Judge: Mark H. Epstein, Case: 23SMCV03937, Date: 2024-10-24 Tentative Ruling

Case Number: 23SMCV03937    Hearing Date: October 24, 2024    Dept: I

This is a challenge to the effect of a settlement between some of the parties.  The motion is a bit unusual, though. 

The underlying case is brought by the purchaser of a home.  Plaintiff claims that at the time he bought the home, no one disclosed to him that a developer was buying up neighboring property in order to build a large multi-unit building.  Plaintiff contends that such a building drastically changes the character of the neighborhood and that he should have been told about it before he bought the property.  He sued various parties to the transactions including the brokers.  Plaintiff has settled with some, but not all, parties.  The settling parties seek a finding of good faith, but Elliman challenges the settlement.  

That much is not odd.  What is a bit more unusual is that Elliman does not actually challenge the settlement or the good faith nature of it.  The issue is the scope of the release.  In other words, all agree that the settlement is appropriate, and all agree that the good faith nature of the settlement will bar claims for equitable indemnity or contribution.  The thing upon which there is not agreement is whether Elliman’s cross action against the settling parties falls within that bar.  That is important because one can presume that the settling defendants are trying to buy peace, which means that they are done with this litigation.  If they cannot buy peace, it is not clear that they will want to go forward with the settlement. 

For a while, the court thought that perhaps it could just find that the settlement is in good faith and that therefore claims of equitable indemnity or contribution are barred and not opine as to whether that includes all of the causes of action in the cross complaint.  But that would have been too cute by half, and might have torpedoed the settlement, as the settling defendant might well not want to wait.  And it turns out that there is case law suggesting that now is the time to make the scope determination.  Indeed, that is one of the factors the court must consider.  (Far West Financial Crop. V. D&S Co. (1988) 46 Cal.3d 796.) 

The normal rules for evaluating a settlement for good faith under CCP section 877.6, are well known and commonly referred to as the Tech-Bilt factors, after the seminal case that set them forth.  (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488.)  The court need not go into that here in detail, though, as the only question is whether Elliman’s claims against the settling defendants are barred.

Before answering that question, we must look at the personae dramatis.  Plaintiffs are the purchasers.  They sued their brokers, Douglas Elliman of California Inc. and Steven D. Roffer, for a number of torts, including fraud by concealment.  These defendants (who will be referred to as the DE Defendants) then brought a cross complaint against Teresa Akerblom, Pickford Real Estate, and Ronald Shigematsu.  Akerblom and Pickford are the seller’s brokers.  Shigematsu is the seller.  Together, Akerblom, Pickford, and Shigematsu are the settling defendants.

The gist of the cross complaint is that the sellers and their broker knew of the development and should have disclosed it to the DE Defendants (who, presumably, would have told plaintiff).  By failing to do so, the DE Defendants allege that they have been harmed.  While it is true that the cross complaint is not captioned as one solely for equitable indemnity or contribution, that matters not.  The question is not the caption of the cause of action; the question is whether the relief sought is in the nature of equitable contribution or indemnity or is truly an independent tort.  And the answer to that question will depend in part on whether the sellers’ brokers owed the DE Defendants an independent duty such that there is an independent tort and whether the damages sought in the cross complaint are damages for that separate tort and not just an award of equitable indemnity or contribution.  The court concludes that there is no such duty, and more importantly, no independent damages that would flow from any such duty.  In making its determination, the court is required to look carefully at the causes of action to “ferret out” those claims that are really for equitable indemnity or contribution but are masquerading as some other tort.  A key to that is (as just stated) whether the damages sought by the DE Defendants are the same as the recovery for equitable indemnity or contribution.  (Cal-Jones Properties v. Evans Pacific Corp. (1989) 216 Cal.App.3d 324.)  When one does that, it is hard to figure out what the DE Defendants’ damages might be other than a proportional payment of any liability that the DE Defendants might ultimately owe to plaintiffs and incidental costs relating to the litigation.  A thought experiment demonstrates the point.  If the DE Defendants were to win the case against plaintiffs, then presumably they would have no damages as against the settling defendants at all.  On the other hand, if the DE Defendants lose the case and are liable to plaintiffs for $100 (the court is picking a ridiculously low number because the court wants to be crystal clear that it is not opining on the value of the case; the court could just as easily have picked $100 million), then the issue on the cross complaint would be how much of that $100 is really the fault of the settling defendants—again, contribution or indemnity.  That is in part because it is the very same failure to disclose alleged in the cross complaint that is alleged in the main complaint and it is the very same damages (to plaintiff) from which the liability springs.  The same result is reached by another route.  It is hard to see the affirmative duty that the settling defendants owe to the DE Defendants other than a common duty not to lie.  The sellers’ brokers owe the buyers’ brokers no fiduciary duty.  And the duty of disclosure is quite limited.  Of course, there could be a duty to disclose certain known problems, but generally that is a duty relating to problems like leaky pipes, inadequate foundation, lead in the paint, or things like that.  In other words, problems with the property itself.  Issues concerning permits or development or zoning are generally not within the scope of what the sellers’ brokers or even sellers must disclose to the buyers or buyers’ brokers.  Thus, it is hard to see some truly independent tort that is being alleged.  And note that to the extent there are flavors of fraud, it is fraud by concealment.  The DE Defendants do not allege that anyone made any affirmative misstatement.  Relatedly, it is hard to see any duty that the settling defendants would owe the DE Defendants that they would not also owe to plaintiffs, making the parties in some sense potentially joint tortfeasors.  (Although, as said before, the court does not see any real duty here at all.)

