01337.0039/982293.7
SETTLEMENT AGREEMENT
This Settlement Agreement ( “Agreement”) shall be deemed effective as of July 2, 2024 (“Effective Date ”), by and between DKD OF HILLTOP, INC., a California corporation, dba HANLEES HILLTOP BUICK GMC; HANLEES HILLTOP, INC., a California corporation, dba HANLEES HILLTOP TOYOTA; LEEHAN, INC., a California corporation, dba HANLEES HILLTOP NISSAN; HANLEES SEVEN, INC., a California c orporation, dba HANLEES HILLTOP HYUNDAI (collectively, “Hanlees Plaintiffs”); MICHAEL C. STEAD INC., a California corporation, dba HILLTOP FORD/KIA; MICHAEL STEAD ’S AUTO DEPOT INC., a California corporation, dba HILLTOP CHRYSLER JEEP DODGE (collectively, “Stead Plaintiffs”) (all collectively, “Plaintiffs”), and the CITY OF RICHMOND , a charter city of the State of California (“City”). Plaintiffs and City may be referred to herein individually as a “Party” or collectively as the “Parties.” There are no other parties to this Agreement.
RECITALS
A. Plaintiffs operate a total of six automobile dealerships at the Hilltop auto mall in Richmond, California.
B. On August 5, 2020, the Richmond City Council held a special meeting and adopted Resolution N o. 90 -20 to place a gross receipts business license tax before City voters in the November 3, 2020 general election, known as “Measure U.” Measure U proposed to repeal and replace Chapter 7.04 of the Richmond Municipal Code to implement a gross receipts or revenue- based tax on businesses operating within the City.
C. Measure U differentiated businesses into different classes for the purpose of establishing gross receipts and other tax rates on each business class. Plaintiffs’ dealerships were classified as “Automobile Sales, Manufacturing” under “Class C.” D. Voters approved Measure U at the City’s general election on November 3, 2020.
E. In June 2022, Plaintiffs acting through their legal counsel submitted a letter to the City Manager contending that Measure U bu siness license tax, as applied to automobile dealerships, was oppressive, burdensome, confiscatory , and discriminatory, in violation of the Fourteenth Amendment (Equal Protection), Fifth Amendment (Takings) and Commerce Clause of the United States Constitution.
F. On October 11, 2022, Plaintiffs filed a complaint (the “Complaint”) against the City in Superior Court of Contra Costa County, California (Case No. C22-02188) challenging the constitutionality of Measure U. The allegations and claims set forth in the Complaint are referred to in this Agreement as the “Action.”
G. City contested these claims arguing that the tax measure was within the broad police power of California municipalities, and taxation authority.
H. Between September 2023 and June 2024, the Parties engaged in ongoing settlement negotiations with the goal of resolving the Action.
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I. To avoid the time and expense of further litigation, the Parties now seek to fully and finally resolve Plaintiffs’ Action against the City, through subsequent actions by the Richmond City Council to modify Measure U as it pertains to Plaintiffs, as set forth herein.
NOW THEREFORE, in consideration of the mutual covenants, releases, and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to resolve the Action as follows:
AGREEMENT
1. Adoption of Class Q Business License Tax Rate . Prior to April 1, 2025, or the date that Plaintiffs’ Measure U business license taxes for 2024 become payable in 2025, whichever is earlier, the Richmond City Council shall enact an ordinance deleting “Automobile Sales” from Measure U, Class C (Richmond Municipal Code sections 7.04.130), establishing a new Class Q or other such new business license tax class, and adopting a new gross receipts tax rate to be imposed on Automobile Sales, as defined in Chapter 7.04, as follows:
7.04.XXX - Class Q — Automobile Dealerships.
