Judge: Mark A. Young, Case: 23SMCV05896, Date: 2024-11-27 Tentative Ruling
Case Number: 23SMCV05896 Hearing Date: November 27, 2024 Dept: M
CASE NAME: Goldstein, et
al., v. Kanner, et al.
CASE NO.: 23SMCV05896
MOTION: Motion for
Reconsideration;
Motion
to Set Aside Interim Settlement/Judgment; and
Motion
to Tax Costs
HEARING DATE: 11/27/2024
Legal
Standard
Vacate Judgment
Code of Civil Procedure section 473(d) provides that
the “court may, upon motion of the injured party, or its own motion, correct
clerical mistakes in its judgment or orders as entered, so as to conform to the
judgment or order directed, and may, on motion of either party after notice to
the other party, set aside any void judgment or order.”
Reconsideration
A non-prevailing party may make a
motion to reconsider and enter a different order under the following
conditions: (1) brought before the same judge that made the order sought to be
reconsidered; (2) made within 10 days after service upon the party of the
notice of entry of the order (extended under CCP § 1013 for type of service);
(3) based on new or different facts, circumstances or law than those before the
court at the time of the original ruling; (4) supported by a declaration
stating the previous order, by which judge it was made, and the new or
different facts, circumstances or law claimed to exist; and (5) the motion must
be made and decided before entry of judgment. (CCP, § 1008.)
Tax Costs
In general, the “prevailing party” is entitled as a matter
of right to recover costs for suit in any action or proceeding. (CCP § 1032(b);
Santisas v. Goodin (1998) 17 Cal.4th 599, 606.) “Prevailing party”
includes the party with a net monetary recovery, a defendant in whose favor a
dismissal is entered, a defendant where neither plaintiff nor defendant obtains
any relief, and a defendant as against those plaintiffs who do not recover any
relief against that defendant. (CCP § 1032 (a)(4).)
“Allowable costs shall be reasonably necessary to the
conduct of the litigation rather than merely convenient or beneficial to its
preparation.” (CCP § 1033.5(c)(2).) “If the items appearing in a cost bill
appear to be proper charges, the burden is on the party seeking to tax costs to
show that they were not reasonable or necessary.” (Ladas v. California State
Auto. Assn. (1993) 19 Cal. App. 4th 761, 774.) On the other hand, if the
items are properly objected to, they are put in issue and the burden of proof
is on the party claiming them as costs. (Id.)
EVIDENTIARY ISSUES
Plaintiffs’ objections are OVERRULED.
Defendants’ objections are OVERRULED.
Analysis
Defendants H. Mitchell Kanner and Lucy M. Kanner move for
the following:
1. Reconsideration of the Court’s ruling
on plaintiffs Michael H. Goldstein and Emily S.
Blumenthal’s
(together, “Plaintiffs”) application for entry of judgment based on Defendants’
defaults
under the March 6, 2024 interim settlement;
2. For an order vacating the interim
settlement agreement or, if entered, the proposed
judgment
submitted by Plaintiffs; and
3. To strike the plaintiffs’ memorandum
of costs (claiming $14,358.75) filed and served on June 27, 2024.
Since the motions were filed, the judgment was entered,
and an appeal was taken. As such, most of the issues have become moot and/or
the Court has lost jurisdiction to rule on the issues. The parties agree that the
Court has jurisdiction to hear a single issue: whether the judgment is void
under Code of Civil Procedure section 473(d). Defendants argue that the
judgment is void as it includes an unenforceable penalty which bears no
reasonable relation to the damages that would result from breach of the interim
settlement agreement.
A “stipulated judgment that
includes an unlawful liquidated damages provision is void and may be vacated
under section 473(d).” (Vitatech Int’l Inc. v. Sporn, (2017) 16 Cal.
App. 5th 796, 807.) Generally, a contractual liquidated damages provision is
valid unless the party seeking to invalidate the provision establishes that it
was unreasonable under the circumstances at the time the contract was made.
(Civ. Code § 1671(a)-(b).) However, for cases involving residential leases,
liquidated damages provisions are presumptively invalid. (Civ. Code §
1671(c).) Civ. Code § 1671(d) states: “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.”
