Harouche v. The Wilshire Corp. CA2/5 ( 2022 )

Filed 12/2/22 Harouche v. The Wilshire Corp. CA2/5
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
MICHEL HAROUCHE, B313745 c/w B315865
Plaintiff and Respondent, (Los Angeles County Super.
Ct. No. SC124859)
v.
THE WILSHIRE CORPORATION,
et. al,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Elaine W. Mandel, Judge. Affirmed.
James S. Link, Kelly F. Ryan, Jillian M. Reyes, and the
Ryan Law Firm for Defendants and Appellants.
Stephen S. Smith for Plaintiff and Respondent.
__________________________
INTRODUCTION
This is the second appeal arising out of a contract to build
Plaintiff Michel Harouche’s Malibu home. In 2008, Harouche
hired defendant Stephen Sisca and Sisca’s company, defendant
The Wilshire Corporation (TWC), to oversee and manage the
construction of Harouche’s multi-million-dollar residence. Sisca
surreptitiously conditioned the award of the construction contract
on kickbacks from the general contractor, John Finton and his
company, Finton Construction, Inc. (FCI).1 Midway through the
construction, Sisca and FCI fraudulently increased the cost of
change orders for the project and split the profit from the
marked-up amounts. Harouche sued FCI and Sisca. Harouche
settled with FCI, disposing of Harouche’s claims against FCI and
FCI’s cross-complaint against Harouche for an allegedly unpaid
$608,000 for construction services and costs.
In the first appeal (Harouche I, appellate case No. B297364,
2020 WL 6736044) we reduced the judgment against Sisca to
$802,993.72, and remanded for the trial court to determine under
Code of Civil Procedure, section 877 whether the damages should
be offset by the alleged $608,000 value of FCI’s cross-complaint.2
On remand, the trial court found that Sisca failed to prove the
value of the cross-complaint, and declined to offset the award.
On appeal, Sisca argues no substantial evidence supports the
trial court’s denial of the offset. We affirm.
1 Unless the context indicates otherwise, we subsequently
refer to Sisca and TWC collectively as Sisca, and Finton and FCI
as FCI.
2 All subsequent statutory references are to the Code of Civil
Procedure unless indicated otherwise.
2
FACTUAL AND PROCEDURAL BACKGROUND
We do not rehash the details of the fraud explained in our
unpublished opinion in Harouche I. Suffice it to say, Sisca
leveraged his position as Harouche’s representative and
conspired with FCI to obtain financial kickbacks at Harouche’s
expense. For purposes of this appeal, we discuss FCI’s cross-
complaint, the damages awarded to Harouche, and Sisca’s motion
to offset the damages award. Much of subsections 1 and 2 are
taken from the Facts and Procedural Background section in
Harouche I.
1. FCI’s Cross-Complaint
After Harouche sued FCI and Sisca, FCI filed a cross-
complaint against Harouche, claiming Harouche had failed to pay
“payment application #57,” another outstanding balance, and an
insurance deductible. FCI sought damages of $608,000.3 While
the case was pending, FCI filed for bankruptcy. Apparently with
the bankruptcy trustee’s approval, Harouche and FCI reached a
settlement, where FCI stipulated to a $1,100,000 judgment in
favor of Harouche. FCI agreed to dismiss its cross-complaint for
$608,000, and to admit to facts demonstrating that the $1.1
million judgment against FCI was non-dischargeable under
sections 523(a)(2)(A) and (a)(6), title 11 of the United States
Code. Because FCI was still in bankruptcy, Harouche agreed to
forbear from collecting the judgment all at once, and in return,
3 Sisca also filed a cross-complaint against Harouche. Sisca
asserted claims for breach of contract and “common count,”
claiming Harouche owed Sisca $104,000 under the project
management agreement. Following the bench trial, the court
found against Sisca on its cross-complaint. The trial court’s
ruling is not before us on appeal.
