Statutory Contribution and Indemnity Claims Brought Under HSAA Are Barred By Good Faith Settlement Determination Pursuant To CCP §§ 877 and 877.6

On March 20, 2010, the Court of Appeal of the State of California, Fourth Appellate District, filed an opinion holding that a trial court’s determination of a good faith settlement under California Code of Civil Procedure (“CCP”) sections 877 and 877.6 bars claims for contribution and indemnity brought under Health and Safety Code section 25363, a provision of the Carpenter-Presley-Tanner Hazardous Substance Account Act (“HSAA”). Fullerton Redevelopment Agency v. Southern California Gas Company, No. G041781, 2010 Cal. App. LEXIS 437 (Cal. App. 4th Dist. Mar. 30, 2010).

CCP §§ 877 and 877.6 permit a party to shield itself from claims for contribution and indemnity by a joint tortfeasor when the party enters a good faith settlement. On the other hand, the HSAA authorizes the California Department of Toxic Substances Control (“DTSC”) to order potentially responsible parties (“PRPs”) to clean up property with hazardous substances, and then grants the PRPs who incur clean up costs the right to seek contribution and indemnity from others who are liable. The Court in Fullerton held that CCP §§ 877 and 877.6 bars HSAA contribution and indemnity claims based on the plain language of the two statutes, but also offered analysis of related case law concerning good faith settlements and the barring of related indemnity and contribution claims.

In the case, Fullerton Redevelopment Agency and the City of Fullerton (collectively, “Fullerton”) sued Southern California Gas Company (“SoCal Gas”), requesting injunctive relief and damages for hazardous waste contamination on its property. SoCal Gas cross-complained against Fullerton, Union Pacific Railroad Company (“Union Pacific”), and others for contribution and indemnity. Fullerton had acquired the property from Union Pacific to develop it into a city park. Before completion of the project, Fullerton learned of the contamination and sued SoCal Gas in November 2005. In 2007, the DTSC issued a remedial action order regarding the property, naming the parties (and others) as PRPs.

Fullerton and SoCal Gas executed a settlement agreement in September 2008 (the “settlement”). The settlement provided that SoCal gas would perform all removal work, and that SoCal would either pay Fullerton: (1) $800,000 if SoCal Gas obtained from Union Pacific a full release of Union Pacific’s contribution, indemnity, or apportionment claims against Fullerton, or (2) $1 million if a full release was not obtained from Union Pacific.

Fullerton filed a motion for determination of good faith settlement pursuant to California Code of Civil Procedure section 877 and 877.6, asking the Court to discharge Fullerton from all liability in contribution to any other party, and barring any claims against Fullerton by other joint tortfeasors or co-obligors for contribution or indemnity. Union Pacific opposed the motion, arguing that the settlement could not bar its claim for statutory contribution and indemnity under Health and Safety Code section 25363. The trial court, the Superior Court of Orange County, granted Fullerton’s motion. Union Pacific’s appeal followed.

The Appellate Court found persuasive the reasoning and holdings of several federal cases cited by Fullerton. The Appellate Court cited these cases in holding that a good faith settlement bars claims regardless of whether they are brought pursuant to the particular statute in the lawsuit, or any other federal or state statute or common law, particularly where a settling tortfeasor agrees to comply with a cleanup and abatement order issued by the state in regard to further remediation, reducing substantially the possibility of any shortfall created by approval of the settlements. Citing Ameripride Services, Inc. v. Valley Industrial Services, Inc., No. CIV. S-00-113-LKK JFM, 2007 U.S. Dist. LEXIS 51364, *12-13 (E.D. Cal., July 2, 2007; West County Landfill, Inc., v. Raychem International Corp., No. C93-3170 SI, 1997 U.S.Dist. LEXIS 1791, *2-3 (N.D. Cal., Feb. 17, 1997). In addition, the Appellate Court noted that settlements providing funding to resolve environmental issues are in the public interest and are therefore favored.