Judge: Michael E. Whitaker, Case: 19SMCV01966, Date: 2024-01-24 Tentative Ruling

Case Number: 19SMCV01966    Hearing Date: January 24, 2024    Dept: 207

TENTATIVE RULING

BACKGROUND

This case arises from alleged construction defects to the home of Plaintiffs Michael Levine and Zorbey Ozdilek (“Plaintiffs”).  Plaintiffs brought suit against the architects, general contractor, and subcontractors who worked on the project.

On October 17, 2023, the Court approved the good faith settlement between Plaintiffs and Defendant subcontractor E & J Lopez Plumbing, Inc. in the amount of $120,000 and between Defendant/Cross-Complainant Denver Thomas Dale IV dba Residential Construction Company and Cross-Defendant E & J Lopez Plumbing in the amount of $30,000.

Defendant Rapid Duct Testing and Air Balancing, Inc. (“Rapid” or “Defendant”) now moves for determination of a good faith settlement between itself and Plaintiffs in the amount of $50,000.  Rapid’s motion is unopposed.

ANALYSIS

A.    THE LAW GOVERNING GOOD FAITH SETTLEMENTS

Under section 877.6 of the Code of Civil Procedure,[1]  “[a] determination by the court that [a] settlement was made in good faith 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.”  (§ 877.6, subd. (c).)  Additionally, a determination that a settlement was made in good faith will reduce the claims against the non-settling defendants by the amount specified in the settlement agreement.  (§ 877.6, subd. (a).)  “The party asserting the lack of good faith has the burden of proof on that issue.”  (§ 877.6, subd. (d).) 

Section 877.6 requires “that the courts review [settlement] agreements made under its aegis to insure that the settlements appropriately balance the . . . statute’s dual objectives” (i.e., providing an “equitable sharing of costs among the parties at fault” and encouraging parties to resolve their disputes by way of settlement).  (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 494 (hereafter Tech-Bilt).)  In Tech-Bilt, the California Supreme Court set forth the factors to consider when determining whether a settlement was made in good faith.  The Tech-Bilt factors are: (1) a rough approximation of plaintiff’s total recovery and the settlor’s proportionate liability; (2) the amount paid in settlement; (3) the allocation of settlement proceeds among plaintiffs; (4) a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial; (5) the financial conditions and insurance policy limits of settling defendants; and (6) the existence of collusion, fraud, or tortious conduct aimed to injure the interests of the non-settling defendants.  (Id. at pp. 498-501.)  “Practical considerations obviously require that the [trial court’s] evaluation [of the settlement] be made on the basis of information available at the time of settlement.”  (Id. at p. 499.) 

“The party asserting the lack of good faith . . . [is] permitted to demonstrate, if he can, that the settlement is so far ‘out of the ballpark’ in relation to [the above] factors as to be inconsistent with the equitable objectives of [Section 877.6].  Such a demonstration would establish that the proposed settlement was not a ‘settlement made in good faith’ within the terms of section 877.6.”  (Tech-Bilt, supra, 38 Cal.3d at pp. 499–500.) 

The moving party on an unopposed motion for determination of good faith settlement, however, is not required to set forth a full discussion of the Tech-Bilt factors by declaration or affidavit. The moving party on an unopposed motion for determination of good faith settlement need only advance a motion setting forth the basic grounds for the determination of good faith and a declaration setting forth a brief background of the case. (City of Grand Terrace v. Superior Court (1987) 192 Cal.App.3d 1251, 1261.)

B.     APPLICATION OF THE TECH-BILT FACTORS TO THE FACTS OF THE CASE

1.      A ROUGH APPROXIMATION OF PLAINTIFF’S TOTAL RECOVERY AND THE SETTLOR’S PROPORTIONATE LIABILITY.

The first Tech-Bilt factor consists of two parts – a rough approximation of Plaintiff’s total recovery and the settlor’s proportionate liability.  When approximating a plaintiff’s total recovery or the settling defendant’s proportionate liability, “judges should . . . not yearn for the unreal goal of mathematical certainty.  Because the application of section 877.6 requires an educated guess as to what may occur should the case go to trial, all that can be expected is an estimate, not a definitive conclusion.”  (North County Contractor’s Assn. v. Touchstone Ins. Services (1994) 27 Cal.App.4th 1085, 1090 (hereafter North County).) 

Additionally, “a court not only looks at the alleged tortfeasor’s liability to the plaintiff, but it must also consider the culpability of the tortfeasor vis-à-vis other parties alleged to be responsible for the same injury.  Potential liability for indemnity to a nonsettling defendant is an important consideration for the trial court in determining whether to approve a settlement by an alleged tortfeasor.  [Citation.]”  (TSI Seismic Tenant Space, Inc. v. Superior Court (2007) 149 Cal.App.4th 159, 166.)

