Filed 4/2/15 Florez v. Yim CA2/3 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

HERMINA FLOREZ et al.,
Plaintiffs and Appellants,

v.
DONG YIM et al.,
Defendants and Respondents. B255766
(Los Angeles County Super. Ct. No. BC471407)

APPEAL from a judgment of the Su perior Court of Los Angeles County,
William F. Fahey, Judge. Reversed.
Lipow & Harris and Jeffrey A. Lipo w for Plaintiffs and Appellants.

Law Offices of Alex Cha and Alex M. Cha for Defendants and Respondents.

___________________ ____________________2 Appellants Hermina Florez and Claudia Zaragoza appeal from the trial court’s order reducing a judgment in their favor. A ppellants sued the owners of a laundromat for wage and hour violations and wrongful termin ation. At a mandatory settlement conference, appellants and respondents agre ed on a settlement amount -- $175,000 -- and a payment schedule. The settlement agreem ent provided that, if respondents did not pay the agreed-upon settlement amount, appellant s could enter a stipulated judgment for $300,000. Respondents paid $58,000 of the $175,000 bu t then defaulted on the final balloon payment of $117,000, and appella nts had the court enter the stipulated judgment. The court later reduced the am ount of the judgment, finding that the additional $125,000 was an impermissible penalty under Civil Code section 1671, subdivision (b) and applicable law. We reverse because the Civil Code presumes a liquidated damages provision to be va lid and places the burden of proving it invalid on the party challenging the liquidated damages. Respondents here made no showing at all. Thus, they failed to carry their burden of proof.
FACTUAL AND PROCEDURAL BACKGROUND Plaintiffs and appellants Hermina Flor ez and Claudia Zaragoza, a mother and daughter, worked for several years at a laundromat in Wilmington owned by defendants and respondents Dong Yim, Stan Chu, and SCGY Investment Inc., doing business as Y&C Coin Laundry (co llectively SCGY). Florez says she worked fifteen hours a day -- from 5:00 p.m. to 8:00 a.m. -- seven days a week. Zaragoza says she worked nine hours a day -- from 8:00 a.m. to 5:00 p.m. -- se ven days a week. SCGY paid appellants $2,000 each month in cash, to be divided between them. Wa ges of one thousand dollars a month for those hours worked amounts to less than $2.25 an hour for Florez and about $3.70 an hour for Zaragoza. 1

1 A written employment agreement appe ars in Appellants’ Appendix (at page 170). The named parties to the ag reement are SCGY (Employer) and Guillermina Zaragoza and Claudia Osegueda (Employees ). The signatures on the agreement are “Guillermina Zaragoza” and “Angelita Rami rez.” There is no signature on the line under “Employer, SCGY Investment Inc.” Appella nts’ attorney told the trial court that SCGY produced this agreement in discovery. The agreement requires the employees to3 In October 2011, appellants sued SCGY. They alleged violations of Labor Code provisions requiring payment of the mini mum wage and overtime, as well as the maintenance of payroll records. Appellants also asserted a cause of action for unfair business practices. SCGY fired appellants afte r they filed suit. In December 2011 appellants filed an amended complaint, adding a cause of action for wrongful termination. As of September 2012, appella nts calculated their damages as more than $510,000, consisting of unpaid regular wa ges and overtime of $192,576, liquidated damages in the same amount, prejudgment in terest of $35,000, pays tub violations of $8,000, waiting time penalties of $7,268, attorneys’ fees of $75,000, and punitive damages. In September 2012 the parties attended a mandatory settlement conference. Two attorneys appeared at the co nference for SCGY, SCGY’s business attorney and its trial attorney. According to appe llants’ lawyer, SCGY said all its assets were “leveraged” and it threatened it would declare bankruptcy or its principals would leave the United States for Korea if appellants received a verd ict in their favor. Appellants were worried about whether they could collect any judgment . The parties agreed to resolve the case for $175,000. SCGY agreed to a payment schedule: $50,00 0 within ten days of the settlement conference; $1,00 0 each month for the next eight months; and a final payment on July 1, 2013, of the balance of $117,000. At the settlement conference, SCGY also signed a stipulated judgment fo r $300,000. The pa rties agreed that appellants would not file the stipulated judgm ent if SCGY paid the $175,000 as agreed. However, if SCGY defaulted on its obliga tions, the settlement ag reement authorized appellants to file the stipulated judgment. SCGY made the initial payment and the eight monthly paym ents. But SCGY failed to make the final balloon paym ent of $117,000. SCGY apparently claimed that it was trying to sell some properties or get a lo an to make the final payment. Appellants
notified SCGY of its default and then -- in July 2013 -- submitted the stipulated

