In 2006, the predecessor in interest to appellant National Service Industries, Inc. “NSI”, filed a breach of contract action against Here to Serve Restaurants, Inc., alleging that Here to Serve prematurely terminated its agreements to rent linens from NSI and that as a result, NSI was entitled to recover liquidated damages. The parties filed cross-motions for summary judgment on the issue of the enforceability of the liquidated damages provisions in their contracts. In an order entered in 2007, the trial court declared the provisions an unenforceable penalty, but ruled that NSI could proceed to trial to prove its actual damages flowing from the alleged breach of contract. NSI then amended its complaint to seek lost profits. Ultimately, however, NSI stipulated that it sought no damages other than liquidated damages, and, in 2009, the trial court granted summary judgment to Here to Serve. The sole issue on appeal is whether the trial court erred by concluding that the provisions were an unenforceable penalty. Finding no error, we affirm. The record shows that the parties entered into two service contracts whereby NSI agreed to provide Here To Serve with all of the linens required for all six of its restaurants. The first contract, entered into on May 16, 2005, covered five restaurants and had a term of 48 months, while the second contract, dated June 27, 2005, concerned a newly opened restaurant and ran for 60 months. During the week of December 5, 2005, NSI relocated its plant and experienced certain difficulties, resulting in delivery shortages to Here to Serve during the busiest time of year for its restaurants. Here to Serve terminated the agreements with NSI by letter dated December 16, 2005. NSI responded by letter, noting that under the contracts, Here to Serve was required to give NSI notice and an opportunity to cure any deficiencies in performance. NSI also invoked the contracts’ identical liquidated damages clauses, which state as follows: In the event of termination of services by Here to Serve in breach of this agreement, Here to Serve will pay liquidated damages in an amount equal to forty percent 40 of the average weekly fees charged for service prior to the date of such breach or to be charged if service has not commenced times the number of weeks remaining in the unexpired Term. Such liquidated amount is not a penalty but is intended to compensate NSI for damages it will incur in the event of such breach. The parties acknowledge such damages would be difficult to ascertain and that such amount is a reasonable estimate of the damages NSI would incur. In the letter, NSI calculated the amount of liquidated damages as $590,559.51, while in the complaint, NSI demanded $486,875.89 The parties filed cross motions for summary judgment on the enforceability of these clauses, and the trial court granted Here to Serve’s motion. NSI appeals.
A tripartite inquiry governs this issue: A contractual provision requiring payment of a stipulated sum by one of the parties upon termination or cancellation of the contract will be treated as an enforceable liquidated damages provision rather than an unenforceable penalty only if all three of the following factors are present: First, the injury caused by the breach must be difficult or impossible of accurate estimation; second, the parties must intend to provide for damages rather than a penalty; and third, the stipulated sum must be a reasonable pre-estimate of the probable loss resulting from such a breach.1 Determining whether a liquidated damages provision is enforceable is a question of law for the court, which necessarily requires the resolution of questions of fact.2 At trial the burden is on the defaulting party to show that the provision is a penalty, but this burden does not arise at the summary judgment stage.3 To obtain summary judgment, the moving party must show there is no genuine issue of material fact as to the three factors set out above and that the undisputed facts warrant judgment as a matter of law.4 To obtain summary judgment, a defendant need not produce any evidence, but must point to an absence of evidence supporting at least one essential element of the plaintiff’s claim.5 Our review of a grant of summary judgment is de novo, and we view the evidence and all reasonable inferences drawn therefrom in the light most favorable to the nonmovant.6 Properly viewed, the relevant evidence shows the following.
