Baja Inc v. Automotive Testing and Development Service Inc et al

Filing 90

ORDER granting 77 Motion to Dismiss; this court will not address Defendant ATDS's argument that Hisuns crossclaim should be dismissed pursuantto Rule 12(b)(6) for failure to state a claim, or ATDSs alternate Motion for a More Definite Statement pursuant to Rule 12(e) Signed by Honorable G Ross Anderson, Jr on 5/22/14.(alew, )

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
ANDERSON/GREENWOOD DIVISION
)
)
Plaintiff,
)
)
v.
)
)
Automotive Testing and Development )
Service, Inc., Chongquin Huansong
)
Industries (Group) Co., Ltd., Tomoto
)
Industries, Inc., and Hisun Motors Corp. )
U.S.A.,
)
)
Defendants. )
________________________________ )
Baja, Inc.,

C/A No.: 8:13-cv-02057-GRA

ORDER
(Written Opinion)

This matter comes before this Court on Defendant Automotive Testing and
Development Service, Inc.’s (“ATDS’s”) Motion to Dismiss Crossclaim of Hisun
Motors Corp. U.S.A. pursuant to Rule 12(b)(6), for an order determining the good
faith of ATDS’s settlement with Plaintiff under California law or for a more definite
statement pursuant to Rule 12(e), filed on March 13, 2014. ECF No. 77. For the
reasons set forth below, Defendant’s Motion is GRANTED.
Plaintiff Baja, Inc. (“Baja”) filed a First Amended Complaint against Defendants
ATDS, Chongquin Huansong Industries (Group) Co., Ltd. (“Huansong”), Tomoto
Industries, Inc. (“Tomoto”), and Hisun Motors Corp. U.S.A. (“Hisun”) on January 2,
2014.

ECF No. 53.

Hisun filed an Answer to the First Amended Complaint on

January 31, 2014, ECF No. 62, and then filed an Amended Answer and Cross Claim
to the First Amended Complaint on February 21, 2014, ECF No. 67.

Hisun’s

Amended Answer and Cross Claim to the First Amended Complaint states that the
“allegations of the Complaint, if proven true, are solely the result of actions or

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omissions by ATDS,” that “Hisun is without fault with respect to the allegations of Baja
in this civil action,” and that Hisun is entitled to “full legal and equitable indemnity”
against ATDS. ECF No. 67.
On March 13, 2014, Defendant ATDS filed the current Motion, seeking to
dismiss Hisun’s crossclaim based on a good faith settlement between ATDS and
Plaintiff, and pursuant to Rule 12(b)(6) for failing to state a claim under which relief
may be granted, or in the alternative for a more definite statement pursuant to Rule
12(e). ECF No. 77. No party has filed a response to ATDS’s Motion.
Defendant ATDS’s main argument is that Hisun’s crossclaim is barred due to a
good faith settlement between ATDS and Plaintiff. ECF No. 77-1. ATDS states that it
“settled the claims brought against it by the Plaintiff and was in the process of
circulating a stipulation of dismissal when Hisun was added as a defendant and filed
this crossclaim.” Id. ATDS argues that “is entitled to a determination of the good faith
of its $267,000 settlement with Plaintiff, which bars Hisun’s purported indemnity
claim.” Id.
“This Court has jurisdiction over this action based on diversity of citizenship
pursuant to 28 U.S.C. § 1332.” ECF No. 53. “A federal court exercising diversity
jurisdiction must apply the choice of law rules of the state in which it sits.”
Perini/Tompkins Joint Venture v. Ace Am. Ins. Co., 738 F.3d 95, 100 (4th Cir. 2013);
Banner Life Ins. Co. v. Bonney, No. 2:11cv198, 2011 WL 6002609, at *3 (E.D. Va.
Nov. 29, 2011) (“A federal court sitting in diversity must apply the substantive law of
the forum state, including its choice of law rules.”). “Under traditional South Carolina
choice of law principles, the substantive law governing a tort action is determined by

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the state in which the injury occurred.”

Lister v. NationsBank of Del., N.A., 494

S.E.2d 449, 454 (S.C. Ct. App. 1997) “In contract actions, South Carolina courts
apply the substantive law of the place where the contract at issue was formed . . .
where a contract’s formation, interpretation, or validity is at issue.”
Trucking Assocs., Inc., 860 F. Supp. 295, 300 (D.S.C. 1994).

Witt v. Am.

“However, where

performance is at issue, the law of the place of performance governs.” Id. (citing
Livingston v. Atl. Coast Line R.R. Co., 180 S.E. 343, 345 (S.C. 1935)). ATDS argues
that California law applies to Hisun’s crossclaim because “[a]ny and all formation and
performance of any and all relevant contracts, and any and all tortious acts or
omissions occurred in California, between two resident corporations of California –
ATDS and Tomoto Industries, Inc.” ECF Nos. 77-1 & 77-2; see ECF No. 67 at 18–20
(describing the business relationship and agreement between ATDS and Tomoto that
is the basis of the crossclaim brought by Hisun).
California law provides that a good faith settlement “extinguishes indemnity
claims” such as Hisun’s indemnity claim against ATDS “for the allegedly tortious
activities of ATDS’s former employee, Larry Smith, Jr.” ECF No. 77-1. Specifically,
California Code of Civil Procedure § 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 . . . (b) it shall discharge the party to whom it is given
from all liability for any contribution to any other parties.

