Holmes, et al., v. Home Depot USA, Inc. et al.,

Filing 222

ORDER GRANTING The Request of Defendant Walbro Engine Management, LLC, for Judicial Notice [Doc. 214]. ORDER DENYING The Motion of Defendant Dapco Industries, Inc., for Determination of Good Faith Settlement [Doc. 199]. signed by Judge Sandra M. Snyder on 7/8/2009. (Herman, H)

1 2 3 4 5 6

UNITED STATES DISTRICT COURT
7 EASTERN DISTRICT OF CALIFORNIA 8 9 ALICE HOLMES, et al., 10 11 12 13 14 15 16 17 Plaintiffs are proceeding with a civil action in this Court. 18 The matter has been referred to the Magistrate Judge for all 19 proceedings, including the entry of final judgment, pursuant to 20 28 U.S.C. § 636(c), Fed. R. Civ. P. 73(b), and Local Rule 73-301. 21 Pending before the Court is the motion of Defendant DAPCO 22 Industries, Inc. (DAPCO), for determination that a settlement 23 entered into between DAPCO and Plaintiffs Alice and Vernon Holmes 24 is in good faith pursuant to Cal. Civ. Proc. Code §§ 877 and 25 877.6. The motion was filed on June 2, 2009, along with a 26 memorandum and declarations of Toby M. Magarian, David G. Howitt, 27 Ph.D., and Warren R. Paboojian. On June 22, 2009, Defendant 28 1 ) ) Plaintiffs, ) v. ) ) HOME DEPOT USA, INC., et al., ) ) Defendants. ) ) ) 1:06-cv-01527-SMS ORDER GRANTING THE REQUEST OF DEFENDANT WALBRO ENGINE MANAGEMENT, LLC, FOR JUDICIAL NOTICE (DOC. 214) ORDER DENYING THE MOTION OF DEFENDANT DAPCO INDUSTRIES, INC., FOR DETERMINATION OF GOOD FAITH SETTLEMENT (DOC. 199)

1 Walbro filed opposition, along with a request for judicial 2 notice, and the declaration of Mark B. Busick in opposition to 3 the motion; courtesy copies of portions of two deposition 4 transcripts were also received. On the same date, Defendant 5 Briggs & Stratton (B&S) filed opposition to the motion, which 6 included a memorandum and the declaration of Lawrence A. Margoles 7 in opposition to the motion, with attachments. On June 26, 2009, 8 Dapco filed a reply, which included a reply memorandum and the 9 declaration of Toby M. Magarian. On July 2, 2009, the motion came 10 on regularly for hearing in Department 7 before the Honorable 11 Sandra M. Snyder, United States Magistrate Judge. Toby Magarian 12 appeared for the moving party, Defendant DAPCO, and Mark B. 13 Busick appeared for Defendant Walbro; Lawrence A. Margoles 14 appeared telephonically on behalf of Defendant Briggs and 15 Stratton (B&S); Christopher Egan appeared telephonically on 16 behalf of Defendant MTD; and there was no appearance on behalf of 17 Plaintiff.1 The Court had reviewed the papers submitted in 18 connection with the motion. After argument, the matter was 19 submitted to the Court. 20 21 I. Introduction The action is based on general negligence, strict products

22 liability, and breach of warranty; Plaintiffs seek to recover 23 damages for personal injury and property damage that both 24 Plaintiffs suffered when a lawnmower which Defendants 25 manufactured and sold was used by Plaintiff Vernon Holmes in 26 27 28
Former defendant Home Depot is no longer in the case because after discovery that it did not sell the m o w e r in question, it was dismissed from the suit with a payment of $7,500.00. (Home Depot U.S.A., Inc.'s Memo. in Supp. of Mot. [Doc. 172]; Order granting Mot. for Det. of Good Faith Settlement, Doc. 195.)
1

2

1 August 2005, and resulted in a fire. The action was removed to 2 this Court in September 2006. 3 4 II. Request for Judicial Notice The request of Defendant Walbro Engine Management, LLC, for

