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Jette v. Orange County Financial

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA


August 20, 2010

SUSAN JETTE, INDIVIDUAL, PLAINTIFF,
v.
ORANGE COUNTY FINANCIAL, INC., A CORPORATION; MORTGAGEIT, INC., A CORPORATION; JERRY INDES, AN INDIVIDUAL; AND MR. MINGUS, AN INDIVIDUAL,*FN1 DEFENDANTS.
TIEMPO ESCROW II, A CALIFORNIA CORPORATION, CROSS-CLAIMANT,
v.
ORANGE COUNTY FINANCIAL, INC., A CORPORATION; MORTGAGEIT, INC., A CORPORATION; JERRY INDES, AN INDIVIDUAL; MR. MINGUS, AN INDIVIDUAL; JOSEPHINE HANSON, AN INDIVIDUAL; JAMES FIGGER, AN INDIVIDUAL DBA FIRMA SIGNING SOLUTIONS; SURETY BONDING COMPANY OF AMERICA, A SOUTH DAKOTA CORPORATION AND DOES 1 THROUGH 10, INCLUSIVE, CROSS-DEFENDANTS.
JASON GEORGE MENGES, AN INDIVIDUAL, CROSS-CLAIMANT,
v.
ORANGE COUNTY FINANCIAL, INC., A CORPORATION; MORTGAGEIT, INC., A CORPORATION; JERRY INDES, AN INDIVIDUAL; JOSEPHINE HANSON, AN INDIVIDUAL; JAMES FIGGER, AN INDIVIDUAL DBA FIRMA SIGNING SOLUTIONS; SURETY BONDING COMPANY OF AMERICA, A SOUTH DAKOTA CORPORATION; AND DOES 1-10, INCLUSIVE, CROSS-DEFENDANTS.

The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge

ORDER DENYING CROSS-CLAIM DEFENDANTS JOSEPHINE HANSON AND SURETY BONDING COMPANY OF AMERICA'S APPLICATIONS FOR A DETERMINATION OF GOOD FAITH SETTLEMENT AND GRANTING JASON MENGES' MOTION TO CONTEST*fn2

Cross-claim Defendants Josephine Hanson and Surety Bonding Company of America ("Surety") have each filed an application seeking a determination of good faith settlement under California Code of Civil Procedure § 877.6. (Docket Nos. 182, 184.) Hanson and Surety state they have entered into a settlement agreement with cross-claimant Tiempo Escrow II ("Tiempo") which settles Tiempo's cross-claims of indemnity, breach of duty of notary public and damages on a notary bond. Hanson and Surety also state this settlement agreement is contingent upon the district court issuing an order that: 1) finds that their settlement with Tiempo was made in good faith under California Code of Civil Procedure § 877.6; 2) dismisses Tiempo's cross-claims alleged against them with prejudice; and 3) releases them from "[a]ll claims, known or unknown, by [Tiempo] or any other party or entity... arising out of the real estate transactions and notarization that are the subject of [Tiempo's] action, including but not limited to the Cross-Claim filed by Jason George Menges...." (Hanson Appl. for a Good Faith Settlement Determination ("Hanson Appl.") 4:4-10; Surety Appl. for a Good Faith Settlement Determination ("Surety Appl.") 4:5-11.)

Jason Menges, who is a defendant, cross-claimant and cross-claim defendant in Tiempo's cross-claim opposed Hanson and Surety's applications for a determination of good faith settlement in a motion filed on July 20, 2010.*fn3 (Docket No. 190.) Menges argues Hanson and Surety's settlement agreement with Tiempo has no preclusive effect on his separate cross-claims alleged against them. For the reasons stated below, Hanson and Surety's applications for a determination of good faith settlement are denied and Menges' opposition motion is granted.

I. BACKGROUND

Plaintiff Susan Jette*fn4 alleges federal and state law claims against Orange County Financial, Inc. ("Orange County Financial"), MortgageIT, Inc. ("MortgageIT"), Tiempo, Jerry Indes and Menges related to a refinancing loan she obtained in 2006. Plaintiff alleges Menges misrepresented the terms of the loan and induced her to purchase a high interest loan she could not afford. (First Amended Compl. ("FAC") ¶¶ 24-28.) Plaintiff also alleges that at the closing of the loan transaction, the notary, sent by Tiempo, "rushed [her] through the process." (Id. ¶¶ 31, 33.)

