Berkeley, California, 11 February 2014
In an order issued on 5 February and made public today, the judge in a lawsuit involving a Berkeley senior housing cooperative nullified one settlement, left a related settlement open to challenge, and described errors that both the plaintiff and the defendants had made.
Alameda County Superior Court Judge George C. Hernandez issued his order a day after a hearing at which the parties argued their positions on how the court should handle the settlements. Hernandez nullified the settlement between plaintiff Jonathan Pool and defendants Almalee Henderson, Judith Wehlau, Charles Tuggle, Katherine Miles, Nancy Epanchin, Raymond Dirodis, and Rita Zwerdling, current and former directors of Berkeley Town House Cooperative Corporation.
Pool had asked the court to set the settlement aside for three reasons. One was that Pool’s offer to the defendants covered only the monetary claims in the case, but the defendants insisted that it covered all claims. Hernandez rejected Pool’s argument, saying that the manner in which the offer was made forced the court to interpret it as the defendants had, as an offer to settle all of Pool’s claims.
Another reason given by Pool for invalidating the settlement was that the defendants had committed fraud when they accepted Pool’s offer. Pool claimed that the offer required the defendants to pay $224,415 to the corporation without getting any reimbursement for this from the corporation, but that the defendants never intended to obey this requirement. Instead, Pool claimed, the defendants arranged for the corporation to pay the defendants’ debt to the corporation using money to be received from other parties being sued by the corporation. These were contractors Garry Secrest and Esteban Cardiel, sued for allegedly defective construction performed by them at the corporation’s 9-story Berkeley apartment building. Hernandez agreed with Pool that the defendants, by accepting an offer that they intended to disobey, had “committed promissory fraud” and that this invalidated the settlement.
Pool’s third reason was that the settlement could not be valid unless the court approved it, because it was made to settle a “derivative” suit, where Pool as plaintiff was standing in for the corporation and claiming to represent its interests against the defendants. Hernandez agreed with Pool and said that the order drafted by the defendants to implement the settlement was invalid because it made no provision for obtaining the court’s approval and contained no argument that the terms of the settlement were fair to the corporation and merited the court’s approval.
Ruling that there were two separate reasons, each sufficient, to make the settlement invalid, Hernandez nullified his earlier entry of a judgment under the settlement, leaving the lawsuit open.
Hernandez also commented on a related settlement between the corporation and the contractors. In that settlement, Secrest agreed to pay the corporation $25,415 and Cardiel agreed to pay it $199,000. Hernandez did not accept Pool’s claim that this settlement required court approval as a settlement of a derivative action. But he responded more approvingly to Pool’s claim that it was improper for a board of directors containing 2 defendants and the spouse of a third defendant, and thus 3 out of 5 members with a conflict of interest, to have negotiated the settlement. Hernandez did not immediately nullify the settlement with Secrest and Cardiel, however, saying that he would first need to see a claim of invalidity from Pool and the rebuttals to that claim by the defendants and the corporation before he could properly undo that settlement.