Kalain v. Smith

• Decision Date: 30 July 1986
• Docket Number: No. 85-1417,85-1417
• Citation: 25 OBR 201,495 N.E.2d 572,25 Ohio St.3d 157
• Court: Ohio Supreme Court
• Parties: , 25 O.B.R. 201 KALAIN, Appellee, v. SMITH, Appellant.

Page 157

25 Ohio St.3d 157

495 N.E.2d 572, 25 O.B.R. 201

KALAIN, Appellee, v. SMITH, Appellant.

No. 85-1417.

Supreme Court of Ohio.

July 30, 1986.

Syllabus by the Court

Civil procedure--Prejudgment interest--"Failed to make a good faith effort to settle," construed--R.C. 1343.03(C)--Party need not make monetary settlement offer, when.

A party has not "failed to make a good faith effort to settle" under R.C. 1343.03(C) if he has (1) fully cooperated in discovery proceedings, (2) rationally evaluated his risks and potential liability, (3) not attempted to unnecessarily delay any of the proceedings, and (4) made a good faith monetary settlement offer or responded in good faith to an offer from the other party. If a party has a good faith, objectively reasonable belief that he has no liability, he need not make a monetary settlement offer.

On April 2, 1980, appellee, Emilia Kalain, was a passenger in a van driven by her husband which was heading west on a two-lane highway. Appellant, Phyllis K. Smith, was driving a car that was heading in the same direction, in front of the Kalains' van. A truck separated Smith's car and the van. Kalain's husband began to pass the truck without sounding his horn to signal this intention. At the same time, Smith allegedly activated her turn signal, slowed down and began to make a left turn. The van and Smith's car collided.

Kalain filed suit against Smith in the Court of Common Pleas of Summit County. The case was later transferred to Montgomery County and was tried before a jury. The jury returned a $75,000 verdict for Kalain. Smith did not appeal from the verdict.

Subsequently, Kalain filed a motion under R.C. 1343.03(C) for prejudgment interest, alleging that Smith had failed to make a good faith effort to settle the case. At a hearing on this motion, Kalain's counsel testified that prior to trial he contacted Smith's counsel and proposed to settle the case for $70,000. This offer was later reduced to $65,000. Kalain's counsel testified that, although he advised Smith's counsel that Kalain was prepared to present testimony by an independent witness and by a State Highway Patrol officer that would substantiate Smith's liability, Smith's counsel responded that his client refused to pay "one single dime." During trial, Kalain's counsel offered to settle the case for $60,000. This offer was also rejected.

Kalain complained that Smith's counsel had never disclosed that he had authority from his client's insurer to settle the case for $2,500. In response, Smith's counsel and Harold Herrington, a claims superintendent from Smith's insurer, stated that the settlement authority was "contingent," i.e., Smith's counsel was not required to offer $2,500 as "nuisance" value unless Kalain's counsel substantially reduced the $70,000 settlement offer. Smith's counsel and the claims superintendent also testified that they believed Smith was neither negligent nor liable. Their assessment was supported by the following facts: (1) Mr. Kalain had attempted to pass two vehicles at one time; (2) he had failed to sound his horn as required by R.C. 4511.27; (3) the passengers in Smith's car would testify that her turn signal had been on for an "appreciable period of time"; and (4) Kalain's primary witness had stated in a statement to an insurance company that she had not noticed whether Smith's turn signal had been activated.

The trial judge granted the motion for prejudgment interest and assessed $24,801 against Smith, representing interest dating back to the day of the accident. Smith appealed, alleging that the court had erred as a matter of law in awarding prejudgment interest and that R.C. 1343.03(C) unconstitutionally deprived her of her right to a jury trial. The court of appeals affirmed, holding the statute to be constitutional and the award justified.

The court of appeals, finding its judgment to be in conflict with that of the Court of Appeals for Cuyahoga County in Ware v. Richey (1983), 14 Ohio App.3d 3, 469 N.E.2d 899, with that of the Court of Appeals for Lucas County in Blitz v. Art Iron, Inc. (Nov. 16, 1984), No. L-84-069, unreported, and with that of the Court of Appeals for Hamilton County in Huffman v. Hair Surgeon, Inc. (Aug. 22, 1984), No. C-830818, unreported, certified the record of the case to this court for review and final determination on the following issues:

(1) Whether R.C. 1343.03(C) can be retroactively applied to causes of action accruing before July 5, 1982.

(2) Whether a "good faith effort to settle" means the absence of bad faith.

Howard L. Calhoun, Akron, for appellee.

Young & Alexander Co., L.P.A., Joseph B. Miller and Mark R. Chilson, Dayton, for appellant.

