LOS ANGELES, Calif -- Creditors Adjustment Bureau (CAB) recently prevailed in a landmark California appellate court decision. The ruling in Creditors Adjustment Bureau, Inc. v. Ray Imani, 2022 Cal. App. LEXIS 689, establishes case law that provides specific guidelines and assurances for purposes of structuring settlement agreements. The decision stands up against the 2008 California appellate decision in Greentree Financial Group Inc. v. Execute Sports, Inc., (2008) 163 Cal.App.4th 495.
“This published decision is definitive and will provide clarity and relief to creditors entering into these sorts of settlement agreements”, says CAB chief counsel Kenneth J. Freed, Esq.
The debtor, Ray Imani owed $251,200.13 after defaulting on a lease. Under a settlement agreement reached through Creditors Adjustment Bureau, Imani agreed to pay a much lesser sum in 24 monthly installments. If he defaulted, however, he would owe the full amount sought in the complaint including fees, interest, and costs. Imani immediately defaulted on the settlement agreement and judgment was accordingly entered. He sought to set aside the judgment arguing that it constituted a penalty and was void under Greentree and its progeny. In it's August 9th, 2022, ruling, the Court of Appeals rejected this argument and was persuaded by CAB’s position that the specific language used in its settlement documentation made it distinguishable from Greentree and that court’s finding of an unenforceable penalty.
“It's all about the way we framed our stipulations for entry of judgment after that terrible Greentree decision,” says Freed.
Justice Kenneth Yegan began his ruling by saying: “Over twenty-five years ago, we stated the unremarkable: ‘The purpose of the law of contracts is to protect the reasonable expectations of the parties.... There is...a price to be paid for breach of contract.” That quote was from his Nov. 20, 1995, opinion in Ben-Zvi v. Edmar Co., (1995) 40 Cal.App.4th 468, 475. He continued, “here, we protect the reasonable expectations of the parties. And there is still a price to be paid for breach of contract.”
Creditors and their counsel can now breathe a lot easier knowing that a properly drafted settlement agreement will be deemed valid and enforceable even if it has a substantial “kicker” in the event of a default.
The CAB v. Imani Order can be found here.
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