Judge Thomas D. Long, Case BC579623 2023-03-30 Tentative Ruling

On October 22, 2021, the Tennessee Court of Chancery rendered a final judgment in favor of Nissan North America, Inc. (“Nissan”) and against Universal City Nissan, Inc. (“UCN”), West Covina Nissan, Inc. (“WCN”), Glendale Nissan/Infiniti, Inc. (“GNI”) (collectively, “Dealership Entities”), Leonard Schrage, Michael Schrage, and the Estate of Joseph Schrage (collectively, “Individual Defendants”). The judgment included $25,079,793.90 against WCN, $49,403,387.41 against UCN, and $49,637,222.70 against GNI. It also included $123,976,657 against Leonard, Michael, and Estate of Joseph (jointly and severally) on the claims for fraud, violation of the TCPA, unjust enrichment, fraudulent transfer, and alter ego liability; $20,000,000 against Michael for treble damages under the TCPA; and $2,684,562.70 against the Dealership Entities and Individual Defendants (jointly and severally) for attorney fees and expenses under the TCPA. (Bubman Decl., Ex. C.) Nissan submitted a judgment lien claim in this action. The Dealership Entities and Individual Defendants appealed the Tennessee judgment, and a sister-state judgment was entered in California.

On or about December 30, 2022, a settlement was reached between Nissan and the Receivership Entities (defined as the Dealership Entities plus Sage MJL Properties, UCNP II, LLC, UCN Partners, L.P., and Sage Management) to resolve and satisfy the outstanding judgment awards as to the Receivership Entities, which totaled no less than $139,940,118.76 (including interest and attorney fees) on the date of the settlement. (Boffill Decl. ¶ 4.) The Receivership’s accountant calculated this amount based on the $124,120,404.01 total owed by the Dealership Entities, plus daily interest and the judgment’s award of attorney fees. (Boffill Decl. ¶ 4.)

On March 6, 2023, the Receiver filed a motion for an order approving the settlement of Nissan’s judgment lien claim and for a determination of a good faith settlement. No oppositions were filed.

Nissan and Byron Moldo as Receiver entered into a Term Sheet agreement, which is signed by Nissan’s Director, Legal and Assistant General Counsel and the Receiver. (Bubman Decl., Ex. D [“Term Sheet”].) Under the proposed settlement, the Receiver will make a cash payment of $30,750,000.00 for the benefit of Nissan to the Bulso PLC Client Trust Account. (Term Sheet at p. 2, ¶ 1.) The settlement is contingent upon the Court’s approval nunc pro tunc to December 30, 2022. (Term Sheet at p. 3, ¶ 6.) The settlement is intended to resolve all matters between the parties, including the dismissal of all of Nissan’s claims with prejudice, full satisfaction of the Tennessee judgment and the California sister-state judgment, and dismissal of the Dealership Entities’ and Individual Defendants’ appeals. (Term Sheet at p. 2, ¶ D; Term Sheet at p. 3, ¶ 7.) The Court will retain jurisdiction under Code of Civil Procedure section 664.6. (Term Sheet at p. 4, ¶ 8.)

The Term Sheet includes a copy of the proposed settlement agreement, which sets forth the same payment and release terms, plus a waiver of claims under Civil Code section 1542. (Term Sheet, Ex. 1 [“Proposed Settlement Agreement”].) The Proposed Settlement Agreement contains blank signature lines for Nissan, Moldo as Receiver for each of the Receivership Entities, and each Individual Defendant.

The sum of $30,750,000.00 “represents Nissan’s bottom-line number for a settlement in this action, whether such settlement includes all or fewer than all of the parties hereto.” (Bulso Decl. ¶ 11.) The Receiver instructed the Receivership Estate’s accountant to arrange for the funds transfer to Nissan’s counsel’s trust account, to not be transferred to Nissan until the Court approves the settlement. (Moldo Decl. ¶ 16.) The Receivership gains a tax benefit from paying the settlement in 2022: “By paying the Settlement amount in 2022, the Receivership will accomplish a tax savings of approximately $11,408,250, as the settlement amount reduces the taxable revenue from the sale [of the UCN Property] by the amount of the settlement.” (Motion at p. 3; see Moldo Decl. ¶¶ 11, 28.) Kermith Boffill, a lead tax partner at the accounting firm hired for the Receivership Estate, confirms the tax benefit. (See Boffill Decl.)

The Court finds that the proposed settlement is reasonable for the Receivership Estate. However, the release provisions are broader than just this receivership action. The proposed settlement requires the Individual Defendants to release Nissan from all claims, including their appeals of the Tennessee judgment. (Proposed Settlement Agreement at p. 6, ¶ 4(b).) The Tennessee judgment includes individual liability for fraud, violation of the TCPA, unjust enrichment, fraudulent transfer, and treble damages.

Leonard participated in mediation. (Moldo Decl. ¶ 10; see Bubman Decl. ¶ 9.) The Receiver’s counsel provided the Term Sheet to Michael’s counsel, but he did not receive a response. (Bubman Decl. ¶ 22 & Exs. M-N.) Later, Michael’s counsel responded, stating that Michael did not intend to participate in the settlement. (Bubman Decl. ¶ 22 & Ex. Q.) The Receiver’s counsel also provided settlement information to the counsel for Estate of Joseph, but there is no evidence of its agreement to the settlement. (Bubman Decl. ¶ 23 & Exs. R-T.)

