Filed 4/29/15 Pool v. Henderson CA1/5

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                       FIRST APPELLATE DISTRICT

                                                  DIVISION FIVE


JONATHAN POOL,
         Plaintiff and Respondent,
                                                                     A141210
v.
ALMALEE HENDERSON et al.,                                            (Alameda County
                                                                     Super. Ct. No. RG12620088)
         Defendants and Appellants.


         Appellants Almalee Henderson, Judith Wehlau, Charles Tuggle, Katherine Miles,
Nancy Epanchin, Raymond Dirodis and Rita Zwerdling appeal from an order vacating a
judgment that had been entered pursuant to an offer of settlement made by respondent
and accepted by appellants under Code of Civil Procedure section 998. Appellants
contend the trial court erred in concluding that the judgment was void and that appellants
had committed promissory fraud in accepting the offer. We will affirm the order.1

                               I. FACTS AND PROCEDURAL HISTORY
         The Berkeley Town House Cooperative Corporation (BTHCC) owns and operates
a high-rise residential building known as the Berkeley Town House (Town House). The
Town House is a common interest development as defined in the Davis-Stirling Common


1
       Respondent filed a cross-appeal from the judgment that the trial court vacated. In
his Brief of Respondent and Cross-Appellant, he seeks no relief other than the affirmance
of the order vacating the judgment. We therefore address his arguments in the context of
appellants’ appeal.

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Interest Development Act (Davis-Stirling Act). (Civ. Code, § 4000 et seq.) Residents of
the Town House are senior citizens.
       Respondent Jonathan Pool (Pool) is a member of BTHCC. Appellants are seven
current and former members of the Board of Directors (Board) of BTHCC (Individual
Defendants).

       A. Pool’s Complaint
       In March 2012, Pool filed a complaint against BTHCC, the Individual
Defendants, and a former BTHCC manager in regard to allegedly faulty work performed
at the Town House and the Board’s purported failure to address seismic safety issues.
The complaint alleged Pool’s standing to bring the action in his individual capacity and
to bring the action derivatively on behalf of BTHCC. The first three causes of action
were brought by Pool individually and, alternatively, by Pool “acting derivatively for
Defendant BTHCC.” The fourth cause of action was brought solely on behalf of Pool.
       The first cause of action, asserted against five of the Individual Defendants,
sought damages for waste of corporate assets and gross negligence relating to $224,415
that was spent to hire an unlicensed and unbonded contractor (Secrest), who performed
faulty waterproofing and other work on the Town House.
       The second cause of action, alleged against four of the Individual Defendants,
sought declaratory and injunctive relief with respect to the Board’s inadequate handling
of seismic safety issues, including its refusal to conduct any review of the structural and
seismic components of the Town House, which houses 70 senior citizens, in nine floors,
less than a mile from the Hayward Fault.
       The third cause of action, alleged against four of the Individual Defendants,
sought injunctive relief based on the Board’s failure to follow procedures mandated by
the Davis-Stirling Act, the BTHCC Articles of Incorporation, and the BTHCC Bylaws;
specifically Pool sought an order that they cease these violations.




                                             2
       A fourth cause of action, alleged against BTHCC only, was brought by Pool in his
individual capacity, seeking injunctive relief and statutory penalties for BTHCC’s
refusal to allow him to inspect its business records pursuant to specified statutes.
       BTHCC and the Individual Defendants answered the complaint in May 2012.2

       B. BTHCC’s Cross-Complaint
       In May 2012, BTHCC (only) filed a cross-complaint against two contractors who
had performed the allegedly defective waterproofing—Secrest (the unlicensed contractor
identified in Pool’s complaint) and American Pacific Coatings, Inc.—for indemnity and
apportionment of fault.
       In March 2013, BTHCC filed an amended cross-complaint against Secrest,
American Pacific Coatings, Inc., Esteban Cardiel (Cardiel) and others, seeking damages
for negligence as well as indemnity and apportionment of fault.

