Proulx v. 1400 Pa. Ave., Se, LLC, 16-CV-1200

• Decision Date: 10 January 2019
• Docket Number: No. 16-CV-1200,16-CV-1200
• Citation: 199 A.3d 667
• Parties: Tahmina PROULX, Appellant, v. 1400 PENNSYLVANIA AVENUE, SE, LLC, Appellee.
• Court: D.C. Court of Appeals

199 A.3d 667

Tahmina PROULX, Appellant,

v.1400 PENNSYLVANIA AVENUE, SE, LLC, Appellee.

No. 16-CV-1200

District of Columbia Court of Appeals.

Argued February 15, 2018

Decided January 10, 2019

Marvin Liss, Washington, for appellant.

Gary D. Wright, for appellee.

Before Glickman and McLeese, Associate Judges, and Ruiz, Senior Judge.

Ruiz, Senior Judge:

Tahmina Proulx appeals the trial court's determination that she is liable for breach of a contract for commercial property that was sold to her by appellee 1400 Pennsylvania Avenue, SE, LLC. Appellant argues that the court erred in (1) finding that the contract was not a contract of adhesion, and (2) concluding that the liquidated damages provision was valid. We affirm the judgment of the trial court.

I.

In February of 2012, Remy Esquenet, an attorney and real estate broker representing appellee, and Ken Noroozi, a real estate broker representing appellant, began negotiations regarding the lease and sale of a property located at 1400 Pennsylvania, SE in Washington D.C. Appellant's brother, Mian Amir, was also heavily involved in the contract negotiations. The property, a vacant ground floor retail unit and basement, was to be used by appellant, her brother, and their family for their family business, a pizza restaurant. While negotiating the sale of the property to appellant, appellee was in the process of incorporating as an LLC and purchasing the property from its previous owner.

On March 7, 2012, appellant and appellee entered into a commercial Contract of Purchase and Sale ("the Contract"), which provided that appellant would purchase the property for $550,000.¹ Under the terms of the Contract and pursuant to a Commercial Pre-Occupancy Agreement ("the Pre-Occupancy Agreement") attached to the Contract,² appellant would take possession of the property between March 15 and 26, 2012, and final settlement on the sale would take place during the twelve-month period after the first year of occupancy, i.e., March 2013 to March 2014.³ The Contract called for a non-refundable $150,000 deposit, which would ultimately be credited towards the purchase price of $550,000 at the time of settlement.⁴ The Contract also provided that, in the event of breach by appellant, the $150,000 deposit would serve as liquidated damages.⁵

On March 12, 2012, appellee was incorporated as an LLC, and, on March, 13, 2012, appellee purchased the property from its previous owner for $465,000. Appellant then paid appellee the $150,000 deposit,⁶ and, by March 26, 2012, took possession of the property.

Thereafter, the parties performed under the Pre-Occupancy Agreement: appellee paid property taxes and condominium fees, while appellant occupied and exercised control over the property, paying appellee $4,000 per month in rent before later falling delinquent. Appellant was also unable to close on the purchase before the final possible settlement date under the Contract: March 26, 2014.⁷ In April of 2014, the property was vacant and no business was being conducted; on or around May 1, 2014, appellee changed the locks on the property.

On June 13, 2014, appellant filed a complaint alleging that the Contract should be rescinded and that the $150,000 liquidated damages provision was an unenforceable penalty and the deposit should be returned. Appellee filed a counterclaim alleging that appellant was in breach of the Pre-Occupancy Agreement, and owed $24,000 in past-due rent. Following a bench trial, the trial court ruled in favor of appellee on the complaint and counterclaim, finding that rescission of the Contract would be unjust, allowing the liquidated damages clause to stand, and holding that appellant owed appellee $24,000 for unpaid rent and $779 for the insurance purchased by appellee that had been appellant's responsibility, as well as attorney's fees and costs. Appellant filed this timely appeal.⁸

II.

Appellant contends that the Contract is a contract of adhesion and that the trial court therefore erred in finding that the Contract was enforceable. "A contract of adhesion is defined generally as one imposed upon a powerless party, usually a consumer, who has no real choice but to accede to its terms." Woodroof v. Cunningham , 147 A.3d 777, 789 (D.C. 2016) (quoting Andrew v. American Imp. Ctr. , 110 A.3d 626, 633 n.8 (D.C. 2015) ). Determining whether a contract is a contract of adhesion is a fact-specific inquiry, in which the court examines the relative bargaining power of the parties and the circumstances under which the contract was negotiated and signed. See Andrew , 110 A.3d at 633 n.8, 637-38 ; Moore v. Waller , 930 A.2d 176, 182 (D.C. 2007) ("There must be a showing that the parties were greatly disparate in bargaining power, that there was no opportunity for negotiation and that the services could not be obtained elsewhere." (citation omitted) ). We review the trial court's findings of fact for clear error. See, e.g. , Boyd v. Kilpatrick Townsend & Stockton , 164 A.3d 72, 78 (D.C. 2017) ; Ballard v. Dornic , 140 A.3d 1147, 1150 (D.C. 2016).

