Maeda Pacific Corporation v. GMP Hawaii, Inc.

Opinion

1 2 3 4 5 6 7 IN THE UNITED STATES DISTRICT COURT DISTRICT OF GUAM 8

9 MAEDA PACIFIC CORPORATION, Civil Case No. 08-00012 10 Plaintiff, 11 vs. OPINION AND ORDER RE: MOTION FOR APPROVAL OF GOOD-FAITH 12 GMP HAWAII, INC., et al., SETTLEMENT 13 Defendants, 14 AND DERIVATIVE AND OTHERWISE RELATED LITIGANTS. 15 16 17 Before the court is Third-party Defendant Smithbridge Guam, Inc.’s “Alternative Motion 18 for Summary Judgment, or Approval of Good-Faith Settlement, for Dismissal of the Third-Party 19 Complaint” (“the Smithbridge motion”), and the “Motion for Summary Judgment” filed by 20 Defendants Jorgensen & Close Associates and U.S. Speciality Insurance Company (“the J&CA 21 motion”), insofar as the latter asserts status as a third-party beneficiary of the purported 22 settlement referred to in the title of Smithbridge’s motion. See Docket Nos. 69 (Smithbridge 23 motion), 80 (J&CA motion). The court deals only with the settlement issue in the motions. That 24 issue was extensively briefed and discussed in declarations. See, e.g., Docket Nos. 69, 80, 81, 25 89, 90, 94, 95, 100, 104, 107, 116, 118, 120, 121. The court heard oral argument on February 4, 26 2010. See Docket No. 161. Having read the briefs and the declarations, heard the argument and 27 the testimony, and considered it all in the light of the law, the court hereby GRANTS the 28 Smithbridge motion but DENIES the J&CA motion, for the reasons given below. 1 I. FACTUAL BACKGROUND 2 A. The Project 3 Plaintiff Maeda Pacific Corporation (“Maeda”) entered into a contract with the Naval 4 Facilities Engineering Command (“NAVFACENGCOM”), whereby Maeda agreed to build an 5 off-site water supply system on Guam’s Andersen Air Force Base. See Docket No. 54 at ¶8; id., 6 Exh. A at 1. This Maeda-Navy contract is hereinafter called the “primary contract,” and the 7 overall project it contemplates is hereinafter called “the Project.” 8 In connection with its duties under the primary contract, Maeda entered into some sub- 9 contracts. One such sub-contract was with GMP Hawaii, Inc. (“GMP”). See Docket No. 54, 10 Exh. A at 1. Maeda and GMP disagree over the exact scope of this contract. Maeda contends 11 that GMP agreed to design the large water reservoir tank contemplated by the primary contract, 12 and to use “its best professional skill and knowledge to prepare the Plans and Specifications and 13 other information, and the ultimate design for said tank.” Docket No. 54 at ¶14. GMP denies 14 these allegations. See generally Docket No. 95. Specifically, GMP states that it agreed “to 15 provide construction quality control management, and design engineering for the Project,” but 16 that these responsibilities “did not include design of the water storage tank, and [that] the 17 compensation paid to GMP under that contract did not include design of the water storage tank.” 18 Docket No. 98 at ¶¶2, 4. The actual contract simply appears to call for “DESIGN,” “QUALITY 19 CONTROL,” and “VALUE ENGINEERING.” Docket No. 54, Exh. A at 1; Docket No. 98, Exh. 20 A at 1 (same document). At any rate, the price of that contract, after a few change orders, was 21 $1,555,966.70. Docket No. 54 at ¶9. 22 Another of Maeda’s sub-contracts was with Smithbridge Guam, Inc. (“Smithbridge”). As 23 with the Maeda-GMP contract, Maeda and Smithbridge appear to disagree over the exact scope 24 of their contract. Maeda contends that Smithbridge agreed to build the reservoir tank and its 25 “appurtenant sections.” Docket No. 54 at ¶10. Smithbridge appears to deny this, insofar as it 26 asserts that “‘tank appurtenances’ . . . [were] outside Smithbridge’s contractual scope of work.” 27 Docket No. 71, Exh. 2 at 1. See also Docket No. 92, Exh. A, Exh. 3 at 2-4. 28 1 In connection with the just-discussed Maeda-Smithbridge sub-contract, Smithbridge 2 entered into a contract with Jorgensen & Close Associates, Inc. (“J&CA”) for structural 3 engineering design services. See Docket No. 82, Exh. A. Specifically, J&CA’s work was to 4 include (1) structural design and drawings for the membrane floor and “precast-prestressed” wall 5 of the reservoir tank; (2) a review of the roof and column design and drawings prepared by 6 Smithbridge; (3) internet consultations, a shop drawing review, and up to two field observation 7 trips to Guam; and (4) any other services requested by Smithbridge and agreed to by J&CA. Id. 8 On July 12, 2007, the roof of the reservoir tank collapsed. See Docket No. 54, Exh. B at 9 3. There is controversy over the cause of the collapse. Maeda contends that the collapse was 10 caused by the absence of vents, ventilating systems or ventilators in the tank. See Docket No. 54 11 at ¶¶20-21; see also id., Exh. B (expert report prepared by Wiss, Janney, Elstner Associates, Inc., 12 for Smithbridge). However, GMP points out that NAVFACENGCOM commissioned its own 13 forensic study of the incident, and that this study came to the conclusion that, in GMP’s words, 14 “operational errors could have been the cause for the collapse.” Docket No. 98 at ¶18; see also 15 id., Exh. G (expert report prepared by Weidlinger Associates Inc. for NAVFACENGCOM). 