Judge: Mark H. Epstein, Case: 23SMCV03080, Date: 2023-11-06 Tentative Ruling
Case Number: 23SMCV03080 Hearing Date: February 27, 2024 Dept: I
This is a motion to enforce a settlement agreement in a
landlord/tenant UD case. Plaintiff
alleged that defendant was behind on rent and sued for back rent and for
possession. At an MSC, the parties
reached an agreement to settle.
Defendant agreed to pay $82,500 of the back rent by a date certain. If that was done, plaintiff agreed to waive
the balance and reinstate the tenancy (and dismiss the action). The parties further agreed that if defendant
did not make the payments as promised, plaintiff could seek possession and
entry of a judgment in the amount of $140,000—still less than the total
monetary recovery plaintiff sought, which was $151,000. Implicit in that agreement is the notion that
defendant wanted to stay in the premises.
But something funny happened on the way to the forum. Defendant did not pay the amount owed, but she did vacate the premises on November 5. Plaintiff brought a motion to enforce the settlement, which the court denied (because it was brought ex parte) without prejudice to a regularly noticed motion. In particular, the court wanted plaintiff to address whether the damages constituted an improper penalty. Specifically, although defendant did not pay, the amount of the payment increased by $57,500, or about 70%. That is a lot of money. This unopposed motion follows.
Plaintiff relies on Orozco v. Casimiro (2004) 121 Cal.App.4th Supp. 7 (a trial court case from the Appellate Division) and Civil Code section 1617(b). Orozco focuses on subdivision (d), but does not really seem to address the issue here. The court’s concern is Graylee v. Castro (2020) 52 Cal.App.5th 1107. There, a landlord sued tenants for $27,170 in unpaid rent. The parties entered into a stipulated judgment on the eve of trial. The agreement was that the landlord would regain possession no later than 3 pm on October 31, 2018. If that occurred, the landlord agreed to waive any monetary recovery. But if not, then judgment would be entered in the amount of $28,970 (which was the amount prayed inclusive of some costs and fees beyond rent). The tenants did not leave by 3 pm on October 31, but they did leave by 10:30 am on November 1. Even so, the landlord sought to enforce the settlement and sought judgment in the stipulated amount. The trial court granted the motion but the Court of Appeal reversed. The appellate court’s logic was that the settlement was a novation—it was a new contract that replaced the old one. Under the new contract, each party had duties and obligations. The court noted that the tenant had never agreed that it actually owed the landlord anything, so it was not an undisputed sum. When the tenant breached the contract, the Court of Appeal viewed the $28,970 provision as a liquidated damages clause. While the term was obviously not couched that way, the court found that the term acted as a liquidated damages clause. It therefore analyzed the clause under section 1617(b). The court concluded that the less-than-one-day delay in vacating the premises could not possibly have harmed the landlord by almost $30,000. Therefore, the court viewed the clause as a penalty and unenforceable.
The clause at issue has some of the same hallmarks. If back rent is paid by a date certain, the case is over and the tenant was entitled to stay on the premises. But if not, the landlord would be able to evict the tenant and the amount of damages would be very greatly enhanced. The question is whether the large enhancement is a liquidated damages clause or not. The court notes that plainly plaintiff is entitled to at least $82,500—the amount that was to be paid had defendant performed fully.
This is a bit odd. The likely contemplation was that if the defendant breached, the landlord would need to get a writ of possession and wait for the Sheriff to evict the tenant so that the property could be re-let. Given the monthly rent here, that delay would yield a not-insignificant sum as well as additional fees and costs. As it turns out, though, defendant left voluntarily, so no eviction proceedings or writs of possession were required. But that was not something that was known at the time. It is hard to see how getting possession of the unit but having to enforce a judgment is worth a monetary increase of about 70%.
A liquidated damages provision is appropriate where: (1) the actual damages might be hard to calculate or quantify; and (2) the amount of the liquidated damages is a reasonable estimate of what the harm would be as of the time the contract is entered into (not the time of breach). Here, the landlord’s concern was that it might have to fight to get the tenant out. It might go easy with an ex parte writ of possession, but it might not. If it turned out to be difficult, the landlord could well have been concerned that the tenant would cause damage before leaving out of spite or otherwise. It could take time for the Sheriff to actually serve the writ and then evict the tenant. The landlord may need to deal with property left on the premises. There are a host of things that might have been hard to calculate had the tenant not paid and not vacated. The court cannot say that the increase—especially where the rent was almost $10,000 per month—is so out of line with a good faith estimate that it will not be enforced, especially given that there is no opposition, but it might well be. The major point that distinguishes this case from Graylee is that here, the judgment includes the following phrase: “If D breaches, P may make immediate noticed ex parte application . . . and if proven P shall have judgment for possession . . . as well as money judgment in favor of P and as against D for the sum of $140,000.000 (to be clear, but for this agreement, D would owe P the sum of $151,000 for the Premises thru 11/30/23).” That is (as it turns out) a distinction with a difference. In Graylee, the court emphasized that there was no admission by the defense; rather, it was a settlement of a disputed sum. Here, apparently there is no settlement of a disputed sum for the parties seem to agree that, but for the settlement, defendant would owe $151,000. In Graylee, the court (in discussing precedent) noted the difference between settling a disputed claim versus forbearing on the collection of a debt admittedly owed. (Graylee, supra, 52 Cal.App.5th at pp. 1117-1118 [describing this as “the crucial distinction” allowing for enforceability].) Accordingly, the court is inclined to GRANT the motion, although not without some reservations.
The long and short of it is that, although the court has some reservations (because the court is putting a fair amount of weight on a parenthetical in the settlement agreement), the motion will be GRANTED.