Judge: Daniel M. Crowley, Case: 19STCV42090, Date: 2024-07-03 Tentative Ruling

Case Number: 19STCV42090    Hearing Date: July 3, 2024    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

Defendants Robert K. Barth’s and Eastwind Financial, LLC’s unopposed motion for an order granting preliminary approval of the Settlement Agreement and Release, and Plaintiffs Haderway PTC, LLC, as Trustee, etc. derivatively on behalf of Centerville Place 1023 Main, LLC, a Delaware limited liability company and BFSB Portfolio, LP derivatively on behalf of JBR Alondra, LLC’s joinder to Defendants’ motion is granted.

Defendants Robert K. Barth (“Barth”) and Eastwind Financial, LLC (“Eastwind”) (collectively, “Defendants”) move unopposed for an order granting preliminary approval of the Settlement Agreement and Release.  (Notice Motion, pg. 2.)  The motion is brought on the grounds that (1) the settlement was reached following extensive arm’s-length negotiations over a period of more than eight months; (2) the settlement was negotiated following an eight-day bench trial resulting in judgment for Plaintiffs Haderway PTC, LLC (“Haderway”) and BFSB Portfolio, LP (“BFSB”) (collectively, “Plaintiffs”) and during the pendency of cross-appeals; (3) the relative strengths and weaknesses of the parties’ grounds for appeal weigh in favor of preliminary approval; (4) the risk, expense, complexity, and duration of the litigation, including the parties’ pending appeals and the prospect of a retrial, weigh in favor of preliminary approval; (5) the settlement is in the best interests of JBR Alondra, LLC (“JBR”) and Centerville Place 1023 Main, LLC (“Centerville”) (collectively, “Nominal Defendants”) and their members; and (6) the proposed notice to the direct and indirect members of the Nominal Defendants provides adequate notice of the settlement terms and an opportunity to object before final approval by the Court.  (Notice Motion, pg. 2.)

Plaintiffs join Defendants’ motion for preliminary approval of the settlement of the derivative action.  (Notice Joinder, pg. 2.)

Background

In November 2019, Stanley Black (“Black”) filed this action derivatively on behalf of Nominal Defendants, two real estate investment entities that were managed by Barth or his affiliates.  Black alleged that Barth had cheated Alondra and Centerville out of approximately $6,600,000 in connection with a series of transactions involving the purchase and sale of a single-family residence located on Greenway Drive in Beverly Hills (“Greenway”).  Following several substitutions of plaintiffs and the grant of summary adjudication in favor of Defendants on two causes of action, the case proceeded to an eight-day bench trial in October and November 2021.

On April 28, 2022, this Court issued a final statement of decision, in which the Court: (1) ruled for Plaintiffs  on their claims against Barth for breach of fiduciary duty and misappropriation of opportunity; (2) ruled for Barth and Eastwind on the claims for breach of contract and conversion; and (3) awarded Plaintiffs compensatory damages in the amount of $6,692,740, along with prejudgment interest from January 15, 2019, and punitive damages in the same amount.  This Court entered judgment on May 26, 2022.

Barth and Plaintiffs filed cross-appeals on July 14, 2022, and July 26, 2022, respectively.  While those cross-appeals have been pending, this Court awarded Plaintiffs attorney fees in the amount of $1,401,491.50 under the common fund doctrine, to be borne from the judgment amount, and costs in the amount of $102,581.29.  The appeal and cross-appeal have not been fully briefed and remain pending.

Defendants filed the instant motion on April 19, 2024.  Plaintiffs filed their joinder on June 20, 2024.  As of the date of this hearing no opposition has been filed.

Legal Standard

Settlements of derivative actions are subject to court approval.  (Whitten v. Dabney (1915) 171 Cal. 621, 630-632; Kennedy v. Kennedy (2015) 235 Cal.App.4th 1474, 1485 [“Dismissal of a derivative claim requires court approval.”].)

