Mercury Insurance Company (Mercury) appeals from the trial court's order imposing $1,857.50 in monetary sanctions after the court determined Mercury's claims adjuster and the lawyer it had provided to defend its policyholder in this personal injury action had failed to negotiate in good faith at a mandatory settlement conference. Because neither Code of Civil Procedure section 177.5
FACTUAL AND PROCEDURAL BACKGROUND
1. The Underlying Litigation
Miguel Vidrio, Jr., and Patricia Salinas filed a lawsuit in December 2006 alleging they had been injured a year earlier when, as a result of Maria L. Hernandez's negligence, the car Hernandez was driving collided with the car being driven by Vidrio. Hernandez was insured by Mercury, which provided her with a defense.
In response to a March 2007 request for a statement of damages, Vidrio claimed he had suffered general damages of $30,000, medical expenses of $3,836.98, loss of earnings of $1,223.60 and property damage of an undetermined amount. Salinas claimed general damages of $50,000, medical expenses of $4,745 and loss of earnings of $900.
In opposition to Hernandez's motion to reclassify the matter as a limited civil case, Vidrio added a claim for estimated future medical expenses of $4,500 and increased his claim for lost earnings to $2,015.60. However, his claim for general damages was reduced to $20,000. Salinas, who explained she was 17 weeks pregnant at the time of the accident and sought medical
Counsel for Hernandez, Dean Chalamidas, an associate with Michael G. Hogan & Associates, took Vidrio's and Salinas's depositions in May 2007. Plaintiffs were represented by Jon A. Dieringer, a contract attorney working with plaintiffs' counsel of record, Michael H. Silvers.
A mediation was conducted in September 2007, attended by the parties, counsel for plaintiffs (once again, a contract attorney working with Silvers), Hernandez's counsel Chalamidas and Victor Ambriz, the adjuster for Mercury. The case was not resolved at that time. Hernandez served Vidrio and Salinas with settlement offers of $1,000 each pursuant to section 998.
2. The Mandatory Settlement Conference
A mandatory settlement conference was scheduled for December 7, 2007. Hernandez filed her mandatory settlement conference statement on December 4, 2007. The brief contested liability, contending Vidrio's car had stopped suddenly and for no reason, leaving Hernandez insufficient time to avoid the rear-end collision. Hernandez also disputed the nature and extent of Vidrio's and Salinas's claimed injuries, essentially arguing the accident was minor and could not be expected to cause any personal injuries and only limited damage to Vidrio's car (repair estimated at approximately $1,600).
Hernandez was represented at the mandatory settlement conference by Chalamidas. Mercury's adjuster Ambriz, who had full authority to settle the case, was also present. Plaintiffs were again represented by a specially appearing contract attorney (James M. McKanna) affiliated with counsel of record Silvers. Vidrio and Salinas made settlement demands of $15,000 each (demands that had previously been served on counsel for Hernandez pursuant to § 998). Hernandez repeated her prior settlement offer of $1,000 for each plaintiff. Neither side made a counterproposal, and the case did not settle.
Following the settlement conference the court held a proceeding on the record at which it observed the rules of court, the Local Rules and the litigation guidelines published by the Los Angeles County Bar Association "all mandate good faith representation by counsel as well as the authorized representative of the company, in this case Mercury Insurance." The court then stated, "On its surface, it would appear that this case is one of damages, not liability. Counsel and the adjuster came to court today unprepared to discuss damages, unprepared to discuss costs of defense, unprepared to have an intelligent conversation about how they derive a thousand dollars in total
The court also expressed its view Hernandez's counsel, Chalamidas, was "just a conduit for somebody, I believe, at Mercury" and indicated, "I don't want to get you personally wrapped up in this." The court then issued an order to show cause why sanctions should not be imposed, naming Chalamidas, Ambriz and Mercury as respondents, and set a hearing for December 21, 2007.
3. The Hearing on the Order to Show Cause Regarding Sanctions
Chalamidas filed a declaration in response to the order to show cause in which he recited the procedural history of the case and indicated his continuing, personal involvement in the matter as counsel for Hernandez and his familiarity with the issues relating to both liability and damages. Chalamidas explained Hernandez, whom he had interviewed on several occasions, was "adamant [Vidrio] caused the accident when he stopped his vehicle for no reason. Moreover, she is certain neither plaintiff was injured." Chalamidas also emphasized he had prepared the mandatory settlement conference statement and personally attended the mandatory settlement conference (as well as the mediation), while Silvers, plaintiffs' counsel of record, had made no appearances in the matter at all. Chalamidas's declaration also provided his perspective on the conduct of the mandatory settlement conference, asserting he and Ambriz had not failed to participate meaningfully.
