Opinion
NOT TO BE PUBLISHED
Marin County Super. Ct. No. CV032850
Margulies, J.
Defendant Siamak Taromi was a participant in a failed real estate deal. As part of the dissolution of that deal, Taromi and Jeff Kaiser gave a promissory note to plaintiff Prime Vest Realty, Inc. (Prime Vest). Taromi later assumed responsibility for the note, agreeing to indemnify Kaiser against any claims brought in connection with it. When Prime Vest filed this action against Taromi and Kaiser to collect on the promissory note, both responded with cross-complaints alleging fraud and seeking rescission of the note.
Prior to trial, Kaiser settled with Prime Vest, making a $100,000 payment on the note. The trial court then found Taromi liable to Prime Vest and entered judgment against Taromi for the entire principal amount of the promissory note, along with other damages and attorney fees and costs. Taromi argues that the trial court was required to hold a hearing under Code of Civil Procedure section 877.6 to determine the good faith of the settlement, that the trial court erred in failing to offset the settlement payment against his liability on the note, and that the trial court should have allocated the attorney fees award. We agree that Taromi was entitled to an offset, but we otherwise affirm the judgment.
All statutory references are to the Code of Civil Procedure unless otherwise indicated.
I. BACKGROUND
In October 2000, three individuals, Bijan Madjlessi, Taromi, and Kaiser, entered into a real estate development deal, forming the entity Masma/TK, LLC, to carry out their plans. The members of Masma/TK, LLC, were Masma Construction, Inc. (Masma), of which Madjlessi was a principal, and TK Partnership, whose partners were a Taromi-controlled corporation and Kaiser.
The three eventually fell into a dispute that was resolved through an agreement, dated January 17, 2002, under which Taromi and Kaiser purchased Masma’s interest in Masma/TK, LLC. Under that agreement, Taromi and Kaiser executed a promissory note in the amount of $250,000 to Masma in consideration for its interest in the company. In an addendum to the agreement, dated February 1, 2002, the parties agreed that the payee on the promissory note would be changed from Masma to Prime Vest. A new note was executed to Prime Vest, although the new note continued to bear the date of January 17, 2002 (hereafter promissory note).
Taromi and Kaiser split up later the same year. In an agreement dated November 5, 2002, Kaiser and Taromi agreed to divide their business interests and end their partnership. As part of this agreement, Taromi agreed to indemnify Kaiser against any claims against Kaiser relating to “the Purchase Agreement, dated January 17, 2002, the Addendum to Purchase Agreement, dated February 17, 2002 [sic], and the $250,000 promissory note to Madjlessi, dated January 17, 2002,” and several other categories of claims. The agreement defined “Madjlessi” as “Bijan Madjlessi, d/b/a Prime Vest, Prime Vest, Inc., Prime Vest Reality [sic], and/or Prime Vest Reality Inc. [sic].”
In June 2003, Prime Vest brought this action against Taromi and Kaiser to recover under the promissory note. Kaiser and Taromi each filed a cross-complaint against Prime Vest, Masma, and Madjlessi, alleging fraud and seeking damages and rescission of the promissory note. Masma responded with its own cross-complaint against Taromi and Kaiser.
At some point shortly prior to trial, Kaiser entered into a settlement with the Madjlessi interests. The settlement first came to Taromi’s attention during a pretrial deposition of Kaiser. When Taromi’s counsel sought to learn the terms of the settlement at that time, however, Kaiser and Madjlessi claimed confidentiality and refused to disclose them.
The matter was called for a bench trial on February 3, 2006, and testimony began on February 7. During hearings on February 8 and 9, Taromi was permitted to examine Kaiser about the settlement. Although Madjlessi’s attorney objected to testimony about the specific settlement terms, arguing that the settlement was confidential, the court concluded that the terms were relevant to the proceedings and overruled the objection. Kaiser then testified that the settlement required him to pay $100,000 to Prime Vest. When asked why he entered into the settlement, Kaiser agreed that Taromi was obligated to indemnify him for Madjlessi’s claims under promissory note, but he explained that Taromi had not acknowledged this obligation and Kaiser had been advised that his exposure in the lawsuit “was very great.”
