Allocation of Fault/Settling Tortfeasors: Upset by the Offset? California’s Second Appellate District Clarifies Jury Awards Involving Parties Who Previously Settled in Good Faith

In Shuler, et al. v. Capital Agricultural Property Services, Inc., et al. (2020) 49
Cal.App.5th 62, the Second Appellate District Court of California revisited California law on joint and several liability, and the proper allocation of jury verdict awards involving previously settled joint tortfeasors who settled in good faith pursuant to California Code of Civil Procedure § 877.6.

Facts

Plaintiffs owned a 22-acre ranch in Somis, California. Plaintiffs shared a common boundary with a farm owned by Sunshine Agriculture, Inc., and managed by Capital Agricultural Property Services, Inc. (CAPS) and Sierra Pacific Farms (collectively “Defendants”). Defendants expanded their agricultural operations onto a hillside above Plaintiffs’ property. In March 2011, the hillside collapsed onto Plaintiffs’ property causing damage.

Initially, Plaintiffs filed suit in California Superior Court against Defendants and Haejin Lee, an employee of the Natural Resource Conservation Service (NRCS), a division of the United States Department of Agriculture. Plaintiffs alleged that Defendants and Lee disrupted the subterranean grading, causing damage to the Plaintiffs’ property. The trial court held that NRCS was a necessary and indispensable party, and concluded that NRCS could not be joined to the state action, because it is a Federal agency. The trial court dismissed the action without prejudice and Plaintiffs filed suit in Federal District Court against Defendants and the United States.

In 2015, Plaintif fs accepted a $50,000 offer of judgment from the United States. That settlement was incorporated into a judgment and acted to release and discharge the United States, and all past and present officials, employees, representatives, and agents of the United States, from any claims that were or could have been alleged by Plaintiffs in the action. The Federal District Court granted an application of good faith settlement under California Code of Civil Procedure § 877.6, which operated to 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.

In July 2015, Plaintiffs filed a new state court action against Defendants which included claims for negligence and trespass. The jury returned a verdict for Plaintiffs on their negligence claim. The jury also found that two unnamed parties Haejin Lee and Travis Godeaux, another engineer and employee of NRCS, were negligent. The jury allocated negligence as follows: Sierra (defendant farm manager): 10%; CAPS (defendant farm manager): 10%; Sunshine (defendant farm owner): 10%; Plaintiffs: 2%; Travis Godeaux (engineer with NRCS): 34%; Haejin Lee (engineer with NRCS): 34%. Thus, the Defendants were responsible for 30% of the total negligence, while Godeaux and Lee accounted for 68% of the total negligence and causation. The jury awarded Plaintiffs economic damages of $1,756,499.99, and noneconomic damages of $50,000. The trial court held that the Defendants were not liable for the conduct of the Federal Government and its employees based on the preclusive effect of the Federal Court judgment. Therefore, as to economic damages, the court ordered that the Defendants were jointly and severally liable to Plaintiffs only for their own 30% share of the negligence $526,950, minus an offset of 2/3 of previous settlement amounts ($66,666.67) for amounts previously paid by settling tortfeasors. Accordingly, Defendants’ joint and several liability for economic damages was reduced from $1,756,499.99 to $460,283.33.

Analysis

California’s Second Appellate Court determined this reduction to be in error. The Appellate Court observed that with a settling tortfeasor who has made a good faith settlement under Code of Civil Procedure § 877.6 (i.e., the United States and its employees Godeaux and Lee), the California Legislature has statutorily adopted the approach of a setoff without contribution by the settling tortfeasor to the non-settling tortfeasor under California Code of Civil Procedure §§ 877, 877.6(c). This means that the nonsettling tortfeasors may receive a credit in the amount paid by the settling tortfeasor, but not contribution from the settling tortfeasor.

Defendants attempted to argue that res judicata, or claim preclusion, operated to prevent any recovery against the Defendants for any of the conduct by NRCS and its employees. The Appellate Court rejected this argument on the basis that in the prior settlement with the United States, Plaintiffs did not waive their right to seek full compensation for their loss from other tortfeasors under California’s rule of joint and several liability, but they did waive their right to seek further compensation from the United States and its employees. The Appellate Court also rejected Defendants’ arguments that Plaintiffs were obtaining a duplicative recovery from both NRCS and Defendants, concluding that the Defendants’ conduct was distinct from that of NRCS and its employees.

Therefore, the Appellate Court held that the trial court’s order reducing the economic damages award by 68% was erroneous, and vacated the trial court’s decision. The judgment was modified to award Plaintiffs economic damages in the amount determined by the jury—$1,756,499.99, minus the amount allocated for Plaintiffs’ own contributory negligence, and minus the credits attributable to previously settled parties.

Learning Point: Shuler is an important reminder to litigants involved in multi-party complex litigation. In cases involving numerous defendants, it is often easy to overlook the myriad of co-defendant s’ applications and motions for good faith settlement. Nevertheless, it is necessary to assess to what extent these settlements may affect your own client’s ability to settle, and to what extent the settling parties will be determined to be liable for a singular tort. Indeed, if it is determined that the extent of the settling parties’ liability is such that they account for a significant amount of possible injury or damages in a verdict, it might be prudent to challenge a good faith settlement and query whether the proposed settlement amount does indeed come within the “ballpark” of a good faith settlement figure. See Tech-Bilt, Inc. v. Woodward- Clyde & Associates (1985) 38 Cal.3d 488. Otherwise, if a co-defendant settles for a nominal amount which is not contested at the time of an application or motion for good faith settlement, and a subsequent high verdict is found attributing significant proportions of liability to the nowsettled- co-defendant, your client can be left on the hook for the remainder of the amount, minus a nominal credit for the previously unchallenged “lowball” settlement amount. Clausen Miller’s California litigation team have years of experience litigating complex multi party matters, and are staffed with practitioners who have keen and careful eyes to ensure that clients are not left paying a disproportionate amount of damages.