3
FCI made small monthly payments to Harouche, commencing
upon approval of its bankruptcy plan of reorganization. Only at
the end of the plan period would FCI be obligated to pay the
balance of the judgment.
In January 2017, Harouche and FCI filed an application
with the trial court to determine that their settlement was
entered into in good faith. Sisca contested the motion for the
good faith settlement. Harouche filed an opposition, explaining
why the settlement was reasonable. On May 25, 2017, the trial
court approved the good faith settlement and entered “Judgment
Pursuant to Settlement” against FCI. We have summarized the
good faith settlement proceedings because of their connection to
Sisca’s offset argument in the present appeal.
2. Trial, Judgment, and Appeal in Harouche I
Some eight months later, in January 2018, the bench trial
in Harouche I took place. Because of the good faith settlement,
only Harouche’s claims against Sisca were tried. On June 12,
2018, the court issued its proposed statement of decision, finding
in favor of Harouche and against Sisca. The parties then filed
objections to the proposed decision. Sisca argued the trial court
should have offset the damages awarded to Harouche by
$608,000 – the value of FCI’s cross-complaint against Harouche
that had been released by the good faith settlement.
On August 14, 2018, the trial court issued its final
statement of decision in Harouche I. The trial court found that
Sisca had committed fraud and breached fiduciary duties to
Harouche. Sisca renewed its objections regarding the lack of an
offset based on the settlement between FCI and Harouche.
The March 2019 judgment awarded Harouche
$1,962,837.72 in damages against Sisca, plus prejudgment
4
interest of $990,486.45.4 The court reserved “jurisdiction to
calculate and award offset credits to [Sisca] for any future
settlement payments that are made to Harouche by [FCI].”
In the first appeal, we found errors in the calculation of the
fraudulent change order damages and modified the judgment
against Sisca to $802,993.72. We also remanded the case for the
trial court to recalculate prejudgment interest and rule on Sisca’s
motion to offset the judgment by $608,000 (the amount of FCI’s
settled cross-complaint).
3. Remand
Following remand, Sisca moved for a $608,000 offset (the
entire amount alleged in FCI’s cross-complaint). Pursuant to
section 877, subdivision (a), Sisca argued FCI’s dismissal of its
cross-complaint constituted payment of consideration to
Harouche equal to the $608,000 in damages alleged in the cross-
complaint. Sisca relied on the FCI settlement dismissing the
cross-complaint for $608,000, and on testimony from Harouche
that he had not paid pay application #57 (which was part of the
$608,000).
Harouche opposed the offset motion on several grounds.
First, Sisca had failed to sustain its burden to show that the
release of FCI’s cross-complaint was worth $608,000. Second,
Harouche did not owe the amounts alleged in FCI’s cross-
complaint because he had never approved the underlying work
4 After the trial court issued the final statement of decision,
but before judgment was entered against Sisca, FCI paid
Harouche $18,000 under the bankruptcy plan of reorganization.
On March 5, 2019, Harouche filed notice of the payment and
requested an offset of $18,000 to the judgment. On March 19,
2019, the court signed a revised judgment, decreasing damages
by $18,000.
5
associated with the final payment application. Third, FCI could
not have enforced the construction contract with Harouche due to
FCI’s material breach of it. In sum, Harouche asserted the cross-
complaint lacked merit, and thus, FCI’s dismissal of it was not
consideration paid to Harouche.
In reply, Sisca asserted “Harouche made a judicial
admission in his opposition to the Sisca Defendants’ Motion to
Contest the Good Faith Settlement that the negotiated
settlement of $1,100,000 included a resolution of FCI’ s cross-
complaint which included the full amount of damages requested -
$608,000.” Harouche’s opposition to Sisca’s motion to contest the
settlement stated: “FCI had a cross-complaint against Harouche
for $608,000. So, for example, if the Finton Defendants were
found liable for 50% of the $2.6 million in alleged damages and
assessed a punitive damages award of 50% of that amount, the
total award would be $1.9 million. After subtracting $608,000 for
the cross-complaint, Harouche would receive $1.3 million. To
Harouche’s counsel’s thinking, $1.1 million was ‘close enough’ to
make the compromise ‘reasonable,’ especially given that victory is
never guaranteed and, in the absence of a settlement agreement,
Harouche risked receiving nothing due to the bankruptcies.”