Persons engaged in class Q business activities shall pay a business tax as follows:
If annual gross receipts are: Then the business tax is:
Not over $1,000,000.00 $1.00 per $1,000.00 of annual gross receipts Over $1,000,000.00 but not over
$2,500,000.00
$1,000.00 plus $1.30 per $1,000.00 of annual
gross receipts over $1,000,000.00
Over $2,500,000.00 but not over
$25,000,000.00
$2,950.00, plus $1.60 per $1,000.00 of annual
gross receipts over $2,500,000.00
Over $25,000,000.00 but not over
$50,000,000.00
$38,950.00, plus $1.90 per $1,000.00 of
annual gross receipts over $25,000,000.00
Over $50,000,000.00 $86,450.00, plus $2.20 per $1,000.00 of annual gross receipts over $50,000,000.00
2. Reconciling Prior Tax Years . City acknowledges that since the enactment of Measure U, Plaintiffs, under protest, have timely paid all taxes due to the City under Measure U except as noted in Subsection D below . The City agrees that each of the Plaintiffs shall receive credit against Measure U taxes for gross receipts generated in 2024, 2025, and, 2026 , which tax shall become due in 2025, 2026, and 2027, as follows:
A. The amount of each Plaintiff’s reimbursement credit shall be calculated by taking the total positive difference between the amount of Measure U business tax each Plaintiff dealership paid under protest in 2023 based upon gross receipts generated in 2022, and subtracting the amount of tax that would have been due in 2023 based upon gross receipts generated in 2022 if the Class Q tax rates had been in effect at the time (the “Total Reimbursement Credit ”). For example, if a Plaintiff paid $ 200,000 pursuant to Measure U – Class C in 2023, but the amount that would have been due 2023 for that Plaintiff under Measure U – Class Q would have been $170,000, then the amount of the Total Reimbursement Credit would be $30,000.
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B. The Total Reimbursement Credit shall be divided by 3 to arrive at the “Annual Reimbursement Credit.”
C. For Measure U taxes based upon gross receipts generated in 2024, 2025, and, 2026 to become due in 2025, 2026, and 2027, each Plaintiff shall be entitled to calculate and to deduct its Annual Reimbursement Credit from the amount due to be paid to the City, and City shall accept such reduced amount as payment in full of such Plaintiff’s Measure U tax for that year. Thus, for Plaintiffs’ business tax payments to become due on April 1, 2025, 2026, and 2027, the amount due shall be reduced by the amount of each Plaintiff’s Annual Reimbursement Credit.
D. Notwithstanding the formula expressed above, certain of the Plaintiffs did not timely pay their Measure U tax in 2024 for 2023 and are subject to a penalty under Measure U for late payment of approximately $50,000 (the “Penalty Amount”). That penalty shall be collected against those Plaintiffs by reducing the Annual Reimbursement Credit by the Penalty Amount amortized over the three years the Annual Reimbursement Credit is applicable.
3. Payments in Lieu of Class Q Business License Tax Rate. If for any reason or no reason at all , the City fails to enact the new Class Q business license tax set forth in Section 1 above, then for each payment of Measure U tax by any Plaintiff , the City agrees to refund within 30 days the amount by which the amount paid exceeds the amount that would have been due under the Measure U – Class Q business license tax rates set forth in Section 1 above if the Class Q business license tax rates set forth in Section 1 had been adopted and were in effect for such tax year.
4. Dismissal of Action . Subject to Section 5, below, w ithin thirty (30) days after Plaintiffs receive a certified copy of the City ordinance implementing the revisions to Chapter 7.04 of the Richmond Municipal Code as set forth in Section 1 above, Plaintiffs shall file with the Court a Request for Dismissal of the entire Complaint with prejudice, with each Party to bear their own attorneys’ fees and costs.