16 More to the point, and separate from the controversy over the cause of the collapse, there is 17 controversy over who has responsibility for whatever caused the collapse. That controversy over 18 responsibility constitutes this lawsuit. 19 B. The Purported Smithbridge-Maeda Settlement 20 Smithbridge claims to have reached a settlement with Maeda. The evidence on this point 21 is as follows. 22 • On September 6, 2007, Albert Smith, Managing Director of Smithbridge, sent a 23 letter to Tom Nielsen, President of Maeda. See Smithbridge Hearing Exh. 3-A 24 (“the Smith-Nielsen letter”). In the Smith-Nielsen letter, Smith states that the 25 “forensic engineer’s final report on the cause of the failure” has been completed. 26 Id. at 1; see also Docket No. 92 at 12-24 (report). Smith calls the report 27 “conclusive,” and states that “it indicates that the roof collapsed because of severe 28 1 overloading from the vacuum under the roof on top of the water when the water 2 surface level was lowered”—a vacuum only made possible by “the lack of 3 ventilation of the air cavity on top of the water surface in the tank.” Smithbridge 4 Hearing Exh. 3-A at 1. Smith states that his team “investigated the records and 5 communication files for the project to determine why there were no vents and 6 where the responsibility for the design and installation of the vents rested.” Id. 7 Smith then details the results of that investigation and concludes that Smithbridge 8 (and, possibly by extension, its designer, J&CA) cannot be faulted for the 9 collapse. See id. at 1-2. Nonetheless, Smith states that Smithbridge will absorb 10 (1) the cost of the forensic engineer’s report (by then completed), and (2) the cost 11 of the demolition and removal of debris (by then already under way). See id. at 2- 12 3. Smith then explains that the offer is “without prejudice,” and constitutes “an 13 attempt to show our pro-active approach to arranging a speedy start for the 14 diagnostic and demolition phases.” Id. at 3. Finally, Smith states that “[i]f during 15 the execution of the demolition, the situation progresses toward legal action 16 against Smithbridge or any other parties, we reserve the right to present the costs 17 incurred for re-imbursement from the party ultimately responsible.” Id. 18 • On September 14, 2007, Smithbridge sent a letter to Maeda, in which it laid out 19 its “proposal for the inspection, demolition, ventilation design and roof 20 reconstruction of the water tank at AAFB.” Docket No. 71, Exh. 3 (“the 21 Proposal”). In keeping with the Smith-Nielsen letter, the Proposal indicated that 22 Smithbridge would be responsible for cost items 1 (“Condition Survey” or 23 “Forensic Engineer”) and 3 (“Demolition”), if Maeda were to agree to the 24 “commercial terms” explained in the Smith-Nielsen letter. Id. The total value of 25 cost items 1 and 3 was $423,633.50. See id. 26 • On September 25, 2007, Maeda’s counsel wrote to Smithbridge to make clear that 27 Maeda “look[ed] to [Smithbridge] to indemnify, hold harmless and defend 28 1 [Maeda] and its surety in connection with [the collapse of the roof structure].” 2 Docket No. 71, Exh. 1 (“the Smithbridge Demand letter”). 3 • On October 8, 2007, Smithbridge’s counsel answered Maeda’s counsel. See 4 Docket No. 71, Exh. 2 (“the Smithbridge Answer letter”). In the Smithbridge 5 Answer letter, Smithbridge denied any liability for the collapse of the roof 6 structure and declined Maeda’s demand. See id. Smithbridge stated that it had 7 already “incurred considerable expenses for the additional work of cleaning up the 8 collapsed roof and employing a forensic engineer to issue a report of its cause.” 9 Id. Smithbridge also stated that, “[i]n the spirit of cooperation,” it was still 10 “willing to absorb these additional incurred expenses if [Maeda] would agree to 11 the terms of the remediation proposal.” Id. As an inducement, Smithbridge 12 asserted that it was “prepared to pull off the project and hold [Maeda] accountable 13 for the additional expenses already incurred in this unfortunate mishap.” Id. In 14 closing, Smithbridge requested that “your letter of September 25, 2007 [i.e., the 15 Smithbridge Demand letter] be formally withdrawn.” Id. 16 • On October 24, 2007, Maeda’s counsel replied to the Answer letter. See Docket 17 No. 71, Exh. 4 (“the Withdrawal letter”). In the Withdrawal letter, Maeda’s 18 counsel first thanked Smithbridge for “coming to my office last week and meeting 19 with Tom Nielsen of [Maeda] and myself [sic] to discuss strategy and techniques 20 for finalizing the repair of the roof for the Andersen Air Force Base water tank.” 21 Id. (emphasis in original). Maeda then wrote: “In accordance with your request, 22 [Maeda] hereby withdraws [the Smithbridge Demand letter], because you have 23 agreed to continue to work on the repair and replacement of the roof in accordance 24 with [the Proposal]. Maeda hereby accepts that proposal.” Id. 25 • On April 8, 2008, Maeda’s Willy Flores sent an email to Smithbridge’s Hernan 26 Bonsembiante. See Maeda Hearing Exh. M-1 (“the Flores email”). Flores noted 27 that, at the time, the total balance that Maeda owed to Smithbridge amounted to 28 1 $1,314,302.37—$1,150,302.37 for the repair contract, plus a $164,000 