City of West Sacramento v. R & L Business Management

8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- CITY OF WEST SACRAMENTO, No. 2:18-CV-00900 WBS EFB CALIFORNIA; and PEOPLE OF THE STATE OF CALIFORNIA, 14 Plaintiff, ORDER RE: PLAINTIFFS AND DEFENDANT THE URBAN FARMBOX, 15 v. LLC’S MOTION FOR DETERMINATION OF GOOD FAITH R AND L BUSINESS MANAGEMENT, a SETTLEMENT California corporation, f/k/a STOCKTON PLATING, INC., d/b/a CAPITOL PLATING INC., a/k/a CAPITOL PLATING, a/k/a CAPITAL PLATING; CAPITOL PLATING, INC., a dissolved California corporation; JOHN CLARK, an individual; ESTATE OF NICK E.

SMITH, DECEASED; THE URBAN FARMBOX LLC, a suspended California limited liability company; et al.; 23 Defendants.

25 ----oo0oo---- 26 Plaintiffs City of West Sacramento (“the City”) and the People of the State of California brought this action against defendants R and L Business Management (“R&L”), the Estate of Nick E. Smith, John Clark, and The Urban Farmbox, LLC (“Urban Farmbox”), among others, alleging, inter alia, a violation of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) § 107(a), 42 U.S.C. § 9607(a). (See.) The operative complaint, plaintiffs’ Third Amended Complaint (“TAC”), seeks to hold former owners and operators of the property located at 319 3rd St., West Sacramento, California (“the 319 Property”) responsible for the alleged soil and groundwater contamination at and emanating from the property (“the Site”). (See generally Third Am. Compl. (“TAC”) (Docket No. 45).) Plaintiffs and Urban Farmbox now move, unopposed, for a good faith settlement determination. (See Docket No. 259.)

13 I. Background 14 This court described much of the factual and procedural background to this lawsuit in its prior orders. (See Docket Nos. 18, 33, 44, 63, 115, 125, and 203.)

17 The TAC alleges that Urban Farmbox is liable under CERCLA § 107(a) because it is the current owner of the 319 Property. (See id. at ¶ 95.) Urban Farmbox never answered plaintiffs’ TAC and has been in default since March 6, 2019.

21 (See Docket Nos. 59-61.) Urban Farmbox still has not moved to set aside the default.

23 On February 8, 2021, plaintiffs and Urban Farmbox filed a Notice of Settlement, indicating that they had settled all claims brought by plaintiffs against Urban Farmbox in this action. (See Docket No. 259.) Pursuant to the Settlement Agreement, the parties will engage in a series of transactions, including a property exchange, that will result in a net settlement contribution by Urban Farmbox to the City of $76,904.11. (Declaration of Bret Stone (“Stone Decl.”), Ex. 1 (“Settlement Agreement”) ¶ 3.1 (Docket No. 259-2).)

4 In addition to the 319 Property, Urban Farmbox owns the adjoining parcel (“UF Parcel 002”) and another parcel located in West Sacramento (“UF Parcel 009”). (Id. at ¶ 1.2.) The Agreement grants the City the right and option to purchase from Urban Farmbox the 319 Property and UF Parcel 002 (“the UF Transfer Properties”). (Id. at 3.1.1.) The Agreement states that the combined market value of the UF Transfer Properties is $420,756.00. (See id.) 12 In return, the City will transfer to Urban Farmbox a parcel of land located at 424 C St. (“the City Transfer Property”), currently valued at $35,000.00, and pay $40,000 to Urban Farmbox for water and sewer connection costs. (Id. at ¶ 2.4, 3.1.2, 3.1.3.) The City will also waive much of the amount due to it under a promissory note originally made by Urban Farmbox in favor of Jeffrey A. Lyon and Grace E. Lyon in 2015 (“the Note”), which the City purchased and took assignment of on June 14, 2019. (Id. at ¶ 2.7, 3.1.4.) The Agreement will reduce the Note’s outstanding principal balance of $293,851.89 and all other amounts accrued or due in connection with the Note to only $25,000. (See id.) The Agreement will further release Urban Farmbox’s property from the encumbrance of the Deed of Trust which secures the Note, and amend the Note to provide that the outstanding balance shall not bear any further interest and shall not require any payments whatsoever unless Urban Farmbox transfers or conveys UF Parcel 009 to a third party. (See id.) 1 The Agreement contains mutual releases among all the settling parties for any claims arising out of or in any way connected to (1) the claims that could have been brought by the settling parties in this matter, and (2) the Site or the alleged contamination at the Site. (See id. at ¶¶ 6-7.) Urban Farmbox also agrees that it will participate in this litigation, including by appearing for deposition or at trial, upon the City’s request. (See id. at ¶ 5.)

