4U Promotions, Inc. v. Excellence in Travel, LLC et al

Filing 100

ORDER granting Defendants' 75 (redacted); 81 (unredacted) Motion Requesting Interpretation of Liquidated Damages Provision but CONCLUDES that the liquidated damages clause of the parties' settlement agreement is enforceable. Signed by Magistrate Judge Norah McCann King on 8/9/2017. (er)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

4U Promotions, Inc.,

:

Plaintiff,

:

v.

:

Case No. 2:15-cv-1673
Magistrate Judge King

:
Excellence in Travel, LLC,
Defendant.

:

OPINION AND ORDER
This matter is before the Court, with the consent of the
parties under 28 U.S.C. § 636(c), on the motion of Defendants
requesting interpretation of the liquidated damages provision
contained in the settlement agreement resolving the claims in
this case. Motion Requesting Interpretation of Liquidated
Damages Provision (Doc. 75, redacted; Doc. 81, unredacted).
Plaintiff 4U Promotions, Inc., has responded and the motion has
been fully briefed.

The Court resolves this motion as follows.
Background

Briefly, Plaintiff 4U Promotions, Inc. (“4UP”) filed this
action under the Lanham Act, 15 U.S.C. 1125, alleging that
Defendants, Excellence in Travel, LLC’s (“EIT”) and Colleen
Gaier (“Ms. Gaier”) (collectively, “Defendants”), infringed
4UP’s registered trademarks.

4UP also asserted supplemental

state law claims of breach of contract, contempt under O.R.C. §
2705.01 et seq., and violation of the Ohio Deceptive Trade
Practices Act, O.R.C. § 4165.01 et seq.

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The breach of contract claim arose out of the settlement of
a prior state court action filed by 4UP against EIT in the Court
of Common Pleas for Greene County, Ohio, asserting claims for
breach of contract, unfair competition, intentional interference
with business relationships and conversion.

EIT filed a

counterclaim alleging claims for breach of fiduciary duty,
breach of joint venture, conversion, interference with
prospective contractual relations, defamation, false light
invasion of privacy and seeking declaratory judgment regarding
the ownership and validity of certain service marks.

The focus

of the state court action was a joint venture to organize and
promote a specialty cruise in 2012 that 4UP and EIT called the
“Decades of Rock & Roll Oldies Cruise.”
the use of two marks:

That action involved

(1) “Decades of Rock and Roll Oldies

Cruise” and (2) “Decades of Rock and Roll” (the “4UP marks”).
The state court action was mediated and the parties entered into
a settlement agreement.

Not quite a year later, 4UP filed this

action.
Facts
Following mediation of this case, the parties entered into
a settlement agreement on April 25, 2016, and the action was
dismissed upon stipulation. Stipulated Dismissal (Doc. 44). On
December 28, 2016, 4UP moved to enforce the parties’ settlement
agreement. Plaintiff’s Motion for Enforcement of the Parties’
Settlement Agreement (Doc. 45, redacted; Doc. 50, unredacted).
As it relates to the motion to enforce the settlement agreement
and to Defendants’ current motion, the settlement agreement
contains the following provisions:
3. EIT’s and Gaier’s Cessation of Use of the 4UP
Mark. Within fourteen (14) days after the
Execution Date, EIT and Gaier shall completely
cease all uses of the 4UP Mark and any
substantially similar variation of the 4UP Mark.
3