California public policy strongly favors settlements.  (See Osumi v. Sutton (2007) 151 Cal.App.4th 1355, 1359 [“It is, of course, the strong public policy of this state to encourage the voluntary settlement of litigation.”]; Hamilton v. Oakland School District (1933) 2019 24 Cal. 322, 329 [“It is the policy of the law to discourage litigation and to favor compromises.”].)

Under California law, a presumption of fairness attaches to a settlement where: “(l) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objections is small.”  (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1802.)  A court may also consider other relevant factors, “such as the strength of  plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction . . . to the proposed settlement.”  (Id. at pg. 1801.)

At the preliminary approval stage, the sole issue before the Court is whether the proposed settlement is within a range of what might be found fair, reasonable, and adequate, so that notice of the proposed settlement can be given to shareholders and a date can be set for a final hearing to consider final settlement approval.  (See Manual for Complex Litigation §§21.632, 21.633 (4th ed. 2016); Dunk, 48 Cal.App.4th at pg. 1801.)  The ultimate determination of whether the settlement is fair, reasonable, and adequate is made only after notice of the settlement has been given to shareholders affording them an opportunity to evaluate and comment on the proposed settlement.  (See Manual for Complex Litigation §§21.633, 21.634 (4th ed. 2016).)

Discussion

The Settlement Agreement was reached through many months of arm’s-length negotiations among experienced counsel fully versed in the in relevant facts and law, meeting the first three factors that support preliminary approval of the settlement.  (Dunk, 48 Cal.App.4th at pg. 1802.) 

The parties commenced settlement negotiations in June 2023.  (Decl. of Klieger ¶19.)  Defendants’ counsel declares those settlement negotiations were conducted between the same experienced trial counsel who had represented Plaintiffs and Defendants, respectively, during the more than four years this case has been pending, along with a highly regarded appellate specialist that Plaintiffs engaged as co-counsel for purposes of the appeal.  (Decl. of Klieger ¶19.)  Defendants’ counsel declares the settlement negotiations continued for a period of eight months, with the parties’ counsel spending more than a hundred hours in the aggregate negotiating, drafting, and revising the settlement terms and numerous iterations of the settlement documents.  (Decl. of Klieger ¶19.)  Defendants’ counsel declares the parties finalized and executed the Settlement Agreement during the last week of February 2024.  (Decl. of Klieger ¶19.)

Additional factors also weigh in favor of preliminary approval of the settlement.  The Settlement Agreement and Release fully redresses the damages caused by Defendants’ alleged wrongdoing. Specifically, the settlement requires Barth to pay to Alondra and Centerville all of the following: (1) the full amount of compensatory damages awarded by the Court, in the amount of $6,692,740; (2) the full amount of prejudgment interest awarded by the Court, in the amount of $1,713,242.42; and (3) post-judgment interest at the rate of ten percent per annum through the date of payment, which already exceeds $1,507,895.  (Motion, pg. 19; Exh. 1 at §§3.1-3.2.)   These amounts are offset only by the amount of the common fund attorneys’ fees award and costs award that have already been approved by the Court.  Under the Settlement Agreement, Alondra and Centerville will receive $8,409,804.63, which is more than 125% of the compensatory damages claimed by Plaintiffs and awarded by the Court.  In addition, the attorneys’ fees and costs that Plaintiffs have incurred to date in connection with the appellate proceedings, totaling $403,751.11, will be borne personally by Barth, without any reduction of the settlement amount.  (Motion, pgs. 19-20; Exh. 1 at §3.6.)

Further, the judgment shall be vacated, and the entire action and all causes of action shall be dismissed with prejudice. The judgment will nonetheless be accorded the force and effect of a final judgment for purposes of res judicata, collateral estoppel, and similar doctrines and rules in any later action or proceedings between the same parties or their affiliates.  (Exh. 1 at §3.7.)

