1. Case Name, Citation, and Court
U S West Financial Services, Inc. v. Robert Cipriano and Nancy Cipriano
1990 U. S. Dist. LEXIS 7364
United States District Court for the Southern District of New York
2. Key Facts
A. Christian signed a partnership agreement when he joined the accounting firm, Weber, Lipshie.
B. The agreement contained: 1) a restrictive covenant providing that in the event defendant withdrew or was expelled from the partnership he would not, for five years, service any of the accounts serviced by the firm; 2) a liquidated damages provision providing that the damages to the partnership for the loss of fees from any such clients would be measured by the firm's time charges for those clients for the 12 months immediately preceding their loss.
C. Christian was expelled from Weber, and formed his own practice. Certain clients took their business from Weber, Lipshie to Christian.
D. Weber, Lipshie sued Christian for liquidated damages, and Christian cross-complained for breach of contract.
E. The trial court held that if Weber, Lipshie expelled Christian without good cause, the restrictive covenant would be unreasonable and unenforceable. The trial court granted a new trial on this issue.
3. Issue
Whether the measure of damages provision was an invalid penalty?
4. Rule
Cal Civ Code § 1671 states that a liquidated damages clause is presumed valid and places the burden on the party who seeks invalidation to show that the provision was unreasonable under the circumstances existing at the time the contract was made.
5. Analysis
The Court of Appeal held that:
A. The trial court erred in failing to enforce the measure of damages clause.
B. The validity of the restrictive covenant did not rest on good cause for expulsion.
C. There was no public policy reason that the liquidated damages provision was not enforceable.
D. Christian should be held