       C. Court Orders Pertaining to Potential Settlement
       Two case management orders addressed the need for court approval of a
settlement of the derivative claims in Pool’s complaint. In July 2012, the court stated:
“Counsel are reminded that settlement of a derivative action, like a class action, requires
approval of the Court. A motion for such approval may be reserved on five court days’
notice.”
       In September 12, 2012, the court ordered: “The [case management conference] is
continued so that if a binding settlement is reached, plaintiff can file an ex parte
application pursuant to [Cal. Rules of Court, rule] 3.770 seeking approval of its

2
       As to the first three causes of action, BTHCC is a nominal defendant and the real
party plaintiff. (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1003-1004 [in a
derivative suit brought to litigate the rights of the corporation, the corporation must be
joined as a nominal defendant, but the corporation is the real party plaintiff in the
action].) Nevertheless, the attorney representing the Individual Defendants also
represented BTHCC in answering the complaint. The court subsequently granted Pool’s
motion to disqualify the Individual Defendants’ counsel from representing BTHCC, and
BTHCC eventually obtained new counsel. Pool contends there remains a conflict of
interest, however, because members of the Individual Defendants (or a spouse thereof)
comprise a majority of the Board of BTHCC.

                                              3
agreement to dismiss this ‘alternative’ derivative complaint. The application must be
supported by a declaration authenticating the entire agreement, including any agreement
with respect to payment of costs, attorneys’ fees or other consideration to plaintiff and
addressing whether other members of [Berkeley Town House] have received any formal
or informal notice of the pendency of this action such that they may have relied upon it.
If so, the Court will consider requiring plaintiff to give notice of the settlement of the
action.”

       D. Entry of Judgment Pursuant to Code of Civil Procedure Section 998

              1. Pool’s 998 Offer
       On October 29, 2013, Pool’s attorney served the Individual Defendants and
BTHCC with an offer to compromise under Code of Civil Procedure section 998 (998
Offer). The 998 Offer was worded as follows: “To Defendants Almalee Henderson,
Judith Wehlau, Charles Tuggle, Katherine Miles, Nancy Epanchin, Raymond Dirodis,
Rita Zwerdling, and Their Attorney of Record, and to Defendant Berkeley Town
House Cooperative Corporation and Its Attorney of Record: [¶] Pursuant to Code of
Civil Procedure [section] 998, Plaintiff Jonathan Pool offers to have a judgment
entered in Plaintiff’s favor in this action as follows: [¶] 1. On the First Cause of
Action for the sum of $224,415 paid to the Defendant Berkeley Town House
Cooperative Corporation (“BTHCC”); [¶] 2. Defendants waive any right to
indemnification or reimbursement from BTHCC for said sum or for attorney’s fees
and/or costs of litigation paid by them in connection with this action; [¶] 3. Plaintiff,
personally and on behalf of BTHCC, will waive any remaining claim in this action for
monetary relief against any individual Defendant or BTHCC; [¶] 4. Plaintiff will
retain the right to apply for reimbursement of attorney’s fees and costs to be paid by
BTHCC to Plaintiff for prosecuting the action. [¶] You may indicate your acceptance
of this offer by signing the statement to that effect set forth below.” (Capitalization
altered.)




                                              4
        On November 11, 2013, Pool’s attorney sent to the attorney for the Individual
Defendants (Feller) a proposed Settlement Agreement and Release for “settlement of
the non-monetary claims” in the case. (Italics added.) This proposed agreement
stated that the settlement of the second, third and fourth causes of action was
conditioned on the Individual Defendants’ acceptance of the 998 Offer.

              2. Acceptance of 998 Offer and Entry of 998 Judgment
        On November 4, 2013, Dennis Moriarty, as counsel for BTHCC, signed the
998 Offer.
        Before the Individual Defendants’ counsel signed the 998 Offer, however,
defendants embarked on attempts to negotiate a settlement with cross-defendants on
BTHCC’s cross-complaint, by which the cross-defendants would fund the $224,415
payment to be made to BTHCC under the 998 Offer. On November 19, 2013, cross-
defendants Secrest and Cardiel agreed to settle the claims against them for that amount,
to be paid to BTHCC.
        On November 19, 2013—the date BTHCC reached its settlement with the
cross-defendants—counsel for the Individual Defendants signed the 998 Offer. The
fully executed and accepted 998 Offer was filed with the court on November 20,
2013.
        Also on November 20, 2013, a proposed “Judgment Pursuant to Accepted
Offer to Compromise [Code of Civil Procedure section 998]” (998 Judgment),
containing the same material language as the 998 Offer, was submitted to the court’s
complex case department, where the case was pending.3
        On December 5, 2013, the proposed 998 Judgment was signed by the judge in
the complex case department and entered by the court. Despite Pool’s position that the