5 judicial notice will be granted. The Court may take judicial 6 notice of facts that are capable of accurate and ready 7 determination by resort to sources whose accuracy cannot 8 reasonably be questioned. Fed. R. Evid. 201(b); United States v. 9 Bernal-Obeso, 989 F.2d 331, 333 (9th Cir. 1993). Judicial notice 10 may be taken of court records. Valerio v. Boise Cascade Corp., 80 11 F.R.D. 626, 635 n. 1 (N.D.Cal.1978), aff'd., 645 F.2d 699 (9th 12 Cir. 1981); see also Colonial Penn Ins. Co. v. Coil, 887 F.2d 13 1236, 1239 (4th Cir. 1989); Rodic v. Thistledown Racing Club, 14 Inc., 615 F.2d 736, 738 (6th. Cir. 1980). 15 16 III. Legal Standards The second amended complaint (Doc. 86) followed removal

17 based on diversity of citizenship and an amount in controversy 18 exceeding $75,000 (Doc. 1, p. 2). State law generally supplies 19 the rules of decision in federal diversity cases. 28 U.S.C. § 20 1652; Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Cal. Civ. 21 Proc. Code § 877 provides that where a release is given in good 22 faith before verdict or judgment to one or more of a number of 23 tortfeasors claimed to be liable for the same tort, or to one or 24 more other co-obligors mutually subject to contribution rights, 25 it discharges other parties from liability only if its terms so 26 provide; it shall reduce the claims against the others in the 27 amount stipulated by the release or in the amount of the 28 consideration paid for it, whichever is the greater; and it shall 3

1 discharge the party to whom it is given from all liability for 2 any contribution to any other parties. Cal. Civ. Proc. Code § 3 877.6 provides for a party to bring a motion for determination 4 that the settlement is in good faith. Section 877.6(a)(2) 5 expressly requires that the application for determination of good 6 faith settlement shall indicate the settling parties, and the 7 basis, terms, and amount of the settlement. Section 877.6(b) 8 provides that the issue of the good faith of a settlement may be 9 determined by the court on the basis of affidavits served with 10 the notice of hearing and any counter-affidavits filed in 11 response, or the court may in its discretion receive other 12 evidence at the hearing. A prima facie showing of the settlement 13 is sufficient to shift the burden of proof: a brief background of 14 the case and statement of the grounds of good faith, supported by 15 a declaration, is sufficient where good faith is uncontested; 16 however, if the good faith nature of a settlement is disputed, 17 then section 877.6(d) provides that the party asserting the lack 18 of good faith shall have the burden of proof on that issue, and 19 the trial court must consider and weigh the Tech-Bilt factors. 20 City of Grant Terrace v. Superior Court, 192 Cal.App.3d 1251, 21 12651 (1987). 22 Section 877.6(c) provides that a determination by the Court

23 that the settlement was made in good faith shall bar any other 24 joint tortfeasor or co-obligor from any further claims against 25 the settling tortfeasor or co-obligor for equitable comparative 26 contribution, or partial or comparative indemnity, based on 27 comparative negligence or comparative fault. 28 Section 877 and its substantive provisions govern this 4

1 federal action, although the procedural provisions of § 877.6 do 2 not necessarily even if a settlement agreement provides that 3 California law applies. Nevertheless, it is appropriate for a 4 district court to consider and determine the good faith question. 5 Federal Sav. and Loan Ins. Corp. v. Butler, 904 F.2d 505, 511 (9th 6 Cir. 1990). Further, in the absence of a conflict with federal 7 procedures or other factors giving rise to federal concerns, 8 state settlement procedures are to be applied by federal courts 9 to state causes of action where they are outcome-determinative. 10 Slaven v. BP America, Inc., 958 F.Supp. 1472, 1478 (C.D.Cal. 11 1997) (citing Byrd v. Blue Ridge Rural Electric Cooperative, 12 Inc., 356 U.S. 525, 536-37 (1958), and collecting other cases). 13 A finding of good faith under Cal. Civ. Proc. Code § 877 is

