Kalain v. Smith

This case concerns the construction and application of the “good faith effort to settle” standard in R.C. 1343.03(C). That statute provides:

“Interest on a judgment, decree, or order for the payment of money rendered in a civil action based on tortious conduct and not settled by the agreement of the parties, shall be computed from the date the cause of action accrued to the date on which the money is paid, if, upon motion of any party to the action, the court determines at a hearing held subsequent to the verdict or decision in the action that the party required to pay the money failed to make a good faith effort to settle the case and that the party to whom the money is to be paid did not fail to make a good faith effort to settle the case.”

The statute was enacted to promote settlement efforts, to prevent parties who have engaged in tortious conduct from frivolously delaying the ultimate resolution of cases, and to encourage good faith efforts to settle controversies outside a trial setting.

Appellant argues that the statutory language “failed to make a good faith effort” necessarily requires a finding of bad faith. We disagree. The statute requires all parties to make an honest effort to settle a case. A party may have “failed to make a good faith effort to settle” even when he has not acted in bad faith. Mills v. Dayton (1985), 21 Ohio App. 3d 208, and Dailey v. Nationwide Demolition Derby, Inc. (1984), 18 Ohio App. 3d 39, approved; Ware v. Richey (1983), 14 Ohio App. 3d 3, disapproved.

A party has not “failed to make a good faith effort to settle” under R.C. 1343.03(C) if he has (1) fully cooperated in discovery proceedings, (2) rationally evaluated his risks and potential liability, (3) not attempted to unnecessarily delay any of the proceedings, and (4) made a good faith monetary settlement offer or responded in good faith to an offer from the other party. If a party has a good faith, objectively reasonable belief that he has no liability, he need not make a monetary settlement offer.

The decision as to whether a party’s settlement efforts indicate good faith is generally within the sound discretion of the trial court. Huffman v. Hair Surgeon, Inc. (1985), 19 Ohio St. 3d 83. This court will not overturn a finding on this issue unless the trial court’s actions indicate an abuse of discretion.

In the case at bar, both the trial and appellate courts focused primarily on appellant’s failure to disclose the $2,500 settlement authorization. The facts of this case, along with the testimony of counsel at the hearing on the motion for prejudgment interest, indicate that appellant had a reasonable, good faith belief that he had no liability and therefore had no duty to make a monetary settlement offer. Further, the record reflects that appellant cooperated fully in discovery and did not attempt to unnecessarily delay any of the proceedings. Thus, we find that the trial court abused its discretion when it awarded prejudgment interest to appellee.

Because the standard for a “good faith effort to settle” does not require parties in all cases to make monetary settlement offers, R.C. 1343.03(C) does not infringe upon a party’s right to a jury trial, as is alleged by appellant in this case. Appellant’s other arguments challenging the constitutionality of the statute were not raised in the trial court and therefore will not be ruled upon by this court. State v. Awan (1985), 22 Ohio St. 3d 120.

The judgment of the court of appeals is reversed.

Judgment reversed.

Locher, Holmes and C. Brown, JJ., concur.

Celebrezze, C.J., Sweeney and Douglas, JJ., dissent.

Bad faith has been defined as “ ‘* * * a dishonest purpose, moral obliquity, conscious wrongdoing, breach of a known duty through some ulterior motive or ill will partaking of the nature of fraud. It also embraces actual intent to mislead or deceive another.’ ” Hoskins v. Aetna Life Ins. Co. (1983), 6 Ohio St. 3d 272, 276, quoting Slater v. Motorists Mut. Ins. Co. (1962), 174 Ohio St. 148 [21 O.O.2d 420], paragraph two of the syllabus.

Because we reverse the entire award of prejudgment interest, it is unnecessary to again address the issue of retroactive application of R.C. 1343.03(C). See Huffman v. Hair Surgeon, Inc. (1985), 19 Ohio St. 3d 83, 87.

The court of appeals misinterpreted appellant’s argument when it determined that appellant had no right to a jury trial on the issue of prejudgment interest. Appellant alleges an infringement of her right to a jury trial on the issue of her potential tort liability, not on the prejudgment interest issue. Appellant argues that, if required to make a monetary settlement offer when she has a reasonable belief that she was not liable, her right to a jury trial on the liability issue would be infringed upon because she would be forced to attempt to settle rather than having a jury determine whether she was liable.