Delaware Business Litigation Report

Superior Court Invalidates Liquidated Damages Clause

Tropical Nursing, Inc. v. Ingleside Homes, Inc., 2006 WL 3579075 (Del. Super. Ct. Dec. 11, 2006).

In this opinion granting Defendant’s motion for summary judgment, the Superior Court evaluated the liquidated damages provision contained in Defendant’s contract with Plaintiff. Plaintiff had a non-exclusive agreement with Defendant to provide temporary nursing employment services to Defendant on an “as needed” basis. Timecards that the temporary nurses were required to have signed by Defendant contained a clause that restricted Defendant’s ability to hire the nurses, and provided for a “work release payment” in the event that Defendant breached that was equivalent to 500 times the hourly billing rate for the employee. Defendant sought a ruling from the court that the provision was an unenforceable penalty clause. The Superior Court found that the provision did not meet the standards for an enforceable liquidated damages clause, and therefore granted Defendant’s motion for summary judgment. 

After reviewing the standard for an enforceable liquidated damages clause under Delaware law, the Court noted that in a previous case involving Plaintiff, the Superior Court had found an identical liquidated damages clause to be an unenforceable penalty because damages at the time of contracting were not indefinite or difficult to ascertain. The Court rejected Plaintiff’s argument that the provision was not excessive, concluding that the provision was “not dependant upon an employee’s actual hours of employment. Rather, it is a generic calculation that applies to all employees regardless of the length of time employed by [Defendant].” The Court therefore found that the provision did not reasonably estimate damages actually caused by breach, and that actual damages were not difficult to ascertain. Therefore the provision served only as an economic incentive not to breach, and therefore was void.  Share