On April 15, 2021, in a minute order, the trial denied
Sisca’s motion for the $608,000 offset. The trial court observed
that Sisca sought the entire amount alleged in FCI’s cross-
complaint without addressing whether the cross-complaint was
meritorious. The trial court explained that “defendants do not
address arguments regarding the cross-complaint’s lack of merit
or present evidence to allow the court to calculate a true value for
the cross-complaint. Thus, Sisca fails to meet the burden under
Conrad[v. Ball Corp. (1994) 24 Cal.App.4th 439, 444]. [¶]
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Because there is no basis for the court to decide the value of the
cross-complaint, the court cannot apply an offset for the value of
the release.”
Sisca appealed.
DISCUSSION
Sisca argues the court erred by denying the motion to offset
the damages by $608,000.
1. Standard of Review and Applicable Law
“We generally review a ruling granting or denying a section
877 settlement credit under the deferential abuse of discretion
standard. [Citation.] To the extent that we must decide whether
the trial court’s ruling was consistent with statutory
requirements, we apply the independent standard of review.”
(Wade v. Schrader (2008) 168 Cal.App.4th 1039, 1044.) “The trial
court’s determination of the value of the consideration paid will
be upheld on appeal if supported by substantial evidence.”
(Franklin Mint Co. v. Superior Court (2005) 130 Cal.App.4th
1550, 1558 (Franklin Mint).)
“Section 877 specifies circumstances under which an award
of economic damages against a defendant may be offset by a
codefendant's settlement. . . . Section 877 promotes the recovery
of damages, the settlement of litigation, and the equitable
apportionment of liability among tortfeasors, while limiting the
double recovery of damages.” (LAOSD Asbestos Cases (2018)
28 Cal.App.5th 862, 877-878.) Section 877 provides: “Where a
release, dismissal with or without prejudice, or a covenant not to
sue or not to enforce judgment is given in good faith before
verdict or judgment to one or more of a number of tortfeasors
claimed to be liable for the same tort, or to one or more other co-
obligors mutually subject to contribution rights . . . it shall reduce
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the claims against the others in the amount stipulated by the
release, the dismissal or the covenant, or in the amount of the
consideration paid for it, whichever is the greater.” (§ 877,
subd. (a).)
“Under subdivision (a) of section 877, the amount of the
setoff is, in the absence of a stipulation, ‘the amount of the
consideration paid for [the release or dismissal].’ But the amount
of consideration paid within the meaning of section 877,
subdivision (a) is not necessarily the amount of money paid.
Often ‘the amount of the offset is clouded by injection of noncash
consideration into the settlement.’ ” (Franklin Mint, supra,
130 Cal.App.4th at p. 1557, fn. omitted.)
In determining the amount of an offset, the trial court
engages in an equitable undertaking (Abbot Ford, Inc. v. Superior
Court (1989) 43 Cal.3d 858, 873-874 (Abbott Ford)), taking into
account the goals of good faith settlements, i.e. “the equitable
sharing of costs among the parties at fault and the
encouragement of settlements . . . as well as another important
public policy: ‘ “the maximization of recovery to the plaintiff for
the amount of . . . injury to the extent that negligence or fault of
others has contributed to it.” [Citation.] Thus, while the
nonsettling defendant is entitled to a fair setoff, the injured
plaintiff also has a right that the setoff not be excessive.’ ”
(Franklin Mint, supra, 130 Cal.App.4th at pp. 1556–1557.)