9 The settling parties request that the court bar all claims against Urban Farmbox for contribution and indemnity, and dismiss with prejudice all claims asserted against Urban Farmbox in this action. (See Mot. for Good Faith Settlement at 11 (Docket No. 259).)

14 II. Discussion 15 A. Legal Standard 16 Courts review settlements of CERCLA claims, and generally enter contribution and indemnity bars, if the settlement is “procedurally and substantively fair, reasonable, and consistent with CERCLA’s objectives.” Arizona v. City of Tucson, 761 F.3d 1005, 1012 (9th Cir. 2014) (citation and internal quotation marks omitted). This court has an independent obligation to scrutinize the terms of the agreement. Id. The court must find that the agreement is roughly correlated with some acceptable measure of comparative fault that apportions liability among the settling parties according to a rational estimate of the harm potentially responsible parties have done.

27 Id. 28 The factors used to evaluate whether a CERCLA settlement is fair, reasonable, and adequate are similar to the factors considered in determining whether a settlement is in good faith under California law. See Coppola v. Smith, No. 1:11-CV- 1257 AWI BAM, 2017 WL 4574091, at *3 (E.D. Cal. Oct. 13, 2017).

5 The court therefore “will make findings regarding ‘good faith’” under California law “as part [of] its determination of whether the settlement of the CERCLA claim[ ] is fair, adequate, and reasonable.” Id. 9 California Code of Civil Procedure Sections 877 and 877.6 govern the determination of whether a proposed settlement is in “good faith” under state law. Courts review the following nonexclusive factors from Tech-Bilt, Inc. v. Woodward-Clyde & Associates, 38 Cal. 3d 488 (1985), to determine if a settlement is within a reasonable range and thus in good faith: (1) a rough approximation of the plaintiffs’ total recovery and the settlor’s proportionate liability; (2) the amount to be paid in settlement; (3) the allocation of settlement proceeds among the plaintiffs; (4) a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial; (5) the financial conditions and insurance policy limits of the settling defendants; and (6) the existence of collusion, fraud, or tortious conduct aimed to injure the interests of non-settling defendants. See id. at 499. Ultimately, the determination is left to the trial court’s discretion. Id. at 502.

25 “The California Court of Appeal has held that it is incumbent upon the court deciding the motion for good faith settlement to consider and weigh the Tech-Bilt factors only when the good faith nature of a settlement is disputed.” Michell v. United States, No. 09-cv-0387 BTM(JMA), 2011 U.S. Dist. LEXIS 2 99942, at *8 (S.D. Cal. Sep. 6, 2011). “[W]hen 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.” (Id.) A determination that the settlement was made in good faith shall bar any other joint tortfeasor from any further claims against the settling tortfeasor for contribution or indemnity, based on comparative negligence or comparative fault. Cal. Code Civ. P. § 877.6(c).

10 B. Application 11 The first two Tech-Bilt factors require the court to examine the amount to be paid in relation to the settlors’ approximate proportionate liability. The Settlement Agreement will result in a net settlement contribution to the City of $76,904.11. Plaintiffs point out that, according to the estimate of R&L’s expert witness, the cost of remediation of the contamination will be at least $2.2 million. (See Stone Decl. ¶ 8.) Based on this figure, the settling parties place responsibility on the settling defendant at around 3-4 percent.

20 Considering the evidence available, the court finds that the settlement amount is appropriate. Urban Farmbox has only owned the 319 Property since 2015. (See Stone Decl. ¶ 3.)

23 No party contends that Urban Farmbox actively contributed to any of the contamination at issue at the Site. While plaintiffs have previously argued that the total cost of remediating the Site will exceed the $2.2 million estimate put forward by R&L’s expert (see Docket Nos. 200-202), even if the cost of remediating the Site ends up being greater than $2.2 million, none of the additional cost will come as a result of contamination that the settling defendant contributed to the Site. A settlement amount of up to 3-4% therefore seems within the ballpark contemplated by the Tech-Bilt court, especially given that no party has objected to the amount of the parties’ Settlement Agreement or opposed their motion. See Tech-Bilt, 38 Cal. 3d at 488.

