The Deal Stands: Finding of Good Faith Settlement in California Precludes Contribution and Indemnity

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Courts across the country have historically taken positions encouraging settlements between civil litigants. Thus, as long as there is good faith involved in the negotiation process, settlements and their effects on other parties are generally upheld. Recently, the United States District Court for the Eastern District of California (District Court) considered whether a settlement between the plaintiff and one of several defendants met the good faith standard, thereby barring claims for contribution and indemnity from the co-defendants.

In Stage Nine Design, LLC v. Rock-It Cargo USA, LLC, et al, 2021 U.S. Dist. LEXIS 162932, the District Court held that a settlement between the plaintiff, Stage Nine Design, LLC (Stage Nine), and its direct contractor, defendant Rock-It Cargo USA, LLC (Rock-It), was made in good faith under the applicable state standard and, thus, barred co-defendants’ claims for contribution and indemnity.

This case arises from an agreement whereby Rock-It agreed to transport Stage Nine’s “traveling pop culture museum exhibition” from West Palm Beach, Florida to Springfield, Massachusetts. The arrangement was made in April of 2020 and was governed by a contract the parties agreed to in 2017. Rock-It subcontracted its obligations to Valued Freight Services, LLC (Valued Fright), who sub-subcontracted with GlobalTranz Enterprises, LLC (GlobalTranz). The actual motor carrier hired by GlobalTranz was SPN Cargo, Inc. (SPN). On July 10, 2020, SPN picked up the trailer with the exhibition in West Palm Beach. The driver stopped in Riviera Beach, Florida to have his tractor serviced and allegedly left the trailer unattended while service took place. The trailer was then stolen and has not been recovered.

As a result of the theft, Stage Nine claimed approximately $462,742.00 in damages. It sued Rock-It, Valued Freight, GlobalTranz and SPN for its damages. Stage Nine then settled with Rock-It for $18,840.00 and moved for a good faith settlement determination pursuant to Cal. Code of Civ. P. § 877.6. Valued Freight and SPN opposed the motion. GlobalTranz also opposed the motion but GlobalTranz was later dismissed from the case for lack of personal jurisdiction.

The California statute dealing with good faith settlements states that while a plaintiff’s recoverable damage total is reduced by the amount of the settlement, tortfeasors or co-obligors are barred from pursuing claims for contribution or indemnity against settling defendants when the settlement is made in good faith. To make that determination a court looks at the following six non-exclusive factors: 1) an approximation of the total recovery and proportionate liability; 2) the amount of the settlement; 3) the allocation of settlement proceeds between any co-plaintiffs; 4) recognition that the settlement paid may be less than any payment after trial; 5) any financial or insurance limitations of the settling defendant(s); and 6) any collusion or fraud.

In this case, since the amount of Rock-It’s potential liability was limited in the governing contract and, thus, the settlement was “in the ballpark” of what it may be liable for, the court found the settlement proportionate. Since the other factors also weighed in the favor of good faith – including finding no fraud or collusion – the court upheld the settlement under state law.

Although this matter involved a cargo shipment, the court found that the Carmack Amendment to the Interstate Commerce Act did not preempt California’s good-faith settlement law. As noted by the court, although the Carmack Amendment generally holds carriers strictly liable for the full value of lost cargo, there were questions of fact as to Rock-It’s status as a motor carrier, freight forwarder or broker. In addition, the Carmack Amendment permits carriers to limit their liability in certain instances, which were present in this case.

The effect of the rulings in this case were to uphold the settlement between Stage Nine and Rock-It, thus reducing the damages claimed by Stage Nine against the remaining defendants and barring any claims for contribution or indemnity against Rock-It. While this holding is instructive to defendants, both settling and non-settling, in joint-tortfeasor cases, it is also important for subrogation professionals to consider. When practicing in a state where there is a good faith settlement statute, subrogation practitioners should be aware of the requirements for establishing good faith so as to avoid motion practice from remaining defendants that could jeopardize recovery or, at the very least, delay resolution. Furthermore, when the Carmack Amendment is potentially implicated in a case, it is important to consider if its effect will pre-empt state statutes such as the one in this matter.

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