Opinion
BRC 61-09.
Decided March 25, 2010.
Herman Beinin, Attorneys for Plaintiff, Mineola, New York, By: William J. Beinin, Esq.
Law Offices of Michael A. Gajdos, P.C., Attorneys for Defendant, Patchogue, New York, By: Michael Gajdos, Esq.
This civil action was commenced by plaintiff Best Metropolitan Towel Linen Supply Co., Inc. ("Best Metropolitan" or "Plaintiff") on or about January 23, 2009 seeking damages for breach of contract and an account stated. Defendant Deck Marine Aviation Service, Inc. d/b/a The Oar Steak Seafood Grill ("Deck Marine" or "Defendant") denied the substantive allegations set forth in the Complaint and asserted counterclaims for breach of contract, unjust enrichment and tortious interference with business. Both parties appeared by counsel at a bench trial on February 18, 2010.
FINDINGS OF FACT
Plaintiff alleges that Defendant breached a certain Service Agreement entered into on or about April 7, 2006 ("Contract") for the supply of linens for Defendant restaurant by failing to pay for contracted items delivered and billed (Plaintiff's Exhibit 1). Specifically, Plaintiff claims that Defendant had an outstanding balance of $954.28 at the time Defendant prematurely terminated the Contract on July 1, 2008, and now seeks to recover those damages and enforce the liquidated damages provision set forth within the Contract.
I. The Contract
Notwithstanding the clear and unambiguous language of the original version of the Contract which states, in pertinent part, that the agreement was for five (5) years commencing April 17, 2006, the duration of the agreement is in dispute ( Id., at ¶ 4 [on back]). Defendant contends that the Contract was only for two (2) years as illustrated by its copy of the Contract which notably is the carbon of Plaintiff's executed version ( see Defendant's Exhibit B).
Significantly, the Court notes that although Defendant's version of the Contract includes both the five (5) year and two (2) year provisions, Plaintiff's version (the original) only includes the five (5) year provision (Plaintiff's Exhibit 1; Defendant's Exhibit B). Defendant's manager Lindsey Chalifoux ("Ms. Chalifoux"), who negotiated the agreement on behalf of Defendant, testified she only agreed to a two (2) year agreement notwithstanding the original language of the Contract. Besides Ms. Chalifoux's testimony, the only evidence of an agreement for a shorter period of time are two (2) handwritten notations on Defendant's version which Ms. Chalifoux claims were made by Plaintiff's representative Russell Slotnick ("Mr. Slotnick") after they had both signed the original. As mentioned above, the handwritten notations regarding a two (2) year agreement do not appear on the original copy of the Contract (Plaintiff's Exhibit 1).
Based upon the credible testimony and documentary evidence, it can reasonably be surmised that Ms. Chalifoux signed the Contract without the two (2) year provision, and at some point thereafter someone wrote on Defendant's copy that the agreement was for two (2) years without deleting the five (5) year provision. The Contract further provides at paragraph 2 that if Defendant has any complaints regarding the services and/or supplies delivered, it is required to "[s]end written notice by Certified Mail (RRR), to the [Plaintiff], Attention President, and set forth in detail each and every incident of [Plaintiff's] failure, defect, default or breach. . . ."
(Plaintiff's Exhibit 1 and Defendant's Exhibit B, at ¶ 2 [on back]). Both versions of the Contract introduced into evidence further include a liquidated damages clause in the event of premature termination equal to "[25%] of [Defendant's] average weekly service charge for the three months before the breach took place times the number of weeks left in the unexpired term of this agreement, or any extension" ( Id., at ¶ 6 [on back]).
The Contract provides that Plaintiff has sixty (60) days from receipt of a written complaint to cure the defects, and the failure to do so could result in the termination of the Contract upon fifteen (15) days prior written notice by Defendant (Plaintiff's Exhibit 1 and Defendant's Exhibit B, at ¶ 2).
II. Defendant's Cancellation
Ms. Chalifoux testified that Defendant cancelled the Contract effective July 1, 2008 (Plaintiff's Exhibit 5), more than twenty-six (26) months into the agreement, because Plaintiff had failed to deliver the appropriate quantity and quality of linens. She further acknowledged that Defendant failed to provide Plaintiff with a cure letter or any prior notice before terminating the Contract.
Neither party elicited the testimony of Mr. Slotnick who is no longer employed by Plaintiff. Plaintiff's President Edward Savarese ("Mr. Savarese"), who was not present when the Contract was signed, testified he instructed Mr. Slotnick to enter into the Contract on the terms set forth in Plaintiff's version and further that Mr. Slotnick had no authority to modify any of the provisions set forth therein.
Mr. Savarese, in his capacity as President and custodian of Plaintiff's business records, further introduced an invoice dated August 5, 2008 sent to Defendant via overnight delivery indicating a balance due of $954.28 for June 2008 which Plaintiff seeks to recover (Plaintiff's Exhibits 2 and 3). He further testified that Defendant failed to object or respond to the August 2008 invoice. The Court notes, however, at trial Plaintiff only produced five (5) of the nine (9) claimed unpaid invoices for the month of June 2008 totaling $826.70 (Plaintiff's Exhibit 4).
