Erreca's v. Superior Court, s. D019194

• Court: California Court of Appeals
• Citation: 19 Cal.App.4th 1475,24 Cal.Rptr.2d 156
• Decision Date: 02 November 1993
• Docket Number: Nos. D019194,D019248,s. D019194
• Parties: ERRECA'S, Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent; CALLE RYAN HOMEOWNERS ASSOCIATION et al., Real Parties in Interest. BARRY STONE & ASSOCIATES, Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent; CALLE RYAN HOMEOWNERS ASSOCIATION et al., Real Parties in Interest.

Page 156

24 Cal.Rptr.2d 156

19 Cal.App.4th 1475

ERRECA'S, Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent;

CALLE RYAN HOMEOWNERS ASSOCIATION et al., Real Parties in Interest.

BARRY STONE & ASSOCIATES, Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent;

CALLE RYAN HOMEOWNERS ASSOCIATION et al., Real Parties in Interest.

Nos. D019194, D019248.

Court of Appeal, Fourth District, Division 1, California.

Nov. 2, 1993.

Review Denied Feb. 24, 1994.

Page 160

[19 Cal.App.4th 1480] McInnis, Fitzgerald, Rees & Sharkey, Timothy S. Thomas, Jeff G. Harmeyer, Shifflet, Walters, Kane & Konoske, Gary P. Sinkeldam, Bacalski & Byrne, A. Daniel Bacalski, Jr., and Richard D. Gloger, San Diego, for petitioners.

No appearance for respondent.

Duke, Gerstel, Shearer & Bregante, Robert K. Goff, J. Michael Reed, Dawn R. Brennan, Klinedinst, Fliehman, McKillop & Jones, Klinedinst, Fliehman & McKillop, Donald R. McKillop, Sr., Michael Castellaneta, Gray, Cary, Ames & Frye, Robert A. McGregor, Kenneth S. Klein and Bryan M. Garrie, San Diego, for real parties in interest.

[19 Cal.App.4th 1481] HUFFMAN, Associate Justice.

The issues raised by these petitions focus our attention upon the two competing policies established by Code of Civil Procedure sections 877 and 877.6, which govern "the effect that a settlement agreement has on a settling defendant's potential liability to other defendants for contribution or comparative indemnity" (Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 871-872, 239 Cal.Rptr. 626, 741 P.2d 124) (hereafter Abbott Ford ): (1) The equitable sharing of costs among the parties at fault and (2) the encouragement of settlements. (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 494-496, 213 Cal.Rptr. 256, 698 P.2d 159 [hereafter Tech-Bilt ].) ¹ In these consolidated petitions for writ of mandate, Erreca's and Barry Stone & Associates (Stone), as nonsettling defendants, challenge certain aspects of the trial court's order granting approval of a good faith settlement between plaintiffs Calle Ryan Homeowners Association (HOA) and homeowner class representatives (collectively plaintiffs) and the developers of their single-family homes, Spyglass Venture, Greens Associates, MRL, Inc., Patrick Construction Corporation, and Glenfed Development Corporation (developers). In particular, the nonsettling defendants (Erreca's, the grader on the project before the developers acquired the real property, and Stone, the original seller of the real property to the developers) ² challenge the structure of the settlement reached which allocates $1.5 million, along with $300,000 for assignment of indemnity rights, to the soils aspect of the dispute. The remainder of the $6.8 million settlement was allocated to nonsoils issues, including construction and landscaping defect allegations.

The nonsettling defendants, who are primarily charged with creating soils defects, first contend that the settlement agreement inadequately defines the soils versus nonsoils categories of liability and does not present the trial court with enough information at the settlement approval proceeding for good faith analysis of that allocation. In a subsidiary argument, the nonsettlors contend that the $300,000 value attributed to the developers' assignment to

the plaintiffs of their indemnity and contribution rights against the soils defendants, as part of the settlement package, was inadequate, and that the value of such an assignment of rights should be more closely related to the potential recovery it represents (here, $1.5 million, or the soils portion of the settlement)

In their other chief argument, the nonsettling defendants contend that the trial court improperly adopted a special master's recommendation that only [19 Cal.App.4th 1482] $500,000 be granted as a setoff or credit against any judgment which the plaintiffs ultimately might be able to recover, and that the setoff should be for a greater amount, i.e., $1.5 million, the amount allocated in the settlement to soils problems (and possibly an additional $300,000 for the assignment of indemnity rights).

In addition to the above issues, Stone's petition adds due process deprivation arguments concerning the procedure which was used for the negotiation and approval of the good faith settlement, arguing that the allocation and credit amounts were unfairly reached in proceedings in which Stone was not represented.

