statutory "good faith" requirement.

Because the Court of Appeal in the case at bar correctly interpreted the statute, we affirm the judgment.

I

In 1972, Far West Financial Corporation, a real estate developer involved in the financing and developing of condominiums in Los Angeles County, ⁴ entered into a contract with D & S Company (D & S), a general contractor, for the building of a condominium project, the Studio Village Townhouse Development, in Los Angeles County. The project was apparently completed in the mid-1970's.

Shortly after the completion of the project and the sale of the condominiums to private owners, a number of defects in the common areas of the project appeared. In response to complaints by the homeowners, Far West, the developer and seller of the units, made some repairs. In October 1976, the Studio Village Homeowners Association (hereafter the Association or plaintiff) and Far West entered into a settlement and release agreement in which Far West agreed to make a number of additional specified repairs and to pay the Association $22,750 in return for the Association's agreement to release Far West from any further liability for defects in the project.

Several years later, after a heavy rainstorm season in 1977-1978, many additional, serious defective conditions--which had previously been latent--became evident, affecting the roof, ground drainage, underground plumbing, area lighting, building settlement, painting and exterior of the project. In response to the appearance of these serious defects, the Association filed the present action in December 1979 against Far West, D & S, and numerous subcontractors, engineering firms and architects who had worked on the project.

The Association's third amended complaint, filed in October 1980, sought to set aside the earlier release agreement between the Association and Far West and sought recovery against various defendants on theories of (1) fraudulent concealment of the defects at the time of the initial settlement agreement, (2) negligent and intentional misrepresentation, (3) strict liability, (4) breach of express and implied warranties, (5) negligence, and (6) fraud and deceit.

In July 1981, after answering the complaint, Far West filed a cross-complaint against D & S and various Doe defendants, seeking either "complete indemnification from or partial contribution from" those defendants. Far West claimed that D & S had exercised complete control over the construction of the project and that if there were any deficiencies in the construction, such defects were directly attributable to D & S or to the subcontractors D & S had hired and supervised. Thereafter, D & S and a number of the other defendants filed their own indemnity cross-complaints against each other and against Far West.

During the summer of 1983, one of the defendants, structural engineers who had worked on a portion of the underground construction, settled with plaintiff for $100,000. On motion the trial court found the settlement in good faith and dismissed the cross-complaints against that defendant.

In early 1984, Far West and plaintiff entered into a settlement agreement under which Far West paid plaintiff $315,000 outright and provided a sliding scale guaranty of an additional $35,000 recovery, in return for plaintiff's agreement to release Far West from any further liability. On Far West's motion, the trial court found the settlement to be in good faith and dismissed the numerous indemnity cross-complaints which were then pending against Far West. Although the actions against Far West had been dismissed, Far West continued to pursue its own cross-complaint against the remaining defendants seeking indemnification of the $315,000 it had paid to plaintiff. It is clear under existing precedent that Far West had the right to continue to seek indemnification in this manner (see, e.g., Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal.App.3d 492, 496, 147 Cal.Rptr. 262; Bolamperti v. Larco Manufacturing (1985) 164 Cal.App.3d 249, 255, 210 Cal.Rptr. 155), and no party challenges Far West's indemnity claim in this respect.

In August 1984, in accordance with the suggestions of a settlement judge at a voluntary settlement conference, D & S and a number of subcontractors (hereafter sometimes referred to as the D & S defendants) entered into a settlement agreement (hereafter sometimes referred to as the D & S settlement) with plaintiff under which the D & S defendants agreed to pay plaintiff $450,000 in return for a release of plaintiff's claims against them. The settlement agreement was conditioned on (1) the trial court's determination that the settlement was in good faith and (2) the dismissal of all outstanding cross-complaints against the D & S defendants.

On September 4, 1984, the D & S defendants moved for an order under section 877.6 declaring the settlement agreement in good faith and dismissing all of the cross-complaints pending against them. On September 14, Far West filed a partial opposition to the D & S defendants' motion; in that opposition, Far West did not challenge the good faith nature of the D & S settlement, but simply opposed the D & S defendants' request for an order dismissing Far West's cross-complaints for indemnification against such defendants. Far West contended that under section 877.6 a good faith settlement does not operate to bar a claim for complete or total indemnity, as contrasted with a claim for partial indemnity or contribution, and it maintained that its cross-complaint sought total indemnity from D & S and the other defendants who were parties to the $450,000 settlement. On that same date, September 14, 1984, Far West also filed a separate motion, seeking leave to file a second amended cross-complaint in which it proposed to add claims for express contractual indemnity and implied contractual indemnity to its previous claim for "complete indemnification ... or partial contribution."

The D & S defendants' motion for a good faith determination came on for hearing on September 21, 1984. After considering the parties' contentions, the trial court--without specifically passing on Far West's motion for leave to file an amended cross-complaint--found the D & S settlement to be in good faith and dismissed all of the cross-complaints, including Far West's cross-complaint, against the settling defendants. Two weeks later, on October 4, ...