balance on 2 “the previous contract.” Id. at 1. Flores then proposed that Maeda be permitted to 3 discharge that balance by a payment of $1 million, with the $314,302.37 4 differential being “for settlement.” Id. 5 • On April 14, 2008, Smithbridge held a meeting with Maeda, and created minutes 6 to memorialize it. See Docket No. 101, Exh. A (“the Minutes”). The agenda of 7 the meeting was to discuss the Flores email, in which Maeda “request[ed] 8 additional discount for the tank project at AAFB and in consideration for the 9 additional discount [Maeda] will ‘remove all liability from [Smithbridge] for the 10 collapse.’” Id. The Minutes indicate that Tom Nielsen “reiterated [that Maeda’s] 11 position has not changed and [that Maeda] has no intention of pursuing 12 [Smithbridge] legally now or at any time in the future for compensation related to 13 the roof collapse on the tank.” Id. Nielsen also “reassured [Smithbridge] that 14 [Maeda’s] position is still the same . . . i.e., that [Maeda] will not pursue legal 15 action against [Smithbridge] for any compensation relating to the collapse of the 16 tank roof.” Id. Steve Radonich, Smithbridge Vice President, indicated that 17 “[Smithbridge] will assist with documentary evidence to support [Maeda] in any 18 suit against others for the collapse of the tank roof if [Maeda] pursues others who 19 may be at fault.” Id. The Minutes summarized “the essence of the agreement” 20 that had been reached in an earlier meeting between the parties: 21 [Maeda] to complete their contract satisfactorily, remove or at least minimize any further cost exposure to Maeda i.e. LD’s for late 22 delivery and remove the customer from the equation. This agreement also allowed for establishing the exact cost [Maeda] 23 suffered and to enable them to move forward with bringing suit against others or their insurers with a definite cost of the claim 24 clearly established. 25 Id. However, Radonich also “indicated that the terms of payment outlined in 26 [Maeda’s] request are unsatisfactory,” and “agreed to further approach Albert 27 Smith to discuss the discount request.” Id. 28 1 • On April 15, 2008, Radonich (of Smithbridge) emailed the Minutes to Nielsen (of 2 Maeda) for his comments. See Docket No. 101, Exh. B. Radonich indicated that 3 he would require a substantial progress payment from Maeda in order to discuss 4 the discount request with Smith, “as last time we spoke he was very unhappy.” 5 Id. Then, on April 16, 2008, Nielsen replied to Radonich, indicating that the only 6 changes he thought necessary pertained to (1) his title, and (2) the value of the 7 insurance claim Maeda intended to lodge against “the tank designer.” Id. 8 • Finally, about one or two months after the April 14, 2008 meeting, Smithbridge 9 granted Maeda a discount of $122,065.81. See February 4, 2010 Hearing; see also 10 Docket No. 69. However, this discount was applied to the original Smithbridge- 11 Maeda contract, not the repair contract. See February 4, 2010 Hearing; see also 12 GMP Hearing Exh. GMP-1 (cost breakdown prepared by Smithbridge’s Jake 13 Leon Guerrero and Hernan Bonsembiante, showing $122,065.81 in total discounts 14 under “Original Contract” and none under “Repair”). 15 Adding the $423,633.50 of “without prejudice” work from the Proposal with the 16 $122,065.81 discount given after the April 14, 2008 meeting, Smithbridge claims that the “total 17 settlement value” was $545,699.31. Docket No. 69 at 1:26. 18 Maeda, for its part, states that “[it] never executed a settlement agreement or release of 19 claims with either Smithbridge or [J&CA] related to the damaged water tank,” that “[it] did not 20 intend for its acceptance of Smithbridge’s proposal to repair the damaged water tank on the 21 Project to constitute a settlement of all claims against either Smithbridge or [J&CA],” and that 22 “[it] never stated or in any way indicated that it had or would settle or release any of its claims 23 against Smithbridge related to the Project.” Docket No. 121 at 3:13-20. 24 However, during the hearing, Maeda modified its position: its president and its counsel 25 both admitted that Maeda had, at some point, agreed with Smithbridge that it would not sue 26 Smithbridge. See February 4, 2010 Hearing. 27 28 1 C. The Purported J&CA-Maeda Settlement 2 J&CA also claims to be a third-party beneficiary of the purported Smithbridge-Maeda 3 settlement. The evidence on this point is as follows. 