Opinion
NOT TO BE PUBLISHED
Super. Ct. No. 34200800024126
ROBIE, J.
In this lawsuit arising from closing a landfill, respondent Superior Court of Sacramento County (the trial court) granted the motion of real party in interest, Waste Connections of California, Inc. (Waste Connections), for a determination its settlement with plaintiff County of Amador (the county) for $115,500 was in good faith within the meaning of Code of Civil Procedure section 877.6. Petitioner Ryan Van Shirley McClure, individually and doing business as Ryan McClure Excavation (collectively McClure), a nonsettling defendant, challenges the trial court’s good faith determination. He raises numerous contentions having to do with alleged errors in the trial court’s failure to consider his evidence, placing an evidentiary burden on him as the nonmoving party, and determining that the settlement was in good faith, given Waste Connections’ proportionate share of liability for the county’s damages.
All further section references are to the Code of Civil Procedure.
One contention, however, is dispositive: the trial court erred in failing to require the county and Waste Connections to include an allocation in their settlement agreement stating how the $115,500 was to be apportioned between defendants and the various types of damages. As we explain, without such an allocation, it was impossible for the trial court to determine whether the settlement was in good faith, as it was unclear the amount of offset, if any, to which McClure would be entitled. As such, we will issue a peremptory writ of mandate directing the trial court to vacate its order approving the settlement.
FACTUAL AND PROCEDURAL BACKGROUND
The county owns the Buena Vista landfill, which opened in 1973. The landfill initially was operated by Amador Disposal Services, and in 1998 Waste Connections took over the operation and maintenance contract of the landfill. Thereafter, the landfill ceased being the primary disposal site for the county. The county’s board of supervisors voted to close the landfill in March 2004.
McClure was awarded the contract for the landfill closure project. Vector Engineering, Inc. (Vector Engineering) was hired as the consultant to oversee the closure. Under the contract between the county and McClure, the closure was to be completed by December 2004, which was approximately four months after the contract was signed. The contract contained a liquidated damages clause requiring McClure to pay the county $500 per day if he “d[id] not complete the work within the time limit so specified....” The closure ended up taking two years.
The county sued Waste Connections, McClure, and Vector Engineering. The county alleged two causes of action against Waste Connections: (1) negligence, which included placing garbage outside the landfill liner, causing “consequential damages” “in excess of $200,000.00 plus interest”; and (2) breach of contract for placing garbage outside the landfill, which led to the “cost of removal of improperly placed waste materials; additional costs to complete the [landfill] closure due to delay caused by the need to remove improperly placed waste material; [and] additional engineering costs and additional staff time and administrative expense.” The county alleged the following four causes of action against McClure: (1) negligence in closing the landfill, which resulted in damage to the county’s “real property, ” and “consequential damages and loss of use of the property”; (2) breach of the excavation contract, which included damages for “repair of the liner” and delay damages; (3) fraud in failing to obtain “the Performance Bond and Payment Bond required by... the contract... and... falsely submit[ting] an invoice to [the county] for reimbursement for the costs of the bonds”; and (4) fraud for violating the False Claims Act. The county alleged the following two causes of action against Vector Engineering: (1) negligence in closing the landfill, which resulted in damages, including those to the county’s “real property, ” “consequential damages, ” and “loss of the use of the property”; and (2) breach of contract in closing the landfill.
Title 31 United States Code section 3729 et seq.
McClure filed an answer to the county’s complaint, asserting the comparative fault of the others as well as affirmative defenses. McClure also filed a cross-complaint for damages and indemnity against Waste Connections. In its cross-complaint, McClure alleged that at least some of the delay was caused by Waste Connections’ placement of “vast amounts of trash” outside the liner in “more than one location” and Waste Connections’ destruction of the liner.
To settle the county’s lawsuit, Waste Connections entered into an agreement with the county. Waste Connections agreed to pay the county $115,500 in exchange for dismissal of the claims against it in the county’s complaint and for a release of all past, present, or future “[c]laims” relating to the “[a]ction.”
