Case Name: The Irvine Company, LLC v. Douglas Ross Construction, Inc., et al.
Case No.: 2012-1-CV-234522

This action arises from the construction of a 445-unit apartment project in San Jose commonly known as “The Sycamores.” (First Amended Complaint (“FAC”), ¶ 2.) Plaintiff is the owner of the project following its acquisition of the corporate assets of the Irvine Commercial Property Company, previously named Irvine Community Development Company. (Id., ¶ 3.) Plaintiff alleges damages resulting from water intrusion due to defects in and around the project’s breezeways, balconies, decks, and other areas. (Id., ¶¶ 3, 18-20.) Douglas Ross Construction, Inc. (“Ross”) was the general contractor, and hired numerous subcontractors who performed work on the property and are named as defendants and/or cross-defendants to this action. (See id., ¶¶ 8-9.)

The Court has approved a number of good faith settlements herein, including a settlement between plaintiff and Ross pursuant to which Ross assigned its cross-complaint and indemnity rights to plaintiff. Currently at issue are three additional, unopposed motions for determination of good faith settlement: (1) a motion by defendant, cross-defendant, and cross-complainant Collier Warehouse; (2) a motion by defendant and cross-defendant Decorative Paving, Inc.; and (3) a motion by cross-defendant I.R.C. Technologies dba Independent Roofing Consultants.

I. Legal Standard

California Code of Civil Procedure section 877.6 provides that a party to an action involving two or more alleged joint tortfeasors may seek a determination that a settlement was made in good faith. To promote settlement (Cal-Jones Properties v. Evans Pacific Corp. (1989) 216 Cal.App.3d 324, 327), such determination “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 amount paid by the settling defendant reduces the claim against the other defendants. (Code Civ. Proc., § 877, subd. (a).)

In Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, the Supreme Court set forth factors to be considered in approving a good faith settlement, including
a rough approximation of plaintiffs’ total recovery and the settlor’s proportionate liability, the amount paid in settlement, the allocation of settlement proceeds among plaintiffs, and a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial. Other relevant considerations include the financial conditions and insurance policy limits of settling defendants, as well as the existence of collusion, fraud, or tortious conduct aimed to injure the interests of nonsettling defendants.
(At p. 499.) “[O]nly when the good faith nature of a settlement is disputed,” however, is it “incumbent upon the trial court to consider and weigh the Tech-Bilt factors.” (City of Grand Terrace v. Superior Court (Boyter) (1987) 192 Cal.App.3d 1251, 1261.)
“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 (Krystal) (1997) 52 Cal.App.4th 742, 750.) It is the settling parties’ burden to explain “the evidentiary basis for any allocations and valuations made sufficient to demonstrate that a reasonable allocation was made.” (Ibid.) Nevertheless,

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, … 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.

(Regan Roofing v. Superior Court (Finkelstein) (1994) 21 Cal.App.4th 1685, 1704, internal citations omitted.) “[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.)

The court may consider affidavits and counteraffidavits, and may receive other evidence at the hearing on the motion in its discretion. (Code Civ. Proc., § 877.6, subd. (b).) “The party asserting the lack of good faith shall have the burden of proof on that issue.” (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 [the Tech-Bilt] factors as to be inconsistent with the equitable objectives of the statute.” (Tech-Bilt v. Woodward-Clyde & Associates, supra, 38 Cal.3d at pp. 499-500.) “[W]hen no one objects, the barebones motion which sets forth the ground of good faith, accompanied by a declaration which sets forth a brief background of the case is sufficient.” (City of Grand Terrace v. Superior Court, supra, 192 Cal.App.3d at p. 1261.)

II. Collier’s Motion

Collier is both a defendant and a cross-defendant to Ross’s cross-complaint. Collier represents that it agreed to supply and install sliding glass doors and windows on the project, and entered into an oral contract with defendant and cross-defendant Pinnacle Installations, Inc.—whose own motion for determination of good faith settlement is scheduled for hearing on June 17, 2016—to install these items. Collier purchased the windows and doors from defendant and cross-defendant Milgard Manufacturing, Inc. for Pinnacle to install, and did not itself perform any work on the project. Milgard remains a party to this case, but does not oppose Collier’s motion.

Collier and plaintiff have agreed to a settlement in the amount of $800,000, to be paid by Collier’s insurers. The settlement was reached with the assistance of Ross Hart, the court-appointed mediator, after plaintiff and Ross had initially demanded $1,250,000 to settle their claims against Collier. Collier’s carriers ultimately accepted a $800,000 triple-blind proposal by the mediator. The settlement is expected to be allocated approximately 90 percent to alleged defects involving the project’s windows, five percent towards other defects, and five percent towards fees and costs. Since Collier did not install or manufacturer the windows and doors in question, it contends there is a high probability of a verdict in its favor at trial, although it acknowledges that its subcontract with Ross includes an indemnity provision.

