Peter Culley & Associates v. Superior Court

• Decision Date: 17 November 1992
• Docket Number: No. A057040,A057040
• Citation: 13 Cal.Rptr.2d 624,10 Cal.App.4th 1484
• Court: California Court of Appeals Court of Appeals
• Parties: PETER CULLEY & ASSOCIATES, Petitioner, v. The SUPERIOR COURT of San Francisco County, Respondent; PARK HILL JOINT VENTURE, Real Party in Interest.

Page 624

13 Cal.Rptr.2d 624

10 Cal.App.4th 1484

PETER CULLEY & ASSOCIATES, Petitioner, v. The SUPERIOR COURT of San Francisco County, Respondent PARK HILL JOINT VENTURE, Real Party in Interest.

No. A057040.

Court of Appeal, First District, Division 3, California.

Nov. 17, 1992.

As Modified on Denial of Rehearing Dec. 16, 1992.

Thomas O. Haran, Nelson C. Barry, III, William Reid Brown, Bishop, Barry, Howe, Haney & Ryder, San Francisco, for petitioner.

No appearance for respondent.

Robert D. Links, Dobbs, Berger, Molinari, Vannelli, Nadel & Links, San Francisco, for real party in interest.

WERDEGAR, Associate Justice.

Code of Civil Procedure section 877.6 ¹ provides a defensive procedure by which a settling joint tortfeasor or co-obligor may extricate itself from a lawsuit and bar actions for equitable indemnity by remaining joint tortfeasors or co-obligors. The central element in section 877.6 is a finding by the court that the settlement was entered in good faith.

Good faith may also play a limited role in an action brought to enforce a contractual right to indemnification. Civil Code section 2778, subdivision 5 states that, if the person indemnifying neglects to defend the person indemnified, "a recovery against the latter suffered by him in good faith, is conclusive in his favor against the former." When, instead of a recovery by judgment, there is a settlement of the underlying action, evidence showing the presence or absence of good faith may also affect the court's decision whether to accept the settlement as proof of an indemnitee's liability and the amount owed.

This contractual indemnity case illustrates some of the problems caused by blurring the distinction between the role of good faith in defensive section 877.6 proceedings and its role in offensive actions to enforce indemnity agreements. Instead of limiting good faith's role in this indemnity action, the superior court has made its good faith finding conclusive on the key issues in the case. The court has also inappropriately used motion procedures applicable to section 877.6, but not to actions for contractual indemnity.

I. Facts and Procedures

Park Hill Joint Venture (Park Hill) was formed to develop a condominium project in San Francisco and hired the architectural firm of Kaplan/McLaughlin/Diaz (Kaplan). Kaplan hired Peter Culley & Associates (Culley) as consulting structural engineer on foundation design. By contract, Culley agreed to "defend, indemnify and hold [Kaplan] harmless from and against all loss, damage, injury or liability, real or alleged, resulting from [Culley's] negligent performance of services provided under" the agreement.

During excavation, Park Hill learned that the foundation footings as originally designed were not deep enough to reach load-bearing soil. Kaplan sued Park Hill to collect fees owed on the project. Park Hill cross-complained, alleging that the design flaws caused a delay of at least 153 days and increased construction costs. Kaplan tendered defense of the cross-complaint to Culley, but did not, in turn, cross-complain against Culley. Culley declined the tender and was not a party to the Park Hill/Kaplan action.

With the aid of a mediator, Park Hill and Kaplan settled the cross-complaint for $225,000. They agreed that of the $225,000 to be paid by Kaplan, $200,000 was paid "in recognition of the risks of liability associated with" Culley's foundation design work, and the rest was paid in recognition of the risks of liability associated with all other issues in the case. Kaplan assigned to Park Hill its indemnity rights against Culley and agreed to cooperate with Park Hill in its action against Culley.

Park Hill filed this action against Culley to enforce the indemnity agreement. Different juries considered whether Kaplan properly tendered the defense to Culley and whether Kaplan's active negligence barred indemnity. One jury found that tender was proper. Because, however, Culley presented no expert testimony about the standard of care, the court granted a nonsuit against Culley in the separate proceeding on the issue of Kaplan's active negligence. Citing the standards of section 877.6, the court then entertained Park Hill's motion to determine whether the settlement between Park Hill and Kaplan was in good faith. In a written decision, the court found the settlement, including the allocation of $200,000 to the foundation issue, was in good faith and was conclusive against Culley.

