Northrup Grumman Corp. v. Bob Parrett Construction, Inc.

Filed 12/10/07 Northrup Grumman Corp. v. Bob Parrett Construction, Inc. CA2/1

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

APPEAL from judgments of the Superior Court of Los Angeles County, Tricia Ann Bigelow, Judge. Affirmed.

Sheppard, Mullin, Richter & Hampton, Joseph F. Coyne, Jr., Gregory P. Barbee and Erika S. Amadi for Plaintiffs and Appellants.

Towle, Denison, Smith & Tavera, Michael C. Denison and Marta L. Higuera for Defendants and Respondents Bob Parrett Construction, Inc. and Bob E. Parrett.

Law Offices of Julian A. Pollok and Julian A. Pollock for Defendant and Respondent Jeffrey W. Bochesa.

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In a prior writ proceeding, we held that the good faith settlement statute (Code Civ. Proc., 877.6) applies to settlements by joint tortfeasors notwithstanding the existence of related criminal proceedings, and directed the trial court to hear and determine the merits of the settling tortfeasors motion. (Bob Parrett Construction, Inc. v. Superior Court (2006) 140 Cal.App.4th 1180.) The trial court, in turn, found the settlement was made in good faith and dismissed the nonsettling tortfeasors complaint, including its nonindemnity causes of action on the ground that they were nothing more than artfully pleaded claims for indemnity. We affirm.

FACTS

A.

The Department of Defense and other agencies of the United States contracted with TRW, Inc., which in turn contracted with Bob Parrett Construction, Inc. (BPC) to perform multipurpose commercial construction services ancillary to TRWs work for the United States.[1] Bob E. Parrett and Jeffrey Bochesa each owned 50 percent of BPC.

From 1996 to 2000, Bochesa and Marco Urrea, a BPC employee, gave kickbacks disguised as inflated invoices to several TRW employees, who passed the inflated costs on to the United States. In 2000, the Federal Bureau of Investigation began an inquiry that ultimately resulted in the criminal prosecution of Bochesa, Urrea, and six TRW employees who accepted the kickbacks -- but not TRW, BPC or Parrett. In 2003 or 2004, Bochesa, Urrea, and the TRW employees pled guilty to the charged violations of the Anti-Kickback Act, 18 U.S.C. 371.

In May 2004, TRW paid $1 million to the United States in settlement of any claims against TRW . . . that the United States may have [had] arising out of the acts of employees of [BPC] and TRW . . . who have entered guilty pleas for violations of the Anti-Kickback Act. For its part, the United States released TRW from any and all civil and administrative monetary claims [the United States might] have [had] under the False Claims Act, 31 U.S.C. 3729-3733, under the Anti-Kickback Act, 41 U.S.C. 51-58, under any other statute creating causes of action for damages or penalties for the submission of false claims or relating to kickbacks, under any remedies otherwise available to the United States pursuant to the terms of any contracts between the parties, or under the common law for fraud, payment by mistake, unjust enrichment, or breach of contract . . . .

At about the same time, BPC paid $200,000 to the United States in settlement of the civil claims against BPC, Parrett, and Bochesa, and received from the United States a release from any civil monetary claim it may have [had] under the False Claims Act, 31 U.S.C. 3729 and common law claims for unjust enrichment concerning the allegations contained in the United States criminal action against Bochesa.

B.

In August 2004, TRW sued BPC, Parrett, Bochesa, Urrea, and the TRW employees for indemnity and contribution, and for tort and breach of contract damages arising out of the kickback scheme. The complaint seeks compensatory and punitive damages plus contribution, all according to proof.[2] In response, BPC and Parrett moved for a determination that their $200,000 settlement with the United States was made in good faith and that they were entitled to the benefits of sections 877 and 877.6 of the Code of Civil Procedure.[3] TRW opposed the motion, contending that sections 877 and 877.6 do not apply to the settlement of a criminal investigation.

