Opinion
No. 99-43758 T Chapter 11
October 10, 2001
MEMORANDUM OF DECISION
Juinn Long Lim, assignee of Pan Asia Group, Inc.'s ("Pan Asia") claim against the above-captioned bankruptcy estate, objects to confirmation of the above-captioned debtor's fourth amended plan of reorganization (the "Plan"). The debtor Doris Fung Wai Ma ("Ma") objects to the amount of Pan Asia's claim. The Court conducted an evidentiary hearing with respect to these two contested matters. The Court's findings and conclusions are set forth below.
SUMMARY OF FACTS AND PROCEDURAL HISTORY
On September 26, 1996, Pan Asia obtained a judgment against William Shek Kuen Cheung, individually and doing business as Clement Exporter (USA) Inc. ("Cheung") in the amount of $371,544.03 and against Clement Exporter (USA), Inc. ("Clement") in the amount of $449,552.50 (the "September 1996 Judgment"). In 1996, Cheung filed a chapter 7 bankruptcy case. Pan Asia filed a timely complaint seeking to except its judgment claim from Cheung's discharge.
On or about August 15, 1997, Cheung entered into a settlement agreement with Pan Asia, providing for dismissal of the dischargeability action (the "1997 Settlement Agreement"). In return, Cheung agreed to execute a promissory note for $110,000, payable $20,000 within one week from bankruptcy court approval of the agreement and $5,000 a month thereafter until the balance was paid. The 1997 Settlement Agreement also required guaranties of the settlement obligation by Cheung's current wife Eva Liu ("Liu") and Ma, his former wife.
The bankruptcy court approved the 1997 Settlement Agreement. On or about August 15, 1997, Cheung executed the promissory note, and Liu executed a guaranty. On or about August 18, 1997, Ma executed a guaranty. On or about September 11, 1997, the dischargeability action was dismissed.
Cheung paid Pan Asia only $6,000 pursuant to the 1997 Settlement Agreement. On or about April 9, 1998, Juinn Long Lim, to whom Pan Asia had by that time assigned its claim, filed a complaint in Alameda County Superior Court against Cheung, Liu, and Ma (the "State Court Action"), seeking the balance due under the 1997 Settlement Agreement. On or about January 3, 1999, Derek Lim, Juinn Long Lim's brother and the attorney of record for Juinn Long Lim in the State Court Action, and Lewis Phon ("Phon"), the defendants' attorney, signed a document entitled "Settlement Agreement and Mutual Release" (the "January 1999 Settlement Agreement"). The January 1999 Settlement Agreement contained signature lines for Juinn Long Lim, Cheung, Liu, and Ma as well as for Derek Lim and Phon. However, no one other than the two attorneys signed the January 1999 Settlement Agreement.
The January 1999 Settlement Agreement provided that Cheung, Ma, and Liu would pay $40,000 to Lim, $3,000 on or before January 20, 1999 and the balance by June 30, 1999. It further provided that $40,000 (or the balance due after the $3,000 payment) would be secured by a deed of trust on real property owned by Ma (the "Deed of Trust") junior only to the existing first deed of trust and a judgment lien for approximately $112,000. The defendants paid the initial $3,000 although not in a timely fashion. However, they did not pay the $37,000 balance by June 30, 1999. Additionally, Ma did not execute the required deed of trust and on May 4, 1999 filed a chapter 13 bankruptcy case. The case was later converted to chapter 11.