Contract attorney McKanna filed a declaration in support of the award of sanctions, asserting, notwithstanding the absence of any settlement demand less than $15,000 for each plaintiff, "it became clear [at the conference] that the plaintiffs were willing to settle their personal injury claims for a very reasonable amount." McKanna also stated liability was clear, based on information contained in the police report of the accident, and described the various injuries sustained by Vidrio and Salinas. McKanna also described his preparation for the mandatory settlement conference and his billing rate and requested the award of monetary sanctions of $812.50 to cover attorney fees incurred at the settlement conference and in connection with the order to show cause regarding sanctions.
At the hearing, after appearances of counsel were made, the court stated it was relying on rule 3.1380 (former rule 222) in conducting the proceeding. As described by the court, that rule requires a good faith offer of settlement by a defendant as part of its mandatory settlement conference statement and
Following the recitation of its authority for proceeding with the sanctions hearing, the court explained, "What this is about today is the court's perceived notion from the conduct of the adjuster and attorney representing Ms. Hernandez employed by Mercury Insurance of not in good faith making any effort to attempt to settle the case." The court found no fault with the Hernandez's settlement conference statement, "I thought that the brief[s] submitted by each side were alike, I might say, and civil, and I do appreciate that from both sides." However, the court was harshly critical of the conduct of Hernandez's representatives at the settlement conference itself and, in particular, the refusal to offer more money than the section 998 offer of $1,000 for each plaintiff: "The point is that there was no negotiations. They just came in with the firm opinion we're paying a thousand dollars . . . . [A]t least some movement under the circumstances, and some discussion was in order. That is the reason why [sanctions are being imposed]."
The court noted it had elicited from Chalamidas and Ambriz the estimated cost of trying the case, including the costs of the expert witness (an orthopedic surgeon) retained on behalf of Hernandez, and stated, although the "proposed amount wasn't a demand, but it would have settled the case . . . that cost would be far in excess of, perhaps even double, the amount that the case could have settled." The court also characterized the lack of "communication back" to the court as "uncivil" and "impolite." More substantively, the court indicated it believed the defense theory for contesting liability was weak and Salinas, even if not Vidrio, had a legitimate claim for a substantial amount in compensation for personal injuries, particularly since she was pregnant at the time of the accident: "[T]hose expenses at least have some value of which there is absolutely no discussion or willingness to discuss."
After hearing argument from counsel, the court ordered sanctions in the sum of $1,500 payable directly to the court and $357.50 payable to plaintiffs' counsel—the attorney fees incurred in connection with the sanctions hearing, not the mandatory settlement conference itself. The monetary sanctions were imposed against Mercury only, not Chalamidas or Ambriz. Articulating the basis for its order, the court stated, "The manner in which this was handled in
Mercury filed a petition for writ of mandate seeking review of the sanctions order on February 19, 2008. We denied the petition, explaining Mercury had an adequate remedy by way of appeal following entry of a written order imposing sanctions. (See Barton v. Ahmanson Developments, Inc. (1993) 17 Cal.App.4th 1358, 1360-1361 [22 Cal.Rptr.2d 56].) An order, signed by the court, was entered on March 27, 2008.
1. Standard of Review
We generally review orders for monetary sanctions under the deferential abuse of discretion standard. (See, e.g., Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th 1202, 1212 [45 Cal.Rptr.3d 265]; Burkle v. Burkle (2006) 144 Cal.App.4th 387, 389 [50 Cal.Rptr.3d 436].) However, the proper interpretation of a statute or rule of court relied upon by the trial court as its authority to award sanctions is a question of law, which we review de novo. (In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 1479 [64 Cal.Rptr.3d 29]; see People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432 [101 Cal.Rptr.2d 200, 11 P.3d 956]; Scottish Rite Cathedral Assn. of Los Angeles v. City of Los Angeles (2007) 156 Cal.App.4th 108, 115 [67 Cal.Rptr.3d 207].)
2. Governing Statutes and Rules of Court
a. Settlement conference procedure
Local Rule 7.9(d), like rule 3.1380, authorizes the trial court to set a settlement conference on its own motion or at the request of any party. Local Rule 7.9(d)(1) also provides, unless expressly excused for good cause by the judge, "all persons whose consent is required to effect a binding settlement shall be personally present at a scheduled settlement conference. Included among such persons are: the litigants (unless consent of the particular litigant is not required for the settlement); an authorized representative of any insurance company which has coverage involved in the case; and an authorized representative of a corporation or other business or government entity which is a litigant." Local Rule 7.9(d)(3) further specifies, "Attorneys for all parties appearing in the action shall attend the conference and be intimately familiar with the pertinent available evidence involving both liability and damages. Such attorney shall be prepared to discuss the case in depth and, except for good cause shown, shall be the attorney who will try the case."
