Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of San Diego County No. GIC829632, Steven R. Denton, Judge.
NARES, J.
In this product defect action brought by Ericsson, Inc. (Ericsson) against defendant and cross-complainant Vicor Corporation (Vicor) and defendant and cross-defendant Exar Corporation (Exar), the court granted a motion jointly brought by Rohm Co. Ltd. and Rohm Device, U.S.A., L.L.C. (Rohm Device) (together Rohm) and Exar, in which Exar and Rohm (together sometimes referred to as respondents) sought a determination that their "sliding scale" settlement with Ericsson, valued at $3 million, was in good faith within the meaning of Code of Civil Procedure section 877.6. Based upon this "good faith" determination, the court thereafter dismissed Vicor's cross-complaint for indemnity against Rohm and Exar and entered judgment in their favor.
All further statutory references are to the Code of Civil Procedure unless otherwise specified.
Vicor appeals, contending (1) the judgment must be reversed because there was no competent evidence to support the court's determination that the potential liability on Ericsson's claims was no more than $30 million to $60 million, as opposed to the $100 million to $1 billion in damages that Ericsson asserted; (2) the judgment must be reversed because respondents, as the settling parties, provided insufficient evidence of the value of the settlement; and (3) the court's determination of respondents' proportionate liability is unsupported by the evidence and is contrary to law. We conclude the court did not abuse its discretion by granting respondents' good faith settlement motion. Accordingly, we affirm the judgment.
FACTUAL BACKGROUND
A. The Parties
Ericsson designs and manufactures radio base stations (RBS's), which it sells to cellular telephone service providers. At issue in this case are two Ericsson RBS models, the 1107 and 1127. Each model requires several power converters to manage the flow of power within the unit.
Vicor designs and manufactures power converters. Ericsson purchased Vicor power converters for use in its RBS's. The Vicor power converters incorporated into Ericsson's RBS's failed in significant numbers. Vicor identified a problem with the "primary brain" within its converters, and traced certain failures of the "primary brain assembly" to a zener diode component in the integrated circuit (IC) of the primary controller.
Exar, a former subsidiary of Rohm Co. Ltd., designs and manufactures IC's.
Rohm Co. Ltd. formed Rohm Device to operate the Kifer Road foundry, a manufacturing facility in Sunnyvale, California. Rohm Device manufactured semi-custom, untested wafers that Vicor designed and Exar sold to Vicor. Vicor processed the wafers to make the primary controller IC's for the "primary brain" of its power converters.
B. Ericsson's Complaint and Vicor's Cross-Complaint
Ericsson sued Vicor and Exar for damages it allegedly suffered when some of Vicor's power converters failed in Ericsson's RBS's. In its operative third amended complaint (hereafter complaint), Ericsson asserted against Vicor various breach of contract and tort claims and a statutory unfair competition claim. Ericsson's complaint asserted claims against Exar for negligence, strict liability, and violation of Business and Professions Code section 17200 et seq., alleging Exar designed, manufactured, and supplied to Vicor defective IC's for use in Vicor's "2nd Generation" power converters that Vicor sold to Ericsson for use in Ericsson's RBS's.
Ericsson's complaint asserted against Vicor causes of action for breach of contract, breach of express warranty, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, strict liability, fraud by concealment, fraud by misrepresentation, negligent misrepresentation, and violation of Business and Professions Code section 17200 et seq.
Vicor cross-complained against Exar, asserting various tort and contract cross-claims as well as cross-claims for implied contractual indemnity and equitable indemnity. Vicor alleged that Exar was liable for selling to Vicor nonconforming semi-custom IC's that were used as components in Vicor's power converters; the IC's were designed using Exar's proprietary "Flexar Array" process; and the defective IC's were manufactured by Rohm under contract with Exar. Vicor amended its cross-complaint to add claims against Rohm for implied contractual indemnity and equitable indemnity. After the court sustained without leave to amend Exar's demurrer to Vicor's contract and tort cross-claims, Vicor filed its operative second amended cross-complaint (hereafter Vicor's cross-complaint), which omitted those dismissed cross-claims. Thus, the only remaining claims asserted in Vicor's cross-complaint were the claims for implied contractual indemnity and equitable indemnity against both Exar and Rohm.
C. "Sliding Scale" Settlement Agreement
Settlement negotiations among Ericsson, Vicor, Exar and Rohm stalled in September 2006, and Ericsson thereafter declined to negotiate with Vicor. In late November of that year, Exar and Rohm entered into a sliding scale settlement agreement (hereafter the settlement agreement) with Ericsson, and served Vicor under section 877.5 with a notice of their intent to enter into the agreement. Following negotiations, the settling parties declared the value of the settlement to be $3 million.
The settlement agreement provided that, upon a good faith settlement determination by the court, respondents Exar and Rohm would share equally in a nonrefundable payment of $1 million to Ericsson, and they "guarantee[d] Ericsson a minimum recovery" of $14 million consisting of the up-front payment of $1 million, plus "an additional contingent $13 million," equally divided between Exar and Rohm, which would be payable after entry of final judgment. In the event Ericsson failed to obtain a judgment against Vicor of at least $14 million─before any offset under section 877, subdivision (b)─respondents would pay Ericsson "dollar for dollar, an amount equal to any shortfall in Ericsson obtaining a Pre-Offset Judgment against Vicor for at least $14 million." However, respondents would have no responsibility to pay Ericsson any portion of the contingent $13 million if Ericsson settled with Vicor.
In return, Ericsson agreed to dismiss its claims against Exar. After such dismissal, Exar and Rohm would "reasonably assist and cooperate with Ericsson in preparing and presenting its case against Vicor." After finality of a good faith settlement determination and compliance with the terms of the settlement agreement, all claims among Ericsson and respondents arising out of the litigation would be released. Exar and Rohm remained free to pursue claims against Vicor.