In early June, Phon and Derek Lim negotiated a new settlement agreement (the "June 1999 Settlement Agreement"). On or about June 15, 1999, Derek Lim wrote a letter to Phon memorializing the terms of the settlement agreement (the "June 15, 1999 letter"). The June 15, 1999 letter provided that the defendants would pay Juinn Long Lim $40,000 at the rate of $833.33 per month for 48 months. The payments would be due on the first of the month. If they were not made when due, Juinn Long Lim would give defendants notice of the delinquency. The defendants would execute a stipulation for entry of judgment in the amount of $90,000 effective June 28, 1999 which Juinn Long Lim would be entitled to record immediately. If the defendants did not cure a delinquency after notice, Juinn Long Lim would be entitled to execute the $90,000 judgment after giving credit for any payments made. Phon was directed to prepare a stipulation for judgment and settlement agreement (the "June 1999 Settlement Agreement") and send them to Derek Lim for his client's review and signature. Juinn Long Lim contends that the letter merely reflected proposed settlement terms, that Derek Lim was not authorized to bind him to a settlement agreement, and that he had not yet agreed to the terms set forth in the June 15, 1999 letter. Phon never prepared the stipulation for judgment and settlement agreement as directed by the June 15, 1999 letter. He testified at trial that the June 1999 Settlement Agreement was not intended to apply to Ma because she was in bankruptcy. There was a case management conference scheduled in the State Court Action on July 2, 1999. He appeared at the conference, along with Derek Lim, and advised the state court judge that the matter had been settled and asked whether he could obtain a stipulated judgment against the nonbankruptcy defendants only. The state court judge informed him that he could not. However, based on the representation that the matter had been settled, the state court judge continued the case management conference to December 17, 1999. The conference was later continued two more times, for one year each time.
In the mean time, the defendants began making the specified monthly payments. The payments were sent to Derek Lim. Derek Lim accepted the payments. He testified that he simply placed the payments in his trust account and did not transmit them to his client. As discussed below, the Court does not believe this testimony. The Court is willing to believe that Derek Lim did not transmit the settlement payments to Juin Long Lim. However, the Court is unable to believe that Derek Lim simply kept over $15,000 in his trust account because he did not get around to discussing with his client what portion of the payments should be retained for attorneys' fees and what portion should be applied to interest. Juinn Long Lim testified that he never received the payments. The payments were not always made when due. When payments were late, Derek Lim wrote to Phon, informing him of the delinquency and urging him to see that the default was cured.
On or about December 15, 1999, Derek Lim wrote Phon to inform him that the December 17, 1999 status conference in the State Court Action had been continued to December 15, 2000. The December 15, 1999 letter urges Phon to ". . . file a Stipulation for Judgement and Settlement Agreement to conclude the case. The terms of the Stipulation agreed were discussed in my letter dated June 15, 1999, a copy enclosed."
The December 1999 Letter contains a notation that a copy was sent to "Client." At trial, Derek Lim testified that, after receiving the December 15, 1999 letter, Juinn Long Lim called him and informed him that, because of the defendants' failure to obtain a judgment by June 28, 1999, he was no longer willing to enter into the June 1999 Settlement Agreement. Derek Lim did not communicate this decision to Phon and continued to accept the monthly settlement payments. In or before December 2000, the December 2000 case management conference in the State Court Action was continued to December 2001.
On February 5, 2001, the Court conditionally approved Ma's fourth amended disclosure statement. A hearing was scheduled on March 19, 2001 for final approval of the disclosure statement and confirmation of the Plan. Notice of the hearing was given to creditors, including Juinn Long Lim, and copies of the Plan and disclosure statement were mailed to them. The Plan provided for full payment of all general unsecured creditors over time. There was no specific discussion of Juinn Long Lim's claim in either the Plan or the disclosure statement.
On or about March 5, 2001, Derek Lim wrote a letter to the state court judge, informing him that, because the defendants had failed to perform any of the terms of the June 1999 Settlement Agreement, the settlement agreement should not be considered in effect. In the letter, he acknowledged that the defendants had been making monthly payments pursuant to the June 1999 Settlement Agreement. However, he stated that he considered these payments to be interest on the $110,000 principal due under the 1997 Settlement Agreement.
