Maeda Pacific Corporation v. GMP Hawaii, Inc. et al

Filing 288

Order granting 208 Motion for Approval of Good-Faith Settlement. Signed by Chief Judge Frances M. Tydingco-Gatewood on 9/23/2011. (fad, )

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF GUAM

MAEDA PACIFIC CORPORATION,

Civil Case No. 08-00012

Plaintiff,
vs.

ORDER RE: MAEDA AND J&CA
GOOD-FAITH SETTLEMENT

GMP HAWAII, INC., et al.,
Defendants,
AND DERIVATIVE AND OTHERWISE
RELATED LITIGANTS.
Civil Case No. 11-00010
GMP HAWAII, INC., et al.
Plaintiff,
vs.
LEXINGTON INSURANCE COMPANY,
Defendant.

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Before the court is a Motion for Approval of Good-Faith Settlement (“the Motion”) filed by

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Jorgensen and Close Associates, Inc., U.S. Specialty Insurance Company, and Maeda Pacific

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Corporation. See Docket No. 208. After hearing from the parties, and reviewing the relevant filings,

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cases, and statutes, the court hereby GRANTS the Motion and issues the following opinion.

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//

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I.

FACTUAL BACKGROUND

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A.

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Plaintiff Maeda Pacific Corporation (“Maeda”) entered into a contract with the Naval

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Facilities Engineering Command (“NAVFACENGCOM”), whereby Maeda agreed to build an off-

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site water supply system on Guam’s Andersen Air Force Base. See Docket No. 54 at ¶ 8; id., Exh.

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A at 1. This Maeda-Navy contract is hereinafter called the “primary contract,” and the overall

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project it contemplates is hereinafter called “the Project.”

THE PROJECT

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In connection with its duties under the primary contract, Maeda entered into some sub-

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contracts. One such sub-contract was with GMP Hawaii, Inc. (“GMP”). See Docket No. 54, Exh.

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A at 1. Maeda and GMP disagree over the exact scope of this contract. Maeda contends that GMP

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agreed to design the large water reservoir tank contemplated by the primary contract, and to use “its

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best professional skill and knowledge to prepare the Plans and Specifications and other information,

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and the ultimate design for said tank.” Docket No. 54 at ¶ 14. GMP denies these allegations. See

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Docket No. 16, at ¶ 12.1 Specifically, GMP states that it agreed “to provide construction quality

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control management, and design engineering for the Project,” but that these responsibilities “did not

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include design of the water storage tank, and [that] the compensation paid to GMP under that

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contract did not include design of the water storage tank.” Docket No. 98 at ¶¶ 2, 4. The actual

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contract simply appears to call for “DESIGN,” “QUALITY CONTROL,” and “VALUE

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ENGINEERING.” Docket No. 54, Exh. A at 1; Docket No. 98, Exh. A at 1 (same document). At

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any rate, the price of that contract, after a few change orders, was $1,555,966.70. Docket No. 54

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at ¶ 9.

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Another of Maeda’s sub-contracts was with Smithbridge Guam, Inc. (“Smithbridge”). As

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with the Maeda-GMP contract, Maeda and Smithbridge appear to disagree over the exact scope of

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their contract. Maeda contends that Smithbridge agreed to build the reservoir tank and its

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On March 10, 2009, Maeda and GMP stipulated that GMP’s October 14, 2008 answer to the initial
Complaint would constitute GMP’s Answer to Maeda’s First Amended Complaint. See Docket No. 60.

Page 2 of 20

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“appurtenant sections.” Docket No. 54 at ¶ 10. Smithbridge appears to deny this, insofar as it

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asserts that “‘tank appurtenances’ . . . [were] outside Smithbridge’s contractual scope of work.”

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Docket No. 71, Exh. 2 at 1. See also Docket No. 92, Exh. A, Exh. 3 at 2-4.

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In connection with the just-discussed Maeda-Smithbridge sub-contract, Smithbridge entered

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into a contract with Jorgensen & Close Associates, Inc. (“J&CA”) for structural engineering design

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services. See Docket No. 82, Exh. A. Specifically, J&CA’s work was to include (1) structural

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design and drawings for the membrane floor and “precast-prestressed” wall of the reservoir tank;

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(2) a review of the roof and column design and drawings prepared by Smithbridge; (3) internet

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consultations, a shop drawing review, and up to two field observation trips to Guam; and (4) any

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other services requested by Smithbridge and agreed to by J&CA. Id.

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On July 12, 2007, the roof of the reservoir tank collapsed. See Docket No. 54, Exh. B at 3.

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There is controversy over the cause of the collapse. For example, Maeda contends that the collapse

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was caused by the absence of vents, ventilating systems or ventilators in the tank.2 See Docket No.

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54 at ¶¶ 20-21; see also id., Exh. B (expert report prepared by Wiss, Janney, Elstner Associates, Inc.,

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for Smithbridge). However, GMP points out that NAVFACENGCOM commissioned its own

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forensic study of the incident, and that this study came to the conclusion, GMP contends, that

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“operational errors could have been the cause for the collapse.” Docket No. 98 at ¶ 18; see also id.,

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Exh. G (expert report prepared by Weidlinger Associates Inc. for NAVFACENGCOM). More to

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the point, and separate from the controversy over the cause of the collapse, there is controversy over

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who bears responsibility for whatever caused the collapse. That controversy over responsibility is

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the heart of this lawsuit.

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B.

RESPONSIBILITY FOR OMISSION OF WATER TANK VENTS

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As discussed previously, one theory for the collapse of the roof was the absence of vents in

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the tank. The parties have completed discovery and more facts have developed in regard to who was

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It is undisputed that ventilation details were omitted in the civil drawings for the water tank.
However, the parties do dispute who was responsible for including the details and for ensuring that the
drawings conformed to the specifications of the Project contract. See discussion infra.

