MOTION FOR DETERMINATION OF GOOD FAITH SETTLEMENT
MOVING PARTY: Defendants HFE LLC, Wee Hin, and Robert Chen (“Moving Parties”)
RESPONDING PARTY: Defendants Jianqiang Gu, CADM, Inc. CAXYH LLC, CAYFD LLC, CAMYG LLC, CAMG LLC, CAJYQNG LLC, and Cross-Complainants CADM INC. (“Opposing Parties”)
SERVICE: Filed June 21, 2023
OPPOSITION: Untimely filed July 11, 2023
REPLY: Filed July 12, 2023
RELIEF REQUESTED
Moving Parties move for an order determining that their settlement with Plaintiffs was made in good faith.
BACKGROUND
This case arises out of Plaintiffs Leafire Inc. (“Leafire”) and Llulllu LLC’s (“Llulllu”) (collectively “Plaintiffs”) claim that the defendants, in particular Jianquiang Gu (“Gu”), engaged in a fraudulent scheme regarding the management of marijuana facilities in exchange for a $12 million investment.
On April 3, 2023, Plaintiffs filed a fifth amended complaint (“FAC”) against CADM, Gu, HFE, Wee Hin, Robert Chen, Canna Healthcare, Inc. (“Canna”), LW Ventures Inc. (“LW”), Cough Thich, 360 Espinosa Road II (“360 Espinosa”), Cannabis Strategic Ventures (“Cannabis Strategic”), Bensheng Li, Fong Simon Yu, CAXYH LLC, CAYFD LLC, CAMYG LLC, CAMG LLC, CAJYQNG LLC, and Does 1 through 20, alleging seventeen causes of action for: (1) fraud, (2) investment fraud, (3) breach of written contract, (4) breach of oral contract, (5) money had and recieved, (6) damage to personal property, (7) intentional infliction of emotion distress, (8) civil extortion, (9) unfair competition (10) avoidance of fraudulent transfer, (11) avoidance of fraudulent transfer, (12) avoidance of fraudulent transfer, (13) avoidance of fraudulent transfer, (14) avoidance of fraudulent transfer, (15) avoidance of fraudulent transfer, (16) avoidance of fraudulent transfer, (17) avoidance of fraudulent transfer, and (18) avoidance of fraudulent transfer.
TENTATIVE RULING
Moving Parties’ motion for determination of good faith settlement is GRANTED.
LEGAL STANDARD
“Any 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”. (Code Civ. Proc. section 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. section 877.6, subd. (c).)
“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. section 877.6, subd. (c).)
DISCUSSION
Moving Parties move for determination that the settlement they entered into with the Plaintiffs in the present case was made in good faith.
One consideration for whether a settlement was made in good faith is “whether the amount of the settlement is within the reasonable range of the settling tortfeasor’s proportional share of comparative liability for the plaintiff’s injuries.” (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499.) The California Supreme Court, in Tech-Bilt, also stated that relevant factors include “a rough approximation of plaintiffs’ total recovery and the settlor’s proportionate liability, the amount paid in settlement, the allocation of settlement proceeds among plaintiffs, and a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial.” (Ibid.)
“Accordingly, a court not only looks at the alleged tortfeasor’s potential liability to the plaintiff, but it must also consider the culpability of the tortfeasor vis-à-vis other parties alleged to be responsible for the same injury. Potential liability for indemnity to a nonsettling defendant is an important consideration for the trial court in determining whether to approve a settlement by an alleged tortfeasor.” (TSI Seismic Tenant Space, Inc. v. Superior Court (2007) 149 Cal.App.4th 159, 166.)
