Hess v. Ford Motor Co.

• Decision Date: 28 February 2002
• Docket Number: No. S092697.,S092697.
• Citation: 27 Cal.4th 516,117 Cal.Rptr.2d 220,41 P.3d 46
• Court: California Supreme Court
• Parties: John HESS, Plaintiff and Appellant, v. FORD MOTOR COMPANY, Defendant and Appellant.

117 Cal.Rptr.2d 220

27 Cal.4th 516

41 P.3d 46

John HESS, Plaintiff and Appellant, v. FORD MOTOR COMPANY, Defendant and Appellant.

No. S092697.

Supreme Court of California.

February 28, 2002.

Superior Court, Los Angeles County; William A. Drake ¹, Judge.

Law Offices of Michael J. Piuze, Michael J. Piuze and John Keiser, Los Angeles, for Plaintiff and Appellant.

Snell & Wilmer and Richard A. Derevan, for Defendant and Appellant.

Hugh F. Young, Jr., and Harvey M. Grossman for The Product Liability Advisory Council, Inc., as Amicus Curiae on behalf of Defendant and Appellant.

BROWN, J.

This case presents two unrelated issues. First, the plaintiff enters into a release agreement with one tortfeasor and his insurance company. The agreement, however, contains broad language ostensibly releasing all potential tortfeasors from liability. We now consider whether this language bars the plaintiffs claims against a tortfeasor who was not a party to the release. Based on the uncontroverted evidence at trial, we conclude it does not.

Second, the plaintiff obtains a judgment more favorable than his offer of compromise under Code of Civil Procedure section 998 (section 998 offer), and is entitled to interest on the judgment from the date of the offer to the date of satisfaction of judgment pursuant to Civil Code section 3291. We now consider whether the plaintiff is entitled to interest on the prejudgment portion of the interest accrued under Civil Code section 3291, i.e., compound interest or interest on interest. We conclude he is not.

BACKGROUND

John Hess was a passenger in a Ford pickup truck on Christmas morning. At an intersection, a car driven by Charles Phillips struck the Ford truck, and the truck rolled over at least one and a half times. Hess suffered severe injuries and is now a paraplegic.

Before filing a lawsuit, Hess made a claim against Phillips and his insurance company, Continental Insurance Company (Continental). Hess's attorney at the time negotiated with Brad Sommers, the claims adjuster for Continental, and settled Hess's claim against Phillips for $15,000, the policy limit. As part of the settlement, Hess signed a one-page boilerplate release form provided by Continental (Release).

The Release stated that Hess "released], acquitfs] and forever discharge] Charles Phillip[s], Continental Insurance and any and all agents and employees, UAC [the underwriters adjusting company] and any and [all] agents and employees and his, her, their, or its agents, servants, successors, heirs, executors, administrators and all other persons, firms, corporations, associations or partnerships of and from any and all claims, actions, causes of action, demands, rights, damages, costs, loss of service, expenses and compensation whatsoever" that Hess had or might have due to the accident. (Italics added.) The Release further stated that Hess "declarets) and represent(s) that ... this Release contains the entire agreement between the parties hereto...."

Several months after signing the Release, Hess hired a new attorney and filed suit against Ford Motor Company (Ford) and others, alleging negligence, strict liability and breach of warranty. Less than one year later, Hess served on Ford a section 998 offer in the amount of $2 million.

Over four years after Hess filed suit, Phillips, as cross-defendant, made a motion for determination of good faith settlement pursuant to Code of Civil Procedure section 877.6, which the trial court granted. Upon discovering the Release, Ford and the other defendants moved for summary judgment on the ground that the Release absolved all potential tortfeasors of liability. The court granted the motion, finding the language of the Release unambiguous.

Shortly before the summary judgment, Hess filed a separate lawsuit against Phillips and Continental for reformation of the Release pursuant to Civil Code section 3399. In the complaint, Hess asked the court to strike the language in the Release discharging "all other persons, firms, corporations, associations or partnerships" due to mutual mistake. Phillips and Continental admitted the mutual mistake in their answer, and a different judge reformed the Release by striking the above language less than 10 days after the summary judgment for Ford.