On March 12, 2001, Juinn Long Lim filed an objection to confirmation of the Plan. The objection contended that the Plan should not be confirmed because it failed to provide for Juinn Long Lim's $110,000 claim based on the June 1997 Settlement Agreement. Based on this and an objection to confirmation by another creditor, Morgan Lincoln, the Court continued the confirmation hearing until the objections could be resolved. Ultimately, the Court determined evidentiary hearings were required to resolve both objections. An evidentiary hearing was conducted on Juinn Long Lim's claim beginning on August 14, 2001 and concluding on August 22, 2001. At the conclusion of the hearing, the Court took the matter under submission.
DISCUSSION
Ma contends that she owes nothing to Juinn Long Lim pursuant to her guaranty because the guaranty was not supported by consideration. Juinn Long Lim contends that there was consideration for Ma's guaranty and that, in any event, no consideration was required. This issue is discussed in Section 1 below.
Next, Ma contends that, if her guaranty is enforceable, her obligation should be governed by the June 1999 Settlement Agreement. Juinn Long Lim contends that it should be governed by the 1997 Settlement Agreement. Juinn Long Lim contends that the June 1999 Settlement Agreement is unenforceable because: (A) the parties did not comply with Cal. Civ. Proc. Code 664.6; (B) Derek Lim had no authority to bind Pan Asia to the June 1999 Settlement Agreement; (C) obtaining a stipulated judgment effective June 28, 1999 was a condition precedent to the effectiveness of the June 1999 Settlement Agreement that was never performed; and (D) the parties did not intend the June 1999 Settlement Agreement to be binding until the settlement documents were signed. These issues are discussed in Section 2 below.
Finally, Ma contends that, even if the June 1999 Settlement Agreement is legally unenforceable, Juinn Long Lim should be judicially or equitably estopped from challenging its enforceability because he accepted the monthly settlement payments over a period of nearly two years. These issues are discussed in Section 3 below. Finally, in Section 4 below, the Court considers the effect of its conclusions regarding these issues on Ma's bankruptcy case and the Plan.
1. IS MA'S GUARANTY UNENFORCEABLE BECAUSE IT WAS UNSUPPORTED BY CONSIDERATION?
Normally, a contract is not formed unless consideration is given. See Cal. Civ. Code § 1550(4). However, a written guaranty is presumed to be supported by adequate consideration. See Cal. Civ. Code § 1614 (West 1982); Rancho Santa Fe Pharmacy, Inc. v. Seyfert, 219 Cal.App.3d 875, 879 (1990). To rebut this presumption, the party asserting that the guaranty was not supported by consideration must come forward with sufficient evidence to prove this assertion. If sufficient evidence is produced, the party attempting to enforce the guaranty has the burden of proving adequate consideration. Id., at 879-884.
The only evidence produced by Ma to rebut the presumption of consideration created by her written guaranty was her testimony that she received no consideration for it. The Court believed her. While slight, because essentially uncontradicted, this testimony was sufficient to rebut the Cal. Civ. Code § 1614 presumption and to require Juinn Long Lim to prove that Ma did receive consideration.
The only evidence of consideration offered by Juinn Long Lim was Derek Lim's testimony that it was his understanding that Ma was an officer of Clement. California case law arguably supports the contention that an officer or director of a corporation receives consideration for a guaranty of a corporate obligation by virtue of his or her relationship with the corporation. See Oakland Bank of Commerce v. Washington, 6 Cal.App.3d 793, 797 (1970) ("The other defendants, appellants herein, had become stockholders and directors of Pacific Empire Loan. (These facts are likewise to be considered in respect of consideration. [Citation omitted])"); Schafer v. Wholesale Frozen Foods, Inc., 151 Cal.App.2d 96, 100 (1957) ("Also, as officers and stockholders of Wholesale, the guarantors derived `a benefit from the transaction, of itself a good consideration for the guaranty.' [Citation omitted.]")