D. Respondents' Good Faith Settlement Motion
In December 2006 Exar and Rohm filed their good faith settlement motion, which Ericsson joined, under section 877.6. The premise of respondents' motion was that Vicor fraudulently concealed known defects in the power converters it sold to Ericsson. Respondents first argued that the $3 million settlement consideration they agreed to pay to Ericsson, including the nonrefundable $1 million payment and the guarantee potentially requiring an additional payment of $13 million, exceeded their potential proportionate share of liability. Specifically, they argued that Vicor was solely responsible for Ericsson's damages because the evidence established that (1) Vicor knew that its 2nd Generation DC/DC power converters had serious problems, including noise and voltage drift problems with the surface zener diodes in the primary IC, long before Ericsson installed any RBS's in the field; (2) Vicor knew no later than April 2001, before Ericsson went into production with its RBS's, that it needed to redesign its primary IC to correct the surface zener diode problems in its power converters; (3) Vicor had a motive to withhold from Ericsson material information about the zener diodes because Ericsson had already threatened to design Vicor out of the RBS's if other reliability problems with Vicor's power converters were not resolved; (4) Vicor did not disclose to Ericsson the surface zener diode issue until June 2003, about two years after Vicor knew it needed to redesign the primary IC; and (5) Ericsson could have avoided its damages if Vicor had promptly disclosed to it the known defects in the power converters.
Exar and Rohm also argued that even without the evidence of Vicor's fraud, the settlement was "within the ballpark" of their proportionate share of liability because (1) Vicor was solely responsible for the performance of the primary IC's, as it had assumed responsibility for all aspects of design, testing, packing and qualification to determine whether there were any issues with the primary IC's; and (2) Vicor's power converters suffered from a number of problems other than the zener diode problems, such as problems with the "PC Board" and "rampant" resonant capacitor failures, that resulted in failures at Ericsson and were not attributable to the products sold by Exar and Rohm. Furthermore, they argued, the $3 million settlement value, which was the result of contentious negotiations, was within the ballpark of respondents' proportionate liability because Ericsson was entitled to recover only its actual damages, and the vast majority of its claimed damages in an amount exceeding $1 billion consisted of speculative lost profits from the failure of CDMA, a division of Ericsson that had never been profitable under Ericsson's ownership and was shut down for market reasons unrelated to Vicor's defective power converters.
Vicor refers to CDMA as Ericsson's "Code-Division Multiple Access" division.
Respondents further asserted the documentary evidence submitted in support of their motion indicated that Ericsson's actual damages totaled between $30 million and $60 million, and thus they were agreeing to pay consideration in the neighborhood of 5 percent to 10 percent of the total liability, and up to $13 million more depending on the outcome of Ericsson's case against Vicor. Such payment, Exar and Rohm argued, would equal approximately 25 percent to 45 percent of Ericsson's potential actual damages, and thus the value of the settlement was not grossly disproportionate to their actual liability.
Exar and Rohm's motion was supported by a declaration of Exar's counsel, Leo Norton. Paragraph 3 of Norton's declaration asserted that Ericsson, Exar and Rohm reached the settlement after "lengthy, arm[']s-length negotiations" that began in August 2006, were "at times . . . contentious," and culminated with the execution of the settlement agreement on December 1 of that year. Norton stated that the principal areas of disagreement in the negotiation process related to the type of settlement, the amount of the guaranty and the nonrefundable up-front cash payment, and the application of the offset in calculating the guaranty amount under various scenarios.
Paragraph 3 of Norton's declaration described the "heavy negotiation" that resulted in the declared $3 million settlement value. Exar and Rohm initially proposed that the declared value be $5.5 million, the amount at which they arrived by adding the $1 million nonrefundable payment to an estimate of the present value of the guaranty amount. That present value estimate, in turn, was determined by (1) estimating the value of loss of use of the guaranty for the three-to-five-year period it would take to complete trial and exhaust all appeals; and (2) multiplying the guaranty by the approximate 20 to 30 percent chance respondents would have to pay the full $13 million guaranty in the event Ericsson failed to recover any amount from Vicor. Ericsson countered with a proposed value of $2.3 million, which it calculated by estimating that Exar and Rohm had a 10 percent chance of paying the $13 million guaranty ($1.3 million) plus the full value of the $1 million nonrefundable payment ($1 million), for a total value of $2.3 million. After additional negotiation, the parties ultimately agreed there was approximately a 15 percent chance that Exar and Rohm would have to pay the full guaranty amount. The parties then used that 15 percent chance to determine the present value of the full $13 million guaranty, and added that present value to the $1 million nonrefundable payment to arrive at the agreed-upon $3 million declared value of the settlement agreement.
In Paragraph 94 of his declaration, Norton stated that a rough approximation of Ericsson's damages, excluding lost profits and exemplary damages, totaled between $30 million and $60 million, and that range was based on Ericsson's interrogatory responses showing it suffered $13 million in property damage, it made cash concessions of at least $20 million to some of its customers, it made inventory concessions to certain customers, and it spent about $25 million for Vicor power converters. As support, Norton cited Ericsson's interrogatory responses, a copy of which was attached to the declaration as exhibit 48, and a "compilation of various excerpted documents that relate[d] to Ericsson's damages incurred, such as the budgeted and actual costs of certain retrofits," a copy of which was attached to the declaration as exhibit 50.
1. Vicor's opposition
In its written opposition, Vicor claimed the proposed sliding scale settlement was not entered into in good faith and did not meet the standards set forth in Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 494-496 (Tech-Bilt) and Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858 (Abbott Ford) because (1) the proposed settlement agreement violated public policy because its "Litigation Bonus" and the "Settlement Penalty" encouraged litigation and discouraged settlement; (2) the settling parties failed to meet their threshold burden of proof, and thus the burden of proof did not shift to Vicor because the Norton declaration did not contain admissible evidence, and thus they presented no competent evidence of the value of Ericsson's claims, the value of the settlement (including nonmonetary terms), or their equitable share of the liability; (3) given Ericsson's discovery responses and its refusal to negotiate with Vicor for less than $100 million, the relevant ballpark of liability was between $100 million and $1 billion; (4) the settling parties failed to show the $3 million settlement valuation "'was reached in a sufficiently adversarial manner to justify a presumption that a reasonable value was reached'" (citing Erreca's v. Superior Court (1993) 19 Cal.App.4th 1475, 1495-1496); and (5) the settling parties engaged in collusive conduct to force Vicor to bear a grossly disproportionate share of the liability.
