ATLANTA (CN) – The 11th Circuit blocked a cotton-marketing association Monday from demanding more than $1 million from a family of South Georgia farmers who took their business elsewhere.
The Crosby family first joined Autauga in 2007 but patriarch Tim Crosby left the association empty-handed in 2010 when it struck a deal to sell some 4,000 bales of cotton, representing the lion’s share of the crop-year, to Cargill Cotton.
Accusing the Crosbys of betrayal, Autauga brought a federal complaint for $1.3 million in liquidated damages.
On Monday, a three-judge panel of the 11th Circuit affirmed that the Crosbys are entitled to summary judgment against the suit on the ground that Autauga sought an unenforceable “penalty” under Alabama law.
“Under Alabama law, bona fide liquidated-damages provisions — which prescribe ‘a sum to be paid in lieu of performance’ — are enforceable, but ‘penalty’ clauses — which impose ‘a security for the performance of the agreement or … a punishment for default’ — are void,” U.S. Circuit Judge Kevin Newsom wrote for the Atlanta-based appeals panel. “The trick, of course, is distinguishing between the two.”
While Alabama law does allow damages in cases where the injury is difficult to measure, Newsom said Autauga’s agreement with the Crosbys shows “an intent to penalize rather than to compensate.”
“Autauga’s own damages expert confirmed what the agreement itself indicates,” Newsom added, “when he repeatedly testified during his deposition — both on direct and on cross — that the liquidated-damages provision’s formula was intended not to estimate actual loss, but rather to discourage breach.”
Another point that the ruling emphasizes is that the bulk of any sales revenue from the Crosbys’ cotton would have gone to the family themselves.
“But the liquidated-damages sum that Autauga is seeking ― now calculated to be $1,696,610 ― is more than 80% of the total sales value of CCCC’s entire 2010 crop,” Newsom wrote, using an abbreviation for the Crosby family’s partnership.
A representative of Autauga declined to comment Tuesday, saying they are still reviewing the decision.