5. Enforceability and Continuing Jurisdiction. The Parties to this Agreement agree that, pursuant to California Code of Civil Procedure section 664.6, the Superior Court of the State of California for the County of Contra Costa shall retain continuing and exclusive jurisdiction of the Complaint and any and all subsequent actions arising out of or related to the interpretation or enforcement of this Agreement . Accordingly, within ten (10) days after Plaintiffs receive a certified copy of the City Ordinance implementing revisions to Chapter 7.04 of the Richmond Municipal Code as set forth in Section 1 above, Plaintiffs shall prepare and circulate for the Parties and their respective counsel’s signatures, a Stipulation and [proposed] Order for the court to retain jurisdiction pursuant to Code of Civil Procedure section 664.6, and Plaintiffs shall not file the Request for Dismissal set forth in Section 4 above until the court acts up on such Stipulation and [proposed] Order or thirty (30) days have passed since lodging of same, whichever is last to occur.
Failure of the court to retain jurisdiction shall not affect the validity of this Agreement or enforceability of its other provisions. The Parties agree that this Agreement is binding, enforceable, admissible, and subject to disclosure in order to enforce this Agreement.
6. Plaintiffs’ Releases of Claims . Except for the obligations set forth in this Agreement and any claims relating to a breach of any obligation of City under this Agreement, Docusign Envelope ID: F3C96F7B-2048-4C1F-845D-69196E1D6EAF Plaintiffs, on behalf of themselves and each of their respective officers, directors, shareholders, employees, representatives, partners, joint venturers, agents, attorneys, insurers, assigns, predecessors and successors-in-interest, and anyone acting on their behalf (collectively, the “Plaintiff Parties”) shall and do hereby release, abandon, and waive any and all claims, causes or action, damages, debts, demands, dues, rights of action, suits, sums of money, variances, or obligations of any kind or nature whatsoever, whether or not now known, matured or unmatured, liquidated or unliquidated, absolute or contingent, suspected or unsuspected, that they may have, hold, or own, or might have had, held, or owned against the City and the City’s respective officials, agents, attorneys, employees, insurers, officers, representatives, and successors (collectively, the “City Parties”), up to and including the date this Agreement is executed that arise out of or relate to the Action.
7. City’s Release of Claims. Except for the obligations set forth in this Agreement and any claims relating to a breach of any obligation of Plaintiffs under this Agreement, the City Parties shall and do hereby release, abandon, and waive any and all claims, causes of action, damages, debts, demands, dues, rights of action, suits, sums of money, variances, or obligations of any kind or nature whatsoever, whether or not now known, matured or unmatured, liquidated or unliquidated, absolute or contingent, suspected or unsuspected, that they may have, hold, or own, or might have had, held, or owned against the Plaintiff Parties, up to and including the date this Agreement is executed that arise out of or relate to the Action.
8. Waiver of Section 1542. By initialing below, to the fullest extent permitted by law the Plaintiff Parties and the City Parties (collectively, the “Releasing Parties”), with respect to the releases set forth in Sections 6 and 7 of this Agreement, waive any rights or benefits available to them under California Civil Code section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
THAT THE CREDITOR OR RELEASING PARTY DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER
FAVOR AT THE TIME OF EXECUTING THE RELEASE
AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT
WITH THEDEBTOR OR RELEASED PARTY. n
...... ......... A* rV-AryjTntX
Hanlees Plaintiffs Stead Plaintiffs City
In connection with such waiver and relinquishment, the Releasing Parties hereby acknowledge that they are aware that they or their attorneys may discover claims or facts in addition to or different from those which they now know or believe to exist with respect to the subject matter of this Agreement or otherwise, but that it is each of the Releasing Parties’ intention hereby to settle and to release, fully, finally and forever, all of the claims known or unknown, suspected or unsuspected, which they now have or may have against each other that arise out of or relate to the allegations set forth in the Action. In furtherance of such intention, the releases, given by the Releasing Parties shall be and remain in effect notwithstanding the discovery or existence of any such additional different claims or facts.
