Department 58

Hearing Date: January 29, 2024

Case Name: Wiand v. Wassgren

Case No.: 20STCV49670

Matter: Joint Application for Determination of Good Faith Settlement

Moving Party: Defendants Paul R. Wassgren, Fox Rothschild LLP, and DLA Piper LLP

Responding Party: None

Tentative Ruling: The Joint Application for Determination of Good Faith Settlement is granted.

Background

From 2011 to 2017, Paul Wassgren (Wassgren) was a partner at Fox Rothschild LLP (Fox). In May 2017, he joined DLA Piper LLP (DLA). (Compl., ¶¶ 8, 12.) When Wassgren joined DLA, he brought EquiAlt with him as a client. (Compl., at p. 1.)[1]

To raise capital to fund its business, EquiAlt created six investment funds. The first four were “debenture” funds; these four funds were created by Wassgren while he was a partner at Fox. They are called EquiAlt Fund, LLC (Fund 1), EquiAlt Fund II, LLC (Fund 2), EquiAlt Fund III, LLC (Fund 3), and EA SIP, LLC (Fund 4). The fifth and sixth funds—the EquiAlt Qualified Opportunity Zone Fund, LP (QOZ Fund) and EquiAlt Secured Income Portfolio REIT, Inc. (REIT Fund)—were “equity” funds and were created while Wassgren worked at DLA. (Compl., ¶¶ 6–7.) All these funds (referred to as, “Investment Funds” or “Funds”), along with the Receiver, are the named Plaintiffs in this action. EquiAlt managed and controlled each fund.

On February 11, 2020, the SEC sued EquiAlt, Brian Davison and Barry Rybicki, Funds 1– 4, and a number of “Relief Defendants” in the U.S. District Court for the Middle District of Florida. (Compl., p. 1, ¶ 55) The SEC alleged EquiAlt operated Funds 1–4 in violation of Regulation D exemptions for unregistered securities, including by exceeding the allowed number of unaccredited investors, paying commissions to unregistered sales agents, and using general solicitations to advertise.

On February 14, 2020, the Receivership court granted the SEC’s request for a TRO and appointed Plaintiff Burton Wiand as receiver over EquiAlt, Funds 1–4, and the Relief Defendants. (Compl., p. 1, ¶ 15.) On July 1, 2020, the Receivership court authorized the Receiver to retain counsel to “pursue claims against law firms that provided services to EquiAlt and the Funds . . ..” (Compl., p. 1.) On August 17, 2020, the Receivership court expanded the scope of the receivership to encompass the QOZ and the REIT Funds. (Compl., p. 1.)

The Complaint here is brought by the Receiver and the Funds against Wassgren, Fox Rothschild, and DLA Piper. It alleges causes of action for (1.) breach of fiduciary duty, (2.) negligence, (3.) aiding and abetting fraud, and (4.) breach of fiduciary duty. The Complaint alleges damages in excess of $100,000,000. (Compl., ¶ 54.)

On or about March 23, 2022, Defendants entered into a settlement with Plaintiff Burton W. Wiand, in his capacity as Court-appointed Receiver for EquiAlt Fund, LLC, EquiAlt Fund II, LLC, EquiAlt Fund III, LLC, EZ SIP, LLC, EquiAlt Qualified Opportunity Zone Fund, LP, and EquiAlt Secured Income Portfolio REIT, Inc. (Plaintiffs) and investors Richard Gleinn, Phyllis Gleinn, Cary Toone, John Celli, Maria Celli, Eva Meier, Georgia Murphy, Steven J. Rubinstein and Tracey F. Rubinstein, as trustees for the Rubinstein Family Living Trust dated 6/25/2010, Lisa Gioia1, as trustee for the Greenberg Family Trust, Bruce R. Hannen and Geraldine Mary Hannen, Robert Cobleigh, and Rory O’Neal, Marcia O’Neal, and Sean O’Neal, as trustee for the O’Neal Family Trust dated 4/6/2004 (collectively, Investors).