“A penalty provision operates to
compel performance of an act and usually becomes effective only in the event of
default upon which a forfeiture is compelled without regard to the damages
sustained by the party aggrieved by the breach. The characteristic feature of a
penalty is its lack of proportional relation to the damages which may actually
flow from failure to perform under a contract.’ ” (Ridgley v. Topa Thrift
& Loan Assn. (1998) 17 Cal.4th 970, 977.)
A liquidated damages clause will
generally be considered an unreasonable penalty “if it bears no reasonable
relationship to the range of actual damages that the parties could have
anticipated would flow from a breach. The amount set as liquidated damages must
represent the result of a reasonable endeavor by the parties to estimate a fair
average compensation for any loss that may be sustained. In the absence of such
relationship, a contractual clause purporting to predetermine damages must be
construed as a penalty. The validity of the liquidated damages provision
depends upon its reasonableness at the time the contract was made and not as it
appears in retrospect. Accordingly, the amount of damages actually suffered has
no bearing on the validity of the liquidated damages provision.” (Vitatech,
supra, 16 Cal. App. 5th at 805–06, internal citations and quotations
omitted.) The court must focus on whether the amount of the judgment “reasonably
relate[s] 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 [the claimant] to enter judgment . . ..” (Id.
at 806.) “In determining the reasonableness of a provision for liquidated
damages, ‘the court should place itself in the position of the parties at the
time the contract was made and should consider the nature of the breaches that
might occur and any consequences that were reasonably foreseeable.’” (Id.
at 808.)
“Absent a relationship between the
liquidated damages and the damages the parties anticipated would result from a
breach, a liquidated damages clause will be construed as an unenforceable
penalty.” (Purcell v. Schweitzer (2014) 224 Cal.App.4th 969, 974
[stipulated judgment for nearly $60,000 constituted illegal penalty for breach
of settlement agreement requiring payment of $38,000].) A contractual provision
imposing such a penalty is ineffective, and the wronged party can collect only
the actual damages sustained. (Ridgley, supra, 17 Cal.4th at 976-977 [loan
provision that required the borrower to pay a prepayment fee equal to six
months of interest if the borrower sought to prepay the loan after making late
interest payments was invalid because the amount of the fee bore no reasonable
relationship to the damages the parties anticipated the borrower's late
interest payments would cause]; see Sybron Corp. v. Clark Hosp. Supply Corp.
(1978) 76 Cal.App.3d 896, 900 [stipulated judgment for $100,000 constituted
illegal penalty for failure to make timely installment payment on $72,000
settlement].)
In Vitatech, the court found
no reasonable relationship 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. (Vitatech, supra, 16 Cal. App. 5th at 805–806.)
Vitatech had sued for breach of contract, alleging the appellants failed to pay
for various products manufactured for them. On the eve of trial, the parties settled
and stipulated to entry of judgment “in the full prayer of the Complaint” and
Vitatech agreed to “forbear from the filing [of the stipulation for entry of
judgment and to] accept, as full settlement of its claims ... the principal sum
of Seventy-Five Thousand Dollars ($75,000), payable in one (1) payment on or
before June 5, 2015.” (Id. at 810.) The defendants failed to make the
required payment and had the judgment entered against them. (Id. at 802-803.) The
defendants sought to vacate the judgment on grounds it was an unlawful penalty,
but the trial court rejected their argument, holding that “the amount of the
judgment did not represent a penalty; the lower amount [in the settlement]
represented a discount to Defendant.” (Id. at 803.) The Vitatech court
found that nothing in the stipulation or appellate record established a
reasonable relationship between Appellants’ failure to pay the $75,000
settlement amount and the $303,000 judgment. (Id. at 810.)
The Vitatech court explained
that the “the parties made no effort to anticipate the damages that might flow
from Appellants’ failure to pay the settlement amount. Instead, the parties
simply selected the amount Vitatech had sought as damages in the underlying
lawsuit. The record, however, lacks any evidence suggesting Vitatech was likely
to recover all of the damages it sought if it proceeded to trial. Moreover, we
cannot conceive of any meaningful relationship between Appellants’ failure to
pay the amount Vitatech agreed to accept in settlement of its disputed claims
and a judgment that is more than four times that amount.” (Id. at 811.)