The Court is inclined to approve the proposed settlement, subject to the filing of declarations confirming the Individual Defendants consent to the terms of the Proposed Settlement Agreement with respect to the release of their claims (including the dismissal of their Tennessee appeals) or releases of all of the Individual Defendants by Nissan and Nissan’s consent to the settlement without benefit of releases from all of the Individual Defendants. Alternatively, the Court will invite the parties to supplement their briefing as to whether the Court can simply approve the settlement without the consent of all of the Individual Defendants. The Court will continue the hearing to allow for the filing of these additional declarations and briefs.

Any party to an action with two or more joint tortfeasors may petition the court for a determination of the issue of the good faith of a settlement. (Code Civ. Proc., § 877.6, subd. (a)(1).) The court’s approval of the settlement furthers two sometimes-competing policies: (1) the equitable sharing of costs among the parties at fault, and (2) the encouragement of settlements. (Erreca’s v. Superior Court (1993) 19 Cal.App.4th 1475, 1487.) To demonstrate a lack of good faith, a non-settling party must show that the settlement is so far “out of the ballpark” as to be inconsistent with the equitable objectives of Section 877.6. (Nutrition Now, Inc. v. Superior Court (2003) 105 Cal.App.4th 209, 213.) The Court will typically consider: (1) the plaintiff’s (roughly) approximated total recovery; (2) the settlor’s share of liability; (3) the size of the settlement at issue; (4) the distribution of settlement proceeds among plaintiffs; (5) the usual discount value when plaintiffs settle before trial; the settlor’s financial condition and insurance policy limits; and (6) whether there is evidence of “collusion, fraud, or tortious conduct aimed to injure the interests of nonsettling defendants.” (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499.) These factors will be evaluated accordingly to what information is available at the time of settlement. (Ibid.) “When no one objects, the barebones motion which sets forth the ground for good faith, accompanied by a declaration which sets forth a brief background of the case is sufficient” for the Court to grant a motion for determination of good faith settlement. (City of Grand Terrace, supra, 192 Cal.App.3d at p. 1261.)

The motion and counsel’s declaration set out the background of this case and the terms of the settlement. The Receivership will pay $30,750,000 to Nissan, and in exchange, the parties will release all claims against each other, including the Tennessee appeals and a waiver of Civil Code section 1542. (Bubman Decl. ¶ 15; Proposed Settlement Agreement at pp. 5-6.) The settlement amount is reasonable, representing only about twenty-two percent of the total judgment owed to Nissan as of the date of the settlement. (Motion at pp. 1, 3, 9.) After applying the tax benefits, it accounts for about fourteen percent of the total judgment owed to Nissan. (Boffill Decl. ¶ 14.) The settlement amount is also Nissan’s bottom-line number for settlement. (Bulso Decl. ¶ 11.) This settlement was reached through counsel’s good faith negotiations for over a month. (See Moldo Decl. ¶¶ 10-15; Bubman Decl. ¶¶ 11-18.) There is no evidence of collusion or fraud in the settlement.

Based on the record presented and the lack of any objection, the Court believes the settlement was made in good faith. However, as discussed above, the Court will continue the hearing on the motion before granting final approval of the settlement.

The Hearing on Motion for Determination of Good Faith Settlement (CCP 877.6) is CONTINUED to __________. No later seven court days before the hearing, the parties are ordered to electronically serve and file whatever declarations, evidence, and briefing the parties deem appropriate to clarify the exact terms of the settlement that is to be approved consistent with the comments of the court above. MOTION FOR LEAVE TO SUE RECEIVER

On February 22, 2023, West Covina Motor Group, LLC (“WCMG”) filed a motion for leave to sue the Receiver, and on March 9, 2023, WCMG filed an amended notice of motion. No oppositions were filed.

WCMG’s request for judicial notice of the Complaint in Case No. 22PSCV01377 is granted. The request for judicial notice of this Court’s October 28, 2022 order is denied as unnecessary, since it is already part of this case’s record.

“A receiver is a court-appointed official who can be sued only by permission of the court appointing him.” (Ostrowski v. Miller (1964) 226 Cal.App.2d 79, 84.) The court has discretion only to grant permission to assert claims against the receiver in a separate action or to require that those claims be brought in the receivership action; the court cannot assess the merits of the proposed claims. (Jun v. Myers (2001) 88 Cal.App.4th 117, 125.) “Since the underlying purpose of the rule is simply to accommodate all claims, if possible, in the receivership action under the supervision of the appointing court, it follows that the permission requirement is not a jurisdictional one, and the leading California case has so held. [Citations.] ‘[F]ailure to obtain leave to sue “is not jurisdictional, and failure to obtain is an irregularity which may be cured at any stage of the proceedings . . . . When the court gives permission to sue, it may grant such permission as of the time of the commencement of the action.’” [Citations.]” (Vitug v. Griffin (1989) 214 Cal.App.3d 488, 493.)

WCMG seeks leave to sue the Receiver, in his capacity as Receiver, via a cross-complaint filed on February 22, 2023 in Envision WC Toy Auto LLC dba Envision Toyota of West Covina v. UCNP II, LLC et al., Case No. 22PSCV01377, where WCMG and the Receiver are defendants. “In briefest summary, the dispute that is the subject of [Case No. 22PSCV01377] resulted from the Receiver’s unjustified refusal to recognize the validity of WCMG’s assignment of a leasehold interest (which it held under a lease with an entity the Receiver now controls, UCNP II, LLP (‘UCNP’), to Envision.” (Motion at p. 2.) WCMG’s cross-complaint against the Receiver and UCNP II, LLP alleges breach of the lease, contractual indemnity, and declaratory relief. (Motion, Ex. 1.) It is therefore more appropriate to bring these claims in Case No. 22PSCV01377 than within the Receivership Action.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court