However, the Court notes that, in both of the cases cited above, the guarantor was not only an officer or a director of the corporate principal obligor but also a shareholder. A shareholder has a clear economic stake in a corporation's financial affairs; an officer or director does not. Thus, the Court finds that the evidence produced by Juinn Long Lim was insufficient to prove that Ma received consideration for her guaranty.
Juinn Long Lim contends that detriment to the claimant may also constitute consideration and that Pan Asia suffered detriment by entering into the 1997 Settlement Agreement. Juinn Long Lim testified that he would not have entered into the 1997 Settlement Agreement if Ma had not executed her guaranty. He also contends that, because the guaranty was executed at the same time the principal obligation was incurred, no consideration was required.
The Court agrees with Juinn Long Lim on both points. Detriment to the party asserting the enforceability of a contract may serve as consideration. See Flojo International, Inc. v. Lassleben, 4 Cal.App.4th 713, 719 (1992) ("Consideration consists not only of benefit received by the promisor, but of detriment to the promisee.") Juinn Long Lim suffered detriment by dismissing the dischargeability action as part of the 1997 Settlement Agreement. The Court believed Juinn Long Lim's testimony that Pan Asia would not have entered into the 1997 Settlement Agreement and would not have dismissed the dischargeability action if Ma had not guaranteed the obligation.
Moreover, California law is clear that no separate consideration is required where a guaranty is executed at the same time as the primary agreement and before the consideration supporting the primary obligation has passed. See Cal. Civ. Code § 2792; Oakland Bank of Commerce v. Washington, 6 Cal.App.3d at 796. Although Ma executed her guaranty three days after Cheung executed the 1997 Settlement Agreement and Liu executed her guaranty, Ma executed it before the dischargeability action was dismissed. Thus, Ma's guaranty was given before the consideration supporting the 1997 Settlement Agreement passed, and, pursuant to Cal. Civ. Code § 2792, no separate consideration was required. See also Challenge-Cook Bros. v. Lantz, 256 Cal.App.2d 536, 539 (1967) (defendant failed to produce sufficient evidence that guaranty signed three weeks after principal obligation was unsupported by consideration).
2. IS THE JUNE 1999 SETTLEMENT AGREEMENT UNENFORCEABLE?
Juinn Long Lim admits that Phon and Derek Lim discussed entering into a new settlement agreement on or before June 15, 1999. However, he contends that Pan Asia never finally agreed to the terms set forth in the June 15, 1999 letter. He contends that Derek Lim was not authorized to enter into a settlement agreement on his behalf. He contends that, even if he did agree to settle on the terms set forth in the June 15, 1999 letter, the June 1999 Settlement Agreement is unenforceable because it was not reduced to writing and signed by the parties. These contentions are addressed below although not in this precise order.
A. Effect of Cal. Civ. Proc. Code § 664.6 on the Enforceability of the 1999 Settlement Agreement
As noted above, Juinn Long Lim contends that the June 1999 Settlement Agreement is not enforceable because it was not reduced to writing and signed by the parties. In part, this contention is based on Cal. Civ. Proc. Code § 664.6. Section 664.6 provides that a court may enter judgment in a pending action based on a written stipulation signed by the parties or when the settlement is recited in open court. The California Supreme Court has construed Cal. Civ. Proc. Code § 664.6 to require the signatures of the clients, not merely the attorneys. Levy v. Superior Court, 10 Cal.4th 578, 581-586 (1995). Clearly, here, there was no written settlement agreement signed by the clients. Ma appears to contend that, because Pan Asia was a family business, Derek Lim was Pan Asia's authorized agent and not just its attorney of record. Thus, his signature should be deemed the signature of the client. As discussed below, the Court does not agree. In any event, Levy appears to require the signature of all clients. The defendants never signed a written settlement agreement. Therefore, even if Pan Asia had signed a written settlement agreement, the requirements of Cal. Civ. Proc. Code § 664.6 would not have been satisfied.