3
       On the same date, cross-defendant Cardiel filed an application for a good faith
settlement determination with respect to the settlement of BTHCC’s cross-complaint.
(Code Civ. Proc., § 877.6.) The court granted the unopposed application on
December 16, 2013, ruling that Cardiel’s contribution to the settlement was made in
good faith.

                                             5
998 Offer affected only the monetary claims in the complaint, counsel for the
Individual Defendants told Pool’s attorney on December 5 that the entry of the 998
Judgment resolved all claims and the case was over, without the need for approval by
the court.

       E. Pool’s Motion to Vacate the 998 Judgment
       On December 19, 2013, Pool filed a motion to vacate the 998 Judgment pursuant
to Code of Civil Procedure section 473. At the time, Pool believed that the settlement of
BTHCC’s cross-complaint against the contractors and the settlement based on the 998
Offer (998 settlement) would result in two separate payments of $224,415 to BTHCC,
resulting in a total payment to BTHCC of $448,830. Pool therefore sought to vacate the
998 Judgment so the court could approve both settlements and decide the dispute over
whether the 998 settlement had resolved all claims or only monetary claims.
       Specifically, Pool argued (1) because his action was derivative in nature, the
court could not simply enter judgment on the 998 Offer as specified in the Code of Civil
Procedure, but had to “follow the procedure for class action settlements set forth in
California Rule[s of Court, rule] 3.769 by holding a hearing to make a preliminary
approval of both [the 998 settlement and the settlement of the cross-complaint],
followed by a court[-]approved notice to the non-party members of BTHCC to permit
them an opportunity to object at a hearing for a final approval of the settlements”; and
(2) the 998 Offer applied only to the first cause of action of his complaint.

       F. Individual Defendants’ Opposition to Pool’s Motion to Vacate
       The Individual Defendants opposed Pool’s motion, arguing (1) no class action-
type approval of the settlement was necessary, because the 998 settlement was between
Pool and the defendants only, it would not bind any nonparty member of BTHCC, and
the resulting judgment would not have res judicata or collateral estoppel effect or bar
the claims of any nonparty BTHCC member; (2) Pool was estopped from arguing the
998 Offer was illegitimate; and (3) the plain meaning of the 998 Offer was that it
applied to Pool’s entire complaint, not just the first cause of action.


                                              6
       The Individual Defendants also disclosed that, as a consequence of the 998 Offer,
the defendants and cross-defendants had obtained a “global settlement” of the entire
action by settling the cross-complaint, which assured that the cross-defendants would pay
the $224,415 Pool sought for BTHCC. In fact, the Individual Defendants’ attorney
averred in a declaration that the Individual Defendants were prepared to accept the 998
Offer “only if they were absolutely certain that, as a result of settlement of the cross-
complaint, the entire monetary amount specified” in the 998 Offer would be paid to
BTHCC.

       G. Pool’s Reply Memorandum in Support of Motion to Vacate
       After receiving appellants’ opposition to the motion, Pool realized there would
not be two payments of $224,415 to BTHCC, but effectively one: the $224,415 paid by
the contractors to BTHCC would be used to pay BTHCC under the 998 Offer.
       Pool asserted in his reply memorandum that he was “astonish[ed]” at the
Individual Defendants’ confession that they had satisfied the payment due under the 998
Judgment using the recovery BTHCC obtained on its cross-complaint. Pool argued that
this (1) violated the provision of the 998 Judgment in which the Individual Defendants
waived any claim for indemnification or reimbursement from BTHCC; (2) breached the
Individual Defendants’ fiduciary duties, since they had used their controlling position on
the BTHCC Board to settle BTHCC’s cross-complaint to benefit themselves; and
(3) constituted fraud requiring the 998 Judgment to be vacated, in that the Individual
Defendants accepted the 998 Offer “with full knowledge and intention that they were not
going to comply with the no-indemnification provision.”

