In a multi-defendant lawsuit, each defendant may be responsible for only a portion of the damages to a plaintiff, and the defendants often have equitable indemnity rights against each other. When one defendant settles with the plaintiff, the remaining defendants have one fewer party among whom damages may be apportioned. How does a non-settling defendant protect itself such that, at the end of the lawsuit, it isn’t left holding the bag for more than its fair share?
California Code of Civil Procedure section 877.6 addresses this issue. It permits a settling defendant to move for a determination that the settlement was in good faith — i.e., that the settlement amount is in the “ballpark” of the settling defendant’s liability. Tech-Bilt, Inc. v. Woodward-Clyde & Associates, 38 Cal. 3d 488 (1985). An order granting that motion extinguishes any non-settling defendant’s right to equitable indemnity against the settling defendant. § 877.6(c).
A non-settling defendant who disagrees with such an order and wishes to obtain appellate review of it may petition the court of appeal for an extraordinary writ. § 877.6(e). If the reviewing court entertains the writ on the merits, it must give the matter preference. Id.
If, however, as is more common, the court of appeal summarily denies writ relief, what are the non-settling defendant’s options for appellate review?
There is currently a split in the California Courts of Appeal as to whether a writ petition filed pursuant to section 877.6(e) is the sole means of challenging a trial court’s good faith determination. One line of cases holds that when a party seeks but is summarily denied writ relief, the order is reviewable in an appeal after judgment. See Maryland Casualty v. Andreini & Co., 81 Cal. App. 4th 1413 (2000); Wilshire Ins. Co. v. Tuff Boy Holding, Inc., 86 Cal. App. 4th 627 (2001). Another line holds that the failure to seek writ review of such an order bars post-judgment appellate review. See Main Fiber Products, Inc. v. Morgan & Franz Ins. Agency, 73 Cal. App. 4th 1130; O’Hearn v. Hillcrest Gym & Fitness Center, Inc., 115 Cal. App. 4th 491 (2004).
Recently, however, a new issue has arisen: may a reviewing court treat an order approving a good faith settlement as a final judgment such that the non-settling party may immediately appeal from it? There is now a split of authority on that question.
The Fourth District, Division One did treat such an order as a final judgment, and allowed an appeal in Cahill v. San Diego Gas & Electric Company, 194 Cal. App. 4th 939 (2011). Importantly, however, in Cahill the non-settling defendant had timely filed a writ petition that was summarily denied.
Cahill, a worker at a condominium complex, was injured when his window-washing pole made contact with an electrical line installed by San Diego Gas & Electric (SDGE). Cahill sued SDGE and the condominium owners, and each defendant cross-complained against the other. The owners settled with Cahill, and the trial court granted their motion for a section 877.6 determination of good faith settlement and dismissed SDGE’s cross-complaint. SDGE petitioned for a writ from that order but the Court of Appeal summarily denied the petition. SDGE appealed from the order granting the 877.6 motion and dismissing SDGE’s cross-complaint against the owners.
The Court of Appeal treated the order granting the section 877.6 motion as a final judgment, reasoning that “all claims filed by or against Owners have been dismissed.” Cahill, 194 Cal. App. 4th at 970, n. 3. It cited Justus v. Atchison, 19 Cal. 3d 564 (1977) for the proposition that a non-settling defendant had the right to appeal from the order because it would be unfair to force the defendant to wait. However, Justus recognizes the exception that a plaintiff aggrieved by a dismissal may appeal immediately even though other plaintiffs remain in the case against the same defendant; it says nothing about whether a defendant left in the case may appeal a judgment in favor of another defendant.
Aside from citing to Justus, Cahill barely touched upon the fact that the appealing party was allowed to appeal even though it was still in the suit. Cahill nevertheless viewed the adjudication of the settling defendant’s claims as affecting the non-settling defendant in such a way as to afford finality for purposes of the one final judgment rule.
