Regan Roofing Co., Inc. v. Superior Court (Finkelstein)

• Decision Date: 21 January 1994
• Docket Number: No. D019464,D019464
• Court: California Court of Appeals Court of Appeals
• Parties: REGAN ROOFING COMPANY, INC. et al., Petitioners, v. The SUPERIOR COURT of San Diego County, Respondent; Kenn FINKELSTEIN et al., Real Parties in Interest.

Page 62

27 Cal.Rptr.2d 62

21 Cal.App.4th 1685

REGAN ROOFING COMPANY, INC. et al., Petitioners, v. The SUPERIOR COURT of San Diego County, Respondent Kenn FINKELSTEIN et al., Real Parties in Interest.

No. D019464.

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

Jan. 21, 1994.

McInnis, Fitzgerald, Rees & Sharkey, Anna Frustaglio-Roppo, Jeanne Simpson-White and Daniel P. Closser, Jr., San Diego, for petitioners

No appearance for respondent.

Gerard, Selden, Osuch & Johnson, Lawrence T. Osuch, Lynde Seldon II, Greco & Traficante, Paul A. Traficante, Scott A. Johnson and Jon S. Brick, San Diego, on behalf of real parties in interest.

HUFFMAN, Associate Justice.

Petitioners Regan Roofing Company, Inc., and Vince Ramirez dba Pacific Rebar (collectively Regan Roofing) challenge certain aspects of a pretrial settlement reached between 44 individual homeowners (Kenn Finkelstein et al., collectively plaintiffs) and the developer of plaintiffs' homes, Leisure Technology Corporation of Oceanside (developer). Pursuant to Code of Civil Procedure section 877.6, ¹ plaintiffs and developer obtained trial court approval of their settlement for a $2 million payment and a $5,000 assignment of indemnity and contribution rights as being in good faith within the meaning of Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 213 Cal.Rptr. 256, 698 P.2d 159 (Tech-Bilt ). Regan Roofing, as well as some 20 other construction subcontractors, tradespeople and design professionals, were not parties to the plaintiff/developer settlement, and opposed that settlement as not being in good faith, chiefly on the theory that the settlement provided an inadequate of setoff or credit to which the nonsettling defendants would be entitled in the event that the plaintiffs obtained judgments against the nonsettlors after a jury trial or other proceeding.

Regan Roofing is the only nonsettling party which has petitioned this court for a writ of mandate to set aside the trial court's approval of the settlement; ² it raises both the general objection that the settlement does not adequately set forth the amount of credit to which Regan should be entitled, and a challenge to three particular categories of settlement consideration to which settlement funds were allocated. These three categories include $360,000 noneconomic damages allocated to emotional distress claims (Civ.Code, § 1431.2), $250,000 allocated to investigative costs (i.e., expert investigation fees), and $132,184.26 for recoverable litigation expenses (e.g., filing fees and deposition costs). The balance of the $2 million settlement payment, $1,262,815.74, was allocated to "all disputed issues of construction defects." In addition to claiming it will not receive appropriate offsets in these categories, Regan Roofing argues that the $5,000 value placed by the settling parties upon the developer's assignment of indemnity and contribution rights to the plaintiffs, as against the nonsettling defendants, was too low, arbitrary, and creates the potential for double recovery or unjust enrichment.

In the recent opinion by this court in Erreca's v. Superior Court (1993) 19 Cal.App.4th 1475, 24 Cal.Rptr.2d 156 (hereafter Erreca's ), this court had occasion to address As we will explain, we conclude that the challenged allocations made by these settling parties to the various categories set forth above (emotional distress, investigative costs, and litigation expenses) had an adequate evidentiary basis and were reached in appropriately adverse proceedings in order to justify the presumption that the valuation placed upon these settlement assets was reasonable. (Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 879, 239 Cal.Rptr. 626, 741 P.2d 124 (Abbott Ford ).) There is substantial evidence to support the trial court's approval of the settlement in those respects. (Toyota Motor Sales U.S.A., Inc. v. Superior Court (1990) 220 Cal.App.3d 864, 870-871, 269 Cal.Rptr. 647.) Moreover, the trial court's resolution of the offset issue was adequate. However, with respect to the $5,000 valuation placed by the parties upon the assignment of indemnity rights, this record lacks a factual basis to support such a valuation, and we grant the petition to require the trial court to conduct further proceedings concerning an appropriate valuation for such an intangible asset given in settlement.