       H. Trial Court’s Order Vacating 998 Judgment
       By written order filed February 5, 2014, the trial court ruled that the 998 Offer
pertained to the “entire dispute between Plaintiff and Defendants.” The court then
concluded that the 998 Judgment was void because “the required procedural prerequisites
were not observed before the judgment was entered.” Due to the derivative nature of
Pool’s complaint, the court explained, “approval in a process similar to that for class


                                              7
actions” was required. The court added that it appeared unlikely that such approval
would have been granted, “in part because Plaintiff has presented some evidence—which
Defendants have not addressed—that a majority of the board that approved the settlement
has a significant financial interest (either directly or through a spouse) that conflicts with
the interests of BTHCC.”
       In addition, the court found that the 998 Judgment had been induced by fraud,
since the Individual Defendants’ attorney “admits that, upon receiving the 998 offer, the
individual defendants raced to settle the cross-claims with the contractors, and would
only accept a settlement payment from the contractors that would cover the entire amount
of Plaintiff’s 998 offer.” The court found this to be “an admission that the individual
Defendants committed promissory fraud—and is thus sufficient to invalidate and vacate
the 998 offer.”
       The court’s order concluded, “[T]he court hereby VACATES the Judgment
Pursuant to Accepted Offer to Compromise [Code of Civil Procedure section 998]
entered on Plaintiff’s complaint on 12/5/2013, as void for lack of jurisdiction and, as an
alternative and independent ground, having been procured by fraud.”
       This appeal followed.

                                     II. DISCUSSION
       Appellants contend the court erred in vacating the judgment under Code of Civil
Procedure section 473. We review for an abuse of discretion. (Zamora v. Clayborn
Contracting Group, Inc. (2002) 28 Cal.4th 249, 257.) 4

       A. The 998 Judgment Was Void
       As mentioned, one of the grounds on which the trial court vacated the 998
Judgment was that it was void due to the absence of court approval following a process



4
      An order vacating a judgment based on a settlement under Code of Civil
Procedure section 998 constitutes an appealable order. (Premium Commercial Services
Corp. v. National Bank of California (1999) 72 Cal.App.4th 1493, 1496; Pazderka v.
Caballeros Dimas Alang, Inc. (1998) 62 Cal.App.4th 658, 668 (Pazderka).)

                                              8
similar to that for class actions. The court did not abuse its discretion in reaching this
conclusion.

              1. Court Approval Was Required
       For purposes of this appeal, we accept the trial court’s conclusion (and the
Individual Defendants’ position) that the 998 Offer resolved all of the claims in the
complaint. Some of the claims in the complaint were derivative claims, by which Pool
explicitly sought recovery for BTHCC. (See Schuster v. Gardner (2005) 127
Cal.App.4th 305, 313 [“An action is derivative if ‘ “the gravamen of the complaint is
injury to the corporation, or to the whole body of its stock and property without any
severance or distribution among individual holders, or it seeks to recover assets for the
corporation or to prevent the dissipation of its assets” ’ ”].) Thus, the 998 Offer
purported to settle derivative claims—granting recovery to BTHCC on the first cause of
action and requiring dismissal of the rest.
       The settlement and dismissal of derivative claims requires court approval in a
process similar to that for class actions. (Robbins v. Alibrandi (2005) 127 Cal.App.4th
438, 444, 449 & fn. 2 (Robbins); Gaillard v. Natomas Co. (1985) 173 Cal.App.3d 410,
419, overruled on other grounds, Grosset v. Wenaas (2008) 42 Cal.4th 1100 [“California
courts have found that shareholder derivative plaintiffs may be considered as trustees or
guardians ad litem to a corporation’s right of action” and “[s]uch plaintiffs have no
power to settle or compromise the corporation’s action absent court approval”].)
       Furthermore, the court had twice advised the parties that the court would have to
approve any settlement of the derivative claims in the complaint. In vacating the
judgment, the court noted these prior orders and indicated that, if such an approval had
been sought, it would not have likely been granted. It was within the court’s discretion to
conclude that the absence of court approval rendered the 998 Judgment void.