hold SCGY harmless for “any damages or mishaps that may arise.” It also states that SCGY can terminate the agreement “at any time [in its] sole discretion.”4 judgment for $242,000 ($300,000 less the $58,000 SCGY had paid) to the court. The court signed and filed the ju dgment on Ju ly 24, 2013. Appellants then apparently tried to collect from SCGY. In October and November 2013, respectively, appellants file d motions for assignment of rents and for appointment of a receiver. SCGY filed oppositi on, asserting for the first time -- more than a year after the settlement conference -- that the $1 25,000 amount in cluded in the stipulated judgment above a nd beyond the agreed-upon se ttlement figure of $175,000 was an unenforceable penalty. The parties briefed the issu e. The court heard argument on February 24, 2014. On March 4, 2014 , the court issued its order reducing the amount of the judgment to $ 117,000. The order stated th at the stipulated judgment
constituted an unenfor ceable penalty under Greentree Financial Group, Inc. v. Execute Sports, Inc. (2008) 163 Cal.App.4th 495 ( Greentree ).
APPELLANTS’ CONTENTIONS Appellants contend the trial court impr operly placed the burde n of proof on them to demonstrate that the stipulated judgment provision of the settlement agreement was valid. Appellants argue that Civil Code sec tion 1671, subdivision (b) puts the burden of proof on the party challenging enforcement of a liquidated damages provision -- here, respondents. Appellants also contend that Greentree is distinguishable and that
Greentree was wrongly decided in any event.
DISCUSSION Whether the amount to be paid for breach of a contractual term should be treated as liquidated damages or as an unenforceable penalty is a question of law. We review it de novo. ( Harbor Island Holdings v. Kim (2003) 107 Cal.App.4th 790, 794.) Until 1977, Civil Code section 1670 prov ided, “Every contract by which the amount of damages to be paid, or other co mpensation to be made, for breach of an obligation, is determined in anticipa tion thereof, is to that extent void, except as expressly provided in [section 1671].” Sectio n 1671 read, “ ‘The parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damage5 sustained by a breach ther eof, when, from the nature of the case, it would be impracticable or extremely diffi cult to fix the actual damage.’ ” In 1977 the Legislature revised the la w of liquidated damages by repealing Civil
Code sections 1670 and 1671 and enacting a new section 1671, operative July 1, 1978. “The revised statute (citation) change[d] the law by declaring a general rule of validity of a liquidated damage provision, a rule that can be overcome if the party seeking to invalidate the provision establishes unreasona bleness.” (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 503, p. 553 [ Witkin ] [emphasis in orig inal]. See also Weber, Lipshie & Co. v. Christian (1997) 52 Cal.App.4th 645 , 654 [“In 1977 the Legislature revised Civil Code section 1671, so as to replace the former policy of presumptive invalidity of liquidated damages clauses [citation] with a policy of presumptive validity ”] (emphasis the court’s).) Civil Code section 1671, subdivision (b) now provides, “Except as provided in subdiv ision (c) [concerning consumer cases and leases of dwellings], a provision in a contra ct liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circum stances existing at the time the contract
was made.” The Law Revision Commission, following a study, concluded that liquidated damages provisions are useful and should be encouraged for a number of reasons. ( Witkin, § 533 p. 578.) One of those reasons is “[a] party may fear that, without such a provision, the other party will lack incentive to perform.” ( Ibid. ) A liquidated damages provision is not invalid merely beca use it is intended to encourage a party to perform, so long as it represents a reasona ble attempt to anticip ate the losses to be suffered. ( Californians for Population Stabili zation v. Hewlett-Packard Co. (1997) 58 Cal.App.4th 273, 289.) According to the Law Revision Commission Comments: “In the cases where subdivision (b) applies, the burden of proof on the issue of reasonableness is on the part y seeking to invalidate the liquidated damages provision. The subdivision limits the circumstances that may be taken
into account in the determination of reas onableness to those in existence “at the6 time the contract was made.” . . . [S]ubdi vision (b) gives the parties considerable leeway in determining the damages for br each. All the circumstances existing at the time of the making of the contract are considered, including the relationship that the damages provided in the contra ct bear to the range of harm that reasonably could be anticipated at the tim e of the making of the contract. Other
