City of West Sacramento v. R & L Business Management ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 CITY OF WEST SACRAMENTO, No. 2:18-CV-00900 WBS EFB CALIFORNIA; and PEOPLE OF THE 13 STATE OF CALIFORNIA, 14 Plaintiff, ORDER RE: PLAINTIFFS AND DEFENDANT THE URBAN FARMBOX, 15 v. LLC’S MOTION FOR DETERMINATION OF GOOD FAITH 16 R AND L BUSINESS MANAGEMENT, a SETTLEMENT California corporation, f/k/a 17 STOCKTON PLATING, INC., d/b/a CAPITOL PLATING INC., a/k/a 18 CAPITOL PLATING, a/k/a CAPITAL PLATING; CAPITOL PLATING, INC., 19 a dissolved California corporation; JOHN CLARK, an 20 individual; ESTATE OF NICK E. SMITH, DECEASED; THE URBAN 21 FARMBOX LLC, a suspended California limited liability 22 company; et al.; 23 Defendants. 24 25 ----oo0oo---- 26 Plaintiffs City of West Sacramento (“the City”) and the 27 People of the State of California brought this action against 28 defendants R and L Business Management (“R&L”), the Estate of 1 Nick E. Smith, John Clark, and The Urban Farmbox, LLC (“Urban 2 Farmbox”), among others, alleging, inter alia, a violation of the 3 Comprehensive Environmental Response, Compensation and Liability 4 Act (“CERCLA”) § 107(a), 42 U.S.C. § 9607(a). (See.) The 5 operative complaint, plaintiffs’ Third Amended Complaint (“TAC”), 6 seeks to hold former owners and operators of the property located 7 at 319 3rd St., West Sacramento, California (“the 319 Property”) 8 responsible for the alleged soil and groundwater contamination at 9 and emanating from the property (“the Site”). (See generally 10 Third Am. Compl. (“TAC”) (Docket No. 45).) Plaintiffs and Urban 11 Farmbox now move, unopposed, for a good faith settlement 12 determination. (See Docket No. 259.) 13 I. Background 14 This court described much of the factual and procedural 15 background to this lawsuit in its prior orders. (See Docket Nos. 16 18, 33, 44, 63, 115, 125, and 203.) 17 The TAC alleges that Urban Farmbox is liable under 18 CERCLA § 107(a) because it is the current owner of the 319 19 Property. (See id. at ¶ 95.) Urban Farmbox never answered 20 plaintiffs’ TAC and has been in default since March 6, 2019. 21 (See Docket Nos. 59-61.) Urban Farmbox still has not moved to 22 set aside the default. 23 On February 8, 2021, plaintiffs and Urban Farmbox filed 24 a Notice of Settlement, indicating that they had settled all 25 claims brought by plaintiffs against Urban Farmbox in this 26 action. (See Docket No. 259.) Pursuant to the Settlement 27 Agreement, the parties will engage in a series of transactions, 28 including a property exchange, that will result in a net 1 settlement contribution by Urban Farmbox to the City of 2 $76,904.11. (Declaration of Bret Stone (“Stone Decl.”), Ex. 1 3 (“Settlement Agreement”) ¶ 3.1 (Docket No. 259-2).) 4 In addition to the 319 Property, Urban Farmbox owns the 5 adjoining parcel (“UF Parcel 002”) and another parcel located in 6 West Sacramento (“UF Parcel 009”). (Id. at ¶ 1.2.) The 7 Agreement grants the City the right and option to purchase from 8 Urban Farmbox the 319 Property and UF Parcel 002 (“the UF 9 Transfer Properties”). (Id. at 3.1.1.) The Agreement states 10 that the combined market value of the UF Transfer Properties is 11 $420,756.00. (See id.) 12 In return, the City will transfer to Urban Farmbox a 13 parcel of land located at 424 C St. (“the City Transfer 14 Property”), currently valued at $35,000.00, and pay $40,000 to 15 Urban Farmbox for water and sewer connection costs. (Id. at 16 ¶ 2.4, 3.1.2, 3.1.3.) The City will also waive much of the 17 amount due to it under a promissory note originally made by Urban 18 Farmbox in favor of Jeffrey A. Lyon and Grace E. Lyon in 2015 19 (“the Note”), which the City purchased and took assignment of on 20 June 14, 2019. (Id. at ¶ 2.7, 3.1.4.) The Agreement will reduce 21 the Note’s outstanding principal balance of $293,851.89 and all 22 other amounts accrued or due in connection with the Note to only 23 $25,000. (See id.) The Agreement will further release Urban 24 Farmbox’s property from the encumbrance of the Deed of Trust 25 which secures the Note, and amend the Note to provide that the 26 outstanding balance shall not bear any further interest and shall 27 not require any payments whatsoever unless Urban Farmbox 28 transfers or conveys UF Parcel 009 to a third party. (See id.) 1 The Agreement contains mutual releases among all the 2 settling parties for any claims arising out of or in any way 3 connected to (1) the claims that could have been brought by the 4 settling parties in this matter, and (2) the Site or the alleged 5 contamination at the Site. (See id. at ¶¶ 6-7.) Urban Farmbox 6 also agrees that it will participate in this litigation, 7 including by appearing for deposition or at trial, upon the 8 City’s request. (See id. at ¶ 5.) 9 The settling parties request that the court bar all 10 claims against Urban Farmbox for contribution and indemnity, and 11 dismiss with prejudice all claims asserted against Urban Farmbox 12 in this action. (See Mot. for Good Faith Settlement at 11 13 (Docket No. 259).) 