                many of Regan Roofing's general claims about the appropriateness of pretrial settlements which include allocations by the settling parties to particular disputed issues or claims in the underlying lawsuit, reached in the absence of participation by nonsettling parties.   We also discussed the use of an assignment of indemnity rights as settlement consideration, and the proper procedure for valuing such an intangible settlement asset and giving appropriate credit to nonsettling defendants, due to the payment of settlement monies by others, against any eventual plaintiff's judgment.  (§ 877, subd.  (a).)  We shall now apply the principles set forth in Erreca's to this set of facts, which raises several new issues we have not yet had the opportunity to address
                

FACTUAL AND PROCEDURAL BACKGROUND

Between 1988 and 1990, developer was the general contractor and developer of a 240-unit residential subdivision in Oceanside, California. Plaintiffs in this action consist of 44 individuals who reside in 24 of these homes. In three consolidated complaints against developer, plaintiffs allege a number of design and construction defects in their homes. They also brought in as parties to the case a number of design professionals and subcontractors, and many of the same design professionals and subcontractors (and more) were sued by developer in its cross-complaint for indemnity, declaratory relief, breach of contract and warranty, and negligence. Many of these cross-defendants took the position that the developer's accelerated construction schedule had caused most of the problems at the property.

In the plaintiffs' complaints, they had alleged along with design and construction defect theories (negligence and strict liability) certain causes of action for nuisance and negligent infliction of emotional distress, and had sought damages for emotional distress based on those causes of action. Before the settlement was reached, the developer brought an unsuccessful motion for summary adjudication (§ 437c, subd. (f)) seeking an order which would have declared emotional distress damages unavailable in this property damage case. In its order denying the motion, the trial court stated in part that plaintiffs had alleged a special relationship existed between the developer and the plaintiffs such that damages for negligent infliction of emotional distress might be recoverable, and ruled that plaintiffs could properly maintain a cause of action for nuisance even though the developer no longer had any interest in the property.

Extensive discovery and investigation of the defects at the homes ensued, and depositions were taken of all plaintiffs, subcontractor and design professional personnel, and dozens of expert witnesses. The parties attended mediation conferences before a court-appointed special master and a mandatory settlement conference before the trial court, but no global settlement was reached. The trial court then ordered that the trial would be conducted in phases, beginning with plaintiffs, the developer, and the architect. Plaintiffs and developer then reached this settlement in the sum of $2 million plus an In support of the developer's application for good faith settlement approval, plaintiffs' attorney wrote a letter to all counsel setting forth the allocation language to be incorporated into the settlement agreement and release to be executed. These allocations were based upon repair recommendations and cost estimates set out by plaintiffs' expert construction consultant, Thomas Benke. The letter stated that the allocation of settlement monies and other consideration paid by the developer was as follows:

                assignment of the developer's indemnity rights. 3  This settlement was contingent upon a finding that it was entered into in good faith pursuant to section 877.6, and the developer accordingly applied for a finding of good faith settlement.   Virtually all the nonsettling parties opposed the motion for good faith settlement or joined in opposition by others.  (See fn. 2, ante.)
                

"a. $15,000.00 per home for emotional distress ($360,000.00);

"b. $250,000.00 for investigative costs;

"c. $132,184.26 for recoverable court expenses;

"d. $1,262,815.74 for all disputed issues of construction defects." ⁴

Plaintiffs' counsel's letter further explained the allocations made and the value of the assignment of rights as follows:

"Each home is designated a percent based in substantial part upon the relationship of the individual cost of repair to the total for all homes. Allocations of consideration based upon categories of construction defects will be done on a pro rata basis again utilizing Mr. Benke's cost of repair estimates.

"Questions have also arisen as to the valuation of the assignment of [developer's] causes of action to the plaintiffs. The assignment has been valued at $5,000.00 for purposes of settlement."

Plaintiffs' counsel's letter incorporated by reference their expert Benke's cost estimate of May 7, 1993, on which he had been questioned at his deposition. We have attached to this opinion as appendix B Mr. Benke's summary of the various defects at the property, which included thirteen categories of architectural defects (e.g., roofs, chimneys, stucco, doors, etc.), as well as five categories of noncontractors' items relating to repair costs (e.g., architectural and engineering plans and permits, construction inspections, and moving and living expenses) and, finally, five categories of drainage defects (e.g., retaining walls, deepened footings and drains). Plaintiffs' counsel's...