Thursday, February 27, 2014
Page 3
Court Strikes Down Waiver of Right to Appeal
By a MetNews Staff Writer
A settlement agreement providing that default would result in the entire original amount being due, and waiving any right to contest a default judgment, was an unenforceable penalty because the claim amount bore no reasonable relationship to the actual damages that would be suffered, the Fourth District Court of Appeal has ruled.
The court, in an unpublished opinion by Justice Gilbert Nares of Div. One, affirmed Monday the setting aside of a default judgment against Michael Schweitzer.
Nares disagreed with Lennox Purcell’s contention that the waiver of the right to appeal was valid and enforceable, and that the amount of the judgment reflected the costs associated with the legal proceedings.
Schweitzer and Purcell entered into a promissory note in the amount of $85,000, but Schweitzer defaulted. Purcell proceeded to file a lawsuit to recover the money he had loaned, and the parties settled the action.
The settlement agreement provided that Schweitzer would pay the sum of $38,000, along with interest of 8.5 percent, over the next two years. The agreement stated that payments were due on the first day of every month, with payments not to be received later than the fifth of any month.
If a payment was received late, the agreement stated, the entire liability of $85,000 would become due, with a provision that the amount did not constitute an unlawful penalty or forfeiture.
Schweitzer was late on a payment, so Purcell obtained a default judgment in the amount of $58,829. Schweitzer brought a motion to set aside the default judgment, and the court granted it, explaining that it constituted an unenforceable penalty.
Purcell contested that Schweitzer had waived his right to challenge the default judgment because the agreement anticipated strict compliance with the amount resulting from default, and that Schweitzer had expressly waived his right to challenge the judgment for $60,000.
Nares explained, however, that the agreement was an unenforceable penalty because the original settlement was only for $38,000, and that Purcell suffered no damages that corresponded to this amount.
He said Purcell’s attempt to tie the $85,000 to the cost of legal proceedings was “an obvious attempt to circumvent public policy.”
He concluded:
“Moreover, Purcell entered a default judgment for alleged ‘punitive damages,’ not for costs associated with pursuing the lawsuit….[and] [p]unitive damages are not recoverable in breach of contract actions.”
The case is Purcell v. Schweitzer, D063435.
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