Unreported / Non-Citable
Background
China Science & Merchants Investment Management Group Co., Ltd. (CSC Group), a Chinese private equity firm, formed Hone Capital LLC in California to oversee its U.S. investments. Veronica Breckenridge, formerly identified as Veronica Wu, was Hone Capital's president, and Purvi Gandhi was its chief financial officer. The CSC parties asserted tort claims against Breckenridge and Gandhi arising from alleged self-dealing, while Breckenridge and Gandhi asserted tort, contract, and employment claims seeking profit sharing and other damages. After discovery closed and less than two weeks before trial, Gandhi reached a settlement with the CSC parties and the Upshot parties; Breckenridge did not settle.
Under the settlement, Gandhi received a net payment equal to the value of her own claims and other nonmonetary consideration minus the value the parties expressly allocated to the CSC parties' tort claims against her. She also agreed to assist the settling parties in their litigation against Breckenridge and to withhold such assistance from Breckenridge except as required by subpoena or fiduciary duty. Gandhi, joined by the CSC parties, sought a judicial determination that the settlement was in good faith under Code of Civil Procedure section 877.6, which would reduce the CSC parties' claims against Breckenridge and bar Breckenridge's claims against Gandhi for contribution or indemnity. Over Breckenridge's objection, the trial court granted the motion, finding a sum-certain allocation of approximately $7.25 million and treating the cooperation provision as evidence of collusion but not dispositive. Breckenridge then petitioned the Court of Appeal for a writ of mandate.
The Court’s Holding
The Court of Appeal denied the petition. It reviews a trial court's good faith settlement determination for abuse of discretion, presuming the judgment correct and implying all findings necessary to support it. The party asserting lack of good faith bears the burden of demonstrating that the settlement is so far out of the ballpark as to be inconsistent with the equitable objectives of sections 877 and 877.6.
The court rejected Breckenridge's contention that the cooperation and non-assistance provisions established collusion precluding a good faith finding. Although a settlement entered solely to secure a tactical advantage against nonsettling defendants may not be in good faith, this was not a simple dismissal for tactical gain: the settlement involved mutual releases of claims litigated to the brink of trial, an express valuation of the CSC parties' claims against Gandhi, and a net payment representing the difference in valuations. The provisions neither undermined Breckenridge's legitimate interests nor demonstrated that the allocation was inconsistent with equitable cost sharing, and Gandhi remained obligated to testify truthfully in response to a lawful subpoena.
The court further held that Gandhi satisfied any initial burden by substantiating the reasonableness of the allocation to the CSC parties' claims against her, without being required to substantiate the valuation of her own affirmative claims, and that the allocation was sufficiently adversarial to justify a presumption of reasonableness. Breckenridge failed to carry her ultimate burden because she never addressed the CSC parties' probability of success on the merits, a material Tech-Bilt factor. The trial court therefore did not abuse its discretion in determining the settlement was in good faith.
Key Takeaways
- A good faith settlement determination under Code of Civil Procedure section 877.6 is reviewed for abuse of discretion, and the nonsettling party bears the burden of proving the settlement is unreasonably low.
- Cooperation and non-assistance provisions do not automatically establish collusion when the settlement includes an express, evidence-supported allocation and the settling party remains obligated to testify truthfully under subpoena.
- A settling party who resolves both claims against her and her own affirmative claims need only substantiate the valuation of the claims against her, not the valuation of her own claims.
- To prove an allocation is too low, the nonsettling party must engage with the plaintiff's likelihood of prevailing on the merits rather than relying solely on maximum potential recovery.
Why It Matters
The decision reinforces the deferential standard of review applied to good faith settlement determinations and clarifies the respective burdens of settling and nonsettling parties under section 877.6. It confirms that cooperation provisions in a settlement, while relevant to the good faith inquiry, do not independently establish collusion or preclude a good faith finding where the settlement contains an express allocation supported by evidence and the settling party remains subject to subpoena.
The ruling also provides guidance on the Tech-Bilt analysis in complex settlements involving mutual releases of affirmative and defensive claims, emphasizing that a nonsettling joint tortfeasor cannot meet its burden merely by pointing to the plaintiff's maximum potential recovery; it must address the probability of success on the merits and the settling party's proportionate share of liability.