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Cal. Civ. Proc. Code § 877(a). California Code of Civil Procedure § 877.6 provides
the procedures for determination of a good faith settlement.1
An analysis of good faith requires “the trial court to inquire, among other
things, whether the amount of the settlement is within the reasonable range of the
settling tortfeasor’s proportional share of comparative liability for the plaintiff’s
injuries.” Tech-Bilt, Inc. v. Woodward-Clyde & Assocs., 698 P.2d 159, 38 Cal. 3d
488, 499 (Cal. 1985).

However, bad faith is not established by showing that a

defendant paid less than his fair share, as “damages are often speculative, and the
probability of legal liability therefor is often uncertain or remote.”

Stambaugh v.

Superior Court, 62 Cal. App. 3d 231, 238 (1978). A number of factors must be
analyzed including “a rough approximation of plaintiffs’ total recovery and the settlor’s
proportionate liability, the amount paid in settlement, the allocation of settlement
proceeds among plaintiffs, and a recognition that a settlor should pay less in
settlement than he would if he were found liable after a trial.” Tech-Bilt, 38 Cal. 3d at
499. This evaluation is to be “made on the basis of information available at the time
of settlement.” Id. “The party asserting the lack of good faith, who has the burden of
proof on that issue,” must demonstrate “that the settlement is so far ‘out of the
ballpark’” to not be a settlement made in good faith. Id. at 499–500; see Cal. Civ.

1

It appears that Defendant ATDS seeks an order determining the good faith of its settlement under §
877.6(a)(2), which sets out detailed procedures for what an application for determination of good faith
settlement must include, but states that “this paragraph shall not apply to settlements in which a
confidentiality agreement has been entered into regarding the terms of the settlement,” as is the case
here. Cal. Civ. Proc. Code § 877.6(a)(2); see ECF No. 77-1 at 4. “A hearing is not required because
nonsettling parties were afforded an opportunity to respond to the request for good faith
determination.” Heim v. Heim, Case No.: 5:10-CV-03816-EJD, 2014 WL 1340063, at *6 (N.D. Cal.
Apr. 2, 2014); Res-Care Inc. v. Roto-Rooter Servs. Co., No. C 09-3856 EDL (DMR), 2011 WL
3610701, at *2 (N.D. Cal. Aug. 17, 2011) (“In the absence of any opposition, the court may approve
the motion without a hearing.”); see Cal. Civ. Proc. Code § 877.6(a)(2).

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Proc. Code § 877.6(d) (“The party asserting the lack of good faith shall have the
burden of proof on that issue.”).
In this case, “Plaintiff accepted $267,000 in exchange for a complete release
and a dismissal with prejudice of all of Plaintiff’s claims against ATDS.” ECF No. 771. This settlement was reached through mediation before Judge John Kennedy of
Judicial Arbitration and Mediation Services, Inc. – Los Angeles, “after extensive
financial and technological disclosures by ATDS to Plaintiff,” and was the result of
arms-length negotiations between Plaintiff and Defendant ATDS.

Id.

This case

involves allegations by Plaintiff of over $10 million in damages, but significantly lower
out-of-pocket expenses to Plaintiff. Id. Additionally, Defendant ATDS “intended to
assert defenses based upon the statutes of limitation and a potential failure to
mitigate damages,” as well as arguing “that the vehicle tested, though altered by
Tomoto, in fact passed the requisite testing” and then either Tomoto or Huansong
failed to make the same alterations to the vehicles sold to Plaintiff. Id.; ECF No. 77-2
(“ATDS’s investigation into the claims underlying this case showed that the subject
vehicle tested by ATDS was materially different from the vehicles sold . . . by Hisun’s
parents, Huansong.”). Finally, “ATDS is a small closely-held family company,” “there
was no applicable insurance to cover the claims, and ATDS was burdened with other
financial obligations that significantly limited its ability to pay any more in settlement.”
ECF Nos. 77-1 & 77-2.
Based on the Motion filed by ATDS providing factual support for the good faith
of the settlement, and the failure of Hisun or any other party to show that this
settlement was not made in good faith or even to contest the good faith of the

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settlement at issue, this Court finds that the settlement between Plaintiff and
Defendant ATDS was made in good faith. Defendant Hisun’s indemnity claim against
Defendant ATDS is therefore barred.

Accordingly, this Court will not address

Defendant ATDS’s argument that Hisun’s crossclaim should be dismissed pursuant
to Rule 12(b)(6) for failure to state a claim, or ATDS’s alternate motion for a more
definite statement pursuant to Rule 12(e).
IT IS THEREFORE ORDERED that Defendant’s Motion to Dismiss Crossclaim
is GRANTED.
IT IS SO ORDERED.

May 22 , 2014
Anderson, South Carolina

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