Thereafter, Waste Connections filed a motion for an order that the settlement was in good faith. It presented evidence that at the time of settlement, the county was seeking to recover over $1.9 million in damages from all defendants. Of this amount, the county apportioned only $200,000 to Waste Connections for “increasing [l]andfill closure costs due to allegedly placing waste outside the footprint of the [l]andfill.” The county’s prelitigation demand to Waste Connections was for $200,000. This amount was based on the change orders from McClure and Vector Engineering for increased costs due to removing trash placed outside the liner. Those same change orders stated there would be no delays to the contract time based on removal of that trash. For its part, Waste Connections had previously offered the county $7,500 in settlement, “which represented the estimated costs for removal of the allegedly improperly placed waste, had Waste Connections, and not [McClure] removed the waste.”
McClure opposed the motion. He argued the $115,500 settlement was “grossly disproportionate” to the millions in damages allegedly suffered by the county. According to McClure, the settlement failed to account for consequential damages and delay damages, failed to account for repairing tears in the liner, and failed to account for valuation of noncash consideration such as the release of pollution claims. He further argued the court should deny the motion because there was no allocation of settlement proceeds, and therefore the court could not determine whether the settlement was made in good faith.
The evidence on this point included a declaration from deputy county counsel Gregory Gillott, who testified he was unsure delay damages were taken into account when valuing the claim against Waste Connections.
The court found the settlement to be in good faith. Among other things, it found no allocation was necessary for the following three reasons: (1) the “case d[id] not involve an attempt[] to attribute specific damages relating to delay in closing the landfill to particular actions by the individual defendants”; (2) “to the extent McClure contends the evidence proves that all or virtually all of the delay damages and other damages are properly attributable to [Waste Connections]..., McClure will bear no liability whatsoever for them, obviating the need for any allocation for McClure’s credit”; and (3) if an allocation was necessary, “it c[ould] be determined at the conclusion of any trial.”
This was actually the second time the court found the settlement to be in good faith. The first time, the court’s order declined to consider evidentiary objections McClure had made to some of Waste Connections’ evidence, stating it had considered “only admissible evidence.” Following notice from this court that we were considering issuing a peremptory writ in the first instance regarding failure to rule on the evidentiary objections, the trial court issued a tentative ruling on the evidentiary objections and invited the parties to submit supplemental briefs identifying specific admissible evidence bearing on whether the settlement was “‘in the ballpark.’” Thereafter, the court issued the good faith ruling we review here.
McClure petitioned this court for a writ of mandate to overturn the trial court’s good faith settlement determination. We issued an order to show cause to decide the merits of McClure’s petition.
DISCUSSION
“Code of Civil Procedure section 877.6 provides the framework under which a settlement in a multiparty litigation can be determined to be in good faith.” (Dillingham Construction, N.A., Inc. v. Nadel Partnership, Inc. (1998) 64 Cal.App.4th 264, 278 (Dillingham).) Under that code section, “Any party to an action in which it is alleged that two or more parties are joint tortfeasors or co-obligors on a contract debt 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 or co-obligors....” (§ 877.6, subd. (a)(1).)
The settling party seeking the good faith determination must “give notice of settlement to all parties and to the court, together with an application for determination of good faith settlement and a proposed order. The application shall indicate the settling parties, and the basis, terms, and amount of the settlement.” (§ 877.6, subd. (a)(2).)
“A good faith settlement has two important consequences.” (Dillingham, supra, 64 Cal.App.4th at p. 278.) One, a good faith settlement “reduce[s] the claims against the [nonsettling defendants] 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.” (§ 877, subd. (a).) “This is known as the offset or setoff, and comes into play when the plaintiff settles for a figure which he or she believes represents partial damages, and then goes against the remaining defendant or defendants for the remainder. If, for example, the plaintiff proves at trial that he or she suffered $100,000 in damages, but has already received $40,000 from settling defendants, the most he or she can recover from nonsettling defendants is $60,000. The $40,000 represents the offset to which nonsettling defendants are entitled.” (Dillingham, at p. 278.) Two, a good faith settlement “bar[s] 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.” (§ 877.6, subd. (c).) “This means that defendants who have settled for less than their proportionate share of damages cannot be required to pay any more, and the nonsettling defendants can be forced to make up the shortfall.” (Dillingham, at p. 279.)