14 II. Discussion 15 A. Legal Standard 16 Courts review settlements of CERCLA claims, and 17 generally enter contribution and indemnity bars, if the 18 settlement is “procedurally and substantively fair, reasonable, 19 and consistent with CERCLA’s objectives.” Arizona v. City of 20 Tucson, 761 F.3d 1005, 1012 (9th Cir. 2014) (citation and 21 internal quotation marks omitted). This court has an independent 22 obligation to scrutinize the terms of the agreement. Id. The 23 court must find that the agreement is roughly correlated with 24 some acceptable measure of comparative fault that apportions 25 liability among the settling parties according to a rational 26 estimate of the harm potentially responsible parties have done. 27 Id. 28 The factors used to evaluate whether a CERCLA 1 settlement is fair, reasonable, and adequate are similar to the 2 factors considered in determining whether a settlement is in good 3 faith under California law. See Coppola v. Smith, No. 1:11-CV- 4 1257 AWI BAM, 2017 WL 4574091, at *3 (E.D. Cal. Oct. 13, 2017). 5 The court therefore “will make findings regarding ‘good faith’” 6 under California law “as part [of] its determination of whether 7 the settlement of the CERCLA claim[ ] is fair, adequate, and 8 reasonable.” Id. 9 California Code of Civil Procedure Sections 877 and 10 877.6 govern the determination of whether a proposed settlement 11 is in “good faith” under state law. Courts review the following 12 nonexclusive factors from Tech-Bilt, Inc. v. Woodward-Clyde & 13 Associates, 38 Cal. 3d 488 (1985), to determine if a settlement 14 is within a reasonable range and thus in good faith: (1) a rough 15 approximation of the plaintiffs’ total recovery and the settlor’s 16 proportionate liability; (2) the amount to be paid in settlement; 17 (3) the allocation of settlement proceeds among the plaintiffs; 18 (4) a recognition that a settlor should pay less in settlement 19 than he would if he were found liable after a trial; (5) the 20 financial conditions and insurance policy limits of the settling 21 defendants; and (6) the existence of collusion, fraud, or 22 tortious conduct aimed to injure the interests of non-settling 23 defendants. See id. at 499. Ultimately, the determination is 24 left to the trial court’s discretion. Id. at 502. 25 “The California Court of Appeal has held that it is 26 incumbent upon the court deciding the motion for good faith 27 settlement to consider and weigh the Tech-Bilt factors only when 28 the good faith nature of a settlement is disputed.” Michell v. 1 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, 3 the barebones motion which sets forth the ground of good faith, 4 accompanied by a declaration which sets forth a brief background 5 of the case is sufficient.” (Id.) A determination that the 6 settlement was made in good faith shall bar any other joint 7 tortfeasor from any further claims against the settling 8 tortfeasor for contribution or indemnity, based on comparative 9 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 12 examine the amount to be paid in relation to the settlors’ 13 approximate proportionate liability. The Settlement Agreement 14 will result in a net settlement contribution to the City of 15 $76,904.11. Plaintiffs point out that, according to the estimate 16 of R&L’s expert witness, the cost of remediation of the 17 contamination will be at least $2.2 million. (See Stone Decl. ¶ 18 8.) Based on this figure, the settling parties place 19 responsibility on the settling defendant at around 3-4 percent. 20 Considering the evidence available, the court finds 21 that the settlement amount is appropriate. Urban Farmbox has 22 only owned the 319 Property since 2015. (See Stone Decl. ¶ 3.) 23 No party contends that Urban Farmbox actively contributed to any 24 of the contamination at issue at the Site. While plaintiffs have 25 previously argued that the total cost of remediating the Site 26 will exceed the $2.2 million estimate put forward by R&L’s expert 27 (see Docket Nos. 200-202), even if the cost of remediating the 28 Site ends up being greater than $2.2 million, none of the 1 additional cost will come as a result of contamination that the 2 settling defendant contributed to the Site. A settlement amount 3 of up to 3-4% therefore seems within the ballpark contemplated by 4 the Tech-Bilt court, especially given that no party has objected 5 to the amount of the parties’ Settlement Agreement or opposed 6 their motion. See Tech-Bilt, 38 Cal. 3d at 488. 