Judge: Robert B. Broadbelt, Case: BC642728, Date: 2024-07-11 Tentative Ruling

Case Number: BC642728    Hearing Date: July 11, 2024    Dept: 53

Superior Court of California

County of Los Angeles – Central District

Department 53

MOVING PARTIES:              Plaintiffs Oscar George, Robert Margolis, Tirso George, and Tirso George Jr.  

RESPONDING PARTY:       Unopposed

Motion for Preliminary Approval of Derivative Claim Settlement

The court considered the moving papers filed in connection with this motion.  No opposition papers were filed.

DISCUSSION

Plaintiffs Oscar George, Robert Margolis, Tirso George, and Tirso George, Jr. (“Plaintiffs”) filed this action on December 2, 2016, against defendants Forshpan Capital, LLC, Morton Forshpan, and Bear Valley Properties, LLC, alleging four causes of action for (1) breach of fiduciary duty; (2) fraud; (3) concealment; and (4) securities fraud.

On January 18, 2018, the parties filed a “Stipulation of the Parties to Withdraw Opposition to Defendants’ Motion to Compel Arbitration and Stay Litigation,” in which the parties stipulated that, inter alia, the parties should be compelled to arbitrate this action.  (Jan. 18, 2018 Stip., p. 1:12-15.)  On that date, the court entered an order on the parties’ stipulation directing them to proceed to arbitration.  (Jan. 18, 2018 Stip. & Order, p. 2.)  Pursuant to the stipulation and order, this action “has proceeded before the Hon. Richard Stone (Ret.) of Signature Resolution . . . .”  (Barnes Decl., ¶ 2.)

Thereafter, on April 19, 2024, Plaintiffs, on the one hand, and defendants Morton Forshpan and Forshpan Capital, LLC (“Defendants”), on the other hand, executed the “Settlement Agreement and Mutual General Release” (the “Settlement Agreement”), pursuant to which Defendants have agreed to pay to Plaintiffs $193,750 to settle the remaining claim in this action.  (Brown Decl., Ex. 1, Settlement Agreement, ¶ 3.)  Of that amount, and following allocation of attorney’s fees and costs, $25,000 will be distributed to Plaintiffs for the time and effort they expended in bringing this action ($12,500 to Oscar George, $7,500 to Robert Margolis, and $5,000 to Tirso George, Jr.), and the remaining amount will be divided proportionally among the investors of Victorville Oasis, LLC, excluding Defendants, Sharon Forshpan, Reisha Forshpan, and Erik Spitznagel.  (Ibid.)

Plaintiffs now move the court for an order (1) approving the settlement of their derivative claim, alleged as the second cause of action for breach of fiduciary duty against Defendants in their operative Second Amended Complaint, and (2) dismissing the claim with prejudice upon approval of the settlement.[1]  (Barnes Decl., Ex. A, SAC, p. 9:19-20.)

Because “shareholder derivative plaintiffs may be considered as trustees or guardians ad litem to the corporation’s right of action[,]” “[s]uch plaintiffs have no power to settle or compromise the corporation’s action absent court approval.”  (Gaillard v. Natomas Co. (1985) 173 Cal.App.3d 410, 419, overruled on other grounds in Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1119, n. 16; Ensher v. Ensher, Alexander & Barsoom, Inc. (1960) 187 Cal.App.2d 407, 410 [“a stockholder bringing such a derivative suit is a trustee for the corporation’s cause of action and as such cannot dismiss the action without the consent of the trial court”].)  “A court reviewing a settlement agreement considers whether the proposed settlement is fair and reasonable in light of all relevant factors.  [Citations.]  A court reviews the settlement of a derivative suit as a means of protecting the interests of those who are not directly represented in the settlement negotiations.”  (Robbins v. Alibrandi (2005) 127 Cal.App.4th 438, 449 [internal citations omitted].)  In an effort to aid the court in the determination of the fairness of a settlement agreement, Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 244-245 (disapproved on other grounds), discusses factors that the court should consider when evaluating the reasonableness of a settlement.  “[A] presumption of fairness exists where: (1) 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 objectors is small.”  (Id. at p. 245.)