Page 3 of 20

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responsible for the omission of vents in the final tank drawings.

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1.

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Peter Melnyk, Ph.D., P.E. (“Dr. Melnyk”) is the Executive Vice President of GMP. See Dr.

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Melnyk Depo. Tr., Exh. 49 ( Docket No. 223). GMP was the lead design firm and Dr. Melnyk was

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the design engineer of record for the Project. Id. at 16.

Dr. Melnyk Correspondence and Testimony

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Dr. Melnyk sent a memorandum, dated August 10, 2004, to representatives from J&CA and

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Smithbridge. See id., Exh. 20; see also Docket No. 209 at 3:19-21. Among other things in the

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memorandum, Dr. Melnyk stated, “we [GMP, that is] will show hatch, ventilator, and ladder details

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in our civil drawings. Ventilator opening was provided last Thursday.” Dr. Melnyk Depo. Tr., Exh.

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20. As stated in the memorandum, GMP showed hatch and ladder details in their civil drawings.

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Id. at 81. However, GMP failed to include ventilator details in their drawings, and Dr. Melnyk

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could not recall why the ventilator details were omitted. Id.

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On September 2, 2004, in an email chain that included J&CA and Smithbridge

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representatives, Dr. Melnyk again indicated that GMP would include the ventilator details: “Could

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you email me an advance copy of your roof plan so that we could [sic] finalize the ventilator detail

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on our [GMP’s, that is] drawings.” Id., Exh. 21 at 7.

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Additionally, Dr. Melnyk admitted that he reviewed J&CA’s structural drawings and saw

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they did not include vents. Id. at 32–33. Specifically, in December 2004, Dr. Melnyk received

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J&CA’s final structural drawings and a note stating: “[w]e [J&CA, that is] have completed revising

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these drawings and trust they are acceptable now. Let me [J&CA’s Tony Galterio] know if there's

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anything else we need to change on the drawings.” Id. at 92–95. Dr. Melnyk reviewed the drawings

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and saw that they did not include vents. Id. at 96. Dr. Melnyk could not recall if he responded to

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J&CA to ask for roof hatches and the ventilator system. Id. at 93. Furthermore, the drawings

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included a note,3 which Dr. Melnyk read back in 2004 and interpreted to mean that J&CA’s

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The note stated: “Provisions for reinforcing or framing around openings in precast concrete
members and all bearing plates and corrosion-free connections shall be the responsibility of the precast
concrete fabricator.” Dr. Melnyk Depo. Tr. at 97.

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drawings would not show any openings on their drawings. Id. at 96–99.

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Dr. Melnyk conceded that he did not instruct J&CA to include penetrations for the vents in

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their drawings—“I [Dr. Melnyk] guess I assumed, and maybe that's, I shouldn't have assumed, I just

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assumed that he [Close], that he would pick up on the fact, okay, we need these penetrations.” Id.

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at 229.

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Finally, Dr. Melnyk admitted that by signing a design he had an obligation to do something

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if he saw inconsistencies and if there was time available to resolve the inconsistency. Id. 233. In

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regard to the roof vents, there was time available to resolve the inconsistency. Id.

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2.

Close Testimony

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Steven R. Close (“Close”) is a structural engineer for J&CA. See Close Depo. Tr. at 23

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(Docket No. 232, Exh. 1). Close was aware of the minimum drawing content requirements for the

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Project and knew that the structural design requirements applied to J&CA’s structural drawings for

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the water tank. Id. at 76–77. The structural requirements included a “foundation plan” that was to

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“indicate,” among other things, all “openings.” Id., Exh. 4 at 7. The J&CA drawings “provided for

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how to do the structural design around any openings that might be necessary, but the actual locations

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of the openings were coordinated on other plans.” Id. at 79. That is, “the actual location of [the]

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opening would be shown on . . . the civil drawings.” Id. at 81.4

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As excerpted from Close’s deposition transcript:

Q. So these general specs here that were provided to you at the beginning of this process,
you don't believe that you have an obligation to produce drawings in accordance with these
specifications?
A. In general accordance, yes, the structural design should meet the general accordance [sic,
probably should be “specifications”], but there are lots of things in here that don't end up on
the [structural] drawings as they are either provided for in other drawings or are materials
that are not applicable. So there are many things in here that says that I should have on the
drawings that are not on the drawings. You want to go through them?
Q. Sure. What here that is applicable to your structural drawings do not appear on your
structural drawings?
A. Okay. It says I should show piers. I didn't show any piers. It says I should show

Page 5 of 20

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Close was also responsible for incorporating Smithbridge’s roof drawings into the J&CA

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structural drawings. Id. at 61–62. Close stamped the structural drawings after said incorporation,

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thus indicating that the roof drawings were properly incorporated and that the drawing met the

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structural design criteria for the Project. Id. at 63–65. However, stamping the drawings did not

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necessarily indicate that he “approved” of the Smithbridge drawings. Id. at 61–62.

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Additionally, Close performed quality control review of the structural drawings, but he did

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not review the civil drawings to see if they had the required holes. Id. at 207; see also Melnyk Depo.

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Tr. at 236–37 (corroborating that J&CA did not review GMP’s drawings). Close did, however,

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review the roof drawings and was aware that they did not show ventilator openings, but he did not

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point out this omission. See Close Depo. Tr. at 195–97. Close was part of the committee that

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developed the American Water Works Association (“AWWA”) D115 design specifications, which

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was the standard used for the water tank at issue here. Id. at 22–23; see also Docket No. 231 at 5.

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Thus, Close was quite familiar with the D115 specifications and it can be inferred that he should

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have known that the roof needed ventilation openings.

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3.