7 The court further notes that the Settlement Agreement 8 will provide the City with a net benefit that is more than seven 9 times greater than the $10,000 the City received in its 10 settlement with third-party defendant Eco Green LLC (“Eco 11 Green”), which the court approved as fair and reasonable under 12 Tech-Bilt on July 29, 2020. (See Docket No. 174.) According to 13 allegations in defendant R&L’s Amended Third-Party Complaint 14 (Docket No. 116), fill material containing lead migrated from Eco 15 Green’s parcel, which sits adjacent to the 319 Property to the 16 North, onto the 319 Property. (See id.) The court found that 17 $10,000 represented a fair approximation of Eco Green’s 18 proportionate liability based on these allegations, noting that 19 the evidence suggested that Eco Green had “only minimally 20 contributed to the contamination at issue.” (See id. at 5.) 21 Considering that Urban Farmbox’s contribution to the 22 contamination at issue appears to be even smaller than Eco 23 Green’s, the court finds that a settlement conveying a net 24 benefit to the City of $76,904.1 satisfies the first two Tech- 25 Bilt factors. 26 The third Tech-Bilt factor considers the allocation of 27 the settlement proceeds among the plaintiffs. Here, plaintiffs 28 are the City and the People of the State of California. The 1 settlement proceeds go only to the City. Nevertheless, these 2 plaintiffs are closely associated. The status of the People of 3 the State of California as a proper party plaintiff to this 4 action has always been dubious in the first place. Further, the 5 payments will presumably go toward cleaning up the contamination 6 at the Site, and in remedying the Site, the City will abate the 7 nuisance to the benefit of the People of the State of California. 8 Therefore, this factor favors approving the settlement. Cf. City 9 of W. Sacramento, Cal. v. R & L Bus. Mgmt., No. 2:18-CV-00900 WBS 10 EFB, 2019 WL 5390558, at *3 (E.D. Cal. Oct. 22, 2019). 11 The fourth factor acknowledges that settlors should pay 12 less in settlement than they would at trial. A net contribution 13 of $76,904.11 represents roughly 3-4% of the estimated $2.2 14 million cost of cleanup. Any judgments against Urban Farmbox 15 would be for joint and several liability, which could hold it 16 liable for a larger portion--or even all--of the judgment. This 17 settlement also saves the parties litigation costs and the 18 court’s time. Therefore, this factor favors approving the 19 settlement. See Coppola, 2017 WL 4574091, at *4. 20 The fifth factor accounts for the financial conditions 21 and insurance policy limits of the settling defendants. The 22 court heavily considers this factor in this case. The settling 23 defendant has no insurance assets to pay for this liability, 24 (Stone Decl. ¶ 6.), and, according to the allegations in the TAC, 25 is a suspended California LLC (TAC ¶ 23). Considering this 26 information, this settlement may be the only opportunity to get 27 Urban Farmbox to contribute to Site remediation. The Settlement 28 Agreement accommodates defendant’s limited financial resources 1 and concludes the litigation for the settling defendant. 2 Therefore, this factor favors the settlement. 3 Finally, the sixth factor determines whether there is 4 any collusion, fraud, or tortious conduct aimed to injure the 5 interests of non-settling defendants. Counsel for plaintiffs 6 represents that the parties have conducted settlement 7 negotiations to resolve their liabilities to one another since 8 litigation began in 2018. (Stone Decl. ¶ 5.) The parties agreed 9 to settle the case after an arm’s length negotiation, with 10 multiple versions of the settlement document exchanged between 11 the parties. (Id. at ¶ 6.) The court also notes that no party 12 has objected to the settlement, opposed the parties’ motion, or 13 alleged that the Agreement was reached in bad faith or as a 14 result of collusion. Accordingly, the court has no reason to 15 conclude that the settling parties have acted in bad faith. 16 In sum, the balance of the Tech-Bilt factors weigh in 17 favor of a finding of reasonableness and good faith. There is 18 nothing else that suggests that the settlement is anything other 19 than fair, reasonable, and adequate. The court will therefore 20 approve of the settlement of plaintiffs’ claims against settling 21 defendants and enter an indemnity and contribution bar order for 22 the settling defendants. 23 IT IS THEREFORE ORDERED that the settling parties’ 24 Motion for a Good Faith Settlement Determination (Docket No. 259) 25 be, and the same hereby is, GRANTED. The court ORDERS as follows: 26 1. Under California Code of Civil Procedure §§ 877 and 27 877.6, and 42 U.S.C. § 9613(f), the settlement agreement reached 28 by the settling parties is in good faith and is a fair, adequate, ee EIR IE EI IE EEE □□□ IR ESE eee 1 and reasonable settlement as to plaintiffs’ claims against the 2 settling defendants; 3 2. No contribution or indemnity claims against Urban 4 Farmbox arising out of plaintiffs’ Third Amended Complaint or any 5 related cross-claims or counterclaims will be allowed; 6 3. The plaintiffs’ Third Amended Complaint (Docket No. 7 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 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10