However, Levy makes it clear that the failure to satisfy Cal. Civ. Proc. Code § 664.6 does not necessarily make a settlement agreement unenforceable. See Levy, 10 Cal.4th at 586, fn. 5: "We note that this statutory procedure is not the exclusive means to enforce a settlement. (See Kilpatrick v. Beebe (1990) 219 Cal.App.3d 1527, 1529, 269 Cal.Rptr. 52). Alternative procedures are a motion for summary judgment, a separate suit in equity, or an amendment to the pleadings in this action."
In Kilpatrick, the trial court enforced an oral, out-of-court settlement agreement pursuant to a motion for summary judgment, the approved procedure for enforcing a settlement agreement prior to the enactment of Cal. Civ. Proc. Code § 664.6. The appellants contended that Cal. Civ. Proc. Code § 664.6 eliminated the availability of this procedure and that the procedure set forth in § 664.6 was the exclusive means for obtaining a stipulated judgment. The Kilpatrick court rejected this contention. It stated that "[n]othing in the language of section 664.6 suggests it was intended to be exclusive. Rather, it appears to do nothing more than provide a streamlined method for reducing a stipulated settlement to judgment." Therefore, the fact that the clients did not sign the June 15, 1999 letter (or any other settlement agreement) is not fatal to Ma's contention that the June 1999 Settlement Agreement is enforceable.
B. Did Derek Lim Have Authority To Enter Into the June 1999 Settlement Agreement?
Juinn Long Lim also contends that Derek Lim did not have authority to enter into the June 1999 Settlement Agreement. He contends that he never agreed to the terms set forth in the June 15, 1999 letter as a final matter. He contends that he simply agreed to "seriously consider them" after the written settlement documents were prepared. Derek Lim testified to this effect. Juinn Long Lim's testimony was more equivocal.
The Court found the Lims' testimony lacking in credibility for two reasons. First, it is inconsistent with the June 15, 1999 letter. The letter does not read like a summary of a settlement proposal. It reads like a memorialization of agreed terms. Second, it would be unusual to require settlement documents to be prepared before the parties had agreed to terms.
The Court believes that Derek Lim had authority to enter into the June 1999 Settlement Agreement when he wrote the June 15, 1999 letter but that he did not receive this authority from Juinn Long Lim. Juinn Long Lim admitted at trial that he had no money invested in Pan Asia. Although nominally, Juinn Long Lim was the sole shareholder of Pan Asia as well as its president, all of the money to start the company came from other family members. Juinn Long Lim appears to have been in charge of running Pan Asia's business operations. However, his testimony at trial revealed a lack of familiarity with the litigation.
The Court is forced to conclude either that Derek Lim was given full authority to handle the litigation, not just as an attorney but as the actual client, or that the family members whose money was invested in Pan Asia were directing the litigation. The Court finds the second explanation more plausible. Given Derek Lim's youth and relative inexperience, the Court finds it unlikely that he would be given authority to agree to settlement terms. However, having observed Derek Lim's demeanor at trial, the Court finds it equally unlikely that he would have purported to exercise that authority, as reflected in the June 15, 1999 letter, unless he had received authority from the "client." Thus, the Court concludes that Derek Lim had authority to enter into the June 1999 Settlement Agreement when he wrote the June 15, 1999 letter.
C. Was the Stipulated Judgment a Condition Precedent to the Contract?
Juinn Long Lim contends that the requirement that the defendants obtain a stipulated judgment in the State Court Action for $90,000 effective June 28, 1999 was a condition precedent to the effectiveness of the June 1999 Settlement Agreement. Section 1436 of the California Civil Code defines a condition precedent as a condition "which is to be performed before some right dependent thereon accrues, or some act dependent thereon is performed." Section 1439 of the California Civil Code provides, in relevant part, that "[b]efore any party to an obligation can require another party to perform any act under it, he must fulfill all conditions precedent thereto imposed upon himself; . . . ."