Taitano Testimony

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While Close may have been responsible for quality control review of structural drawings,

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John Taitano (“Taitano”) was the quality control manager for the Project and employed by GMP.

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See Taitano Depo. Tr. at 80 (Docket No. 218, Exh. 5). As the head of quality control, Taitano was

foundation walls. I didn't show any foundation walls. It says I should show grade beams.
I didn't show any grade beams. So there are no pits, to my knowledge, trenches. I don't
believe I showed the elevations. I believe those are shown on other drawings. There would
be many things that in general might be shown on such drawings, but I did not provide, and
had no obligation to provide.
Q. Why do you think that you didn't have an obligation to provide those details?
A. To the extent they were applicable in this particular case, we—coordinating with the
engineer of record [Dr. Melnyk], they were provided on other . . . [drawings, presumably].
Close Depo. Tr. at 84–85. That ventilation details would not be shown on structural drawings is corroborated
by the correspondence from Dr. Melnyk and his deposition.

Page 6 of 20

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required to review all submittals and “check and coordinate each submittal with requirements of the

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work and contract documents.” Id. at 79.

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Taitano also corroborated the fact that Dr. Melnyk was the lead designer on the Project and
the fact that Dr. Melnyk signed off on the final drawings for the Project. Id. at 23.

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4.

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Nonie Amar (“Amar”) was employed by Maeda and served as Maeda’s point of contact for

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GMP. See Amar Depo. Tr. at 57(Docket No. 218, Exh. 6). Smithbridge submitted its water tank

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designs to Amar, and Amar passed the Smithbridge plans along to GMP. Id. at 57, 59. As the

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engineer of record for the Project, GMP had to review the plans. See id. at 59. After GMP reviewed

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Amar Testimony

the Smithbridge plans, Maeda submitted the plans to the Navy. Id.

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5.

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J&CA’s expert, Tor Gudmundsen (“Gudmundsen”), concluded that: (1) Maeda, as the Prime

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Contractor, “had overall responsibility to design and construct the project to meet the RFP

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requirements,” and that Maeda “did not complete limited design review and coordination checks

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during the design”; (2) GMP, as the civil engineer on the Project, was responsible for “[p]roviding

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the design and details for the reservoir vents[,]” and “confirmed this responsibility and their intent

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to show the vents on their plans in 2-emails to team members”; and (3) J&CA, as the “structural

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engineers for the reservoir, their focus only on the structure and not minor appurtenances matches

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common practice,” and any doubt about who was responsible for including vents was “eliminated

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by GMP confirming their intent to show the vents on the plans.” Id. at 6–7.

Expert Reports

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GMP’s expert, Dr. William Ibbs (“Dr. Ibbs”), concluded, among other things, that: (1) J&CA

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and Smithbridge were primarily liable for the omission of vents in the tank roof, (2) Maeda was

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secondarily liable, and (3) GMP was not liable.5 See Docket No. 286, Exh. 1 at 2–3, 8.

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Maeda’s expert, Duane L.N. Lee, Ph.D. (“Dr. Lee”), responded to Gudmundsen ’s expert

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The court notes that GMP did not file a copy of its expert report until September 9,2011—after
briefing on the issue of good faith was completed and after the hearing on the Motion. See Docket No. 286.

Page 7 of 20

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report and Dr. Ibbs’s report. Maeda rebutted Dr. Lee’s report and asserted that “Maeda was not

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responsible for confirming that the RFP design requirements were met[; rather,] Maeda ceded this

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responsibility to GMP and relied entirely on GMP's design expertise in submitting the final design

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package to the Navy.” Docket No. 246, Exh. B at 6. Dr. Lee ultimately concluded that GMP was

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primarily responsible6 for the omission of the vents and that J&CA also bore some responsibility for

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the omission:

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The record is clear that GMP, as civil designer, understood that it would need to
coordinate the reservoir tank's structural drawings with its own civil drawings for the
tank's layout and piping scheme. GMP indicated through Dr. Peter Melnyk that it
would "show hatch, vent and ladder details in [GMP's] civil drawings" and requested
copies of the reservoir tank's structural drawings so GMP could "finalize the vent
detail" in GMP's civil drawings.

Id., Exh. B at 1–2 (first alteration in the original) (footnotes omitted).

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//

Although GMP had indicated that the vents were part of the civil design, GMP did
effectively put Jorgensen & Close on notice that (l) vents would need to be included
in the tank design drawings and shop drawings; and (2) [J&CA] structural design
would need to be coordinated with GMP's civil drawings to ensure that both
accounted for the vents. Steve Close also knew, independently by virtue of his
alleged expertise in the design of concrete pre-stressed water tanks and authorship
of professional design standards for the same, that the tank would require proper
venting.
Thus, although GMP is primarily responsible for the failure to ensure that the tank
contained proper ventilation, [J&CA] shares in that responsibility because Steve
Close holds himself out as an expert in the type of tank used, was aware of general
venting requirements for the type of tank used, was aware of GMP's intention to
include vents in the tank roof, and failed at several stages of the Project (review of
Smithbridge initial design drawings, coordination with civil drawings, review of
shop drawings, etc.) to discover and alert Smithbridge, Maeda, the Navy or any other
involved party of the absence of proper venting.
...
GMP was, . . responsible for designing civil elements of the reservoir tank and the
water system in general to ensure that the system would operate properly. To the
extent those civil elements required vents in the tank roof - which they clearly did
based on Melnyk's indication that he would include vents in the roof design, GMP
was responsible for design of the same.

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Dr. Lee described Dr. Ibbs’s report as “strained in its attempt to shift blame away from GMP,” and
rebutted each of his eleven conclusions. Docket No. 246, Exh. B at 1.

Page 8 of 20

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C.