Vicor explained the terms "Litigation Bonus" and "Settlement Penalty" as follows: "Ericsson may also receive a sliding scale payment of up to $13 million (the 'Litigation Bonus'), if and only if, Ericsson tries its case against Vicor to final judgment and through any appeals. See Proposed Settlement [paragraph] 5. However, under the last two sentences of paragraph 8 (the 'Settlement Penalty'), Ericsson forfeits the entire Litigation Bonus if it settles its case against Vicor, ever." (Boldface added.)
In support of its opposition, Vicor submitted the declarations of its president and chief executive officer Patrizio Vinciarelli, and Eby Friedman, Ph.D, an electrical engineering expert, which (Vicor asserts) demonstrated that Exar and Rohm's share of liability was 100 percent because they were the upstream suppliers of the allegedly defective component IC's that caused Vicor's power converters to fail. Vicor also submitted two declarations by its counsel, Arthur S. Wells.
Vicor submitted a set of evidentiary objections to the descriptions of the settlement valuation negotiations among respondents and Ericsson as "lengthy," "arm[']s-length," and "contentious" in paragraph 3 of the Norton declaration on various grounds, principally that they were bare conclusions unsupported by evidentiary fact. Vicor also objected to Norton's statements in paragraph 4 relating to the valuation methodology on a number of grounds, including that they lacked foundation and personal knowledge, and constituted impermissible opinion testimony.
2. Respondents' reply
In their written reply, respondents and Ericsson argued that (1) Vicor's arguments relied on a misstatement of the burden of proof; (2) Vicor failed to meet its burden of demonstrating the settlement agreement was grossly disproportionate to Exar and Rohm's proportionate share of liability; (3) Vicor failed to rebut respondents' showing that they had no liability; (4) respondents established the values of both Ericsson claims and the proposed settlement; (5) the settlement agreement did not violate public policy, and the only effect of the "Settlement Penalty" was to set a floor for any settlement between Ericsson and Vicor; and (6) there was no collusion between Ericsson, Exar, and Rohm as Exar and Rohm attempted unsuccessfully to involve all parties in settlement negotiations before settling with Ericsson.
3. Vicor's sur-reply
In support of its opposition, Vicor submitted a sur-reply and a declaration of another attorney, William S. Rogers, Jr., claiming it had repeatedly asked to be included in settlement discussions before it received notice of the sliding scale settlement agreement, but had been excluded.
E. Court's Ruling
In its detailed tentative ruling, the court found the $3 million value that the settling parties placed on the sliding scale settlement was a "reasonable estimate given the likelihood that [Ericsson would] obtain a judgment against Vicor between [$1] and [$15 million]"; and it was "unlikely" the settlement would "have any meaningful chilling effect on a subsequent settlement with Vicor" given "how costly a trial would be for [Ericsson]," and given that "[a]ll of the parties appear[ed] to agree that [Ericsson] refuse[d] to even discuss a settlement with Vicor for any amount close to [$13 million]."
With respect to Ericsson's "total potential recovery," the court found that "a total recovery in the area of [$30 to $60 million] seem[ed] to represent a reasonable estimate," and thus the settlement value "represent[ed] 5 to 10 percent of the total potential recovery." The court explained that (1) the link between failure of Ericsson's RBS's, many of which were still working, and failure of Ericsson's CDMA division "seem[ed] tenuous"; and (2) Vicor produced evidence showing that other factors, such as moisture intrusion, caused RBS failures.
With respect to the parties' respective shares of liability, the court found that "evidence exist[ed] that all of the fault [lay] with Vicor," and Exar and Rohm's share of liability was "negligible." The court reasoned (among other things) that the evidence submitted with the moving papers convincingly demonstrated that Vicor was the "captain of the ship"; various failure analysis reports dating back to mid-2000 unequivocally stated the root cause of the problem, and Vicor had "detailed knowledge" of the surface zener diode defects in its IC's as early as 2000; Vicor had "undertaken extensive testing on the chip and was aware of the exact cause of the problem"; Vicor was "already discussing the issue with Exar" by April 2000; Vicor should have alerted all of its customers, including Ericsson, about these problems before April 2001 when Ericsson began shipping its model 1107 RBS's; and if Ericsson had been so alerted, most of Ericsson's damages could have been avoided. The court also reasoned that "[e]ven if Vicor's failure to act was not an intervening cause of the damages, the moving papers also demonstrate[d] that Exar and Rohm were not responsible because the defect at issue was due to Vicor's design, not Exar and Rohm's manufacturing process"; Vicor "designed, tested, assembled and packaged the chips"; and in April 2000 Exar informed Vicor about the nitride passivation manufacturing process.
Finally, the court found that Vicor had not met its burden of demonstrating collusion. The court explained that the fact Vicor was excluded from settlement negotiations did not support a finding of collusion because plaintiffs often "settle around" one or more defendants; and Vicor's evidence, consisting primarily of e-mails between counsel, "merely detail[ed] a string of settlement discussions, and discussion[s] regarding implementing a strategy maximizing the likelihood that this court would find the settlement in good faith."
After hearing oral arguments on the motion, the court took the matter under submission and later confirmed its tentative ruling.
F. Vicor's Subsequent $50 Million Settlement with Ericsson
After the court granted the motion, Vicor entered into negotiations with Ericsson to settle the remaining claims. Ericsson and Vicor ultimately entered into a settlement agreement under which Vicor and its insurance carriers paid Ericsson $50 million.