4 • On September 25, 2007, Maeda’s counsel sent J&CA a letter quite similar to the 5 Smithbridge Demand letter. See Docket No. 124 at 5 (“the J&CA Demand 6 letter”). In the J&CA Demand letter, Maeda’s counsel stated that Maeda 7 “look[ed] to [Smithbridge] to indemnify, hold harmless and defend [Maeda] and 8 its surety in connection with [the collapse of the roof structure].” Id. 9 • On October 23, 2007, J&CA responded to Maeda. See Docket No. 124 at 15 10 (“the J&CA Response”). In its response, J&CA explained that “[w]e have not 11 responded until now, as we understood that as a consultant to Smithbridge . . . that 12 our interests were being represented through them.” Id. J&CA also stated that it 13 . . . further understands that Smithbridge and Maeda have reached an agreement, and that Maeda is no longer looking to Smithbridge 14 to “hold harmless and defend MPC” in this matter. Rather, J&CA understands, Maeda is now looking to Smithbridge to assist them 15 in rehabilitating the tank. As soon as J&CA receives word that Maeda is no longer looking at J&CA as part of the problem, but 16 rather part of the solution, J&CA will resume assisting Smithbridge and Maeda in designing the remedial measures for the 17 tank. 18 Id. 19 • Finally, there was testimony at the hearing that Smithbridge and Maeda had 20 discussed J&CA during their settlement-related discussions, insofar as 21 Smithbridge emphasized the importance of keeping J&CA on the project to avoid 22 onerous reverse-engineering costs. See February 4, 2010 Hearing. However, 23 there was also testimony that any such discussion was never understood, on 24 Maeda’s part, to amount to a release of potential claims against J&CA. See 25 February 4, 2010 Hearing. 26 Again, in its papers, Maeda states that “[it] never executed a settlement agreement or 27 release of claims with . . . [J&CA] related to the damaged water tank,” that “[it] did not intend 28 1 for its acceptance of Smithbridge’s proposal to repair the damaged water tank on the Project to 2 constitute a settlement of all claims against . . . [J&CA].” Docket No. 121 at 3:13-18. 3 II. PROCEDURAL BACKGROUND 4 Maeda initiated this case by filing its initial complaint on August 14, 2008. See Docket 5 No. 1. The defendants named in the initial complaint were: GMP; Ohio Pacific Tech, Inc. 6 (“Ohio Pacific”); GMP Associates, Inc.; and J&CA. Id. 7 On October 14, 2008, GMP and Ohio Pacific answered the complaint, and brought a 8 counterclaim for breach of contract against Maeda, and a cross-claim for contribution against 9 J&CA. See Docket No. 16. That same day, GMP and Ohio Pacific also brought a third-party 10 complaint for contribution against Smithbridge. See Docket No. 17. 11 On November 3, 2008, Smithbridge answered the third-party complaint, and brought a 12 counterclaim1 against GMP and Ohio Pacific, as well as a cross-claim for breach of contract 13 against J&CA. See Docket No. 25. That same day, J&CA answered the GMP and Ohio Pacific 14 cross-claim, and brought its own cross-claims for contribution and equitable indemnity against 15 GMP and Ohio Pacific. See Docket No. 26. 16 On November 24, 2008, J&CA answered the Smithbridge cross-claim, and cross-claimed 17 for contribution and equitable indemnity against Smithbridge. See Docket No. 31. 18 On February 24, 2009, Maeda filed its First Amended Complaint (“FAC”), the now- 19 operative complaint. See Docket No. 54. The defendants named in the FAC are: GMP; Ohio 20 Pacific; Lexington Insurance Company, the insurers of GMP and Ohio Pacific; J&CA; and U.S. 21 Specialty Insurance Company (“Specialty”), J&CA’s insurers. Id. Maeda asserts a negligence 22 claim against all Defendants (Count One), a breach of contract claim against all Defendants 23 (Count Two), and an additional breach of contract claim against GMP only (Count Three). See 24 id. at 5-7. Maeda seeks a damages award of $6 million on Counts One and Two (against all 25 named Defendants), and a further damages award of $1.8 million on Count Three (against GMP 26 27 1 Unspecified, but apparently for sums due on an unjust enrichment theory. See Docket No. 25 at 5:8-23. 28 1 only). See id. at 7:2-6. 2 On August 14, 2009, Smithbridge filed the Smithbridge motion. See Docket No. 69. 3 On September 10, 2009, J&CA and Specialty filed the J&CA motion. See Docket No. 4 80. 5 On September 24, 2009, and pursuant to stipulation of the parties, the court ordered that 6 the Smithbridge and J&CA motions be briefed on the same schedule, because they raise very 7 similar issues. See Docket Nos. 84, 88. Pursuant to that order, Maeda filed its oppositions to the 8 J&CA motion and the Smithbridge motion on October 1, 2009. See Docket Nos. 89, 90. GMP 9 filed its oppositions to the two motions on that same day. See Docket Nos. 94, 95. On October 10 8, 2009, Smithbridge filed its reply to the Maeda and GMP oppositions. See Docket No. 100. 11 J&CA/Specialty replied to the GMP opposition on October 8, 2009, and replied to the Maeda 12 opposition on the following day. See Nos. 104 (reply to GMP), 107 (reply to Maeda). 13 On December 3, 2009, Smithbridge and J&CA/Specialty filed supplemental declarations. 14 See Docket Nos. 116, 118. Maeda replied to the J&CA/Specialty declaration on December 10, 15 2009, together with its own supplemental declaration. See Docket Nos. 120, 121. On December 16 14, 2009, J&CA/Specialty filed another supplemental declaration. See Docket No. 124. 17 On December 23, 2009, Maeda moved to extend the deadline to amend its complaint, and 18 moved for leave to file a second amended complaint. See Docket Nos. 135, 136. However, in 19 the face of opposition, Maeda later withdrew these particular motions. See Docket Nos. 140, 20 141, 151. 21 Pursuant to the court order, the parties began filing proposed certification orders, and 22 objections thereto, on January 11, 2010. See Docket Nos. 145, 148, 150, 152, 153, 155, 156, 23 158. 24 Finally, on February 4, 2010, the court held a hearing on the good-faith settlement issue. 