Culley petitioned this court for a writ of mandate, citing as authority section 877.6, subdivision (e).

II. Remedy by Writ of Mandate

Section 877.6 provides in part: "(a) Any party to an action wherein it is alleged that two or more parties are joint tortfeasors or co-obligors on a contract debt shall be entitled to a hearing on the issue of the good faith of a settlement entered into by the plaintiff or other claimant and one or more alleged tortfeasors or co-obligors, ... [p] (c) A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor or co-obligor from any further claims against the settling tortfeasor or co-obligor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault. [p] (d) The party asserting the lack of good faith shall have the burden of proof on that issue. [p] (e) When a determination of the good faith or lack of good faith of a settlement is made, any party aggrieved by the determination may petition the proper court to review the determination by writ of mandate...."

Arguably, subdivision (e) of section 877.6 provides that the court's determination that, Park Hill and Kaplan settled in good faith is subject to review by writ of mandate. Park Hill contends, however, that writ review under subdivision (e) does not apply where, as here, the good faith determination was made to enforce a contractual indemnity right. Park Hill says that section 877.6 is designed to deal with equitable indemnity claims among multiple defendants in the same case where expedited review facilitates continuation of the action against nonsettling defendants. Here, expedited review is not needed because the good faith determination came near the end of a two-party action (only the damage issue remained, including attorney fees incurred by Kaplan in defense of Park Hill's action).

We agree with Park Hill that section 877.6, subdivision (e) does not apply to a good faith determination in an action to enforce contractual indemnity. Thus, we act under our general writ authority. ( § 1086.) Under the peculiar circumstances of this case, appeal is not an adequate remedy. The proceedings below have become confused by a blurring of the distinctions between section 877.6 proceedings and proceedings to enforce contractual indemnity rights. This confusion has spilled over into the channels for review. Speedy clarification of procedures in both courts is warranted. Procedural mistakes have already introduced error into the court rulings and may adversely affect the unfinished proceedings in the superior court. Absent intervention at this stage, reversal on appeal seems inevitable.

III. Contentions of the Parties

Culley contends the court improperly accepted an allocation of damages from the settlement of an action to which Culley was not a party and in which its negligence was not in issue. Culley argues the court's ruling on good faith should have addressed only the total settlement amount of $225,000, not the allocation of $200,000 to the foundation issue. Culley further asserts the court erred in holding that a good faith settlement conclusively established Culley's liability, instead of merely creating an evidentiary presumption that Culley was liable for $200,000.

Park Hill, in turn, contends that, pursuant to Civil Code section 2778, subdivision 5, the settlement was a "recovery" against Kaplan and, because entered in good faith, was conclusive against Culley. Park Hill suggests that, by refusing tender of the defense, Culley lost the right to litigate the issue of its negligence. Park Hill concludes the settlement's allocation of $200,000 to the foundation issue is binding on Culley by virtue of the court's ruling on good faith.

Before addressing these contentions, we briefly review the relationship between equitable and contractual indemnity and the general principles of law applicable to contractual indemnity.

IV. Relationship Between Equitable Indemnity and Express Contractual Indemnity

In the original action, had Park Hill named Culley as a defendant on its cross-complaint against Kaplan or had Kaplan cross-complained against Culley for equitable indemnity, Kaplan, as a settling defendant, could have used section 877.6 proceedings defensively against Culley. Any party to the original action could have asked the court to consider whether the settlement was in good faith. If the court found the settlement to be in good faith, Park Hill could have proceeded against Culley, who could have set off $200,000 against any judgment obtained by Park Hill. (Jaramillo v. State of California (1978) 81 Cal.App.3d 968, 971, 146 Cal.Rptr. 823.) Kaplan, in turn, could have used the confirmed settlement defensively as a bar to any claim by Culley for equitable indemnification and could still have pursued its equitable or express contractual indemnity rights against Culley. (Bay Development, Ltd. v. Superior Court (1990) 50 Cal.3d 1012, 1032, 269 Cal.Rptr. 720, 791 P.2d 290; Far West Financial Corp. v. D & S Co. (1988) 46 Cal.3d 796, 815-816, 251 Cal.Rptr. 202, 760 P.2d 399; C.L. Peck Contractors v. Superior Court (1984) 159 Cal.App.3d 828, 834, 205 Cal.Rptr. 754.)

Because the original action was a two-party action involving only Park Hill and Kaplan, section 877.6 procedures did not, in fact, come into play; neither party to that action could have contested its own settlement. Kaplan, however, as...