Opinion
E032713.
7-31-2003
MOUNTAINS COMMUNITY HOSPITAL DISTRICT, Petitioner, v. THE SUPERIOR COURT OF THE COUNTY OF SAN BERNARDINO, Respondent; WB CONSTRUCTION et al., Real Parties in Interest.
Best, Best & Krieger, Victor L. Wolf, Dean Derleth, and Nicole I. Minkow for Petitioner. No appearance for Respondent. Reynolds, Jensen & Swan, Christopher G. Jensen for Real Party in Interest, WB Construction. Collins, Collins, Muir & Traver, Samuel J. Muir, Michael M. Bergfeld, David A. Barker and Douglas Fee for Real Party in Interest, HMC Group.
Petitioner Mountains Community Hospital District (Hospital) seeks a writ of mandate directing the trial court to vacate its order granting real party in interest, HMC Groups (HMC), motion for good faith settlement pursuant to Code of Civil Procedure section 877.6 and dismissing the Hospitals cross-complaint for implied contractual indemnity.
All section references are to the Code of Civil Procedure unless otherwise specified.
As discussed below, we grant the writ because the Hospital and HMC are not joint tortfeasors or co-obligors on a contract debt, and so section 877.6 does not apply.
STATEMENT OF FACTS
The Hospital contracted with real party in interest, WB Construction (WBC), to expand and build the Hospitals radiology and laboratory facilities (construction contract, project). The Hospital also contracted with HMC Group (HMC) to be the architect on the project (architect contract). WBC and HMC did not enter into a contract with each other. Work began in March 1998. The project was to be built in two phases and completed in January 1999. In April 1999, WBC declined to begin work on the second phase and the Hospital hired another contractor to complete the project.
In October 1999, WBC filed this action against the Hospital seeking to recover money that WBC alleged it was due under the construction contract. In the complaint, WBC claimed it was entitled to recover damages for delays and cost overruns caused by the Hospital and/or its architect, HMC. The Hospital then filed a cross-complaint against HMC for implied contractual indemnity arising from HMCs obligation to administer the project under the architect contract. The Hospital also cross-complained against WBC for breach of the construction contract. Finally, HMC cross-complained against the Hospital for unpaid fees under the architect contract.
The jury trial began on September 24, 2002. On October 8, 2002, WBC rested its case. On October 11, 2002, WBC offered to settle with the Hospital on the complaint and cross-complaint between them for a $ 500 payment to WBC. The Hospital rejected the offer and the trial continued. On October 17, 2002, the Hospital rested its case. HMC then announced it had agreed to pay WBC $ 500 and forego any claim against the Hospital for attorney fees to settle the Hospitals implied contractual indemnity claim against HMC. HMC also sought a determination that the settlement was in good faith pursuant to section 877.6. Such a determination would bar the Hospitals cross-complaint against HMC for implied contractual indemnity.
On October 21, 2002, after written briefing and oral arguments, the trial court granted HMCs motion and dismissed the Hospitals cross-complaint. The trial court reasoned that section 877.6 applies because the Hospital and HMC were joint tortfeasors, in that it was alleged that the Hospital and HMC both contributed to WBCs harm by their negligent performance of the contracts. The trial court also stated that it could be argued that the Hospital and HMC are co-obligors on a contract debt because, though they were not part of the same contract or contract debt, the agency relationship between the two makes them both liable to WBC. The trial court found it important that WBC could have sued the architects directly as a third party beneficiary of the Hospital-HMC contract. At that time, the Hospital asked the trial court to stay the trial while the Hospital sought writ relief in this court. The trial court denied this request.
On October 24, 2002, the jury returned its verdict in favor of WBC in the amount of $ 229,419.97 for the Hospitals breach of the construction contract. The jury also found that WBC did not breach the construction contract. The parties later stipulated to reduce the amount to $ 100,146.15. On November 8, 2002, the Hospital filed the instant writ petition. On November 18, 2002, the Hospital filed a motion for new trial and/or judgment notwithstanding the verdict, which the trial court denied on December 5, 2002. Judgment on the jury verdict was entered on December 30, 2002. Both WBC and the Hospital have appealed.
In this petition, the Hospital argues that the trial court abused its discretion when it granted HMCs motion for good faith settlement. Specifically, the Hospital contends that: 1) section 877.6 does not apply here because it only applies where the defendants are co-obligors on a single contract debt which is the subject of the litigation; 2) the settlement was made in bad faith because (a) HMC, the settling party, was not sued by and had no liability to the plaintiff, WBC, and (b) HMC admits that its express reason for entering into the settlement was to extinguish the Hospitals cross-complaint against it for indemnity; and, (3) the $ 500 settlement was less than one percent of the plaintiff WBCs damage claim.
DISCUSSION
Whether Section 877.6 Applies
Before addressing whether the settlement was in good faith, we must first determine whether it is alleged that petitioner and HMC are joint tortfeasors or co-obligors on a contract debt such that HMC could "buy its peace" via section 877.6.
