Nps, LLC v. Minihane

• Decision Date: 15 May 2008
• Docket Number: SJC-10134.
• Citation: 886 N.E.2d 670,451 Mass. 417
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: NPS, LLC v. Paul MINIHANE.

886 N.E.2d 670

451 Mass. 417

NPS, LLC v. Paul MINIHANE.

SJC-10134.

Supreme Judicial Court of Massachusetts, Norfolk.

Argued April 7, 2008.

Decided May 15, 2008.

Charles L. Solomont, Boston (Daniel L. Goldberg & Brandon L. Bigelow with him) for the plaintiff.

Timothy F. O'Brien, Newton, for the defendant.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, CORDY, & BOTSFORD, JJ.

COWIN, J.

In this case we decide whether an acceleration clause in a ten-year license agreement for luxury seats for New England Patriots professional football games at Gillette Stadium is enforceable. The agreement requires the purchaser of the license to pay, upon default, the amounts due for all years remaining on the license. The plaintiff contends that the clause is a lawful liquidated damages provision; the defendant, who defaulted in the first year of the agreement, argues that it is an unlawful penalty. A judge in the Superior Court agreed with the defendant and refused to enforce the provision. Because we conclude the provision is enforceable, we modify the judgment accordingly.

Background. The judge issued his ruling on the liquidated damages provision from the bench without detailed findings of fact. Most of the underlying facts, however, are not in dispute, as indicated by the joint stipulation of the parties. We supplement these facts with those that were found or implied by the judge. The plaintiff, NPS, LLC (NPS), is the developer of Gillette Stadium (stadium), the home field of the New England Patriots professional football team (Patriots). In 2002, while the stadium was still under construction, NPS entered into an agreement with the defendant, Paul Minihane, for the purchase of a ten-year license for two luxury seats in the Club Level III section.¹ The agreement called for the defendant to pay $3,750 per seat annually for each of the ten seasons from 2002 to 2011. The agreement included a liquidated damages provision, set forth in the margin,² which provides that in the event of a default, including failure to pay any amount due under the license agreement, the payments would be accelerated so that the defendant would be required to pay the balance for all the years remaining on the contract.³ Upon executing the agreement, the defendant paid a $7,500 security deposit; he later made a payment of $2,000 toward the license fee for the 2002 season. Although he or his guests attended all but one of the 2002 preseason and regular season Patriots games at the stadium using the tickets for the Club Seats, he made no further payments.

After giving notice to the defendant, NPS accelerated the payments and filed a complaint in the Superior Court seeking the full amount due under the contract. After a bench trial, the judge ruled that the liquidated damages provision was unenforceable because the amount due was "grossly disproportionate to a reasonable estimate of actual damages made at the time of contract formation." After taking further evidence on the issue of actual damages, the judge issued a memorandum of decision and order in which he awarded damages to NPS in the amount of $6,000.⁴ This appeal followed, and we transferred the case to this court on our own motion.

Discussion. We accept the judge's findings of fact unless they are clearly erroneous. Kendall v. Selvaggio, 413 Mass. 619, 620, 602 N.E.2d 206 (1992). "On the other hand, to ensure that the ultimate findings and conclusions are consistent with the law, we scrutinize without deference the legal standard which the judge applied to the facts." Id. at 621, 602 N.E.2d 206. Whether a liquidated damages provision in a contract is an unenforceable penalty is a question of law. Manganaro Drywall, Inc. v. Penn-Simon Constr. Co., 357 Mass 653, 656, 260 N.E.2d 182 (1970).⁵ The burden of showing that a liquidated damages provision is unenforceable rests with the party challenging enforcement of the provision (here, the defendant), TAL Fin. Corp. v. CSC Consulting, Inc., 446 Mass. 422, 423, 844 N.E.2d 1085 (2006), and we resolve reasonable doubts in favor of the aggrieved party (here, NPS). Cummings Props., LLC v. National Communications Corp., 449 Mass. 490, 494, 869 N.E.2d 617 (2007).