However, conditions precedent are disfavored. See Frankel v. Board of Dental Examiners, 46 Cal.App.4th 534, 550 (1996): "Conditions precedent are not favored in the law . . . [citations omitted] and courts shall not construe a term of the contract so as to establish a condition precedent absent plain and unambiguous language in the contract to that effect. [Citation omitted.]" The type of phrase considered sufficiently plain to establish a term as a condition precedent is "in the event of" or "in such event." No such language appears in the June 15, 1999 letter.
D. Did the Parties Intend To Defer Finality of the June 1999 Settlement Agreement Until the Settlement Documents Were Prepared and Signed?
Finally, Juinn Long Lim contends that the June 15, 1999 letter indicates that the parties did not intend the June 1999 Settlement Agreement to become final until the agreement was reduced to writing and the documents were signed. An oral settlement agreement is enforceable unless made unenforceable by the Statute of Frauds. See Cal. Civ. Code § 1624(c); Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 799-800 (9th Cir. 1991). The June 1999 Settlement Agreement is subject to Cal. Civ. Code § 1624(c) because it was not capable of being performed according to its terms within one year. See Cal. Civ. Code § 1624(a)(1). However, the June 15, 1999 letter satisfies the requirements of Cal. Civ. Code § 1624(a). Section 1624(a) requires only that the contract be in writing and be subscribed either by the party to be charged or by the party's agent. Cal. Civ. Code § 1624(a). Under these circumstances, Pan Asia was the party to be charged. Derek Lim, the party's agent, signed the June 15, 1999 letter. When this is the parties' intention, an oral settlement is not final until documented and signed. See DeMott v. Amalgamated Meat Cutters and Butcher Workmen of North America, 157 Cal.App.2d 13 (1958); Spinney v. Downing, 108 Cal. 666 (1895).
In DeMott, a trial was suspended so that the parties could negotiate a settlement agreement. DeMott's attorney prepared a typewritten agreement that, according to the court, "if properly executed, . . . would have constituted a complete and final settlement of the litigation . . . ."Id. at 23. The agreement had a space for DeMott's signature and for the signatures of the defendant and the defendant's attorney. DeMott signed the agreement and had his attorney send it to defendant's attorney. In his cover letter, DeMott's attorney asked the defendant's attorney to sign a copy of the agreement and to return it to him to hold while the defendant was obtaining the signature of his clients. Id. at 23-24.
The defendant later refused to sign the agreement and contended that the agreement was not enforceable. The court agreed, stating as follows: "When an agreement is signed and handed over with the understanding that it will not be used or become operative until it is signed by another who is expected to join therein, it does not become a contract until the additional signature has been obtained. [Citation omitted.]" Id. at 24-25.
E. Summary of Conclusions
For the reasons stated above, the Court concludes that the June 1999 Settlement Agreement was not enforceable. The Court finds and concludes that in June 1999 the parties agreed to a new settlement on the terms set forth in the June 15, 1999 letter. The Court also finds and concludes that Derek Lim had authority to enter into the June 1999 Settlement Agreement on behalf of Pan Asia. The Court concludes that the June 1999 Settlement Agreement was not unenforceable simply because it did not comply with Cal. Civ. Proc. Code § 664.6. However, the Court concludes that the June 1999 Settlement Agreement was not enforceable because the parties clearly intended it to become final only when a written settlement agreement had been prepared and signed.
3. SHOULD JUINN LONG LIM BE ESTOPPED FROM CHALLENGING THE ENFORCEABILITY OF THE JUNE 1999 SETTLEMENT AGREEMENT?
Ma also contends that Juinn Long Lim be judicially or equitably estopped from challenging the enforceability of the June 1999 Settlement Agreement. This contention is based on the following facts: (1) neither Derek Lim nor Juinn Long Lim ever told the defendants prior to March 2001 that they considered the June 1999 Settlement Agreement unenforceable; (2) on several occasions, Derek Lim represented to the state court judge that the State Court Action was settled; (3) Juinn Long Lim's objection to confirmation of the Plan stated that the parties had entered into a settlement agreement in June 1999; and (4) Juinn Long Lim accepted the defendants' monthly settlement checks from July 1999 through early 2001 and even complained when they were late.