25 See Docket No. 161. 26 27 28 1 III. JURISDICTION AND VENUE 2 All of Plaintiff’s causes of action are within the court’s diversity jurisdiction. See 28 3 U.S.C. § 1332; see also Docket No. 54 at ¶¶1-7. 4 Venue is proper in this judicial district, the District of Guam, because Defendants conduct 5 business here, and because all of the events or omissions giving rise to Plaintiff’s claims occurred 6 here. See 28 U.S.C. § 1391. 7 IV. APPLICABLE STANDARDS 8 The court is sitting in diversity, so it applies Guam substantive law but federal procedural 9 law. See Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 426-28 (1996). 10 The instant issue is governed by Section 24606 of Title 7, Guam Code Annotated. See 11 Docket No. 111. There do not appear to be any Guam cases applying Section 24606. But under 12 Guam law, a California case is persuasive when (1) the instant Guam case involves interpretation 13 and construction of a Guam statute, (2) the Guam statute is based on a California statute, which 14 is interpreted and applied in the California case, and (3) there is no compelling reason to deviate 15 from California’s interpretation. See O’Mara v. Hechanova, 2001 Guam 13 ¶ 8 n.1; Fajardo v. 16 Liberty House Guam, 2000 Guam 4 ¶ 17. On that point, this court’s Appellate Division observed 17 that Section 24606 is based on Section 877.6 of the California Code of Civil Procedure, and 18 sought guidance in construing an aspect of Section 24606 in a California case construing Section 19 877.6. See Yusen Air & Sea Servs. (Guam), Inc. v. Sup. Ct. of Guam, Civ. Nos. 93-00020A & - 20 21A, 1993 WL 245645, at *6 (D. Guam App. Div. June 23, 1993) (citing Tech-Bilt, Inc. v. 21 Woodward-Clyde & Assoc., 698 P.2d 159 (Cal. 1985)). As such, the court will consider relevant 22 California cases, such as Tech-Bilt, applicable to its analysis of Section 24606. 23 V. ANALYSIS 24 Smithbridge claims to have reached, with Maeda, a good-faith settlement within the 25 meaning of Section 24606, while J&CA claims to be a third-party beneficiary of any such 26 settlement. See generally Docket Nos. 69, 80. 27 28 1 A. Smithbridge and Maeda 2 With respect to Smithbridge, there are two basic issues: first, whether there exists a 3 Smithbridge-Maeda “settlement” within the meaning of Section 24606; second, if such a 4 settlement does exist, whether its terms are consistent with “good faith” within the meaning of 5 Section 24606. 6 1. There exists a Smithbridge-Maeda “settlement” within the meaning of Section 24606 7 8 Section 24606 is part of Guam’s “Contribution Among Joint Tortfeasors Act” 9 (“CAJTA”). See 7 G.C.A. § 24601. Under CAJTA, a “settlement” within the meaning of 10 Section 24606 is “a release or covenant not to sue or not to enforce judgment.” 7 G.C.A. 11 § 24605 (emphasis added); see also RESTATEMENT (SECOND) OF CONTRACTS §§ 284, 285 (1981) 12 (on the distinction between a release and a covenant, or contract, not to sue).2 13 Here, the opposing parties actually agree that there was an agreement. Smithbridge’s 14 counsel maintained, during the hearing, that there was “certainly” a covenant not to sue, and 15 elicited testimony to that effect. February 4, 2010 Hearing. 16 More surprisingly, and in contrast with its papers, Maeda admitted the same. Its counsel 17 made the following offer of proof as to what its chief witness, Maeda President Tom Nielsen, 18 was going to say: “He said, ‘I have no intention of suing you now, and I will not sue you in the 19 future, but I want a decent discount out of this agreement.’” February 4, 2010 Hearing. Nielsen 20 was equivocal; he both admitted and denied several times that he had agreed with Smithbridge 21 that Maeda would not sue them. See id. For example, when asked on cross-examination whether 22 his testimony was “that you agreed, that you reached an understanding with Smithbridge that you 23 would not sue them, or hold them liable, for damages as a result of the collapse of the roof tank,” 24 Nielsen replied: “That was my intent.” Id. But a minute or two later he denied having made any 25 26 2 Section 24605 posits the legal effect of “a release or covenant not to sue or not to enforce judgment” that is “given in good faith,” while Section 24606 establishes the procedure for determining whether a “settlement” has been 27 reached in good faith. See 7 G.C.A. §§ 24605, 24606. As the more substantive of the two provisions, Section 24605 is fairly and naturally read as specifying what counts as a “settlement” under CAJTA. 28 1 such agreement. See id. Ultimately, however, Nielsen agreed with the court that his “agreement 2 and intention, as reflected in the minutes, was ‘we don’t want to go after you [Smithbridge] for 3 the collapse of the roof, we won’t pursue legal action.’” Id. Then, in closing argument, Maeda’s 4 counsel admitted that there was an agreement between Smithbridge and Maeda, stating that he 5 would have “no credibility with [the court] at all” were he to maintain otherwise. Id. Maeda’s 6 counsel also said that “[t]here’s no question, your Honor, that from the testimony, and from the 7 memorandum, and from Mr. Nielsen’s reply, that if he was going to dispute that he said we are 8 not going to sue Smithbridge, as opposed to these others, he would have said, ‘I didn’t agree to 9 it.’” Id. The sum and substance of all this, the court finds, is that Maeda agreed not to sue 10 Smithbridge for damages related to the collapse of the tank roof, and that it expected something 11 in return. Moreover, the court cannot see any difference between this agreement—particularly as 12 described by Maeda’s counsel—and a covenant not to sue.3 See, e.g., RESTATEMENT (SECOND) 13 OF CONTRACTS § 285 (1981). 