In Greentree, the Court of
Appeal applied the foregoing principles to reverse a stipulated judgment. There,
the plaintiff alleged a breach of contract, claiming that the defendant failed
to pay $45,000 for financial services. (Greentree, supra, 163
Cal.App.4th at 498-500.) The parties settled the action before trial; defendant
would pay plaintiff $20,000 in installments, and if defendant failed to make any
payments, plaintiff could enter judgment for the full amount sought in the
complaint, including interest and attorney fees. (Id. at 500.) In the
stipulation, the parties each disclaimed any wrongdoing, fault, liability, or
violation of law. (Ibid.) The defendant failed to make the first payment,
and plaintiff asked the trial court to enter judgment against the defendant for
more than $61,000, consisting of $45,000 in damages for breach of the financial
services contract, $14,000 in prejudgment interest, and $2,000 in attorney fees
and costs. (Id. at 498.) The Court of Appeal reversed, holding that the parties
“did not attempt to anticipate the damages that might flow from a breach of the
stipulation. Rather, they simply selected the amount [the plaintiff] had
claimed as damages in the underlying lawsuit.” (Id. at 499-500.) The
Court noted the dearth of information showing plaintiff’s chances of complete
success on the merits. The Court held the $61,232.50 judgment bore no
reasonable relationship to the range of actual damages the parties could have
anticipated from a breach of the stipulation to settle the dispute for
$20,000. (Id.)
The Greentree court
explained what would have been acceptable: “the judgment would have been
enforceable if it had been designed to encourage [the defendant] to make its
settlement payments on time, and to compensate [the plaintiff] for its loss of
use of the money plus its reasonable costs in pursuing the payment.” (Greentree,
supra, 163 Cal.App.4th at 500.) The $61,000 judgment, on the other hand, was
not designed to compensate plaintiff for defendant’s failure to pay the $20,000
settlement amount. Instead, it impermissibly punished the defendant for its
failure to pay. The plaintiff argued the amount specified in the judgment was
reasonably related to the damages plaintiff suffered based on the defendant's
breach of the underlying financial services agreement. (Id. at 499-500.)
The Greentree court rejected that argument because the relevant breach
was the breach of the settlement stipulation, not the breach of the underlying
financial services agreement. (Ibid.)
On the other hand, the Jade
Fashion court found that canceling a settled “discount” for late payments
did not constitute an unenforceable penalty or forfeiture. (Jade Fashion
& Co. v. Harkham Indus., Inc. (2014) 229 Cal. App. 4th 635, 645-651.) There,
a garment supplier agreed to forebear on collecting its debt and allowed a buyer
to deduct $17,500 from a pre-existing $341,628 debt, contingent upon timely
weekly installment payments under a repayment plan. (Id. at 639-640.) After
the first two installments, Harkham did not fully and timely pay the
installments. (Id. at 640) Jade Fashion asserted that the failure to timely
make all of the weekly installment payments precluded it from applying the
$17,500 discount to the final payment. (Id.) The Jade Fashion agreed
and held that this was not an unenforceable penalty since the agreement was to
forbear on collection of a debt that was indisputably due and owing. Harkham
argued that the $17,500 discount was an impermissible penalty because it bore
no reasonable relationship to the damages that Jade Fashion actually suffered
as a result of the late payments. But unlike the stipulations at issue in cases
like Greentree, the Jade Fashion agreement and continuing
guaranty made clear that the parties did not enter into an agreement to
compromise the original debt for a lesser amount subject to a penalty for late
payment. (Id. at 649.) Instead, Harkham indisputably continued to owe
Jade Fashion the original balance of $341,628.77 for the purchased goods, and
that Harkham would make weekly installment payments of $25,000 “for a total
amount of $341,628 until the entire balance due is paid in full.” (Id.) Thus,
the agreement between Jade and Harkham was not an agreement to settle or
compromise a disputed claim, rather, it was an agreement to forbear on the
collection of a debt that was admittedly owed for goods that had been delivered
so long as timely installment payments were made. (Id. at 648.)
