Premier Entertainment Biloxi LLC v. U.S. Bank National Ass'n (In Re Premier Entertainment Biloxi LLC)
445 B.R. 582 | United States Bankruptcy Court, S.D. Mississippi | 2010
What This Case Means for Subcontractors
A bankruptcy court ruled that liquidated damages clauses in a loan agreement were unenforceable penalty clauses. The noteholders were allowed an unsecured claim of $9.6 million instead of the $13.7 million they originally sought. This case shows that courts will reject liquidated damages provisions that are excessive or not a reasonable estimate of actual damages. For subcontractors, this means penalty clauses in contracts may not hold up in court if they're disproportionate to real losses.
Key Takeaways
- •Liquidated damages clauses must be a reasonable pre-estimate of actual harm, not a penalty—courts will strike down excessive amounts
- •In bankruptcy, noteholders and creditors may recover less than claimed if their damages provisions are deemed unenforceable penalties
- •Review all penalty and liquidated damages language in your contracts; unreasonable clauses may be voided, leaving you with no recovery
Noteholders are entitled to an allowed unsecured claim in the amount of $9,574,123.
Frequently Asked Question
Can a contractor enforce a liquidated damages clause against me if it's much larger than the actual loss?
No. Courts will strike down liquidated damages clauses that act as penalties rather than reasonable estimates of actual harm. The clause must reflect a genuine pre-estimate of damages, not an inflated threat. If challenged in court or bankruptcy, an excessive clause may be voided entirely, leaving the other party with no recovery.
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