Based on this reformation of the Release, Hess moved for a new trial. The trial court denied the motion. On appeal, however, the Court of Appeal reversed the summary judgment. Relying on the declarations of Hess's first attorney and Sommers, which stated that they had not intended to release Ford, the court concluded that "there was at least a triable issue of fact as to whether [a mutual mistake occurred and] the parties intended to release all other defendants." In reaching this conclusion, the court did not rely on the reformation judgment.

At trial, Ford was the only defendant left. In support of its position on the scope of the Release, Ford submitted the written agreement and presented no other evidence. In opposition, Hess introduced his own testimony and testimony from his former attorney and the claims adjuster who had negotiated the Release. Hess testified that, before he signed the Release at his hospital bed, he asked his first attorney about the contractual language at issue, and his attorney told him the Release was a standard form document. Hess then testified that he had not intended to release Ford from liability.

Hess's first attorney testified that he recommended settling with Phillips for the policy limit of $15,000, because an asset search revealed that Phillips had no money. He further testified that he had not intended to release Ford, and that he told Hess the Release only covered Phillips, his insurance company, and the adjusting company. Finally, the attorney stated that he had bought the Ford pickup truck involved in the accident for use as evidence in litigation against Ford after agreeing to settle with Phillips but before Hess signed the Release.

Sommers, the former claims adjuster who had settled the case on behalf of Phillips and Continental, testified that he and Hess's attorney discussed Hess's intention to sue Ford and others and that Hess's attorney told him he was settling with Phillips and Continental in order to defray future litigation costs. Sommers then testified that Hess would not have settled and signed the Release if it had released Ford. Finally, Sommers testified that he (1) had not intended to release Ford; (2) had not prepared the Release or chosen the form used; and (3) had intended to protect Phillips and his insurance companies from "future exposure."

At the close of evidence, Ford moved for a nonsuit based on the Release. The trial court denied the motion. Later, the court granted Hess's request for judicial notice of the reformation judgment, and instructed the jury that "the Los Angeles Superior Court ... ordered that the words `and all other persons, firms, corporations, associations, or partnerships' be taken out of the Release.

The jury returned a verdict for Hess and found Ford liable for 55 percent of Hess's injuries. The jury awarded Hess $2,701,813 in economic damages and $8,400,000 in noneconomic damages. After crediting Ford for Hess's settlements with other defendants, the trial court entered judgment against Ford in the amount of $6,644,155, plus interest from the date of the section 998 offer. In doing so, the court refused to include prejudgment interest accrued under Civil Code section 3291 in the judgment and to award interest on this prejudgment interest. The court also denied Ford's motions for judgment notwithstanding the verdict and for a new trial.

Ford appealed, contending, among other things, the trial court erred by instructing the jury that another court had reformed the Release and, in effect, directing a verdict for Hess on the issue of whether the Release covered Ford. Hess cross-appealed, seeking a recalculation of the judgment.

The Court of Appeal affirmed the verdict in an unpublished opinion, holding that any instructional error was harmless because Ford failed to establish that it was an intended beneficiary of the Release. The Court of Appeal also remanded for recalculation of the judgment, ordering that (1) "the judgment shall include" prejudgment interest accrued from the date of the offer of compromise to the date of the judgment pursuant to Civil Code section 3291; and (2) "the resulting judgment shall bear interest at the rate of 10% from" the date of the judgment until satisfied. At the date of the Court of Appeal opinion, accrued simple interest already exceeded $6.5 million.

We granted review to determine whether: (1) language in an agreement releasing "all other persons, firms, corporations, associations or partnerships" from liability encompasses a tortfeasor who was not a party to the settlement negotiations; and (2) a plaintiff may recover interest on interest accrued under Civil Code section 3291 from the date of the section 998 offer to the date of judgment because this prejudgment interest must be included in the judgment pursuant to rule 875 of the California Rules of Court.²

DISCUSSION

I

The Release discharges "all other persons, firms, corporations, associations or partnerships" from liability. Ford contends this language is unambiguous and releases it from liability notwithstanding the extrinsic evidence presented by Hess. In the alternative, Ford contends the jury—and not the trial court—should have determined whether the Release covered Ford because there was a triable issue of fact. We disagree.

Under subdivision (a) of section 877 of the Code of Civil Procedure, a release given in good faith to a tortfeasor "shall not discharge any other such party from liability unless its terms so provide ...." In determining whether the "terms so provide" (ibid.), we apply the same rules that govern any other contract. (See Civ.Code, § 1635 ["All contracts ... are to be interpreted by...