Opinion
No. X06 CV 07 4016194 S
April 29, 2009
RULING ON THE DEFENDANTS' MOTION IN LIMINE (#165) STATEMENT OF THE CASE
The plaintiffs in this action are Webster Financial Corporation and USI Insurance Services of Connecticut, Inc., and the defendants are Gerald Levine and Beecher Carlson Insurance Services, LLC. The complaint alleges various causes of action emanating from Levine's termination from the plaintiffs' employ and subsequent employment with Beecher Carlson. In a decision issued on March 24, 2009, the court denied the defendants' motion for summary judgment. The facts of this controversy are outlined in that decision, and familiarity with that decision is assumed. Pending before the court is the defendants' motion in limine seeking to preclude the plaintiffs from presenting evidence on the liquidated damages provision of the Non-Solicitation Agreement ("NSA") executed by Levine.
In their motion for summary judgment, the defendants argued, inter alia, that they were entitled to judgment because the plaintiffs were unable to prove any damages. In its decision denying the motion for summary judgment, the court explained that material issues of disputed fact precluded summary disposition. Additionally, as to the defendants' argument that the liquidated damages provision constituted an illegal penalty, the court noted that this claim had not been pleaded as a special defense. Subsequently, the defendants filed two motions. The first was a motion to amend the complaint to add a special defense alleging that the liquidated damages provision of the NSA is an unenforceable penalty. This motion (#169) was granted on April 27, 2009, over objection. The second filing was the motion in limine now before the court. This motion again challenges the NSA's liquidated damages provision. However, as explained below, as compared to their motion for summary judgment, the defendants' present argument is more narrow and limited to the language of the provision.
DISCUSSION
I
The purpose of a motion in limine is to preclude, in advance, the admission of facts into evidence, including evidence that may be irrelevant as a matter of law or otherwise inadmissible under the Code of Evidence. "[T]he motion in limine . . . has generally been used in Connecticut courts to invoke a trial judge's inherent discretionary powers to control proceedings, exclude evidence, and prevent occurrences that might unnecessarily prejudice the right of any party to a fair trial . . . Accordingly, a party, through a motion in limine, may implore the court to decide a question of law . . . Although broad, the discretion of a trial judge must yield to a litigant's constitutional right to have factual issues resolved by the jury . . ." (Citations omitted; internal quotation marks omitted.) Ambrogio v. Beaver Road Associates, 267 Conn. 148, 160, 836 A.2d 1183 (2003). Because the parties have the right to have factual issues resolved by the trier of fact, a court ruling on a motion in limine must limit itself to addressing the legal issues raised by the motion. Id. At the same time, the trial court, in the reasonable exercise of its discretion, should not submit issues to the jury for which the evidence would not support a finding. Batick v. Seymour, 186 Conn. 632, 443 A.2d 471 (1982)." Bridgeport Harbour Place I, LLC v. Joseph P. Ganim, Superior Court, judicial district of Waterbury, Complex Litigation Docket, Docket No. X06 CV 04 0184523 (January 25, 2008, Stevens, J.).
II
Connecticut law recognizes the general rule that parties may agree to supplant judicially determined remedies for breach of contract with a liquidated damages provision. King Motors, Inc. v. Deflino, 136 Conn. 496, 72 A.2d 233 (1950). The law is established, however, that a contract provision whose purpose is to deter a party from breaching a contract, and to punish him for doing so, imposes an invalid penalty, unenforceable as a matter of public policy. May v. Young, 125 Conn. 1, 2 A.2d 385 (1938); accord American Car Rental, Inc. v. Commissioner of Consumer Protection, 273 Conn. 296, 314, 869 A.2d 1198 (2005). Consequently, it is equally well settled that a non-breaching party may not retain a stipulated sum as liquidated damages and also recover actual damages. Camp v. Cohn, 151 Conn. 623, 626, 201 A.2d 187 (1964). If a liquidated damages provision is found to be a penalty, the plaintiff may recover actual damages, but if actual damages are not proven, then none may be recovered. May v. Young, supra, 125 Conn. 1; accord Norwalk Door Closer Co. v. Eagle Lock Screw Co., 153 Conn. 681, 686, 220 A.2d 263 (1966).
When actual damages cannot be shown or proved, nominal damages may be awarded for a violation of a clear legal right. See generally Beattie v. New York, N.H. H.R. Co., 84 Conn. 555, 559, 80 A. 709 (1911) (nominal damages "are to be awarded in a case where there has been a breach of a contract and no actual damages whatever have been or can be shown"); see also Letsch v. Slady, 145 Conn. 401, 402-03, 143 A.2d 642 (1958) ("[i]n a case where a [claimant's] clear legal right has been invaded he is entitled to at least nominal damages"); Lyons v. Nichols, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 94-0312019 S (March 30, 1998, Stevens, J.), aff'd, 63 Conn.App. 761, 778 A.2d 246, cert. denied, 258 Conn. 906, 782 A.2d 244 (2001) (same).
