Good faith settlements in California affect how liability is allocated among defendants in civil cases. This article explains the criteria California courts use to designate a settlement as made in good faith, and how such settlements influence joint and several liability, fault allocation, and litigation strategy. It covers the relevant statutes, commonly applied case law, practical steps for securing a good faith determination, and practical considerations for plaintiffs and defendants alike.
What Are Good Faith Settlements In California
In California, a “good faith settlement” is a settlement with one or more defendants that is recognized by the court as an intentional, fair compromise of the dispute, made with the awareness of the risks and uncertainties of trial. The key statutes are California Code of Civil Procedure sections 877.6 and 877.7. When a settlement is deemed to be in good faith, it can reduce or bar liability for the settling defendant and affect the liability of non-settling defendants.
Under CCP 877.6, a defendant who settles with plaintiffs may be released from liability to the extent of the settlement, and the settling party’s liability is determined for purposes of comparison with the other defendants. CCP 877.7 further clarifies how good faith resolutions interact with the allocation of fault. The intent behind these provisions is to encourage settlements and prevent duplicative or inflated litigation costs while ensuring fair fault apportionment among those who remain in the suit.
Criteria Courts Consider To Determine Good Faith
Courts assess good faith using established factors designed to gauge whether the settlement amount and the terms reflect a genuine compromise rather than a mere attempt to reduce exposure. Key considerations include:
- The amount paid and the terms of the release: A substantial contribution toward resolution, coupled with a broad release, supports a finding of good faith. However, the release language must be evaluated for scope to ensure it aligns with the settlement’s aims.
- The settling defendant’s proportionate share of liability: Courts weigh whether the payment corresponds to the defendant’s relative fault as alleged in the complaint and supported by evidence.
- The risks and realities of trial: The probability of prevailing on key claims, potential defenses, and the likelihood of different verdicts are considered. A realistic appraisal supports good faith.
- Insurance, funding structure, and timing: Structured payments, conditions, or contingencies are analyzed to determine if they reflect a credible resolution strategy.
- Negotiation posture and bargaining power: The parties’ ability to negotiate given the facts, evidence, and procedural posture informs the determination.
- Exposure and settlement posture of non-settling defendants: Courts consider whether the settlement unduly shifts risk onto others or creates anomalies in fault allocation.
- Public policy and judicial efficiency: Encouragement of settlements and avoidance of protracted litigation weighs in favor of recognizing good faith when the factors show genuine compromise.
The leading line of cases, including Khoury v. Sup. Ct. and subsequent California appellate authority, guides courts to apply these factors pragmatically. No single factor is determinative; the totality of circumstances informs the court’s ruling on good faith.
Legal Impact Of A Good Faith Settlement
The designation of a settlement as good faith has tangible impacts on liability and litigation strategy. First, the settling defendant’s liability is capped at the amount paid, and the settlement may bar further claims against the settling party to the extent of the payment. This can significantly affect how non-settling defendants approach defense and settlement negotiations.
Second, for non-settling defendants, the court may allocate fault based on the evidence, but the settled amount can reduce their potential exposure. This allocation supports efficient resolution without forcing all parties to bear identical risk for each claim.
Third, the good faith finding affects the evidentiary posture of the case. In some instances, settlements can simplify issues at trial or influence how juries view the relative merits of remaining claims. This can lead to more favorable settlement dynamics for the parties still in litigation.
Finally, the practical impact includes potential risk of a non-good faith designation. If a settlement is challenged as not made in good faith, a party may attempt to prove that the terms were designed to avoid exposure to others, potentially resulting in a different allocation of liability or the need to reseek relief through trial rather than settlement.
Practical Steps To Obtain A Good Faith Settlement Determination
To maximize the chance that a settlement is deemed good faith, counsel should follow these steps:
- Document the negotiation process: Preserve records that show the settlement was the product of serious bargaining, consideration of the claims, and a reasonable evaluation of risks.
- Structure settlements with transparency: Use clear terms, including payment amounts, release scope, and any conditions or contingencies tied to the settlement.
- Provide a formal written agreement: A comprehensive agreement that reflects the release, the settlement amount, and the mutual understanding of fault helps courts assess good faith.
- File for a court determination when appropriate: In cases where the court’s finding of good faith is a strategic priority, request a formal determination under CCP 877.6 or related provisions.
- Coordinate with all defendants and plaintiffs: Ensure all sides understand the settlement’s terms and how they affect joint liability and the trial posture.
Common Pitfalls And Exceptions
Several issues commonly arise in good faith settlements. A release that is overly broad or ambiguous can undermine a party’s protections. Similarly, settlements that appear designed to shift risk without genuine compromise may be challenged as not being in good faith. It is also important to consider how punitive damages are treated; settlements should carefully delineate which claims are resolved and whether punitive damages remain at issue, as this can impact final fault allocation and exposure.
Additionally, the scope of the release must align with the claims resolved in the settlement. If future claims arise from the same transaction or occurrence, a poorly drafted release could leave gaps that later defendants might exploit. Counsel should ensure the release language is precise and comprehensive to avoid unintended exposure.
Recent Trends And Practical Outlook
California courts continue to encourage settlements to reduce litigation costs while preserving fair fault allocation among defendants. In recent years, there has been emphasis on ensuring that the good faith determination reflects the actual negotiating posture and financial realities of the parties. Parties should stay alert to changes in procedural rules or appellate guidance that affect how good faith is assessed and how releases are construed in complex tort and product liability actions.
For plaintiffs, pursuing early settlements with robust documentation can streamline case resolution. For defendants, evaluating settlement offers through the lens of the good faith framework can prevent unnecessary exposure and facilitate more predictable trial planning.
Key Takeaways
- Good faith settlements in California are governed by CCP 877.6 and 877.7 and aim to balance settlement incentives with fair fault allocation.
- Courts evaluate several factors to determine good faith, including settlement amount, release scope, remaining risks, and negotiating posture.
- Successful good faith designation reduces or caps liability for the settling defendant and modifies exposure for non-settling defendants.
- Preparation and precision in drafting settlement agreements and releases is crucial to withstand scrutiny and achieve the intended protections.