During argument before the court on March 13, 2006, near the end of trial, Taromi’s counsel contended that the trial court was required to hold a hearing on the good faith nature of the settlement between the Madjlessi interests and Kaiser pursuant to section 877.6. Prior to that argument, Madjlessi had submitted a declaration to the court describing the settlement. The declaration states, in relevant part, “On or about February 1, 2006, Masma Construction Inc., Prime Vest Realty . . . and myself, entered into a confidential Settlement Agreement with Jeff Kaiser, resolving Prime Vest’s claim against Jeff Kaiser for his joint and several liability under the $250,000 Promissory Note . . . . Although the terms of the Settlement Agreement remain confidential, testimony has been received during the trial from Jeff Kaiser wherein Mr. Kaiser testified that he as part of the settlement will pay the sum of $61,930.78, plus accrued interest to Prime Vest and shall execute a Promissory Note in favor of Prime Vest representing the difference between $100,000 and the cash sum of $61,930.78. [¶] Under the terms of the Confidential Settlement Agreement with Mr. Kaiser, among other terms and condition, Mr. Kaiser is entitled to reimbursement from Prime Vest of those monies (on a dollar for dollar basis) received by Prime Vest through Prime Vest’s enforcement of the Judgment against Defendant Taromi, up to the maximum sum of $100,000.” During that argument, counsel for Madjlessi confirmed the reimbursement feature of the agreement.
Following argument, the court rejected any immediate hearing under section 877.6, telling Taromi’s counsel, “that probably should be dealt with in the form of a motion of some sort with the appropriate authorities . . . .” After further colloquy, the court reiterated that it would not rule on the necessity of a good faith settlement hearing until a motion under section 877.6 had been filed, telling Taromi’s counsel, “I haven’t gotten an 877.6 motion. If somebody thinks you should file one, or they want to file one, you can, but at least at this juncture, I don’t have one before me. . . . Just apply to law and motion in our normal law and motion framework on a Tuesday.” Counsel for Taromi acknowledged the court’s direction. From the record before us, it appears that no motion under section 877.6 was ever filed, either before or after the court’s instruction on March 13.
On May 1, 2006, the court entered judgment in favor of Prime Vest on the promissory note, ordering Taromi to pay $250,000, plus interest. In addition, the court found against Taromi on his cross-complaint and awarded damages and interest to Masma of approximately $52,000. On August 8, 2006, the trial court amended its judgment to include an award of approximately $350,000 in attorney fees and costs against Taromi.
II. DISCUSSION
Taromi argues the trial court erred in failing (1) to conduct a good faith hearing pursuant to section 887.6; (2) to credit Taromi with an offset of $100,000 against his liability on the promissory note, in light of Kaiser’s settlement with Prime Vest; and (3) to apportion the attorney fees between the affirmative Prime Vest lawsuit and the various cross-complaints.
“Where parties to a lawsuit settle ‘in good faith before verdict or judgment’ the settling tortfeasor is released from all liability for any contribution to any other tortfeasors and the claims against the nonsettling tortfeasors will be reduced by the amount of the contribution paid for the release of the settling tortfeasor. [Citation.]” (L. C. Rudd & Son, Inc. v. Superior Court (1997) 52 Cal.App.4th 742, 747.)
Section 877.6 establishes a procedure for implementing this doctrine. Subdivision (a)(1) provides that “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 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, upon giving notice in the manner provided in subdivision (b) of Section 1005.” (§ 877.6, subd. (a)(1).) If, after a hearing, the court concludes that the settlement was made in good faith, that decision “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.” (§ 877.6, subd. (c).)
Taromi contends that the trial court erred in failing to hold a good faith settlement hearing under section 877.6. As the above statutory quotation makes clear, however, the trial court is not expected or required to hold a section 877.6 hearing sua sponte. Rather, subdivision (a)(1) of section 877.6 provides that while “[a]ny party” is “entitled” to a section 877.6 hearing, the party desiring such a hearing must initiate it by “giving notice in the manner provided in subdivision (b) of Section 1005.” Taromi cites no authority holding, or even suggesting, that a trial court has an independent obligation to hold a hearing under section 877.6 whenever it learns of a pretrial settlement in an action involving co-obligors or joint tortfeasors, and we find no legal basis for such a conclusion. By statute, the trial court can, and properly should be able to, rely on the parties to initiate such a proceeding when it is necessary or useful.
