Illinois Court Gives Liquidated Damages Tutorial in Shopping Center Spat

Illinois’ First District provides an exhaustive analysis of liquidated damage principles in GK Development, Inc. v. Iowa Malls Financing Corporation, 2013 IL App (1st) 112802.

Here are some useful bullets:

  • In Illinois, contracting parties are free to pre-set damage amounts; but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss.
  • A liquidated damages clause must be for a specific amount and for a specific breach.
  •  A clause that penalizes a party for non-performance or that works as a threat to secure performance, violates public policy and is unenforceable. 
  • Three elements of an enforceable liquidated damages provision include whether: (1) the parties intended to agree in advance to the settlement of damages that might arise from the breach; (2) the amount of liquidated damages was reasonable at the time of contracting, bearing some relation to the damages which might be sustained, and (3) actual damages would be uncertain in amount and difficult to prove.
  •  “The element common to most liquidated damages clauses that get struck down as penalty clauses is that they specify the same damages regardless of the severity of the breach.” (i.e. If tenant breaches 10 year lease at year 9 or year 1, damages are the same.
  • Courts will guard against giving the non-breaching party a windfall recovery that places it in an even better position than it would be in if the other party performed.
  • Where liquidated damages dwarf the actual damages (here, $4.3 M vs. $150K) likely to result from a minor breach, it will likely signal an unenforceable penalty to punish non-performance.
  • Parties distinguish between (1) a total breach of contract and (2) a minor delay in performance. If they fail to do so, there’s a real risk the liquidated damages term gets struck down as punitive.

 

 

 

Tortious Interference With Prospective Economic Advantage – An Illinois Case Note

In Davidson v. Schneider, 2014 WL 656780 (N.D.Ill. 2014), the Court describes the quantum of proof required for a plaintiff to survive summary judgment on both the damages element of a breach of contract claim and the “reasonable expectancy” prong of a tortious interference claim.

The plaintiff and defendant were competitors in the baseball vision testing business.  They were also parties to prior patent infringement litigation that culminated in a written settlement agreement that contained broad non-disparagement language.

 When the plaintiff found out that one of defendant’s employee’s was bad-mouthing the plaintiff to a college softball coach and prospective client, he sued in Federal court.  After discovery finished, the Court entered summary judgment for defendants on plaintiff’s breach of contract and tortious interference claims.

An Illinois breach of contract plaintiff must show (a) existence of a contract, (b) performance by the plaintiff, (c) breach by the defendant and (d) compensable damages resulting from the breach.  Davidson, *3, Asset Exch. II, LLC v. First Choice Bank, 2011 Ill.App. (1st) 103718. 

Damage to reputation or goodwill resulting in a diminished ability to make money as a result of a breach can be recovered in a breach of contract suit.  However, where a party shows a breach but no damages, the contract claim is “pointless” and must fail.  Davidson, *5.

Here, the plaintiff established a contract (the settlement agreement) and defendant’s breach (by disparaging plaintiff’s products and services).  However, the plaintiff was unable to pinpoint any measurable money damages resulting from the defendants’ denigrating the plaintiff’s vision training services.

 Plaintiff cited no lost clients or business opportunities traceable to the defendants disparaging comments.  Without any damages evidence, the plaintiff’s breach of contract claim failed as a matter of law.  Davidson, *4.

The Court also granted summary judgment on plaintiff’s tortious interference with prospective economic advantage claim.  Plaintiff’s tortious interference count was based on derogatory comments defendants’ employee made to another baseball coach and prospective customer of plaintiff. 

The elements of tortious interference with prospective economic advantage are: (1) a reasonable expectation of entering a valid business relationship, (2) defendant’s knowledge of the expectation, (3) purposeful interference by the defendant that prevents plaintiff’s expectation from ripening into a business relationship, and (4) damages to the plaintiff resulting from the interference.  *5

The mere  hope for or possibility of a future business relationship is insufficient to show a reasonable expectancy. 

Here, plaintiff’s evidence showed only a nebulous hope of a future business pairing with the baseball coach to whom defendants trashed plaintiff’s product.  He didn’t show any specific business arrangement that was in the works.  As a result, plaintiff failed to raise a triable fact question on whether he had a reasonable expectation of a future business relationship with the baseball coach.

Take-aways: A breach of contract plaintiff’s failure to prove damages with tangible evidence of financial loss at the summary judgment state will doom his case. 

To survive summary judgment on a tortious interference with prospective economic advantage claim, the plaintiff must offer tangible evidence that he had a specific, proposed business arrangement with an identified third party – instead of a wish or hope for one – to meet the tort’s reasonable expectancy test.

 

Employer Can Enforce Unsigned (By It) Severance Agreement – Illinois Court

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In Wheeling Park District v. Arnold (2014 IL App (1st) 123185)), the First District addresses whether a party suing on a contract must sign it in order to enforce it.

The plaintiff  Park District sued to enforce a severance agreement it reached with a former employee.  Under the severance agreement, the District paid the employee three months of severance pay plus COBRA benefits in exchange for the employee releasing the District from all claims.

The employee signed the agreement, faxed it back to the District but had a change of heart before the District signed it but after it made the first severance payment.

The District then filed a declaratory judgment suit to enforce the agreement.  The Court granted the motion.

Affirming the trial court, the appeals court held that even though the District never signed the severance agreement, it was still enforceable because the defendant did sign it and the District performed by making the first severance installment.

Under black-letter contract principles, once a party signs an agreement and the other party (the non-signer) performs, the acceptance and consideration elements are met.  ¶ 20 (if a document is signed by the party being charged, the other party’s signature isn’t required if the document is delivered to the non-signing party who accepts through performance.)

Here, the defendant is the party being charged (sued) and the District performed: it sent three severance payments to defendant via direct deposit and also paid the contractually required COBRA benefits.  This performance was sufficient consideration for the employee’s acceptance of the severance agreement by signing it.

As a result, all basic contract elements were present: offer (the severance agreement), acceptance (the employee signed and delivered the agreement to the plaintiff) and consideration (the District paid three installment payments plus COBRA benefits to defendant).  The District’s signature on the severance agreement wasn’t required for the District to enforce it.

Afterwords:

– So long as the person “to be charged” signs the contract and the non-signing “charging” party performs, the contract is enforceable;

– if the plaintiff would have cancelled before the District paid, she would have a stronger argument.  Still, the District could argue that the parties had a binding contract or that it at least relied on plaintiff’s execution of the severance agreement.