• #civil-litigation
  • #Civil Litigation

Good Faith Settlement

You’ve reached a settlement agreement with the plaintiff, have a signed and executed agreement from the settling parties, and are ready to be dismissed from the case, is your work done? Assuming there are no cross-complaints against your client, that is the likely scenario. However, if you have only reached a settlement agreement with the plaintiff and a cross-complaint has been filed against you client, your work is not done. 

In a multi-party litigation, settlements can be a complicated issue when all the parties have not agreed to settle. While a party in a multi-party litigation is free to resolve the matter according to what is in their best interest, that party should not be able to shift liability to another party through a nominal settlement amount. In order to address this problem, California Code of Civil Procedure § 877 was enacted. Under California Code of Civil Procedure § 877, where a release is given in good faith to a joint tortfeasor, it will “discharge the party to whom it is given from all liability for any contribution to any other parties.”  The purpose of the legislation is to provide “equitable sharing of costs among the parties at fault and encouragement of settlement.” Mattco Forge, Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, 1349. 

California Code of Civil Procedure § 877.6 provides two methods for obtaining the court’s approval of a settlement agreement: a good faith settlement application or a good faith settlement motion. 

Application

A settling party can apply for an order determining that the settlement was reached in good faith by filing and serving the following documents:

  1. A Notice of Settlement
  2. An Application for Good Faith Determination stating:
    • the settling parties;
    • the terms and amount of the settlement; and
    • if a dismissal is requested, each pleading or portion of pleading affected by the settlement, including the date on which the affected pleading was filed;
  3. A Proposed Order Determining Good Faith of Settlement

An application should be utilized when it is expected that none of the non-settling parties will oppose or contest the settlement. If an opposition or contest is expected or likely, this procedure could delay obtaining court approval because non-settling parties are given 20 or 25 days within which to file a motion contesting good faith. 

Motion 

Alternatively, a party can file a motion to move the court for a determination of good faith settlement. Normal notice and hearing rules apply to a motion for determination of good faith settlement. The notice of motion must list each party and each pleading or portion thereof affected by the settlement, including the date on which the affected pleading was filed. The motion may include a request to dismiss any pleading or portion of a pleading, including claims by nonsettling parties for indemnification against one of the settling parties. This procedure should be utilized when it is expected or likely that a non-settling party will oppose the settlement. 

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

In determining whether settlement by one of several tortfeasors with plaintiff was in good faith the trial court should inquire, among other things, whether amount of settlement is within reasonable range of settling tortfeasor’s proportional share of comparative liability for plaintiff’s injuries. “Good faith” depends upon what the plaintiffs knew about the liability at the time of settlement, not evidence that might be acquired later. 

Factors the court considers include:

  • a rough approximation of plaintiffs’ total recovery and the settlor’s proportionate liability;
  • the amount paid in settlement;
  • the allocation of settlement proceeds among plaintiffs;
  • a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial;
  • the financial conditions and insurance policy limits of settling defendants; and
  • the existence of collusion, fraud, or tortious conduct aimed to injure the interests on non-settling parties. Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499.

The court must also consider the settling defendant’s liability for indemnity to non-settling defendants. TSI Seismic Tenant Space, Inc. v. Geocon Inc. (2007) 149 Cal.App.4th 159.

Effect

The effect of a finding of a “good faith settlement” is: 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. (CCP §877.6(c)).

When a plaintiff settles with one of several defendants, the settlement discharges the settling defendant from liability to the other defendants for equitable contribution or comparative indemnity but not for contractual indemnity. The amount paid by the settling defendant reduces the claim against the others. (CCP §877(a)).

In a multi-party litigation, a settling party must be careful to ensure a settlement agreement will completely dismiss them from the lawsuit. A court will carefully analyze the settlement agreement when one of several joint tortfeasors settles.

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