DISCUSSION
I. APPLICABLE LEGAL PRINCIPLES
Noticed motions for good faith settlement determination are authorized by section 877.6, subdivision (a)(1) (hereafter section 877.6(a)(1)), which provides in part: "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 . . . and one or more alleged tortfeasors or co-obligors . . . . "
A settlement made in good faith within the meaning of sections 877.6 and 877 "bars claims against the settling defendant for contribution or indemnity by other joint tortfeasors, including claims for total indemnity, partial indemnity and implied contractual indemnity. [Citations.]" (Willdan v. Sialic Contractors Corp. (2007) 158 Cal.App.4th 47, 54.)
A. Statutory Objectives
Sections 877 and 877.6, which govern the effect that a good faith settlement agreement has on a settling defendant's potential liability to other defendants for contribution or comparative indemnity, have two major goals: (1) the equitable sharing of the cost of loss among the parties at fault in proportion to their relative culpability, and (2) the encouragement of settlements. (Abbott Ford, supra, 43 Cal.3d at pp. 871-872, citing Tech-Bilt, Inc., supra, 38 Cal.3d at pp. 494-496.)
The California Supreme Court has recognized that these twin statutory objectives are inextricably linked, and the "good faith" requirement of sections 877 and 877.6 is the key to their harmonization. (Abbott Ford, supra, 43 Cal.3d at pp. 872-873; Tech-Bilt, supra, 38 Cal.3d at p. 494.) In Tech-Bilt, the high court explained that "[t]he good faith provision of section 877 mandates that the courts review agreements purportedly made under its aegis to insure that such settlements appropriately balance the contribution statute's dual objectives." (Tech-Bilt, supra, 38 Cal.3d at p. 494.)
In Abbott Ford, the Supreme Court further explained:
" Section 877 establishes that a good faith settlement bars other defendants from seeking contribution from the settling defendant (§ 877, subd. (b)), but at the same time provides that the plaintiff's claims against the other defendants are to be reduced by 'the amount of consideration paid for' the settlement (§ 877, subd. (a)). Thus, while a good faith settlement cuts off the right of other defendants to seek contribution or comparative indemnity from the settling defendant, the nonsettling defendants obtain in return a reduction in their ultimate liability to the plaintiff." (Abbott Ford, supra, 43 Cal.3d at p. 873.)
The good faith requirement of section 877.6 also promotes harmonization of the dual statutory objectives of equitable sharing of liability and encouragement of settlements. Subdivision (c) of that section provides that "[a] determination by the court that the settlement was made in good faith shall bar 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."
B. Tech-Bilt "Good Faith" Factors and Proportional Apportionment of Liability
In Tech-Bilt, the California Supreme Court interpreted the statutory term "good faith" in section 877.6 to require the trial court to determine, in cases where the plaintiff settles with one or more, but not all, of the defendants, whether the amount of the settlement is within the "reasonable range" of the settling tortfeasor or co-obligor's "proportional share of comparative liability for the plaintiff's injuries." (Tech-Bilt, supra, 38 Cal.3d at pp. 498-499.)
Noting that "formulation of a precise definition of good faith is neither possible nor practicable" (Tech-Bilt, supra, 38 Cal.3d at p. 495), the Tech-Bilt court held that the intent and policies underlying section 877.6 require that a trial court consider the following nonexclusive factors (Tech-Bilt factors) in determining whether a settlement is in good faith within the meaning of that section: (1) "a rough approximation of the plaintiffs' total recovery"; (2) "the settlor's proportionate liability"; (3) "the amount paid in settlement"; (4) "the allocation of settlement proceeds among plaintiffs"; (5) "a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial"; (6) "the financial conditions and insurance policy limits of settling defendants"; and (7) "the existence of collusion, fraud, or tortious conduct aimed to injure the interests of nonsettling defendants." (Tech-Bilt, supra, 38 Cal.3d at p. 499; see also TSI Seismic Tenant Space, Inc. v. Superior Court (2007) 149 Cal.App.4th 159, 165.)
Tech-Bilt emphasized that a good faith settlement does not require a perfect or nearly perfect apportionment of liability, and a settling defendant may properly pay less than its proportional share of the anticipated damages. (Abbott Ford, supra, 43 Cal.3d at p. 875.) In order to encourage settlement, "[w]hat is required is simply that the settlement not be grossly disproportionate to the settlor's fair share" of liability. (Id. at pp. 874-875.) This determination is made based on the information available at the time of the settlement. (Tech-Bilt, supra, 38 Cal.3d at p. 499.)
C. Burdens of Proof and the Tech-Bilt "Ballpark"
Subdivision (b) of section 877.6 (hereafter section 877.6(b)) provides that "[t]he issue of the good faith of a settlement may be determined by the court on the basis of affidavits served with the notice of hearing, and any counteraffidavits filed in response, or the court may, in its discretion, receive other evidence at the hearing." However, section 877.6 does not specify the evidentiary burden the moving party must meet.
In the absence of legislative guidance, the question of the moving party's evidentiary burden under section 877.6 has been addressed by the courts. In Tech-Bilt, the Supreme Court majority explained that section 877.6(b) contemplates that a trial court may make a good faith settlement determination on the basis of affidavits and declarations and urged trial judges to draw on their own personal experience and that of experts in the field. (Tech-Bilt, supra, 38 Cal.3d at p. 500; see also Haning et al., Cal. Practice Guide: Personal Injury (The Rutter Group 2008) ¶ 4:196, p. 4-104.)
In Tech-Bilt, and later in Abbott Ford, the Supreme Court clearly indicated that a good faith settlement determination under section 877.6 does not require a full evidentiary minitrial. (Tech-Bilt, supra, 38 Cal.3d at p. 500 ["Nor should this approach unduly burden the parties or the trial court"]; Abbott Ford, supra, 43 Cal.3d at pp. 879-880, fn. 23 ["the fact a nonsettling defendant may challenge [a sliding-scale settlement] agreement's assigned value should not be interpreted as giving such defendant a right to a mini-trial on the valuation issue [because t]he nature, extent and . . . procedure regarding any such challenge is left to the discretion of the trial court"]; see also Haning et al., Cal. Practice Guide: Personal Injury, supra, ¶ 4:196, pp. 4-104 & 4-105.)
