Torres v. Union Pacific R. Co.

• Decision Date: 22 June 1984
• Citation: 157 Cal.App.3d 499,203 Cal.Rptr. 825
• Court: California Court of Appeals Court of Appeals
• Parties: Pablo S. TORRES, Plaintiff, v. UNION PACIFIC RAILROAD COMPANY, a Corporation, A.H. Bottorff Company, a Corporation, and J.C. Hallman Company, Ltd., Defendants. UNION PACIFIC RAILROAD COMPANY, a Corporation, Cross-Complainant and Respondent, v. A.H. BOTTORFF COMPANY and J.C. Hallman Manufacturing Company, Ltd., Cross-Defendants and Appellants. Pablo S. TORRES, Plaintiff and Respondent, v. UNION PACIFIC RAILROAD COMPANY, Defendant and Cross-Appellant. UNION PACIFIC RAILROAD COMPANY, Cross-Complainant and Cross-Appellant, v. A.H. BOTTORFF COMPANY, J.C. Hallman Company, Ltd., Cross-Defendants and Respondents. Civ. 66792. BOO1143.

Page 825

203 Cal.Rptr. 825

157 Cal.App.3d 499

Pablo S. TORRES, Plaintiff, v. UNION PACIFIC RAILROAD COMPANY, a Corporation, A.H. Bottorff Company, a Corporation, and J.C. Hallman Company, Ltd., Defendants.

UNION PACIFIC RAILROAD COMPANY, a Corporation, Cross-Complainant and Respondent, v. A.H. BOTTORFF COMPANY and J.C. Hallman Manufacturing Company, Ltd., Cross-Defendants and Appellants.

Pablo S. TORRES, Plaintiff and Respondent, v. UNION PACIFIC RAILROAD COMPANY, Defendant and Cross-Appellant.

UNION PACIFIC RAILROAD COMPANY, Cross-Complainant and Cross-Appellant, v. A.H. BOTTORFF COMPANY, J.C. Hallman Company, Ltd., Cross-Defendants and Respondents.

Civ. 66792.

BOO1143.

Court of Appeal, Second District, Division 7, California.

June 22, 1984.

Cummins & White, Marshall W. Vorkink and Richard J. Wynne, Los Angeles, for Union Pacific R. Co.

Anderson, McPharlin & Conners, Thomas J. Casamassima and Eric N. Winter, Los Angeles, for A.H. Bottorff Co. and J.C. Hallman Co., Ltd.

THOMPSON, Acting Presiding Justice.

This case calls upon us to define the term "good faith" as it is used in Code of Civil Procedure sections 877 and 877.6. Specifically, we must decide whether a settlement is in "good faith" when it is "too cheap," i.e., when it allows the settling codefendant to escape from the litigation without paying his fair share of the damages. We find that the standard of "good faith" is not met when a codefendant's settlement price is grossly disproportionate to his fair share of the damages. However, we find that the settlements at issue here involve no such gross disproportion and were therefore made in good faith. We, therefore, affirm dismissals made by the trial court, pursuant to its finding of good faith.

Facts

On May 24, 1976, Pablo Torres ("Torres"), an employee of Union Pacific Railroad Company ("Union"), was about to leave work for the day when he discovered that his car had a flat tire. Needing a jack to enable him to change this tire, Torres borrowed a Jack-all-Jack from Union and started to work on his car, which was parked on Union premises. While so working, Torres tripped the reversing mechanism on the jack, and the jack handle jerked violently from the horizontal to the vertical position, striking Torres in the head and causing him to lose one eye.

Torres sued Union and the manufacturer and distributor of the Jack-all-Jack, A.H. Bottorff Co. and J.C. Hallman Co., Ltd. (collectively "Hallman"). In his first count, Torres alleged Union's liability under the Federal Employers Liability Act. Four other counts sought damages against both Union and Hallman under theories of negligence, express warranty, implied warranty and strict liability.

After suit was filed, Union conducted certain experiments with the Jack-all-Jack to determine whether it was indeed hazardous. These experiments, Union claims, showed that the jack "ratcheted dangerously" when the reversing lever was engaged while the handle was in the horizontal position. Union also claims that later versions of the jack bear warning labels advising that the handle be placed in a vertical position before the reversing mechanism is engaged.

Union cross-complained against Hallman, alleging that its negligent design was responsible for Torres' injury. Hallman, in turn, cross-complained against Union, claiming that it negligently used and allowed Torres to use the Jack-all-Jack for unintended purposes. Settlement negotiations ensued among Union, Hallman, and Torres. Union and Hallman made one offer of $200,000 to Torres; this $200,000 liability was to be split evenly between both parties. Torres rejected this offer, whereupon cooperation between the defendants began to break down.

Union finally made a sliding-scale offer to Torres, which the latter accepted. Under this "Mary Carter" agreement, Union paid Torres $200,000. Fifty thousand dollars of this was an outright settlement with Torres; the remaining $150,000 was a guarantee ensuring that if Torres' suit against Hallman failed, or fell short of $150,000, Torres would be entitled to keep the portion of the advance necessary to bring his total recovery, including the $50,000 outright settlement, to $200,000. In return for this settlement, Torres promised diligently to pursue his claim against Hallman and to return to Union the first $150,000 of any recovery from Hallman; Torres was entitled to keep any settlement received from Hallman in excess of $150,000.