It is well settled that "a contract provision that clearly and reasonably establishes liquidated damages should be enforced, so long as it is not so disproportionate to anticipated damages as to constitute a penalty." TAL Fin. Corp. v. CSC Consulting, Inc., supra at 431, 844 N.E.2d 1085. A liquidated damages provision will usually be enforced, provided two criteria are satisfied: first, that at the time of contracting the actual damages flowing from a breach were difficult to ascertain; and second, that the sum agreed on as liquidated damages represents a "reasonable forecast of damages expected to occur in the event of a breach." Cummings Props., LLC v. National Communications Corp., supra at 494, 869 N.E.2d 617. Where damages are easily ascertainable, and the amount provided for is grossly disproportionate to actual damages, or unconscionably excessive, the court will award the aggrieved party no more than its actual damages. A-Z Servicenter, Inc. v. Segall, 334 Mass. 672, 675, 138 N.E.2d 266 (1956). Since there is "no bright line separating an agreement to pay a reasonable measure of damages from an unenforceable penalty clause," TAL Fin. Corp. v. CSC Consulting, Inc., supra, the reasonableness of the measure of anticipated damages depends on the circumstances of each case. A-Z Servicenter, Inc. v. Segall, supra. In assessing reasonableness, we look to the circumstances at the time of contract formation; we do not take a "second look" at the actual damages after the contract has been breached. Kelly v. Marx, 428 Mass. 877, 878, 705 N.E.2d 1114 (1999).

In this case, the trial judge found that, at the time the parties entered into the license agreement, the harm resulting from a possible breach was difficult to ascertain. That finding was supported by the evidence, which indicated that the damages sustained by NPS would vary depending on the demand for tickets at the time of breach. Although the Patriots had won their first Super Bowl championship in 2002, shortly before the parties entered into their agreement, the demand for luxury stadium seats was then and remains variable and depends, according to the evidence, on the current performance of the team, as well as other factors, such as the popularity of the players and the relative popularity of other sports, that are unpredictable at the time of contract. Therefore, to predict at the time of contract how long it would take NPS to resell the defendant's seat license would be extremely difficult, if not impossible.

The judge went on to find, however, that the sum provided for in the agreement — acceleration of all payments for the remaining term of the contract — was "grossly disproportionate to a reasonable estimate of actual damages made at the time of contract formation." That finding was not supported by the evidence. It is the defendant's burden to show that the amount of liquidated damages is "unreasonably and grossly disproportionate to the real damages from a breach" or "unconscionably excessive." See TAL Fin. Corp. v. CSC Consulting, Inc., supra at 423, 844 N.E.2d 1085; A-Z Servicenter, Inc. v. Segall, supra at 675, 138 N.E.2d 266. Having presented little evidence beyond his assertion that the contract as a whole was unconscionable, the defendant in this case has not sustained that burden.

The liquidated damages provision here is similar to one we upheld in Cummings Props., LLC v. National Communications Corp., supra (Cummings).⁶ In that case, a tenant who defaulted on a commercial lease was required by the terms of the agreement to pay the entire amount of rent remaining under the lease. Id. at 491-492, 869 N.E.2d 617. The judge here did not have the benefit of our decision in Cummings, which was issued more than a year after the trial in this case; however, for present purposes, we see no meaningful distinction between the two provisions. In upholding the liquidated damages provision in Cummings, we noted that "to the extent that the liquidated damages amount represented the agreed rental value of the property over the remaining life of the lease, decreasing in amount as the lease term came closer to expiration, it appears to be a reasonable anticipation of damages that might accrue from the nonpayment of rent." Id. at 496-497, 869 N.E.2d 617. The same is true here. This, like Cummings, is a case where the damages were difficult to estimate at the outset, and the defendant is required to pay no more than the total amount he would have paid had he performed his obligations under the agreement. The sum provided for therefore bears a reasonable relationship to the anticipated actual damages resulting from a breach. It anticipates a worst-case scenario, that is, NPS's inability to resell the seat for the remaining term of the license.⁷ However, the defendant has not shown that this outcome is sufficiently unlikely that it renders the amount grossly disproportionate to a reasonable estimate of actual damages.

The defendant stood to receive a substantial benefit from this agreement: guaranteed luxury seating for all Patriots home games, as well as a hedge against future price increases over ten years. He was not deprived of an opportunity to learn and consider the terms of the agreement. Those terms may be harsh, especially when, as here, the breach occurred early in the life of the agreement. But the defendant has not shown that in the circumstances they are "unreasonably and grossly disproportionate to the real damages from a breach." A-Z Servicenter, Inc. v. Segall, 334 Mass. 672, 675, 138 N.E.2d 266 (1956).

On appeal, the parties have not raised the issue whether, if the liquidated damages provision is enforced, mitigation should be considered. However, because mitigation was raised (albeit obliquely) in...