In the Fourth Amended Complaint (FAC), Plaintiffs allege they purchased the subject property for over two million dollars $2,000,000.00 and that the construction project was estimated to cost two million five hundred eighty thousand dollars ($2,580,000.00).  (FAC ¶¶ 33-34.)  Plaintiffs further allege that they paid in excess of four million dollars ($4,000,000) on the project, and then had to spend three million more dollars ($3,000,000) to remediate construction mistakes and defects.  (FAC ¶ 44.)  In total, the FAC seeks nine million dollars ($9,000,000) in actual damages. (FAC Prayer at ¶¶ a-b.)

Rapid was hired by the HVAC subcontractor Defendant Temperature Equipment (“Temperature”) to conduct Title 24 “HERS” (home energy rating service) testing.  Rapid’s involvement in the construction project was limited to a single day of work, wherein Rapid measured the air flow into the house and any air leakage from the ductwork.  According to Rapid, “[t]he testing passed and Rapid reported the results to the State Energy Commission and was issued a rough stage Certificate by the State” which Rapid turned over to Temperature.  (Motion at p. 3.)

Six months after Rapid’s test, the HVAC system underwent follow-up HERS testing by another testing company and failed.  (Motion at p. 4; FAC ¶¶ 132-138.)  Plaintiff alleges Rapid was involved in a scheme with Temperature and the general contractor to falsify the initial HERS testing results.  (FAC ¶¶ 120-138; Motion at p. 4.)  Rapid contends that several changes were made to the HVAC system and ductwork after it conducted its HERS testing and before the follow-up HERS testing was performed, including:

·         March 22, 2019 – Repair work included installation of new dampers throughout the house, correction of air leaks, performance of air balancing and the making of appropriate adjustments.

·         April 30, 2019 – Rusting in observed in the duct work.

·         May 6, 2019 – Questioning whether the furnaces are contributing to the moisture issue that caused the sheet metal fittings to rust.

·         May 21, 2019 – Rain water possibly getting sucked into the vents and duct work.

·         June 11, 2019 – HVAC Action Items Meeting:

1. Insulate bare ducts which are uninsulated.

2. Reseal existing ductwork.

3. Seal ducts around light fixtures.

·         June 18, 2019 – Large amounts of rusting/deterioration observed in the HVAC duct work.

(Motion at pp. 4-5.)

Rapid thus contends that in light of the changes to the HVAC system after Rapid conducted its HERS test, it is not liable at all.  While the Court acknowledges that Rapid may be determined to owe no liability at trial, Rapid could also be determined to be liable for its alleged role in falsely reporting that the HVAC system originally passed the HERS test.

Although Plaintiffs seek a total of nine million dollars ($9,000,000.00) in damages, Plaintiffs allege that as a result of the defendants’ defective workmanship, they paid $4,000,000 on what was supposed to be a remodel costing $2,580,000, and then they had to pay an additional $3,000,000 on remediation.  Unlike some of the other defendants, there are no allegations that Plaintiffs paid Rapid in excess of what Rapid was entitled to.  (See e.g., FAC ¶¶ 34-35; 37-39; 75-85.)  Thus, of the $4,420,000 differential between what Plaintiffs expected to pay ($2,580,000) and the amount they actually paid on the construction of their home ($7,000,000), the only damages Rapid would be responsible for would be its proportion of those damages incurred to remediate defective HVAC work that were caused by Rapid’s allegedly erroneous test results. 

In this regard, the HVAC system is just one small part of the entire home construction project.  Plaintiffs allege there were major defects in project design, roofing, home waterproofing, HVAC, and electrical/lighting, as well as ancillary issues with tiling and door installation.  Thus, the HVAC was one of approximately five major issues with the home (design, roofing, waterproofing, HVAC, and electrical/lighting).  Dividing the $4,420,000 differential by five results in an average estimation of $884,000 attributable to HVAC issues, although the Court notes that this amount is an estimation, and the actual amount could be higher, if the HVAC issues constituted a disproportionately large percentage of the repairs. 

Rapid is only alleged to have played a small role in affecting the HVAC system, which was otherwise the responsibility of Temperature, as the primary HVAC subcontractor.  Thus, Rapid’s extremely limited role in testing the HVAC system on one day further limits Rapid’s liability for the HVAC issues to approximately 10% at most.  Thus, Rapid’s maximum potential liability likely would not exceed $100,000.