A. Judicial Estoppel
Ma contends that Juinn Long Lim is judicially estopped from asserting that the June 1999 Settlement Agreement is unenforceable because, on several occasions, he represented orally to the state court judge and to this Court, in his objection to confirmation of the Plan, that the State Court Action had been settled. This contention fails.
The doctrine of judicial estoppel precludes a party from taking a position in a judicial or quasi-judicial proceeding that is inconsistent with a position successfully asserted in a prior judicial or quasi-judicial proceeding unless the position previously taken was the result of ignorance, fraud, or mistake. Thomas v. Gordon, 85 Cal.App.4th 113, 118 (2000); see also Wyler Summit Partnership v. Turner Broadcasting System, Inc., 235 F.3d 1184 (9th Cir. 2000) (applying California law). In the instant case, the doctrine of judicial estoppel does not apply because Juinn Long Lim never successfully asserted that the June 1999 Settlement Agreement had been settled.
In his objection to confirmation of the Plan, Juinn Long Lim stated, in relevant part, that Ma had breached three settlement agreements. He stated that "[t]he third settlement agreement was oral and reached around June 15, 1999. That agreement provided that debtor to prepare a judgment of $90,000.00 and have it recorded before June 28, 1999. Debtor failed to fulfill each and every both agreement [sic]." Juinn Long Lim's current position is, among other things, that he never agreed to the terms set forth in the June 15, letter. However, the Court has already rejected that contention. The relevant position, with which the Court agrees, is that the June 1999 Settlement Agreement is unenforceable. It is debatable whether the statement quoted above is inconsistent with this position. However, even if it is, Juinn Long Lim is not judicially estoppped because the Court never adopted the position set forth in Juinn Long Lim's objection.
A closer question is presented concerning Derek Lim's representations to the state court judge on Juinn Long Lim's behalf. Derek Lim testified that he never represented to the state court judge that the parties had entered into the June 1999 Settlement Agreement. Phon testified that he did. The Court believed Phon. If the parties had not represented to the state court judge that the State Court Action had been settled, the case management conference would not have been continued as it was from time to time. Moreover, Derek Lim's December 15, 1999 letter, urging Phon to finalize the June 1999 Settlement Agreement by obtaining a stipulated judgment, is consistent with Phon's testimony and inconsistent with Derek Lim's. However, the Court does not believe that inducing the state court judge to continue a case management conference qualifies as the successful assertion of a position. The Court believes that judicial estoppel applies only when a court makes a ruling in the party's favor based on the position taken.
B. Equitable Estoppel
Finally, Ma also contends that Juinn Long Lim should be equitably estopped from challenging the enforceability of the June 1999 Settlement Agreement because he failed to inform the defendants prior to March 2001 that he considered the agreement unenforceable and because he accepted the defendants' monthly settlement payments from July 1999 until March 2001. The Court agrees.
The doctrine of equitable estoppel prevents a party from denying the truth of a fact that he has previously, by his word or conduct, led another to believe and to act upon that belief. Skulnick v. Roberts Express, Inc., 2 Cal.App.4th 884, 890 (1992). The doctrine has four elements: "(1) The party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury. Id. All of these requirements have been satisfied here.
