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Limitations on Enforcement of Settlements by Insurance Carriers Under CCP §664.6

Plaintiffs’ attorneys should keep in mind the remedies they are seeking when they participate in mediation.

Jimmy “The Bud” Weedman owns the largest chain of medical marijuana dispensaries in Southern California.  After the passage of new laws in California making recreational marijuana legal, Bud Weedman’s daughter, Columbia Weedman, approached her father about a new idea.  Columbia Weedman was famous at parties throughout San Diego County for her marijuana brownies.  Columbia’s recipe involved leaching out the THC chemical from the marijuana plants and using the THC liquid in her brownie recipe.

Bud Weedman converted Columbia’s recipe into an industrial-sized operation and made a new product called “Columbia’s Space Cakes.”  However, the leaching process generated a large volume of liquid waste, which Bud Weedman dumped into collection tanks to be later removed by an industrial waste removal company.  A large storm blew through San Diego County and dropped over four inches of rain in less than 24 hours.  The leach-process waste water collection tanks flooded and overflowed, running down a hill into a neighboring stream. 

Farmer Treehugger, an organic dairy farmer, who lived downstream from Bud Weedman’s marijuana leaching plant, discovered that his cows were producing milk contaminated with the chemical THC.  He eventually discovered that the cows had been drinking water from the contaminated stream and that contaminated their milk with THC.  Farmer Treehugger retained Attorney Seickem Bulldog.  Attorney Bulldog was the oldest son of a Pakistani mother and Colonel Nathan “Doberman” Bulldog of Navy Seal Team 6, who met his mother while performing covert operations in Pakistan.  Farmer Treehugger had lost approximately $600,000 in raw milk that had to be destroyed because it was contaminated with THC.  He also had to fence off the stream from his cows so they could not drink the water.  Attorney Bulldog immediately sued for damages and injunctive relief.

Bud Weedman was insured by Allsnake Insurance Company.  Allsnake appointed its house counsel to defend the case.  Allsnake’s adjuster, Sean McScrewem, approached Attorney Bulldog shortly after written discovery had been exchanged about participating in a mediation.  At the mediation, Sean McScrewem and Allsnake’s counsel appeared and negotiated a settlement, which required Allsnake to pay $500,000 to Farmer Treehugger and also stipulated to the entry of an injunction that required the leach collection tanks to be moved 500 feet further away from the stream.  The settlement agreement was documented in a memorandum of settlement that provided that the settlement agreement could be enforced under Code of Civil Procedure section 664.6 and that a written release agreement would be prepared regarding the settlement.

Sean McScrewem notified Bud Weedman that the case had settled and provided him with the terms of the settlement.  Bud Weedman objected to the settlement because he did not agree to the injunctive relief.  Bud Weedman threatened to sue Allsnake if it went forward with the settlement agreement.  Allsnake’s defense counsel notified Attorney Bulldog of the problem.  Attorney Bulldog filed a motion for enforcement of the settlement agreement signed at the mediation pursuant to Code of Civil Procedure section 664.6.  While the motion was pending, Bud Weedman approaches you to discover what can be done to prevent the enforcement of the settlement. 

Limitations on Enforceability of a Settlement under CCP § 664.6

            Code of Civil Procedure section 664.6 provides:

If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court, or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.  If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.

The term “parties to the pending litigation” as referenced in section 664.6 has been strictly construed to mean the parties themselves, not their lawyers or their agents.  (Elnekave v. Via Dolce Homeowners Ass’n (2006) 142 Cal.App.4th 1193, 1198. 