              2. Appellants’ Arguments
       The Individual Defendants’ arguments to the contrary are unpersuasive.




                                              9
                a. Settlement Between Individual Plaintiff and Defendants Only
       The Individual Defendants argue that the 998 Offer does not settle any
derivative claims, but only Pool’s individual claims. They contend Pool must have
considered BTHCC to be a defendant rather than a plaintiff on behalf of whom he
was suing derivatively, because the 998 Offer states it was made by “Plaintiff
Jonathan Pool” rather than “on behalf of BTHCC,” and it was written so as to be
signed by counsel for “defendant” BTHCC. Furthermore, they argue, the settlement
was only between Pool and the defendants and does not bind any other member of
BTHCC, so it is irrelevant that Pool’s complaint included claims he characterized as
“derivative.”
       The Individual Defendants are incorrect. The 998 Offer (and 998 Judgment)
provide that “Plaintiff, personally and on behalf of BTHCC, will waive any
remaining claim in this action for monetary relief against and individual Defendant or
BTHCC.” (Italics added.) From this language, it is reasonable to conclude that Pool
was making the 998 Offer in his individual capacity and his representative capacity,
addressing individual claims and derivative claims. Moreover, the 998 Offer stated
that it was made by “Plaintiff Jonathan Pool” and proposed entry of judgment “in
Plaintiff’s favor.” Since his claims as plaintiff were brought individually and
derivatively, and the 998 Offer did not expressly limit the settlement to claims he
brought as an individual, the reasonable reading of the 998 Order is that it addressed
both individual and derivative claims.
       Indeed, the 998 Offer must be construed in the context of the case in which it
was made. Assuming, as the Individual Defendants insist, that the 998 Offer
resolved all of the claims asserted by the complaint, it must have resolved the
derivative claims in the complaint.

                b. Judicial Estoppel
       The Individual Defendants next contend that Pool is barred by the doctrine of
judicial estoppel from claiming that the 998 Judgment is invalid. (Citing Levin v. Ligon



                                            10
(2006) 140 Cal.App.4th 1456, 1468 [judicial estoppel doctrine precludes a party from
asserting a position in a legal proceeding that is contrary to a position it previously took
in the same or earlier proceeding].)
       The Individual Defendants fail to establish that Pool has taken contrary
positions for purposes of judicial estoppel. Pool did not contend that the accepted
998 Offer was invalid, but that entry of judgment on the 998 Offer was invalid
without appropriate court approval. While the 998 Offer stated that Pool “offers to
have a judgment entered” pursuant to Code of Civil Procedure section 998, it
certainly did not say that the judgment would be entered without the approval that the
court had already ordered would be necessary.
       Furthermore, the court vacated the judgment on the ground it was void
because the court lacked jurisdiction to enter the judgment without approval akin to
what is required in class actions. The Individual Defendants present no authority that
a court is precluded from finding a judgment void for excess of jurisdiction under the
circumstances presented by this case, even if Pool had previously taken a contrary
position.

              c. Robbins and Appellants’ Attempt to Distinguish It
       In asking the court to vacate the 998 Judgment, Pool relied in part on Robbins,
supra, 127 Cal.App.4th 438. There, the court ruled that a settlement in a shareholder
derivative action, including an agreement by which the corporation would pay the
plaintiffs’ attorney fees, required court approval to determine whether the negotiated fee
was fair in light of the settlement as a whole. (Id. at pp. 444, 449.)
       The Individual Defendants contend that Robbins is distinguishable, in part because
Robbins stated, “A court reviews the settlement of a derivative suit as a means of
protecting the interests of those who are not directly represented in the settlement
negotiations.” (Robbins, supra, 127 Cal.App.4th at p. 449, italics added.) They urge that
the interests of the nonparty members of BTHCC need no such protection because the