CONCLUSIONS OF LAW
Based upon careful review and consideration of the credible testimony and documentary evidence, the Court makes the following findings and determinations of law.
I. Breach of Contract — First Cause of Action
To succeed on its claim for breach of contract, Plaintiff must demonstrate the existence of an agreement between the parties, consideration, performance by the Plaintiff, a breach by the Defendant, and damages ( see Alarm Monitoring Corp. v. D'Agostino Supermarkets, Inc. , 21 Misc 3d 1148 (A), 875 NYS2d 818 (Nassau Cty. Sup. Ct. Dec. 11, 2008) ( citing Furia v. Furia, 116 AD2d 694, 498 NYS2d 12 (2d Dep't 1986)). Notwithstanding the parties' differing versions of the Contract, Plaintiff satisfied its burden on its claim for breach of contract and submitted documentary proof that $826.70 is due and owing for services provided in June 2008 (Plaintiff's Exhibit 4). The Court notes that even under Defendant's version of events, the Contract was not cancelled until July 1, 2008, at the earliest, and absent any credible proof that the June 2008 services were not provided, the invoices had been paid, or advanced written notice of complaint was provided, Plaintiff is entitled to an award of damages reflected in the invoices for the outstanding June 2008 balance.
Accordingly, Plaintiff is awarded the sum of $826.70 in actual damages.
II. Defendant's Version of the Contract is Unsustainable
Defendant contends that the liquidated damages provision is unenforceable, and, in the alternative, even if the Court was inclined to enforce the provision, there can be no award for liquidated damages since the Contract was for two (2) years and by its terms terminated on or about April 7, 2008. The Court disagrees.
If in fact the Contract had expired in April 2008 as Defendant argues, then there would have been no obligation to terminate an already "expired" agreement or continue doing business with Plaintiff, but it was undisputed that the parties continued to operate under the Contract in May and June 2008. A reasonable conclusion to be drawn from the credible evidence is that Defendant understood the agreement was for a longer duration, but in or about July 2008, something occurred that caused it to want to terminate the Contract.
Ms. Chalifoux's explanation for termination; i.e., alleged defective deliveries, was unsubstantiated and belied by the fact that the Contract specifically required Defendant to lodge such complaints to Plaintiff in writing prior to termination yet it was undisputed that Defendant failed to do so. Defendant further failed to elicit the testimony of Mr. Slotnick to corroborate Ms. Chalifoux's claim that the handwritten notations appearing on Defendant's copy of the Contract, but not on the original, were made by Mr. Slotnick pursuant to an agreement reached following execution of the original. Towards this end, the Court credits Mr. Savarese's testimony that he authorized Mr. Slotnick to enter into a five (5) year agreement with Defendant which was supported by the express terms of the original Contract executed by the parties ( see Plaintiff's Exhibit 1). Based upon the credible testimony and documentary evidence, the Court cannot conclude that a second agreement for a shorter duration had been reached after the original was signed.
Accordingly, the Court finds that the parties' Contract was for a period of five (5) years and due to expire in April 2011.
III. Liquidated Damages
Plaintiff further seeks $8,712.00 in liquidated damages as provided for in the Contract ( see Plaintiff's Exhibit 1). As a general principle, Courts will enforce a contractual provision whereby the parties stipulate as to the amount of damages to be paid in the event of a breach provided the provision is not considered to be a penalty ( see 5 Corbin, Contracts, § 1058). The determination whether a liquidated damages provision should be enforced is an issue of law in which the Court must give "due consideration to the nature of the contract and the circumstances" ( Bates Advertising USA, Inc. v. 498 Seventh, LLC , 7 NY3d 115 , 818 NYS2d 161 (2006)). The burden is on the party challenging the provision to demonstrate that the liquidated damages clause is, in fact, a penalty ( JMD Holding Corp. v. Congress Financial Corp. , 4 NY3d 373 , 379-80, 795 NYS2d 502, 506-07 (2005)). Moreover, "[w]here the court has sustained a liquidated damages clause the measure of damages for a breach will be the sum in the clause, no more, no less. If the clause is rejected as being a penalty, the recovery is limited to actual damages proven" ( Id. (quoting Brecher v. Laikin, 430 F.Supp. 103, 106 (S.D.NY 1977); see also 3 Farnsworth, Contracts § 12.18, at 304 (3d ed.))).
