Spectra-Physics, Inc. v. Superior Court

• Decision Date: 04 February 1988
• Docket Number: SPECTRA-PHYSIC,INC,No. H003755,H003755
• Citation: 244 Cal.Rptr. 258,198 Cal.App.3d 1487
• Court: California Court of Appeals Court of Appeals
• Parties: , Petitioner, v. The SUPERIOR COURT of Santa Clara County, Respondent; TELEDYNE, INC., et al., Real Parties in Interest.

Page 258

244 Cal.Rptr. 258

198 Cal.App.3d 1487

SPECTRA-PHYSICS, INC., Petitioner, v. The SUPERIOR COURT of Santa Clara County, Respondent TELEDYNE, INC., et al., Real Parties in Interest.

No. H003755.

Court of Appeal, Sixth District, California.

Feb. 4, 1988.

As Modified Feb. 26, 1988.

Heller, Ehrman, White & McAuliffe, Rene P. Tatro, Jonathan S. Leo, Monika P. Lee, San Francisco, for petitioner

No appearance for respondent.

Landels, Ripley & Diamond, John F. Barg, Robert R. Klotz, San Francisco, Tyndall, Smoger, Mann & Ramirez, Gerson H. Smoger, San Jose, for real parties in interest.

AGLIANO, Presiding Justice.

The issue in this case is whether, in preparing for a hearing to determine the good faith of a sliding scale settlement under Code of Civil Procedure section 877.6, the settling parties may depose counsel for the nonsettling defendants to inquire whether the nonsettling defendants may have been guilty of bad faith or unreasonable conduct which impeded the settlement process and thereby made a lower settlement reasonable, within the meaning of the decision in Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 239 Cal.Rptr. 626, 741 P.2d 124 (hereafter Abbott Ford ).

Approximately 90 plaintiffs brought six separate lawsuits alleging contamination of groundwater in Mountain View, California, and seeking damages for personal injuries, diminution in value of property and punitive damages. Seven defendants owned, operated, or are the successors in interest of owners or operators of five industrial sites near the affected area. Petitioner, Spectra-Physics, Inc. (Spectra-Physics) is one of six nonsettling defendants challenging the good faith of a settlement between the plaintiffs and defendant Teledyne, Inc. (Teledyne). By this petition for a writ of mandate or prohibition, Spectra-Physics seeks to prevent Teledyne from taking the depositions of counsel for Spectra-Physics and for co-defendant CTS Printex. Teledyne obtained permission of the court to take these depositions to investigate whether conduct of the nonsettling defendants (1) unreasonably or in bad faith impeded settlement, or (2) justified the trial court in approving a lower settlement than would otherwise be acceptable, under principles expressed in the Abbott Ford decision.

On February 9, 1987, Teledyne and the plaintiffs achieved a settlement in which Teledyne guaranteed plaintiffs a specified dollar amount in total recovery ¹ with a cash advance equivalent to 25 percent of the guaranteed amount. Teledyne will not have to pay more than the cash advance unless plaintiffs do not recover at least the additional 75 percent of the guaranteed amount from the other defendants, none of whom have settled with plaintiffs. Teledyne may veto any settlement between plaintiffs and other defendants. The settlement is the type of agreement known as a "Mary Carter" or sliding scale agreement, a kind of settlement which the Abbott Ford decision held may be valid provided it meets certain criteria.

Spectra-Physics alleges that when the above settlement was achieved there had been no previous settlement negotiations with any of the other defendants.

After the settlement agreement, Teledyne offered the other defendants an opportunity to participate in the settlement agreement on certain terms not subject to negotiation. For one thing, the defendants had to accept a dollar limit equal to the cash advance on Teledyne's share of the Teledyne offers evidence in this proceeding which it claims shows that all defendants contributed in roughly equivalent fashion to the contamination of plaintiffs' wells. For example, it asserts groundwater samples from Spectra-Physics sites tests within a range of 2000 to 8000 parts of toxic contaminant per billion, while water from Teledyne sites ranges from 2500 to 9800 parts per billion, and the highest concentration so far found, 13,000 parts per billion, comes from a CTS Printex site. If the trial court ultimately accepts this evidence of proportionate contribution to plaintiffs' damages, Teledyne will be in a strong position to demonstrate that its settlement here is reasonably related to its proportionate share of liability and therefore is a good faith settlement. (See Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 213 Cal.Rptr. 256, 698 P.2d 159 (Tech-Bilt ).)

settlement cost. Thus if all defendants had joined in the settlement, Teledyne's share would have been no more than 25 percent. As of the date of Spectra-Physics' petition for writ of mandate, no other defendant had settled with plaintiff. Spectra-Physics alleges here that Teledyne's liability for plaintiffs' injuries greatly exceeds a 25-percent share.