14 a finding of fact for the trial court to be made pursuant to the 15 factors stated in Tech-Bilt, Inc. v. Woodward-Clyde & Associates, 16 38 Cal.3d 488 (1985). Owen v. United States, 713 F.2d 1461, 1466 17 (9th Cir. 1983); Yanez v. United States, 989 F.2d 323, 328 (9th 18 Cir. 1993). 19 Section 877 was derived from the Uniform Contribution among

20 Tortfeasors Act of 1955. Federal Savings and Loan Ins. Corp. v. 21 Butler, 904 F.2d 505, 511 (9tyh Cir. 1990). 22 In Tech-Bilt, Inc. v. Woodward-Clyde & Associates, 38 Cal.3d

23 488, 499 (1985), the California Supreme Court stated that an 24 appropriate definition of "good faith" "would enable the trial 25 court to inquire, among other things, whether the amount of the 26 settlement is within the reasonable range of the settling 27 tortfeasor's proportional share of comparative liability for the 28 plaintiff's injuries." However, it also stated that bad faith is 5

1 not necessarily "established by a showing that a settling 2 defendant paid less than his theoretical proportionate or fair 3 share." Id. (citation omitted). "Such a rule would unduly 4 discourage settlements" because it would not take into account 5 various unknown and speculative factors such as the amount of 6 damages, probability of legal liability, the solvency of the 7 defendant, and the risk of going through trial. Id. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Tech-Bilt, Inc., 38 Cal.3d at 499-500. 24 In determining whether a settlement bears a reasonable 25 relationship to the settlor's proportionate share of liability, 26 the Court must consider not only the settlor's potential 27 liability to the plaintiff, but also its proportionate share of 28 6 The California Supreme Court stated: Rather, the intent and policies underlying section 877.6 require that a number of factors be taken into account including a rough approximation of plaintiffs' total recovery and the settlor's proportionate liability, the allocation of settlement proceeds among plaintiffs, and a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial. Other relevant considerations include the financial conditions and insurance policy limits of settling defendants, as well as the existence of collusion, fraud, or tortious conduct aimed to injure the interests of nonsettling defendants.... (Citation omitted.) Finally, practical considerations obviously require that the evaluation be made on the basis of information available at the time of settlement. "[A] defendant's settlement figure must not be grossly disproportionate to what a reasonable person, at the time of settlement, would estimate the settling defendant's liability to be." (Citation omitted.) The party asserting the lack of good faith, who has the burden of proof on that issue (§ 877.6, subd. (d)), should be permitted to demonstrate, if he can, that the settlement is so far "out of the ballpark" in relation to these factors as to be inconsistent with the equitable objectives of the statute. Such a demonstration would establish that the proposed settlement was not a "settlement made in good faith" within the terms of section 877.6.

1 culpability as among all parties alleged to be liable for the 2 same injury. TSI Seismic Tenant Space, Inc. v. Superior Court, 3 149 Cal.App.4th 159, 166 (2007). Potential liability for 4 indemnity to a nonsettling defendant is an important 5 consideration for the trial court. Id. 6 The major policy goals of the statute are equitable sharing

7 of costs among the parties at fault and encouragement of 8 settlements. 38 Cal.3d at 494. Settlements which are so poorly 9 related to the value of the case as to impose a potentially 10 disproportionate cost on the defendant ultimately selected for 11 suit may be considered unfair. Id. at 495. Individuals not 12 participating in the settlement are barred from seeking 13 contribution only if the settling parties acted in good faith 14 with respect to them. The settling parties owe the non-settling 15 defendants a legal duty to refrain from tortious or other 16 wrongful conduct but otherwise may act to further their 17 respective interests. Id. at 497-98. 18 The trial court's decision on good faith may be reversed

