Case Name: The Irvine Company LLC v. Douglas Ross Construction, Inc. (Sycamores)
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 a number of 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 several good faith settlements herein, including an $18 million settlement between plaintiff and Ross pursuant to which Ross assigned its cross-complaint and indemnity rights to plaintiff. Currently at issue are four additional, unopposed motions for determination of good faith settlement: (1) a motion by defendant and cross-defendant House Construction; (2) a motion by defendant, cross-defendant, and cross-complainant Pinnacle Installations, Inc.; (3) a motion by defendant and cross-defendant Alcal Specialty Contracting, Inc.; and (4) a motion by defendant and cross-defendant Dimetrius Painting II, Inc.

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. House’s Motion

House is both a defendant and a cross-defendant to Ross’s cross-complaint. Ross contracted with House for the installation of finish carpentry, cabinets, doors, and millwork on the project, and plaintiff alleges that House improperly installed the exterior doors and door thresholds at the privacy balcony decks. Specifically, House is alleged to have crushed the rear vertical leg of the sheet metal door pans at the time it installed the door thresholds, compromising a barrier to water, and to have failed to hang the exterior doors squarely, allowing air and moisture to penetrate the units.

House performed destructive testing at numerous door thresholds, and its expert found that the vast majority of the door thresholds were properly installed and there was no indication of any water improperly entering the units due to House’s work. House denies liability based on the manner in which the remaining portions of the privacy decks were installed by others and disputes that repairs to the exterior doors and thresholds would necessitate removing and replacing the doors and door pans as plaintiff contends.

Plaintiff and Ross demanded $1 million from House for the resolution of all claims in the action, and the parties reached a settlement of $425,000 following multiple rounds of negotiations with the assistance of mediator Ross Hart. In total, plaintiff values its privacy balcony defect claims at $13,582,445 out of the $63 million at which it values this lawsuit. However, the claims implicate the work of many other trades, and House and its expert, along with the other defendants, maintain that the claims are worth significantly less than plaintiff believes.

House’s motion exceeds the “barebones” showing required for an unopposed motion, and the settlement appears to be in the ballpark of its 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 Court is consequently inclined to grant the motion. However, House does not propose an allocation of the settlement as required under the circumstances. It is consequently directed to appear at the hearing on this matter to present its proposed allocation to be incorporated in the Court’s final order.

House 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 House itself acknowledges that “any non-assigned rights … reserved by [Ross] under its’ [sic.] Cross-complaint that were excluded from” Ross’s settlement with plaintiff “may potentially remain” against House. House 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.

III. Pinnacle’s Motion

Pinnacle was engaged to install windows and sliding glass doors on the project by subcontractor Collier Warehouse, Inc., whose own good faith settlement with plaintiff was approved by the Court on June 10. Collier purchased the windows and doors from defendant and cross-defendant Milgard Manufacturing, Inc. Pinnacle is a defendant and a cross-defendant to Ross’s and Collier’s cross-complaints, and filed its own cross-complaint against Milgard. Milgard continues to litigate this action, but does not oppose Pinnacle’s motion.

According to its settlement demand letter to Pinnacle, plaintiff asserts that Pinnacle is liable for $1,162,795.41 of its $7.7 million facade claims. Pinnacle maintains that it is not responsible for any defects in or water intrusion caused by the windows and sliding glass doors at issue, and notes that plaintiff alleges product defects in the windows and doors as well as claims arising from their installation.

Pinnacle and plaintiff have agreed to a settlement of $350,000, with the assistance of mediator Hart. The settlement followed plaintiff’s initial demand of $1 million. The settlement amount was proposed by Mr. Hart as part of a three-way, blind mediator’s demand issued to plaintiff, Pinnacle, and Collier. The parties propose to allocate 90 percent of the settlement towards alleged defects with the project’s windows, five percent towards other defects, and five percent towards fees and costs.

Although the papers supporting Pinnacle’s motion are “barebones,” the settlement and allocation appear reasonable based on the evidence presented. Pinnacle’s motion is consequently GRANTED.

IV. Alcal’s Motion

Alcal was engaged by Ross to install waterproofing materials at the project’s podium level common areas, podium level private decks, and elevated walkways/breezeways, including the installation of fluid applied waterproofing membrane and drainage board. Like the other moving parties, Alcal is named as both a defendant to the complaint and a cross-defendant to Ross’s cross-complaint.

Alcal’s work was involved in four of the six primary defect categories identified by plaintiff, comprising the elevated private deck, podium private deck, podium common areas, and elevated breezeways. Plaintiff’s expert allocated a total of $10,248,702 in liability to Alcal, corresponding to 17 to 25 percent of the total liability in each category. A number of other parties performed work related to each of these defect categories, including installing the structural concrete, framing, concrete topping slab, decorative pavers, site drains, and conform edge metal assemblies. Plaintiff also claims that Alcal is responsible for a portion of its loss of use damages, attorney fees, and Stearman expenses, and owes express contractual indemnity for losses arising out of or related to its work. In light of this alleged liability, plaintiff’s initial settlement demand to Alcal was $15 million.

Alcal retained its own expert, who attended the destructive testing performed by plaintiff, did his own visual inspection of the property, and reviewed other relevant materials. Alcal’s expert concluded that the waterproof membrane was properly installed in all of the areas at issue and was functioning properly. There was very little evidence of any failure of the membrane, and any repairs that might be needed could be performed at a fraction of the cost claimed by plaintiff. Furthermore, Alcal maintains that plaintiff’s continuous on-site inspection of Alcal’s work through a third party inspector bars its claims.

Following multiple mediation sessions with Mr. Hart, plaintiff and Alcal agreed to a settlement in the amount of $5 million. $4,150,000 is proposed to be allocated among the four claimed defect categories involving Alcal’s work, with $442,850 allocated to loss of use, $140,250 to attorney fees, and $266,900 to Stearman expenses.

Based on the evidence provided by Alcal, the settlement and allocation are deemed reasonable. Alcal’s motion is accordingly GRANTED.

V. Dimetrius’s Motion

The final motion before the Court is by painting subcontractor Dimetrius, which is a defendant and cross-defendant to Ross’s cross-complaint.

Plaintiff raises four issues with respect to Dimetrius’s work on the project. First, it contends that handrails were not adequately prepped to receive paint when installed, and have consequently rusted. However, Dimetrius maintains that plaintiff has routinely re-painted the rails since Dimetrius’s initial work, and any issues with the condition of the handrails are attributable to plaintiff’s work rather than Dimetrius’s. Plaintiff also contends that paint is peeling off the sheet metal edges of decks and walkways due to improper preparation work, but Dimetrius maintains that the nearly ten-year-old complex is simply due for repainting. Plaintiff claims that the top and bottom edges of exterior doors were not painted, which could allow water to damage the doors if they were exposed to weather, but Dimetrius asserts that the doors were not exposed to water and there is no evidence of water damage. Finally, plaintiff asserts that paint was applied over plugged weep holes. Dimetrius notes that the weep holes were plugged with stucco material, concrete, and waterproofing material, and would still have been plugged even if they were never painted at all.

Plaintiff demanded $300,000 to settle its claims against Dimetrius, although it then increased this demand to $500,000 based on what Dimetrius characterizes as a “wholly unsubstantiated theory that paint overspray damaged a small section of water proof membrane.” Both sides agreed to accept the mediator’s proposal of $200,000.

The Court is inclined to grant Dimetrius’s motion in light of this evidence. Like House, however, Dimetrius does not propose an allocation of the settlement, and it is directed to appear at the hearing on this matter to address this issue.