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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS 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 Superior Court of Los Angeles County, 

William F. Fahey, Judge. Reversed. 

 Lipow & Harris and Jeffrey A. Lipow 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. Appellants sued the owners of a laundromat 

for wage and hour violations and wrongful termination. At a mandatory settlement 

conference, appellants and respondents agreed on a settlement amount -- $175,000 -- 

and a payment schedule. The settlement agreement provided that, if respondents did not 

pay the agreed-upon settlement amount, appellants could enter a stipulated judgment for 

$300,000. Respondents paid $58,000 of the $175,000 but then defaulted on the final 

balloon payment of $117,000, and appellants had the court enter the stipulated 

judgment. The court later reduced the amount 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 valid 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 Florez 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 (collectively 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. -- seven days a week. SCGY paid appellants 

$2,000 each month in cash, to be divided between them. Wages 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 appears in Appellants’ Appendix (at 

page 170). The named parties to the agreement are SCGY (Employer) and Guillermina 

Zaragoza and Claudia Osegueda (Employees). The signatures on the agreement are 

“Guillermina Zaragoza” and “Angelita Ramirez.” There is no signature on the line 

under “Employer, SCGY Investment Inc.” Appellants’ attorney told the trial court that 

SCGY produced this agreement in discovery. The agreement requires the employees to 
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 In October 2011, appellants sued SCGY. They alleged violations of Labor Code 

provisions requiring payment of the minimum 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 after they filed suit. In December 2011 

appellants filed an amended complaint, adding a cause of action for wrongful 

termination. As of September 2012, appellants calculated their damages as more than 

$510,000, consisting of unpaid regular wages and overtime of $192,576, liquidated 

damages in the same amount, prejudgment interest of $35,000, paystub 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 conference for SCGY, SCGY’s business attorney and its trial 

attorney. According to appellants’ 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 verdict 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: $50,000 within ten days of the 

settlement conference; $1,000 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 for $300,000. The parties agreed that 

appellants would not file the stipulated judgment if SCGY paid the $175,000 as agreed. 

However, if SCGY defaulted on its obligations, the settlement agreement authorized 

appellants to file the stipulated judgment. 

 SCGY made the initial payment and the eight monthly payments. But SCGY 

failed to make the final balloon payment of $117,000. SCGY apparently claimed that it 

was trying to sell some properties or get a loan 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.” 
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judgment for $242,000 ($300,000 less the $58,000 SCGY had paid) to the court. The 

court signed and filed the judgment on July 24, 2013. 

 Appellants then apparently tried to collect from SCGY. In October and 

November 2013, respectively, appellants filed motions for assignment of rents and for 

appointment of a receiver. SCGY filed opposition, asserting for the first time -- more 

than a year after the settlement conference -- that the $125,000 amount included in the 

stipulated judgment above and beyond the agreed-upon settlement figure of $175,000 

was an unenforceable penalty. The parties briefed the issue. 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 that the stipulated judgment 

constituted an unenforceable penalty under Greentree Financial Group, Inc. v. Execute 

Sports, Inc. (2008) 163 Cal.App.4th 495 (Greentree). 

APPELLANTS’ CONTENTIONS 

 Appellants contend the trial court improperly placed the burden of proof on them 

to demonstrate that the stipulated judgment provision of the settlement agreement was 

valid. Appellants argue that Civil Code section 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 provided, “Every contract by which the 

amount of damages to be paid, or other compensation to be made, for breach of an 

obligation, is determined in anticipation thereof, is to that extent void, except as 

expressly provided in [section 1671].” Section 1671 read, “ ‘The parties to a contract 

may agree therein upon an amount which shall be presumed to be the amount of damage 
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sustained by a breach thereof, when, from the nature of the case, it would be 

impracticable or extremely difficult to fix the actual damage.’ ” 

 In 1977 the Legislature revised the law 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 unreasonableness.” (1 Witkin, Summary of Cal. 

Law (10th ed. 2005) Contracts, § 503, p. 553 [Witkin] [emphasis in original]. 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 subdivision (c) [concerning consumer cases and 

leases of dwellings], a provision in a contract 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 circumstances 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 because it is intended to encourage a party to 

perform, so long as it represents a reasonable attempt to anticipate the losses to be 

suffered. (Californians for Population Stabilization 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 party seeking to invalidate the liquidated 

damages provision. The subdivision limits the circumstances that may be taken 

into account in the determination of reasonableness to those in existence “at the 
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time the contract was made.” . . . [S]ubdivision (b) gives the parties considerable 

leeway in determining the damages for breach. All the circumstances existing at 

the time of the making of the contract are considered, including the relationship 

that the damages provided in the contract bear to the range of harm that 

reasonably could be anticipated at the time of the making of the contract. Other 

relevant considerations in the determination of whether the amount of liquidated 

damages is so high or so low as to be unreasonable include . . . the relative 

equality of the bargaining power of the parties, whether the parties were 

represented by lawyers at the time the contract was made, the anticipation of the 

parties that proof of actual damages would be costly or inconvenient, the 

difficulty of proving causation and foreseeability, and whether the liquidated 

damages provision is included 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 liquidated damages and stipulated judgment 

provisions of its settlement agreement with appellants were “unreasonable under the 

circumstances existing at the time the contract 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 judgment, together with its attorney’s 

declaration authenticating those documents. SCGY submitted no evidence whatsoever 

in any effort to meet its burden of proof. Here, SCGY’s bargaining power in 

negotiating and signing the settlement agreement was at least equal to that of appellants, 

two unsophisticated workers. SCGY was represented at the settlement conference by 

counsel of its choice. The settlement agreement was not a form contract; rather, it was 

specifically negotiated and drafted to resolve the parties’ dispute here. The stipulated 

judgment provision legitimately provided an incentive for SCGY to perform -- to make 

the agreed-upon payments. The Law Revision Commission expressly recognized this 

goal as a valid one, encouraging settlement. 
7 

 Nor did SCGY carry its burden of proving 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 Thrift & Loan Assn. 

(1998) 17 Cal.4th 970, 977.) In the absence of any showing by the party bearing the 

burden of proof, we may presume a reasonable relationship. For example, appellants 

and their attorney may have anticipated that substantial attorney time -- and therefore 

fees -- would be necessary to try to recover 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 for 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 Legislature 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 [enforcing liquidated damages of twice the actual damages; 

“[g]iven the current statutory policy which favors the validity of such agreements except 

in certain consumer transactions, and which casts the burden 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 anticipated, we find no public 

policy reason why [former partner] 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 “must 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 circumstances 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 have here. It is therefore 

inapposite. 
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DISPOSITION 

 The trial court’s order reducing the amount of the judgment in appellants’ favor 

is reversed. The court is directed to reinstate the stipulated judgment entered July 24, 

2013, in appellants’ favor for $242,000. Appellants are entitled 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 Court, assigned by the Chief Justice pursuant 

to article VI, section 6 of the California Constitution.