14 Therefore, the parties agree that there was a covenant not to sue. And since a 15 “settlement” within the meaning of Section 24606 may be “a release or covenant not to sue,” 16 there exists a “settlement” within the meaning of Section 24606. 7 G.C.A. §§ 24605, 24606. 17 2. The Smithbridge-Maeda settlement is in “good faith” within the meaning of Section 24606 18 19 Having found that there exists a “settlement” within the meaning of Section 24606, the 20 court must decide whether its terms are consistent with “good faith” within the meaning of the 21 same section. A settlement is not in good faith “if it is made for significantly less than the 22 reasonable value of the claim for which it is made taking into account the likelihood of liability, 23 assets and insurance available to pay the claim, the cost and difficulty of pursuing the claim, the 24 relationship between the parties to the settlement, and such other factors as the court may deem 25 26 3 Throughout the hearing, Maeda’s counsel repeatedly stressed the difference between a settlement or release, 27 on the one hand, and a covenant or agreement not to sue, on the other. See February 4, 2010 Hearing. While the court understands the distinction, it is, as stated above, irrelevant under CAJTA. 28 1 appropriate or relevant.” 7 G.C.A. § 24606(e) (emphasis added). As such, the first order is to 2 determine the value of the settlement, so as to compare it to “the reasonable value of the claim 3 for which it is made.” 4 a. The value of the settlement is $122,065.81 5 Smithbridge argues that the agreement’s value was $545,699.31. See Docket No. 69 at 6 1:26. As stated earlier in this order, Smithbridge appears to have obtained this figure by adding 7 the $423,633.50 of “without prejudice” work from the Proposal with the $122,065.81 discount 8 given after the April 14, 2008 meeting. 9 The court rejects Smithbridge’s valuation. Specifically, the court rejects the inclusion of 10 the $423,633.50 of “without prejudice” work in the total value of the agreement, for a number of 11 reasons. (For ease of reference, the court hereinafter refers to the offer of “without prejudice” 12 work as “the incentive offer.”) 13 • Smithbridge freely volunteered the incentive offer, before Maeda sent its demand 14 letter. Compare Smithbridge Hearing Exh. 3-A (the Smith-Nielsen letter, dated 15 September 6, 2007) with Docket No. 71, Exh. 1 (the Smithbridge Demand letter, 16 dated September 25, 2007). Put differently, the incentive offer did not arise from 17 negotiation or exchange. It looks more like a gift, which does not create 18 enforceable obligations. 19 • The Smith-Nielsen letter explains the incentive offer as “an attempt to show our 20 pro-active approach to arranging a speedy start for the diagnostic and demolition 21 phases.” Smithbridge Hearing Exh. 3-A. This vague language does not suggest 22 any sort of expectation of bargain or exchange, and so fails to connect the 23 incentive offer to a settlement. Moreover, the letter also states that “[i]f during the 24 execution of the demolition, the situation progresses towards legal action against 25 Smithbridge or any other parties, we reserve the right to present the costs incurred 26 for reimbursement from the party ultimately responsible.” Id. (emphasis added). 27 Thus, the incentive offer was not really “free,” but rather offered as a sort of 28 1 credit, insofar as Smithbridge explicitly reserved its right to ultimately demand 2 payment for it—even if Smithbridge itself were never sued. Indeed, Smithbridge 3 may still recover the costs of the incentive offer “from the party ultimately 4 responsible.” 5 • The Smithbridge Answer letter reaffirms Smithbridge’s willingness to “absorb” 6 (or at least advance) the costs of the incentive offer, “[i]n the spirit of 7 cooperation.” Docket No. 71, Exh. 2 at 2. Again, this language is too vague to 8 connect the incentive offer with any process of negotiation or exchange, such as 9 might give rise to a “settlement” under CAJTA. 10 • The Withdrawal letter does not say that Maeda is withdrawing its earlier demand 11 because of the incentive offer; in fact, the Withdrawal letter does not mention the 12 incentive offer at all. See Docket No. 71, Exh. 4. Rather, the Withdrawal letter 13 says that Maeda is withdrawing its earlier demand “because you have agreed to 14 continue to work on the repair and replacement of the roof in accordance with 15 your September 14, 2007 letter to [Maeda].” Id. This suggests that Maeda did not 16 view the incentive offer as a part of any process of negotiation or exchange. 17 • The Flores email does not mention the incentive offer. See Maeda Hearing Exh. 18 M-1. 