If you sign a contract in Massachusetts, the New England Patriots may be largely responsible for the enforceability of certain damages provisions set forth in the agreement, known as a “liquidated damages clause.”
Liquidated damages clauses are designed to represent a reasonable forecast of damages expected to occur in the event of a breach, particularly where actual damages are difficult to ascertain. For example, in nearly every real estate purchase and sales agreement, there is a liquidated damages provision, providing that in the event the buyer backs out of the deal, the seller’s remedy is to retain the deposit as “liquidated damages.” These types of liquidated damages clauses are also commonly found in commercial lease contracts and… yes, even in contracts for the purchase of professional football tickets, including New England Patriots’ season ticket license agreements.
In the Massachusetts Supreme Judicial Court case entitled NPS, LLC v. Minihane, 451 Mass. 417, 886 N.E.2d 670 (2008), the developer of Gillette Stadium entered into an agreement with the Defendant, Paul Minihane, for the purchase of a 10 year license for two luxury Club level seats. The agreement included a liquidated damages provision, which provided that in the event of a default, including failure to pay any amount due under the license agreement, all payments due throughout the contract term would be “accelerated,” so that the defendant would be required to immediately pay the entire balance for all years remaining on the contract.
Mr. Minihane paid a security deposit and paid for the first year’s worth of tickets, but made no further payments. The Patriots sought to enforce the liquidated damages provision in the ticket license agreement, which required Mr. Minihane to pay for the remainder of the 9 years that he initially promised to pay.
A liquidated damages provision in a contract will usually be enforced provided two criteria are satisfied: 1) at the time of contracting, the actual damages flowing from a breach were difficult to ascertain, and 2) the sum agreed on as liquidated damages represents a reasonable forecast of damages expected to occur in the event of a breach. NPS, LLC v. Minihane, 451 Mass. 417, 886 N.E.2d 670 (2008); Cummings Properties, LLC v. National Communications Corp., 449 Mass 490 (2007). However, where damages are easily ascertainable or calculable, and the liquidated damages amount is grossly disproportionate to the actual damages or unconscionably excessive, a court will award the aggrieved party no more than its actual damages.
Although Mr. Minihane argued that the liquidated damages clause in the agreement with the Patriots was overly harsh and excessive, and that the Patriots could simply re-sell Mr. Minihane’s tickets to someone else, the Court disagreed and held that the Patriots’ damages were difficult to ascertain. In its holding, the Court found that the Patriots’ damages would vary depending on the consumer demand for tickets at the time of breach. The Court also found that consumer demand was dependent upon on a variety of factors such as current performance of the team; popularity of the team’s players; and relative popularity of other sports. Consequently, the Court held that it was difficult to predict, at time the contract was entered into, how long it would take the Patriots to re-sell Mr. Minihane’s seat license and at what cost it would potentially be re-sold.
While the Court focused on the sophistication of both of the parties in enforcing the terms of the contract (Mr. Minihane was a licensed real estate broker, had experience as a general contractor and real estate developer, and had entered into numerous commercial contracts, including institutional loan agreements), this case seems to apply to a wide array of contracts.
Interestingly, while liquidated damages provisions like the one used by the Patriots have been applied in commercial contracts (most notably in commercial lease agreements), the case involving the Patriots was a consumer contract. Accordingly, the importance of carefully considering the terms of every contract one signs-including what damages may result in the event a breach or breakdown in the agreement- cannot be understated.
So, whether you are a football fan or not, next time you see a liquidated damages clause, you might consider how the New England Patriots have impacted contract law in Massachusetts.