19 only upon a showing of abuse of discretion. Tech-Bilt, Inc., 38 20 Cal.3d at 502. The discretion is not unlimited, but should be 21 exercised in view of the equitable goals of the statute, in 22 conformity with the spirit of the law and in a manner that serves 23 the interests of justice. Long Beach Memorial Medical Center v. 24 Superior Court, 172 Cal.App.4th 865, 873 (2009). 25 26 IV. Analysis The moving Defendant has presented the settlement and

27 sufficient data to establish the settlement and the bases 28 therefor. 7

1

As to Plaintiffs' total recovery and the settlor's

2 proportionate liability, Plaintiffs' evidence of approximately 3 $880,000 in medical bills and property damage, considered along 4 with anticipated special damage claims, presents an exposure of 5 over $2,000,000 in potential damages. 6 The moving Defendant asserts in effect that Plaintiffs'

7 actual recovery might be much less and/or might be reduced by the 8 comparative fault of Plaintiff; further, it is possible that the 9 trier of fact will reject the opinion of Plaintiffs' expert, Alex 10 Wong, as to origin and causation of the fire, and instead accept 11 other experts' opinions concerning the cause of the fire and any 12 defect in the fuel fitting elbow, resulting in Plaintiff's 13 recovery of nothing at trial. 14 The parties informed the Court at hearing that at a

15 deposition taken this past week, Wong opined that although the 16 plastic was an appropriate material for the fitting, and although 17 DAPCO did not negligently manufacture the fitting, it was an 18 improper design choice to use the two-piece fitting on the mower 19 in question in the location where it was installed because 20 rotating the fitting in servicing would cause the ultimate 21 failure of the piece. Failure to warn consumers the piece could 22 fail if rotated was also a cause of damage. Further, the source 23 of fuel leak which caused the fire was most likely either the 24 DAPCO part or a hose, hoses, or a different fitting which was not 25 manufactured by DAPCO. 26 At this point the opinion of Wong stands and presents a

27 basis for liability on the part of the parties who manufactured 28 the fuel-fitting elbow, the carburetor, the engine, and the 8

1 completed products and marketed them to consumers and users. 2 The Court recognizes that a settlor should pay less in

3 settlement than it would pay if found liable after trial. 4 However, even if there is a slight probability of liability, the 5 amount of the settlement is disproportionately low in view of the 6 facts presented to the Court. 7 The settling defendant manufactured the part; Walbro

8 installed the fuel fitting unit into the carburetor and sold the 9 carburetor to B&S; B&S installed the carburetor, fuel filter, and 10 hose assembly into the engine; and MTD manufactured and 11 distributed the final product to retail outlets. 12 It was for Walbro's and B&S's economy and/or convenience

13 that the part was made in plastic. Although there are some 14 uncertainties or issues for the trier of fact with respect to the 15 exact degree of Defendant DAPCO's participation in the design of 16 the plastic and brass fuel fitting elbow, there is evidence of 17 significant participation in the design process. Tupper, who was 18 deposed as a person most knowledgeable (PMK) of DAPCO, testified 19 that the plastic and brass fitting came from an existing DAPCO 20 fitting, it was designed to accommodate Walbro's application, and 21 the final design specifications would come from Walbro. Israelson 22 of Walbro testified that he believed that it was a DAPCO design, 23 Walbro had a design based on DAPCO's drawing, and Walbro did not 24 define the interface between the two parts (the metal casting and 25 the portion that would interface with the hose), but Walbro later 26 worked with DAPCO to modify it and improve the design of the 27 part. Walbro had to approve all design changes. Israelson also 28 testified that DAPCO had provided Walbro with testing of the part 9

1 concerning leaking. 2 It appears that Walbro and B&S determined that the material

3 should be partially plastic and not only metal, but DAPCO 4 participated in the design and production of a plastic product 5 with knowledge that it would be part of the fuel system in a 6 carburetor in an engine that would use flammable fuel. It does 7 not appear that DAPCO would be in control of the final 8 integration of the part in the carburetor or engine or of the 9 ultimate warning given to consumers. 10 The doctrine of strict products liability imposes strict