In City of Grand Terrace v. Superior Court (1987) 192 Cal.App.3d 1251 (City of Grand Terrace), the Court of Appeal provided additional guidance with respect to the moving settlor's evidentiary burden under section 877.6. The court explained that when the claimed good faith nature of a settlement is contested, subdivision (d) of section 877.6 (hereafter section 877.6(d)) provides a "workable ground rule" for the hearing on a motion for a good faith settlement determination. (City of Grand Terrace, supra, 192 Cal.App.3d at p. 1261.) Section 877.6(d) provides: "The party asserting the lack of good faith shall have the burden of proof on that issue."
The court explained that in contested cases, the moving settlor has the initial burden of only "showing . . . the settlement." (City of Grand Terrace, supra, 192 Cal.App.3d at p. 1261.) The court reasoned that in many cases the moving party does not know at the time of filing whether a contest will develop because the overwhelming majority of motions for good faith determination are unopposed and summarily granted. (Ibid.) "If each motion required a full recital by declaration or affidavit setting forth a complete factual response to all of the Tech-Bilt factors," the court explained, "literally thousands of attorney hours would be consumed and inch-thick motions would have to be read and considered by trial courts in an exercise which would waste valuable judicial and legal time and clients' resources." (Ibid.) Noting that Tech-Bilt was decided on a "contested basis," the Court of Appeal in City of Grand Terrace concluded that a trial court is required to consider and weigh the Tech-Bilt factors "only when the good faith nature of a settlement is disputed," and thus a "barebones" motion asserting the ground of good faith, accompanied by a declaration setting forth a "brief background of the case," is sufficient. (City of Grand Terrace, supra, at p. 1261.)
Once the moving settlor has met its initial burden of making a prima facie showing that the settlement is in good faith, under section 877.6(d) the burden of proof on the issue of good faith shifts to the nonsettling party contesting the proposed settlement to prove that the proposed 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. (§ 877.6(d); Tech-Bilt, supra, 38 Cal.3d at pp. 499-500; City of Grand Terrace, supra, 192 Cal.App.3d at pp. 1261-1262.)
D. Sliding Scale Settlement Agreements and Settlors' Additional Burden of Proof
A sliding scale agreement is any agreement between the plaintiff and some of the defendants whereby the parties place limitations on the settling defendants' financial responsibility, the amount of which is variable, usually in some inverse ratio to the amount the plaintiff is able to recover from the nonsettling defendant or defendants. (Abbott Ford, supra, 43 Cal.3d at p. 869, fn. 9.) Under a sliding scale agreement, the settling defendant guarantees the plaintiff a certain amount of money regardless of the outcome of the action against the nonsettling defendants, and the settling defendant's ultimate liability to the plaintiff depends, at least in part, on the amount of the plaintiff's recovery against the nonsettling defendants. (Id. at p. 870; see also Haning et al., Cal. Practice Guide: Personal Injury, supra, ¶ 4:202, p. 4-133.) A virtually unlimited number of additional provisions may be included in a sliding scale agreement, such as provisions that restrict settlement with the remaining defendants or provide various forms of financing for the plaintiff's action. (Abbott Ford, supra, 43 Cal.3d at p. 870.) Such provisions will often substantially affect the operation and validity of the agreements. (Ibid.)
Section 877.5 mandates certain disclosures to the trial court and notice to the nonsettling defendants and sets minimum standards on related jury instructions, when one or more, but not all, alleged defendant tortfeasors enter into a "sliding scale recovery agreement" with the plaintiff (or plaintiffs). (§ 877.5, subds. (a)-(c); see also Haning et al., Cal. Practice Guide: Personal Injury, supra, ¶ 4:204.3, p. 4-133.)
In addition to the variety of provisions that may supplement a sliding scale or "guaranty" clause of such an agreement, the content and effect of the sliding scale provision, and the factual background against which the settling parties negotiate the agreement, often vary significantly. (Abbott Ford, supra, 43 Cal.3d at p. 870.) For example, in some cases, such as Abbott Ford, the sliding scale clause may be structured so that the settling defendant may ultimately bear no liability to the plaintiff. In other cases, such as the instant one, the settling defendant may make a substantial noncontingent payment to the plaintiff, and the sliding scale clause may simply provide a supplemental guaranty of some amount of additional recovery. (Ibid.) Furthermore, in some cases (like Abbott Ford), the guaranty may be for an amount equal or close to the plaintiff's total damages; in others, the guaranty may represent only a small share of the plaintiff's damages. (Ibid.)
Given the variety of provisions that may be included in sliding scale agreements, and the variety of effects such agreements may have on the parties at different stages of the litigation process (discovery, settlement, trial or appeal), the California Supreme Court has stated that a "broad ruling on the inherent validity of invalidity of sliding scale agreements 'in general' is inappropriate." (Abbott Ford, supra, 43 Cal.3d at p. 871.) Analysis as to the validity of a sliding scale agreement thus requires "close attention to the specific provisions of the agreement itself, the factual setting in which the agreement is entered into, and the agreement's effect on the particular aspect of the judicial process at issue." (Ibid.)
In Abbott Ford, the Supreme Court held that "[n]either section 877 nor section 877.6 exempts sliding scale agreements from its 'good faith' requirement," and Tech-Bilt's good faith standards apply to sliding scale agreements. (Abbott Ford, supra, 43 Cal.3d at pp. 875, 886.) The Abbott Ford court also held that to satisfy the statutory objective of a fair apportionment of loss, "the 'consideration' paid by a defendant who enters into a sliding scale agreement must fall within the Tech-Bilt 'ballpark,'" and "the plaintiff's claims against the [nonsettling] defendants must be reduced by the amount of the 'consideration paid' by the settling defendant." (Abbott Ford, supra, at p. 886.)
