The Ryan Firm Secures Appellate Reversal – Saving A Favorable Settlement

Congratulations to Paul Kurtzhall and Matthew Aguirre on the successful outcome in the appeal of Cruz v. Nolan et al. (Case No. G063488) before the Court of Appeal, Fourth Appellate District, Division Three. This was a very hard-fought case and this appellate ruling is a result of strategic thought and loads of determination.

Background of the Case

In 2017, our senior citizen clients lent $480,000 secured by a deed of trust in a fourplex.  Rather than pay the loan off, the borrower defaulted on the loan less than a year later and in 2019, sued our clients.  The borrower claimed that the funds were lent without proper authorization from the borrower and sought to cancel and rescind the secured loan and claimed elder abuse, seeking significant general damages, punitive damages, and attorney’s fees.  Our clients were initially defended by their title insurance carrier, but when the case dragged on with no end in sight, they hired our firm to assist.  We immediately initiated a foreclosure, defeated an attempt to stop the foreclosure and then were able to negotiate from a position of strength.  

Settlement

With a foreclosure sale imminent, our firm was able to negotiate a nearly- full payoff for our clients.  The settlement required Plaintiff to obtain a release of the borrower’s claims, pay $825,000 to our clients through the sale of the secured property, and to dismiss the underlying action.  Later, the borrower came to our clients, asking if it could close the transaction prior to providing the promised claims release.  Our clients agreed to an amendment wherein the transaction could close, BUT if the claims release was not provided by a date certain, our clients would receive all of the net sales proceeds – an additional sum of $432,754.72.  The claims release was never provided, and the entirety of the net sales proceeds was ultimately transferred from escrow to our clients.

The Trial Court Re-Writes the Settlement Agreement

After the escrow company transferred the net proceeds, the borrower demanded those same net proceeds and then made a motion for the court to enforce the settlement agreement under Code of Civil Procedure 664.6.  This motion basically asked the judge to re-write the settlement agreement – requiring our clients to return the transferred net sales proceeds, even though the borrower never provided the claims release (and continued to refuse to provide said claims release).  After significant briefing and several hearings, the judge agreed with the borrower and ruled that the transfer of the net sales proceeds to our clients was an unenforceable penalty, ordering our firm to return the net proceeds to the borrower, even though the borrower refused to provide the claims release.  The court also awarded the borrower its attorney’s fees.  Naturally, the clients appealed.

The Appellate Court Reverses the Trial Court:

On appeal, our clients, represented by our firm, argued that the trial court erred in both its jurisdiction to enforce the settlement and its finding that the provision was an unenforceable penalty. The appellate court upheld the trial court's jurisdiction, but reversed the trial court's ruling on the unenforceable penalty issue, finding that the borrower failed to meet its burden to prove the provision to transfer all of the net sales proceeds to our clients was unreasonable at the time the amendment was entered into. The appellate court emphasized that the transfer of the net sales proceeds to our clients was to protect our clients from potential future litigation by the borrower, a risk that was significant given the history of protracted litigation. The absence of evidence showing unequal bargaining power, use of a form contract, or other factors undermining reasonableness further supported the provision's validity.  The appellate court ruling allows our clients to keep the net sales proceeds received and allows our clients to move for their attorney’s fees incurred in defending its properly negotiated and effectuated settlement agreement.

Congratulations to Paul Kurtzhall and Matthew Aguirre:

The successful outcome of this appeal is a testament to the skill, dedication, and strategic acumen of Paul Kurtzhall and Matthew Aguirre. Their thorough understanding of the legal nuances surrounding Code of Civil Procedure section 664.6 and Civil Code section 1671(b), combined with their compelling advocacy and staunch determination, secured a significant victory for our clients. The court's detailed analysis reflects the strength of the arguments presented, particularly in navigating the complexities of the amended statutory framework and the burden of proof for liquidated damages provisions. This result not only vindicates our clients' position but also reinforces our firm's reputation for finding leverage, using that leverage for client-entered results, and preserving that leverage through excellence in appellate litigation.

Paul Kurtzhall handled the lion’s share of the briefing and oral argument, and our firm and our clients owe him a great deal of gratitude.  Well done Paul!

We can help you!

Our clients were able to obtain these spectacular results because they came to our office for a “second opinion” on how to manage their case.  If you see yourself stuck in a litigation that appears to be unending, don’t hesitate to reach out to us for a review.