Vitatech Int'l, Inc. v. Sporn

• Decision Date: 29 September 2017
• Docket Number: G053477
• Citation: 16 Cal.App.5th 796,224 Cal.Rptr.3d 691
• Court: California Court of Appeals Court of Appeals
• Parties: VITATECH INTERNATIONAL, INC., Plaintiff and Respondent, v. Alan R. SPORN et al., Defendants and Appellants.

16 Cal.App.5th 796

224 Cal.Rptr.3d 691

VITATECH INTERNATIONAL, INC., Plaintiff and Respondent,

v.Alan R. SPORN et al., Defendants and Appellants.

G053477

Court of Appeal, Fourth District, Division 3, California.

Filed September 29, 2017

As Modified October 30, 2017

Friedman Stroffe & Gerard, Andrew R. Nelson, Irvine and Sasan K. Behnood, Newport Beach for Defendants and Appellants.

Steponovich & Associates and Michael J. Steponovich, Jr., Orange for Plaintiff and Respondent.

OPINION

ARONSON, J.

Seeking more than $166,000 in damages, plaintiff Vitatech International, Inc. (Vitatech) filed this breach of contract lawsuit against defendants National Marketing, Inc., CortiSlim International, formerly known as National Marketing, Inc., CortiSlim International, LLC, and Alan R. Sporn (collectively, Defendants). On the eve of trial, the parties settled for a one-time payment of $75,000. As part of the settlement, Defendants stipulated to entry of judgment against them "in the full prayer of the Complaint," but Vitatech agreed to "forbear" from filing the stipulation and to accept the $75,000 "as full Settlement of its claims against Defendants" if they paid by the designated date. When Defendants failed to pay, Vitatech filed the stipulation and the trial court entered judgment against Defendants for more than $300,000, which included compensatory damages, prejudgment interest, attorney fees, and costs.

Sporn and appellant CortiSlim International, Inc. (collectively, Appellants) moved to vacate the judgment, arguing it was an unenforceable penalty and under Civil Code section 1671, subdivision (b) ( section 1671(b) ). The trial court denied the motion because it found the judgment's higher amount was not a penalty or liquidated damages provision subject to section 1671(b). Rather, the court concluded the reduced amount Vitatech agreed to accept was merely a discount if Defendants paid their debt as agreed.

We reverse and remand for the trial court to grant the motion and enter a new judgment for the $75,000 settlement amount, plus trial court costs. Under well-established precedent, including this court's decision in Greentree Financial Group, Inc. v. Execute Sports, Inc. (2008) 163 Cal.App.4th 495, 78 Cal.Rptr.3d 24 ( Greentree ), the stipulated judgment for more than four times the amount Vitatech agreed to accept as full settlement of its claims is an unenforceable penalty because it bears no reasonable relationship to the range of damages the parties could have anticipated would result from Defendants' failure timely to pay the settlement amount. Contrary to Vitatech's argument, the stipulation for entry of judgment is not merely a permissible discount provision because the stipulation compromises disputed claims and resolves pending litigation. Although Defendants stipulated to entry of judgment if they did not timely pay, they never admitted liability on the underlying claims or the amount of damages allegedly caused by the breach of the underlying contract.

We also reject Vitatech's contention CortiSlim International, Inc. lacks standing to appeal the trial court's order because Vitatech did not name it as a defendant and the judgment did not award any relief against it. Vitatech ignores that its complaint included allegations that CortiSlim International, Inc. was liable for Defendants' debts, CortiSlim International, Inc. answered the complaint and fully participated in the litigation without objection, and Vitatech focused its postjudgment collection efforts on CortiSlim International, Inc.'s potential liability for Defendants' debts.

I FACTS AND PROCEDURAL HISTORY

Vitatech and National Marketing, Inc. entered into a contract for Vitatech to manufacture certain products for National Marketing, Inc. In March 2011, Vitatech filed this lawsuit against Defendants alleging National Marketing, Inc. failed to pay the invoices for the products it purchased. The operative first amended complaint did not name CortiSlim International, Inc., as a defendant, but it alleged CortiSlim International, Inc. and CortiSlim International, LLC were continuations of National Marketing, Inc. Vitatech named Sporn as a defendant based on a personal guaranty he signed and also alleged Sporn is the alter ego of all entity defendants. The complaint sought $166,372.14 in compensatory damages, plus attorney fees and costs, based on claims for (1) breach of contract; (2) breach of oral contract; (3) breach of implied in fact contract; (4) open book account; (5) account stated; and (6) breach of guaranty.

In August 2011, CortiSlim International, LLC and CortiSlim International, Inc. filed an answer asserting numerous affirmative defenses, including that the underlying contract was unenforceable, Vitatech breached the underlying contract, and Vitatech improperly manufactured and labeled its products. In February 2012, Sporn and National Marketing, Inc. filed an answer alleging many of the same affirmative defenses.