The trial court did not rule on the issues raised by TRW; instead, it denied the motion on the ground that section 877.6 does not apply because TRW was not a party to the settlement agreement between BPC and Parrett on the one hand, and a nonparty (the United States) on the other. BPC then filed a petition for a writ of mandate, asking us to compel the trial court to grant the motion. We issued an order to show cause and ultimately held that section 877.6 applies notwithstanding that TRW was not a party to BPCs settlement with the United States, and notwithstanding the fact that there were related criminal proceedings in which neither BPC nor Parrett were prosecuted. (Bob Parrett Construction, Inc. v. Superior Court, supra, 140 Cal.App.4th 1180.) We directed the trial court to hear the motion anew and to rule on its merits. (Id. at p. 1189.)

C.

On remand, the trial court granted the motion, determined the settlement with the United States was made in good faith, and dismissed all of the causes of action against BPC, Parrett and Bochesa (finding the tort and contract claims were nothing more than artfully pleaded claims for indemnity). In getting to that result, the trial court rejected TRWs contentions that section 877.6 does not apply because of the related criminal proceedings, that BPC had presented insufficient evidence to show that the settlement was made in good faith and that, at a minimum, the nonindemnity causes of action should not be dismissed. The court found there was a simple cash-for-release of claims bargain between the government and BPC, that the settlement agreement proved the value of the consideration (the $200,000 paid by BPC), that there was no evidence of collusion, and that the settlement was reached after a substantial investigation by the United States.

This was more than enough, said the trial court with regard to BPC and Parrett, to shift the burden to TRW to present evidence supporting its claim that the settlement was not in good faith -- and TRW did not offer any evidence at all to suggest otherwise. Although TRW claimed the settlement was disproportionate to BPCs fault, it did not support that assertion with any evidence (and thus did not shift the burden to BPC to respond to that point). In any event, said the court, BPC ha[d] not procured a zero-liability settlement from the United States, but . . . paid $200,000 to the United States, or approximately 17% of the total $1,200,000.00 settlement. . . . [W]hile BPC participated in the kickback scheme, [TRW] actually presented the inflated invoices to the government, and was the actual contracting party. . . . [Moreover, a letter from an Assistant United States Attorney] suggests that the governments evidence against BPC was not perfect despite cooperation from the company and that liability could have been contested, suggesting that there should be a substantial discount for BPCs agreement to settle. . . .

Without further discussion, the trial court also found that BPCs settlement with the government covers Jeffrey Bochesa as well, and thus the claims dismissed against BPC and Parrett must also be dismissed against Bochesa.

TRW appeals from the judgments (one was entered in favor of BPC and Parrett, another in favor of Bochesa).

DISCUSSION

I.

We summarily reject TRWs contention that section 877.6 does not apply because BPCs and Parretts settlements arose out of a criminal investigation (a discussion most noteworthy for its failure to cite or even acknowledge our resolution of this issue in the earlier writ proceedings). In Bob Parrett Construction, Inc. v. Superior Court, supra, 140 Cal.App.4th at page 1188, we expressly rejected TRWs assertion that section 877.6 does not apply because BPC settled with the United States to avoid criminal prosecution. That holding is the law of this case and binding on this appeal. (Clemente v. State of California (1985) 40 Cal.3d 202, 211-212.)

II.

TRWs contention that section 877.6 does not apply to Bochesa, which was not considered in the writ proceedings, is legitimately before us but nevertheless fails.[4]

Bochesa agreed to plead guilty to violations of 18 U.S.C. 371 (the Anti-Kickback Act) in October 2002, and a restitution judgment was entered against him in January 2003 (ordering him to pay $1,258,844 to the United States, and $80,352 to TRW). The settlement agreement between BPC, Parrett, and Bochesa on the one hand, and the United States on the other, was prepared and executed while Bochesa was incarcerated, making it clear that his civil settlement was entered only after he was tried, convicted, sentenced, fined, and imprisoned -- and to resolve the United States civil monetary claims [it still had] under the False Claims Act, 31 U.S.C. 3729 and [its] common law claims for unjust enrichment (not the Anti-Kickback claims for which Bochesa was prosecuted).

In short, there was no criminal prosecution pending at the time of Bochesas settlement, and it is uncontroverted that his settlement (as part of BPCs and Parretts deal) with the United States was to obtain a release of any remaining civil claims the government might have had against him, his former firm, and his former partner. Under these circumstances, there is no merit to TRWs unsupported assertion that the good faith statute does not apply to Bochesas settlement with the United States. (Cf. Bob Parrett Construction, Inc. v. Superior Court, supra, 140 Cal.App.4th at p. 1187 [the purpose of section 877.6 is to encourage settlements and to permit the equitable allocation of costs among joint tortfeasors].)

