Judge: Armen Tamzarian, Case: 20STCV19755, Date: 2023-12-06 Tentative Ruling

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Case Number: 20STCV19755    Hearing Date: December 6, 2023    Dept: 52

Plaintiff Ikrusher, Inc.’s Motion for Order to Enter Stipulated Judgment

Plaintiff Ikrusher, Inc. moves under Code of Civil Procedure section 664.6 to enter stipulated judgment against defendant Blacklist Holdings, Inc. dba Ionic Brands.  “If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court... for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.”  (CCP § 664.6(a).)    

Code of Civil Procedure Section 664.6

Plaintiff meets the requirements of Code of Civil Procedure section 664.6.  The parties stipulated in writing to settle this action.  They signed a settlement agreement in February 2023.  (Liberzon Decl., ¶ 4, Ex. 1.)  The agreement required defendant to pay plaintiff $105,000 “[w]ithin 180 days of December 1, 2022.”  (Id., § 1(a).)  The agreement further provides: “In the event that Defendant fails to timely pay, Defendant agrees to a judgment entered by the Court against Defendant in the amount of $217,696.00 plus recoverable costs and fees.”  (Id., § 1(d).)  The parties also entered a stipulation for entry of judgment with the same substantive provisions as the settlement agreement.  (Id., Ex. 2.)  Defendant has not paid the $105,000 settlement amount.  (Id., ¶ 6.) 

Void Penalty Clause

Though plaintiff is entitled to stipulated judgment, entering judgment of $217,696 would constitute enforcing a void penalty clause.  A provision for liquidated damages upon default in a settlement agreement is void as an unenforceable penalty when it is disproportionate to the anticipated damages caused by the default.  (Vitatech International, Inc. v. Sporn (2017) 16 Cal.App.5th 796, 805 (Vitatech); Sybron Corp. v. Clark Hosp. Supply Corp. (1978) 76 Cal.App.3d 896, 898-899.)

In Vitatech, the plaintiff prayed for $166,372.14 in damages.  The parties settled via a stipulation providing that judgment shall be entered for the full amount prayed for in the complaint, but plaintiff would accept $75,000 as full settlement if paid by a certain date.  (Vitatech, supra, 16 Cal.App.5th at p. 802.)  Defendants did not pay in time, and the trial court entered judgment for plaintiff for over $300,000 based on the complaint’s prayer, prejudgment interest, and fees and costs.  (Ibid.)  The Court of Appeal held that, though the parties did not “use the phrase liquidated damages, [the] legal effect is the same as a liquidated damages provision.”  (Id. at p. 810.)  “[T]he stipulated judgment was void as a matter of law because no reasonable relationship exists between the damages that could have been anticipated based on their failure to pay the $75,000 settlement amount and the stipulated judgment for more than $300,000.”  (Id. at p. 808.)

Here, the parties’ settlement agreement and stipulation for entry of judgment have an equivalent clause escalating the amount of the judgment based on defendant’s delay in payment.  This provision is void as an unenforceable penalty.  Plaintiff offers no evidence that defendant’s failure to timely pay $105,000 caused plaintiff another $112,696 in damages.  Plaintiff similarly offers no evidence or explanation of why, when the parties entered the settlement agreement, it was reasonable to anticipate that failing to timely pay plaintiff would result in causing over $100,000 in damages.  To the contrary, plaintiff’s complaint alleged that defendant owed it $217,696 (Comp., ¶¶ 10, 12, 20) and prayed for $217,696 in damages (Comp., prayer ¶ 1).  The circumstances thus indicate this escalation provision intended to change plaintiff’s compromise of its damages rather than estimate the amount of damages plaintiff would suffer from defendant’s failure to pay the compromised amount.

The settlement agreement anticipated this problem.  It provides: The parties agree that if the Court enters judgment for this amount that it is not liquidated damages and is an entry of judgment for the amount Defendant truly owes Plaintiff.  Plaintiff and Defendant further agree that the amount of damages in this dispute is not speculative or uncertain and that Plaintiff is entering into this agreement solely because of Defendant’s documented hardship.”  (Liberzon Decl., Ex. 1, § 1(d)(1).)  Similarly, the stipulation for entry of judgment states that the escalated amount “is not an illegal penalty but a reasonable calculation of Plaintiff’s damages in this dispute.”  (Id., Ex. 2, ¶ 9.) 

Whether an escalation clause constitutes an unenforceable penalty, however, depends on its “legal effect,” not the contract’s recitals.  (Vitatech, supra, 16 Cal.App.5th at p. 810.)  It is irrelevant whether $217,696 is “the amount Defendant truly owes Plaintiff” (Liberzon Decl., Ex. 1, § 1(d)(1)) or “a reasonable calculation of Plaintiff’s damages in this dispute.”  (Id., Ex. 2, ¶ 9.)  Regardless of how much defendant truly owes plaintiff or how plaintiff calculated its damages, plaintiff agreed to compromise and settle this action for $105,000.  The escalation clause is void unless a “reasonable relationship exists between the damages that could have been anticipated based on [defendant’s] failure to pay the [initial] settlement amount” and the escalated amount.  (Vitatech, supra, at p. 808.)  The court finds no such reasonable relationship exists.  The court will therefore not enforce the escalation clause and will enter judgment for $105,000.

Attorney Fees

Plaintiff also seeks $787.50 in attorney fees and costs incurred in bringing this motion.  Plaintiff may recover reasonable attorney fees and costs pursuant to the parties’ settlement agreement.  The agreement provides, “[T]he prevailing party in any proceeding to enforce or defend this Agreement shall be entitled to recover reasonable attorney’s fees and costs.”  (Liberzon Decl., Ex. 1, § 2(d).)    Plaintiff prevailed in this proceeding to enforce the settlement agreement.  The court finds plaintiff reasonably incurred $787.50 in expenses in bringing this motion.  (Liberzon Decl., ¶¶ 7-10.)

Disposition

Plaintiff Ikrusher, Inc.’s motion for order to enter stipulated judgment is granted in part.  The court will enter judgment for plaintiff in the amount of $105,000 against defendant Blacklist Holdings, Inc. dba Ionic Brands and for $787.50 in expenses.  Plaintiff shall submit a proposed judgment in accordance with this order forthwith.