The point is summarized by Gackstetter v. Frawley (2006) 135 Cal.App.4th 1257.  There, an attorney, Frawley, was sued for malpractice by the beneficiaries of a trust.  The attorney obtained a good faith settlement determination.  In a separate probate proceeding, the beneficiaries sued the trustee, and that case was also settled.  The trustee, however, sued the attorney who had represented the trustee—the same one who had settled with the beneficiaries.  The attorney sought summary judgment based on their good faith determination, arguing that the suit by the trustee was essentially one for contribution or indemnity even though it was captioned as malpractice.  The trustee prevailed at trial.  The Court of Appeal reversed.  It agreed that Frawley owed the trustee a duty—which was undoubtedly the case.  Frawley was Gackstetter’s counsel in Gackstetter’s capacity as trustee.  But the court noted that both Frawley’s bad acts and Gackstetter’s bad acts both had the effect of damaging the beneficiaries of the trust and that therefore both were joint tortfeasors in that their acts combined to produce the harm to the true victims—the trust beneficiaries.  The court noted that Gackstetter claimed damages suffered by him as a result of claims by the beneficiaries.  As a practical matter, the recovery against the attorney would be to reimburse him for the payment he made to the beneficiaries.  Therefore, the causes of action, although not captioned as ones for indemnity, were in fact for indemnity.  And the claim for recovery of the attorneys’ fees Gackstetter incurred in defending the action were also a form of indemnity and were barred.  That case is virtually on all fours with the case at bench.  So here.  The common thread running through the main action and the cross complaint is that disclosures concerning development were not made, leading plaintiffs, as buyers, to buy the property at a higher cost than would otherwise be the case and such that the idyllic home they thought they were buying was not idyllic at all.  The question, and the only question, will be (if the allegations are proven) who bears what share of the responsibility—exactly the question one asks in an equitable indemnity or contribution case.

The DE Defendants argue that they also allege a different kind of damage: that their business costs have become more expensive.  The court has no idea what this even means, and the DE Defendants have provided no help.  The closest the court can guess is that malpractice insurance premiums will increase (at least if they lose to plaintiffs).  The court does not think that is even cognizable damage.  But assuming that it were, like the fees that will be incurred to defend the action, this is part of the broad notion of indemnity.  The court notes that this is not a pleading motion.  Unlike a demurrer, the court can look behind the allegations to see if there is any meat on the bones or if the allegation is nothing but smoke, which seems to be the case here.

The purpose of section 877.6 is to encourage settlements.  There is no argument made there that the settling defendants got out cheaply because they are getting some protection against tort liability other than contribution or indemnity, and there is no argument here that the settlement sum is outside the ball park of what is reasonable.  Rather, this is a straight question whether any of the DE Defendants’ cross claims against the settling defendants are for something other than equitable indemnity or contribution.  They are not.  Therefore, the challenge to the good faith settlement is DENIED.  The court finds the settlement to be in GOOD FAITH, and all claims for equitable indemnity or contribution, which include all of the claims in the DE Defendants’ cross complaint, will be barred.