Daily Blast August 23, 2012

On August 23, 2012, the California Supreme Court published its opinion in Leung v. Verdugo Hills Hospital (August 23, 2012, S192768) ____ Cal.4th ____, repudiating the common law release rule. (Slip opn., p. 2.) The court held that “when a settlement with a tortfeasor has judicially been determined not to have been made in good faith, nonsettling joint tortfeasors remain jointly and severally liable, the amount paid in settlement is credited against any damages awarded against the nonsettling tortfeasors, and the nonsettling tortfeasors are entitled to contribution from the settling tortfeasor for amounts paid in excess of their equitable shares of liability.” (Id. at p. 17, internal citation omitted.)

The plaintiff sued a pediatrician and the hospital in which her son was born after he developed jaundice and kernicterus, which caused irreversible brain damage. (Slip opn., p. 5.) Before trial, plaintiff settled with the pediatrician for $1 million. (Ibid.) However, the trial court denied the pediatrician’s motion for a determination of good faith settlement finding that the settlement was not in good faith. (Ibid.) The jury then awarded plaintiff almost $15 million and found that the pediatrician was 55 percent at fault, the hospital was 40 percent at fault and the parents were 5 percent at fault. (Id. at pp. 5-6.) The hospital appealed, contending that under the common law “release rule,” the plaintiff’s settlement with the pediatrician also released the nonsettling hospital from liability for plaintiff’s economic damages. (Id. at p. 1.) The Court of Appeal agreed stating that it was bound by the common law release rule. (Id. at p. 6.) Under this rule, “a plaintiff’s settlement with, and release from liability of, one joint tortfeasor also releases from liability all other joint tortfeasors.” (Ibid.) The rationale was that there could only be one compensation for a single injury and because each joint tortfeasor is liable for all of the damage, any joint tortfeasor’s payment of compensation in any amount satisfies the plaintiff’s entire claim. (Ibid.) 

The Supreme Court explained that Code of Civil Procedure section 877, regarding good faith settlements, was enacted to remedy the harsh results caused by the common law release rule. (Slip opn., p. 7.) However, in this case, section 877 did not apply because the trial court determined that the settlement was not made in good faith. (Id. at p. 8.) The court then held that when a plaintiff’s settlement with one of several defendants has been determined by a trial court not to have been made in good faith, liability should be apportioned under the set-off-with-contribution approach. (Id. at p. 14.) Under this approach, “the money paid by the settling tortfeasor is credited against any damages assessed against the nonsettling tortfeasors, who are allowed to seek contribution from the settling tortfeasor for damages they have paid in excess of their equitable shares of liability.” (Id. at p. 10.) The court explained that this approach did not change the respective positions of the parties and it was consistent with comparative fault principles and the rule of joint and several liability. (Id. at p. 14.) Therefore, the Supreme Court concluded that the common law release rule was no longer to be followed in California. (Id. at p. 21.)

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