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How To Make a $15 Million Verdict Fly Away

By Bruce Nye

There are lots and lots of multi-defendant tort cases in California.  And in many of them, some defendants settle without getting a good faith order under Code of Civil Procedure section 877.6, leaving other defendants to go to trial.  What if I were to tell you that, when that happens, the first defendant who takes a release wipes out most of the plaintiff's case against the other defendants?  I'm going out on a limb here and telling you that's the law.

Work with me here for a minute.  This is kind of inside baseball, but for those of you in the tort world, it's worth taking a look at.  Our case for today is called Leung v. Verdugo Hills Hospital (March 23, 2011) ___Cal.App.4th___ (Court of Appeals, 2nd Dist., B204908).

  Medical malpractice case v. doctor and hospital.  (If you do tort work but not med mal, keep reading anyway -- the med mal part doesn't matter). Catastrophic and tragic injury to newborn.  Doctor and plaintiff settle for doctor's $1 million policy, on condition that doctor sits as a defendant at trial.  Jury awards $250K in non-economic damages (the maximum under California's med mal reform statutes) and a thumping $15.2 million in economic damages (past and future medical, future lost earnings, etc., everything reduced to present cash value).  Jury finds doctor 55% at fault, hospital 40% and parents 5%.  But since California is a joint and several state for economic damages, the hospital is on the hook for (a) 40% of the $250K; (b) all of the $15.2M, less (c) about $10,000 from the doctors' settlement (just trust CBL on this -- we'll explain it some other time, and how the math works isn't the point of this case or this post). 

Instead, the point is this:  The case goes to the Court of Appeals, which takes all of the $15M+ in economic damages away.  Why? Because the Plaintiff's release of the doctor for the $1M policy is deemed a release of the hospital.

CBL hears you ask:  How did this happen and what does it mean to me?  Go the jump, and all will be revealed.

Logical step one:  Code of Civil Procedure section 877 says this:

Where a release, dismissal with or without prejudice, or a convenant not to sue or not to enforce judgment is given in good faith before verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort. . .[i]t shall not discharge any other such party from liability unless its terms so provide. . . .

Step two:  In this case, the release provided that there was no settlement unless a court found the settlement to be in good faith.  The doctor moved the court for an order finding good faith under Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488. The trial court refused to make a good faith finding because the payment was so disproportionate to the size of the case and doctor's share of liabilty. 

Step three:  plaintiff and doctor remove the good faith condition from their settlement agreement, conclude the settlement without the condition, and the case goes to trial.

And step four: the Court of Appeal dredges up these two ancient Cal Supremes decisions from before Code of Civil Procedure section 877 was enacted, saying that a release of one joint tortfeasor releases all the others.  Bee v. Cooper (1932) 217 Cal. 96, 99-100; Tompkins v. Clay Street R.R. Co. (1884) 66 Cal. 163, 166-168 (sorry, I've got no sources for case links that go back that far, other than Westlaw). So hospital is released from liabilty for the $15M as to which it is a joint tortfeasor.  But since non-economic damage liability is several, it has to pay its 40% share of the $250K.  Which I'm sure it is more than happy to do.

And the Court of Appeal says, "yeah, that's ridiculous, but those are Cal Supremes decisions, and it's stare decisis, so that's the way it goes.  Maybe the Cal Supremes themselves can fix it."

AS CBL said up at the top, there are lots and lots of multi-party tort cases that settle without good faith hearings or findings.  And lots where all but one defendant settles, and one goes to trial.  It happens, for example,  in the asbestos world all the time.   Does this decision mean a release of one defendant in an asbestos case, with no good faith finding, results in a release of all the other defendants for liability for economic damages?  I think it does.

In its opinion, the Court of Appeal begs the Cal Supremes to take this up and change the common law.  CBL will be watching to see if they do.

Full post as published by CalBizLit on March 28, 2011 (boomark / email).