III.

TRW contends, alternatively, that the trial courts good faith determination is not supported by substantial evidence. We disagree.

A.

Subdivision (a)(2) of section 877.6 authorizes a settling party to seek a determination that his settlement has been made in good faith, thereby discharging his liability as provided in section 877. Subdivision (d) of section 877.6 provides that the party asserting the lack of good faith has the burden of proof. To determine whether that burden is met, the trial court must inquire, among other things, whether the amount of the settlement is within the reasonable range of the settling tortfeasors proportional share of comparative liability for the plaintiffs injuries -- but this is not to say that bad faith is established by a showing that a settling defendant paid less than his theoretical proportionate or fair share. To the contrary, proportionality is simply one factor to be considered, along with the plaintiffs total recovery, the amount paid in settlement, the allocation of settlement proceeds if there are multiple plaintiffs, the availability of insurance, the settlors financial condition and, importantly, with an awareness that a settlor should pay less in settlement than he would if he were found liable after a trial. (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499-500.)

In the end, the burden is on the party opposing the good faith determination to show, if it can, that the settlement is so far out of the ballpark in relation to these factors as to be inconsistent with the equitable objectives of the statute (Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d at pp. 499-500), and the decision by the trial court is one made in an exercise of its discretion which will be affirmed if supported by substantial evidence (Norco Delivery Service, Inc. v. Owens-Corning Fiberglas, Inc. (1998) 64 Cal.App.4th 955, 962).

B.

Substantial evidence supports the trial courts finding that the BPC, Parrett and Bochesa settlements were made in good faith.

The facts are undisputed. The United States claimed that BPC had overcharged $1,339,196 on its subcontracts with TRW, and that TRW had passed through to the government $1,258,844 in overcharges. Both TRW and BPC employees were involved in the scheme, and both companies were potentially liable to the United States because of their employees wrongdoing. The United States accepted $200,000 in exchange for the release of BPC, Parrett and Bochesa, and later accepted $1 million in exchange for the release of TRW (both settlements were negotiated with the same Assistant United States Attorney). Thus, BPC paid about 17 percent of the governments claim, and TRW paid the remaining 83 percent. Nothing in the record suggests the disparity is anything other than the result of arms-length, noncollusive, negotiations that took into account the size of the two companies.

Undisputed evidence shows that whereas TRW (or, more accurately, Northrop Grumman) had revenues of $29 billion in 2004, BPC was wholly owned by Parrett and Bochesa (who divested himself of his stock as part of BPCs settlement with the United States) and got into this mess because Bochesa was trying to boost BPCs revenues by $1.3 million in kickbacks over a four-year period. There is also the undisputed fact that the United States acknowledged problems with regard to its ability to recover from BPC and Parrett (and there is no evidence to suggest there were similar or any problems with the governments case against TRW).

On these facts, BPC met its threshold burden of showing that its $200,000 settlement was not grossly disproportionate to what a reasonable person would have estimated its liability to be. Because TRW offered no evidence at all to dispute any of these facts, it follows ineluctably that the trial courts decision is supported by substantial evidence.[5]

IV.

TRW contends the trial court should not have dismissed its nonindemnity causes of action. We disagree.

A.

The trial courts good faith determination requires dismissal of not only TRWs contribution and indemnity causes of action, but all causes of action artfully pleaded as something else -- that is, causes of action purporting to state direct claims but which, in fact, seek only derivative damages. (Norco Delivery Service, Inc. v. Owens-Corning Fiberglas, Inc., supra, 64 Cal.App.4th at p. 964; Cal-Jones Properties v. Evans Pacific Corp. (1989) 216 Cal.App.3d 324, 327-328 [courts will not allow a joint tortfeasor to bring an affirmative claim for damages that is actually an artfully pleaded claim for indemnity, and will ferret out those claims that are in fact claims for indemnity].) It was on this basis that the trial court dismissed TRWs fraud, conversion, and breach of contract causes of action. Accordingly, the question before us is whether TRWs claims against BPC, Parrett and Bochesa are identical to those made by the government against TRW or, alternatively, whether the damages sought by TRW are those the court would consider in determining the proportionate liability of the joint tortfeasors. (Cal-Jones Properties v. Evans Pacific Corp., supra, 216 Cal.App.3d at p. 328.) Conversely, the good faith settlement does not bar a claim against BPC, Parrett or Bochesa if it arises out of a tort separate and distinct from the tort committed by the joint tortfeasors and leading to the settlement. (Gackstetter v. Frawley (2006) 135 Cal.App.4th 1257, 1274.)