19 • On April 14, 2008, Smithbridge and Maeda met to discuss the Flores email, in 20 which Maeda proposed a $314,302.37 discount in exchange for a promise to 21 “remove all liability from [Smithbridge] for the roof collapse.” Docket No. 101, 22 Exh. A. The fact that Smithbridge even entertained a meeting with Maeda to 23 discuss the proposal in the Flores demonstrates that Smithbridge did not believe, 24 at the time, that it had obtained any settlement, release, or covenant not to sue. 25 This, in turn, suggests that Smithbridge did not regard the incentive offer as 26 consideration for anything. Moreover, the description of “the agreement 27 previously reached”—authored by Smithbridge, and mentioning no consideration, 28 1 which suggests mere terms or an agreement not yet with legal effect—does not 2 mention the incentive offer. See id. This further suggests that Smithbridge did 3 not regard the incentive offer as consideration for anything, and further deters the 4 court from doing so. 5 In short, the $423,633.50 of “without prejudice” work looks more like a goodwill gesture, 6 designed to perpetuate a business relationship, than consideration. It was freely given, it was not 7 bargained for, and it was never clearly identified as any kind of payment for the guarantee that 8 Smithbridge sought. Thus, the court will not include it in the value of the settlement. 9 Maeda, for its part, argues that the value of the settlement is only $12,884.42, insofar as it 10 contends that this was the value of the discount ultimately resulting from the Flores email. See 11 Maeda Hearing Exh. M-2. Further, Maeda President Tom Nielsen stated during the hearing that 12 he was unsure how Smithbridge arrived at the figure of $122,065.81 as a value of the discount 13 resulting from the Flores email. See February 4, 2010 Hearing. 14 The court rejects Maeda’s valuation as well. On cross-examination, Nielsen clarified 15 things: he stated that Smithbridge did give Maeda a more substantial discount, but that it was 16 applied to the balance on the original construction contract, rather than to that of the repair 17 contract. See February 4, 2010 Hearing (Court: “In reality, there was some kind of exchange or 18 debiting on the original contract?” Nielsen: “Yes.”) (Tarpley: “They gave you, they gave you the 19 discount, pursuant to your request for an additional discount because you were bleeding and 20 hurting badly, they gave you that discount, and on the books it was taken off the balance of the 21 original contract that you owed them?” Nielsen: “Correct.”). This is borne out by the 22 documentary evidence. See GMP Hearing Exh. GMP-1 (cost breakdown prepared by 23 Smithbridge’s Jake Leon Guerrero and Hernan Bonsembiante, showing $122,065.81 in total 24 discounts under “Original Contract” and none under “Repair”). A $122,065.81 discount is a 25 discount, regardless of accounting chicanery— and, moreover, it is valuable consideration. 26 In short, Maeda’s position is disingenuous. The value of the settlement is $122,065.81. 27 28 1 2. A $122,065.81 settlement of Maeda’s potential claim against Smithbridge is in “good faith” within the meaning of Section 24606 2 3 Again, settlement is not in good faith “if it is made for significantly less than the 4 reasonable value of the claim for which it is made taking into account the likelihood of liability, 5 assets and insurance available to pay the claim, the cost and difficulty of pursuing the claim, the 6 relationship between the parties to the settlement, and such other factors as the court may deem 7 appropriate or relevant.” 7 G.C.A. § 24606(e). The inquiry should turn on 8 . . . a rough approximation of plaintiffs’ total recovery and the settlor’s proportionate liability, the amount paid in settlement, the 9 allocation of settlement proceeds among plaintiffs, and a recognition that a settlor should pay less in settlement than he 10 would if he were found liable after a trial. Other relevant considerations include the financial conditions and insurance 11 policy limits of settling defendants, as well as the existence of collusion, fraud, or tortious conduct aimed to injure the interests of 12 nonsettling defendants. Finally, practical considerations obviously require that the evaluation be made on the basis of information 13 available at the time of settlement. 14 Tech-Bilt, 698 P.2d at 166-67 (citation omitted). In short, “[t]he ultimate determinant of good 15 faith is whether the settlement is grossly disproportionate to what a reasonable person at the time 16 of settlement would estimate the settlor’s liability to be.” City of Grand Terrace v. Sup. Ct. 17 (Boyter), 238 Cal. Rptr. 119, 126 (Cal. Ct. App. 1987) (emphasis added). 