MAEDA-J&CA SETTLEMENT AGREEMENT

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In April 2011, Maeda and J&CA entered into a settlement agreement (the “Maeda-J&CA

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settlement”), contingent upon a finding of good faith by the court. See Docket No. 210 at ¶ 3. The

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Maeda-J&CA settlement provides that Maeda will “release [J&CA] from any and all liability arising

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out the conduct that forms the basis of the Complaint for a payment of $250,000.00.” Id.

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II.

PROCEDURAL BACKGROUND

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A.

THE COMPLAINT, ANSWERS,
COMPLAINT, AND FAC

CROSS-CLAIMS,

THIRD-PARTY

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Maeda initiated this case by filing its initial complaint on August 14, 2008. See Docket No.

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1. The defendants named in the initial complaint were: GMP; Ohio Pacific Tech, Inc. (“Ohio

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Pacific”), an Ohio corporation doing business as GMP Associates, Inc.; GMP Associates, Inc.; and

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J&CA. Id.

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On October 14, 2008, GMP and Ohio Pacific answered the complaint, and brought a

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counterclaim for breach of contract against Maeda, and a cross-claim for contribution against J&CA.

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See Docket No. 16. That same day, GMP and Ohio Pacific also brought a third-party complaint for

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contribution against Smithbridge. See Docket No. 17.

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On November 3, 2008, Smithbridge answered the third-party complaint, and brought a

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counterclaim against GMP and Ohio Pacific, as well as a cross-claim for breach of contract against

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J&CA. See Docket No. 25. That same day, J&CA answered the GMP and Ohio Pacific cross-claim,

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and brought its own cross-claims for contribution and equitable indemnity against GMP and Ohio

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Pacific. See Docket No. 26.

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On November 24, 2008, J&CA answered the Smithbridge cross-claim, and brought its own
cross-claims for contribution and equitable indemnity against Smithbridge. See Docket No. 31.

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On February 24, 2009, Maeda filed its First Amended Complaint (“FAC”), the now-

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operative complaint. See Docket No. 54. The defendants named in the FAC are: GMP; Ohio

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Pacific; Lexington Insurance Company, the insurers of GMP and Ohio Pacific; J&CA; and U.S.

Page 9 of 20

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Specialty Insurance Company (“Specialty”), the insurers of J&CA. Id. In the FAC, Maeda alleges

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one count of negligence and one count of breach of contract against all defendants and prays for

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damages in the amount of $6 million ($1 million of which is claimed as liquidated damages). See

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id. at ¶¶ 19–25. Maeda also alleges one count of breach of contract specifically against GMP and

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prays for damages in the amount of $1.8 million. See id. at ¶¶ 26–28.

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B.

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On August 14, 2009, Smithbridge filed an Alternative Motion for Summary Judgment, or

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Approval of Good-Faith Settlement, for Dismissal of the Third-Party Complaint. See Docket No.

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69. On February 23, 2010, the court found that a covenant not to sue, under which Maeda promised

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not to sue Smithbridge and in turn Smithbridge gave Maeda a discount of $122,065.81 discount for

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services rendered, constituted a settlement between Maeda and Smithbridge. See Docket No. 167.

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The court further found that the settlement—i.e., the promise not to sue for the $122,065.81

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discount—was made in good faith. See id. The court, however, declined to find that J&CA was a

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third-party beneficiary of the good faith settlement. See id.

MAEDA-SMITHBRIDGE GOOD-FAITH SETTLEMENT

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C.

J&CA MOTION FOR SUMMARY JUDGMENT; CERTIFIED QUESTION

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On September 10, 2009, J&CA and Specialty filed a Motion for Summary Judgment. See

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Docket No. 80. The court determined that whether Maeda could pursue a negligence claim against

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J&CA turned on whether the economic loss doctrine applies on Guam, and if so, to what extent.7

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The Guam courts were silent on the issue, and given its importance in light of the impending

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The economic loss doctrine bars recovery for purely economic losses when there is no physical
harm to plaintiff (or his property). The reasoning is that plaintiff’s remedy lies more appropriately in contract
law because his actual claim is that he did not receive the benefit of the bargain. See Anthony L. Meager &
Michael P. O’Day, Who Is Going to Pay for My Impact—A Contractor's Ability to Sue Third Parties for
Purely Economic Loss, 25 Constr. Law. 27, 27 (2005).
J&CA argues that Maeda’s negligence-based claims against it are barred by the economic loss
doctrine, and that Maeda may only seek relief under the contracts and sub-contracts associated with the
Project. While many districts apply the economic loss doctrine, its scope varies and there is a split in
authority as to whether it applies to design professionals like engineers. See id. at 28. If the Guam Supreme
Court decides that the economic doctrine applies on Guam and that it extends to design professionals, then
Maeda cannot maintain a negligence claim against J&CA.

Page 10 of 20

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military buildup and accompanying construction activity, the court certified the economic loss

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doctrine question to the Supreme Court of Guam on April 1, 2010. See Docket No. 181.

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On August 6, 2010, the court granted J&CA’s Motion for Summary Judgment, but only as

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to the contract claim. See Docket No. 203. In light of the certified question, the court vacated the

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trial and all concomitant conference dates, to be rescheduled after the certified question is answered.

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The Supreme Court of Guam has yet to answer the certified question. The parties agree that

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the economic loss doctrine should apply in some respect on Guam, but how it is applied will

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determine whether Maeda can pursue its negligence claim against J&CA. As it stands now, Maeda

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is pursuing two counts of breach of contract against GMP and one count of negligence against GMP

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and J&CA.

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D.

