In a fantastic ruling for our clients, a Los Angeles Superior Court Judge recently denied a motion by Countrywide Mortgage for judgment of over $1.3 million against our clients.
In the aftermath of the 2008 economic collapse, Countrywide demanded that our clients, a Tennessee-based mortgage company and its owner, repurchase a number of failed home loans based on a Repurchase Agreement.
On the eve of trial, Countrywide agreed to settle the $1+ million dispute for $34,000 with a stipulated judgment. If the defendants defaulted on their payments, Countrywide sought the right to enter judgment against them for the full amount originally sought.
The defendants made some payments but then defaulted. Countrywide sought entry of judgment for $1.3 million.
We argued that charging our clients $1.3 million for breach of a settlement with $25,000 remaining amounted to an illegal penalty.
“Under consistent authority, the judgment constitutes an unenforceable penalty because it bears no reasonable relationship to the range of actual damages the parties could have anticipated would flow from a breach of their settlement agreement.” Greentree Financial Group, Inc. v. Execute Sports, Inc. (2008) 163 Cal.App.4th 495, 497-498.
The court agreed with us in its tentative decision and the parties agreed that Countrywide could withdraw the motion.
Although stipulated judgments for the full amount originally sought is a common provision of settlement agreements, lawyers should make sure they are familiar with the Greentree Financial case and its limitations on such penalties.