The Abbott Ford court explained that because a settling defendant "pays" some "consideration" upon entering into a sliding scale agreement, "it is both proper and necessary for a trial court to assess the accuracy of the parties' valuation of consideration in determining whether the settlement is in good faith so as to relieve the settling defendant of liability for comparative indemnification or contribution." (Abbott Ford, supra, at p. 877, fn. 21.) Due to the contingent nature of a sliding scale obligation, "one of the principal difficulties in this area has been the attempt to arrive at an accurate evaluation of the 'price' or 'consideration' . . . paid by a settling defendant" who enters into such an agreement. (Id. at p. 878.) The "cost" or "price" of a sliding scale agreement, the high court noted, "is not equal to the maximum amount that the guarantor may possibly be required to pay under the agreement." (Id. at pp. 878-879.)
The Abbott Ford court held that the parties to the sliding scale agreement bear the initial burden of establishing the monetary value of the sliding scale agreement because they are "in the best position" to do so. (Abbott Ford, supra, 43 Cal.3d at p. 879.) The high court reasoned that requiring a joint valuation by the plaintiff and the settling defendant should generally produce a reasonable valuation because they are likely to have somewhat different and somewhat conflicting interests in placing a value on the agreement. The Supreme Court also explained:
"[T]he plaintiff would prefer the value to be on the low side to reduce the amount that its claims against other defendants will be reduced; the settling defendant will want the value to be high enough to assure that the agreement is found to be within its Tech-Bilt 'ballpark' so as to relieve it of liability for comparative indemnity or contribution." (Ibid.)
Once the settling parties have declared the settlement agreement's value, the burden shifts to the nonsettling defendants to either "(1) accept that value and attempt to show the settlement is not in good faith because the assigned value is not within the settling defendant's Tech-Bilt 'ballpark'; or (2) . . . attempt to prove that the parties' assigned value is too low and that a greater reduction in the plaintiff's claims against the [nonsettling] defendants is actually warranted." (Abbott Ford, supra, 43 Cal.3d at p. 879, fn. omitted.)
E. Standard of Review
The determination as to whether a settlement is in good faith for purposes of section 877.6 is left to the discretion of the trial court. (Tech-Bilt, supra, 38 Cal.3d at p. 502.)
II. ANALYSIS
A. Sufficiency of the Evidence: Ericsson's Total Potential Recovery
Vicor first contends the judgment must be reversed because there was no competent evidence to support the court's determination that the potential liability on Ericsson's claims was no more than $30 million to $60 million, as opposed to the $100 million to $1 billion in damages that Ericsson asserted. This contention is unavailing.
In support of this contention, Vicor first asserts that Ericsson itself alleged in discovery responses that its damages claim was worth more than $1 billion and refused to consider a settlement with Vicor for less than $100 million. However, whether during the litigation Ericsson alleged its damages were between $100 million and $1 billion is irrelevant and does not satisfy its burden of proof of showing the estimated value of $30 to $60 million was so far out of the ballpark as to constitute an abuse of discretion. The duty of the trial court was not to assume Ericsson's litigation posturing and claims constituted a fair approximation of its actual damages, but to consider the evidence in the case to determine its likely recovery. (Horton v. Superior Court (1987) 194 Cal.App.3d 727, 735-736 [Trial court "does not look to the plaintiff's claim for damages; rather the judge tries to determine a 'rough approximation' of what the plaintiff would actually recover if the case should actually go to trial"].)
In this case the court found the evidence in support of Exar and Rohm's valuation was substantial and credible. They submitted an Ericsson presentation in which Ericsson admitted its CDMA business unit had lost money─a total of $2 billion─every year since Ericsson had acquired it and that there was "[n]o visibility of break-even as revenue growth is insufficient to support cost base." Ericsson closed its CDMA business unit not because of quality issues, but because "[w]ith recent market events and technology shift CDMA does not offer the growth opportunities required for acceptable returns." Indeed, even Vicor's own SEC filing, certified by its CEO under threat of criminal and civil penalties, stated that Vicor believed "that [Ericsson's] claim of $100 million in compensatory damages is not supported by the facts." Vicor, on the other hand has not attempted to submit any competent evidence that Ericsson's damages are as they claimed in discovery responses and settlement posturing.
Exar and Rohm filed a request for judicial notice on August 12, 2008, as to a more recent SEC filing that contains similar language. Vicor has not opposed that motion. Accordingly, we grant Vicor's request as it is an item that is properly the subject of judicial notice. (Evid. Code, §§ 452, subd. (h), 459, subd. (a).) Similarly, Vicor filed a motion on March 27, 2008, requesting we take judicial notice of its petition for writ of mandate filed February 13, 2007, a letter to the court regarding that petition filed by Exar and Rohm on February 22, 2007, and this court's order summarily denying the petition on February 28, 2007. Exar and Rohm did not oppose that motion. We granted Vicor's motion on April 15, 2008.
Rather, instead of pointing to evidence to support its estimate of value, Vicor spends much of its brief contending Exar and Rohm's evidence as to the actual value of Ericsson's claim was inadmissible. However, this argument is unavailing.
One of the main objections Vicor makes is that the court considered interrogatory responses Ericsson served on Exar and Rohm. However, Vicor has waived the right to assert this evidence was inadmissible as it relied upon other portions of Ericsson's answers within those same interrogatory responses, attached as exhibit 48 to Norton's declaration, to assert that the value of Ericsson's claimed damages was $100 million to $1 billion. "The doctrine of invited error operates along with the principle of waiver to estop a party from asserting on appeal those errors which that party was responsible for inducing below. Thus, if a party offers inadmissible evidence, the party cannot complain of its admission." (In re Marriage of S. (1985) 171 Cal.App.3d 738, 745; see also Curcio v. Svanevik (1984) 155 Cal.App.3d 955, 965 [Court of Appeals barred an appellant from complaining about unverified pleadings he had admitted into evidence at the trial court].). Moreover, the court did not abuse its discretion in considering the evidence it did in ruling on the good faith motion.