Although there is some authority that the party seeking the
offset has the burden of proof (see Conrad v. Ball Corp., supra,
24 Cal.App.4th at p. 444), it may be more accurate to say that the
parties jointly share the burden. “[T]he court should not be
burdened with the obligation to determine the actual value of such
an agreement. . . . Rather, the parties to such an agreement, since
8
they are in the best position to place a monetary figure on its
value, should have the burden of establishing the monetary
value.” (Franklin Mint, supra, 130 Cal.App.4th at p. 1557; citing
Abbott Ford, supra, 43 Cal.3d at p. 879.)
“Thus, in moving under section 877.6 for a good faith
settlement determination, the moving party must set forth the
value of the consideration paid and an evidentiary basis for that
valuation, and must demonstrate that the valuation ‘was reached
in a sufficiently adversarial manner to justify the presumption
that a reasonable valuation was reached.’ [Citations omitted]. . . .
A nonsettling defendant may then challenge the settlement by
‘attempt[ing] to prove that the parties’ assigned value is too low
and that a greater reduction in plaintiff's claims against the
remaining defendants is actually warranted.’ (Abbott Ford, supra,
43 Cal.3d at p. 879, 239 Cal.Rptr. 626, 741 P.2d 124.).” (Franklin
Mint, supra, 130 Cal.App.4th at p. 1558.)5
2. The Trial Court Did Not Abuse Its Discretion Denying
the $608,000 Offset
Sisca sought an offset equal to all the damages alleged in
FCI’s cross-complaint: (1) $446,000 due under payment
application #57, (2) a “general liability insurance deduction” of
$80,000, and (3) a “remaining balance to bill of $82,000.00.” In
its moving papers, to prove the offset, Sisca relied on: the
allegations in FCI’s cross-complaint; the settlement agreement; a
document that defense counsel stated was payment application
5 Following our remand to the trial court, it was Sisca who
moved to determine the offset. Thus, the parties were in the
opposite procedural position than the parties in Franklin Mint,
supra, 130 Cal.App.4th at pp. 1554-1555.
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#57; and Harouche’s and Harouche’s employee’s testimony that
Harouche did not pay payment application #57.
The evidence established that FCI previously sought
$608,000 from Harouche, and Harouche had not paid the final
payment application of $446,000. However, the evidence did not
show Harouche actually owed any amount to FCI or that the
cross-complaint for $608,000 had merit and, therefore, its
dismissal was consideration paid to Harouche.
Sisca provided no evidence showing whether payment
application #57 or the bill for a remaining balance of $82,000
identified work that was part of the original contract or a change
order. The evidence did not show that Harouche had approved
the work (either under the original contract or via change order)
identified in payment application #57 or the outstanding $82,000
bill. Sisca’s evidence itself called into question the charges listed
in the payment application. In the deposition testimony attached
to the motion, Harouche testified he did not pay payment
application #57, and that “A lot of [payment application #57] was
bogus because everything was thrown into a pot, like I'll charge
you for everything, like, including a chair that was missing.”
Sisca did not submit declarations, testimony, or
documentation showing the work accounted for in payment
application #57 was completed by FCI. Although Harouche
received a certificate of occupancy (which indicates the job was
substantially completed), the certificate does not address the
approval and completion of items in pay application #57 or the
other remaining balance. Sisca produced no evidence that
countered Harouche’s testimony that he was not liable for the
$80,000 “general liability insurance deduction” or the $82,000.00
balance.
10
Sisca asserts that Harouche is “bound by his judicial
admission valuing the non-cash component of the settlement at
$608,000.” The statement that Sisca relies on is found in
Harouche’s opposition to Sisca’s motion contesting the good faith
settlement determination:
“[The settlement amount] took a long time to
resolve. The discussions went well into the night.
