Bird v. Best Plumbing Group Llc

161 Wash.App. 510

260 P.3d 209

James A. BIRD, Respondent,

v.BEST PLUMBING GROUP, LLC, Respondent,

v.Farmers Insurance Exchange, Appellant.

No. 64291–0–I.

Court of Appeals of Washington, Division 1.

March 21, 2011.Publication Ordered May 2, 2011.

Jerret Sale, Deborah Carstens, Mathew Sekits, Janis C. Puracal, Bullivant Houser Bailey PC, Seattle, WA, Philip A. Talmadge, Sidney C. Tribe, Talmadge/Fitzpatrick, Tukwila, WA, Douglas G. Houser, Portland, OR, for Appellant.Andrew Kinstler, Helsell Fetterman, A. Richard Dykstra, Stafford Frey Cooper, Seattle, WA, for Respondent Best Plumbing.William C. Smart, Keller Rohrback, Seattle, WA, Jeffrey I. Tilden, Gordon Tilden Thomas & Cordell, Seattle, WA, Rick J. Wathen, Cole Lether Wathen & Leid Seattle, WA, for Respondent James Bird.LAU, J.

[161 Wash.App. 514] ¶ 1 When a defendant whose liability insurer has acted in bad faith proceeds to make his own settlement with an injured plaintiff, the amount of that settlement may become the presumptive measure of damage in the bad faith lawsuit, but only if a trial court determines that the settlement is reasonable and not the product of fraud or collusion. Besel v. Viking Ins. Co. of Wisconsin, 146 Wash.2d 730, 733, 49 P.3d 887 (2002). Here, James Bird entered into a settlement that included a stipulated judgment and covenant not to execute with Best Plumbing, who assigned its rights against its insurer to Bird. The trial court determined that the settlement was reasonable. Farmers Insurance Exchange (Farmers) seeks reversal of the trial court's reasonableness determination, arguing that the trial court erred by denying its jury trial demand and finding the settlement was reasonable. We affirm the finding of reasonableness because (1) a hearing to determine the reasonableness of a settlement under RCW 4.22.060 is an equitable proceeding with no right to trial by jury and (2) the trial court properly exercised its discretion in determining the reasonableness of the settlement.

FACTS

¶ 2 James Bird lives on hillside waterfront property on Perkins Lane in Seattle. In April 2005, Bird's next door neighbor contacted Best Plumbing to repair a leaking sewer line. A Best Plumbing employee, without Bird's consent, went onto Bird's property and cut Bird's pressurized sewage line in three places. When Bird returned home from work, his system “cycled on” and engulfed him in an explosion of sewage. Bird fell, cracked his elbow, and vomited.

[161 Wash.App. 515] ¶ 3 Bird later learned from his neighbor that Best Plumbing's employee had cut the line. Bird demanded the line be fixed. Best Plumbing claimed it repaired the line. But over the next eight months, sewage continued to escape the line. According to Bird, this sewage flow caused hillside instability and extensive damage to his residence. Bird removed contaminated soil from his lot and attributes his subsequent heart attack to this physical labor. To determine the extent of damage and repair, Bird hired a geotechnical engineering firm, contractors, and others.

¶ 4 The City of Seattle issued a stop work order in January 2006 due to concerns about hillside instability. Bird's geotechnical engineer, William Chang, made several proposals to the City until they finally approved a soldier-pile retaining wall, which was estimated to cost $851,176.78. Bird discovered that the pipe had discharged thousands of gallons of sewage onto his lot. Chang concluded that the sewage leak from the cut line, rather than Bird's soil excavations, caused the instability problem.

¶ 5 In May 2006, Bird notified Best Plumbing that the actions of its employee had caused significant damage to his residence and hillside lot. Best Plumbing's liability insurer, Farmers, appointed defense counsel, without a reservation of rights. Meanwhile, Allstate Insurance paid Bird $262,000 under his homeowner's insurance policy for damage to his home.¹

¶ 6 Bird sued Best Plumbing on May 7, 2007, alleging trespass and negligence. Allstate separately asserted subrogation claims against Best Plumbing for the $262,000 it paid. The court later consolidated the two cases. In July 2008, after Best Plumbing admitted its employee went onto Bird's property without permission, the court granted Bird's partial summary judgment motion on liability and proximate cause on his common law trespass claim. The nature and extent of Bird's damages remained for trial.