Derek Lim and Juinn Long Lim knew all the facts relevant to their current position. They never informed Phon that they considered the June 1999 Settlement Agreement to be unenforceable until the spring of 2001. The defendants had the right to believe that the June 1999 Settlement Agreement was enforceable as a result of their silence and Derek Lim's acceptance of the monthly settlement payments. Finally, the defendants relied on their understanding that Juinn Long Lim considered the June 1999 Settlement Agreement to be enforceable by continuing to make the monthly settlement payments for a period of nearly two years. As a result, Juinn Long Lim is equitably estopped from denying the enforceability of the June 1999 Settlement Agreement at this time. Juinn Long Lim offers to return the monthly settlement payments received from the defendants since July 1999 in return for being permitted to base his claim against Ma on the 1997 Settlement Agreement. This offer is insufficient to dispel the effect of Juinn Long Lim's prior conduct. It would make no sense to permit a party to avoid the equitable consequences of his past conduct by returning consideration previously received that the party now views as a "bad bargain."
4. OBJECTION TO CONFIRMATION
Juinn Long Lim objected to confirmation of the Plan on the ground that the Plan does not provide for Pan Asia's claim. This objection is sustained. The Plan contains a single class for general unsecured claims which it proposes to pay in full over time by making a pro rata distribution of $975 per month. The Plan does not contain a separate classification and proposed treatment for Pan Asia's claim.
As long as Cheung, the principal obligor, continues to make the monthly settlement payments, Ma's guaranty obligation to Pan Asia remains contingent. Presumably, Ma does not intend to pay Pan Asia's claim unless Cheung defaults in his payments. However, presumably, Ma intends to remain fully liable under her guaranty in the event of such a default. If so, the Plan should separately classify Pan Asia's claim and specify this proposed treatment clearly.
Juinn Long Lim also objected to the feasibility of the Plan, primarily based on the objection of another creditor, Morgan Lincoln. The Court has not yet resolved Morgan Lincoln's objection. Until the Plan has been amended and this other objection has been resolved, the Court is unable to rule on Juinn Long Lim's feasibility objection.
CONCLUSION
The June 1999 Settlement Agreement is not enforceable. The Court is persuaded that Derek Lim agreed to settle on the terms set forth in the June 15, 1999 letter on his client's behalf, that Derek Lim was authorized to enter into the agreement on those terms, and that the parties' failure to comply with Cal. Civ. Proc. Code § 664.6 is not fatal to the enforceability of the agreement. However, the Court is persuaded that the agreement is unenforceable under California law because the parties intended it to be enforceable only after it was reduced to writing and the documents signed.
The Court is not persuaded that Juinn Long Lim is judicially estopped by prior positions taken in judicial proceedings from challenging the enforceability of the June 1999 Settlement Agreement. However, the Court is persuaded that Juinn Long Lim is equitably estopped from doing so by having accepted monthly settlement checks for nearly two years without communicating his position that the agreement is unenforceable. The Court refers to Juinn Long Lim in this context for convenience although the Court considers Juinn Long Lim merely the nominal claimant, not the real party in interest.
Juinn Long Lim's objection to confirmation of the Plan on the ground that it does not provide for Pan Asia's claim is sustained. Ma is directed to amend the Plan to separately classify Pan Asia's claim and to propose an appropriate treatment. The Court's ruling on Juinn Long Lim's feasibility objection is deferred until this has been done and until the objection to confirmation by Morgan Lincoln has been resolved.
In the mean time, based on the Court's ruling, Juinn Long Lim is entitled to obtain a stipulated judgment in the State Court Action. To the extent the June 1999 Settlement Agreement required the defendants to obtain a judgment by June 28, 1999, the Court finds that Juinn Long Lim waived this requirement by accepting settlement payments for nearly two years after the deadline had expired. See Medico-Dental Bldg. of Los Angeles v. Horton Converse, 21 Cal.2d 411, 432 (1942) (lessee's regular payment of rents evidenced tacit consent to lessor's breach of restrictive covenant). The Court grants the parties' relief from the automatic stay to permit them to reduce their agreement to judgment so as to conclude the State Court Action. However, Juinn Long Lim is not granted relief to enforce the stipulated judgment against Ma's property without further order of the Court.