"'Broadly speaking, an appellate court reviews any ruling by a trial court as to the admissibility of evidence for abuse of discretion.'" (People ex rel. Lockyer v. Sun Pacific Farming Co. (2000) 77 Cal.App.4th 619, 639.) A trial court has only abused its discretion in admitting evidence if this decision exceeds the bounds of reason. (Walker v. Superior Court (1991) 53 Cal.3d 257, 272; Tudor Ranches, Inc. v. State Comp. Ins. Fund (1998) 65 Cal.App.4th 1422, 1431-1432; Saxena v. Goffney (2008) 159 Cal.App.4th316, 332 ["The court's '"discretion is only abused where there is a clear showing [it] exceeded the bounds of reason, all of the circumstances being considered"'"].) "Trial courts are afforded discretion to work within existing guidelines to determine the admissibility of evidence. [Citation.] The reviewing court will not disturb their findings absent an '"'"arbitrary, capricious, or patently absurd determination . . . ."'"'" (In re Nada R. (2001) 89 Cal.App.4th 1166, 1176.)
As to the interrogatory responses, under section 2030.410, at trial or any other hearing, interrogatory responses can be used "only against the responding party." Thus, Vicor maintains, the court erred in using those responses against its position. However, the court properly considered those responses as it was considering them "against" Ericsson's claim elsewhere in its discovery responses its damages were $100 million to $1 billion dollars. Thus, Vicor's hearsay and foundational objections to the discovery responses are not well taken as the responses are party admissions, which Vicor's attorney properly authenticated. (California School Employees Assn. v. Sunnyvale Elementary School Dist. (1973) 36 Cal.App.3d 46, 69; Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2008.) ¶ 9:50a, 9(I)-28 (rev. # 1, 2007).)
Vicor also asserts the court erred in considering a compilation of documents produced by Ericsson and attached as an exhibit to Exar and Rohm's counsel's declaration. However, they also were party admissions that were properly used against Ericsson as Ericsson produced them in discovery and served them on all parties. Further, "if essential facts appear in pleadings, discovery documents, etc. already on file (or otherwise before the court at the hearing), the moving party may execute a declaration stating his or her personal knowledge of their contents, and recite (or summarize) such information to support the relief sought." (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 9:62, p. 9(I)-34 (rev. # 1, 2007).)
B. Sufficiency of the Evidence: $3 Million Settlement Value
Vicor also contends the judgment must be reversed because respondents, as the settling parties, provided insufficient evidence of the declared $3 million value of the settlement. We reject this contention.
Vicor asserts that the interrogatory responses relied upon by the court did not provide substantial evidence supporting the court estimate of a $30 to $60 million recovery because the numbers in those responses added up to more than $60 million. However, this contention is based upon an assumption the court was required to take Ericsson's claimed damages at face value. The court's role was to predict, based upon the available evidence, what Ericsson would actually recover attrial. (Horton, supra, 194 Cal.App.3d at pp. 735-736.) As discussed, ante, in attempting to predict Ericsson's likely recovery, the court reduced its "best case" assertion of its damages, considering such facts as (1) Ericsson's own inadequate product design that was responsible for its damages; (2) that at least half of the converters Ericsson purchased from Vicor were still operating; (3) evidence there were other causes for Ericsson's RBS failures; (4) evidence Ericsson had retrofitted its RBS's and replaced the Vicor converters; and (5) adding up all the claimed damages in Ericsson's interrogatory responses would result in double counting of damages. Thus, the court correctly reduced the amount Ericsson claimed in its interrogatory response to come up with a "rough approximation" of its actual likely recovery. (Horton, supra, 194 Cal.App.3d at pp. 735-736.)
Moreover, as Exar and Rohm explained, the $100 million to $1 billion number Ericsson stated in its interrogatory response was based in large part on Ericsson's claim for lost profits. However, Ericsson admitted its CDMA business unit had lost money every year since Ericsson acquired it, and in one of its own documents it stated there was little or no chance of future profitability. Ericsson closed its CDMA unit not because of quality issues, but because the marketplace had shifted to use of other technologies. Even Vicor admitted in an SEC filing that Ericsson's "claim of $100 million in compensatory damages is not supported by the facts."
Moreover, shortly after the good faith settlement motion was granted, Vicor settled with Ericsson for $50 million. "While recognizing the good faith evaluation must be made on the basis of information available at the time of settlement [citation], [the court's] estimate of [Ericsson's] damages was borne out by the [$50 million Ericsson] subsequently obtained against [Vicor]." (Mattco Forge, Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, 1350, fn. 5.)
Vicor questions why it would settle the case prior to trial at the high end of Exar and Rohm's estimate of Ericsson's potential liability if the damages were not significantly higher than that amount. One possible reason is that once Exar and Rohm settled the case, Vicor was the sole remaining defendant, without indemnity rights, and it, unlike Exar and Rohm, was accused of fraud and faced the possibility of a large punitive damages award in addition to any compensatory damages award.
Because Exar and Rohm submitted substantial evidence as to Ericsson's likely recovery, Vicor cannot show that the settlement was so far out of the ball park as to be in bad faith.
C. Sufficiency of the Evidence: Respondents' Proportionate Share of Liability
Last, Vicor contends the court's determination of respondents' proportionate liability is unsupported by the evidence, and is contrary to law. This contention is also unavailing.
As discussed, ante, the court found the evidence "convincingly demonstrates" that Exar and Rohm's proportionate share of liability was "negligible" based upon two independent reasons. First, the court concluded, based upon the available evidence, that fault lay with Vicor because "Vicor knew about the problem and should have communicated with its customers." Had Vicor done so, "the problem could have been addressed and most of the damages avoided." The court also correctly concluded that Vicor was the "captain of the ship" because it "designed, tested, assembled and packaged the chips." The court concluded that "Exar and Rohm were not responsible because the defect at issue was due to Vicor's design . . . ."