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On April 20, 2011, Maeda and J&CA jointly filed a Motion for Approval of Good-Faith

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Settlement (“the Motion”). See Docket No. 208. On May 4, 2011, GMP filed an Opposition to the

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Motion. See Docket No. 214. On May 10, 2011, Maeda and J&CA filed their Reply. See Docket

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No. 217. On May 13, 2011, the court found that GMP had the burden of demonstrating the lack of

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good faith and ordered GMP to file a supplemental brief to support its position. See Docket No. 224.

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GMP filed its supplemental brief on May 27, 2011. See Docket No. 231. Maeda and J&CA filed

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their supplemental reply on June 2, 2011. See Docket No. 245.

MAEDA-J&CA
SETTLEMENT

MOTION

FOR

APPROVAL

OF

GOOD

FAITH

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The court heard oral argument on the Motion on September 6, 2011. See Docket No. 281.

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After the hearing, and as directed by the court, J&CA filed a copy of its insurance policy and a

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declaration from Close regarding the value of J&CA’s assets. See Docket No. 284. GMP filed its

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response to J&CA’s filings on September 9, 2011, and included a copy of its expert report. See

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Docket Nos. 285, 286.

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III.

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JURISDICTION AND VENUE
All of Plaintiff’s causes of action are within the court’s diversity jurisdiction. See 28 U.S.C.
Page 11 of 20

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§ 1332; see also Docket No. 54 at ¶¶ 1–7.

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Venue is proper in this judicial district, the District of Guam, because Defendants conduct

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business here, and because all of the events or omissions giving rise to Plaintiff’s claims occurred

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here. See 28 U.S.C. § 1391.

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IV.

APPLICABLE STANDARDS

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Section 24606(b) of Title 7 of the Guam Code Annotated, provides that “[t]he issue of the

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good faith of the settlement may be determined on the basis of affidavits served with the notice of

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hearing, any counter-affidavits filed in response thereto, and any evidence presented at the hearing.”8

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7 GUAM CODE ANN. § 24606(b). If the court determines that a settlement is made in good faith, joint

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tortfeasors will be barred from making claims of contribution against the settling tortfeasor. Id. §

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24606(c).

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The party asserting the lack of good faith shall have the burden of proof on that issue, except

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if the issue is raised by a party to the settlement, in which case the burden of proof shall be on the

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proponent. Id. § 24606(d). In this case, the parties to the settlement—Maeda and J&CA—assert

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that the settlement was made in good faith. GMP, a non-party to the settlement, however, alleges

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that the settlement lacks good faith, and thus bears the burden of demonstrating such. See id.; see

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also N. Cnty. Contractor’s Ass’n v. Touchstone Ins. Servs., 33 Cal. Rptr. 2d 166, 169 (Cal. Ct. App.

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1994) (“The burden is upon the party objecting to the proposed settlement to prove an absence of

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good faith.”).

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A settlement is not in good faith “if it is made for significantly less than the reasonable value

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of the claim for which it is made taking into account the likelihood of liability, assets and insurance

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available to pay the claim, the cost and difficulty of pursuing the claim, the relationship between the

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parties to the settlement, and such other factors as the court may deem appropriate or relevant.” 7

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GUAM CODE ANN. § 24606(e).

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The nature and extent of the hearing is left to the trial court’s discretion. Franklin Mint Co. v.
Superior Court (Shook), 31 Cal. Rptr. 3d 319, 324 (Cal. Ct. App. 2005).

Page 12 of 20

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As the court has previously stated, there do not appear to be any Guam cases interpreting or

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applying Section 24606, and as such it is appropriate for the court to look to California cases to

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interpret Section 24606. See Docket No. 167 at 11. The leading California case, Tech-Bilt, Inc. v.

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Woodward-Clyde & Associates, provides that the good faith inquiry should turn on:

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. . . [(1)] a rough approximation of plaintiffs’ total recovery and the settlor’s
proportionate liability, [(2)] the amount paid in settlement, [(3)] the allocation of
settlement proceeds among plaintiffs, and [(4)] a recognition that a settlor should pay
less in settlement than he would if he were found liable after a trial. Other relevant
considerations include [(5)] the financial conditions and insurance policy limits of
settling defendants, as well as [(6)] the existence of collusion, fraud, or tortious
conduct aimed to injure the interests of nonsettling defendants. Finally, practical
considerations obviously require that the evaluation be made on the basis of
information available at the time of settlement.
698 P.2d 159, 166–67 (Cal. 1985) (citation omitted).

15

When applying the Tech-Bilt factors, there are no firm guidelines, and “each case must be

16

evaluated on its unique facts.” Erreca’s v. Superior Court (Midlam), 24 Cal. Rptr. 2d 156, 173 (Cal.

17

Ct. App. 1993). Thus, the court has wide discretion to determine whether a settlement is made in

18

good faith, with the decision ultimately turning on “whether the settlement is grossly

19

disproportionate to what a reasonable person at the time of settlement would estimate the settlor’s

20

liability to be.” City of Grand Terrace v. Superior Court (Boyter), 238 Cal. Rptr. 119, 126 (Cal. Ct.

21

App. 1987); see also Emery J. Mishky et al., California Code of Civil Procedure Sections 877, 877.5

22

and 877.6: The Settlement Game in the Ballpark that Tech-Bilt, 13 PEPP. L. REV. 823, 838

23

(1985–1986).

24

The court also bears in mind that its decision should account for the dual policy goals of the

25

good faith statute: (1) “the encouragement of settlements,” and (2) “the equitable allocation of costs

26

among multiple tortfeasors.” Tech-Bilt, 698 P.2d at 166.

27

V.

ANALYSIS

28

Maeda and J&CA entered into a settlement agreement under which J&CA will pay $250,000

29

to Maeda, and in turn Maeda will release J&CA from liability under the FAC. See Docket No. 208.