The proposed Settlement Agreement represents an outstanding resolution for Alondra and Centerville in the face of a vigorously contested appeal.  If the Court of Appeal rules for Barth on any of his seven claims of error in his appeal, the possible outcomes range from a vacatur of the punitive damages award to a reversal and remand for a new trial to a reversal and entry of judgment for Defendants on all claims for relief.  If the Court of Appeal rules for Plaintiffs on their claim of error, the Court of Appeal could award treble damages or remand the case for the same.  The guaranteed recovery by each participating member of more than 125% of the compensatory damages claimed by Plaintiffs and awarded by the Court is more than fair, reasonable, and adequate in view of the risks of the pending appeal, the time and expense required to complete that appeal and potentially retry the case, and the possibility of an outright reversal or eventual judgment for Defendants that vindicates Defendants’ position and leaves Plaintiffs with no recovery at all.

Accordingly, the Court grants the requested preliminary approval of the Settlement Agreement and Release.

Notice

Settlement of derivative actions typically requires notice of the settlement to shareholders, “informing them of the settlement’s terms, their right to file written objections with the superior court, and their right to appear at the settlement hearing,” in a mechanism like class actions.  (Robbins v. Alibrandi (2005) 127 Cal.App.4th 438, 447.)  In the class action context, CRC, Rule 3.769(f) provides that “notice of the final approval hearing must be given . . . in the manner specified by the court.”  (CRC, Rule 3.769(f).)  The notice “must contain an explanation of the proposed settlement and procedures . . . to follow in filing written objections to it and in arranging to appear at the settlement hearing and state any objections to the proposed settlement.”  (Id.)

Here, the proposed Notices are drafted in plain language and contains all the information required by CRC, Rule 3.766(d) for notice to class members that is relevant in the context of a settlement of a derivative action.  (Motion, pg. 21, Exhs. 2-3;[1] see Churchill Village, LLC v. Gen. Electric (9th Cir. 2004) 361 F.3d 566, 575 [“Notice is satisfactory if it ‘generally’ describes the terms of the settlement in sufficient detail to alert those with adverse viewpoints to investigate and come forward and be heard.”]; Litwin v. iRenew Bio Energy Solutions, LLC (2014) 226 Cal.App.4th 877, 883-884 [stating notice must state that “[i]t is unnecessary for objectors to appear personally at the settlement hearing in order to have their written objections considered by the court”].)  

The proposed Notices includes: (1) a summary of the instant action and Stanley Black v. Robert K Barth, et al., LASC Case No. 19STCV41943 (“Brighton Action”), including, for both actions, their procedural histories and the parties’ contentions; (2) the settlement terms, including the estimate amount each member will receive; (3) the reasons the parties recommend settlement of the action; (4) copies of the Final Statement of Decision and Judgment in this action and the trial court's order on summary judgment in the Brighton Action; (5) how to appear at the final settlement hearing and the procedure for objecting to the settlement; and (6) the binding effect that final approval of the settlement will have on current investors.  (Exhs. 2-3.)

The Notices will be served via first class mail to the addresses on record with Alondra and Centerville or their affiliates for each of their direct and indirect members. The deadline to object to the Settlement Agreement and Release is fourteen (14) days prior to the final hearing date. This affords the members ample time to review the Settlement Agreement and Release and determine whether to timely file any such objection.

Schedule of Events

          The Court approves Defendants’ proposed schedule: (1) for mailing of the proposed Notices (no later than ten calendar days after entry of Preliminary Approval Order); (2) the filing of submissions in support of final approval of the Settlement Agreement and Release (at least twenty-eight calendar days prior to the final hearing date); (3) the deadline to file objections with the Court (at least fourteen calendar days prior to the final hearing date; (4) the deadline to file a response to objections, if any (at least seven calendar days prior to the final hearing date; and (5) the final hearing date (at least sixty calendar days after entry of the Preliminary Approval Order).

Conclusion

Defendants’ unopposed motion for preliminary approval of the Settlement Agreement and Release, and Plaintiffs’ joinder the Defendants’ motion, is granted.

Moving Party to give notice.

Dated:  July _____, 2024