In September 2014, the parties agreed to settle this lawsuit. According to Vitatech's president, Defendants agreed to pay Vitatech $75,000 on or before June 5, 2015, and the parties entered into a stipulation for entry of judgment that authorized Vitatech to have the court enter judgment against Defendants for the full amount alleged in the complaint if they failed to make the settlement payment. Upon timely receipt of the settlement payment, Vitatech agreed to dismiss its complaint with prejudice.

The only written agreement setting forth the terms of the parties' settlement was a stipulation that provided "judgment shall be entered against Defendants Alan R. Sporn, an individual; CortiSlim International formerly known as National Marketing, Inc.; National Marketing, Inc. and CortiSlim International, LLC, in favor of [Vitatech], in the full prayer of the Complaint on file herein; [¶] ... [but Vitatech] will forbear from the filing hereof and will accept, as full settlement of its claims against Defendants Alan R. Sporn, an individual; CortiSlim International formerly known as National Marketing, Inc.; National Marketing, Inc. and CortiSlim International, LLC, the principal sum of Seventy-Five Thousand Dollars ($75,000.00), payable in one (1) payment on or before June 5, 2015." Although the stipulation did not provide for entry of judgment against CortiSlim International, Inc., that entity signed the stipulation along with Sporn, CortiSlim International, formerly known as National Marketing, Inc., and National Marketing, Inc. CortiSlim International, LLC did not sign the stipulation.

Defendants failed to make the settlement payment and Vitatech asked the trial court to enter judgment based on the stipulation. Vitatech sought a judgment for $303,620.12, comprised of $166,372.14 in compensatory damages, $104,427.01 in prejudgment interest, $28,315.00 in attorney fees, and $4,505.97 in costs. In July 2015, the court entered judgment against Defendants in the amount requested. The judgment did not name CortiSlim International, Inc.

In November 2015, Appellants moved to vacate the judgment under Code of Civil Procedure section 473, subdivision (d) ( section 473(d) ). They argued the judgment was void because it constituted an unlawful penalty in violation of section 1671(b)'s prohibition against liquidated damages provisions that bear no reasonable relationship to the damages likely to be caused by the breach of contract. Vitatech opposed the motion, arguing the judgment is not a penalty or illegal liquidated damages provision because Defendants judicially admitted and stipulated to their liability in the full amount of the prayer for relief alleged in the complaint and the stipulated judgment merely enforces that acknowledgement. The $75,000 settlement amount, Vitatech contends, was merely a discount of the agreed-upon liability to encourage prompt and timely payment.

The trial court agreed with Vitatech and denied the motion, ruling that "Defendants were served with [Vitatech's] declarations re breach of the Stipulation and Request for Entry of Judgment prior to the Judgment being entered. The Stipulated Judgment was for the amount of the debt alleged in the Complaint. The reduced amount agreed by the parties represented a discount if the debt was paid as agreed. The amount of the judgment did not represent a penalty; the lower amount represented a discount to Defendants. [¶] Defendants have not shown extrinsic fraud or mistake. Nor have Defendants shown a meritorious defense, satisfactory excuse, or diligence. Defendants have not shown special circumstances to justify setting the Judgment aside. Further, the Judgment is not void or voidable." This appeal followed.

II DISCUSSION

A. CortiSlim International, Inc. Has Standing to Appeal

Vitatech contends CortiSlim International, Inc. lacks standing to appeal because CortiSlim International, Inc. was not a party of record in the trial court, the stipulation for entry of judgment did not refer to it, and the court did not enter the judgment against it. We conclude CortiSlim International, Inc. has standing to appeal.¹

"Any party aggrieved" by an order or judgment has standing to appeal. ( Code Civ. Proc., § 902.) The test for determining appellate standing is twofold. The party seeking to appeal must (1) be a party of record in the trial court, and (2) be aggrieved by the order or judgment from which the appeal is taken. ( In re Marriage of Burwell (2013) 221 Cal.App.4th 1, 13, 164 Cal.Rptr.3d 702 ( Burwell ).) A party is aggrieved for appellate standing purposes if the party's " ‘ " ‘rights or interests are injuriously affected by the judgment [or order].’ " ' " ( People ex rel. Allstate Ins. Co. v. Dahan (2016) 3 Cal.App.5th 372, 376, 207 Cal.Rptr.3d 569.) "The appellant's ‘interest " ‘must be immediate, pecuniary, and substantial and not nominal or a remote consequence of the judgment [or order].’ " ' " ( Ibid . ) Standing is a jurisdictional requirement ( Sabi v. Sterling (2010) 183 Cal.App.4th...