30

The settling parties request that the court declare that the settlement was made in good faith. GMP

Page 13 of 20

1

alleges that the settlement was made in bad faith. See Docket Nos. 214, 231. As just discussed, to

2

resolve the dispute, the court must look at the Tech-Bilt factors to determine “whether the settlement

3

is grossly disproportionate to what a reasonable person at the time of settlement would estimate

4

[J&CA’s] liability to be.” City of Grand Terrace, 238 Cal. Rptr. at 126.

5

GMP, the party asserting bad faith, has the burden of proof on the issue. To satisfy that

6

burden , GMP must show that “the settlement is so far ‘out of the ballpark’ in relation to [the Tech-

7

Bilt] factors.” Tech-Bilt, 698 P.2d at 167. However, a “challenge to the [settlement] agreement's

8

assigned value should not be interpreted as giving the challenging defendant a right to a mini-trial

9

on the valuation issue.”

Erreca’s, 24 Cal. Rptr. 2d at 166.

Looking at the applicable

10

factors—J&CA’s proportionate liability, the settlement amount, the discount for settling before trial,

11

J&CA’s financial condition, and the existence of fraud, collusion, or tortious conduct—GMP has

12

not carried its burden of demonstrating bad faith.9

13

A.

PROPORTIONATE LIABILITY

14

First, GMP argues that the settlement does not reflect J&CA’s proportionate liability. The

15

settling defendant’s proportionate liability is one of the most important factors in the good-faith

16

analysis. See Mattco Forge, Inc. v. Arthur Young & Co. 45 Cal. Reptr. 2d 581, 588 (Cal. Ct. App.

17

1995) (quoting Toyota Motor Sales U.S.A., Inc. v. Superior Court, 269 Cal. Rptr. 647, 650 (Cal. Ct.

18

App. 1990)). Accordingly, the court abuses its discretion by finding a good-faith settlement if there

19

is not substantial evidence to support the extent of a settling defendant’s liability. See id.

20

GMP argues that the settling parties have not produced sufficient evidence to demonstrate

21

J&CA’s proportionate liability to Maeda. Contrary to GMP’s assertion, the settling parties have

22

produced sufficient evidence for the court to assess J&CA’s proportionate liability. Based on the

9

In its briefs, GMP addressed only the first and second Tech-Bilt factors: J&CA’s
proportionate liability and the amount of the settlement. GMP’s arguments regarding J&CA’s
financial condition and the existence of fraud, collusion, or tortious conduct were untimely as they
were respectively raised at the hearing and after the hearing in a supplemental brief. See Docket
No. 285 at 3–4.
Page 14 of 20

1

evidence available at the time of the settlement, both Maeda and J&CA believed that GMP was

2

primarily responsible for the omission of ventilation details. See Docket No. 209 at 10. As

3

discussed in Section I supra, there is ample evidence in the record to support this belief, including:

4

(1) the correspondence between GMP (by way of Dr. Melnyk) to J&CA representatives in which

5

it was conveyed that GMP would include ventilation details in their drawings; (2) the testimony

6

elicited from Dr. Melnyk during his deposition; and (3) the independent expert reports from

7

Gudmundsen and Dr. Lee—both of which concluded that GMP was primarily liable for failing to

8

include ventilation details in the drawing.

9

Despite this evidence, GMP maintains that J&CA is the party primarily liable for the

10

omission of vents. Docket No. 231 at 3. This argument is unpersuasive. While Dr. Ibbs found that

11

J&CA and Smithbridge were primarily liable, Gudmundsen and Dr. Lee came to contrary

12

conclusions.10 In fact, Dr. Lee rebutted Dr. Ibbs’s’s findings and described his report as “strained

13

in its attempt to shift blame away from GMP.” Docket No. 246, Exh. B at 1.

14

The court finds that for purposes of the good-faith determination and based on the evidence

15

in the record at the time of settlement, that GMP was primarily liable for the omission of vents in

16

the tank. See Tech-Bilt, 698 P.2d at 167 (stating that court can rely on experts in the field to make

17

good faith determination). Furthermore, based on the evidence in the record, the court finds that

18

Maeda, J&CA, and Smithbridge all bore some liability for the omission. As such, the settlement

19

amount roughly approximates J&CA’s proportionate liability. Thus, GMP has failed to demonstrate

20

that the settlement amount is so far out of the ballpark in relation to J&CA’s proportionate liability.

21

B.

SETTLEMENT AMOUNT AND DISCOUNT

22

Second, GMP emphasizes that the settlement amount is only four percent of the $6 million11
10

The court again notes that GMP did not file Dr. Ibbs’s report until after the hearing. GMP had
more than adequate time to file the report before then. Gudmundsen was present at the hearing on the Motion
and could have presumably provided rebuttal testimony for Dr. Ibbs’s conclusions if GMP had filed the report
in a timely manner.
11

Actually, Maeda can only claim $5 million against J&CA because $1 million of Maeda’s claimed
damages is in the form of liquidated damages. See Docket No. 54 at 6 ¶ 25 (claiming liquidated damages in

Page 15 of 20

1

that Maeda seeks in damages. While this is true, it is not enough to establish bad faith. To satisfy

2

its burden, GMP must do more than show that “the settling defendant paid less than his theoretical

3

proportionate or fair share.” See Tech-Bilt, 698 P.2d at 166. This makes sense because “damages

4

are often speculative, and the probability of legal liability therefor is often uncertain or remote[,]”

5

and “[s]uch a rule would unduly discourage settlements.” Id.