Torres later settled with Hallman for $300,000. His ultimate settlement thus amounted to $350,000; of this Union paid $50,000 and Hallman paid $300,000.

Union sought court approval of the good faith of its settlement pursuant to CODE OF CIVIL PROCEDURE SECTION 877.6¹. Hallman challenged this settlement, claiming that it was not made in good faith and that Hallman was therefore entitled to seek equitable indemnity from Union. Hallman, in turn, sought approval of the good faith of its settlement pursuant to 877.6, and Union in turn objected, claiming that Hallman's settlement was not made in good faith since Hallman was primarily liable and therefore responsible for all the damages to Torres. After an extensive hearing conducted pursuant to section 877.6, the trial court found that both parties' settlements were made in good faith and that equitable indemnity was therefore barred. The court thereupon entered orders of dismissal against both Union's and Hallman's cross-complaints against each other.

Hallman appeals from the order of dismissal based on the trial court's finding of good faith; Union responds and cross-appeals from the dismissal of its cross-complaint.

Discussion

A settlement made in good faith by an alleged tortfeasor discharges that tortfeasor from liability for contribution or equitable indemnity to any other joint tortfeasor. (§§ 877, 877.6.) On appeal Hallman contends that Union's settlement is not in "good faith" within the terms of section 877, and is therefore not sufficient to discharge Union's liability to Hallman for implied equitable indemnity. Hallman, however, does not impute to Union's settlement any wrongful means or malignant motive. Rather, Hallman argues that Union's settlement here is lacking in good faith because its price is too low; the settlement, Hallman concludes, allowed Union to escape from this action without paying its fair share.

In making this argument, Hallman exposes a point of conflict in California case law. It is well settled that certain settlement tactics or motives constitute bad faith. For example, a plaintiff might single out the most unpopular of several codefendants and settle with all the other codefendants, leaving the unpopular party to face the jury alone. (See Lareau v. Southern Pac. Transportation Co. (1975) 44 Cal.App.3d 783, 794, 118 Cal.Rptr. 837.) Or a plaintiff might settle with a defendant capable of providing crucial witnesses, in order to deprive the defense of these witnesses' testimony. (See Commercial U. Ins. Co. v. Ford Motor Co. (9th Cir.1981) 640 F.2d 210.) Another wrongful tactic is seen in multiple-count lawsuits when a codefendant and plaintiff settle after conspiring to assign a disproportionately large amount of their settlement to the plaintiff's least valuable counts; this leaves the non-settling codefendants fully exposed to the plaintiff's most valuable counts. (See River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 103 Cal.Rptr. 498.) The conflict in California law does not concern such cases, where the absence of good faith is clear. Rather, this conflict is brought to light when the only fault attributed to a settlement is that its price is disproportionate to the settling party's fair share of the damages. Such disproportion is the gravamen of Hillman's complaint on appeal. Accordingly, we are faced squarely with this conflict in our law.

This conflict finds its origin in the more profound conflict between two policy considerations underlying section 877. The first such consideration is the legislative desire to promote the settlement of disputes and the finality of such settlements. (River Garden Farms v. Superior Court, supra, 26 Cal.App.3d at p. 993, 103 Cal.Rptr. 498.) The second and conflicting consideration is the policy that tortfeasors ought to pay for their fair share of the damages which they cause, and that they ought not to escape this burden by means of an unreasonably low settlement. (Id., at 993, 103 Cal.Rptr. 498.) Some authorities attribute more importance to the latter policy, others to the former. (Cf. River Garden Farms, id., at p. 993, 103 Cal.Rptr. 498; Cardio Systems, Inc. v. Superior Court (1981) 122 Cal.App.3d 880, 889, 176 Cal.Rptr. 254.) There is agreement, however, that the policy of promoting settlements and the policy of fairness conflict. (See Lareau v. Southern Pac. Transportation Co., supra, 44 Cal.App.3d at pp. 795-796, 118 Cal.Rptr. 837.) Thus, the first goal, that of promoting settlements, is hindered by any post-settlement process designed to ensure the fairness of the settlement. This is so because parties will be less willing to settle if they are prevented from closing their books on a case by fears that their settlement will later be attacked by codefendants seeking indemnity. ² On the other hand, the second goal, that of fair apportionment of damages, is defeated when a guilty defendant is permitted to settle for a nominal sum, leaving codefendants to bear the costs of the settling defendant's wrongs.

In two recent cases, courts have thrown up their arms and declared this conflict intractable, incapable of judicial resolution. (Burlington Northern R.R. Co. v. Superior Court, supra, 137 Cal.App.3d 942, 187 Cal.Rptr. 376; Cardio Systems, Inc. v. Superior Court, supra, 122 Cal.App.3d 880, 176 Cal.Rptr. 254.) In these cases, the courts side with the policy of encouraging final settlements; they hold that any settlement, no matter how small, is impervious from attack by...