Local Rule 7.9(e) requires the parties to submit a written settlement conference statement containing "a concise statement of the material facts of the case and the factual and legal contentions in dispute." Unlike rule 3.1380 the Local Rule does not expressly require a settlement demand or offer.
b. The authority to impose sanctions
Like Local Rule 7.13, Local Rule 8.0 authorizes sanctions, including monetary sanctions, for the failure or refusal to comply with the court's Local Rules. Monetary sanctions "may be imposed for such violation against any party, party's attorney or witness payable to the County of Los Angeles."
3. The Sanctions Award Against Mercury Was Not Authorized by Statute or Court Rule
a. No statute authorizes the imposition of sanctions against Mercury
Mercury correctly asserts no statute authorizes the imposition of sanctions against a nonparty insurer for its purported failure to participate in good faith in a mandatory settlement conference. Section 177.5, the only statute cited by the trial court, is inapplicable for several reasons. First, it empowers a court to impose monetary sanctions for violation, without good cause, of a lawful court order. Even if Mercury did direct its adjuster and the counsel it retained for Hernandez not to negotiate in good faith, that conduct did not violate any court order. Second, section 177.5 provides sanctions may be awarded against a "person," defined to include "a witness, a party, a party's attorney, or both." Mercury does not fall within any of those categories, and the trial court expressly declined to sanction Hernandez's attorney Chalamidas. Finally, section 177.5 limits monetary sanctions to $1,500 payable to the court. The $357.50 awarded to plaintiffs' counsel, in addition to the $1,500 payable to the court, is doubly inconsistent with that express limitation.
Moreover, although Local Rule 7.9(d) provides for the mandatory attendance at a settlement conference of "all persons whose consent is required to effect a binding settlement," and specifically defines that category to include "an authorized representative of any insurance company which has coverage involved in the case," nothing in Local Rules 7.9(d) or 7.9(e), which govern the conduct of settlement conferences, purports to require the participants, once present, to negotiate with each other. Thus, neither section 575.2 nor the Local Rules justified the award of sanctions against Mercury.
b. The sanctions award was not properly based on rule 2.30
As Mercury observes in its appellate brief, rule 2.30, identified by the trial court as being "more specific to imposing sanctions relative to settlement conferences," is the only possible source of authority for the sanctions imposed against it. Unlike the statutes and Local Rules discussed above, rule 2.30 expressly authorizes the court to order payment of reasonable monetary sanctions to the court, an aggrieved person or both not only by a party or the party's attorney but also by "an insurer or any other individual or entity whose consent is necessary for the disposition of the case" for any failure without good cause to comply with applicable provisions of the California Rules of Court. Nonetheless, Mercury argues rule 2.30's authorization for an award of sanctions against a nonparty insurer is invalid because it is not grounded in statute and, in any event, its conduct at the mandatory settlement conference did not violate any rule of court and is not sanctionable. Although we have considerable doubt as to Mercury's first argument, we agree with the second and reverse the award of sanctions.
Prior to July 1, 2001, former rule 227 (now rule 2.30)
The rule was substantially revised, effective July 1, 2001, in response to the Court of Appeal's decision in Trans-Action Commercial, supra, 60 Cal.App.4th 352, which reversed an award of sanctions under former rule 227 against a lawyer who had caused a mistrial by repeatedly violating the trial court's in limine rulings. After thoroughly reviewing the statutory authority governing sanctions, and particularly attorney fees as sanctions, the Trans-Action Commercial court held former rule 227 was invalid "to the extent the rule purports to allow sanctions inconsistent with the limits and conditions provided in an applicable statute." (60 Cal.App.4th at p. 371.) The court suggested the defect in the rule could be cured by amending it to incorporate the statutory terms and conditions for sanctions awards. (Id. at p. 363, fn. 9.)
In its November 29, 2000 report recommending amendments to former rule 227 to the Judicial Council of California,
In proposing the rule expressly authorizing monetary sanctions for failure to comply with the civil pretrial and trial rules of the California Rules of Court, the civil and small claims advisory committee's report explained, "The Judicial Council is constitutionally empowered to `adopt rules for court administration practice, and procedure, not inconsistent with statute.' [Citation.] Unless they transcend legislative enactments, the rules and procedures adopted by the Judicial Council have the force of law. [Citation.] [¶] . . .
Former rule 227 was further amended, effective January 1, 2004, to clarify its application to the rules of court "relating to general civil cases, unlawful detainer cases, probate proceedings, civil proceedings in the appellate division of the superior court, and small claims cases" (former rule 227(a), eff. Jan. 1, 2004), not just the civil pretrial and trial rules then located in title two
The order imposing sanctions is reversed. In light of respondents' decision not to file any brief in the appeal, Mercury Insurance Company is to bear its own costs on appeal.
Zelon, J., and Jackson, J., concurred.