WRIGHT, J.

This case concerns the construction and application of the "good faith effort to settle" standard in R.C. 1343.03(C). That statute provides:

"Interest on a judgment, decree, or order for the payment of money rendered in a civil action based on tortious conduct and not settled by the agreement of the parties, shall be computed from the date the cause of action accrued to the date on which the money is paid, if, upon motion of any party to the action, the court determines at a hearing held subsequent to the verdict or decision in the action that the party required to pay the money failed to make a good faith effort to settle the case and that the party to whom the money is to be paid did not fail to make a good faith effort to settle the case."

The statute was enacted to promote settlement efforts, to prevent parties who have engaged in tortious conduct from frivolously delaying the ultimate resolution of cases, and to encourage good faith efforts to settle controversies outside a trial setting.

Appellant argues that the statutory language "failed to make a good faith effort" necessarily requires a finding of bad faith. We disagree. The statute requires all parties to make an honest effort to settle a case. A party may have "failed to make a good faith effort to settle" even when he has not acted in bad faith. ¹ Mills v. Dayton (1985), 21 Ohio App.3d 208, 486 N.E.2d 1209, and Dailey v. Nationwide Demolition Derby, Inc. (1984), 18 Ohio App.3d 39, 480 N.E.2d 110, approved; Ware v. Richey (1983), 14 Ohio App.3d 3, 469 N.E.2d 899, disapproved.

A party has not "failed to make a good faith effort to settle" under R.C. 1343.03(C) if he has (1) fully cooperated in discovery proceedings, (2) rationally evaluated his risks and potential liability, (3) not attempted to unnecessarily delay any of the proceedings, and (4) made a good faith monetary settlement offer or responded in good faith to an offer from the other party. If a party has a good faith, objectively reasonable belief that he has no liability, he need not make a monetary settlement offer.

The decision as to whether a party's settlement efforts indicate good faith is generally within the sound discretion of the trial court. Huffman v. Hair Surgeon, Inc. (1985), 19 Ohio St.3d 83, 482 N.E.2d 1248. This court will not overturn a finding on this issue unless the trial court's actions indicate an abuse of discretion.

In the case at bar, both the trial and appellate courts focused primarily on appellant's failure to disclose the $2,500 settlement authorization. The facts of this case, along with the testimony of counsel at the hearing on the motion for prejudgment interest, indicate that appellant had a reasonable, good faith belief that he had no liability and therefore had no duty to make a monetary settlement offer. Further, the record reflects that appellant cooperated fully in discovery and did not attempt to unnecessarily delay any of the proceedings. Thus, we find that the trial court abused its discretion when it awarded prejudgment interest to appellee. ²

Because the standard for a "good faith effort to settle" does not require parties in all cases to make monetary settlement offers, R.C. 1343.03(C) does not infringe upon a party's right to a jury trial, as is alleged by appellant in this case. ³ Appellant's other arguments challenging the constitutionality of the statute were not raised in the trial court and therefore will not be ruled upon by this court. State v. Awan (1985), 22 Ohio St.3d 120, 489 N.E.2d 277.

The judgment of the court of appeals is reversed.

Judgment reversed.

LOCHER, HOLMES and CLIFFORD F. BROWN, JJ., concur.

CELEBREZZE, C.J., and SWEENEY and DOUGLAS, JJ., dissent.

CELEBREZZE, Chief Justice, dissenting.

I acquiesce in three parts of the majority's four-part test of when a party has failed to make a good faith effort to settle under R.C. 1343.03(C). I do not agree with the fourth component. By including the statute's "good faith" language three times within its definition of "good faith" effort to settle, the majority has set forth a circular test which provides little guidance, frames an uncertain standard, and is little more than an exercise in tautology. The court would have provided more certainty to its holding by stating "* * * (4) made an affirmative effort to reasonably propose settlement consistent with the party's evaluation of litigation risks and potential liability." See Cox v. Fisher Fazio Foods, Inc. (1984), 13 Ohio App.3d 336, 338, 469 N.E.2d 1055, Markus, J., concurring.

I also dissent from the majority's conclusion that the trial judge's award of prejudgment interest constituted an abuse of discretion.

The clear legislative purpose behind the enactment of R.C. 1343.03(C) is to provide our trial courts with a means of encouraging settlements between litigants. In the case of Mills v. Dayton (1985), 21 Ohio App.3d 208, 209, 486 N.E.2d 1209, the court of appeals poignantly observed the mischief which the General Assembly sought to remedy: "This is not a new cause of action for prejudgment interest * * *, but a means developed by the legislature to provide a procedural vehicle for the enforcement of the public policy which requires that lawsuits be settled at the first...