6

In Cahill v. San Diego Gas & Elec. Co., the trial court found that a settlement for $25,000

7

between the plaintiff and a nonparty settlor was made in good faith. See 124 Cal. Rptr. 3d 78, 95

8

(Cal. Ct. App. 2011). On appeal, the defendant argued that the settlement was not made in good

9

faith because $25,000 was “out of the ballpark” in relation to the settlor’s potential liability in that

10

it was only .5% of the plaintiff’s claimed damages of $5 million. Id. at 102. The court explained

11

that the plaintiff’s claimed damages and the settlor’s potential liability were not necessarily the

12

same, and held that the defendant failed to carry its burden of demonstrating bad faith by merely

13

pointing out the gross disparity between the settlement amount and the claimed damages. Id. at 102

14

n.17, 103. The court further emphasized that “each case must be decided based on its particular

15

circumstances.” Id. at 103.

16

Like the defendant in Cahill, GMP cannot satisfy its burden by emphasizing the disparity

17

between the settlement amount and Maeda’s claim for $6 million in damages. See id.; see also

18

Wysong & Miles Co. v. W. Indus. Movers, 191 Cal. Reptr. 671, 675, 679 (Cal. Ct. App. 1983)

19

(approving settlement of $65,000 where the plaintiff claimed damages of more than $7 million and

20

rejecting the challenging party’s argument that a proportionately low settlement in comparison to

21

a potential damages award is per se evidence of bad faith); Abbott Ford, Inc. v. Superior Court

22

(Bach), 741 P.2d 124, 134 (Cal. 1987) (“In order to encourage settlement, it is quite proper for a

the amount of $1 million contract breach). Liquidated damages are a contractual remedy, not tort. See
BLACK’S LAW DICTIONARY (9th ed. 2009), damages (defining liquidated damages as “[a]n amount
contractually stipulated as a reasonable estimation of actual damages to be recovered by one party if the other
party breaches.”). As such, J&CA would not be liable for liquidated damages if the case proceeded to trial
because the court entered judgment in favor of J&CA on the breach-of-contract claim. See Docket No. 203.

Page 16 of 20

1

settling defendant to pay less than his proportionate share of the anticipated damages.”). Thus, the

2

fact that the $250,000-settlement is only 4% of Maeda’s claimed damages is not enough to

3

demonstrate bad faith.12

4

Moreover, the settlement amount accounts for the fact that J&CA may not be liable to Maeda

5

at all. This can happen in one of two ways: (1) if the Guam court accepts J&CA’s economic loss

6

doctrine approach, then Maeda cannot maintain the remaining negligence claim against J&CA; or

7

(2) if the Guam court rejects J&CA’s approach and the case proceeds to trial, the jury could find that

8

Maeda’s negligence was greater than J&CA’s, and if so Maeda would be barred from recovering

9

from J&CA under the doctrine of modified comparative negligence. See Docket No. 209 at 14–16.

10

These facts weigh heavily in favor of finding good faith as it goes to the strength of Maeda’s case

11

against J&CA, and in turn J&CA’s likelihood of liability. See 7 GUAM CODE ANN. § 24606(e)

12

(stating that likelihood of liability bears on whether the settlement amount is reasonable); see also

13

Standard Pac. of San Diego v. A. A. Baxter Corp., 222 Cal. Rptr. 106, 109 (Cal. Ct. App. 1986) (“a

12

J&CA and Maeda also cite a slew of cases where settlement amounts were relatively low in
comparison to the amount of claimed damages:
Yusen Air & Sea Services (Guam), Inc. v. Superior Court of Guam, CIV. 93-00020A, 1993
WL 245645 (D. Guam App. Div., June 23,1993) (affirming approval of $100,000 settlement
despite the fact that judgments for similar wrongful death claims tended to exceed $1
million); Maeda Pac. Corp. v. GMP Hawaii. Inc., CIV. 08-00012, 2010 WL 672849 (D.
Guam, Feb. 23, 2010) (approving Smithbridge's $122,065.81 settlement in the instant case);
Smith v. Texaco. Inc., 597 N.E.2d 750 (III. Ct. App. 1992) (affirming approval of $435,000
good faith settlement for injuries from gas tank explosion despite nonsettling joint
tortfeasors' contentions that settlement was less that 4% of insurance coverage and was the
not pro rata share of damages based on culpability); Sharma v. Meyers, 803 S.W.2d 65 (Mo.
Ct. App. 1990) (upholding approval of good faith settlement of $100,000 and dismissing
contribution suit although the plaintiff obtained a $2 million verdict against other joint
tortfeasors); Ballweg v. City of Springfield, 499 N.E.2d 1373 (III. 1986) (upholding of
$15,000 good-faith settlement approval, based on totality-of-the-circumstances test, as bar
to later contribution claim based on $304,338 jury verdict); Christmas v. Hughes, 543
N.E.2d 274 (III. App. Ct. 1989) (upholding $300 settlement by joint-tortfeasor where
claimant sought $15,000, the court noted that although the consideration was low in
comparison, the trend is to either reject a ratio test or treat the ratio test as only one factor in
determining good faith).
Docket No. 245 at 4.

Page 17 of 20

1

disproportionately low settlement figure might be reasonable in light of . . . the uncertainty or

2

remoteness of legal liability.”) (citing Tech Bilt, 698 P.2d 159 at 166). Significantly, GMP does not

3

address the fact that Maeda may have no right to recover from J&CA at all if the Guam Supreme

4

Court adopts J&CA’s version of the economic loss doctrine, or if the case proceeds to trial and a jury

5

finds that Maeda was more at fault than J&CA.

6

Furthermore, the $250,000 settlement is more than twice as much as the Maeda-Smithbridge

7

good-faith settlement of $122,065.81. In that settlement, the court found that the amount of that

8

settlement was reasonable because at the time of the agreement, Maeda did not think Smithbridge

9

played a role in the collapse of the tank roof. See Docket No. 167 at 17. The court further found

10

that even if Maeda believed it had a legal claim of greater than $122,065.81, the amount was in good

11

faith because a settling defendant should pay less in settlement than if found liable at trial. Id. at 18.

