Anderegg v. Center for Claims Resolution

Filed 5/15/07 Anderegg v. Center for Claims Resolution CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Defendant Center for Claims Resolution (CCR) appeals from a judgment that directed it to pay certain unpaid settlement sums owed to plaintiffs. We conclude the trial court erred in concluding that CCR was an agent that could be held liable for any unpaid settlement sums. Accordingly, we reverse.

FACTUAL AND PROCEDURAL BACKGROUND

CCR is a non-profit organization, formed in 1988 by member companies that had produced asbestos or asbestos-related products. The Producer Agreement Concerning Center for Claims Resolution (hereinafter Producer Agreement), as amended effective December 1, 1991, designated CCR as the sole agent for each member company with the exclusive authority and discretion to administer, evaluate, settle, pay or defend all asbestos-related claims. But, CCR could not settle any claim on behalf of fewer than all companies that were members at the time of any given settlement. The agreement also provided for the addition, withdrawal and termination of member companies, and that only participating member companies who were sued as defendants by a particular plaintiff were to pay a portion of that plaintiffs settlement pursuant to claims and allocation formulas.

In the late 1990s, the 53 plaintiffs involved in this appeal sued various companies, including some CCR member companies, to recover for asbestos-related injuries. Lawsuits against CCR member companies were settled from January 1998 through August 2000 by agreements negotiated between representatives of plaintiffs and CCR.

For each plaintiff, CCR agreed to a single lump-sum payment without disclosing how the total settlement sum would be allocated among the defendant companies. In return, the plaintiff agreed to dismiss his or her lawsuit against the defendants that were CCR member companies and to release all potential claims against every other CCR member company, even those he or she did not sue. After the parties reached an agreement, CCR sent a letter confirming the settlement[1] and prepared a compromise and

release,[2] and request for dismissal.[3] Once CCR received the signed release and dismissal documents, CCR sent to plaintiffs counsel for each plaintiff a settlement payment in a check drawn on CCRs Indemnity Account.

In or about January 2000, plaintiffs counsel started receiving CCR checks representing only partial amounts of the settlements negotiated for clients other than the 53 plaintiffs involved in this appeal. Each CCR check was accompanied by a letter in which CCR told plaintiffs that a particular CCR member company sued by the plaintiff was not going to pay its allocated share of the settlement.

Despite the receipt of these shortfall letters with regard to some settlements, plaintiffs representative continued to negotiate settlements on essentially the same terms with CCRs representative. When CCR failed to send checks for the full settlements that had been negotiated on behalf of the 53 plaintiffs involved in this case, they amended their complaint to add a cause of action against CCR. Specifically, plaintiffs sought to recover separately from CCR, those settlement sums that were not paid by CCR member companies Armstrong, GAF, Inc., Armstrong World Industries, Inc., and Asbestos Claims Management Corporation (formerly known as National Gypsum), who were sued by the plaintiffs.

At a bench trial, plaintiffs called two witnesses: Donna Lee Peters, settlement manager for plaintiffs counsel, and Bradley Lee Drew, a contractor whose firm processed the settlements for CCR. The court also admitted into evidence two declarations by plaintiffs counsel, Alan R. Brayton, which corroborated Peterss testimony on all material points.

Peters, who is not an attorney, testified that since 1988, plaintiffs counsel had settled hundreds of cases with CCR. Peters negotiated the 53 plaintiffs settlements with CCRs representative, James McFadden, who also was not a lawyer. When Peters negotiated with McFadden, she thought she was reaching agreement with CCR.

Peters asserted the settlement terms were basically that in exchange for an aggregate sum of money, each plaintiff would be required to sign a compromise and release and a request for dismissal, which documents were prepared by CCR. Peters knew the identity of the CCR member companies that had been sued in a particular lawsuit, but she did not know if each of them would pay a share of the settlement. McFadden never disclosed a comprehensive list of CCRs principals in his discussion with Peters.And, Peters did not know the name or specific corporate status of all of CCRs principals.[4] As to the list of companies in some of the releases and dismissals prepared by CCR, Peters knew that some of the companies were CCR member companies. But, as to others, Peters did not know anything about them or their corporate status and she did not recall McFadden telling her about any of the listed companies.

According to Peters, all the CCR member companies would be included in the release and plaintiffs would receive payment after they signed and returned the release and dismissal documents. In those cases where CCR paid the full amount of the settlement, there was no accompanying correspondence to show which company or companies had contributed settlement funds.

