Viatech International, Inc. v. Sporn
G053477
| Cal. Ct. App. | Oct 30, 2017Background
- Vitatech sued National Marketing, Inc., CortiSlim entities, and Alan Sporn for unpaid invoices seeking ~$166,372 plus fees; defendants denied liability and raised multiple defenses.
- On the eve of trial the parties executed a stipulation: defendants would pay $75,000 by a deadline and Vitatech would forbear from filing the stipulation; if defendants failed to pay, Vitatech could file the stipulation and obtain judgment "in the full prayer of the Complaint."
- Defendants missed the payment deadline; Vitatech filed the stipulation and the trial court entered judgment for ~$303,620 (compensatory damages, prejudgment interest, attorney fees, costs).
- Defendants moved under Code Civ. Proc. § 473(d) to vacate, arguing the stipulated judgment operated as an unenforceable penalty/liquidated-damages clause violating Civil Code § 1671(b). Trial court denied the motion, treating the $75,000 as a mere discount on an admitted debt.
- The Court of Appeal held the stipulated judgment was an unenforceable penalty because it bore no reasonable relationship to damages foreseeable from breaching the settlement stipulation, reversed, and remanded to enter a new judgment for $75,000 plus trial court costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CortiSlim Int'l, Inc. has appellate standing | Vitatech: CortiSlim Inc. was not a party of record or subject to judgment, so lacks standing | CortiSlim Inc.: filed an answer, participated, signed the stipulation, and was targeted in collection — thus aggrieved party of record | Court: CortiSlim Inc. had standing (party of record and pecuniary interest); appeal proceeds |
| Whether the stipulation-for-judgment is an enforceable liquidated-damages provision under Civ. Code § 1671(b) | Vitatech: stipulation enforces defendants’ judicial admission/obligation; $75k was a discount — judgment simply enforces admitted liability | Defendants: stipulation functions as liquidated damages/penalty; judgment (4x settlement) bears no reasonable relationship to foreseeable damages from breaching the settlement | Court: Stipulation is an unenforceable penalty under § 1671(b); judgment void as to excessive amount; must be reduced to $75,000 plus costs |
| Whether a judgment based on an unlawful liquidated-damages provision is voidable only or void (impacting § 473(d) relief) | Vitatech: such a contractual infirmity renders the judgment at most voidable, so § 473(d) (vacatur of void judgments) is unavailable | Defendants: an unlawful liquidated-damages clause is void as against public policy; courts may vacate a stipulated judgment that includes such a clause | Court: Clause violating § 1671(b) is void; a stipulated judgment containing it may be vacated under § 473(d) |
| Recoverability of interest and attorney fees after vacatur | Vitatech: judgment included interest and fees; entitlement persists | Defendants: stipulation provided only $75,000 as full settlement; no provision for interest/fees | Court: New judgment limited to $75,000; prejudgment interest and attorney fees not recoverable under stipulation; Vitatech may seek trial court costs; appellants recover appellate costs |
Key Cases Cited
- Ridgley v. Topa Thrift & Loan Assn., 17 Cal.4th 970 (California Supreme Court) (liquidated-damages clauses valid only if reasonable under circumstances at formation)
- Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (Cal. Ct. App.) (stipulated judgments that far exceed foreseeable damages from breaching settlement can be unenforceable penalties)
- Sybron Corp. v. Clark Hosp. Supply Corp., 76 Cal.App.3d 896 (Cal. Ct. App.) (liquidated damages not reasonably related to actual damages are void as penalties)
- Jade Fashion & Co. v. Harkham Indus., Inc., 229 Cal.App.4th 635 (Cal. Ct. App.) (distinguishes discounts on admitted debts from liquidated-damages clauses in settlement stipulations)
- Purcell v. Schweitzer, 224 Cal.App.4th 969 (Cal. Ct. App.) (stipulated judgment excessive relative to settlement amount can be an illegal penalty)
- Weber, Lipshie & Co. v. Christian, 52 Cal.App.4th 645 (Cal. Ct. App.) (courts look to substance over form when assessing penalties/liquidated damages)
- Krechuniak v. Noorzoy, 11 Cal.App.5th 713 (Cal. Ct. App.) (reasonableness inquiry is factual; reviewed de novo when facts undisputed)