Arlington Theatre Property LLC vs RRM Design Group

Case Number

23CV00156

Case Type

Hearing Date / Time

Fri, 08/02/2024 - 10:00

Nature of Proceedings

CMC; OSC Dismissal; Motion: Good Faith Settlement

Tentative Ruling

For all reasons discussed herein, the motion of cross-defendant Armstrong Associates, Inc., for a judicial determination of good faith settlement is granted.

Background:

In the complaint filed in this action on January 13, 2023, plaintiff Arlington Theatre Property, LLC, (Arlington) alleges three causes of action against defendant RRM Design Group (RRM): (1) express contractual indemnity under RRM design agreement; (2) professional negligence; and (3) breach of RRM design agreement. As alleged in the complaint of Arlington:

Arlington and RRM entered into an agreement (the design agreement) on June 1, 2014, under which RRM was to provide professional design services as the architect of record for the construction of improvements (the project) at Arlington Village, a complex of luxury apartments located at 1330 Chapala Street in Santa Barbara, California. (Compl., ¶¶ 1-2 & 16-17.) Arlington contracted with Armstrong Associates, Inc. (Armstrong) to act as the general contractor for the project. (Id. at ¶ 18.) RRM provided professional services at the project under the design agreement through October 16, 2019.  (Id. at ¶¶ 2 & 19.)

After RRM completed its work at the project, Arlington identified numerous design errors and defects in the project caused by RRM. (Compl., ¶¶ 3 & 23-25.) The defects have necessitated years of inspections, investigations, and repairs, and have caused some units at Arlington Village to be unrentable. (Id. at ¶¶ 3 & 7.)

On February 3, 2020, Arlington and RRM entered into a tolling agreement under which the parties attempted to amicably resolve their dispute. (Compl., ¶¶ 6 & 26-27.) Efforts to mediate the dispute fell apart on November 23, 2022, and on November 29, 2022, Arlington gave notice of its termination of the tolling period effective as of January 13, 2023. (Id. at ¶¶ 6 & 28.)

On February 27, 2023, RRM filed its answer to the complaint generally denying its allegations and asserting twenty-three affirmative defenses. Also on February 27, 2023, RRM filed a cross-complaint alleging four causes of action: (1) breach of contract (against cross-defendant Arlington only); (2) total equitable indemnity (against cross-defendants Armstrong, Tyron Company, LLC, and Metropolitan Theatres Corporation); (3) contribution and apportionment of fault (against Armstrong, Tyron Company, LLC, and Metropolitan Theatres Corporation); and (4) declaratory relief (against Arlington, Armstrong, Tyron Company, LLC, and Metropolitan Theatres Corporation).

On April 5, 2023, Arlington and Trent W. Lyon dba Tryon Company LLC (Tryon) filed an answer to the cross-complaint of RRM, generally denying its allegations and asserting ten affirmative defenses.

On May 14, 2024, Armstrong filed a motion for an order: determining that a settlement between it and Arlington was in good faith under Code of Civil Procedure section 877.6; that non-settling parties are barred from seeking equitable comparative contribution or partial or comparative indemnity based on comparative negligence or comparative fault or related declaratory relief against Armstrong; and dismissing all pending or prospective complaints or cross-complaints by any non-settling parties asserting any barred claims.

In support of the present motion, Armstrong submits the declaration of its counsel, Daniel A. Cribbs (Cribbs), who states that the subject project involved the construction of a mixed-use development at Arlington Village. (Cribbs Decl., ¶ 3.) Cribbs further declares that RRM was retained as the architect of record for the project, and Armstrong served as the general contractor at the project. (Ibid.) As further stated in the Cribbs declaration:

Over the course of the project, various disputes arose between Arlington, Armstrong, and Armstrong’s subcontractors (the subcontractors) regarding payment for services and purported incomplete or defective conditions which led to the filing of mechanics liens and subsequent complaints to foreclose on those liens. (Cribbs Decl., ¶ 4.) After responding to each foreclosure action filed in various courts by Armstrong and the subcontractors, on December 10, 2019, Arlington filed with the American Arbitration Association, a demand for arbitration styled Arlington Theatre Property, LLC v. Armstrong Associates, Inc., Case No. 01-19-0004-4536 (the Arbitration Action). (Id. at ¶ 5.)

In the Arbitration Action, Arlington asserted causes of action against Armstrong and the subcontractors for breach of contract, negligence, and declaratory relief. (Cribbs Decl., ¶ 5.) Following the filing of the Arbitration Action, the court actions filed by Armstrong and the subcontracts were stayed and all claims were removed to the Arbitration Action. (Id. at ¶ 6.) The subcontractors filed counterclaims in the Arbitration Action seeking damages against Arlington and Armstrong arising from the state court mechanics lien foreclosure actions. (Ibid.)

