828 F.3d 575
7th Cir.2016Background
- Jana Caudill, an Indiana resident who owned a Keller Williams–franchised brokerage, sued Keller Williams; the suit was transferred to Texas and settled in 2012.
- Settlement included a confidentiality clause prohibiting disclosure of settlement terms and a liquidated-damages clause setting damages at $10,000 for each violation.
- Keller Williams later distributed an FDD to ~2,000 recipients (including many not permitted under the settlement), disclosing the lawsuit details and the settlement amounts without imposing confidentiality obligations.
- Caudill sued for breach of the confidentiality provision and sought $20 million (2000 × $10,000) under the liquidated-damages clause.
- The district court found Caudill failed to prove actual harm and that the stipulated sum was not a reasonable approximation of damages; it denied the $20 million recovery and injunctive relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of liquidated-damages clause | $10,000 per disclosure is the contractually agreed measure; 2000 disclosures → $20M | Clause is a penalty because damages were measurable/claimant failed to show difficulty of valuation; $10,000 per disclosure unreasonable | Clause not enforced as written; plaintiff failed to show damages approximating stipulated sum |
| Proof of actual damages from disclosures | Widespread FDD dissemination harmed reputation/referrals and thus profits | No evidence any recipient thought less of Caudill or caused lost referrals; profit changes explained by other factors | Plaintiff presented no concrete evidence of actual harm; damages not shown |
| Request for permanent injunction against further disclosure | Confidentiality breach supports injunction to prevent future disclosures | Future disclosures can be addressed if and when measurable harm occurs; injunction premature | Permanent injunction denied; plaintiff may seek relief for future measurable harms |
| Application of Texas law on liquidated damages/penalty clauses | Contract terms should control and be enforced | Texas law disallows punitive contractual damages; liquidated sum must be reasonable forecast of compensation | Texas law bars enforcing the clause as a penalty when it grossly exceeds likely damages |
Key Cases Cited
- Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991) (liquidated damages enforceable only if reasonable forecast of just compensation)
- FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P., 426 S.W.3d 59 (Tex. 2014) (contractual punitive damages and unreasonable liquidated-damage provisions unenforceable)
- Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985) (liquidation must be a reasonable estimate at contracting and not a penalty)
- Durst v. Swift, 11 Tex. 273 (Tex. 1854) (historical rule disfavoring penalty clauses)