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Vol. 2006-11 November, 2006

Settlements; Bad Faith v. Good Faith; Test

A recent decision provides clear guidelines in determining whether settlements are conducted in good faith or whether bad faith conduct may also result in the imposition of prejudgment interest:

{13} R.C. 1343.03(C) governs the award of prejudgment interest. It states: 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 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."

{14} The trial court is vested with the discretion to decide whether a party has made a good faith effort to settle a case. Huffman v. Hair Surgeon, Inc. (1985), 19 Ohio St.3d 83, 87. Thus, the trial court's decision will not be overturned absent a showing of abuse of discretion. Ziegler v. Wendel Poultry Serv., Inc. (1993), 67 Ohio St.3d 10, 20. The "term `abuse of discretion' connotes more than an error of law or judgment; it implies that the court's attitude is unreasonable, arbitrary or unconscionable." Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 219.

{15} In Kalain v. Smith (1986), 25 Ohio St.3d 157, 159, the Ohio Supreme Court held: "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 proceeding,
  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."
A party has not failed to make a good faith effort, if it has complied with all the above four factors. Stated differently,it is not necessary for all four criteria to be denied to find a lack of good faith. Szitas v. Hill, 8th Dist. No. 85839, 2006-Ohio-687, at 11, citing Detelich v. Gecik, 90 Ohio App. 3d 793, 797.

{16} For purposes of prejudgment interest, a lack of "good faith" is not the equivalent of "bad faith." Kalain at 159. To determine whether a party has failed to make a good faith effort to settle under R.C. 1343.03(C), it is necessary only to apply Kalain's four-prong test. Detelich at 797. Pruszynski v. Reeves, 2006-Ohio-5190.

If a party has a good faith, objectively reasonable belief that he has no liability, he need not make a monetary settlement offer. Kalain v. Smith (1986), 25 Ohio St.3d 157, 159.

In a recent interview, General Norman Schwarzkopf (Ret.) was asked if he thought there was room for forgiveness toward Hizbollah. The General replied: " I believe that forgiving Hizbollah is God's function. The Israelis' job is to arrange the meeting."

AUTHOR / EDITOR: J. NORMAN STARK is an Attorney-at-Law, a Registered Architect, (AIA, NCARB) Registered Landscape Architect, Interior Designer, Planner and Senior Appraiser (ASA), admitted to practice law before the Bar of Ohio, the US District Courts, Ohio and Illinois (Central Dist.), the US Court of Appeals, and the United States Supreme Court. He is a Mediator, Arbitrator and Litigator with experience in Business, Construction Law, and Public Works, and with additional experience in Real Estate, Construction Attorney (Legal Project and Crisis Management), and as an Expert Witness (Forensic Architect). His office is in Cleveland, Ohio.

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