Subdivision (b) of section 1005, the statute cited in section 877.6, governs written notice for an ordinary motion. Despite the trial court’s express invitation, we find no evidence in the record that any party in this action ever filed a notice under section 1005 seeking such a hearing. In the absence of such notice, the trial court did not err by failing to hold a hearing under section 877.6.
Taromi argues that he was not required to file a notice of motion under section 877.6 because it would have been a futile act. While we are skeptical that presumed futility would excuse a failure to comply with the requirement of statutory notice, we need not address that issue because we find no factual support for Taromi’s claim that noticing a motion under section 877.6 would have been futile. On the contrary, the trial court affirmatively invited such a motion.
Taromi’s claim of futility is based, first, on the contention that the trial court had ruled that the terms of the Kaiser/Madjlessi settlement were confidential at the February 8 hearing. The contention is wholly unsupported by the transcript of that hearing, which reveals that no constraints were placed on Taromi’s examination of Kaiser about the settlement. The court’s acknowledgement at the hearing that Prime Vest could move to keep the terms of the settlement confidential appears to have meant that Prime Vest could move to keep the terms confidential from the public, rather than confidential from Taromi. The court did not preclude any subsequent questioning by Taromi on confidentiality grounds. Further, Taromi could have argued later that any confidentiality afforded the agreement on February 8 was waived when Madjlessi filed a declaration describing the agreement prior to the March 13 hearing.
Taromi’s remaining claims of futility amount to the argument that by March 13, 2006, when the trial court declined to hold a section 877.6 motion in the absence of a noticed motion, it was already too late for such a motion to serve Taromi’s purpose. Rather than demonstrating futility, this contention merely highlights the fact that Taromi had well over a month from the time he learned of the Kaiser/Madjlessi settlement in which to notice a section 877.6 motion. His failure to exercise this statutory right does not constitute judicial error.
Taromi argues at one point that he was deprived due process of law by the court’s failure to hold a hearing because he was unable to file a later writ of mandate. Since Taromi had the option of noticing such a hearing at any time after learning of the settlement, yet failed to do so, the trial court’s conduct did not deprive Taromi of any legal process. It was Taromi’s own failure to notice such a motion that prevented his later filing of a writ of mandate.
In any event, we find no prejudice in the trial court’s failure to hold the hearing. Taromi appears to argue that the terms of the settlement agreement might have provided Kaiser with grounds for bias and that a good faith settlement hearing might have demonstrated this. Yet he does not identify any actual biased testimony by Kaiser that might have been critical to the outcome of the trial. Moreover, Taromi was already provided an opportunity to examine Kaiser about the agreement and thereby to demonstrate any grounds for bias. Finally, prior to making its final ruling of liability, the trial court was apprised of the general terms of the settlement as a result of the colloquy surrounding Taromi’s request for a section 877.6 hearing on March 13. Since a good faith settlement hearing would have done little more than reaffirm the terms as disclosed at this hearing, there is no reason to believe that the failure to hold such a hearing affected the court’s ruling. (See People v. Watson (1956) 46 Cal.2d 818, 836.)
B. Offset
Taromi also contends that, even if he was not entitled to a good faith hearing, he was entitled to an offset of $100,000 against his liability to Prime Vest on the promissory note. We find merit in this contention.
Section 877 states that when a plaintiff enters into a good faith settlement with a co-obligor subject to a right of contribution for a debt, “it shall reduce the claims against the others . . . in the amount of the consideration paid for it . . . .” (§ 877, subd. (a); L. C. Rudd & Son, Inc. v. Superior Court, supra, 52 Cal.App.4th at p. 747.) Section 877 does not make the reduction of the claims of the remaining defendants contingent upon an express finding of good faith under section 877.6. The literal terms of section 877 therefore require that Taromi be given a credit of $100,000 against his debt under the promissory note as a result of the Kaiser/Madjlessi settlement.
There is no policy reason to require a nonparticipant to the settlement to notice a good faith hearing before receiving a setoff. As discussed below, ordinary principles of joint and several liability would make such an offset available, even in the absence of section 877.
Prime Vest contends that Taromi failed to carry his evidentiary burden of establishing his right to the offset. The testimony of Kaiser on February 8 and 9, however, as well as the declaration of Madjlessi, clearly established that Kaiser paid $100,000 in settlement of Prime Vest’s lawsuit to collect on the promissory note, thereby providing a complete evidentiary basis for the offset. Contrary to Prime Vest’s argument, this testimony by a participant in the settlement provides adequate direct evidence of the existence of a settlement payment; admission of the written settlement agreement was unnecessary to carry Taromi’s burden.
