Liquidated damages provision affirmed

The sales agreement for two tugboats provided for $250,000 in liquidated damages if the boat was used in violation of a noncompetition provision.  International Marine LLC v. Delta Towing LLC, No. 12-30280 (Jan. 8, 2013).  The Fifth Circuit applied federal admiralty law, using section 356 of the Second Restatement of Contracts as the guide, and placing the burden on the party seeking to invalidate the provision as a penalty. The Court quickly concluded that the second factor of that section — difficulty in proving damages — was established by evidence about the nature of the boat charter business to which the clause applied.  Id. at 9.  The Court also found that the first factor — reasonableness of the estimated anticipated loss — was satisfied by evidence about the range of expected fees and contract duration.  Id. at 9-10.  (citing Farmers Exp. Co. v. M/V Georgis Prois, 799 F.2d 159 (5th Cir. 1986)).  The clause was thus enforceable.