In situations where the settlement can be fully performed by the insurance company, the signature of the insurance representative upon the memorandum of settlement is sufficient to bind the insurance company and its insured.  In Fiege v. Cooke (2004) 125 Cal.App.4th 1350, plaintiff Fiege was injured in an automobile accident.  Fiege filed suit against three defendants for his injuries and damages.  The case was mediated and Fiege accepted the settlement offers from the defendants’ insurers, but later attempted to avoid the settlement.  The defendants filed a motion to enforce the settlement under Code of Civil Procedure section 664.6.  The motion was granted.  Fiege appealed and contended on appeal that the defendants had to be present and consent to make the settlement enforceable under Code of Civil Procedure section 664.6 and that an agreement executed by their insurers was not sufficient.  The Court of Appeal disagreed and pointed out that the defendants’ insurance policies expressly gave the insurers the right to settle without the defendants’ consent and, because the settlements within the policy limits did not prejudice the substantial rights of the defendants, the provisions of Code of Civil Procedure section 664.6 had been satisfied.  (Fiege v. Cooke, supra, at 1354-1355.)

In Elnekave, the court held that the insurance representative for the homeowners association did not have the authority to bind the homeowners association to a settlement.  Under the terms of the settlement, the settlement agreement prevented the homeowners association from enforcing certain CC&Rs against Elnekave. 

The Court of Appeal in Elnekave noted two distinctions from the Fiege decision that led to its holding that the settlement was not enforceable.  First, the liability policy of the homeowners association’s liability carrier was not part of the appellate record so it was not before the Court of Appeal.  Therefore, it could not be established that the right to settle had been given to State Farm.  The homeowners association in Elnekave desired to enforce the CC&Rs against Elnekave regarding their repairs and the settlement regarding those repairs would prejudice the homeowners association by limiting its ability to enforce the CC&Rs.  (Elnekave v. Cooke, supra, at 1199.)

The Court of Appeal in Elnekave stated that the settlement may not be enforceable under Code of Civil Procedure section 664.6, but it may nonetheless be enforceable by an alternative means such as a summary judgment motion, separate suit in equity, or amendment of the complaint to assert the settlement agreement as an enforceable contract.  (See Elnekave v. Cooke, supra, at 1199.)

In Bud Weedman’s case, the memorandum of settlement was signed by Farmer Treehugger, Sean McScrewem on behalf of Allsnake Insurance Company, and their respective attorneys.  Since the agreement went beyond the simple payment of money to Farmer Treehugger and imposed a financial obligation upon Bud Weedman that he did not agree to, the settlement agreement would not be enforceable under Code of Civil Procedure section 664.6 under the Elnekave decision.  However, you also point out that the Allsnake policy gives the right to Allsnake to control the defense and to settle the case.  You explain to Mr. Weedman that he knew of the request for injunctive relief to have the marijuana leach tanks moved and he also knew of the date, time and location of the mediation.    Mr. Weedman he may be able to defeat the motion to enforce the settlement under Code of Civil Procedure section 664.6, but he may not be able to defeat the enforcement of the settlement if Attorney Bulldog amends the complaint to include a cause of action for breach of contract based upon the settlement agreement and then moves for summary judgment.

Conclusion

 

Plaintiffs’ attorneys should keep in mind the remedies they are seeking when they participate in mediation.  If the remedies include any terms that go beyond the terms of the liability insurance policy, insist that the insured be present at the mediation so they can also sign any mediation agreement.  Any settlement that goes beyond the simple payment of money to the plaintiff under the insurance policy and imposes additional obligations upon the insured would not be enforceable under Code of Civil Procedure section 664.6 if the insured did not sign the memorandum of settlement or agree to the terms on the record in court.  If you believe that a carrier has “opened its policy” because of an earlier refusal to pay policy limits, you might insist that the insured be present at the mediation with his own personal attorney so you can make the insured aware of the carrier’s bad faith conduct in refusing to pay its policy limits earlier in the case and exposing its insured to excess liability.  That could place a great deal of pressure upon the carrier to pay more than its policy limits voluntarily rather than face the bad-faith lawsuit that will follow when the primary suit is tried to a conclusion.


This article was also published in the Trial Bar News. The APA citation for the Trial Bar News article is as follows:

Copley, R. K. (2018). Limitations on enforcement of settlements by insurance carriers under CCP §664.6. Trial Bar News, 41(6), 13, 30-31.

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