The Second District, Division Three recently took issue with Cahill’s appealability analysis and conclusion in Oak Springs Villas Homeowners Association v. Advanced Truss Systems, Inc., 2012 DJDAR 7908 (Cal. App. 2d Dist.). There, a homeowners’ association (HOA) sued a group of developers and several materials suppliers, including Advanced Truss Systems (ATS), for construction defects. The HOA settled with the developers and obtained an order granting its motion for a good faith settlement. Non-settling defendant ATS did not seek writ review from the order, but instead, relying on Cahill, filed a notice of appeal from it.
The Court of Appeal dismissed the appeal on the ground that the order was not appealable. It refused to treat the order as a final judgment for ATS. The court cited section 877.6(e), which permits writ review but is silent on the right to appeal. It further explained that ATS was attempting to appeal from an order involving the developers, not a final judgment as to ATS. “The final judgment rule cannot be interpreted to allow a party who remains in the action to base its appeal on an order involving a different party.” Oak Springs, 2012 DJDAR at 7909.
An appeal lies only from a final judgment, which must be a final adjudication of the appealing party’s rights and duties. ATS conceded that the order did not adjudicate all its rights and duties, as the HOA’s claims against ATS had yet to be resolved.
Oak Springs “respectfully disagree[d]” with Cahill. It criticized Cahill’s reliance on Justus, pointing out that Justus “does not stand for the proposition that a party remaining in the action may seek review by appeal. It merely states that a party who is no longer in the proceedings may file an appeal because it would be unfair to force him to wait for the final adjudication of the other parties’ rights and duties.” Oak Springs, 2012 DJDAR at 7909. Oak Springs also criticized Cahill as allowing SDGE to base its appeal on the owners’ final judgment, rather than on its own final judgment.
Oak Springs, however, differs from Cahill because ATS did not seek writ review from the order. Under the Main Fiber line of cases, ATS’s failure to file a writ petition alone could have barred appellate review of the good faith settlement determination at any stage.
Cahill’s decision to treat an order determining good faith settlement as a final judgment, even when claims are still pending against the non-settling defendant, makes sense. That defendant has one fewer party with whom to share damages, and equitable indemnity rights have been extinguished.
Although the defendant may challenge the order determining a good faith settlement on appeal from a final judgment, a reversal would require a retrial with the previously settled defendant back in the lawsuit. Immediate appeal from an order granting a good faith settlement motion achieves judicial economy and gives the non-settling defendant an appellate determination straightaway.
Oak Springs, moreover, neglected to consider other contexts in which a party may appeal even though it is still in the case. For example, a cyclist might sue a driver and the state for injuries arising out of a collision between the driver and the cyclist, with the state sued for a dangerous condition of public property. If the state obtains summary judgment, the driver is theoretically aggrieved, and may presumably appeal, even if the judgment is not against her.
That said, Oak Springs is more in line with the purpose of the one final judgment rule, which is to prevent piecemeal appeals. Coopers & Lybrand v. Livesay, 437 U.S. 463, 471 (1978). Justus recognizes the exception to that rule that a party dismissed from the action shouldn’t have to wait for all the other parties’ rights to be adjudicated.
Cahill goes a step further, however, signaling that one party’s dismissal can produce an injustice for a non-settling party if an immediate appeal isn’t allowed. But it is not clear that the determination of a good faith settlement presents a compelling case for an exception to the one final judgment rule. Section 877.6 permits immediate appellate review by writ.
It is true that most writ petitions are summarily denied, but in the appropriate case — one that would produce injustice to a non-settling defendant — a court should entertain the petition on the merits. And because such defendants have an avenue for immediate review, they arguably don’t need another.
It is too early to tell whether the Supreme Court will resolve the appealability conflict that Oak Springs has created with Cahill. Given the crack in the appellate door that Cahill has opened, however, for now, a non-settling defendant dissatisfied with a good faith settlement determination should file both a writ petition and a notice of appeal from the order granting the settling defendant’s motion.
A version of this article appeared in the San Francisco and Los Angeles Daily Journal, July 24, 2012.