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Creditors and Their Counsel Can Now
“Breathe a Lot Easier”

Creditors Adjustment Bureau (CAB) recently prevailed in a landmark court decision issued by the California Appellate Court.

The court ruling in Creditors Adjustment Bureau Inc. v. Ray Imani, 2022 Cal. App. LEXIS 689, establishes case law which provides specific guidelines and assurances for purposes of structuring settlement agreements to stand up against the dreaded decision in the infamous Greentree Financial Group case.

“This published decision is definitive and will provide clarity and relief to creditors entering into these sorts of settlement agreements,” said CAB chief counsel Kenneth J. Freed, Esq.

Facts of the Case

The debtor, Ray Imani, owed $251,200.13 after defaulting on a lease. Under a settlement agreement reached through CAB, Imani would pay a much-reduced sum in 24 monthly installments. However, if he defaulted, 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 the Aug. 9, 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 quoting his earlier opinion, saying: “Over 25 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. He continued, “Here, we protect the reasonable expectations of the parties. And there is still a price to be paid for breach of contract.”

A Big Win for Creditors

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.