B.

We agree with the trial courts finding that TRWs fraud, conversion, and breach of contract causes of action are nothing more than artfully pleaded claims for the same money at issue in TRWs contribution and indemnity causes of action.

The fraud cause of action alleges the same wrongdoing by BPCs employees that led to the parties settlements with the United States, and seeks the same damages resulting from that wrongdoing (the $1,339,196 or more in overcharges passed on by TRWs employees to the government). Although TRW alleges that it was further damaged when it paid $1 million to settle the governments claim against it, it doesnt say how or in what amount. The same is true with regard to TRWs conversion claim, with TRW alleging only that BPC, Parrett and Bochesa converted the same $1,339,196.

In short, TRW is out-of-pocket for the $1 million it paid the United States in settlement of the governments claims against it for the kickback scheme (just as BPC, Parrett and Bochesa are out-of-pocket the $200,000 they paid in settlement of the claims against them). The fact that the government might have suffered greater damages ($139,196, being the difference between the $1.2 million and the $1,339,196) does not mean that TRW is entitled to recover that amount from BPC, Parrett, Bochesa, or anybody else.[6]

DISPOSITION

The judgments are affirmed. The parties are to pay their own costs of appeal.

NOT TO BE PUBLISHED.

VOGEL, Acting P.J.

We concur:

ROTHSCHILD, J.

JACKSON, J.*

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line attorney.

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*Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

[1] The plaintiff in this action, Northrop Grumman Corporation, is the parent of Northrop Grumman Space and Mission Systems Corporation, an entity created by the merger of TRW and a Northrop Grumman subsidiary. Our references to TRW include Northrop Grumman and its affiliates.

[2] In order, the operative complaint alleges nine causes of action: fraud and deceit (against all defendants), conversion (all defendants), breach of fiduciary duty (against the TRW employee defendants), sums belonging to employer (the TRW employee defendants), an accounting (the TRW employee defendants), breach of contract (the TRW employee defendants), breach of contract (BPC), indemnity (all defendants), and contribution (BPC). Thus, BPC is a defendant in the fraud, conversion, breach of contract, indemnity and contribution causes of action, and Parrett and Bochesa are defendants in the fraud, conversion and indemnity causes of action.

[3] Subsequent undesignated section references are to the Code of Civil Procedure.

[4] The petitioners in the earlier writ proceeding were BPC and Parrett. Bochesa, who had joined their motion in the trial court, asked us for permission to join the writ petition, but we denied his request because the result we reach[ed] with regard to BPC and Parrett [did] not necessarily determine Bochesas rights -- because he stands convicted of a crime for the underlying acts. (Bob Parrett Construction, Inc. v. Superior Court, supra, 140 Cal.App.4th at p. 1184, fn. 2.)

[5] The cases relied on by TRW are inapposite. In Greshko v. County of Los Angeles (1987) 194 Cal.App.3d 822, there was evidence that the settling defendants had settled for reasons unrelated to their possible exposure -- and there is no such evidence here. In Mattco Forge, Inc. v. Arthur Young & Co. (1995) 38 Cal.App.4th 1337, the settlor paid only $250,000 to settle a case with estimated damages of $39 million, notwithstanding that it appeared to be responsible for (and able to pay) a significantly greater percentage of the potential damages.

[6] TRWs assertion in its appellate brief that it did not in fact pass along all of the kickbacks to the United States and that it is out-of-pocket for more than the $1 million it paid to the United States finds no support in the record. To the extent TRW claims a right to pursue its tort causes of action because it alleged that it paid $1 million and additional costs to the government, those costs are the result of the underlying wrongdoing, not some separate tortious conduct by BPC, Parrett, or Bochesa.