Tuesday, October 3, 2017
C.A. Says Settlement Entails a ‘Penalty,’ Is Unenforceable
By a MetNews Staff Writer
The Fourth District Court of Appeal has invalidated a settlement under which the defendant would pay the full amount sought by the complaint—$303,000—unless it paid by a date certain, in which event $75,000 would be accepted as payment in full.
Under the accord, reached in September 2014, the defendants, Alan Sporn and others, stipulated in writing to entry of judgment against them for the full amount; plaintiff Vitatech International, Inc. agreed to hold onto the stipulation and, if payment were made on or before June 5, 2015, to accept that amount and discard the stipulation.
The defendants failed to make timely payment, the plaintiff filed the stipulation, and judgment was entered for $303,000. The defendants then sought an order vacating the judgment, arguing that to the extent it exceeded $75,000, it constituted an unlawful penalty and was void under the liquidated damages statute.
Civil Code §1671 says, in part, that “a provision in a contract liquidating damages for the breach of the contract is void except that the parties to such a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.”
Judge Denies Motion
Orange Superior Court Judge Sheila Fell denied the motion, holding that $75,000 was a discounted amount based on prompt payment. Div. One of the appeals court reversed Friday in an unpublished opinion by Justice Richard M. Aronson, which orders that judgment be entered in the amount of $75,000.
“The parties’ stipulation for entry of judgment does not use the phrase liquidated damages, but its legal effect is the same as a liquidated damages provision….The stipulation predetermines the amount of damages Vitatech is entitled to receive if Appellants breached the stipulation by failing timely to pay the settlement amount. The provision establishing the amount of the stipulated judgment therefore is unenforceable unless that amount bears a reasonable relationship to the amount of damages the parties could have anticipated Vitatech would suffer if Appellants breached their obligation to pay the settlement amount….Indeed, the amount of the judgment must reasonably relate to the damages likely to arise from the breach of the stipulation, not the alleged breach of the underlying contract, because it is the breach of the stipulation that allows Vitatech to enter judgment against Appellants.”
The jurist continued:
“Nothing in the stipulation or appellate record establishes a reasonable relationship between Appellants’ failure to pay the $75,000 settlement amount and the $303,000 judgment….[T]he stipulation for entry of judgment illegally penalizes Appellants for failing to pay the settlement amount, rather than compensating Vitatech for the reasonably anticipated damages caused by that failure.”
The $303,000 figure included compensatory damages, prejudgment interest, attorney fees, and costs. Aronson specified:
“Vitatech may apply to recover its trial court costs because nothing in the stipulation for entry of judgment relinquishes that right when Appellants failed to timely pay.”
There was no basis, he said, for attorney fees or prejudgment interest.
The case is Vitatech International v. Sporn, G053477.
Andrew R. Nelson and Sasan K. Behnood of Friedman Stroffe & Gerard represented the defendants and Michael J. Steponovich Jr. argued for Vitatech.
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