EIT and Gaier expressly agree that ceasing all
uses includes, but is not limited to, removing
each previous and/or current use of the 4UP Mark
from all print media, electronic media and social
media over which 4UP and/or Gaier have direct or
indirect control through EIT’s and Gaier’s
employees and/or agents. EIT and Gaier further
expressly agree that “uses of the 4UP Mark”
include any use of the 4UP Mark or any
substantially similar variation of the 4UP Mark
as a hashtag, a metatag, metadata of any sort
and/or in any way whatsoever, regardless of
whether it is used as a trademark or not.
If EIT or Gaier fail to comply with this Section
and that failure continues for fourteen (14) days
after written notice is provided as set forth in
Section 9, below, then 4UP may take all available
action at law. No action can be taken prior to
the expiration of this notice requirement. The
Parties agree that this Section 3 is a material
provision of this Agreement.
***
5. Liquidated Damages. EIT and Gaier acknowledge
that any material breach of this Agreement will
cause 4UP damages that are impossible to compute
and ascertain with certainty as a basis for
recovery by 4UP of actual damages, and that
liquidated damages represent a fair, reasonable
and appropriate estimate thereof. Accordingly, in
lieu of actual damages for such breach, EIT and
Gaier agree that liquidated [sic] may be assessed
and recovered by 4UP in the amount of ten
thousand Dollars ($10,000.00).
On May 2, 2016, i.e., one week prior to the expiration of
the initial fourteen-day period, counsel for 4UP sent an email
to Defendants’ counsel identifying uses of the 4UP mark. See
Affidavit of Colleen Gaier, Doc. 94, Ex. 2. On May 10, 2016,
i.e., one day after the expiration of that initial period,
counsel for 4UP sent a first written notice of noncompliance
with the settlement agreement.

Id. at Ex. 3.
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This notice

purported to identify 2 confirmed and 4 unconfirmed uses of the
4UP mark. Id.

These uses had been identified by 4UP in the

email dated May 2.

The next day, counsel for 4UP emailed

Defendants’ counsel highlighting three items identified in the
prior day’s letter that still needed to be corrected.

Id. at

Ex. 4.
On May 16, 2016, Defendants’ counsel responded to 4UP’s
counsel stating that her client had complied in response to the
May 10 written notice. Id. at Ex. 5. On that same date, 4UP’s
counsel sent a second notice of noncompliance identifying 9
Facebook posts and 4 tweets, all dating from 2011, and demanding
removal of those items.

Id. at Ex. 6.

There is no indication

in this letter that these items had been included in the first
letter notification of noncompliance.

On May 31, 2016,

Defendants’ counsel emailed 4UP’s counsel, representing that the
posts had been removed.

Id. at Ex. 7. On August 1, 2016, 4UP’s

counsel sent a third notice of noncompliance.

Id. at Ex.8.

Again, there is no indication in this letter that these items
had been included in the first or second letter notifications of
noncompliance.

The third letter also requested payment of

$10,000 for the alleged material breach of the settlement
agreement.

By letter dated August 15, 2016, Defendants’ counsel

responded to 4UP stating that her clients had complied with the
terms of the settlement agreement.

Id. at Ex. 10.

4UP filed its motion to enforce the settlement agreement
approximately four months later.

The motion identifies alleged

uses consisting of four Facebook posts and sixteen tweets
discovered on or around December 9, 2016.

See Affidavit of

Penny Greene, Doc. 50 Attachments B and D.

The motion also

asserts that Defendants had previously confirmed removal of
three of these tweets and one of these Facebook posts.

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Id.

Analysis
Defendants explain that they are seeking an interpretation
of the liquidated damages provision of the settlement agreement
in an effort to resolve the motion to enforce the settlement
agreement prior to any hearing on 4UP’s motion.
request that the Court consider two issues:

Defendants

(1) whether the

liquidated damages clause in the settlement agreement is
enforceable, and (2) whether the liquidated damages provision
limits recovery to $10,000 or whether it allows for a cumulative
recovery of $10,000 for each alleged continuing use.

The Court

will address each issue in turn.
A. Is the Liquidated Damages Clause a Penalty?
Defendants contend that the liquidated damages clause is an
unenforceable penalty.

4UP disagrees.

“‘Whether a particular sum specified in a contract is
intended as a penalty or as liquidated damages depends upon the
operative facts and circumstances surrounding each particular
case[.]’”

