Liquidated Damages Provision Not an Unenforceable Penalty Where the Damage Bears a Reasonable Proportion to the Probable Loss

On September 28, 2023, Justice Andrew Borrok of the New York County Commercial Division issued a decision in Curia Global, Inc. v. Eagle Pharmaceuticals, Inc., Index No. 651064/2023, denying defendant’s motion to dismiss in its entirety. In relevant part, the Court rejected the defendant’s argument that a the contract’s liquidated damages provision was an unenforceable penalty where the contract required the defendant to pay, as liquidated damages, a set amount per batch of product that defendant firmly forecasted they would purchase from plaintiff, but did not ultimately purchase. The Court explained:

Eagle's argument that Section 4.3 acts as a unenforceable penalty is equally unavailing. A contractual provision fixing damages in the event of a breach should be sustained where the damage amount bears a reasonable proportion to the probable loss (JMD Holding Corp., 4 NY3d at 380). As discussed above, the Agreement reflects a carefully negotiated comprehensive provision reflecting the utilization of Curia's capacity and the time in which commitment would need to be made to fill Eagle's pemfexy requirements. Under the circumstances, the $4,021,325 (i.e, $365,575/batch x 11) Curia seeks for the Order Deficit bears a reasonable proportion to the loss - i.e., the underutilization of its capacity and as such Section 4.3 is not a penalty and is enforceable.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning liquidated damages or breach of contract actions.