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Superior Court Finds Breach Based on Actual and Apparent Authority, Invalidates Liquidated Damages Clause

Tropical Nursing, Inc. v. Accord Health Serv., Inc., 2006 WL 3604783 (Del.Super. Ct. Dec. 7, 2006).

In this breach of contract case, the Superior Court found that Defendant became contractually bound to Plaintiff based on actual and apparent authority it granted to both its permanent and temporary employees, and subsequently breached those contracts. Plaintiff was a provider of temporary nursing staff, and supplied temporary nurses to Defendant’s healthcare facility. Plaintiff’s contract claim was based on the terms provided for on the back of the temporary nurses’ timecards, which stated that Defendant would not interfere with the temporary nurse’s contractual relationship with Plaintiff, and if it did so Defendant would immediately pay a “work release payment”. Plaintiff alleged that Defendant breached these contracts with respect to 14 former employees of Plaintiff’s that Defendant had hired. Defendant argued that the nursing supervisors who signed the timecards did not have the authority to contractually bind Defendant to their terms. The Court found that Defendant had in fact given the supervisors actual and apparent authority to bind Defendant to the terms of the timecards, and Defendant was therefore in breach when it did not honor those terms.

The Court concluded that the evidence at trial demonstrated that an administrative employee of Defendant approved the employment arrangement with Plaintiff and was aware of the terms and conditions provided for on the back of the timecards. It was undisputed that the administrator had the power to bind Defendant contractually. The Court further found that the nursing supervisor’s verification and signing of the timecards was a prerequisite to Defendant’s approval of payment to Plaintiff. The fact that Defendant delegated authority to verify the timecards to the supervisors resulted in the granting of both actual and apparent authority to the supervisors to contractually bind Defendant to their terms. The Court rejected Defendant’s argument that Plaintiff’s claims based on three of the contracts at issue were barred by the Statute of Limitations. After noting that a breach of contract claim normally accrues on the date of breach, the Court held that the “time of discovery” exception applied to the claims in this case, because Plaintiff was not made aware that Defendant was employing Plaintiff’s former employees until after the date when the breaches actually occurred. The Court did, however, accept Defendant’s argument that the “work release payment” provided for by the contract did not meet the standard for an enforceable liquidated damages clause, but rather was an unenforceable penalty clause. The Court therefore recalculated damages based on Plaintiff’s lost net profit.

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