Prime Vest also argues that an offset should not be granted because, by the terms of the settlement, Kaiser was to be repaid his settlement payment if Taromi paid the full amount due under the promissory note. We find no basis for allowing the prospect of Kaiser’s reimbursement to overrule section 877.
The right to an offset in these circumstances arises not only under section 877 but also by application of common law principles. It is fundamental that when two parties are jointly liable for a debt and one makes a payment on the debt, the liability of both parties is reduced by the amount of that payment. Any other rule would permit the creditor a total recovery of more than the amount of the debt. When a joint obligor makes a payment on a debt under the terms of a settlement agreement, the effect is no different; the outstanding amount of the debt is reduced, thereby reducing the outstanding debt of any co-obligors.
When Prime Vest accepted $100,000 from Kaiser in settlement, the outstanding debt on the promissory note was reduced by $100,000. Accordingly, the principal of Taromi’s debt to Prime Vest was reduced to $150,000, and the judgment against him should have recognized this reduction.
The provision for reimbursement of Kaiser described in the Madjlessi declaration—a transparent attempt by both settling parties to have their cake and eat it too—does not change the fact that Kaiser made a payment that reduced the outstanding principal of the note by $100,000. There is no basis for ignoring this reduction. Both Prime Vest and Kaiser benefited from the settlement. The settlement guaranteed Prime Vest a $100,000 payment on the promissory note even if its lawsuit against Taromi failed or if Taromi became judgment-proof. Kaiser was released from liability under the promissory note and from the risks and burdens associated with litigating the pending trial and suing Taromi for indemnity.
In effect, the reimbursement provision of the settlement agreement is an attempt to impose upon Taromi indemnity of Kaiser without following proper legal process. Because he is to be reimbursed from amounts paid under the judgment, the settlement allows Kaiser to make payment to Prime Vest under the promissory note and then gain indemnity for that payment from Taromi by means of Prime Vest’s direct judgment against Taromi, rather than through a proper claim for indemnity. In this way, Prime Vest and Kaiser are attempting to obtain the benefits of a settlement while preserving the status quo as though no settlement had occurred—thereby permitting Kaiser to receive, in effect, indemnity from Taromi (via Prime Vest) and Prime Vest to preserve all rights to full payment of the promissory note by Taromi.
Prime Vest’s argument that no offset should be allowed is particularly troubling because it would expose Taromi to the risk of a double loss. If Taromi were to make a full payment of the $250,000 principal, as required under the judgment, Prime Vest would have recovered $350,000 under a $250,000 note. Prime Vest would then be required to reimburse Kaiser $100,000 of that payment, thereby reducing its recovery to the face value of the promissory note. If, however, Prime Vest refuses (or is financially unable) to comply with the terms of the settlement, Kaiser would—at least arguably—retain a claim for indemnity against Taromi in the amount of the $100,000 settlement payment. If that claim were successful, Taromi would have been compelled to pay $350,000 on the promissory note; conversely, Prime Vest would have been unjustly enriched by the $100,000 it refused or was unable to reimburse Kaiser. The principles governing contribution are designed to prevent just such a risk of double recovery and loss. The trial court erred in failing to offset the amount of the settlement against Taromi’s obligation under the promissory note.
Taromi argues that his indemnity obligation only extended to the original promissory note, which named Masma as payee. The indemnity provision of the agreement between Taromi and Kaiser, however, does not mention Masma. Rather, it states that the indemnity obligation applies to a January 17, 2002 promissory note made payable to “Madjlessi.” As noted above, the Taromi/Kaiser agreement defines the term “Madjlessi” to include Prime Vest. The plain meaning of the indemnity provision is therefore that Taromi owes indemnity with respect to the promissory note to Prime Vest.
Prime Vest has filed a motion requesting this court to take additional, postjudgment evidence. In the motion, Prime Vest asserts that it would prove that, since entry of the judgment, Taromi has paid Prime Vest an unspecified amount in satisfaction of the judgment. After receiving that payment, Prime Vest reimbursed Kaiser all sums paid under the settlement agreement. As a result, Prime Vest argues, the setoff issue is now moot.