7 The court further notes that the Settlement Agreement will provide the City with a net benefit that is more than seven times greater than the $10,000 the City received in its settlement with third-party defendant Eco Green LLC (“Eco Green”), which the court approved as fair and reasonable under Tech-Bilt on July 29, 2020. (See Docket No. 174.) According to allegations in defendant R&L’s Amended Third-Party Complaint (Docket No. 116), fill material containing lead migrated from Eco Green’s parcel, which sits adjacent to the 319 Property to the North, onto the 319 Property. (See id.) The court found that $10,000 represented a fair approximation of Eco Green’s proportionate liability based on these allegations, noting that the evidence suggested that Eco Green had “only minimally contributed to the contamination at issue.” (See id. at 5.)

21 Considering that Urban Farmbox’s contribution to the contamination at issue appears to be even smaller than Eco Green’s, the court finds that a settlement conveying a net benefit to the City of $76,904.1 satisfies the first two Tech- Bilt factors.

26 The third Tech-Bilt factor considers the allocation of the settlement proceeds among the plaintiffs. Here, plaintiffs are the City and the People of the State of California. The settlement proceeds go only to the City. Nevertheless, these plaintiffs are closely associated. The status of the People of the State of California as a proper party plaintiff to this action has always been dubious in the first place. Further, the payments will presumably go toward cleaning up the contamination at the Site, and in remedying the Site, the City will abate the nuisance to the benefit of the People of the State of California.

8 Therefore, this factor favors approving the settlement. Cf. City of W. Sacramento, Cal. v. R & L Bus. Mgmt., No. 2:18-CV-00900 WBS EFB, 2019 WL 5390558, at *3 (E.D. Cal. Oct. 22, 2019).

11 The fourth factor acknowledges that settlors should pay less in settlement than they would at trial. A net contribution of $76,904.11 represents roughly 3-4% of the estimated $2.2 million cost of cleanup. Any judgments against Urban Farmbox would be for joint and several liability, which could hold it liable for a larger portion--or even all--of the judgment. This settlement also saves the parties litigation costs and the court’s time. Therefore, this factor favors approving the settlement. See Coppola, 2017 WL 4574091, at *4.

20 The fifth factor accounts for the financial conditions and insurance policy limits of the settling defendants. The court heavily considers this factor in this case. The settling defendant has no insurance assets to pay for this liability, (Stone Decl. ¶ 6.), and, according to the allegations in the TAC, is a suspended California LLC (TAC ¶ 23). Considering this information, this settlement may be the only opportunity to get Urban Farmbox to contribute to Site remediation. The Settlement Agreement accommodates defendant’s limited financial resources and concludes the litigation for the settling defendant.

2 Therefore, this factor favors the settlement.

3 Finally, the sixth factor determines whether there is any collusion, fraud, or tortious conduct aimed to injure the interests of non-settling defendants. Counsel for plaintiffs represents that the parties have conducted settlement negotiations to resolve their liabilities to one another since litigation began in 2018. (Stone Decl. ¶ 5.) The parties agreed to settle the case after an arm’s length negotiation, with multiple versions of the settlement document exchanged between the parties. (Id. at ¶ 6.) The court also notes that no party has objected to the settlement, opposed the parties’ motion, or alleged that the Agreement was reached in bad faith or as a result of collusion. Accordingly, the court has no reason to conclude that the settling parties have acted in bad faith.

16 In sum, the balance of the Tech-Bilt factors weigh in favor of a finding of reasonableness and good faith. There is nothing else that suggests that the settlement is anything other than fair, reasonable, and adequate. The court will therefore approve of the settlement of plaintiffs’ claims against settling defendants and enter an indemnity and contribution bar order for the settling defendants.

23 IT IS THEREFORE ORDERED that the settling parties’ Motion for a Good Faith Settlement Determination (Docket No. 259) be, and the same hereby is, GRANTED. The court ORDERS as follows: 26 1. Under California Code of Civil Procedure §§ 877 and 877.6, and 42 U.S.C. § 9613(f), the settlement agreement reached by the settling parties is in good faith and is a fair, adequate, ee EIR IE EI IE EEE □□□ IR ESE eee and reasonable settlement as to plaintiffs’ claims against the settling defendants; 3 2. No contribution or indemnity claims against Urban Farmbox arising out of plaintiffs’ Third Amended Complaint or any related cross-claims or counterclaims will be allowed; 6 3. The plaintiffs’ Third Amended Complaint (Docket No. 45) is dismissed with prejudice as against Urban Farmbox.

8 | Dated: March 2, 2021 . ak. 2 9 WILLIAM B. SHUBB 10 UNITED STATES DISTRICT JUDGE