Heskett Ins. Agency, Inc. v. Braunlin, 2011 WL

5903484, at *6 (Ohio 4th Dist. Nov. 16, 2011), quoting Samson
Sales, Inc. v. Honeywell, Inc., 12 Ohio St.3d 27, 28 (1984).
“If a party challenges a stipulated damages provision, ‘the
court must step back and examine it in light of what the parties
knew at the time the contract was formed and in light of an
estimate of the actual damages caused by the breach.’” Id.,
quoting Lake Ridge Academy v. Carney, 66 Ohio St. 376, 382
(1993). “‘If the provision was reasonable at the time of
formation and it bears a reasonable (not necessarily exact)
relation to actual damages, the provision will be enforced.’”
Id., citing 3 Restatement of the Law 2d, Contracts (1981) 157,
Section 356(1).

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The Ohio Supreme Court addressed at length the substantive
law on liquidated damages in Boone Coleman Constr., Inc. v.
Piketon, 145 Ohio St.3d 450, 453 (2016), explaining that,
“[s]imply stated, liquidated damages are damages that the
parties to a contract agree upon, or stipulate to, as the actual
damages that will result from a future breach of the contract.”
Id., citing Sheffield-King Milling Co. v. Domestic Science
Baking Co., 95 Ohio St. 180, 183 (1917).

The purpose of a

liquidated damages clause is “to substitute the amount agreed
upon as liquidated damages for the actual damages resulting from
breach of the contract, and thereby prevents [sic] a controversy
between the parties as to the amount of damages.” Id. (internal
quotations omitted).

The stipulated amount “forms, in general,

the measure of damages in case of a breach, and the recovery
must be for that amount. No larger or smaller sum can be awarded
even though the actual loss may be greater or less.”
(internal quotations omitted).

Id.

“Put another way, ‘a liquidated

damages clause in a contract is an advance settlement of the
anticipated actual damages arising from a future breach.’” Id.,
quoting Carrothers Constr. Co., L.L.C. v. S. Hutchinson, 288
Kan. 743, 754, 207 P.3d 231 (2009).
Although liquidated damages clauses were once disfavored,
that is no longer the case. Boone, at 453.

Rather, such clauses

are enforced when found to be “fair and reasonable attempts to
fix just compensation for anticipated loss caused by breach of
contract.”

Id. at 453-454 (internal quotations omitted).

They

are generally viewed with favor when they are found to have been
“deliberately entered into between parties who have equality of
opportunity for understanding and insisting upon their rights.”
Id. at 454, quoting Wise v. United States, 249 U.S. 361, 365, 39
S.Ct. 303, 63 L.Ed. 647 (1919). Significant to such a finding
would be the “sophistication of the parties and whether both
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sides were represented by able counsel who negotiated the
contract at arms-length without the ability to overreach the
other side.” Wilmington Trust Co. v. Aerovias de Mexico, S.A. de
C.V., 893 F.Supp. 215, 218 (S.D.N.Y. 1995).
The Boone court noted that Ohio has long recognized
liquidated-damages provisions as valid and enforceable so long
as the provisions are not tantamount to penalties.
That is the issue that Defendants raise here.

Id. at 454.

With respect to

this issue, the parties agree that, whether a contract provides
for liquidated damages or an unenforceable penalty is a question
of law.

See Lake Ridge Academy 66 Ohio St. at 380.

In Boone,

the Ohio Supreme Court cited with approval an Ohio appellate
court’s description of a prohibited “penalty”:
“a sum inserted in a contract, not as the measure of
compensation for its breach, but rather as a
punishment for default, or by way of security for
actual damages which may be sustained by reason of
nonperformance, and it involves the idea of
punishment. A penalty is an agreement to pay a
stipulated sum on breach of contract, irrespective of
the damage sustained. Its essence is a payment of
money stipulated as in terrorem of the offending
party, while the essence of liquidated damages is a
genuine covenanted pre-estimate of damages. The amount
is fixed and is not subject to change; however, if the
stipulated sum is deemed to be a penalty, it is not
enforceable and the nondefaulting party is left to the
recovery of such actual damages as he can prove.”
(Emphasis sic). Piper v. Stewart & Inlow, 5th Dist.
Licking No. CA–2530, 1978 WL 217430, *1 (June 14,
1978), quoting 22 American Jurisprudence 2d, Damages,
Section 213, at 298 (1965).
Id. at 454-55.
The Ohio Supreme Court has established the following test
to determine whether a liquidated damages provision in a
contract should be construed as a penalty:

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Where the parties have agreed on the amount of
damages, ascertained by estimation and adjustment, and
have expressed this agreement in clear and unambiguous
terms, the amount so fixed should be treated as
liquidated damages and not as a penalty, if the
damages would be (1) uncertain as to amount and
difficult of proof, and if (2) the contract as a whole
is not so manifestly unconscionable, unreasonable, and
disproportionate in amount as to justify the
conclusion that it does not express the true intention
of the parties, and if (3) the contract is consistent
with the conclusion that it was the intention of the
parties that damages in the amount stated should
follow the breach thereof.
Samson Sales, Inc., 12 Ohio St.3d 27 at syllabus; see also
Jones v. Stevens, 112 Ohio St. 43 (1925) at syllabus; Lake
Ridge Academy, 66 Ohio St.3d at 382.
Applying these principles and standards to the
circumstances presently before the Court, the Court concludes
that the liquidated damages clause is not a penalty.

First, the

Court is satisfied that damages would be uncertain or difficult
to prove.

Defendants contend, without any discussion or

analysis, that 4UP’s actual damages, if any, are easily provable
and would include damages ordinarily proven in a trademark
infringement case, i.e., profits realized by EIT or profits lost
to 4UP by reason of Defendants’ claimed use of the 4UP mark.
4UP, on the other hand, suggests a number of reasons why damages
cannot easily be proven in this case.
The Court has no trouble accepting that damages in Lanham
Act cases frequently are difficult to prove. In fact, the
statute itself accounts for this difficulty.

As Judge Graham

explained in Coach, Inc. v. Cellular Planet, 2010 WL 2572113
(S.D. Ohio June 22, 2010):
The Lanham Act authorizes an award of statutory
damages in lieu of actual damages. See also Cable/Home
Communication Corp. v. Network Prods., Inc., 902 F.2d
829, 850 (11th Cir. 1990) (“Generally, statutory
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damages are awarded when no actual damages are proven,
or actual damages and profits are difficult and
impossible to calculate”). Statutory damages for
trademark infringement are available for up to
$200,000 per trademark infringed, regardless of
willfulness, and enhanced up to $2,000,000 per mark if
the infringement is willful. 15 U.S.C. § 1117(c). The
amount of statutory damages awarded to a plaintiff
within the range provided does not depend on actual
damages. In fact, as recognized by this Court,
“statutory damages are appropriate in default judgment
cases because the information needed to prove actual
damages is within the infringers' control and is not
disclosed.” Microsoft v. McGee, 490 F.Supp.2d at 882.
See also Peer Int'l Corp. v. Pausa Records, Inc., 909
F.2d 1332 (9th Cir. 1990) (statutory damages
appropriate regardless of proof of actual damages or
defendant's profits); Microsoft Corp. v. Tierra
Computer, Inc., 184 F.Supp.2d 1329, 1333 (N.D. Ga.
2001) (rejecting defendant's argument that plaintiff
must prove actual damages before it can recover
statutory damages).
Id. at *2.

The language of the parties’ liquidated damages

clause recognizes the potential impossibility of computing
damages and, in this way, is consistent with the statute
itself.

Consequently, the first prong of the Samson test

weighs in favor of concluding that the clause is not a
penalty.
Further, looking at the contract as a whole, there is no
basis on which to conclude that the settlement agreement is so
unconscionable, unreasonable, and disproportionate that it does
not express the parties’ intentions.

The clause is not a boiler

plate liquidated damages provision; rather, it was freely
negotiated by parties represented by counsel and possessing
equal bargaining power.

Moreover, the parties – one-time

business partners – cannot fairly be characterized as
unsophisticated.

Consequently, the second prong of the Samson

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test weighs in favor of concluding that the clause is not a
penalty.
Finally, the contract is consistent with the conclusion
that the parties intended damages in the amount stated.

