Computer Support Servs. v. Vaccination Servs.
A-16-460
| Neb. Ct. App. | May 23, 2017Background
- Cyzap (IT services) and TotalWellness (health services) had a long business relationship beginning c.2000, including a partnership and below-market IT support ($400/mo).
- In 2012 parties executed a System License and Service Agreement: Cyzap to provide hosting/support; TotalWellness to pay $3,500/month for a 12‑month term automatically renewing unless 120 days’ notice given.
- Agreement permitted TotalWellness to terminate at any time but imposed "liquidated damages" for early termination equal to remaining months × monthly fee (Cyzap retained all payments to date and sought $45,500 after September 3, 2013 termination).
- TotalWellness counterclaimed the contract was void for duress and that the $3,500 fee was unconscionable; Cyzap sought summary judgment to enforce the liquidated damages provision.
- The district court granted summary judgment to TotalWellness on Cyzap’s $45,500 claim, finding the clause an unenforceable penalty, and granted summary judgment to Cyzap dismissing TotalWellness’ duress/unconscionability claims.
- On appeal, the Nebraska Court of Appeals affirmed: liquidated damages clause was a penalty (not a reasonable estimate of anticipated damages) and there was no duress or unconscionability to void the agreement.
Issues
| Issue | Plaintiff's Argument (Cyzap) | Defendant's Argument (TotalWellness) | Held |
|---|---|---|---|
| Enforceability of liquidated damages clause | Clause sets an easily calculable liquidated sum (remaining months × $3,500) and should be enforced | Clause is an unenforceable penalty because it bears no reasonable relation to actual damages | Clause is a penalty; summary judgment for TotalWellness on $45,500 claim (affirmed) |
| Whether early termination = breach requiring liquidated damages | Termination outside the notice window is a breach triggering the clause | Because agreement permits termination at any time, no "breach" occurred | Untimely termination is a breach; liquidated damages analysis applies, but clause still a penalty |
| Duress voiding the 2012 agreement | N/A (Cyzap is plaintiff on main claim) | Agreement was signed under duress when Cyzap suspended services, forcing acceptance of higher price | No duress: Cyzap had right to suspend noncontractual services and TotalWellness failed to show the agreement was unjust or unconscionable; summary judgment for Cyzap (affirmed) |
| Unconscionability of $3,500 monthly fee | $3,500 was reasonable and in many respects below Cyzap’s costs | $3,500 was unconscionable compared to prior $400 rate; price gouging under duress | Fee not unconscionable; evidence showed $3,500 did not exceed Cyzap’s costs and market alternatives were similar; summary judgment for Cyzap (affirmed) |
Key Cases Cited
- Berens & Tate, P.C. v. Iron Mountain Info. Mgmt., Inc., 275 Neb. 425 (describes two‑part test for liquidated damages vs. penalty)
- Kozlik v. Emelco, Inc., 240 Neb. 525 (reasonableness of stipulated damages judged at contract formation)
- Kosmicki v. State, 264 Neb. 887 (duress requires surrender to unlawful or unconscionable demands)
- Oldfield v. Nebraska Machinery Co., 296 Neb. 469 (standard for reviewing summary judgment on appeal)