As set forth above, the Settlement Agreement provides that Defendants will pay to Plaintiffs $193,750 to settle the remaining derivative claim alleged against them in Plaintiffs’ Second Amended Complaint, of which (1) $25,000 will be distributed to three of the Plaintiffs for their efforts in bringing the action, and (2) the remaining amount will be distributed proportionally to the investors of Victorville Oasis, LLC, excluding Defendants and their family members, after costs and attorney’s fees have been allocated.  (Brown Decl., Ex. 1, Settlement Agreement, ¶¶ 3-3.1.)  Further, Plaintiffs, on behalf of themselves and Victorville Oasis, LLC, have agreed to release all claims arising out of, related to, or connected with this action and Victorville Oasis, LLC against Defendants, and Defendants have agreed to release all claims arising out of, related to, or connected with this action and Victorville Oasis, LLC against Plaintiffs.  (Id., ¶¶ 6.1-6.2.)  The Settlement Agreement was reached following the exchange and review of discovery, the arbitrator’s ruling on motions for summary judgment or adjudication, a full-day session of mediation, and several months of negotiations.  (Barnes Decl., ¶¶ 3-4, 6; Brown Decl., ¶¶ 2-3.)

Based on the arguments and evidence set forth in the motion and the declarations of Plaintiffs’ attorneys, Ethan J. Brown and Kete Barnes, the court finds that the terms of the Settlement Agreement are fair, adequate, and reasonable.  The court therefore approves the Settlement Agreement and orders that Plaintiffs may dismiss their derivative action against Defendants.  (Gaillard, supra, 173 Cal.App.3d at p. 419, overruled on other grounds in Grosset, supra, 42 Cal.4th at p. 1119, n. 16.)

The court notes that Plaintiffs appear to request that the court set a final approval hearing regarding the Settlement Agreement pursuant to California Rules of Court, rule 3.769.  That rule, however, applies to the settlement or approval of class action settlements.  (Cal. Rules of Ct., rule 3.769 [entitled “Settlement of class actions”], subd. (e) [“If the court grants preliminary approval [of a settlement or compromise of an entire class action], its order must include the time, date, and place of the final approval hearing; the notice to be given to the class; and any other matters deemed necessary for the proper conduct of a settlement hearing”].)  While the court acknowledges that “[t]he duty of a court reviewing a settlement of a class action provides a useful analogy” to the duty of a court reviewing a settlement of a derivative action, Plaintiffs have not cited authority establishing that the approval of the settlement of a derivative action must comply with the rules governing the settlement of a class action.  (Robbins, supra, 127 Cal.App.4th at p. 449, n. 2.)  

Thus, to the extent that Plaintiffs request that the court set a final approval hearing, the court denies that request.

ORDER

            The court grants plaintiffs Oscar George, Robert Margolis, Tirso George, and Tirso George, Jr.’s motion for approval of derivative claim settlement. 

            The court orders that the “Settlement Agreement and Mutual General Release,” entered into by and between plaintiffs Oscar George, Robert Margolis, Tirso George, and Tirso George, Jr., and defendants Morton Forshpan and Forshpan Capital, LLC on April 19, 2024, is fair, adequate, and reasonable, and therefore approves that settlement.  The court further orders that plaintiffs Oscar George, Robert Margolis, Tirso George, and Tirso George, Jr. may dismiss the remaining derivative cause of action alleged against defendants Morton Forshpan and Forshpan Capital, LLC in their operative Second Amended Complaint.

            The court sets an Order to Show Cause re dismissal of derivative claim for hearing on November 13, 2024, at 8:30 a.m., in Department 53.

            The court orders plaintiffs Oscar George, Robert Margolis, Tirso George, and Tirso George, Jr. to give notice of this ruling.

IT IS SO ORDERED.

DATED:  July 11, 2024

_____________________________

Robert B. Broadbelt III

Judge of the Superior Court