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Docusign Envelope ID: F3C96F7B-2048-4C1F-845D-69196E1D6EAF Plaintiffs, on behalf of themselves and each of their respective officers, directors, shareholders, empkyees, representatives, partners, joint venturers, agents, attorneys, insurers, assigns, predecessors and successors-in-interest, and anyone acting on their behalf (collectively, the “Plair
action
tiff Parties”) shall and do hereby release, abandon, and waive any and all claims, causes of , damages, debts, demands, dues, rights of action, suits, sums of money, variances, or obligations; of any kind or nature whatsoever, whether or not now known, matured or unmatured, liquid ited or unliquidated, absolute or contingent, suspected or unsuspected, that they may have, hold, or own, or might have had, held, or owned against the City and the City’s respective officials, agents
“City
to the
, attorneys, employees, insurers, officers, representatives, and successors (collectively, the Parties”), up to and including the date this Agreement is executed that arise out of or relate Action.
7. j City’s Release of Claims. Except for the obligations set forth in this Agreement and at y claims relating to a breach of any obligation of Plaintiffs under this Agreement, the City Parties, shall and do hereby release, abandon, and waive any and all claims, causes of action, damages, debts, demands, dues, rights of action, suits, .sums of money, variances, or obligations of any kind or nature whatsoever, whether or not now known, matured or unmatured, liquidated or uni -quidated, absolute or contingent, suspected or unsuspected, that they may have, hold, or own, qr might have had, held, or owned against the Plaintiff Parties, up to and including the date this Agreement is executed that arise out of or relate to the Action.
8. ; Waiver of Section 1542. By initialing below, to the fullest extent permitted by te Plaintiff Parties and the City Parties (collectively, the “Releasing Parties”), with respect law, th to the releases set forth in Sections 6 and 7 of this Agreement, waive any rights or benefits available to them under California Civil Code section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
THAT THE CREDITOR OR RELEASING PARTY DOES
: NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER
; FAVOR AT THE TIME OF EXECUTING THE RELEASE
AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT
WITH THE DEBTOR OR SED PARTY.
Hanlees Plaintiffs Stead ntiffs City
lection with such waiver and relinquishnjent, the Releasing Parties hereby acknowledge
i ?y are aware that they or their attorneys/may discover claims or facts in addition to or :pt from those which they now know or believe to exist with respect to the subject matter of jeement or otherwise, but that it is each of the Releasing Parties’ intention hereby to settle release, fully, finally and forever, all of the claims known or unknown, suspected or In con
that th
differe
this Aj
and to
unsuspected, which they now have or may have against each other that arise out of or relate to the allegations ht forth in the Action. In furtherance of such intention, the releases given by the Releasing Parties shall be and remain in effect notwithstanding the discovery of existence of any such additional different claims or facts.
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9. Negotiated Settlement. The discussions that produced this Agreement have been conducted with the express understanding between the Parties that they are privileged under California Evidence Code Section 1152, and that such discussions occurred without prejudice to the position of either Party and may not be used in any manner in any proceeding or otherwise, except as may be necessary to enfor ce or interpret this Agreement , or as otherwise required by law.
10. Attorneys’ Fees and Costs. Each Party is to bear its own attorneys’ fees and costs incurred with respect to the Complaint, the Action, and events leading up to and following the Complaint, including the preparation and execution of this Agreement; provided, however, that in the event of any legal action to enforce this Agreement, the prevailing Party shall be entitled to recover its costs and expenses, including reasonable attorneys’ fees.
11. Voluntary Agreement; Advice of Legal Counsel. The Parties acknowledge that they enter into this Agreement of their own free will; that they have been supplied with and have had had an opportunity to review this Agreement thoroughly with counsel or a repre sentative of their own choosing. The Parties further warrant that they fully understand the effect of this Agreement, approve and accept the terms and provisions of this Agreement, agree to be bound hereby, and each signs this Agreement of their own free will.
12. Authority to Execute. The undersigned each represent and warrant that they have the right, power, legal capacity, and authority to execute this Agreement on behalf of the Party they represent. Each Party represents and warrants to the other Part y that the individual signing this Agreement has full authority to execute this Agreement on its behalf, that such individual is acting with the scope of such authority, and that this Agreement is binding upon such Party. Each Party also represents and warr ants that no further approval or consent of any person or entity is necessary for them to enter into and to perform its obligations contained in this Agreement.