As

explained above, the parties had a long history of litigation,
including the previous settlement of a state court action.

This

history suggests that the $10,000 amount was intended to reflect
an agreed upon estimation of damages in the event of a breach.
The language of the liquidated damages provision is clear with
respect to the reasons supporting the parties’ choice of this
amount. Consequently, the third prong of the Samson test weighs
in favor of concluding that the clause is not a penalty.
This Court therefore concludes that the liquidated damages
clause of the parties’ settlement agreement is not a penalty.
B.

Is Recovery Limited to $10,000?

The parties devote much of their briefing to the language
of the liquidated damages clause, and both sides contend that
the language of the clause is unambiguous.

Defendants argue

that the language is unambiguous and limits recovery to $10,000
for “any” material breach.

4UP, on the other hand, argues that

the language is unambiguous and allows for a $10,000 recovery
for “every” material breach or “all” material breaches.

The

Court notes that Defendants’ use of the word “any” is consistent
with the language of the settlement agreement itself.

In a

footnote, 4UP explains that it chooses to frame the issue in
terms of “every” and “all” in order to “allow[] for a more
generalized interpretation.”

See Response, Doc. 88 at n.10.

The Court is not convinced that the parties’ word choice in this
regard is of any consequence.
This is so because, in making their arguments, the parties
have failed to meaningfully address the particular conduct that
constitutes a “material breach” under the terms of their
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agreement.

Defendants do not address the issue at all and 4UP’s

arguments suggest that it considers a breach to be Defendants’
use of a 4UP mark.

The parties’ unarticulated but clearly

differing views of what conduct constitutes a “material breach”
underlie their current disagreement.

Because the Court

considers the definition of “material breach” central to any
interpretation of the liquidated damages clause urged by the
parties, it will turn first to the controlling provision of the
settlement agreement addressed to that issue.
As noted supra, Section 3 of the settlement agreement sets
forth Defendants’ obligations.

This section is captioned,

“EIT’s and Gaier’s Cessation of the Use of the 4UP Mark.”

The

language of the first paragraph in this section requires that,
“[w]ithin fourteen (14) days after the Execution date, EIT and
Gaier shall completely cease all use of the 4UP Mark and any
substantially similar variation of the 4UP Mark. . . . [C]easing
all uses includes, but is not limited to, removing each previous
and/or current use of the 4UP Mark. . . .”

The language of the

second paragraph in this section states that, “[i]f EIT or Gaier
fail to comply with this Section and that failure continues for
fourteen (14) days after written notice is provided,. . . then
4UP may take all available action at law.”

Finally, the last

sentence of the section states that the parties agree that the
section is a “material provision.”
The Court’s analysis of this provision requires a short
discussion of the applicable rules of interpretation.

There is

no question that a settlement agreement is a binding contract.
Edwards v. Hocking Valley Community Hosp., 87 Fed.Appx. 542, 550
(6th Cir. 2004).

According to the terms of the parties’

settlement agreement, the provision is to be construed in
accordance with Ohio law.

The application of Ohio law is

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consistent with choice of law provisions and the parties do not
contend that any law but Ohio’s governs their dispute.
“Under Ohio law, the elements of a breach of contract
claim are: (1) the existence of a contract; (2) performance by
the plaintiff; (3) breach by the defendant; and (4) damage or
loss to the plaintiff as a result of the breach.”

V & M Star

Steel v. Centimark Corp., 678 F.3d 459, 465 (6th Cir. 2012).
“’When confronted with an issue of contract interpretation, [a
court's] role is to give effect to the intent of the parties.’”
Eastham v. Chesapeake Appalachia, L.L.C., 754 F.3d 356, 361 (6th
Cir. 2014), quoting Sunoco, Inc. (R&M) v. Toledo Edison Co., 129
Ohio St.3d 397, 953 N.E.2d 285, 292 (2011).

Courts typically

presume that the parties’ intent is contained within the
language of the contract. Id.

Courts also look to “the plain

and ordinary meaning of the language used in the contracts
unless another meaning is clearly apparent from the contents of
the agreement.”