C. Apportionment of Legal Fees
Taromi argues that the trial court erred in awarding Prime Vest nearly all fees and costs associated with the trial, since the award of fees was granted under the provisions of the promissory note, and “the PRIME VEST lawsuit, being a straightforward action on a note, required very little litigation.” Taromi also argues, in a conclusory manner, that the trial court should have deducted fees associated with Kaiser’s claims because “the Cross-complaints of KAISER and TAROMI were separately litigated and both were represented by separate counsel participating fully, equally and separately through the entire two and a half years of litigation.”
The trial court’s tentative ruling, which it ultimately adopted, shows that the court awarded to Prime Vest all the attorney fees and costs it sought, with the exception of $28,440 for fees incurred in connection with an unsuccessful summary judgment motion and $13,263.67 for fees incurred in connection with the litigation of claims related solely to Kaiser. The tentative ruling listed the fees that were deducted and explained the reasons for each deduction. The ruling also notes that “Taromi’s failure to comply with the court’s earlier ruling greatly increased the court’s burden in determining the amount of fees properly awarded to the Prime Vest parties. The court instructed Taromi to identify fees incurred solely in connection with the claims by and against Kaiser. Instead of complying with that instruction, Taromi re-argued points already raised and rejected by the court . . . . Instead of submitting invoices solely relating to the Kaiser claims, Taromi submitted all of the invoices which required the court to go through every single page of every invoice in order to determine which fees were properly deducted as to Kaiser. . . . Taromi’s failure to substantiate contentions has been a problem for the court and, ultimately, Taromi throughout the lengthy history of the litigation.”
Taromi’s first argument that the trial court should have allocated fees between litigation of the complaint and the cross-complaints fails to take into account Taromi’s pleading of rescission as a defense to collection on the promissory note. Because the claim for rescission, asserted in the cross-complaint, was premised on the same facts as the claim for fraud, Taromi’s litigation of his affirmative claims also constituted the litigation of a defense to enforcement of the note. As a result, Prime Vest’s right to recover on the promissory note could not be adjudicated without resolving the issues raised by Taromi’s cross-complaint, as well as the issues raised in Prime Vest’s original lawsuit.
Exactly the same issue arose in Wagner v. Benson (1980) 101 Cal.App.3d 27, in which the plaintiffs sued a bank and others for fraud and misrepresentation associated with a business deal. In return, the bank cross-complained to collect on a promissory note executed by the plaintiffs in connection with the deal. (Id. at pp. 31–32.) When the bank prevailed in its claim to collect on the note, the trial court awarded attorney fees only in connection with the bank’s affirmative efforts to recover on the note, not the fees associated with defending against the plaintiffs’ fraud claims. The Court of Appeal reversed, holding that “the Bank’s collection efforts were interrelated with its defense against the Wagners’ fraud allegations. Defense of the charge of fraud was necessary in the Bank’s efforts to collect the notes [citations]. . . . Attorney’s fees incurred by the Bank in defending against the fraud action are compensable under the attorney fees provision of the promissory notes [citations]. The trial court erred in apportioning its award of legal fees between the defense and collection aspects of the Bank’s case.” (Id. at p. 37.) Wagner is controlling here. The trial court did not abuse its discretion in refusing to allocate fees. (See also Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-130 [attorney fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed].)
Taromi’s second argument, that the trial erred in failing to allocate fees between the Taromi and Kaiser claims, suffers from the same defect on appeal that plagued him below. He fails to identify a single example from the Prime Vest attorney invoices that was improperly allocated between Kaiser and Taromi work. There is simply no factual basis for finding an abuse of discretion in the trial court’s resolution of this issue.
III. DISPOSITION
The trial court is directed to enter an amended judgment reducing Prime Vest’s recovery against Taromi on the principal of the promissory note to $150,000 and making
appropriate adjustments, if any are necessary, to the calculation of interest due on the note. The judgment is otherwise affirmed.
Parties to bear their own costs.
We concur: Marchiano, P.J., Swager, J.
We took that motion under advisement pending our ruling on the merits, and we now deny the motion. “ ‘Although appellate courts are authorized to make findings of fact on appeal by Code of Civil Procedure section 909 and rule 23 of the California Rules of Court, the authority should be exercised sparingly. [Citation.] Absent exceptional circumstances, no such findings should be made. [Citation.]’ [Citations.]” (In re Zeth S. (2003) 31 Cal.4th 396, 405.) We find no such exceptional circumstances here.