Teledyne moved for a determination of the good faith of its settlement pursuant to Code of Civil Procedure section 877.6. The court allowed the nonsettling defendants an opportunity for discovery in preparing their challenge to the settlement agreement. The judge acting as special master in charge of discovery permitted Teledyne, over opposition, to take the depositions of the two attorneys for defendants Spectra-Physics and CTS Printex.

Teledyne, to justify this discovery, made the following showing of alleged bad faith. It contended that attorney Tatro, representing Spectra-Physics, had made efforts on behalf of his client to induce plaintiffs' counsel to repudiate the settlement agreement with Teledyne and to execute an identical agreement with Spectra-Physics. Teledyne offered the declaration of John F. Barg, one of Teledyne's attorneys. That declaration refers to a letter submitted by John Nolan, counsel for CTS Printex, to the Court. The letter, written by Gerson H. Smoger (plaintiffs attorney) to Jonathan S. Leo (co-counsel for Spectra-Physics), says referring to a settlement conference regarding Teledyne's agreement: "... [L]et me remind you of what Rene Tatro said to me at the recent settlement conference: 'We can do it for [the guaranteed amount]. What we object to is Teledyne getting off so cheap. We think we should pay the [cash advance] and they should pay the [additional 75 percent of the guaranteed amount].' " Mr. Barg also declares that Nolan said he would "fight" the Teledyne settlement and would not participate in it even though he did not yet know its monetary terms. Teledyne says Tatro's remarks (as set out in the Smoger letter) are an admission that the amounts to be paid by Teledyne under the settlement agreement are within the "ballpark" as representing a fair settlement for plaintiffs' losses. Further, Teledyne asserts that Nolan's remarks evidence bad faith refusal to participate in settlement negotiations. Teledyne argues that language in the Abbott Ford decision justifies a downward adjustment of the reasonable range measure of a good faith settlement in a situation where unreasonable conduct of nonsettling defendants contributes to the settlement result. Accordingly, Teledyne wishes to depose Tatro and Nolan to demonstrate that a downward revision of the reasonable range of settlement is in order here. (43 Cal.3d 858, 239 Cal.Rptr. 626, 741 P.2d 124.)

Spectra-Physics made the point that the alleged conduct of counsel did not occur during the settlement process but rather afterwards, and therefore such conduct cannot be viewed as contributing to the settlement result or impeding the agreement. However, Teledyne countered that its agreement provided for a "window period" during which the nonsettling defendants could participate in the agreement by paying a portion of the guaranteed amount. The alleged bad faith conduct took place during that period. Accordingly, Teledyne Spectra-Physics contends the court manifestly abused its discretion in allowing counsel to be deposed without the showing of good cause normally required to justify such discovery.

argued that under these circumstances, the nonsettling defendants' efforts to undermine Teledyne's settlement and to impede a global settlement clearly occurred during the settlement process, not afterwards, and therefore this conduct is an appropriate subject of discovery.

Preliminarily, Teledyne contends that Spectra-Physics is not entitled to a writ of mandate because it has an adequate legal remedy, to await conclusion of the good faith hearing authorized by Code of Civil Procedure section 877.6 and then, if the settlement be found to have been in good faith, to attack that finding by statutorily authorized writ of mandate, pursuant to Code of Civil Procedure section 877.6, subdivision (e).

We cannot agree that the above-described procedure provides Spectra-Physics an adequate remedy. The propriety of taking the deposition of opposing counsel is a suitable subject for prerogative writ review (see, e.g., Meritplan Insurance Co. v. Superior Court (1981) 124 Cal.App.3d 237, 177 Cal.Rptr. 236), because the damage done by improperly allowing such discovery cannot readily be cured after it has occurred.

DISCUSSION

The starting point of inquiry is--under what circumstances is it generally permissible to depose opposing counsel? "[T]he practice of taking the deposition of opposing counsel should be severely restricted, and permitted only upon showing of extremely good cause." (Fireman's Fund Ins. Co. v. Superior Court (1977) 72 Cal.App.3d 786, 790, 140 Cal.Rptr. 677.) That decision, and others, did permit such deposition in an insurance bad faith case, where "an attorney for a party is the sole, or principal, negotiator and in which bad faith is alleged and punitive damages are sought based upon that allegation of bad faith." ( Id. at p. 790, 140 Cal.Rptr. 677) (See also Meritplan Insurance Co. v. Superior Court, supra, 124 Cal.App.3d 237, 241-242, 177 Cal.Rptr. 236.)

However, even where depositions are permitted in insurance bad faith litigation, the attorney-client privilege nevertheless applies and limits the questions which may be asked of counsel, unless the insurer directly relies on advice...