“Problems in calculating the offset arise in multiparty cases where not all defendants are jointly and severally liable for all claims.” (Dillingham, supra, 64 Cal.App.4th at p. 279.) Some of those problems were addressed in Alcal Roofing & Insulation v. Superior Court (1992) 8 Cal.App.4th 1121. (Dillingham, at p. 279.) In Alcal, the defendant developer settled a lawsuit with the plaintiff homeowners’ association for $4.4 million with an allocation of $100,000 to roofing issues, and obtained approval from the trial court that the settlement was in good faith. (Alcal, at pp. 1122-1123.) The roofer, who was the sole nonsettling defendant, petitioned for a writ of mandate. (Id. at pp. 1121, 1122-1123.) The appellate court noted that this was not the “typical one-plaintiff, multiple-defendants, personal injury action [where] each tortfeasor [wa]s potentially liable for the same injury to the plaintiff, ” making an allocation unnecessary because “full settlement by one defendant will offset a judgment against other tortfeasors.” (Alcal, at p. 1124.) Rather, it was a case where “the amount of the offset [wa]s clouded by... settling claims for separate injuries not all of which would be attributable to conduct of the remaining defendants.” (Ibid.) Therefore, “the cash amount of the settlement d[id] not dictate the amount of the offset, ” and “the settling parties must include an allocation or a valuation in their agreement.” (Id. at pp. 1124-1125.) “[R]equiring a joint valuation by the plaintiff and the settling defendant should generally produce a reasonable valuation.” (Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 879.) This is because “[a] natural tension will exist between plaintiff, who benefits by undervaluing the settlement in order to permit greater recovery against the remaining defendants, and the settling defendant, who would want the settlement value high enough to be approved in order to relieve settling defendant from liability for comparative indemnity or contribution.” (Alcal, at p. 1125.)
Alcal was the foundation for two comprehensive appellate court opinions -- Erreca’s v. Superior Court (1993) 19 Cal.App.4th 1475 and Regan Roofing Co. v. Superior Court (1994) 21 Cal.App.4th 1685 -- that addressed how the settling parties and the trial court must proceed to arrive at a determination that a settlement in a multiparty, multiclaim case meets the requirement of good faith. (Dillingham, supra, 64 Cal.App.4th at p. 280.)
In Erreca’s, some of the defendants settled with the plaintiff for $6.8 million, allocating $1.5 million to soil claims and the remainder to nonsoil claims. (Erreca’s v. Superior Court, supra, 19 Cal.App.4th at p. 1481.) The nonsettling defendants, who were potentially liable for soil claims, petitioned for a writ of mandate from the trial court’s finding of good faith. (Id. at pp. 1481, 1487.) The appellate court agreed with Alcal that “a party seeking confirmation of a settlement must explain to the court and to all other parties not only who has settled with whom and for what dollar amount, but whether any settlement is allocated and how between issues and/or parties, as well as describing and valuing any nonmonetary consideration included.” (Erreca’s, at p. 1495.)
In Regan Roofing, the nonsettling defendant similarly petitioned the appellate court for a writ of mandate from the trial court’s finding of good faith. (Regan Roofing, Co. v. Superior Court, supra, 21 Cal.App.4th at p. 1694.) The appellate court held, “Since the settling parties have the most knowledge of the value of the various claims they are attempting to settle, they are required to make an allocation of settlement proceeds among those various claims, subject to court approval of the showing made.” (Id. at p. 1702.)
“Alcal, Erreca’s and Regan Roofing all agree that the settling parties must include an allocation or a valuation of the various claims in their settlement agreement in order to obtain a finding of good faith.” (Dillingham, supra, 64 Cal.App.4th at p. 282.)
The settlement agreement between the county and Waste Connections violated this rule. The settlement resolved claims for three separate injuries -- repair of the damaged liner, removal of the trash outside the liner, and delay damages. Allocation was necessary because this is not the “typical case” mentioned in Alcal where each defendant was potentially liable for the same injury to the plaintiff, in which case full settlement by one defendant would offset a judgment against the other defendants. Rather, it is the other type of case exemplified by Alcal: the amount of the offset (potentially $115,500), is “clouded” by settling claims for separate injuries (repair of the damaged liner, removal of the trash outside the liner, and delay damages), not all of which are attributable to the conduct of the remaining defendants (including McClure). Specifically, if the entire $115,500 was attributed solely to removal of trash outside the liner, something for which McClure and Vector Engineering were not alleged to be liable, there would be no offset. If, however, the $115,500 was apportioned in discrete amounts to delay damages, repair of the damaged liner, and removal of trash outside the liner, then McClure would be entitled to an offset in those discrete amounts to the extent he was found liable for any of those damages.