                                             11
998 Offer does not bind them or require BTHCC to pay anything, and nonparty members
of BTHCC can still make their own claims on BTHCC’s behalf.
       The question, however, is not whether other members can bring another lawsuit on
behalf of BTHCC, but whether the instant lawsuit is resolved fairly in light of their
interests. And the evidence suggested the need for this very type of review, since it
caused the trial court concerns about the resolution of Pool’s lawsuit due to a possible
conflict of interest arising from the overlap between the Individual Defendants and the
majority of the BTHCC Board. The Individual Defendants’ effort to distinguish Robbins,
on this and other grounds, is unconvincing.

              d. Prior Orders
       In their reply brief, the Individual Defendants argue that the prior orders requiring
court approval are irrelevant because they contemplated a settlement reached in
mediation, not a settlement pursuant to Code of Civil Procedure section 998.
       The orders, however, do not limit themselves in this regard. On their face, the
orders precluded entry of judgment after a settlement unless there was court approval,
regardless of the means by which the settlement was reached.
       More importantly, the court did not believe that its prior orders had such a narrow
scope. In granting Pool’s motion to vacate the 998 Judgment, the court referred to the
prior orders as pertaining to the settlement of derivative claims, without limiting them to
settlements via mediation. Further, the court acknowledged that it “erred in
overlooking” the requirement of court approval when the proposed judgment was
presented, observing that, “even less excusably, Defendants submitted the proposed
[judgment] despite two prior court orders advising that court approval was required.”
(Italics added.)
       The Individual Defendants have failed to establish that the court abused its
discretion in vacating the 998 Judgment due to the absence of court approval.




                                              12
       B. Promissory Fraud
       As an alternative basis for its order, the court found that the 998 Judgment was
procured by fraud. The court did not err in this respect either.

              1. Substantial Evidence of Fraud
       A judgment entered pursuant to Code of Civil Procedure section 998 may be
vacated on the ground of fraud. (See Pazderka, supra, 62 Cal.App.4th 658, 672;
DeRose v. Heurlin (2002) 100 Cal.App.4th 158, 179.) Fraud includes inducing entry
into a contract by making a promise without any intention of performing it. (Civ.
Code, § 1572; see Civ. Code, § 1710, subd. (4).) Substantial evidence supports the
conclusion that, by accepting the 998 Offer, the Individual Defendants induced the 998
settlement by making a promise they had no intent to perform.
       The 998 Offer proposed entry of judgment on the first cause of action for
$224,415, paid to BTHCC, with defendants waiving “any right to indemnification or
reimbursement from BTHCC for said sum or for attorney’s fees and/or costs of litigation
paid by them in connection with this action.” Since it would be meaningless for BTHCC
to pay itself, this can only mean that the Individual Defendants had to pay BTHCC
$224,415, without being reimbursed by BTHCC. Thus, by signing the 998 Offer, the
Individual Defendants promised not to obtain indemnification or reimbursement from
BTHCC for the $224,415 they were to pay to BTHCC.
       The Individual Defendants had no intent to fulfill this promise, however, since it
is undisputed they had already arranged for their payment to BTHCC to be funded
entirely by the amounts BTHCC would receive from the cross-defendants in settlement
of BTHCC’s cross-complaint, without the Individual Defendants contributing anything.
Their plan was not disclosed to Pool and, indeed, when Pool learned of the settlement of
the cross-complaint, he believed that BTHCC was going to receive $224,415 from the
998 Judgment (paid by Individual Defendants) and a separate $224,415 from the
settlement of the negligence cross-complaint (paid by cross-defendants). Substantial
evidence—based on the admissions of the Individual Defendants’ counsel to these



                                             13
facts—supported the court’s conclusion that the elements of fraudulent inducement of a
contract by false promise had been met. Accordingly, the court did not err in vacating
the judgment on this ground.