18 Here, the $122,065.81 settlement was reached in “good faith” within the meaning of 19 Section 24606. First, the evidence shows that, at the time of the settlement, Maeda did not 20 believe it had a valuable or even viable claim against Smithbridge. For example, Maeda 21 President Tom Nielsen indicated during the hearing that, at the time of the April 14, 2008 22 meeting, Maeda thought that Smithbridge “had nothing to do” with the cause of the tank roof 23 collapse. See February 4, 2010 Hearing.4 Likewise, in its “Motion for Leave to File Second 24 Amended Complaint,” Maeda stated that it did not originally sue Smithbridge because, at the 25 26 4 As a follow-up, the court asked Nielsen whether it was his understanding that Smithbridge’s liability would be “zero,” to which Nielsen answered, “No.” February 4, 2010 Hearing. This then prompted the court to ask Nielsen 27 why, in that case, he said he would not pursue Smithbridge legally; Nielsen answered, “We had the feeling that the main fault was with the designer of record.” Id. 28 1 time it brought this case in August of 2008, Maeda “believ[ed] GMP and [JC&A] to be the only 2 parties with design responsibility for the reservoir tank and its appurtenances, including the 3 tank’s roofing system.” Docket No. 136 at 4:19-22; see also id. at 6:3-6 (“As noted above, 4 Maeda previously believed the responsibility for the water reservoir tank design to rest primarily 5 with GMP (as the Project designer maintaining overall design review responsibility for the 6 Project) and [J&CA] (as the designer of the water tank reservoir, specifically).”). Thus, Maeda’s 7 own representations show that, “on the basis of the information available at the time of 8 settlement,” Tech-Bilt, 698 P.2d at 167, Maeda must have thought that any Project-related legal 9 claim it had against Smithbridge was worth little or nothing. Second, even if Maeda believed, at 10 the time, that any Project-related legal claim it had against Smithbridge had a value over 11 $122,065.81, a certain discount is expected—and consistent with good faith—given that “a 12 settlor should pay less in settlement than he would if he were found liable after a trial.” Id. at 13 166. Third, that discount is expected to be greater where, as here, the settlor was “uninsured, or 14 underinsured.” Id.; see also February 4, 2010 hearing (Steve Radonich testimony that 15 Smithbridge lacks insurance coverage). Fourth, “collusion, fraud, or tortious conduct” is 16 extremely unlikely here, since Maeda fought Smithbridge every step of the way since 17 Smithbridge filed its motion; the two parties are simply not in concert. Id. at 166. 18 For these reasons, the $122,065.81 settlement was reached in “good faith,” within the 19 meaning of Section 24606. 20 B. J&CA and Maeda 21 Having found that Smithbridge and Maeda reached a good-faith settlement within the 22 meaning of Section 24606, the court must determine whether J&CA is a third-party beneficiary 23 of that settlement. 24 “A contract, made expressly for the benefit of a third person, may be enforced by him at 25 any time before the parties thereto rescind it.” 18 G.C.A. § 85204. However, as J&CA itself 26 pointed out, the “basic presumptions” regarding intended beneficiaries are: (1) parties are 27 presumed to have contracted only for their own benefit, and (2) where there is doubt about 28 1 whether a party was intended to be a third-party beneficiary, “doubt is construed against such 2 intent.” See Docket No. 107 at 9:1-4 (quoting 17B C.J.S. Contracts § 621 (1999)). Moreover, 3 “the intent to benefit the third person must clearly appear from the terms or language of the 4 agreement, as a whole, in light of the surrounding circumstances known to the parties, or the 5 situation under which the contract was entered into.” 17B C.J.S. Contracts § 621 (1999) 6 (emphasis added). 7 Here, there is no clear evidence that J&CA was intended to be a third-party beneficiary of 8 anything. J&CA’s only piece of documentary evidence is an unanswered letter to Maeda that 9 was somehow supposed to put Maeda on notice that any settlement it reached with Smithbridge 10 would also run to J&CA. See Docket No. 124 at 15. There is no support in the law for this 11 manner of creating third-party beneficiary status. 12 Rather, what the evidence clearly shows is that, as part of its agreement with Maeda, 13 Smithbridge was to help Maeda press its claims against J&CA. For example, the Minutes clearly 14 show that the mutual understanding of Smithbridge and Maeda was that Smithbridge would 15 “assist” and “support [Maeda] in any suit against others for the collapse of the tank roof.” 16 Docket No. 101, Exh. A. As Maeda’s counsel stressed during the hearing, the plural word 17 “others” is key: the only other entities working on the Project were J&CA and GMP, so the word 18 “others” necessarily embraces them both. February 4, 2010 Hearing. The Minutes also 19 contemplate Maeda bringing a “million[-]dollar insurance claim against their tank designer,” 20 who, by the very terms of the Project, is J&CA. Docket No. 101, Exh. A. In short, the Minutes 21 clearly show that the Smithbridge-Maeda settlement was not “made expressly for the benefit of” 22 J&CA. 18 G.C.A. § 85204. 23 Thus, J&CA is not a third-party beneficiary of the Smithbridge-Maeda settlement. 24 25 26 27 28 1] VI. CONCLUSION 2 For the foregoing reasons, the court hereby GRANTS the Smithbridge motion but 3 || DENIES the J&CA motion, insofar as they seek approval of any purported good-faith settlement 4 || of claims. The court will resolve the remaining parts of the J&CA motion forthwith. 5 SO ORDERED.

7 a " /s/ Frances M. Tydingco-Gatewood 8 a fe J, Chief Judge ea Dated: Feb 23, 2010

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