Drew helped CCR to implement the Producer Agreement regarding the settlement allocation information which was provided to the member companies insurers so they could make payment. Pursuant to the Producer Agreements allocation formulas created in 1991, only CCR member companies named in the complaint were to contribute funds to a settlement. Drews job was to ensure the computer calculations allocating each member companys share of a settlement were correct.[5]He considered the identities of the participating member companies and the allocation formulas and data on which he worked to be confidential information. When Drew interacted with a plaintiffs lawyer, he would say he was acting on behalf of CCR. Drew did not know how someone unfamiliar with the allocation formula would know if a particular member company had not contributed a correct amount to a settlement. Drew would probably have felt free to disclose the names of CCR member companies after an unsuccessful attempt to resolve the asbestos litigation in the Georgine case in 1994, but he did not remember doing so.

The trial court found CCR was liable as an agent to plaintiffs for the outstanding moneys owed under the settlement agreements because CCR acting as an agent had failed to identify all of its principals. CCR appeals from the judgment entered in favor of plaintiffs.

DISCUSSION

 In order for an agent to avoid personal liability on a contract negotiated in his principals behalf, he must disclose not only that he is an agent but also the identity of his principal, regardless of whether the third person might have known that the agent was acting in a representative capacity. It is not the third persons duty to seek out the identity of the principal; rather, the duty to disclose the identity of the principal is on the agent.  (W. W. Leasing Unlimited v. Commercial Standard Title Ins. Co. (1983) 149 Cal.App.3d 792, 795.) A principal is unidentified if, at the time the agent enters into a contract on the principals behalf, the third party has notice that the agent is acting for a principal but does not have notice of the principals identity. (Rest.3d Agency,  1.04(2)(c); see Rest.3d Agency,  6.02, com. c, p. 31; 3 Am.Jur.2d (2002) Agency,  314, p. 683, fn. omitted.)[6] Whether or not the name of a principal was identified or known to the third party so as to prevent an agent from being held liable on a contract is a question of fact that depends on the circumstances surrounding the transaction.

[I]t is a general rule of agency that where an agent contracts on behalf of a disclosed principal the presumption is, in the absence of an agreement otherwise, that it was the agents intention to bind the principal and not to incur a personal liability; and ordinarily the agent will not be held personally except upon clear and explicit evidence of an intention to substitute or superadd his personal liability for or to that of his principal. (Zumwalt v. Schwarz (1931) 112 Cal.App. 734, 736.) A plaintiff who seeks to hold one acting in a representative capacity liable personally must plead and prove facts showing that, although the defendant acted in a representative capacity, his or her failure to disclose the principal rendered the defendant liable personally. (3 C.J.S. (2003) Agency,  492, p. 41; see Filippo Industries, Inc. v. Sun Ins. Co. (1999) 74 Cal.App.4th 1429, 1442; Cline v. Atwood (1966) 241 Cal.App.2d 108, 112.)

The undisputed evidence at trial established that the parties negotiated settlements to resolve specific lawsuits filed against certain CCR member companies sued by the plaintiffs and that CCR was acting as agent for defendants who were disclosed principals. That CCR was also the agent for other CCR member companies who were not sued by the plaintiffs but were released from potential liability did not make CCR liable to pay the shortfall in settlement funds. Here, disclosed principals defaulted on their contribution to each of the plaintiffs settlements. CCR cannot be held liable for these disclosed principals breaches of the settlement agreements. (See Lippert v. Bailey (1966) 241 Cal.App.2d 376, 382-384 [agent acting for a disclosed principal not liable for principals breach of contract].) Plaintiffs remedy was either to seek enforcement of the settlement agreements against the defaulting defendants, or seek rescission of the settlement agreements and reinstate their lawsuits.

The trial court was clearly troubled by CCRs representation of companies who were not identified to the plaintiffs, yet would be released from liability. It premised CCRs liability on the existence of these unidentified principals and the theoretical uncertainty they created and reasoned that: The aggregate settlements that CCR negotiated combined with the requirement that all CCR members and other entities be included in the settlement created the risk that a plaintiff placed reliance for payment on entities in addition to the defendants he sued, entities unknown to him and not disclosed by CCR. It is this sort of risk that obliges an agent to disclose its principals fully if the agent is to avoid becoming a party to the contract. [] . . . To avoid liability as a party to these settlement contracts, CCR was obliged to disclose the identity of its members who would be sharing in the payment of the settlement amount. That was not done, and plaintiffs were under no duty to guess or investigate. But, contrary to the trial courts concerns, the appropriate disclosure occurred in this case. The plaintiffs knew the identity of each of the disclosed principals which actually defaulted on the settlements. They had sued them, and they knew they reached settlement with those defaulting companies.

