Tech-Bilt, Inc. v. Woodward-Clyde & Associates

• Decision Date: 02 May 1985
• Docket Number: TECH-BIL,WOODWARD-CLYDE,INC
• Citation: 38 Cal.3d 488,213 Cal.Rptr. 256,698 P.2d 159
• Court: California Supreme Court
• Parties: , 698 P.2d 159 , Cross-Complainant and Appellant, v.& ASSOCIATES, Cross-Defendant and Respondent. L.A. 31826.

Page 256

213 Cal.Rptr. 256

38 Cal.3d 488, 698 P.2d 159

TECH-BILT, INC., Cross-Complainant and Appellant, v. WOODWARD-CLYDE & ASSOCIATES, Cross-Defendant and Respondent.

L.A. 31826.

Supreme Court of California.

May 2, 1985.

Paul R. Kennerson, Gibson & Kennerson, San Diego, for cross-complainant and appellant.

Dennis W. Daley, Daley & Heft, Encinitas, for cross-defendant and respondent.

GRODIN, Justice.

This case requires us to consider the meaning of the phrase "settlement ... made in good faith" as used in Code of Civil Procedure section 877.6, ¹ and to determine whether a plaintiff's decision to dismiss a claim barred by the statute of limitations in return for a waiver of costs is sufficient to insulate the dismissed tortfeasor/defendant against claims in equitable indemnity asserted by a nonsettling codefendant.

I.

Tech-Bilt, Inc. (Tech-Bilt) appeals from a judgment which granted a motion for summary judgment and dismissed its cross-complaint against Woodward-Clyde & Associates (Woodward-Clyde). Plaintiffs in the underlying action, Mr. and Mrs. Andrew Fabula (hereinafter referred to as the plaintiffs), owners of a residential property, brought this action against Tech-Bilt (the developer), Woodward-Clyde (soils engineers), and others on various theories to recover damages for structural defects in their residence.

During informal discovery in the early stages of litigation, counsel for Woodward-Clyde informed counsel for plaintiffs that Woodward-Clyde had completed its services on the subject development more than 10 years before plaintiffs filed their complaint in this action. Plaintiffs' action against Woodward-Clyde was therefore barred by the applicable 10-year statute of limitations under section 337.15. Woodward-Clyde's counsel expressed his intention to file a motion for summary judgment based on this statute of limitations, but also offered plaintiffs an alternative. If plaintiffs agreed to dismiss their claim against Woodward-Clyde with prejudice, Woodward-Clyde would waive any claim against plaintiffs for costs incurred in defending the action. ² Plaintiffs agreed to this proposal and dismissed their claim against Woodward-Clyde in March 1981.

In April 1981, Tech-Bilt filed an amended cross-complaint for indemnity and declaratory relief, and in June named Woodward-Clyde as a party cross-defendant. Woodward-Clyde then brought motions for an order to confirm its agreement with the plaintiffs as a good faith settlement under the terms of section 877.6 and for summary judgment as to Tech-Bilt's cross-complaint. After a hearing, the court found the settlement to be in good faith and entered summary judgment dismissing Tech-Bilt's cross-complaint against Woodward-Clyde. Tech-Bilt appeals, arguing that the agreement between Woodward-Clyde and plaintiffs is not a settlement in good faith within the meaning of section 877.6 and should not, therefore, bar Tech-Bilt's claim for indemnity against Woodward-Clyde.

As a preliminary matter, it should be noted that, had Woodward-Clyde obtained a summary judgment on plaintiffs' claim on the basis of section 337.15, this would not have barred Tech-Bilt's cross-complaint against Woodward-Clyde for equitable indemnity. "[A] cross-complaint for indemnity may be filed more than 10 years after the alleged indemnitor has substantially completed his services, provided that the underlying action was itself brought within the 10-year limitation period of the statute." (Valley Circle Estates v. VTN Consolidated, Inc. (1983) 33 Cal.3d 604, 609, 189 Cal.Rptr. 871, 659 P.2d 1160.) In this case, plaintiffs' action against Tech-Bilt was brought within the 10-year limitation period of section 337.15. The question presented is thus whether Tech-Bilt's right to cross-complain for equitable indemnity is substantially affected by the fact that plaintiffs' underlying action against Woodward-Clyde was terminated by a dismissal in return for waiver of costs rather than through a summary judgment motion.

II.

