Case Name:   CahillPark Homeowners Association vs. Cahill South LLC, et al., and related cross-actions.

Case No.:       1-10-CV-176202

 

This is a construction defect action by plaintiff Cahill Park Homeowners Association (“Plaintiff”), a non-profit mutual benefit corporation for a 160-unit condominium complex called Cahill Park Condominium Complex (the “Complex”),[1] against the project developer/general contractor Cahill South, LLC, Cahill Associates South, LP, Cahill Associates South, Inc., Cahill North Construction, Castle Group California, Inc. (the “Cahill Defendants”) and individuals Bruce Fairty, Jim Fuller, Christopher Kober, Laurie Kober, Jeffery John Jelniker, Robert C. Speicher, and Susan M. Speicher (collectively “Defendants”) involved in the construction of the Complex.  The operative First Amended Complaint (“FAC”), filed July 21, 2010, asserts three causes of action for: (1) breach of standards of construction; (2) breach of contract and violation of equitable servitudes; and (3) breach of fiduciary duty.

 

On May 19, 2011, the Cahill Defendants filed a Cross-Complaint for implied indemnity, equitable indemnity/contribution, comparative fault/contribution and declaratory relief against various cross-defendant Guerdon Enterprises, LLC and Roes 1-250.  On September 9, 2011, the Cahill Defendants filed their First Amended Cross-Complaint, substituting RJS as Zoe 14.[2]

 

On May 29, 2012, Plaintiff substituted defendants Duran Paving, Inc. (“Duran Paving”) for Doe 176 and R.J.S. & Associates, Inc. (“RJS”) for Doe 177.[3]

 

On January 25, 2013, RJS filed a Cross-Complaint for equitable indemnity, equitable contribution and declaratory relief against various cross-defendants including Duran Paving and Duran & Venables, Inc. (“Duran & Venables”).

 

On May 13, 2014, RJS filed a motion for determination of good faith settlement with Plaintiff and Defendants.  On May 30, 2014, the motion was denied without prejudice because RJS did not support its motion with other than conclusory statements.

 

RJS once again moves for determination of good faith settlement.

 

RJS submits that its insurance carrier, QBE Specialty Group (“QBE”) agreed to settle with Plaintiff and Defendants after participating in two mediations facilitated by special master David Henningsen.  Under the settlement RJS agrees to pay $85,000 in exchange for a release and dismissal with prejudice by Plaintiff for any and all claims arising out of RJS’s scope of work.  RJS submits that Plaintiff previously issued a settlement demand of $957,452 to RJS and five other subcontractors with similar trades, out of which Plaintiff allocated $187,490 or 20% responsibility to RJS.[4]  RJS submits that its own expert consultant estimated that the cost of repair for RJS’s scope of work would total $54,914.00.[5]

 

RJS argues the settlement is within the ballpark of RJS’s liability because it represents 45% of RJS’s proportionate liability.  RJS allocates the settlement proceeds to all claims against it.[6]  Regarding insurance policy limits, RJS submits that it has a $1,000,000 per occurrence limit on its policy with QBE.[7]  RJS argues the settlement was not the product of collusion, fraud or tortious conduct aimed to injure the non-settling cross-defendants, as the settlement was negotiated at arms-length during mediations and negotiations with Mr. Henningsen.

 

Duran Paving and Duran & Venables (“Cross-Defendants”) oppose the motion arguing: (1) RJS failed to serve the motion with the required notice of 16 court days plus 2 calendar days for electronic service before the hearing; (2) RJS does not provide adequate evidence to support its approximation of Plaintiff’s total recovery; (3) RJS does not provide adequate evidence to support its approximation of RJS’s proportionate liability such as an expert report or declaration; and (4) RJS fails to adequately explain how it arrived at $85,000.

 

Discussion

 

As a threshold matter, Cross-Defendants are correct that RJS’s moving papers were not timely served.  Moving papers must be filed and served at least 16 court days before the hearing, with the notice period being extended two court days for electronic service.  (See Cal. Code Civ. Proc., §§ 1005, subd. (b), 1010.6, subd. (a)(4).)  RJS’s motion was filed and electronically served on July 17, 2014, exactly 16 court days before the August 8, 2014 hearing, without the additional 2 days for electronic service.  Nevertheless, because Cross-Defendants do not demonstrate any resulting prejudice, the Court should exercise its discretion to consider the late-served papers.  (See Cal. Rules of Court, rule 3.1300(d).)