              2. Appellants’ Arguments
       The Individual Defendants’ arguments to the contrary are unavailing.

              a. Terms of the 998 Offer
       The Individual Defendants contend they did not commit promissory fraud
because the terms of the 998 Offer allowed them to do what they did. The 998 Offer
calls for “the sum of $224,415 [to be] paid to . . . BTHCC” and requires defendants to
“waive any right to indemnification or reimbursement from BTHCC for said sum or
for attorney’s fees and/or costs of litigation paid by them in connection with this
action.” However, they do not interpret this language to mean that the Individual
Defendants had to pay the $224,415 out of their own pockets: the 998 Offer does not
specify where they must get the money, as long as it is paid to BTHCC. They urge
that the intent of the 998 Offer is for BTHCC to obtain the full amount of the damages
specified in the first cause of action of Pool’s complaint ($224,415), without any
deduction to reimburse the Individual Defendants (or their insurance carrier) for
monies expended in defense of the action. And that is what BTHCC got.
       There are a number of problems with this analysis, but we will mention just
three. First, the 998 Offer did not merely preclude the Individual Defendants from
obtaining reimbursement for the money they spent in defense of the action, but for
obtaining reimbursement for “said sum [the $224,415] or for attorney’s fees and/or
costs of litigation paid by them in connection with this action.” (Italics added.)
Second, although the 998 Offer does not specify that the $224,415 has to come out of
the Individual Defendants’ pockets, it does prohibit them from being reimbursed by
BTHCC. Having BTHCC pay what the Individual Defendants were supposed to pay
is the functional equivalent of reimbursing the Individual Defendants. Third, while it
is true that the Individual Defendants’ scheme allows BTHCC to end up with


                                             14
$224,415, it does so only by BTHCC giving up its cross-complaint for general
negligence (as well as indemnity) against the contractors. What the Individual
Defendants secretly intended to do was contrary to what they stated they would do in
signing the 998 Offer.

              b. Justifiable Reliance
       The Individual Defendants also argue that Pool did not establish the justifiable
reliance necessary for promissory fraud or resulting damages. They claim Pool did not
rely on the Individual Defendants’ acceptance of the 998 Offer, but instead repudiated it
by filing a motion to vacate the judgment.
       The Individual Defendants are incorrect. Pool did not repudiate the 998 Offer; he
sought to vacate the judgment that was entered on that offer because there had not been
court approval. And obviously Pool relied on the Individual Defendants’ representation
that they would waive any right to indemnification or reimbursement from BTHCC,
since that was one of the terms on which he proposed to settle the case and compromise
his causes of action. Furthermore, substantial evidence supported the conclusion that
Pool’s reliance was justifiable, in light of the Individual Defendants’ failure to disclose
their plan. And this reliance was to the detriment of Pool (and, derivatively, BTHCC),
since it resulted in the loss of BTHCC’s cross-complaint and any value it had beyond the
$224,415 that the Individual Defendants were supposed to pay.

              c. Absence of Evidentiary Hearing
       The Individual Defendants protest that “[t]he trial court made this finding of fraud
without the benefit of any sort of evidentiary hearing, on the basis of an argument first
made in plaintiff’s reply brief supporting his motion to vacate.” They claim that they
“never even had the opportunity to present a written response to this argument before the
trial court found them guilty of fraud.”
       The argument has no merit. The Individual Defendants did not ask the trial court
for leave to file a written response to Pool’s assertion of fraud. They did not ask to
submit additional evidence. They have provided no authority—either at the hearing to


                                             15
vacate the judgment or in this court—that the trial court was obligated to agree to such a
request. They make no offer of proof as to what their written response would have said.
And they make no showing that the result would have been any different if they had had
the opportunity to file a written response. The court relied upon the evidence placed in
the record by the Individual Defendants themselves, and their attorney had the
opportunity to address Pool’s fraud accusation orally at the hearing.
       The Individual Defendants fail to establish error in the court’s determination that
the 998 Judgment was induced by promissory fraud.5

                                   III. DISPOSITION
       The order is affirmed.




5
       Pool also contends the order vacating the judgment should be affirmed because
the 998 Offer settled only the first cause of action. Because we find the trial court’s
reasons for vacating the judgment were sufficient, we need not address this further issue.

                                            16
                     NEEDHAM, J.



We concur.




JONES, P.J.




BRUINIERS, J.




                17
