Judge: H. Jay Ford, III, Case: SC126129, Date: 2023-10-17 Tentative Ruling

Case Number: SC126129    Hearing Date: October 17, 2023    Dept: O

  Case Name:  California Delta Mechanical, Inc. v . Professional Services Corporation, Inc., et al.

SUBJECT:                 MOTION FOR DETERMINATION OF GOOD FAITH SETTLEMENT

MOVING PARTY:   Defendant/Cross-Defendant/Cross-Complainant Donald F. Dickerson Associates

RESP. PARTY:         Plaintiff/Cross-Complainant/Cross-Defendant California Delta Mechanical, Inc.

TENTATIVE RULING

            Defendant/Cross-Defendant/Cross-Complainant Donald F. Dickerson Associates’ (“Dickerson”) Motion for Determination of Good Faith Settlement is DENIED. 

The Court denies Delta’s request for sanctions pursuant to CCP §128.5(a) and (b).  The motion to determine good faith settlement was not brought in bad faith nor is it frivolous.  The mere fact that Association was suspended does not automatically render the Settlement Agreement unenforceable or illegal.  Contracts entered into by the corporation during suspension are voidable at the option of the other party but not at the option of the corporation.  See Rev. & Tax.C. § 23304.1(a); see Performance Plastering v. Richmond American Homes of Calif., Inc. (2007) 153 Cal.App.4th 659, 669.  Association is willing to take the risk that Dickerson could deem the settlement agreement void at its option.  Delta fails to establish that Association’s willingness to take this risk precludes a finding of good faith or requires a finding of bad faith or collusion or renders this motion frivolous.

REASONING

1.  Failure to provide a rough approximation of Dickerson’s Proportionate Liability--Substantial evidence (e.g., factual declarations) showing the nature and extent of the settling defendant's liability is required for a good-faith determination. Without such evidence, a “good faith” determination is an abuse of discretion. See Mattco Forge, Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, 1348 (“questionable assumptions” in moving party's memorandum of points and authorities insufficient to show settlement was reasonable); Greshko v. County of Los Angeles (1987) 194 Cal.App.3d 822, 834 (attorney's declaration re settling defendant's liability insufficient where he failed to provide specific supporting facts or expert opinion). The ultimate determinant of good faith is whether the settlement is grossly disproportionate to what a reasonable person at the time of settlement would estimate the settlor's liability to be. City of Grand Terrace vs. Superior Court (1987) 192 Cal App.3d 1251, 1262.

“When a trial court considers the good faith of a settlement, it must determine each tortfeasor's proportionate share of liability. The trial court's good faith determination must also take into account the settling tortfeasor's potential liability for indemnity to a cotortfeasor, as well as the settling tortfeasor's potential liability to the plaintiff. In so doing, a trial court must consider each of the plaintiff's claims and possible recoveries and the potential liability of the joint tortfeasors.” Cal-Jones Properties v. Evans Pacific Corp. (1989) 216 Cal.App.3d 324, 328.

            Dickerson does not set forth the amount of damages sought by Plaza Towers Condominium Association (“Association”) or its potential recovery.  The Court requires this information to determine whether the $10,000 cash settlement and the waiver of costs and fees valued at $450,000 is disproportionately low.  Dickerson fails to identify for the Court the amount of Association’s potential recovery or the evidence, e.g. in discovery responses, indicating the amount of damages it is seeking.

            However, in Professional’s withdrawn motion for determination of good faith settlement filed by Professional, Association’s claimed damages totaled $35,700,00 for construction and design related defects.  See Dec. of J. Earle, ¶18, Ex. H.  The cash value of the proposed settlement is $10,000, approximately .003% of the Association’s claimed damages.  The total value of the settlement, including the value of the waiver of costs and fees, is $460,000, which is .012% of the Association’s claimed damages.