12

Similarly, at the time of settlement here, Maeda believed that GMP was primarily liable for the

13

collapse, and the settlement amount of $250,000 is discounted because J&CA should pay less than

14

if found liable at trial.

15

In sum, it was reasonable for the parties to believe that J&CA’s potential liability was well

16

under $6 million and that after discounting the settlement amount, $250,000 was a rough

17

approximation of J&CA’s proportionate liability. Thus, the settlement amount is not so far out of

18

the ballpark.

19

C.

FINANCIAL CONDITION OF J&CA

20

Third, GMP argues that the financial condition of J&CA requires that the court find the

21

settlement was not made in good faith. GMP raised the issue of J&CA’s financial condition for the

22

first time at the hearing, making it untimely. However, for the sake of thoroughness, the court

23

entertains the argument here.

24

In response to GMP’s argument, J&CA provided an offer of proof at the hearing of the

25

following facts: (1) the limit of its insurance policy was $1 million, (2) its attorney’s fees are

26

included under the claims limitation, (3) up to the date of the hearing, over $220,000 in claimed

Page 18 of 20

1

attorney’s fees have been expended under the policy, and (4) its assets have an estimated value of

2

less than $50,000. After the hearing, J&CA filed a declaration from Close that stated the foregoing

3

facts, as well as a copy of J&CA’s insurance policy. See Docket No. 286.

4

Based on these facts, when the amount of the settlement is added to J&CA’s accrued claims,

5

nearly half of its insurance policy will be exhausted. J&CA need not exhaust its insurance limitation

6

in order for the court to find that the settlement is in good faith. Such a rule would fail to encourage

7

settlements and fail to account for the fact that the settlement amount should be discounted.

8

Additionally, if the case proceeds to trial, J&CA will continue to rack up attorney’s fees and the

9

amount available to pay any judgment would continue to decrease. J&CA’s assets would not cover

10

much more either, as it only has $50,000 in assets to add to the payment of any judgment. Thus, the

11

settlement amount is not so far out of the ballpark in relation to J&CA’s financial condition,

12

GMP argues that the court should not consider Close’s declaration regarding J&CA’s

13

financial condition. See Docket No. 285 at 2. However, Section 24606 explicitly states that the

14

court may rely on affidavits and counter-affidavits in its good-faith determination. See 7 GUAM

15

CODE ANN. § 24606(b). While J&CA submitted a declaration instead of an affidavit, the court finds

16

that the declaration was made under penalty of perjury and serves the same function as an affidavit

17

in this case. See Malty v. Ashcroft, 381 F.3d 942, 947 n.2 (9th Cir. 2004) (treating affidavits and

18

declarations interchangeably for a motion to reopen asylum proceedings); see also CAL. CIV. PRO.

19

CODE § 2015.5; Hatch v. Bush, 30Cal. Rptr. 397, 403 n.1 (Cal. Ct. App. 1963) (explaining that §

20

2015.5 of the California Code of Civil Procedure gives declarations made under penalty of perjury

21

the same effect as affidavits when affidavits are required by statute). The court finds that the

22

declaration is sufficient evidence of J&CA’s financial condition for purposes of determining good

23

faith as Close stated that he would be competent to testify if called as a witness regarding J&CA’s

24

insurance claims and its assets.

25

Furthermore, the court reminds GMP that it did not raise this issue until the day of the

26

hearing , and as such cannot now complain that the evidence is insufficient. See Cahill, 124 Cal.

Page 19 of 20

1

Rptr. 3d at 104 (finding that party challenging good faith had the burden of raising the issue of

2

settlor’s financial condition and presenting evidence of such). Had GMP raised the issue in its

3

briefs, J&CA could have responded to any challenges to the sufficiency of its evidence submitted

4

in support of its accrued claims under the policy and the value of its assets to rebut GMP’s

5

challenges related to its financial condition.

6

D.

7

Fourth, GMP argues that there is some fraud, collusion, or tortious conduct on the part of the

8

settling parties. GMP raised this issue after the hearing in a response to J&CA’s financial-condition

9

declaration. See Docket No. 285 at 3–4. Again, the court discusses this untimely argument for the

10

sake of thoroughness and finds that it lacks merit. There is no evidence in the record that indicates

11

the presence of fraud, collusion, or tortious conduct in regard to the Maeda-J&CA settlement. As

12

with the other applicable Tech-Bilt factors, GMP has failed to demonstrate that the $250,000

13

settlement is so far out the ballpark in relation to this factor.

14

VI.

FRAUD, COLLUSION, OR TORTIOUS CONDUCT

CONCLUSION

15

As discussed in the foregoing, GMP fails to demonstrate that the Maeda-J&CA settlement

16

is so out of the ballpark in relation to the Tech-Bilt factors, and thus fails to carry its burden of

17

demonstrating the lack of good faith. After considering the applicable Tech-Bilt factors, the court

18

finds that Maeda-J&CA settlement amount of $250,000 is not grossly disproportionate to what a

19

reasonable person would estimate J&CA’s liability to be at the time of the settlement; rather,

20

$250,000 is a reasonable estimate of J&CA’s liability to Maeda.

21

Furthermore, a finding of good faith in this case would further the statute’s policy goals of

22 encouraging settlements and ensuring equitable distribution of costs among tortfeasors. Accordingly,
23

the court hereby GRANTS the Motion and finds that the Maeda-J&CA settlement was made in good

24

faith under Section 24606 of Title 7 of the Guam Code Annotated.

25

SO ORDERED.
/s/ Frances M. Tydingco-Gatewood
Chief Judge
Dated: Sep 23, 2011

Page 20 of 20