Vicor's opening brief fails to address any of the evidence submitted by Exar and Rohm in support of these findings. In an appeal challenging the sufficiency of the evidence, "'all material evidence on the point must be set forth [by the appellant] and not merely their own evidence. [Citation.] Failure to do so amounts to waiver of the alleged error and we may presume that the record contains evidence to sustain every finding of fact.'" (Toigo v. Town of Ross (1998) 70 Cal.App.4th 309, 317.)
Moreover, substantial evidence supports the court's conclusion Vicor's fraud caused Ericsson's damages. The court, after "carefully review[ing]" the evidence, concluded Vicor had concealed a know defect in its products, i.e., that there were problems with the zener diode component in its primary IC, and that Vicor's concealment caused Ericsson's damages. There was substantial evidence presented to support that conclusion.
Exar and Rohm presented evidence that (1) by the end of 1999 Vicor had concluded that all of its products were likely afflicted with the problem; (2) in May and July of 2000, there were multiple failure analysis reports for other Vicor customers identifying "noisy surface zener" as the "root cause" of failures; (3) by March 2001 Vicor's engineering group concluded that "[t]he degradation of the turn-on PTO pulse has been traced to a mismatch between zeners due to zener drift over time" and concluded that the problem "is a process compatibility issue with the surface emitter-base zeners and the nitride passivation"; and (4) by mid-April 2001 Vicor had received explicit advice from Exar that "it is not a good idea to design these circuits with surface zeners" and "that leaves a design change as the only course to alleviate the problem . . . ." Among the evidence showing Vicor concealed the defect from Ericsson is a handwritten note from a Vicor employee from 2003 stating, "component drift in field/not telling Ericsson."
Exar and Rohm also presented evidence Ericsson could have avoided its damages had Vicor disclosed the defects. The evidence showed Ericsson was prepared to, and would have, changed vendors had it known the true facts.
In response to the trial court's findings, Vicor asserts (1) the zener noise problems would have not put it on notice that it would also have problems with zener drift; (2) there was no evidence that the failures were statistically significant; (3) there was evidence Vicor never determined the root cause of the failures; (4) Ericsson's own practice was not to burden customers with problems when the cause is unknown; and (5) it submitted uncontradicted expert testimony the defects were caused by Exar and Rohm's process changes. However, Vicor is merely rearguing its factual arguments the court rejected below. On a substantial evidence review, we do not reweigh the evidence and our power "'"begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted," to support the findings below.'" (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053, italics added.) Moreover, Exar and Rohm submitted substantial evidence (1) Vicor knew about the zener diode drift in time for Ericsson to avoid its damages; (2) the failure rate was statistically significant; (3) Vicor did determine the root cause of the module failures; and (4) Vicor was telling its other customers about the cause of the failures.
Finally, the court did not err in finding that Vicor was primarily responsible for Ericsson's damages as it "designed, tested, assembled and packaged the chips . . . ." Exar and Rohm presented substantial evidence to support this conclusion. Vicor's arguments to the contrary were rejected by the court and we cannot reweigh that evidence on appeal.
Further, contrary to Vicor's contention, Exar and Rohm submitted substantial evidence in their reply brief on the good faith settlement motion rebutting Vicor's assertion their "process changes" caused the defects. Rather, as Exar and Rohm explained (1) Vicor submitted no evidence Exar and Rohm failed to qualify the changed process; (2) Exar and Rohm did qualify the process change; and (3) Vicor submitted no evidence that the process change altered the performance of the zener diode.
D. No Error of Law in Establishing Vicor's Proportionate Share of Liability
Vicor last argues the court made "erroneous legal conclusions" in assessing its proportionate share of liability. Specifically Vicor asserts (1) the court's conclusion it committed fraud has no effect on its right to indemnification on Ericsson's other causes of action; (2) the court erred by failing to allocate the settlement value amongst the various causes of action asserted by Ericsson; and (3) the court erred when it failed to consider Exar could be held liable for 100 percent of Ericsson's damages under a strict liability theory. These contentions are unavailing.
First, a defendant guilty of fraud may not obtain indemnity for the damages caused by that fraud. (Allen v. Sundean (1982) 137 Cal.App.3d 216, 227.) Because the court concluded Vicor's fraud caused Ericsson's damages, it is not entitled to any indemnity from Exar and Rohm.
Second, the court was not required to allocate the settlement's value to any particular claim. Allocation to different claims is required for purposes of determining the amount of an offset to which the nonsettling party is entitled, not apportionment of fault. (Gouvis Engineering v. Superior Court (1995) 37 Cal.App.4th 642, 648. The amount of offset is not at issue on this appeal as Vicor is entitled to 100 percent of the $3 million offset.
Finally, the court did not err in failing to consider Exar's potential liability under a strict liability theory. Rather, the court concluded Ericsson's total potential recoverywas $30 to $60 million and that of that total potential recovery Exar and Rohm's settlement was "within the ballpark" of their share of liability. Further, there is no authority for the proposition that in strict liability cases a settling party must pay 100 percent of the potential liability in order to obtain a good faith finding. Rather, comparative fault principles apply to strict liability claims. (Safeway Stores, Inc. v. Nest-Kart (1978) 21 Cal.3d 322, 328.) Further, "[d]amages available under strict products liability do not include economic loss." (Jimenez v. Superior Court (2002) 29 Cal.4th 473, 482.) Thus, Ericsson's damages under a strict liability theory would be limited to losses arising from damages to their property caused by the defects. Based upon the evidence submitted by Exar and Rohm, the amount of such damages would be $13 million, making their payment of $3 million well within the ball park of their proportionate share of liability.
DISPOSITION
The judgment is affirmed.
WE CONCUR: BENKE, Acting P. J., IRION, J.