The trial court did not err in its determination that the Contract between appellant and appellee was not a contract of adhesion, but was a negotiated deal between parties of equivalent bargaining power. There were oral negotiations between the parties and multiple drafts of the Contract were sent back and forth between them. Appellant, Amir, and Noroozi testified that they were highly educated and experienced in real property transactions.⁹ Because there was ample evidence in the record to support the trial court's finding that the bargaining process was fair, we discern no error in the trial court's determination that the Contract was not one of adhesion.

III.

Appellant makes the same argument, specifically addressed to the liquidated damages clause, arguing that it was unilaterally foisted into the Contract by appellee, and that the meaning of that provision was not explained to her. As discussed above, the Contract was negotiated between parties of equal bargaining power, so neither party acted unilaterally. While Noroozi, appellant's broker, testified that he "agreed to [the $150,000] be[ing] nonrefundable," i.e., the liquidated damages provision, because refusing would have been a "deal breaker" for appellee, his testimony makes clear that this occurred in the context of active negotiations between real estate professionals. As implied by the term "deal breaker," appellant was free to walk away if an agreement could not be reached. And while appellant testified that she did not read the Contract thoroughly or consult an attorney, but instead gave her brother full authority to sign the Contract on her behalf, she had a duty to familiarize herself with what she was signing. "We have ... consistently adhered to a general rule that one who signs a contract has a duty to read it and is obligated according to its terms.... [A]bsent fraud or mistake, one who signs a contract is bound by a contract which [s]he has an opportunity to read whether [s]he does so or not." Pyles v. HSBC Bank USA , N.A. , 172 A.3d 903, 907 (D.C. 2017) (quoting Pers Travel, Inc. v. Canal Square Assocs. , 804 A.2d 1108, 1110 (D.C. 2002) ).¹⁰

There is no factual or legal support for appellant's contention that the circumstances under which the liquidated damages clause was negotiated and agreed excuse her from being bound by its terms.

IV.

Finally, Appellant asserts that the liquidated damages clause should not be enforced, as it is excessive and amounts to a penalty.

A.

"It is well-settled that parties to a contract may agree in advance to a sum certain to be forfeited as liquidated damages for breach of contract." Burns v. Hanover Ins. Co. , 454 A.2d 325, 237 (D.C. 1982). This is because a liquidated damages clause serves "to simplify the resolution of a breach of contract dispute" by "giving the parties an opportunity to resolve the damages question without resorting to litigation" and by "fix[ing] the measure of damages at the outset before a breach even occurs." Vicki Bagley Realty, Inc. v. Laufer , 482 A.2d 359, 367 (D.C. 1984). "Such a provision is particularly appropriate ... where the damages ... are uncertain in amount and cannot be easily ascertained." Id. (citation and internal quotation marks omitted).¹¹

Thus, this court has held that a "liquidated damages clause is valid unless it is found to constitute a penalty," Burns , 454 A.2d at 327, and has adopted "the prevailing rule" that the burden is on "the party challenging [ ] enforceability ... to establish that the liquidated damages clause was a penalty." S. Brooke Purll, Inc. v. Vailes , 850 A.2d 1135, 1138 (D.C. 2004) (citations and internal quotation marks omitted). As this court has recognized, "it has become increasingly difficult to justify the peculiar historical distinction between liquidated damages and penalties. Today the trend favors freedom of contract through the enforcement of stipulated damage provisions as long as they do not clearly disregard the principle of compensation." Id. at 1137 (quoting E. Allen Farnsworth, Farnsworth on Contracts § 12.18, 303-04 (3d ed. 2004) ).¹²

To distinguish between enforceable liquidated damages provisions and unenforceable penalties, we consider the reasonableness of the terms of the liquidated damages clause, as compensation for breach, viewed as of the time and under the circumstances when it was agreed.

If under the circumstances and expectations of the parties existing at the time of execution it appears that the provision is a reasonable protection against uncertain future litigation the provision will be enforced even though no actual damages were proved as of the date of the breach. If, on the other hand, it appears that the stipulation is designed to make the default of the party against whom it runs more profitable to the other party than performance would be, it will be void as a penalty. Thus, damages stipulated in advance should not be more than those which at the

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