Finton and his counsel argued vehemently for a low
settlement amount. Harouche’s counsel argued
vehemently for a high settlement amount. With
respect to the fraud, Harouche’s counsel argued that
Harouche was entitled to: (a) the $235,000 kickback
to TWC; (b) the difference in cost between the actual
change orders and the forged change orders, which
was many hundreds of thousands of dollars; (c) the
undisclosed payment to TWC of 4% of the Contract
Sum paid by Harouche ($546,697.24); (d) interest on
these sums from the date Harouche made the
payments ($300,000-$500,000); and (e) punitive
damages. Harouche’s counsel also argued that the
Finton Defendants were responsible for attorney’s
fees, unpaid insurance premiums which were FCI’s
responsibility under the Construction Contract, and
the insurance deductible paid by Harouche for the
construction defect claim. [Citation.]
“Finton and his counsel fought these
arguments vociferously. Finton express [sic] deep
concern that a large settlement would cripple his
ability to conduct business after the bankruptcy,
especially given the non-dischargeable judgment.
11
Finton’s counsel also argued repeatedly that the
settlement should be lessened because of FCI’s
$608,000 cross-complaint. The discussions became so
heated that, at one point, Harouche’s counsel ended
the discussions and left the conference room. After
ten minutes or so, Finton’s counsel tracked him down
and convinced him to continue the conversation.
[Citation.]
“At the end of the meeting, Harouche agreed to
accept $1.1 million because: (a) there is always some
chance of not prevailing, (b) even assuming he did
prevail, there was a wide range of potential damages,
(c) there was a significant risk of obtaining only a
dischargeable judgment, and (d) there was a very
large possibility of being unable to collect even if the
judgment was non-dischargeable because the Finton
Defendants are currently insolvent, and there is no
guarantee they will ever be solvent again. [Citation.]
“In addition, as noted above, FCI had a cross-
complaint against Harouche for $608,000. So, for
example, if the Finton Defendants were found liable
for 50% of the $2.6 million in alleged damages and
assessed a punitive damages award of 50% of that
amount, the total award would be $1.9 million. After
subtracting $608,000 for the cross-complaint,
Harouche would receive $1.3 million. To Harouche’s
counsel’s thinking, $1.1 million was ‘close enough’ to
make the compromise ‘reasonable,’ especially given
that victory is never guaranteed and, in the absence
12
of a settlement agreement, Harouche risked receiving
nothing due to the bankruptcies.” (Italics added.)
In considering the “admission” quoted above in italics, the
trial court implicitly found that Harouche only acknowledged his
overall recovery could possibly be reduced by FCI’s $608,000
cross-complaint, not that he agreed the $608,000 was lawfully
owed. Harouche made this statement when analyzing the
reasonableness of the $1,100,000 settlement. Although the trial
court could have reasonably concluded that Harouche attributed
some value to the possibility of the cross-complaint’s success
(using the “for example” language), the trial court was not
obligated to find Harouche had admitted the cross-complaint was
worth face value.
The quoted language also showed that it was Harouche’s
position that FCI was the one responsible for the insurance
deductible paid by Harouche for a construction defect claim.
Harouche’s statement in his opposition to Sisca’s motion
contesting the good faith settlement determination did not, as a
matter of law, diminish Harouche’s evidence that the cross-
complaint was worthless. The trial court reasonably found that
Harouche credibly showed the value of the claim was worth less
than $608,000, if it had any value at all. Given the gaps in
Sisca’s evidence, the trial court “may not [have been] able to more
than make its best estimate.” (Franklin Mint, supra,
130 Cal.App.4th at p. 1561.) Considering the significant latitude
the trial court had in the offset valuation, we will not second
guess the court’s finding that the value of the cross-complaint
was at most negligible and that no offset needed to be awarded.
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DISPOSITION
The judgment is affirmed. Plaintiff Michel Harouche is
awarded costs on appeal.
RUBIN, P. J.
WE CONCUR:
BAKER, J.
MOOR, J.
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