Judge: Joseph Lipner, Case: 23STCV04731, Date: 2023-08-25 Tentative Ruling

Case Number: 23STCV04731    Hearing Date: October 4, 2023    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Plaintiff’s Motion for Default Judgment is DENIED without prejudice.  The Court continues this OSC Re Entry of Default Judgment to November 15, 2023.

Background 

On March 3, 2023, Plaintiff Ferguson Enterprises, LLC (“Plaintiff”) filed this action against Defendants Ho Kyung Lee and Hae Kyung Lee, as Trustees of the Lee Family Trust, and Union Lee Construction, Inc. (collectively, “Defendants”) for (1) foreclosure of mechanic’s lien; (2) mechanic’s lien release; (3) breach of contract; and (4) personal guaranty.  

On July 13, 2023, the clerk entered default judgment as to Defendants. On August 3, 2023, Plaintiff filed a default judgment package.  

On August 25, 2023, the Court continued the hearing on Plaintiff’s request pending submission of supplemental default materials. Plaintiff filed those materials on August 31, and its request now comes before the Court again.

Discussion 

Plaintiff requests $39,264.26 in damages, $4,162.40 in interest, $946.03 in costs, and $1,567.92 in attorney fees. (CIV-100 Form.)  

The Complaint alleges that Plaintiff furnished and delivered plumbing, pipe, HVAC, waterworks, appliances, lighting, and related materials to Defendant Union, with a reasonable market value of $39,264.26. (Compl. ¶ 11.) Plaintiff states that no part of this $39,264.26 has been paid. (Compl. ¶ 12.)  

Plaintiff submits the declaration of a custodian of records, stating that in order to sell to Union Lee Construction, Plaintiff required Union to sign a Credit Application. Plaintiff submits this Credit Application. (Padilla Decl. ¶ 3, Ex. A.) This Credit Application included an agreement that Ho Kyung Lee be a personal guaranty of Union. (Padilla Decl. Ex. A.) The Terms and Conditions of the Credit Application provided that all past due amounts are subject to a 1.5% per month service charge. (Id.) The Personal Guaranty also provided that Plaintiff would be entitled to the cost of collection, plus reasonable attorneys’ fees in the event of default. (Id.)  

Plaintiff also submits invoices showing that the materials purchased were intended to be used on the job for Defendants. (Padilla Decl. ¶¶ 6-7, Ex. B.) These invoices total $39,264.26. (Padilla Decl. Ex. B.)  

The declaration states the facts surrounding the Mechanic’s Lien that was entered. (Padilla Decl. ¶ 10.) Plaintiff attaches Notice of the Mechanic’s Lien. (Padilla Decl. Ex. D.)  

At the hearing on August 25th, the Court observed the following deficiencies in Plaintiff’s default request:

First, Plaintiff’s proposed judgment sought $39,264.26 for the first cause of action against Ho Lee and Hae Lee, for the third and fourth causes of action against Union, and for the fifth cause of action against Ho Lee. Plaintiff offered no explanation for how the award was not duplicative.

Plaintiff has still not offered a satisfactory explanation. It argues a claimant has “the right to maintain a personal action to recover a debt … either in a separate action or in an action to enforce a lien” (Civ. Code § 8468(a)(1)), and “[a] judgment obtained by the claimant in a personal action … does not impair or merge the claim of lien … .” (Id., subd. (b).) Correct. But this is not two actions. As Plaintiff acknowledges, “any amount(s) collected from the defendants on the [three] causes of action will be credited against the other claims.” Which is liability must be joint and several.

Second, rather than offer an explanation for the difference in its proposed rates of interest, Plaintiff has now claimed the same rate of interest (18%) for annum on all its claims – lien, credit sale, and guaranty.

While the 18%/annum interest on the sale and guaranty contracts seems to follow the terms of the parties’ contract, the Court is not satisfied the lien is subject to the same rate of interest. Palomar Grading & Paving, Inc. v. Wells Fargo Bank, N.A. (1990) 51 Cal.3d 701 (Palomar) states that the 7%/annum constitutional usury rate caps the interest on a mechanic’s lien where the lien arises from a contract between a contractor and subcontractor, rather than an owner and contractor.

The Palomar court reasoned that neither the rate specified in the underlying contract nor the 10% contractual usury rate appearing in the Constitution can be applied to an owner who was not a party to any contract. The owner did not agree to be exempt from the 7% constitutional cap. Palomar also recognizes that where the owner is a party to the underlying contract – directly liable on both the underlying contract and the lien – the lien will be subject to the same rate. Plaintiff sued on (1) its credit sale contract with the primary contractor (not the owner), but also (2) the personal guaranty of the sale contract, signed by one of the properties’ two owners.

There are two problems with Plaintiff’s argument that they must address: first, is the lien based on both the guaranty and the sale contract, or only the sale contract? If the latter, it is not exempt from Palomar. And second, is a lien exempt from Palomar where it is based on a contract with only one of several owners of the property subject to the lien?

Because the Court is not persuaded that the 18% per annum interest rate is enforceable as to the first cause of action, the interest calculations may not be correct.

Plaintiff is ordered to submit a proposed judgment that is not duplicative and reflects legal interest rates (and, if the Plaintiff asserts liability on the lien may be charged at 18% per annum, persuasive argument justifying that position).