Section 877.6, subdivision (a)(1) allows "any party to an action in which it is alleged that two or more parties are joint tortfeasors or co-obligors on a contract debt" to settle with the plaintiff and, upon a finding of good faith by the trial court, thereby to avoid claims for contribution or indemnity from a joint tortfeasor or co-obligor.
The Hospital and HMC Are Not Joint Tortfeasors
This complaint basically alleges that the Hospital breached its duties under the construction contract by making changes to the project without paying for the extra labor and material, etc., expenses that WBC incurred to make the changes, and that WBC incurred costs for delays that were "attributable to Defendant directly and/or through their architect."
In its ruling, the trial court stated that "I think the legitimate argument in this case, though, is that due to the circumstances of the breach allegations in plaintiffs complaint, due to the circumstances of the interrelationship between the architects and the Hospital, they are in fact tortfeasors, joint tortfeasors, contributing to the harm."
In support of the trial courts ruling, HMC argues here that the allegations in the complaint place the Hospital and HMC "into a single category of causing the injury whether stated in contract or tort." Specifically, HMC points to the following two allegations in the complaint:
"11. In addition, as a result of the aforesaid changes, additions or different work and extras performed and supplied by Plaintiff, and as a result of delay occasioned by Defendant and/or their architects, substantial delay occurred. Said delay was and is directly attributable to Defendant directly and/or through their architect. . . .[P] 13. Moreover, based upon the contract and upon the applications for payment submitted to the Defendants through the HMC Group (the architect representing Defendant and acting on Defendants behalf) by Plaintiff, Defendant, [Hospital] was obligated to make timely progress payments on account of the contract to Plaintiff."
The problem we have in equating these allegations with an allegation that the Hospital and HMC are joint tortfeasors is three-fold. First and foremost, WBC did not pursue a tort claim against either the Hospital or HMC. Second, the complaint does not "allege" that the Hospital and HMC are joint tortfeasors, in that there is simply no allegation that either party acted tortiously toward WBC. Notwithstanding HMCs assertion that the two allegations in the complaint quoted above do allege tortious actions by the Hospital and HMC, the complaint merely alleges that the two caused delays, and that the Hospital was obligated under the construction contract to make progress payments to WBC based on WBCs submissions to HMC. These sound like contract claims to us.
Third, contrary to HMCs assertion, WBC may not have been able to get past the demurrer stage even if it had sued the Hospital in tort. Our Supreme Court has stated that one "may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations." (Aas v. Superior Court (2000) 24 Cal.4th 627, 643.) The "ordinarily" caveat means that conduct that is also a breach of contract is only tortious when the breach "violates a social policy" or a "duty independent of the contract" and that duty arises from tort law. (Ibid.) HMC has not articulated what that duty is. So, we conclude that WBC could not have credibly alleged that the Hospital and HMC were joint tortfeasors because it cannot point to a duty, other than that imposed by contract, that the Hospital and HMC both breached to cause WBCs harm.
HMC generally asserts that "all of the claims by WBC could have been stated under either contract or tort theories." However, HMC does not simply and clearly say what causes of action WBC could have brought against the Hospital and HMC as joint tortfeasors. HMC pulls from the section 877.6 hearing transcript quotations from various counsel to the effect that WBC could have sued HMC and/or the Hospital in tort. These quotes are not legal authority. HMC then posits, without legal authority, a single non-contractual tort duty on the part of the Hospital "as the property owner to provide the elements necessary to allow WBC to proceed with its work." If such a tort duty exists, it would be the Hospitals duty only, and so would not make the Hospital and HMC joint tortfeasors.
More specifically, even if WBC could have credibly alleged that HMC tortiously interfered with the construction contract, HMC and the Hospital could not be joint tortfeasors. This is because a party to a contract cannot tortiously breach the contract, even if a third party intervenes and induces the breach. "Whether or not a stranger to the contract induces its breach, the essential character of a contracting partys conduct remains the same-an unjustified failure or refusal to perform." (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 516-517, 869 P.2d 454.) Thus, the Hospital could not be liable in tort for breach of the construction contract, and so the trial court erred when it found that the Hospital and HMC are joint tortfeasors.
At oral argument, HMC cited a number of appellate and Supreme Court cases to the effect that the term "alleged" should be interpreted broadly. HMC argued that alleged joint tortfeasors can include parties not named in or served with a complaint as long as they are likely or potential tortfeasors. As discussed above, though, neither WBC below nor HMC in this proceeding has specified what torts the Hospital and HMC jointly committed.
The Hospital and HMC Are Not Co-Obligors On A Contract Debt
The court also found that, "even though theyre not on the same contract and on the same contract debt, the contractual nature of the relationship between the architects and the Hospital makes them both, in an agency situation, liable to the plaintiff." However, neither the trial court nor HMC cite any case law to the effect that being the agent of a party to a contract makes one a co-obligor on that contract.
