Massachusetts Supreme Judicial Court - 886 N.E.2d 670, 451 Mass. 417
In a 2008 Massachusetts case, NPS, LLC v. Minihane, the state's highest court made a decision about liquidated damages for a contract breach. This happened when a club seat licensee, Paul Minihane, didn't pay for two luxury seats at Gillette Stadium, which is home to the New England Patriots football team. The license agreement included a clause allowing the stadium's developer, NPS, LLC, to claim liquidated damages if Minihane defaulted on the payment. However, he refused to pay the balance and NPS sued to claim those damages.
Initially, the trial court found the liquidated damages clause to be unenforceable because it seemed like a penalty, being too far from a reasonable estimate of actual damages. However, the Supreme Judicial Court disagreed and ruled it was enforceable as, at the time of the contract, it was hard to know the actual damages due to factors like demand, seat location, team performance, and inflation.
This case is significant because it demonstrates and applies the principles of liquidated damages for a contract breach, and differentiates them from tort law. Courts will look at how difficult it is to determine actual damages, as well as proportionality and foreseeability, when deciding if liquidated damages are enforceable or not. This case remains a key authority on this subject today.
The case involves a dispute over the enforceability of an acceleration clause in a ten-year license agreement for luxury seats at Gillette Stadium. The clause requires the purchaser to pay the amounts due for all remaining years on the license upon default. The plaintiff argues that the clause is a lawful liquidated damages provision, while the defendant argues that it is an unlawful penalty. The Superior Court judge ruled in favor of the defendant, but the Massachusetts Supreme Judicial Court concluded that the provision is enforceable if it clearly and reasonably establishes the damages, as long as it is not disproportionate to anticipated damages and does not constitute a penalty. The court modified the judgment accordingly. The reasonableness of the measure of anticipated damages depends on the circumstances of each case, and is assessed at the time of contract formation, not after the contract has been breached.
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