The statutes which govern this case are sections 877 and 877.6. Section 877 provides: "Where a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment is given in good faith before verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort--[p] (a) It shall not discharge any other such tortfeasor from liability unless its terms so provide, but it shall reduce the claims against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it whichever is the greater; and [p] (b) It shall discharge the tortfeasor to whom it is given from all liability for any contribution to any other tortfeasors."

Section 877.6 states, in pertinent part: "(a) Any party to an action wherein it is alleged that two or more parties are joint tortfeasors 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.... [p] (c) A determination by the court that the settlement was made in good faith 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. [p] (d) The party asserting the lack of good faith shall have the burden of proof on that issue."

To fully appreciate the meaning of section 877.6 a brief review of the legislative and decisional history preceding its enactment is appropriate. At common law, there was no right of contribution among tortfeasors. "The ancient basis of the rigid rule against contribution in this type of case is the policy that the law should deny assistance to tortfeasors in adjusting losses among themselves because they are wrongdoers and the law should not aid wrongdoers." (Fourth Progress Rep. to the Legis. by the Sen. Interim Com. on Judiciary, p. 130, 1 Appen. to Sen. J. (1957 Reg.Sess.) [hereafter Jud.Com.Rep.].)

At the same time, the common law provided a powerful disincentive to settlements between plaintiffs and individual tortfeasors in a multiple defendant action since the plaintiff's release or dismissal of one joint tortfeasor for consideration released all the others. The theory behind this rule was that there could be only one compensation for a joint wrong and since each joint tortfeasor was responsible for the whole damage, payment by any one of them satisfied plaintiff's claim against all. Whether this rule applied also to concurrent tortfeasors was open to question. (See 4 Witkin, Summary of Cal.Law (8th ed. 1974) Torts, § 38, pp. 2336-2337.)

California's tort contribution legislation (pt. 2, tit. 11, in which §§ 877 & 877.6 now appear) was sponsored by the State Bar and originally introduced in 1955 as Senate Bill No. 412. The primary purpose of the bill was the equitable objective of ameliorating the punitive effect of the no-contribution rule upon joint tortfeasors. ³

It is significant that, as originally proposed, the bill did not address the effect of a release or a covenant not to sue given to one of several joint tortfeasors. Section 877, providing for such settlements, was added to the bill at the suggestion of the Senate Committee on Judiciary. (Jud.Com.Rep., op. cit. supra, at p. 129.) Title 11 was ultimately enacted in 1957. (Stats.1957, ch. 1700, § 1, p. 3076.)

As the Court of Appeal in River Garden Farms, Inc. v. Superior Court observed, "[t]he major goals of the 1957 tort contribution legislation are, first, equitable sharing of costs among the parties at fault, and second, encouragement of settlements." (River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 993, 103 Cal.Rptr. 498 [hereafter River Garden Farms ].)

In interpreting this legislation, the courts therefore properly attempted to accommodate both objectives, even though the goals of equitable sharing and encouragement of settlements are not always necessarily harmonious. "[I]f the policy of encouraging settlements is permitted to overwhelm equitable financial sharing, the possibilities of unfair tactics are multiplied. Neither statutory goal should be applied to defeat the other." (Id., at p. 998, 103 Cal.Rptr. 498.)

The good faith provision of section 877 mandates that the courts review agreements purportedly made under its aegis to insure that such settlements appropriately balance the contribution statute's dual objectives. ⁴ "Lack of good faith encompasses many kinds of behavior. It may characterize one or both sides to a settlement. When profit is involved, the ingenuity of man spawns limitless varieties of unfairness. Thus, formulation of a precise definition of good faith is neither possible nor practicable. The Legislature has here incorporated by reference the general equitable principle of contribution law which frowns on unfair settlements, including those which are so poorly related to the value of the case as to impose a potentially disproportionate cost on the defendant ultimately selected for suit." (Id., at p. 997, 103 Cal.Rptr. 498, emphasis added.)

By their terms, the tort contribution statutes applied only to tortfeasors against whom a money judgment had been jointly rendered. ( § 875, subd. (a).) In American Motorcycle Assn. v. Superior Court, however, we articulated a related remedial theory of partial indemnity which is broadly applicable to all multiple tortfeasors. (American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899 [hereafter American Motorcycle ].)

Our primary concern in American Motorcycle was the equitable objective of allocating the cost of loss appropriately among multiple tortfeasors. "[I]n the great majority of cases ... equity and fairness call for an apportionment of loss between the wrongdoers in proportion to their relative culpability, rather...