Under the plain language of section 877.6, WBC does not allege that the Hospital and HMC are co-obligors on a debt under the construction contract. An obligor is one who places himself under a legal obligation. (Websters 3d New Internat. Dict. (1981) p. 1556.) Co-obligors then are two or more parties who together place themselves under the same legal obligation. Here, the complaint for money damages just does not allege that HMC owes WBC any money under the construction contract. This is because there is no basis for such a claim-HMC did not place itself under a legal obligation to WBC under the construction contract.
After the tentative opinion was issued, HMC filed a motion and request for judicial notice re the "General Conditions of the Contract for Construction" between the Hospital and WBC, also known as the standard American Institute of Architects AIA Document A201. We grant the motion. The General Conditions set forth the "duties, responsibilities and limitations of authority of the Architect" in administering the construction contract. HMC argues that the General Conditions document "is an agreement by which HMC, WBC and Hospital assume mutual contractual obligations and liabilities" so as to make HMC and the Hospital co-obligors on the construction contract. However, section 1.1.2 of the General Conditions clearly states that "the Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Architect and Contractor . . . ." (Italics added.) We cannot emphasize enough that there is no contract between HMC and WBC.
Most of the case law cited by WBC and HMC involves joint tortfeasors. This is because the statute as enacted in 1980 applied only to joint tortfeasors. The statute was amended in 1987 to include co-obligors on a contract debt. There is not a great deal of case law considering specifically what is an alleged co-obligor on a contract debt. The few courts that have considered this issue directly have uniformly concluded that the "co-obligor" requirement of section 877.6 means that a single contract debt is the subject of the litigation and the settling and non-settling parties each owe the obligee that debt under that contract. (Pacific Estates, Inc. v. Superior Court (1993) 13 Cal.App.4th 1561, 1571, 1572 ["The plain language of the statute dictates the interpretation of this phrase refers to parties to a contract dispute which itself is the subject of the underlying litigation" citing legislative history to the effect that the purpose of the 1987 revision was to apply the ". . . tort contribution and good faith settlement statutes to the settlement of obligations arising out of a joint contract."]; Herrick Corp. v. Canadian Ins. Co. (1994) 29 Cal.App.4th 753, 761 [between primary insurers "the respective obligations arise strictly out of separate contracts-hence they are not co-obligors on a contract debt (singular)."]; Topa Ins. Co. v. Firemans Fund Ins. Companies (1995) 39 Cal.App.4th 1331, 1337 [quoting Herrick Corp. and Pacific Estates, Inc.]; accord Forman v. Government Employees Ins. Co. (N.D. Cal. 1996) 920 F. Supp. 1065, 1067 [". . . there must be co-obligors on a single contract debt which is [the] subject of the litigation."].) Here, as explained above, HMC does not have any obligation to WBC arising under the construction contract, any now-posited tort duties aside.
We recognize that section 877.6 is technically satisfied when a cross-complaint alleges joint tort responsibility. In Mattco Forge, Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, a party that later settled with the plaintiffs had been brought into the tort action by the defendants cross-complaint for equitable indemnity. The cross-complaint alleged that the settling party was a joint tortfeasor. The appellate court found that this allegation was enough to bring section 877.6 into play, citing Widson v. International Harvester Co. (1984) 153 Cal. App. 3d 45, 57, 200 Cal. Rptr. 136: "Sections 877 and 877.6 apply [even] where the settling tortfeasor is merely a cross-defendant in an action for comparative or partial equitable indemnity . . ." and that ". . . the statutory scheme applies regardless of who makes the claim [that the defendant and cross-defendant are joint tortfeasors], whether it be the plaintiff directly, the defendant or third party by way of cross-complaint." (Mattco Forge, Inc. v. Arthur Young & Co., supra, 38 Cal.App.4th at pp. 1347-1348.) Here, however, the Hospital did not allege that HMC tortiously caused WBCs cost problems. Rather, the Hospital only alleged that HMC failed "to administer the Construction Contract in accordance with the terms of the Architect Contract." Hence, it is not alleged in either the complaint or cross-complaint that HMC is a joint tortfeasor or co-obligor on a single contract debt, or that its liability to the Hospital depends on such a relationship.
Because we conclude that section 877.6 does not apply to this matter, we need not decide whether the settlement between HMC and WBC was in good faith.
DISPOSITION
The writ of mandate is granted. The trial court is ordered to vacate its order granting HMCs motion for good faith settlement pursuant to section 877.6 and dismissing the Hospitals cross-complaint for implied contractual indemnity.
The Hospital asks this court to order a new trial between the Hospital and WBC on the complaint and cross-complaint. We decline to do so, noting that both parties have appealed.
Petitioner is DIRECTED to prepare and have the peremptory writ of mandate issued, copies served, and the original filed with the clerk of this court, together with proof of service on all parties.
We concur: Hollenhorst, J., Ward, J.