Less Than Zero, the 1987 movie adapted from Bret Easton Ellis’ first novel, easily makes my short-list of decade-defining movies for multiple reasons. There’s the sterling soundtrack, for one. The Cult’s “Lil Devil” (from Electric – one of the best alt-rock albums of all-time IMHO) and the Bangles’ saturnine yet up-tempo reworking of Simon & Garfunkel’s ethereal “Hazy Shade of Winter” are just two of the songs that snugly fit the film’s alternately decadent and foreboding tone.
There’s also the “BEE” cool factor. Mr. Ellis would later pen seminal 80s and 90s tomes American Psycho (the chapter titled “Rat” is one of the most disturbing chapters in all of literature I’d venture), Glamorama, and The Informers among others. These offerings, written in Ellis’ acid satirical style, firmly entrenched him in the pop-culture pantheon of fiction writers (BEE, Douglas Coupland, Jay McInerney) from that “brat pack” Era.
LTZ’s acting is stellar, too. (Where to start) Andrew McCarthy gives a frantic, wide-eyed rendering of the straight-laced protagonist Clay Ellis who returns home from his sheltered East Coast college to find an unrecognizable and degenerate LA cityscape.
80s poster queen Jami Gertz’s sultry turn as Blair – the good-girl-gone-bad (or at least Fast) and James Spader’s sinister and chilling Rip (“old habits don’t die; they just hibernate”) – the sadistic and morally bankrupt drug dealer – each add character texture and visceral complexity to the film.
Then (you knew this was coming) there’s the star-crossed Julian Wells character. Robert Downey Jr.’s feverish, foaming-at-the-mouth portrayal of the rock-bottom, tragi-comic addict for whom “one is too many; a thousand is never enough” serves as a lurid example of life imitating art and cements Downey Jr’s status as a cinematic force for the next three decades (or more?).
So, why am I rhapsodizing about LTZ in a law blog? Well, I’m obsessed with the 80s for one. Also because in Southern Financial Group, LLC v. McFarland State Bank, 2014 WL 3973787 (7th Cir. 2014), the Seventh Circuit – applying Wisc. law – analyzed whether a contractual damages provision that resulted in “less than zero” recovery for the plaintiff loan buyer was enforceable.
The plaintiff bought a portfolio of 19 distressed properties from the defendant loan seller for about 28 cents on the dollar. The contract limited the buyer’s damages to the repurchase price of the loan portfolio or actual damages, which were capped at the amount plaintiff paid for the various loans.
When the plaintiff found out that three of the 19 properties had been released, it sued the defendant for the lost profits that plaintiff attributed to those three properties. Before it sued though, the plaintiff sold 13 of the properties and earned about a $400,000 profit over what it paid to buy the loans.
Defendant moved for summary judgment based on the contractual damage limitation provision that capped the defendant’s damages at (a) the amount plaintiff paid for the loan package, minus (b) any amounts plaintiff received in mortgage payments on any of the properties.
The defendant argued that the plaintiff actually received more than it would have received under this repurchase formula when it liquidated 13 of the 16 properties. As a result, according to the defendant, the plaintiff’s actual damages under the contract’s repurchase formula were less than zero since the plaintiff made more by selling the properties than it would have gotten if the defendant bought back the loans.
The Court agreed and granted summary judgment for the defendant.
Held: Affirmed.
Q: Why?
A: In Wisconsin, contracting parties are able to agree to limit damages for breach of contract and to disclaim consequential damages, as long as the damage limitations are not unconscionable. Wisconsin also allows parties to a contract to limit each side’s risk of default at the outset of a contract.
The Court rejected defendant’s argument that the damage limitation failed its essential purpose under UCC Article 2 (where a limited remedy fails its essential purpose, the limitation is void). It held that a contract remedy fails of its essential purpose where the remedy is completely ineffectual, is illusory or deprives the buyer of the benefit of his bargain.
A contract law axiom posits that a contract should give at least a “fair quantum of remedy” to the non-breaching parties. A prime example of a contract remedy failing its essential purpose is where a goods contract limits a buyer’s remedy to repair and replacement and the seller refuses to repair or replace the defective item. (*3-4).
Here, the contract remedy was basically rescission: it allowed the loan buyer to have its loan purchase price repaid in exchange for returning the loan portfolio to the seller. However, the plaintiff chose not to rescind the contract (rescission puts each side back to its pre-contract setting). Instead, it sold 13 of the 16 properties and ended up earning several hundred thousand dollars in profits.
Since the plaintiff got more by selling the various properties than it would have gotten had it exercised the contractual repurchase provision, plaintiff suffered no actual damages. It would have reaped a windfall if, in addition to collecting the profits from the sale of the properties, plaintiff could have forced the defendant to buy back the loans under the contract’s damage formula. (*5).
Take-aways: Another example of the Court holding commercially sophisticated parties to the terms of their contract. Absent a disparity in bargaining power or a stronger party taking advantage of a weaker one, a contractual damage limitation will be upheld. The case also reaffirms the policy against double-recovery.
Where a plaintiff is able to earn more by accepting the benefits of the contract than he would have received by suing for breach, the plaintiff will be held to that choice. He can’t have it both ways by keeping monetary profits on one hand and simultaneously suing to undo or rescind the same transaction.