Collier’s motion exceeds the “barebones” showing required for an unopposed motion, and the settlement appears to be in the ballpark of Collier’s liability given plaintiff’s initial demand and the mediator’s assessment. (City of Grand Terrace v. Superior Court, supra, 192 Cal.App.3d at p. 1261.) The allocation of the majority of the settlement proceeds to defects in the windows appears reasonable in light of the nature of Collier’s involvement in the project.

Collier’s motion is accordingly GRANTED.

III. Decorative’s Motion

Like Collier, Decorative is both a defendant and a cross-defendant to Ross’s cross-complaint. Decorative’s subcontract addressed the installation of decorative pavers at the podium level of the project, including the installation of filter fabric over the drains and the placement of washed gravel atop previously-installed drainage matting on the previously-installed waterproofing system. Plaintiff’s podium common area defect allegations implicate the work of many trades as part of a cumulative repair cost of over $19 million. Plaintiff’s expert allocated six to seven percent of the responsibility for the podium common areas and two percent of the total claim allocation of over $58 million to Decorative.

Decorative’s expert found that the membrane at the drains was functioning as intended, and any build-up of sediments or debris resulted from normal environmental conditions and lack of routine maintenance. Decorative denies liability for the manner in which the drainage mat was installed by others. It also disputes that repairs would require the replacement of pavers, as it was able to re-install the existing pavers following its own destructive testing. Decorative and its expert agree that plaintiff’s total recovery at trial would be below $30-40 million, the range estimated by Ross in its good faith motion.

Plaintiff and Ross initially demanded $1,250,000 to settle their claims with Decorative. Through multiple rounds of negotiations facilitated by Mr. Hart, Plaintiff and Decorative reached a settlement of $600,000, equivalent to two percent of a total claim of $30 million. Prior settlements with parties implicated by the podium common area claims total over $8 million. Plaintiff and Decorative propose an allocation of 87.3 percent of their settlement to the podium common area claims, 3.3 percent to loss of use, three percent to Stearman expenses, 1.4 percent to attorney fees, and five percent to assigned rights from Ross.

The settlement and allocation appear reasonable in light of the evidence presented by Decorative. Decorative’s motion is consequently GRANTED.

Decorative also requests that the Court dismiss the complaint and Ross’s cross-complaint as to it. (See Cal. Rules of Court, rule 3.1382 [“A motion or application for determination of good faith settlement may include a request to dismiss a pleading or a portion of a pleading.”].) However, the complaint and cross-complaint assert claims other than those for equitable contribution and indemnity, and Decorative itself acknowledges that “non-assigned rights, if any, reserved by [Ross] under its Cross-complaint that were excluded from the IRVINE-[Ross] settlement” “may potentially remain” against Decorative. Decorative has made no attempt to tailor its request for dismissal to those claims that are discharged by section 877, as opposed to the settlement itself. Furthermore, the settlement agreement contemplates that plaintiff will file dismissals of these pleadings. Consequently, the Court will not dismiss them at this time.

IV. IRC’s Motion

IRC is a cross-defendant to the cross-complaint of flooring subcontractor Cell-Crete Corporation. On May 24, 2016, the Court sustained IRC’s demurrer to the second and third causes of action in the cross-complaint with 10 days’ leave to amend. Cell-Crete has not filed an amended cross-complaint, leaving its first cause of action for equitable indemnity and implied indemnity, its fourth cause of action for comparative indemnity, its fifth cause of action for contribution, and its sixth cause of action for declaratory relief as the only remaining claims against IRC.

Plaintiff hired IRC as a waterproofing consultant on the project. IRC agreed to conduct periodic inspections of the waterproofing at the podium and catwalk/balconies to assess adherence to the project specifications, contract terms, and proper application techniques. IRC did not inspect the work performed by Cell-Crete and there is no contractual relationship between these parties.

IRC maintains that it has no liability in this action, as plaintiff has no active claims against it and it has no responsibility for any defects associated with Cell-Crete’s work. It notes that Cell-Crete’s subcontract expressly provides that Cell-Crete is not relieved of liability by inspections of the site such as those performed by IRC. IRC has agreed to settle with plaintiff, the only party with whom it has a contract, for $25,000—the entire amount demanded by plaintiff—in order to buy its peace. The settlement was acheived with the assistance of Mr. Hart. Plaintiff and IRC have agreed that the $25,000 will be allocated entirely to waterproofing defects, with a proportional allocation to each specific waterproofing defect on which plaintiff recovers.

Based on the evidence provided by IRC, the settlement and allocation are deemed reasonable. The fact that plaintiff has not actually filed suit against IRC is no bar to the settlement. (See Mattco Forge, Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, 1347 [sections 877 and 877.6 apply even where the settling tortfeasor is merely a cross-defendant in an action for comparative or partial equitable indemnity and is not a defendant in the main action itself].)

IRC’s motion is therefore GRANTED. As requested by IRC in its notice of motion, Cell-Crete’s cross-complaint against IRC is DISMISSED. The cross-complaint asserts no claims beyond the scope of section 877, and Cell-Crete does not oppose IRC’s request.