Filed 5/11/18; Supreme Court publication order 8/8/18




             SUPERIOR COURT OF CALIFORNIA, COUNTY OF HUMBOLDT

                                     APPELLATE DIVISION


DEL MONTE PROPERTIES AND                                Case No.: CV170392
INVESTMENTS, INC.,

                Plaintiff and Respondent,               RULING AND DECISION

        v.

MARGARETT DOLAN,

               Defendant and Appellant.




        Appeal from Judgment of the Superior Court of Humboldt County, W. Bruce

Watson, Judge. Reversed.

        Gregory M. Holtz, S. Lynn Martinez, Legal Services of Northern California, for

Defendant and Appellant.




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         Del Monte Properties and Investment, Inc., Andrew Del Monte and Denise Del

Monte, in Pro Per, Plaintiff and Respondent.

                                         *       *     *

         Defendant and Appellant Margarett Dolan’s (“Appellant”) appeal came on for

hearing with the Appellate Division in Department 3 of this Court on April 6, 2018, Hon.

Dale A. Reinholtsen, Hon. Gregory Elvine-Kreis, and Hon. Kelly L. Neel presiding.

Gregory M. Holtz appeared on behalf of Appellant. Andrew Del Monte and Denise

Del Monte appeared for Plaintiff and Respondent Del Monte Properties and

Investments (“Respondent”).

         Having read and considered the briefs filed by the parties, and having heard

 argument of counsel and the parties, the Court reverses the judgment of the trial

 court for the reasons stated below.

                                    Trial Court Proceedings

         On May 10, 2017, Respondent filed a complaint for unlawful detainer against

 Appellant. Respondent alleged that it leased the premises to Appellant at a monthly

 rent of $600 and that it served Appellant with a 3-day notice to pay rent or quit on

 May 5, 2017. The 3-day notice, attached as an exhibit to the complaint, demanded

 rent in the amount of $600, as well as a late fee in the amount of $50, for a total of

 $650. The lease, also attached as an exhibit to the complaint, contains the following

 term:
               6. Late charge; returned checks:
               A. Tenant acknowledges either late payment of Rent or issuance of a
         returned check may cause Landlord to incur costs and expenses, the exact
         amount of which are extremely difficult and impractical to determine. These
         costs may include, but are not limited to, processing, enforcement and
         accounting expenses, and late charges imposed on Landlord. If any installment
         of Rent due from Tenant is not received by Landlord within 5 calendar days
         after the date due, or if a check is returned, Tenant shall pay to Landlord,




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     respectively, an additional sum of $50.00 as a Late Charge and $25.00 as a
     NSF fee for the first returned check and $35.00 as a NSF fee for each
     additional returned check, either or both of which shall be deemed additional
     Rent.
           B. Landlord and Tenant agree that these charges represent a fair and
     reasonable estimate of the costs Landlord may incur by reason of Tenant’s late
     or NSF payment. Any Late Charge or NSF fee due shall be paid with the
     current installment of Rent….

     Appellant filed an amended answer as well as a motion for summary judgment.

The summary judgment motion was denied and the case proceeded to trial on June

6, 2017 and June 7, 2017. Andrew Del Monte testified for Respondent. Both

Respondent and Appellant’s counsel asked questions about the late fee. After

Appellant’s motion for nonsuit was overruled, Appellant testified. Appellant

requested a statement of decision. The trial court found for Respondent. It ordered

the lease forfeited and awarded Respondent possession of the premises, as well as

“past-due rent” of $650 and holdover damages of $140, for a total judgment of $790.

Judgment was entered on June 7, 2017. Appellant filed a notice of appeal on

September 8, 2017. The trial court entered a statement of decision on September

29, 2017.

                                    Issues on Appeal

     Appellant submitted the following issues on appeal:

     1. The 3-day notice cannot support a judgment for unlawful detainer because

        it contains a demand for an invalid late fee which is prohibited by Civil Code

        §1671;

     2. The late fee cannot be justified as liquidated damages because the losses

        caused by late payment of rent were not extremely difficult or impractical to

        determine, and Respondent failed to show that the amount of liquidated




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            damages charged were the result of a reasonable endeavor to approximate

            those losses.