relevant considerations in the determin ation of whether the amount of liquidated damages is so high or so low as to be unreasonable includ e . . . the relative equality of the bargaining power of th e parties, whether the parties were represented by lawyers at the time the cont ract was made, the anticipation of the parties that proof of actual damages w ould be costly or inconvenient, the difficulty of proving causation and fore seeability, and whether the liquidated damages provision is includ ed in a form contract.” (Law Revision Commission Comments, 1977 Amendment.) Accordingly, under the plain language of the statute, SCGY bore the burden of proof here of demonstrating that the li quidated damages and stipulated judgment provisions of its settlement agreement w ith appellants were “unreasonable under the circumstances existing at the time the cont ract was made.” (Civ. Code, § 1671, subd. (b).) SCGY’s submission in the trial court consisted only of copies of the settlement agreement and the stipulated ju dgment, together with its attorney’s declaration authenticating those documents. SCGY submitted no evidence whatsoever in any effort to meet its burden of pr oof. Here, SCGY’s bargaining power in negotiating and signing the settleme nt agreement was at least equal to that of appellants, two unsophisticated workers. SCGY was re presented at the settlement conference by counsel of its choice. The settlement agreem ent was not a form contract; rather, it was specifically negotiated and drafted to resolve the parties’ dispute here. The stipulated judgment provision legitimatel y provided an ince ntive for SCGY to perform -- to make the agreed-upon payments. The Law Revision Commission ex pressly recognized this goal as a valid one, encouraging settlement.7 Nor did SCGY carry its burden of prov ing that the liquidated damages amount bore “no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach.” ( Ridgley v. Topa Th rift & Loan Assn. (1998) 17 Cal.4th 970, 977.) In the absence of any show ing by the party bearing the burden of proof, we may presume a reasonabl e relationship. For example, appellants and their attorney may have anticipated that substantial attorney time -- and therefore fees -- would be necessary to try to rec over the agreed-upon amount from SCGY if it breached and failed to pay what it had agreed to pay. That prediction has been borne out, as appellants have now been seeking fo r nearly two years to obtain the money promised them -- a process involving motions for receivers and assignment of rents as well as an appeal. In sum, when the party to whom the Le gislature has assigned the burden of proof fails to present any evidence to meet its burden, the presumed validity of a liquidated damages provision will be enforced. (Cf. Weber, Lipshie & Co. v. Christian, supra, 52 Cal.App.4th at p. 656 [enf orcing liquidated damages of twice the actual damages; “[g]iven the current statutory policy which fa vors the validity of such agreements except in certain consumer transac tions, and which casts the burd en on the opposing party to prove unreasonableness and requires only that the liquidated damages bear a reasonable relationship to the range of harm that might reasonably be anticipat ed, we find no public policy reason why [former partne r] should not be held to the measure of damages to which he agreed”]; O’Connor v. Televideo System, Inc. (1990) 218 Cal.App.3d 709, 718 [party challenging provision “m ust establish that the charge was unreasonable before we can conclude that it should be invalidated”; challenger “wholly failed to establish that the charge was unreasonable under the ci rcumstances existing at the time it was made”].) Finally, Greentree – on which SCGY relies -- did not involve a failure to present any evidence by the party bearing the burden of proof, as we ha ve here. It is therefore inapposite.8 DISPOSITION The trial court’s order reducing the amount of the judgment in appellants’ favor
is reversed. The court is directed to rein state the stipulated ju dgment entered July 24, 2013, in appellants’ favor fo r $242,000. Appellants are en titled to recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

EGERTON, J. *

WE CONCUR:

KITCHING, Acting P. J.

ALDRICH, J.

* Judge of the Los Angeles Superior Cour t, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.