Tiempo filed a cross-complaint against Orange County Financial, MortgageIT, Indes, Menges, Hanson, James Figger and Surety, alleging claims of indemnity, breach of duty of notary public and damages on a surety bond. Tiempo alleges that as the escrow holder in Plaintiff's refinancing transaction, it "is not responsible or liable for any of the wrongdoings alleged [by Plaintiff]" and "in the event it is held liable... it is entitled to be indemnified and held harmless by the cross-defendants for any costs, expenses and liabilities... in connection with this action, including attorneys' fees and costs." (Tiempo Cross-Compl. ¶¶ 20, 22.)

Jason Menges also filed a similar cross-complaint against Orange County Financial, MortgageIT, Indes, Hanson, Figger and Surety, alleging claims of equitable indemnity, breach of duty of notary public, damages on a notary bond and contribution. Menges alleges that "if any party to this action recovers against Menges, then [he] is entitled to indemnity from the named cross defendants... for injuries and damages sustained by plaintiffs,... any sums paid by way of settlement, or in the alternative, any judgment rendered against Menges as a defendant [or] cross-defendant." (Menges Cross-Compl. ¶ 14.)

Hanson and Surety state that they have negotiated a Mutual Release and Settlement Agreement (the "settlement agreement") with Tiempo which is intended to settle Tiempo's cross-claims alleged against them. (Martinez-Genzon Decl. in Supp. of Hanson's Appl. ¶ 3; Martinez-Genzon Decl. in Supp. of Surety's Appl. ¶ 3.) Under the settlement agreement, Surety will pay $2,500 on behalf of Hanson to settle Tiempo's cross-claims alleged against Hanson and Surety. (Martinez-Genzon Decl. in Supp. of Surety's Appl. ¶¶ 3, 4(f).) Hanson and Surety's good faith settlement applications, however, state that the settlement agreement is contingent upon the Court's "finding and ordering: (1) that the settlement between [Tiempo] and [Surety and Hanson] is in good faith; (2) that any pending complaints by [Tiempo] for equitable relief against [Surety and Hanson] be dismissed, with prejudice, and (3) that [Surety and Hanson be]... discharged from any present or future claim or liability for total, partial or comparative indemnity or contribution therein regarding any and all related transactions that are the subject of [Tiempo's] Cross-Claim, including but not limited to the Cross-Claim filed by Jason George Menges...." (Hanson Appl. 4:26-5:5; Surety Appl. 5:3-9.)

II. LEGAL STANDARD

A settling party may seek a determination that a settlement was made in good faith under California Code of Civil Procedure § 877.6 ("section 877.6") in federal court. Fed. Sav. & Loan Ins. Corp. v. Butler, 904 F.2d 505, 511 (9th Cir. 1990) (holding that while the "section 877.6 procedures do not govern a federal action... the substantive provisions... are applicable"); see also Maxwell v. MortgageIT, Inc., No. 1:08-CV-01329 OWW SKO, 2010 WL 2219190, at *1 (E.D. Cal. Jun. 1, 2010) (stating that "federal courts may enter... determinations" under section 877.6); Sunterra Corp. v. Perini Bldg. Co., No. 2:04-cv-00784-MCE-EFB, 2009 WL 2136108, at *1 (E.D. Cal. July 15, 2009) (stating that "[a] district court may properly consult the provisions of § 877.6 in determining whether an early settlement meets the requisite good faith scrutiny"). Section 877.6 provides in pertinent part:

(a)(1) Any party to an action in which it is alleged that two or more parties are joint tortfeasors... shall be entitled to a hearing on the issue of the good faith of a settlement entered into by the plaintiff or other claimant and one or more alleged tortfeasors or co-obligors....

(c) A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor... from any further claims against the settling tortfeasor... for equitable comparative contribution, or partial comparative indemnity, based on comparative negligence or comparative fault.

(d) The party asserting the lack of good faith shall have the burden of proof on that issue.

Cal. Code Civ. Proc. § 877.6. Section 877.6 reflects "two major goals": "the equitable sharing of costs among the parties at fault and the encouragement of settlements." Abbott Ford, Inc. v. Superior Court, 43 Cal.3d 858, 872 (1987).