2.      THE AMOUNT PAID IN SETTLEMENT.

‘“[A] defendant’s settlement figure must not be grossly disproportionate to what a reasonable person, at the time of the settlement, would estimate the defendant’s liability to be.’  [Citation.]”  (Tech-Bilt, supra, 38 Cal.3d at p. 499.)  However, even though “an offer of settlement must bear some relationship to one’s proportionate liability, bad faith is not ‘established by a showing that a settling defendant paid less than his theoretical proportionate or fair share.’  [Citation.]”  (North County, supra, 27 Cal.App.4th at p.1090.)  “Such a rule would unduly discourage settlements” and “convert the pretrial settlement approval procedure into a full-scale mini-trial.”  (Tech-Bilt, supra, 38 Cal.3d at p. 499.)  Rather, in order to meet the proportionality requirement, “all that is necessary is that there be a ‘rough approximation’ between a settling tortfeasor’s offer of settlement and his proportionate liability.  [Citation.]”  (North County, supra, 27 Cal.App.4th at pp. 1090–1091.)  In determining whether the settling defendant’s settlement figure is “within the ballpark” of his fair share of liability, the Court may rely on “the judge’s personal experience” and the experience of “experts in the field.”  (Tech-Bilt, supra, 38 Cal.3d at p. 500.)

For perspective, the Court granted E & J Plumbing’s motion for good faith settlement wherein E & J paid a total of $150,000 on the complaint and cross-complaint for the allegedly defective plumbing work throughout the home. 

Furthermore, Rapid’s strong defenses regarding the changes made to the HVAC system between the time Rapid did its HERS testing and when the follow-up HERS testing was done, plus the fact that the parties are settling their claims instead of litigating them through trial similarly reduces the total liability attributable to Rapid.

Therefore, Rapid’s settlement amount of $50,000 is “within the ballpark” of Rapid’s fair share of liability, given Rapid’s small portion of the total liability on the overall construction project and Rapid’s strong defenses. 

3.      THE ALLOCATION OF SETTLEMENT PROCEEDS AMONG PLAINTIFFS.

The allocation of settlement proceeds among plaintiffs is only relevant if there is more than one plaintiff.  (See Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 968 (hereafter Cahill).)  Here, there are two Plaintiffs, but both Plaintiffs are parties to the settlement.  Therefore, this factor is irrelevant.

4.      A RECOGNITION THAT A SETTLOR SHOULD PAY LESS IN SETTLEMENT THAN HE WOULD IF HE WERE FOUND LIABLE AFTER TRIAL.

The Court expressly recognizes that a settlor should pay less in settlement than he would if he were found liable after trial.  Here, the settlement represents approximately 50% of Rapid’s total potential share of the damages.  A 50% discount from the amount Rapid could be found liable for after trial is reasonable, in light of Rapid’s strong defenses that it owes no liability whatsoever.  This factor supports the present motion for good faith determination.  (See Cahill, supra, 194 Cal.App.4th at p. 968.)

5.      THE FINANCIAL CONDITIONS AND INSURANCE POLICY LIMITS OF SETTLING DEFENDANTS.

An exception to the proportionality requirement described above is that “a disproportionately low settlement figure is often reasonable” when the settling defendant is “relatively insolvent” and uninsured or underinsured.  (Tech-Bilt, supra, 38 Cal.3d at p. 499; see Schmid v. Superior Court (1988) 205 Cal.App.3d 1244, 1245–6 [holding that “a settlement of a personal injury lawsuit is in ‘good faith[]’ . . . where a defendant pays the plaintiff the limit of the defendant’s insurance policy and has no assets, even though the amount paid in settlement is far less than the likely amount of a judgement against the defendant were the case to go to trial”]; see also County of Los Angeles v. Guerrero (1989) 209 Cal.App.3d 1149, 1157–8 [finding that the settling defendant’s “modest” financial condition and insurance limits “are necessarily controlling and effectively override the other Tech-Bilt factors”].)

Because the Court has not determined that the settlement amount is disproportionately low, the exception does not apply.

6.      THE EXISTENCE OF COLLUSION, FRAUD, OR TORTIOUS CONDUCT AIMED TO INJURE THE INTERESTS OF THE NON-SETTLING DEFENDANTS.

“Any negotiated settlement involves cooperation, but not necessarily collusion.  It becomes collusive when it is aimed to injure the interests of an absent tortfeasor.  Although many kinds of collusive injury are possible, the most obvious and frequent is that created by an unreasonably cheap settlement.”  (River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 996.)  “Prevention of collusion is but a means to the end of preventing unreasonably low settlements which prejudice a nonparticipating tortfeasor.  The price of a settlement is the prime badge of its good or bad faith.  Construed in the light of [section 877.6’s] objectives, the good faith release clause extends the obligation of good faith beyond the parties to the negotiations, embracing an absent tortfeasor.”  (Ibid.) 

Here, there is no argument or evidence that the settlement was made in bad faith to harm the remaining defendants.

CONCLUSION AND ORDER

For the reasons stated, the Court grants Rapid’s unopposed Motion for a Determination of Good Faith Settlement. 

Rapid is ordered to provide notice of the Court’s ruling and file proof of service of such. 

DATED:  January 24, 2024                                                    ___________________________

                                                                                          Michael E. Whitaker

                                                                                          Judge of the Superior Court