Opposing parties in a lawsuit involving Berkeley Town House, a 60-unit senior housing cooperative, clashed today in San Francisco at a hearing before the California Court of Appeal.
Fred M. Feller, representing seven former directors of the co-op, asked the court to overrule an order of the lower court as an abuse of that court’s discretion, while David H. Schwartz, representing co-op member Jonathan Pool, asked the court to find the lower court’s order valid and leave it standing.
Pool filed the suit in March 2012 against eight current and former officials of the co-op, claiming that they had illegally and wastefully spent the corporation’s money on defective construction, ignored doubts about the seismic safety of the co-op’s 9-story 1960s building, and violated many of the co-op members’ democratic rights. The complaint asked the court to order the defendants to pay damages to the co-op, do something about the seismic questions, and stop the procedural violations.
During the litigation, Pool made an offer to settle the monetary claims and another offer to settle all the other claims. The defendants accepted the first offer only, and then Pool and the defendants disagreed on what it meant. The defendants said it settled all claims in the case, both monetary and nonmonetary. They also said they could use settlement money obtained by the co-op from the construction contractors as the means for payment of the amount that the Pool offer required to be paid to the co-op. Finally, the defendants claimed that this settlement must go into effect automatically without the co-op’s members having an opportunity to object to it and without the court having an opportunity to approve or reject it on the basis of fairness to the co-op. Pool disagreed with all three of these interpretations.
The lower court agreed with the defendants on the first of these disputes and with Pool on the second and third of them. It invalidated the settlement, ruling that the defendants had improperly used the co-op’s contractor settlement income to pay their own debt to the co-op, and that the settlement could not go into effect without a fairness hearing by the court. The defendants appealed this decision.
Today’s oral argument
The Court of Appeal allowed the attorneys only ten minutes each to present their arguments and asked them to focus on only one of the issues they had raised in their briefs: whether the lower court’s initial order implementing the settlement—assuming it was a settlement of the entire case—was void without a fairness hearing. The attorneys were frequently interrupted with challenging questions from the members of the three-justice panel, Barbara J.R. Jones, Henry E. Needham, Jr., and Terence L. Bruiniers.
Although the attorneys mostly reiterated arguments they had made earlier during the three-year lawsuit, Feller unleashed one new claim. Responding to Schwartz’s assertion that the damages to the co-op from the bungled construction were estimated at more than $400,000 by Feller’s own expert, Feller said that he had deliberately arranged for a “Cadillac” repair estimate that would have a total price far in excess of the actual cost of redoing the job correctly, purely as a negotiating device for reaching a settlement with the contractors.
After the hearing Pool, asked about the atmosphere in the courtroom, said: “The behavior of the attendees lent credence to the claim that we have made about conflicts of interest throughout the case. Three of the defendants, the defendants’ attorney, two current co-op directors, the co-op’s attorney, and three other co-op residents sat tightly grouped on one side of the room, as if to signal that they were a unified team. They don’t try to avoid even the appearance of a conflict of interest.”