The Settlement and Stipulated Judgment
The parties identify several
material terms of the underlying settlement. Principally, the parties cite four
provisions which required Defendant to: (1) return possession of the Property
by April 30, 2024; (2) pay $16,000 of partial rent for March and April 2024;
(3) participate in a non-binding mediation regarding the disputed rent; and (4)
provide evidence that Plaintiffs were named as additional insured on
Defendants’ liability policy.
The stipulated judgment provided
the following material terms:
1. Plaintiffs shall have and
recover from Defendants, jointly and severally, Two Hundred Thirty-One Thousand
Four Hundred Twenty Five Dollars ($231,425.00).
2. Interest shall accrue on the sum
awarded against Defendants at the legal rate of 10% per annum from the date
this Judgment is entered as allowed by law until paid in full.
3. Plaintiffs are entitled to
recover costs pursuant to a Memorandum of Costs to be served and filed by
Plaintiffs.
4. Plaintiffs are entitled to
recover from Defendants post-Judgment enforcement attorneys’ fees and costs as
allowed by law and as provided by the Interim Settlement recited into the
record before the Court and agreed to by all parties on March 6, 2024.
The hearing record notes that the
stipulated judgment would be against Defendants for unpaid rents owed under the
Lease, including $69,300 (rent for Nov. 23 – Feb. 29, 2024), $577.50 per diem
for each day after March 1, 2024, until surrender, plus fees and costs.
Reasonable Relationship
Defendants claim that the $231,425
judgment ($245,783 with costs) has no reasonable relationship to the range of
actual damages the parties could have anticipated from a breach of the
stipulation to settle the dispute. The record does not show any reasonable
endeavors by the parties to estimate fair compensation for any loss that
may be sustained by Plaintiffs for Defendants’ failure to return possession by
April 30, 2024, to pay the partial or per diem rents, to participate in the
mediation, or to name Plaintiffs as additional insureds.
The parties never explained or
reasoned how the failure to return possession, pay $16,000.00 in partial rent, or
pay the per diem for each day after March 1, 2024, could result in any figure approximating
the stipulated judgment. Indeed, such failures could only reasonably result in
the tens of thousands of dollars of damages, rather than the hundreds of
thousands claimed and awarded by the Court. In fact, Defendants would need to
overstay more than 6 months for the per diem costs to break $100,000.00. In
comparison, the stipulated judgment awards Plaintiffs the disputed rent
and attorneys’ fees incurred pursuant to the underlying breach of the Lease. Such
damages were unambiguously incurred before the settlement agreement was
reached. Moreover, they are still the subject of dispute and were not resolved
by the settlement agreement.
There is also no apparent relationship
between the stipulated judgment and any damages stemming from the failure to
mediate. As Plaintiffs observed during the March 6 , 2024, hearing, Plaintiffs
would be owed the amounts under the lease even if the non-binding mediation
failed. The non-binding nature of the mediation also undercuts the claim. At
best, the Court speculates that the parties could have anticipated Plaintiffs’
loss of time and costs associated with starting the mediation process (for
example, the 50% of the mediation fees and costs that Plaintiffs expended), but
there is no evidence that the parties could reasonably anticipate that this
damage could reach any figure near the judgment.
There is also no apparent
relationship between the stipulated judgment and the failure to name Plaintiffs
as insureds. Plaintiffs claim that default subjects Plaintiffs to the risk of
potential liability and defense costs if a personal injury or property damage
claim is ever asserted against Plaintiffs (within two years for a personal
injury claim, and/or within three years for a property damage claim).
(Goldstein Decl. ¶ 4.) However, the record shows no reasonable estimate
of the value of the risk of liability.
To sum, the record does not
establish a reasonable relationship with the range of damages that the parties
could have anticipated would flow from a breach of the interim settlement
agreement and the amount of the stipulated judgment. As such, the stipulated
judgment must be construed as a penalty.
Plaintiff does not present
authority that estoppel would allow the court to enter a void judgment. The
above cases found unenforceable penalties despite the fact that they involved
settlements which prevented trial from moving forward. Therefore, the Court is
not inclined to judicially estop Defendants from denying the stipulated
judgment portion of the settlement agreement.
Accordingly, the judgment is void
and the motion must be GRANTED.