Plaintiffs’ allegations involve a claim about a fraudulent investment scheme orchestrated by Gu for the management of several marijuana facilities. Plaintiffs allege that Gu represented that he owned various cannabis facilities that were managed by HFE. (“FAC ¶ 21.) Plaintiffs allege that Gu never owned the facilities and Moving Parties ratified or failed to correct the falsehood. (Id. ¶ 43.) In their cross-complaint, Moving Parties allege that Plaintiffs were assigned their rights to manage a Long Beach facility. (Cross-complaint ¶ 11.) Moving Parties allege that Plaintiffs mismanaged the property, causing lost profits. (Id. ¶¶ 12-14.) Moving Parties allege that Plaintiffs returned management of the facility to Moving Parties, who incurred hundreds of thousands of dollars to restore the facility. (Id. ¶ 15.)
Moving Parties signed a settlement with Plaintiffs on June 12, 2023. (Shackelford Decl. ¶ 4, Exhibit C.) Moving Parties state that the settlement provides that the parties would mutually release and waive all claims with no settlement funds being transferred, apart from an unrelated loan payment from Will Hin to Mr. Yao. Moving Parties argue that Plaintiffs claims are primarily directed at other defendants and that any claims against them are offset by their claims against Plaintiffs for mismanagement of the Long Beach facility.
Applying the Techbilt factors to the present case is not straightforward given the countering claims and the difficulty approximating Plaintiffs’ potential recovery. However, an authorized signatory for both of the plaintiffs in the current action signed the settlement. (Shackelford Decl. ¶ 4, Exhibit C at p. 8.) The absence of a transfer of settlement funds is counterbalanced by the fact that both sides of settlement have claims for damages against the other side. Additionally, based on the allegations in the FAC, Moving Parties are not the focus of Plaintiffs’ allegations. It appears that in regard to Moving Parties’ relationship with Plaintiffs, the settlement was entered into in good faith.
However, Opposing Parties contest that good faith of the settlement. In their untimely filed opposition, Opposing Parties rely on allegations from their first amended cross-complaint.
Code of Civil Procedure section 471.5, provides, in part: “The defendant shall answer the amendments, or the complaint as amended, within 30 days after service thereof, or such other time as the court may direct”. Code of Civil Procedure section 428.50, subdivision (a), provides: “A party shall file a cross-complaint against any of the parties who filed the complaint or cross-complaint against him or her before or at the same time as the answer to the complaint or cross-complaint.”
Plaintiffs filed their FAC on April 3, 2023. Opposing Parties did not file their cross-complaint until July 10, 2023. Like the opposition to the current motion, Opposing Parties’ cross-complaint is untimely. Code of Civil Procedure section 428.50, subdivision (c), provides: “A party shall obtain leave of court to file any cross-complaint except one filed within the time specified in subdivision (a) or (b). Leave may be granted in the interest of justice at any time during the course of the action.” Opposing Parties do not represent they sought leave to file their untimely cross-complaint.
Further, Opposing Parties do not meet their burden of contesting the good faith of the settlement in the present case.
“If the good faith settlement is contested, section 877.6, subdivision (d), sets forth a workable ground rule for the hearing by placing the burden of proving the lack of good faith on the contesting party. Once there is a showing made by the settlor of the settlement, the burden of proof on the issue of good faith shifts to the non-settlor who asserts that the settlement was not made in good faith. (Fisher v. Superior Court (1980) 103 Cal.App.3d 47; § 877.6, subd. (d).) If contested, declarations by the non-settlor should be filed which in many cases could require the moving party to file responsive counterdeclarations to negate the lack of good faith asserted by the non-settling contesting party.” (City of Grand Terrace v. Superior Court (1987) 192 Cal.App.3d 1251, 1261.)
Opposing Parties do not submit any declarations contesting the settlement. Rather, Opposing Parties rely on argument and citations from their untimely filed cross-complaint. Opposing Parties have failed to meet their burden of showing that the settlement was not made in good faith.
CONCLUSION
Moving Parties’ motion for determination of good faith settlement is GRANTED.
Moving Party to give notice.
Dated: July 19, 2023 ___________________________________
Joel L. Lofton
Judge of the Superior Court