[161 Wash.App. 516] ¶ 7 In November 2008, the parties' mediation efforts failed. Best Plumbing made no settlement offer. Later, Bird made a $1.2 million settlement demand on Best Plumbing. Fanners countered with a $350,000 settlement offer. Bird's counsel then wrote to Best Plumbing, asserting that its potential exposure exceeded the $2 million policy limits based on the intentional trespass statute's treble damages provision. Bird made a $2 million policy limits demand, which Farmers rejected. Concerned about the company and his potential exposure in excess of policy limits, Best Plumbing president, William Lilleness, retained personal counsel Richard Dykstra, with whom he had previously worked. Without Farmers' participation, Bird and Best Plumbing reached a $3.75 million settlement agreement that included an assignment of Best Plumbing's claims against Farmers, a stipulated judgment, and covenant not to execute against Best Plumbing.

¶ 8 Bird moved for a determination that the settlement was reasonable. The trial court granted Farmers' motions to intervene, to continue the reasonableness hearing, and to conduct discovery. It denied Farmers' jury trial demand. The court conducted a reasonableness hearing over four days in July and September 2009. In its October 7, 2009 memorandum ruling, the court found that the $3.75 million settlement was reasonable.

¶ 9 Farmers appeals the denial of its jury trial demand and the trial court's determination that the settlement was reasonable.

ANALYSIS

I. Jury Trial Right

¶ 10 Farmers contends that deciding the damages issue against the insurer in the liability action without a jury is unconstitutional and contrary to law and policy. Farmers further argues that because the reasonableness determination in the liability action sets the presumptive amount of damages in the bad faith action, the insurer is deprived of its article I, section 21 state constitutional right to have damages decided by a jury. Farmers relies on Sofie v. Fibreboard Corp., 112 Wash.2d 636, 771 P.2d 711, 780 P.2d 260 (1989), which held there was a constitutional right for the jury to determine the amount of noneconomic damages. Sofie struck down the cap on noneconomic damages under the tort reform act. Sofie, 112 Wash.2d at 669, 771 P.2d 711, 780 P.2d 260. Bird responds that the RCW 4.22.060 reasonableness hearing is equitable in nature, not legal, and therefore, no right to a jury trial attaches. Bird argues that this issue is controlled by Schmidt v. Cornerstone Invs., Inc., 115 Wash.2d 148, 795 P.2d 1143 (1990).

¶ 11 “In determining whether a case is primarily equitable in nature or is an action at law, the trial court is accorded wide discretion, the exercise of which will not be disturbed except for clear abuse.” Brown v. Safeway Stores, Inc., 94 Wash.2d 359, 368, 617 P.2d 704 (1980).

The Washington State Constitution, article 1, section 21 provides that the right to a jury trial shall remain inviolate. We have consistently interpreted this constitutional provision as guaranteeing those rights to trial by jury which existed at the time of the adoption of the constitution. Accordingly, there is a right to a jury trial where the civil action is purely legal in nature. Conversely, where the action is purely equitable in nature, there is no right to a trial by jury.

Brown, 94 Wash.2d at 368, 617 P.2d 704 (internal citations omitted).

¶ 12 In determining whether a party has a constitutional right to jury trial, we look to both the scope of the right and whether the cause of action is one to which the right to a jury trial applied at the time the state constitution was adopted in 1889. Wings of the World, Inc. v. Small Claims Court, 97 Wash.App. 803, 806–07, 987 P.2d 642 (1999). For causes of action that did not exist in 1889, we look for then-existing proceedings that are analogous to the present action. Kim v. Dean, 133 Wash.App. 338, 135 P.3d 978 (2006). There is no “right to a jury trial ... in statutorily created actions without common law analogues.” State v. State Credit Ass'n., 33 Wash.App. 617, 621, 657 P.2d 327 (1983).

¶ 13 The challenged statute here expressly states that the court shall determine reasonableness: “A hearing shall be held on the issue of the reasonableness of the amount to be paid with all parties afforded an opportunity to present evidence. A determination by the court that the amount to be paid is reasonable must be secured.” RCW 4.22.060 (emphasis added). “A statute is presumed to be constitutional and the challenger bears the burden of establishing the unconstitutionality of the legislation beyond a reasonable doubt.” Brower v. State, 137 Wash.2d 44, 52, 969 P.2d 42 (1998).

¶ 14 While Farmers cites Sofie correctly, its holding is not applicable here. Farmers does not contend that juries made determinations regarding a settlement's reasonableness at the time our constitution was adopted. Rather, Farmers asserts that because this reasonableness procedure, created by statute in 1981 and since interpreted by the courts, creates a damages presumption in a later action against an insurer, it unconstitutionally interferes with the jury's damages determination. And as the Sofie court made clear, we must resolve all doubt in the statute's favor. Sofie, 112 Wash.2d at 644, 771 P.2d 711, 780 P.2d 260.

¶ 15 Not long after our Supreme Court decided Sofie, it addressed a jury trial right challenge to RCW 4.22.060 in Schmidt, 115 Wash.2d 148, 795 P.2d 1143.² There, real estate investors sued an appraiser and other defendants when their...