13. Successors and Assigns . This Agreement is binding upon and will inure to the benefit of any successors and assigns of the Parties.
14. No Third Party Beneficiaries . This Agreement is made and entered into for the sole protection and benefit of the Parties and their successors and assigns.
15. Construction. This Agreement and its reduction to final written form is the result of good faith negotiations between the Parties through their respective counsel, and any statute or rule of construction that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.
16. Modification. This Agreement may not be modified, altered, amended, or otherwise changed in any respect except by a writing executed and signed by all Parties to this Agreement.
17. Governing Law. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of California without regard to its principles of conflicts of laws.
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18. Counterparts. This Agreement may be executed in counterparts or by e-mailed signatures, each of which shall be deemed an original, and all counterparts together constitute one and the same instrument.
19. No Admission of Liability. The Parties each understand and agree that the execution of this Agreement does not constitute any admission or concession of liability by any of the Parties on account of any matter related to the subject of this Agreement, liability for which is expressly denied by each of Parties.
20. Parties Bound and Benefited . This Agreement shall be binding upon and inure to the benefit of Plaintiffs, Defendants, and each of their present and former agents, employees, representatives, partners, heirs, beneficiaries, advisors, trustees, co -trustees, attorneys, insurers, shareholders, officers, directors, corporate parents, subsidiaries, affiliates, assigns, and predecessors and successors-in-interest, and anyone acting on their behalf.
21. Cooperation. The Parties shall reasonably cooperate with one another to achieve the objectives and purposes in connection with this Agreement. In so doing, the Parties shall each refrain from doing anything that would render its performance under this Agreement impossible and each must do everything that this Agreement contemplates that the Party shall do to accomplish the objectives and purposes of this Agreement. In all situations arising out of this Agreement, the Parties must each attempt to avoid and minimize the damage s resulting from the conduct of the other and must take all reasonably necessary measures to achieve the provisions of this Agreement.
22. Headings. The section headings appearing in this Agreement are inserted only as a matter of convenience and in no way al ter, modify, or limit the scope of any portion of this Agreement.
23. Integration. This Agreement contains the entire agreement among the Parties with respect to the matters referred to herein and supersedes all prior agreements (written or oral), drafts, negotiations and communications with respect to those matters.
[Signatures on following pages]
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IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the date first written above.
DEFENDANT:
CITY OF RICHMOND, a charter city of the
State of California
Eduardo Martinez, Mayor
ATTEST:
Pamela Christian, City Clerk
Approved as to Form:
David J. Aleshire, City Attorney
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PLAINTIFFS: DKD OF HILLTOP, INC., a California
corporation, dba HANLEES HILLTOP BUICK
GMC
HANLEES HILLTOP, INC., a California
corporation, dba HANLEES HILLTOP TOYOTA
LEEHAN. INC., a California corporation, dba
HANLEES HILLTOP NISSAN
HANLEES SEVEN, INC., a California
corporation, dba HANLEES HILL I OP
HYUNDAI
MICHAEL C. STEAD INC., a California
corporation, dba HILLTOP FORD/K1A
MICHAEL STEAD’S AUTO DEPOT INC., a
California corporation, dba HILLTOP
CHRYSLER JEEP DODGE
39561.2 21117691.1
Docusign Envelope ID: F3C96F7B-2048-4C1F-845D-69196E1D6EAF PLAINTIFFS: DKD OF HILLTOP, INC., a California
corporation, dba .HANLEES HILLTOP BUICK
GMC
HAN LEES HILLTOP, INC., a California
corporation, dba HANLEES HILLTOP TOYOTA
LEEHAN, INC., a California corporation, dba
HANLEES HILLTOP NISSAN
HANLEES SEVEN, INC., a California
corporation, dba HANLEES HILLTOP
HYUNDAI
MICHAEL C. STEAD INC., a California
corporatipaT^aHlLUTOP FORD/KIA
Attorney for Plaintiffs
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