Waste Connections argues that an allocation was not necessary because its liability and that of McClure’s are strictly several and, in any event, since McClure has taken “contradictory positions” on whether his liability is joint and/or several, the court did not abuse its discretion in failing to require an allocation. Waste Connections further argues that an allocation was not necessary because the settlement dictates the amount of the offset, as the damages from the separate causes of action against McClure (fraud and violation of the False Claims Act) were divisible from the landfill closure damages (negligence and breach of contract) and thus, the trial court will be able to offset any damages awarded against McClure for the negligence and breach of contract damages. These arguments misconstrue the problem.
Without an allocation of the $115,500, it was impossible for the trial court to determine whether the settlement was in good faith. For example, if the settlement was allocated fully to the cost of removal of trash outside the liner (and therefore McClure would receive no offset, as he was not alleged to have placed the trash outside the liner), McClure might well argue a lack of good faith because the county was taking nothing from Waste Connections on its allegations against Waste Connections for delay damages.
Of course, the county reasonably may well have determined it could not establish Waste Connections’ liability for delay damages given McClure’s and Vector Engineering’s change orders that stated there was no change in the contract time from their clean up of the trash outside the liner. It is precisely because there was no allocation that the trial court did not have to determine the reasonableness of any of these competing assertions.
In its order granting the motion for good faith settlement, the trial court attempted to distinguish Alcal by noting that “[u]nlike Alcal, the present case does not involve an attempt[] to attribute specific damages relating to delay in closing the landfill to particular actions by the individual defendants.” The court’s analysis misses the mark. The complaint alleges delay damages against Waste Connections and McClure and the cross-complaint alleges that Waste Connections is responsible -- at least to some degree -- for the delay damages attributable to McClure. In light of the pleadings, the unallocated $115,500 settlement figure gives no clue as to any amount of setoff, for example, a setoff for delay damages for which McClure and Waste Connections might be jointly liable. An allocation of the settlement was therefore necessary.
In its second explanation of why an allocation was unnecessary, the trial court reasoned that “to the extent McClure contends the evidence proves that all or virtually all of the delay damages and other damages are properly attributable to [Waste Connections]..., McClure will bear no liability whatsoever for them, obviating the need for any allocation for McClure’s credit.” This reasoning is inadequate for not requiring an allocation. It covers only one possible scenario of McClure’s alleged liability, i.e., a finding that McClure is not liable for damages that were alleged against both him and Waste Connections. The trial court was correct that in that scenario, no allocation would be necessary because Waste Connections’ liability would be several. If, however, there was a finding that McClure was liable for some of the damages that were alleged also against Waste Connections and the unallocated settlement were allowed to stand, McClure would receive no offset against the damages that he would have to pay to the county, even if the $115,500 had accounted for damages for which McClure and Waste Connections bore joint liability.
Finally, the court reasoned that if an allocation was necessary, “it c[ould] be determined at the conclusion of any trial.” This reasoning fails to recognize the allocation is a prerequisite to making a finding of good faith where the county and Waste Connections are settling claims for separate injuries not all of which may be attributable to conduct of McClure. (Alcal Roofing & Insulation v. Superior Court, supra, 8 Cal.App.4th at p. 1124; Dillingham, supra, 64 Cal.App.4th at p. 282.) Without requiring an allocation before evaluating whether the settlement was in good faith, the court abused its discretion.
DISPOSITION
The petition for writ of mandate is granted. Let a peremptory writ of mandate issue directing the trial court to vacate its order approving the good faith settlement and to enter a new order denying the motion without prejudice to allow Waste Connections to make a renewed motion that includes an allocation of the settlement. McClure is entitled to his costs. (Cal. Rules of Court, rule 8.493(a)(1)(A).)
We concur: BLEASE, Acting P.J., DUARTE, J.
McClure has consistently maintained that, based on the county’s pleadings and his cross-complaint, an allocation was necessary because while Waste Connections may be severally liable for the cost of removal of trash outside the liner, he (McClure) faces potential joint liability for delay damages and repair of the damaged liner. For this reason, allocation of the $115,500 in settlement funds was necessary, and the manner in which the causes of action were pled (i.e., negligence, breach of contract, fraud, etc.) is irrelevant to this analysis.