An important Fifth Circuit decision in a dispute over the enforceability
of a liquidated damages provision -- here, triggered by breaches of a
non-compete clause in the sale of two vessels -- constitutes only the
third time the Fifth Circuit has addressed this enforceability issue
under maritime law.
The decision was handed down last week in the case of International
Marine, L.L.C. and International Offshore Services, L.L.C. versus Delta
Towing L.L.C., where the Fifth Circuit found in favor of the seller,
Delta, and upheld the enforceability of the liquidated damages provision.
In 2006, Delta sold two tugboats to International under the provision
that International would not charter out the vessels without giving
Delta the opportunity to charter them first. If Delta declined,
International was required to pay Delta 10% of the total charter. The
vessel sales agreement also provided that liquidated damages would be
assessed per occurrence if the non-compete clause was breached.
Two years later, Delta discovered breaches of the non-compete clause and
subsequently made demands for payment of the liquidated damages.
Eventually, claims were brought in the Eastern District of Louisiana,
where the district court issued a midstream ruling in Delta's favor on
the enforceability of the liquidated damages provision. The issue of
enforceability was certified for appeal, then an appeal was fled by
International. The Fifth Circuit has now ruled in favor of Delta,
finding that the liquidated damages provision satisfied the Fifth
Circuit test requiring that the liquidated damages amount was reasonably
related to the potential damages anticipated by the parties.
The decision is important in maritime law. Actual damages in non-compete
agreements are inherently difficult to prove; thus, parties to such
agreements typically agree to a liquidated damages provision that they
should be able to rely upon being enforced. According to David Bland of
LeBlanc Bland PLLC, "This decision signifies the Fifth Circuit's
willingness to uphold such provisions, even where the amount is
significant, particularly where sophisticated parties expressly
negotiated the terms."
LeBlanc Bland P.L.L.C. is a versatile and dynamic law firm committed
to serving clients spanning the Gulf Coast, the nation and the world.
Through its offices in Houston, Texas and New Orleans, Louisiana,
LeBlanc Bland rapidly responds to the needs of clients with resourceful
assistance and solutions. They specialize in effectively resolving
complex commercial disputes and maritime cases and in providing general
counsel to clients, particularly in the marine, offshore, shipbuilding
and energy sectors.
LeBlanc Bland P.L.L.C may be reached at www.leblancbland.com
or by calling David Bland at (504) 528-3088 or (713) email@example.com.
If you would like any further information on any issue raised in this
update please contact:
David S. BlandBeau E. LeBlancMatthew C. GuyLeBlanc
909 Poydras St., Ste 1860New Orleans, LA 70112Tel: 504 528
3088Fax: 504 586 3419
1717 St. James Place, Ste 300Houston, TX 77056Tel: 713 627
7100Fax: 713 627 7148
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