The following factors are used in evaluating whether a contract provision for liquidated damages is enforceable: "(1) The damage which was to be expected as a result of a breach of the contract was uncertain in amount or difficult to prove; (2) there was an intent on the part of the parties to liquidate damages in advance; and (3) the amount stipulated was reasonable in the sense that it was not greatly disproportionate to the amount of the damage which, as the parties looked forward, seemed to be the presumable loss which would be sustained by the contractee in the event of a breach of the contract . . ." (Citation omitted.) Berger v. Shanahan, 142 Conn. 726, 732, 118 A.2d 311 (1955). In their motion in limine, the defendants focus solely on the third factor and argue that as a matter of law, the liquidated damages provision of the NSA is unreasonable. The court agrees.
The liquidated damages clause of the NSA provides the following in relevant part:
If any commission, fee or other sum becomes payable to [Levine], or any person or entity with which [Levine] is affiliated in any capacity, as a result of a violation by [Levine] of any of the provisions hereof, then, in addition to any other legal and equitable remedies and/or contractual rights the [plaintiffs] may have; [Levine] agrees to pay or cause the person or entity with which the [Levine] is affiliated to account to the [plaintiffs] for and pay over to the [plaintiffs] any and all commissions, fees, profits, remuneration or other financial benefits obtained in connection with such violation . . .
The terms of this provision are clear and unambiguous. The provision provides that "in addition" to any other legal remedies and contract rights the plaintiffs have, Levine is also required to pay the plaintiffs "all commissions, fees, profits, remuneration or other financial benefits obtained in connection with such violation." In short, as a result of Levine's violation of the contract, this provision entitles the plaintiffs to receive actual damages as a legal remedy under their contract rights, in addition to receiving all the revenues earned by Levine from the violation. As a matter of law, a contract provision that authorizes the non-breaching party to recover both actual damages and all revenues earned as a result of the breach constitutes an invalid penalty, unenforceable as a matter of public policy. Such a provision is a penalty because its express terms call for a recovery of an amount that would be "greatly disproportionate to the amount of the damage which, as the parties looked forward, seemed to be the presumable loss which would be sustained by the [plaintiffs] in the event of a breach of the contract . . ." Berger v. Shanahan, supra, 142 Conn. 732. As previously explained, the plaintiffs cannot recover a stipulated sum as liquidated damages and also recover actual damages. Camp v. Cohn, supra, 151 Conn. 626. Certainly, a contract provision that plainly authorizes such a recovery cannot be upheld.
Stated differently, the liquidated damages clause of the NSA is a classic disgorgement provision. The provision authorizes the plaintiffs to pursue and acquire their legal and equitable remedies, in addition to receiving a disgorgement of the "fruits of the ill-gotten gains." In this regard, it is important to note that the provision does not seek the return of just profits or net revenues, but authorizes the recovery of all earnings or the gross revenues received by Levine as a result of the breach. The primary purpose of such a disgorgement provision is to deter violation of the contract and to hold "over the head of a contracting party the threat of punishment for breach." Berger v. Shanahan, supra, 142 Conn. 731. Consequently, the essential nature of this provision is punitive, not compensatory.
The plaintiffs' arguments to the contrary are rejected. The court rejects the plaintiffs' contention that this liquidated damages provision acquires some enhanced enforceability or more lenient consideration because it is part of a transaction involving the sale of a business. The plaintiffs' argument that they are not in fact seeking a recovery of both liquidated damages and actual damages also fails to meet the difficulty. The issue is not whether the plaintiffs' present litigation position is reasonable, but whether the liquidated damages provision is reasonable as executed. The plaintiffs cannot retrospectively make the terms of the provision palatable by now asserting that they did not plan on enforcing the provision as it is written. The acceptance of such a position would effectively allow such provisions that violate public policy to flourish until confronted by the prospect of litigation and the reality of unenforceability.
Furthermore, the plaintiffs' reliance on Danielson v. Russell, Superior Court, judicial district of Middlesex at Middletown, Docket No. 64703 (Aug. 24, 1994, Higgins, J.) [ 12 Conn. L. Rptr. 332], is misplaced. That case involved a provision authorizing the forfeiture of a deposit in the event of a breach of a contract to purchase real property, and the court found that the provision at issue authorized the seller to recover either the liquidated sum or its actual damages, but not both. Danielson therefore is distinguishable because as compared to the present action, that case did not involve a disgorgement provision expressly entitling the plaintiff to recover both actual damages and gross revenues earned from the breach. — The same may be said for the plaintiffs' reliance on various out of state cases such as HG Ortho, Inc. v. Neodontics International, Inc., 823 N.E.2d 718 (Indiana Ct.App. 2005). The Neodontics case only involved the recovery of certain gross receipts under a liquidated damages clause which the court found to be reasonable under the particular facts of that case. The court cannot find in this case that the liquidated damages provision of the NSA is reasonable because its plain and unambiguous terms provide for the recovery of an amount beyond anything the parties would have contemplated as being reasonable compensation in the event of a breach of the agreement.
CONCLUSION
The court therefore finds that the liquidated damages provision of the NSA is an invalid penalty, unenforceable as a matter of law. The defendants' motion in limine to preclude evidence seeking a monetary recovery under the terms of this provision is granted.
So ordered this 29th day of April 2009.