                                       Discussion

      1. Late Fee as Liquidated Damages.

      The proponent of a liquidated damages provision in a residential lease bears the

burden of proving its validity under Civil Code §1671. Garrett v. Coast & Southern

Fed. Sav. & Loan Assn. (1973) 9 Cal.3d 731, 738. While presumptively invalid,

liquidated damages may be imposed “when, from the nature of the case, it would be

impracticable or extremely difficult to fix the actual damage” caused by a breach. Civil

Code §1671(d). Then, “the parties may agree…upon an amount which shall be

presumed to be the amount of damage sustained by a breach.” Civil Code §1671(d).

      Courts look beyond the language of the contract to determine the actual

circumstances of a liquidated damages clause. Garrett v. Coast & Southern Fed. Sav.

& Loan Assn., 9 Cal.3d at 737. Agreement to an invalid liquidated damages clause

does not insulate it from attack under Civil Code §1671. The losses caused by late

payment of residential rent are limited to interest and administrative costs of collecting

and accounting for the late rent. Orozco v. Casimiro (2004) 121 Cal.App.4th Supp. 7,

11.

      Respondent failed to prove that the actual losses caused by late payment of rent

were extremely difficult or impracticable to determine. Moreover, an agreement to the

term setting the amount is not enough. At trial, Respondent testified about types of

losses caused by late payment of rent, but this was little more than a reference to the

language of the lease. Respondent did not articulate specific facts showing why the

circumstances of this case justify liquidated damages to compensate losses caused by

late payment. In fact, Respondent’s Exhibit 1 submitted on appeal demonstrates that




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these losses may not be difficult to calculate. Because Respondent failed to meet its

burden to show that the losses caused by late payment of rent in this case were

extremely difficult or impracticable to determine, liquidated damages were not justified

under Civil Code §1671.

   2. Late Fee Not Determined After Reasonable Endeavor to Approximate Actual

      Losses by Late Payment of Rent.

   As a separate and independent basis for this decision, Respondent failed to meet

its burden to show that the late fee was the result of a reasonable endeavor to

approximate actual losses caused by late payment of rent. To be valid under Civil

Code §1671, a liquidated damages clause must be the result of a reasonable

endeavor to approximate actual losses caused by the breach being compensated. In

re Cellphone Termination Fee Cases (2011) 193 Cal.App.4th 298, 322. Setting the

liquidated damages to a percentage of the contract price demonstrates a purpose

other than compensating losses.     Garrett v. Coast & Southern Fed. Sav. & Loan

Assn., 9 Cal.3d at 740. Some analysis of actual losses is required prior to setting the

amount. Util. Consumers’ Action Network, Inc. v. AT&T Broadband of Southern

California, Inc. (2006) 135 Cal.App.4th 1023, 1031. Post-hoc rationalization will be

rejected. In re Cellphone Termination Fee Cases, 193 Cal.App.4th at 328.

   Respondent did not show the late fee passes the reasonable endeavor test. First,

Respondent’s witness admitted at trial that the $50 late fee was set at a percentage of

the contract price. Second, Respondent’s witness admitted at trial that it never

attempted to calculate the amount of losses caused by late payment of rent. If no

effort was made to estimate the actual losses, then the resulting fee cannot

approximate the losses. The trial court erred by finding that Respondent met its

burden to show that the late fee met the reasonable endeavor test in this case.




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   3. A 3-Day Notice That Overstates the Amount of Rent Owed Does Not Support

      Unlawful Detainer.

   It is settled law that a defective notice is fatal to an unlawful detainer complaint.

Wasatch Prop. Mgmt. v. Degrate (2005) 35 Cal.4th 1111, 1117. The notice upon

which the complaint in this case is based is defective because it may include an invalid

late fee and it may not support a judgment for unlawful detainer.

                                               ORDER

      1. The judgment of the trial court is reversed.

      2. Appellant as prevailing party is awarded costs on appeal. CRC 8.891(a)(1)

          and (2).

      3. The case shall be remanded to the trial court.


Dated: May 11, 2018




                                   _________________________________________
                                   Hon. Dale A. Reinholtsen, Presiding Judge
                                   Appellate Division
                                   Superior Court of California, County of Humboldt




                                   Hon. Gregory Elvine-Kreis, Judge
                                   Appellate Division
                                   Superior Court of California, County of Humboldt




                                   Hon. Kelly L. Neel, Judge
                                   Appellate Division
                                   Superior Court of California, County of Humboldt




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