Pursuing A Divide And Conquer Negotiation Strategy? Don’t Miss New California Case Law On Good Faith Settlement Findings

Challenges to good faith settlements that cut off the rights of non-settling defendants to seek indemnification and contribution from settling defendants are nearly always doomed to failure.  Trial courts are understandably eager to clear their dockets and there’s no docket-clean-up pitcher like the first defendant to settle.  Deny the motion and bring a settled defendant and his trial-ready resources back in to the litigation when the first defendant-domino has just successfully toppled over?   Not likely, my friend. Not in the trial court at any rate.

These motions are so difficult to oppose that I’ve seen a target defendant threaten a marginal player (my client) with sanctions just for challenging the target’s very low six-figure settlement in an eight-figure antitrust action.

It looks like low value settlements got just a little bit harder to defend yesterday when the Second District Court of Appeal reversed a trial court’s good faith settlement finding in  Long Beach Memorial Medical Center v. Superior Court (Conners).

Best quotation:  “The hospital contends that the physicians‟ $200,000 settlement — representing 2 percent of plaintiffs‟ $10 million damages estimate — was so far out of the “ballpark” it was not even in the parking lot.”  With a first runner-up to “If section 877.6 is to serve the ends of justice, it must prevent a party from purchasing protection from its indemnification obligation at bargain-basement prices.”

The Court of Appeal relied upon the following “facts” in finding that the trial court abused its considerable discretion in granting a good faith motion to defendant physicians in light of defendant hospital’s opposition.

  • payment of $200,000 in settlement for a $10 million claim, which the appellate court found to be “wholly disproportionate.”  As the Court opined “[e]ven a slight probability of liability on [the settling doctor’s] part would warrant a contribution more significant than 2 percent.”
  •  the “evidence” supporting the court’s finding that the settling physician’s probable fault was “not de minimis,”  which appears to have been based upon Plaintiff’s attorney’s fault analysis (not generally known for its unbiased nature) and the physicians’ counsel’s candid (?) suggestion that his clients’ contribution to a global settlement might be in the range of $1.5 million;
  • the availability of $2 million in coverage, which “militated against a good faith determination” because the settlement constituted only 10% of available policy limits [carrier alert here!];
  • the non-settling Hospital’s contention that the physicians and their attorneys engaged in “bad faith tactics” during two mediation sessions — a factor the appellate court acknowledged it was barred by mediation confidentiality from considering — but which it neatly avoided by concentrating on post-mediation negotiations; /*
  • the timing of the physicians’ settlement offer, which suggested to the appellate court that their “reason for entering into the settlement with plaintiffs was to cut off the hospital’s . . .  right to indemnity from the physicians” (I thought that was a legitimate reason to settle litigation but see the Court’s citation to Mattco Forge, stating that when a defendant  “enters into a disproportionately low settlement with the plaintiff solely to obtain immunity from the cross-complaint, the inference that the settlement was not made in good faith is difficult to avoid.” Mattco, supra (emphasis added); and,
  • a consideration I’ve never seen defeat a good faith motion before – that a settlment “dictated by the tactical advantage of removing a deep-pocket defendant . . . is not made in ‘good faith’ consideration of the relevant liability of all parties. . . .” (leading to the question whether we’re now required to consider the interests of clients other than our own in entering into a settlement agreement on a contested claim)

If this case isn’t depublished (an unfortunate California practice) or taken up for review, it will bear re-reading and deeper thinking about the stategy and tactics of breaking away from the mob to cut a separate deal beneficial to one’s own client without “consider[ing] . . the relevant liability of all parties . . . ”

Comments welcome!!

________________

*/  This is a good place to note the importance of either indicating in the parties’ post-mediation written negotiations that the mediation is continuing (hence the communications remain absolutely protected) or that the mediation has concluded (hence bringing those post-mediation settlement negotiations outside the scope of the strictly enforced mediation confidentiality restrictions).

                        author

Victoria Pynchon

Attorney-mediator Victoria Pynchon is a panelist with ADR Services, Inc. Ms. Pynchon was awarded her LL.M Degree in Dispute Resolution from the Straus Institute in May of 2006, after 25 years of complex commercial litigation practice, with sub-specialties in intellectual property, securities fraud, antitrust, insurance coverage, consumer class actions and all… MORE >

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