A cross-claim defendant who settles with a cross-complainant may seek a determination that the settlement was made in good faith under section 877.6. KAOM, Inc. v. Superior Court, 35 Cal. App. 4th 549, 551 (1995) (holding that cross-claim defendant who settles with a cross-complainant but not the plaintiff may seek a determination under section 877.6 that the settlement was made in good faith); see also KLS Air Express, Inc. v. Cheetah Transp. LLC, No. CIV. S-05-2593 FCD DAD, 2008 WL 159191, at *2 (E.D. Cal. Jan. 15, 2008) (finding that section 877.6 is applicable to the settlement of a cross-complainant and cross-claim defendant).

III. DISCUSSION

Hanson and Surety argue that their settlement agreement with Tiempo "is fair and reasonable consideration for the compromise, release and waiver of claims against [them]" and warrants the dismissal of all claims "known or unknown, by [Tiempo] or any other party or entity... arising out of the real estate transaction and notarization that are the subject of [Tiempo's] action, including but not limited to the Cross-Claim filed by Jason George Menges...." (Surety Appl. 4:8-9, 4:27-5:1.) Menges does not dispute that Hanson and Surety's settlement with Tiempo was in good faith, but rather, contends that the settlement agreement does not bar his separate cross-claim alleged against Hanson and Surety.

A. Hanson and Surety's Request for Dismissal of Menges' Cross-Claim

Hanson and Surety contend that under section 877.6(c), the settlement agreement with Tiempo precludes Menges' cross-claim and warrants its dismissal. (Hanson & Surety Opp'n to Menges' Mot. to Contest Cross-Defs.' Appl. 3:1-5.) Hanson and Surety argue that "[u]pon determining a settlement was in good faith, the court may dismiss the non-settling tortfeasors' indemnity claims against the settling tortfeasor.... This includes separate lawsuits for indemnity as well as indemnity cross-complaints...." (Hanson and Surety's Opp'n to Menge's Mot. to Contest 3:10-14.) Menges objects to the dismissal of his cross-claim, arguing that Hanson and Surety's settlement with Tiempo has no bearing on their liability for his separate cross-claim. Menges contends "there is no reduction in the alleged liability in [his] cross action by virtue of an unrelated settlement in another cross action." (Mot. to Contest 3:17-18.)

Section 877.6(c) provides that "[a] determination by the court that [a] settlement was made in good faith shall bar any joint tortfeasor... from any further claims against the settling tortfeasor for equitable comparative contribution, or partial comparative indemnity, based on comparative negligence or comparative fault." Cal. Civ. Code § 877.6(c) (emphasis added).

In this case, Menges is a cross-claim defendant along with Hanson and Surety in Tiempo's cross-claim but he has also asserted his own, separate cross-claim, alleging claims for indemnification against various cross-claim defendants including Hanson and Surety. Menges' cross-claim seeks indemnification from the cross-claim defendants should he be held liable on any of Plaintiff's claims or Tiempo's cross-claim. Menges, Hanson and Surety, therefore, are "joint tortfeasors" on Tiempo's cross-claim; however, they are not, and cannot be, "joint tortfeasors" for the purposes of Menges' separate cross-claim. Accordingly, the settlement agreement would only have preclusive effect on Menges ability to seek indemnification or contribution from Hanson on Surety should he be found liable on Tiempo's cross-claim; it would have no preclusive effect on Menges' cross-claim seeking indemnification and contribution from Hanson and Surety should he be found liable to Plaintiff.

The cases relied upon by Hanson and Surety in their opposition brief to Menges' motion do not suggest otherwise. Wilshire Ins. Co. v. Tuff Boy Holding, Inc., 86 Cal. App. 4th 627, 640-43 (2001) merely holds that section 877.6 applies where there are "no non-settling defendants" and to "later-named" defendants; and Far West Fin. Corp. v. D & S Co., 46 Cal. 3d 796, 800 (1988) holds that section 877.6(c) bars "non-settling tortfeasors from pursuing a claim for total equitable indemnity" as well as claims for partial or comparative indemnity.

Hanson and Surety, therefore, have not shown their settlement agreement with Tiempo bars Menges' separate cross-claim. Since Hanson and Surety state that the settlement agreement is contingent upon the district court finding and ordering the dismissal of Menges' cross-claim, their applications for a determination of good faith settlement are denied and the other issues presented by their applications are not reached.

IV. CONCLUSION

For the stated reasons, Hanson and Surety's applications for a good faith settlement determination are denied and Menges' motion opposing these applications is granted.


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