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First American Specialty Insurance Co. v. Ford Motor Co.

United States District Court, N.D. California

July 13, 2017





         In this products liability action, one defendant moves for a good faith settlement determination. The co-defendants oppose. For the reasons set forth herein, the motion is Granted.


         Plaintiff First American Specialty Insurance Company provided insurance for Anthony Santos's home in Fremont, California, and acts as subrogee in this action. It alleges that insured purchased a 2002 Ford F-150 from defendants Carmax Auto Superstores California, LLC, and Carmax Auto Superstores West Coast, Inc. (collectively “Carmax”), which had a defective speed control deactivation switch (“SCDS”). The SCDS was the subject of a recall because it was known to fail without warning and combust, but defendants allegedly failed to timely inform insured of the recall or otherwise fix the defective part. The defective SCDS caught fire while on insured's property and caused damage to his car, garage, and home. First American paid insured $267, 000 to cover the damage (Compl. at 1, 3-4).

         First American sued defendants Ford Motor Company and Carmax to recover the money it paid to insured. The complaint alleges claims for strict products liability against Ford, and negligence against both Ford and Carmax. The negligence claims, however, arise from distinct theories. First American alleges that Ford negligently designed and manufactured the truck, whereas it alleges that Carmax negligently failed to warn the buyer of defects in the truck (id. at 3-4).[*]

         The parties mediated their dispute before Judge Rebecca Westerfield at JAMS, and on April 28, 2017, Ford reached a settlement with First American (Dkt. No. 32; Br. at 2). Ford agreed to pay First American $85, 000 in exchange for a release of all claims and a dismissal of the action with prejudice. The settlement was conditioned on entry of a good faith determination.

         Carmax has not settled, and opposes Ford's motion for determination of good faith settlement arguing that the agreed-upon settlement amount is not a fair proportion of Ford's potential liability. This order follows full briefing and oral argument.


         A finding of good faith settlement “bar[s] any other joint tortfeasor or co-obligor from any further claims against the settling tortfeasor or co-obligor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.” While the settlement does not discharge any other party from liability, unless its terms so provide, Section 877.6(c) of the California Civil Procedure Code states: “it shall reduce the claims against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it, whichever is the greater.” The legislative objectives animating Section 877.6 “include both the encouragement of settlement and the equitable allocation of costs among multiple tortfeasors.” Tech-Bilt, Inc. v. Woodward-Clyde & Assocs., 38 Cal.3d 488, 498-99 (1985). To put those principles into practice, courts should consider a number of factors including:

a rough approximation of plaintiffs' total recovery and the settlor's proportionate liability, the amount paid in settlement . . . 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.

         Judges are not expected to be able to estimate an appropriate settlement amount with precision, but must avoid settlements that are “grossly disproportionate” to the defendants' share of liability. Id. at 499; see also West v. Superior Court, 27 Cal.App.4th 1625, 1635 (1994). A party asserting that the settlement was not made in good faith bears the burden of proving that the settlement is “so far out of the ballpark in relation to the [Tech-Bilt] factors as to be inconsistent with the equitable objectives of [Section 877.6].” Tech-Bilt, 38 Cal.3d at 499-500.

         Ford contends that $85, 000 is an appropriate settlement amount because First American's claims against it are relatively weak. It makes three points in support of this argument. First, it observes that the Fremont Fire Department was unable to conclude what caused the fire. Though the incident report lists the area of origin as either inside the engine or underneath the front of the vehicle, it states that the ignition source - i.e. what actually started the fire - is unknown. The incident report observes that the vehicle was parked over “ordinary combustibles, ” and photographs show an extension cord running along the wall of the garage, both of which, Ford argues, are plausible alternative causes (Br. at 4 citing incident report at 3). Ford further argues that the fire could have been ignited by another part of the engine besides the SCDS, which would not render Ford liable in this suit (Br. at 5).

         Second, a fail-safe mechanism installed by Ford, which has been proven to prevent fires related to the defective SCDS, had been removed from the vehicle (by an unidentified party) and replaced with an after-market part that would not have prevented a fire (Br. at ...

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