            According to Dickerson’s expert, none of the claimed defects were due to any defect in Dickerson’s design and that Dickerson had performed all of its services under the agreement in a reasonable and prudent manner.  Dickerson’s expert explains why the four areas of concern were not the result of Dickerson’s defective design but due to construction defects. See Dec. of P. Kraut, ¶9.  Dickerson’s role was limited to providing mechanical engineering design for the plumbing on the project.  See Dec. of Trafton, ¶3.

            Dickerson maintains its proportionate liability is zero to minimal.  Dickerson does not provide the Court with any estimation of what its proportionate “minimal” liability would be. Dickerson should provide the Court with an approximation of the top end of its estimation of its liability, i.e. what is “minimal” and what proportion of Association’s potential recovery could be attributed to Dickerson.

2.  Failure to allocate settlement proceeds—“Where the settling parties have agreed to allocate less than all of the settlement amount to a portion of the causes of action, an evidentiary showing is required to justify such allocation.  The effectiveness of such an allocation depends upon its good faith.  The statutory requirement of good faith extends not only to the amount of the overall settlement but as well to any allocation which operates to exclude any portion of the settlement from the setoff.”  Erreca's v. Superior Court (1993) 19 Cal.App.4th 1475, 1491.

“In the typical one-plaintiff, multiple-defendants, personal injury action each tortfeasor is potentially liable for the same injury to the plaintiff. Therefore the full settlement by one defendant will offset a judgment against other tortfeasors; no allocation of the settlement is required. But many lawsuits and many settlements do not fit this pattern. In some, the amount of the offset is uncertain because one settlement covers multiple plaintiffs or causes of action with different damages, or because a sliding scale settlement is used and payments by the settling defendant are contingent upon the degree of plaintiff's success against the remaining defendants. In others, the amount of the offset is clouded by injection of noncash consideration into the settlement or, as here, by settling claims for separate injuries not all of which would be attributable to conduct of the remaining defendants.”  Alcal Roofing & Insulation v. Superior Court (1992) 8 Cal.App.4th 1121, 1124. 

“In a situation where the cash amount of the settlement does not dictate the amount of the offset, the settling parties must include an allocation or a valuation in their agreement. A natural tension will exist between plaintiff, who benefits by undervaluing the settlement in order to permit greater recovery against the remaining defendants, and the settling defendant, who would want the settlement value high enough to be approved in order to relieve settling defendant from liability for comparative indemnity or contribution.  Requiring a joint valuation by the plaintiff and the settling defendant should generally produce a reasonable valuation.”  Id. at 1125.

Dickerson and Association have not allocated the settlement proceeds to the various categories of damages alleged by Cross-Complainant Plaza, i.e. plumbing, mechanical, electrical.  Different Cross-Defendants are allegedly responsible         for different categories of damage to the property, and they will likely not be liable for one another’s alleged negligence.  For example, Dickerson would not be liable for any alleged construction defects or electrical defects based on the Association’s FAXC and it appears 100% of the settlement would be applied to damage to due to plumbing.  If the remaining Cross-Defendants, who are also allegedly liable for plumbing defects, are found liable, it would be unclear whether their liability would be offset by Professional and Plaza’s the settlement.  Dickerson and Association must provide the Court with a clear allocation of their settlement, including the noncash portion, to the areas and categories of damage alleged by Association. 

3.  Financial condition and insurance information of Dickerson—“[E]ven where the claimant's damages are obviously great, and the liability therefor certain, a disproportionately low settlement figure is often reasonable in the case of a relatively insolvent, and uninsured, or underinsured, joint tortfeasor.” See Mattco Forge, Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, 1352. However, where the settling defendant has ample insurance coverage, a disproportionately low settlement cannot be deemed in good faith. Id. at 1352-1353.

If the $10,000 cash/$450,000 waiver is disproportionately low relative to Dickerson’s potential exposure, Dickerson’s $2 million burning limits policy would not qualify as complete lack of insurance or underinsurance.  Dickerson fails to establish that its financial condition and insurance would justify a disproportionately low settlement.  If the settlement is not disproportionately low relative to what a reasonable person at the time of settlement would estimate Dickerson's liability to be, the financial condition and insurance information would not affect the good faith determination.