Nearly two years after the Arbitration Action was commenced, and after multiple mediations and what Cribbs describes as arms-length and protracted settlement negotiations, Armstrong and various of the subcontractors reached a collective settlement with Arlington. (Cribbs Decl., ¶¶ 7-8 & 12.) Cribbs declares that the settlement was reached after the parties had conducted discovery and extensive evaluations of the case which included site inspections, expert meetings, and depositions. (Id. at ¶ 12.) Cribbs further asserts that the nature and extent of Arlington’s claims were vigorously disputed by Armstrong whose experts purportedly found that numerous design-related issues were the cause of alleged defects at the project. (Id. at ¶ 13.)

A copy of the settlement agreement executed by Arlington, Armstrong, and the various subcontractors is attached to the Cribbs declaration as exhibit A. (Cribbs Decl., ¶ 8.) The material terms of the settlement agreement require payment of the sum of $4,559,000 by Armstrong to Arlington. (Id. at ¶ 9(1); see also Exh. A at p. 6, § 1.1.) The payment to be made by Armstrong was funded in two parts. (Id. at ¶ 9(2).) First, the amount of $3,754,000 would be paid by Illinois Union Insurance Company, the carrier who issued a “WRAP” insurance policy for the project in which Armstrong and its subcontractors were enrolled, and second, retention withheld by Arlington in the amount of $805,000 would also be used to fund the payment. (Id. at ¶¶ 9(2), 15 & Exh. A at pp. 6-7.) The settlement agreement includes mutual releases and waivers under Civil Code section 1542. (Id. at ¶ 9(4) & Exh. A, §§ 3.0 & 4.0-4.6.)

Armstrong paid the amount of $4,559,000 to Arlington. (Cribbs Decl., ¶ 16.) In advance of mediation, Arlington had served a demand to Armstrong in the amount of $8,790,160.89, which included costs of repair in the amount of $7,040,174 and “ancillary” claims of $1,749,986.89. (Id. at ¶ 14).) On this basis, Cribbs asserts that the amount Armstrong paid to Arlington in settlement is more than 50 percent of Arlington’s pre-mediation demand and, according to Cribbs, exceeds Armstrong’s potential liability to Arlington. (Id. at ¶¶ 14 & 16.)

The Court has no record of any party to this action having filed an opposition to the present motion of Armstrong.

Analysis:

Under Code of Civil Procedure section 877.6, “[a]ny party to an action in which it is alleged that two or more parties are joint tortfeasors or co-obligors on a contract debt shall be entitled to a hearing on the issue of the good faith of a settlement entered into by the plaintiff or other claimant and one or more alleged tortfeasors or co-obligors, upon giving notice in the manner provided in subdivision (b) of Section 1005.” (Code Civ. Proc., § 877.6, subd. (a)(1).) “A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor or co-obligor from any further claims against the settling tortfeasor or co-obligor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.” (Code Civ. Proc., § 877.6, subd. (c).)

In Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488 (Tech-Bilt), the Supreme Court of California set forth the factors that a court must consider when determining the good faith of a settlement. (See Tech-Bilt, supra, 38 Cal.3d at p. 499.) Further, “[t]he party asserting the lack of good faith shall have the burden of proof on that issue.” (Code Civ. Proc., § 877.6, subd. (d).) However, “only when the good faith nature of a settlement is disputed, it is incumbent upon the trial court to consider and weigh the Tech-Bilt factors. That is to say, when no one objects, the barebones motion which sets forth the ground of good faith, accompanied by a declaration which sets forth a brief background of the case is sufficient.” (City of Grand Terrace v. Superior Court (1987) 192 Cal.App.3d 1251, 1261.)

As further detailed above, Armstrong has presented background information regarding the nature of the project including the respective roles of RRM and Armstrong at the project and these parties’ relationship to Arlington. Armstrong has also presented background information regarding the defects claimed by Arlington with respect to the project including information indicating that Armstrong’s experts purportedly discovered design-related issues and asserted that RRM was a potentially culpable party with respect to alleged defects at the project. Armstrong has also offered sufficient information describing the nature of the settlement agreement including the pre-mediation offer of Arlington, the nature and extent of the settlement amount paid by Armstrong to Arlington, and a general description of the claims that were resolved pursuant to the settlement including the manner in which these claims were resolved. Armstrong has also offered a substantial explanation, as further detailed above, of the specific grounds for a determination that the settlement between it and Arlington was in good faith.

The Court has reviewed the moving papers including the Cribbs declaration and the settlement agreement attached to the declaration, and considered the factors set forth in Tech-Bilt. Considering the substantial information provided in the moving papers, the factors set forth in Tech-Bilt, and absence of any objection to Armstrong’s contention that the settlement meets the requirements for a good faith determination under Tech-Bilt, the Court finds that the settlement between Arlington and Armstrong was in good faith. The Court will therefore exercise its discretion to grant the present motion of Armstrong. (Dole Food Co., Inc. v. Superior Court (2015) 242 Cal.App.4th 894, 909.)

The Court has reviewed the proposed order submitted by Armstrong and intends to sign it.