As we will explain, we first conclude the trial court was justified in approving the settlement insofar as the parties allocated portions of the settlement to soils and nonsoils problems, since there was an adequate evidentiary basis for that distinction and the allocation was reached in settlement negotiations that were sufficiently adverse to raise a presumption that a reasonable allocation was made. (Abbott Ford, supra, 43 Cal.3d at p. 879, 239 Cal.Rptr. 626, 741 P.2d 124.) We also find no fault with the special master's evaluation, adopted by the trial court, of the value of the assignment of indemnity rights at $300,000, and substantial evidence supports the trial court's approval of the good faith settlement in that respect. However, the trial court and special master were not justified in undervaluing at $500,000 the amount of credit to be accorded the nonsettling soils defendants as against any judgment the plaintiffs might obtain, where the settlement agreement clearly allocated three times that much to the soils problems, as well as $300,000 for assignment of indemnity rights against the remaining nonsettling defendants. We conclude the trial court was not justified in making an evaluation of comparative fault to reduce the amount of credit given for soils issues from the total amount of consideration given by the developers in the settlement package for those issues, because American Motorcycle Assn. v. Superior Court (1978), 20 Cal.3d 578, 604, 146 Cal.Rptr. 182, 578 P.2d 899 indicates that section 877 does not allow such an approach. Accordingly, we grant the petition for writ of mandate with directions to the trial court to set aside the good faith settlement approval unless the credit amount is set at $1.8 million, the only amount supported by this record.

FACTUAL AND PROCEDURAL BACKGROUND

This action arises out of the development of a residential subdivision consisting of 106 single-family homes in Encinitas, California, the Spyglass Project. In 1983, Stone owned the tract of land where the project is located. One of the component entities of the developers, the Greens Associates, [19 Cal.App.4th 1483] agreed to purchase the property from Stone, and the purchase and sale agreement reached required Stone to construct 106 finished residential lots on the property. Stone hired Erreca's to perform the grading, and the remaining soils defendant, So. Cal. Soils, served as the soils engineer. Escrow on the sale of the property closed March 13, 1984.

On June 19, 1984, Spyglass Venture (Spyglass), another of the constituent parts of the developer, entered into a general construction agreement with Patrick Construction Corporation (Patrick) to construct the homes on the property. Patrick in turn subcontracted the work to numerous subcontractors. The work was completed in three phases by December 1986. The homes were sold to members of the public between 1985 and 1987.

This action is a representative action by the HOA and a class action representing 88

of the homeowners. (§§ 374, 382.) The complaint alleges claims for construction defects against the developers on theories of strict liability, breach of warranty, and negligence. Plaintiffs amended their complaint in March 1992 to include Stone, Erreca's, and So. Cal. Soils as Doe defendants. The plaintiffs sought recovery for various types of damages attributable to the negligent grading and filling of the developed lots, as well as damages caused by the defective construction of residential structures. Costs of repair and diminution of value in stigma damages or loss of value were alleged

Parallel investigations of the plaintiffs' claims were undertaken, and the parties entered into settlement negotiations, with the assistance of court-appointed special master Michael Duckor. The plaintiffs' preliminary cost of repair estimate totaled $14,668,789. The developers' consultants estimated the cost of repair of the residences and common areas at $1.5 million. Plaintiffs then made a settlement demand of $8.5 million, with $6.5 million of that figure to be attributable to the construction of residential structures (the nonsoils claims) and $2 million for damages arising from the grading operation (the soils claims).

Eventually, settlement agreements were reached between plaintiffs, the developers, and a number of subcontractors, design professionals and material suppliers involved in the construction of the residential structures and common areas, referred to here as the additional contributors. The only parties who did not join in the settlement were Stone, Erreca's and So. Cal. Soils, the parties responsible for grading and development of the lots. In pertinent part, conditioned upon court approval pursuant to section 877.6, the settlement agreement provides as follows:

The Settlement Payment. The developers will pay the plaintiffs $5,403,500.

[19 Cal.App.4th 1484] Additional Contribution. The additional contributors have agreed to pay the plaintiffs the total sum of $1,096,500.

Assignment of Claims. The developers shall assign to plaintiffs their claims for indemnity and contribution against Stone's, Erreca's, and So. Cal. Soils. The developers and plaintiffs agreed that the value of the assigned claims is $300,000.

Allocation of Settlement Payment, Additional Contribution, and Assigned Claims Among Issues. For purposes of allocating the settlement payment, the additional contribution, and the assigned claims among issues, the case was severed into two...