It is well-established that a liquidated damages provision is enforceable where the fixed amount bears a "reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation" ( JMD Holding Corp., supra, 4 NY3d at 380, 795 NYS2d at 507 (quoting Truck Rent-A-Center v. Puritan Farms 2nd, Inc., 41 NY2d 420, 425, 393 NYS2d 365, 369 (1977)). Thus, Deck Marine has the burden of demonstrating that either the damages flowing from its early termination were readily ascertainable at the time it and Best Metropolitan entered into the Contract, or the 25% of average weekly service charge from the most recent weeks prior to the breach is conspicuously disproportionate to the foreseeable losses ( See Bates Advertising USA, Inc., supra, 7 NY3d at 120, 818 NYS2d at 161 (in affirming enforcement of a liquidated damages provision, the Court reasoned that "[l]iquidated damages are not transformed into a penalty merely because [they encourage parties to comply with their contractual obligations] . . . so long as they are not grossly out of scale with foreseeable losses")).
Applying these principles to the instant matter, the Court finds that actual damages were unable to be computed at the time the parties entered into the Contract and further the amount stipulated by the parties as damages bears a reasonable relation to the amount of probable actual harm. As a result, the provision is enforceable.
In a matter analogous to this case, the Court of Appeals in Morgan Services, Inc. v. Lavan Corp., 59 NY2d 796, 464 NYS2d 733 (1983) upheld liquidated damages clauses regarding linen rental and laundry contracts. The Court determined that the provisions "bore a reasonable relation to the amount of probable actual harm for [the] breach . . . there being uncertainty concerning the re-rental [value of the products]" and further due to the "damages being unpredictable in view of labor and capital costs . . . and the uncertainty they would be fully utilized during the remainder of the contract term" ( Morgan Services, Inc., supra, 59 NY2d at 797-98, 464 NYS2d at 733).
More recently, the Court of Appeals and Appellate Division, Second Department have continued to upheld mutually negotiated liquidated damages provisions. For example, in 2005 the Court of Appeals held that a lender could enforce a liquidated damages provision involving a commercial loan even after the defaulting borrower subsequently paid off the amounts due the lender, including interest ( JMD Holding Corp., supra, 4 NY3d at 378-85, 795 NYS2d at 506-10). The Court, in reversing the lower court's granting of the borrower's motion for summary judgment, concluded that the liquidated damages may be deemed proper due to the borrower's failure to "show that the [lender's] prospective damages upon early termination were capable of precise estimation at the time the parties executed the Agreement, or that the early termination fee was grossly disproportionate to this probable loss" ( Id., 4 NY3d at 385, 795 NYS2d at 510; see also Stenda Realty, LLC v. Kornman , 67 AD3d 996 , 889 NYS2d 639 (2d Dep't 2009) (affirming granting of summary judgment in favor of seller and remitting to trial court for entry of judgment awarding seller the down payment as liquidated damages); United Title Agency, LLC v. Surfside-3 Marina, Inc. , 65 AD3d 1134 , 885 NYS2d 334 (2d Dep't 2009) (reversing trial court and holding that a liquidated damages provision regarding the sale of a custom boat shall be enforced unless the breaching party satisfies its burden in demonstrating the provision is a penalty)).
Here, it was undisputed that two (2) sophisticated entities negotiated the liquidated damages provision, and there was no indication of any disparity of bargaining power or unconscionability. Moreover, the liquidated damages provision relates reasonably to the potential harm that otherwise would be difficult to estimate due to Defendant's early termination of the Contract. Indeed, the parties were within their right, in advance, to agree to a pre-determined re-rental value for the linens which Defendant would be obligated to pay in the event of early termination ( Morgan Services, Inc., supra, 59 NY2d at 797-98, 464 NYS2d at 733; Truck Rent-A-Center, supra, 41 NY2d at 425, 393 NYS2d at 370). In addition, Defendant failed to offer any evidence that actual damages were readily ascertainable when the Contract was entered or that the provision was unreasonable or "disproportionate" to the probable actual damages ( see JMD Holding Corp., supra, 4 NY3d at 380, 797 NYS2d at 507).
The Court notes that the same liquidated damages provision at issue here was recently upheld in another case commenced by Plaintiff entitled Best Metropolitan Towel and Linen Supply Co., Inc. v. Evergreen Shanghai Restaurant Bar, Inc. (Index No. 161795-06) (Civil Ct. Kings Cty.).
Accordingly, Plaintiff is entitled to an award of liquidated damages pursuant to the Contract. The credible evidence, which was not refuted, established that 144 weeks remained on the Contract at the time of the breach, and an application of 25% of the weekly rental value for the relevant period ($242.00 x .25) multiplied by 144 weeks, equals $8,712.00 (Plaintiff's Exhibit 2).
Based on the foregoing, Plaintiff is entitled to liquidated damages in the amount of $8,712.00.
In light of the foregoing, Plaintiff's cause of an action for an account stated is severed and dismissed. With respect to the counterclaims, Defendant failed to substantiate any of the claims asserted, and, accordingly, they are dismissed.
Accordingly, it is hereby,
ORDERED, that Plaintiff is entitled to judgment against Defendant in the amount of $9,538.70, plus interest from July 1, 2008, plus costs and disbursements; and it is hereby further
ORDERED, that the counterclaims of Defendant are dismissed in their entirety.
This constitutes the Decision and Order of the Court.