 

California Code of Civil Procedure section 877.6 provides that a party to an action in which it is alleged that two or more parties are joint tortfeasors may seek a determination that a settlement was made in good faith.  “A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor…from any further claims against the settling tortfeasor…for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.”  (Code Civ. Proc., § 877.6, subd. (c).)  “The purpose of this statute is to bar claims against a settling tortfeasor and thereby promote settlement.”  (Cal-Jones Properties v. Evans Pacific Corp. (1989) 216 Cal.App.3d 324, 327.)

 

In Tech-Bilt, Inc. v. Woodward-Cycle & Associates (1985) 38 Cal.3d 488, the Supreme Court set forth the following factors for consideration of a proposed settlement:

 

a rough approximation of plaintiffs’ total recovery and the settler’s proportionate liability;
the amount paid in settlement;
the allocation of settlement proceeds among plaintiffs;
discount for settlement before trial;
the financial conditions and insurance policy limits of settling defendants; and
the existence of collusion, fraud, or tortious conduct aimed to injure the interests of non-settling defendants.

 

(Tech-Bilt, supra, 38 Cal.3d at p. 499.)

 

In determining whether a proposed settlement is made in good faith, the court may consider affidavits and counteraffidavits.  In its discretion, the Court may receive other evidence at the hearing on the motion.  (Cal. Code Civ. Proc., § 877.6, subd. (b).)  “The party asserting the lack of good faith shall have the burden of proof on that issue.”  (Cal. Code Civ. Proc., § 877.6, subd. (d).)  Bad faith may be established by “demonstrat[ing] that the settlement is so far ‘out of the ballpark’ in relation to these [Tech-Bilt] factors as to be inconsistent with the equitable objectives of the statute.”  (Tech-Bilt, supra, 38 Cal.3d at pp. 499-500.)

 

“Where there are multiple defendants, each having potential liability for different areas of damage, an allocation of the settlement amount must be made.”  (L.C. Rudd & Son, Inc. v. Superior Court (1997) 52 Cal.App.4th 742, 750.)  The failure to allocate the settlement “may preclude a ‘good faith’ determination because there is no way to determine the appropriate setoff pursuant to section 877 against the nonsettling defendant.  (Id.)  As a result, “[i]t is the burden of the settling parties to explain to the court and to all other parties the evidentiary basis for any allocations and valuations made sufficient to demonstrate that a reasonable allocation was made.”  (Id.)  “[W]here the settling parties have failed to allocate, the trial court must allocate in the manner which is most advantageous to the nonsettling party.”  (Dillingham Construction N.A., Inc. v. Nadel Partnership (1998) 64 Cal.App.4th 264, 287.)

 

However, “the inquiry at the good faith settlement stage is not the same as the inquiry at trial, where complete precision of allocation could presumably be achieved.  Since we are dealing with a pretrial settlement, in which the factual findings or determinations made on contested issues of liability or damages are tentative, and made solely for purposes of evaluating the good faith of a settlement as of the date of the valuation [citation], we must necessarily apply a broader and more permissive standard for evaluating good faith of a settlement as to such allocation. . . . [W]hat should be required of the settling parties is that they furnish to the court and to all parties an evidentiary showing of a rational basis for the allocations made and the credits proposed.  They must also show that they reached these allocations and credit proposals in an atmosphere of appropriate adverseness so that the presumption may be applied that a reasonable valuation was reached. [Citation.]”  (Regan Roofing v. Superior Court (1994) 21 Cal.App.4th 1685, 1704.)

 

Here, the settlement appears to fall within the ballpark of RJS’s potential liability based on Plaintiff’s settlement demand, which allocated $187,490 to RJS.  QBE’s payment of $85,000 to Plaintiff on behalf of RJS is not so outside the ballpark of reasonableness when discounted for settlement before trial.  Cross-Defendants argue that RJS submits no evidence supporting its approximation of Plaintiff’s total recovery or RJS’s proportionate liability.  However, RJS’s counsel attests to Plaintiff’s rough approximation of recovery at the time of settlement ($1,034,227.00),[8] and Cross-Defendants submit no evidence to dispute this.  Cross-Defendants argue that RJS fails to explain how it came to the $85,000 figure, but RJS sufficiently explains that it was made in accordance with RJS’s expert estimate of $54,914.00.[9]

 

However, RJS’s motion is deficient in that it does not clearly allocate the settlement proceeds.  RJS merely states that it allocates the settlement proceeds “to all claims against R.J.S.”[10]  However, it is not clear whether the “claims against R.J.S.” are also asserted against non-settling parties who would receive a corresponding offset.  Because it is RJS’s burden as the settling party to make allocations and explain the evidentiary basis for them, RJS should provide this information in supplemental papers.

 

RJS’s motion for determination of good faith settlement is CONTINUED to September, 12, 2014.  Within 20 days, RJS shall file supplemental papers regarding allocations.