11 liability in tort on all of the participants in the chain of 12 distribution of a defective product; further, a manufacturer 13 cannot necessarily escape liability by tracing the defect to a 14 component part supplied by another because strict liability is 15 "strict," and thus it encompasses defects regardless of their 16 source. Vandermark v. Ford Motor Co., 61 Cal.2d 256, 260-61 17 (1964). A manufacturer of a component part that is put into a 18 product by another can be held strictly liable for damages caused 19 by the product into which the component was put; the overriding 20 policy considerations are the same in strict liability with 21 respect to component manufacturers and suppliers on the one hand, 22 and manufacturers and distributors of complete products on the 23 other. Jiminez v.Superior Court, 29 Cal.4th 473 (2002). Under the 24 doctrine of strict products liability, the liability of all 25 defendants in the chain of distribution is joint and several such 26 that each defendant can be held liable for all damages caused by 27 a defective product reduced only by the Plaintiff's comparative 28 fault. Bostick v. Flex Equipment Co., Inc. 147 Cal.App.4th 80, 10

1 88-89 (2007). 2 The present case does not appear to be one in which

3 Defendant DAPCO is liable solely as a matter of law as a 4 manufacturer of a component part with no control over the design 5 process. Compare, Springmeyer v. Ford Motor Co., 60 Cal.App.4th 6 1541, 1550 (1998). Because of its apparently substantial 7 participation in the design and manufacturing process, DAPCO 8 appears to be significantly responsible when its conduct is 9 considered in comparison with Walbro and B&S. The Court concludes 10 that consideration of the legal theories and factual basis for 11 DAPCO's liability results in a conclusion that there is a 12 reasonable likelihood that DAPCO faces substantial liability. 13 Further, DAPCO faces significant liability for indemnity. It

14 therefore would be inequitable to permit DAPCO to withdraw from 15 the litigation with a payment of only $15,000 and to extinguish 16 indemnity claims of other defendants that easily could amount to 17 twenty or thirty times the settlement figure, or more. Compare, 18 Gehl Brothers Manufacturing Company v. Superior Court, 183 19 Cal.App.3d 178 (1986); Long Beach Memorial Medical Center v. 20 Superior Court, 172 Cal.App.4th 865 (2009). The Court finds that 21 the settlement of Plaintiffs with DAPCO was grossly 22 disproportionate to what a reasonable person, at the time of the 23 settlement, would estimate the settling defendant's liability to 24 be. 25 The absence of an allocation of the settlement proceeds in

26 the agreement does not appear to be particularly significant in 27 light of the identity and status of the two Plaintiffs. 28 There do not appear to be any issues concerning the 11

1 settlor's financial condition; there is no evidence that the 2 settling Defendant has limited financial means such that would 3 justify a disproportionately low settlement amount. 4 As to collusion, there is no affirmative evidence of

5 collusive interaction, and there are no other extraneous factors 6 suggesting collusion. However, the desire to avoid indemnity 7 liability provided a very strong strategic or tactical motive for 8 settlement. 9 Considering all the pertinent factors, the Court finds that

10 the non-settling Defendants have met their burden. The Court 11 finds that the settlement was not in good faith. The settlement 12 did not serve the goal of equitably allocating costs among 13 multiple tortfeasors or of encouraging settlement among all 14 interested parties. 15 16 V. Disposition Accordingly, the request of Defendant WALBRO ENGINE

17 MANAGEMENT, LLC, for judicial notice, IS GRANTED, and the motion 18 of Defendant DAPCO Industries, Inc., for a determination that its 19 settlement with Plaintiffs was in good faith, IS DENIED. 20 21 IT IS SO ORDERED. 22 Dated: icido3 23 24 25 26 27 28 12 July 8, 2009 /s/ Sandra M. Snyder UNITED STATES MAGISTRATE JUDGE