The Settlement Agreement provides that Defendant Fox will pay twenty-two million dollars ($22,000,000) of the settlement payment amount and Defendant DLA will pay twenty-two million dollars ($22,000,000) of the settlement payment amount. The Settlement Agreement depends upon, among other things, the Court’s approval of the Motion for Good Faith Settlement.

On November 2, 2023, Defendants moved for a good faith settlement with respect to a Settlement Agreement. The motion is unopposed.

The Motion for Good Faith Settlement is granted.

Legal Standard

“A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor or co-obligor from any further claims against the settling tortfeasor or co-obligor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.” (Code Civ. Proc., § 877.6, subd. (c).)

In Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488 (Tech-Bilt), our Supreme Court explained that in making a good faith settlement determination, a trial court should “inquire, among other things, whether the amount of the settlement is within the reasonable range of the settling tortfeasor's proportional share of comparative liability for the plaintiff's injuries.” (Id. at p. 499.) “The party asserting the lack of good faith shall have the burden of proof on that issue.” (Code Civ. Proc., § 877.6, subd. (d).)

“In the context of section 877.6, ‘[t]he trial court is given broad discretion in deciding whether a settlement is in “good faith” for purposes of section 877.6, and its decision may be reversed only upon a showing of abuse of discretion.’ ” (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 957.)

Discussion

Defendants request the Court find its settlement with Plaintiffs in the amount of $44,000,000 was made in good faith based on its position that the Settlement Agreement meets all the relevant Tech-Bilt factors.

Acknowledging that there is no precise method to determine whether parties entered into a good faith settlement, the Supreme Court in Tech-Bilt, Inc. v. Woodward-Clyde Assoc. (1985) 38 Cal.3d 488 provided guidelines for determining whether a settlement is made in good faith. (38 Cal.3d at 495.) Rather, the court must strike a balance between the public policy favoring settlements and the competing policy favoring equitable allocation of costs between tortfeasors. (Id. at pp. 498-99.) To accomplish this, the Tech-Bilt Court provided the following factors for determining whether a proposed settlement is based on good faith: (1) a rough approximation of plaintiff’s total recovery and the settling defendant’s proportionate liability; (2) the amount paid in settlement; (3) allocation of settlement amounts among plaintiffs; (4) recognition that a settlor should pay less in settlement than it would if it were found liable after trial; (5) financial conditions and insurance policy limits of the settling defendant; and (6) the existence of collusion, fraud, or tortious conduct aimed to injure the interests of non-settling defendants. (Id. at 499-500.) The burden of proof in asserting that a settlement lacked good faith falls upon the party making the assertion and it must show that “the settlement is so far ‘out of the ballpark’ in relation to these factors as to be inconsistent with the equitable objectives of [Code of Civil Procedure section 877.6].” (Ibid.)

Here, the parties to the settlement are Plaintiff and the Investors, on the one hand, and Defendants/Applicants Paul R. Wassgren, Fox Rothschild LLP (Fox), and DLA Piper LLP (DLA), on the other hand. Under the Settlement Agreement, Defendants will pay the sum of $44,000,000.00, which is approximately 44% of the recoverable damages based on the damages asserted in the Complaint. (Compl., ¶ 54.) Therefore, the Settlement Amount is within the ballpark of Defendants’ possible share of liability, with the understanding that, under Tech-Bilt, a party should not be required to pay more in a settlement than if found liable at trial.

Further, Defendants assert that this settlement was reached in good faith as an arm’s length transaction, as evidenced by findings in the SEC v. Brian Davison et al., No. 8:20-cv-00325-MSS-AEP. (Ex. A [Settlement Agreement, Exs. 7-8].)

Finally, under Code of Civil Procedure section 877.6, “the party asserting the lack of good faith shall have the burden of proof on that issue.” In the absence of any opposition to this motion, this burden has not been met.

Accordingly, the Court finds that the settlement was made in good faith and in compliance with the Tech-Bilt factors.

Conclusion

The Motion for Determination of Good Faith Settlement is granted.

[1] EquiAlt was in the business of purchasing and rehabilitating distressed real estate, primarily in Florida, for investment.