The rules regarding the liability of an agent who acts for unidentified principals have no application here. The policy rationale for making an agent for an unidentified principal a party to a contract is to make sure that a party entering a contract knows precisely with whom it is dealing and protects a party from unknowingly being required to do business with an entity incapable of meeting its contractual obligations. (UBS Securities, Inc. v. Tsoukanelis (S.D.N.Y. 1994) 852 F.Supp. 244, 247-248.) Plaintiffs knew precisely with whom they were dealing and they were not required to either rely upon, or do business with, unknown entities. We reject, as unsupported by evidence or reason, plaintiffs argument that because they did not know the allocation formula among the CCR member companies, there was a  risk of plaintiffs placing reliance on unidentified entities for the payment of the settlement sums. Plaintiffs sued named defendants (disclosed principals), whose agent (CCR) responded to the litigation with a settlement offer on behalf of those defendants. Plaintiffs cite no authority, and we have found none, that holds an agent acting for multiple principals may be held liable for a default by disclosed principals because other unidentified principals may be parties to the contract.

Because CCR was acting for disclosed principals, it cannot be held personally liable for the disclosed principals failure to pay settlement sums. The trial courts ruling to the contrary cannot stand, and accordingly, the judgment in favor of plaintiffs must be reversed.[7]

DISPOSITION

The judgment filed on April 9, 2004, is reversed.

_________________________

Siggins, J.

We concur:

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McGuiness, P.J.

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Parrilli, J.

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[1] An example of a letter confirming the settlement, read: This letter confirms settlement of the above-referenced matter. It is agreed and understood that this settlement fully releases all members whether or not such members are parties to these lawsuits. Furthermore, it is understood that this settlement includes any and all companion actions in this or any jurisdiction for these plaintiffs. [] As you are aware, Gasket Holdings, Inc. ([formerly known as] Flexitallic, Inc.); GAF Corporation; and Ferodo America, Inc. are no longer members of the CCR effective January 17, 2000. Additionally, The Asbestos Claims Management Corporation (formerly known as National Gypsum Company) and the NGC Asbestos Disease and Property Damage Settlement Trust are no longer members of the CCR for purposes of this settlement. Accordingly, Flexitallic, GAF, Ferodo, and National Gypsum are not included in this settlement nor will they be included on the CCR prepared Release. [] Payment will be made in accordance with the terms of settlement, providing a release has been executed properly and returned to the CCR. Please have the enclosed release request form completed and returned to . . . the Center. We, in turn, will prepare the release from the information provided on the release request form and send it to you for execution by your clients.

[2] The compromise and release of all claims released identified member companies, and all their predecessors and successors, their parent and subsidiary companies and divisions, and distributors with express contractual indemnification for the distribution of any Releasees products, and their current and former attorneys, liability insurance carriers, to the extent of their liability for Center non-insurance company subscribers only, officers, directors, agents, and employees.

[3] On a judicial council form, plaintiffs counsel requested dismissal of the [c]omplaint only as to those members of the Center for Claims Resolution (CCR) listed on the attached Exhibit A who have appeared and remain parties to this lawsuit. All parties to bear their own costs.

[4]As noted by the trial court, the CCR Producer Agreement did not disclose the identity of the members of CCR, but it did disclose that CCR member companies who were sued in a particular lawsuit were allocated a share of the settlement according to various formulas, and that other member companies did not contribute to the settlement.

[5] During the period when the plaintiffs settlements were negotiated, Drew was not working with CCR, and he had no personal knowledge regarding the settlements at issue.

[6] After the trial courts decision was filed, and the parties had completed the briefing on this appeal, Restatement Third, Agency, was adopted and promulgated in May 2005, which supersedes and replaces Restatement Second, Agency. Restatement Third uses the term unidentified principal instead of the formerly used term partially disclosed principal. (Rest.3d Agency,  1.04(2)(c), com. b, p. 71.)

[7] In light of our determination, we do not address the other contentions raised by the parties.