Id.

However, “[w]hen the language of a written

contract is clear, a court may look no further than the writing
itself to find the intent of the parties.”

Id.

“[T]he interpretation of written contract terms, including
the determination of whether those terms are ambiguous, is a
matter of law for initial determination by the court.” Savedoff
v. Access Grp., Inc., 524 F.3d 754, 763 (6th Cir. 2008)
(applying Ohio law). Where ambiguity exists, interpretation of
the parties' intent is a question of fact. Schafer v. Soderberg
& Schafer, 196 Ohio App.3d 458, 477 (Ohio 6th Dist. 2011).
Applying these principles to the parties’ settlement
agreement, the plain language of Section 3 requires Defendants,
first, to cease all use of the 4UP mark within 14 days of the
execution of the settlement agreement and, thereafter, to cease
such use within 14 days after receipt of any further written
notice of offending use.

This language does not define a breach
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of the settlement agreement in terms of Defendants’ use of the
4UP mark; rather, a “material breach” occurs if Defendants fail
to remove offending use or uses within 14 days after 4UP
notifies Defendants, in writing, of improper use. Simply stated,
a “material breach” under the settlement agreement is the
failure to remove the offending use or uses, either initially or
upon later written notification.
This definition makes the interpretation of the liquidated
damages clause very straightforward.

That is, construing

Section 5 in a way that is consistent with the language of
Section 3, any failure by Defendants to take removal action
within the prescribed timeframe following written notification
will result in damages to 4UP in the agreed upon amount of
$10,000.
Presumably, more than one scenario may result in the
assessment and recovery of liquidated damages.

For example, the

failure to remove all offending uses within 14 days of the
execution of the settlement agreement could result in the
assessment and recovery of $10,000.

Similarly, even if all

known uses are initially removed, if at some later time
additional uses are discovered and written notice of such use is
provided, Defendants’ failure to remove such additional uses
within 14 days of that notice may result in the assessment of
$10,000.1

Of course, it goes without saying that, although a

valid stipulated amount of liquidated damages becomes the
measure of recovery, see Domestic Linen Supply & Laundry Co. v.
Kenwood Dealer Group, Inc., 109 Ohio App.3d 312 (Ohio 12th Dist.
1996), any such recovery will require 4UP to prove by a

1

Defendants’ motion does not raise, and the parties do not address, the issue of what conduct constitutes the
removal of a use under the terms of the settlement agreement. Consequently, the Court will not consider that
particular issue within the context of ruling on the current motion.
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preponderance of the evidence an alleged breach of the
settlement agreement.
Both parties are correct in arguing that the language of
the liquidated damages clause is not ambiguous as it relates to
the issue raised by Defendants’ motion.

Moreover, the parties’

interpretations of the liquidated damages clause do not
necessarily stand in direct contradiction.

That is, Defendants

are correct that recovery for each material breach is limited to
$10,000 and 4UP is correct that it is entitled to $10,000 for
each material breach proven by it.

However, because a material

breach is defined under the terms of the settlement agreement as
Defendants’ failure to remove their uses of the 4UP mark upon
notice – rather than as their actual uses of the 4UP mark – the
settlement agreement does not contemplate 4UP’s recovery of
$10,000 for each alleged use of its mark.
Conclusion
Based on the foregoing, the Court GRANTS Defendants’ Motion
Requesting Interpretation of Liquidated Damages Provision (Doc.
75, redacted; Doc. 81, unredacted) but CONCLUDES that the
liquidated damages clause of the parties’ settlement agreement
is enforceable.

Further, the Court interprets the language of

the liquidated damages provision of the parties’ settlement
agreement to entitle 4UP to the recovery of $10,000 for each
material breach proven by it.

However, Section 3 of the

settlement agreement defines material breach as Defendants’
failure to remove a use or uses of 4UP’s mark, either initially
or upon written notice, within the relevant prescribed
timeframe.

August 9, 2017

s/ Norah McCann King
United States Magistrate Judge

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