Summary
The Alaska Supreme Court held that a flat-rate, per diem liquidated damages provision in subdivision covenants was enforceable. The provision reasonably forecast difficult-to-quantify aesthetic damages caused by construction delays and was not an unenforceable penalty. The court reversed the superior court's summary judgment for the lot owner and ordered an award of liquidated damages.
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Practice areas
Questions Presented
- Whether the subdivision covenant's flat-rate, per diem liquidated-damages clause was an enforceable liquidated-damages provision or an unenforceable penalty.
- Whether Kalenka v. Taylor prohibited enforcement of the $25-per-day provision merely because it applied a flat daily amount to covenant violations.
- Whether the superior court erred in granting Benedict summary judgment on the validity of the liquidated-damages clause.
Holdings
- The $25-per-day provision was an enforceable liquidated-damages clause rather than an unenforceable penalty because actual damages from construction delays were difficult to ascertain and the amount was a reasonable forecast of likely damages.
- Kalenka v. Taylor does not prohibit all flat-rate per diem liquidated-damages clauses; it prohibits provisions that function as punitive penalties and do not attempt to forecast actual damages.
- The superior court erred in granting Benedict summary judgment on the liquidated-damages issue.
Key quotations
“Liquidated damages clauses are proper ... where `it would be difficult to ascertain actual damages,' and where the liquidated amount [is] `a reasonable forecast of the damages likely to occur in the event of breach.'” (310)
“Liquidated damages provisions are meant to compensate and not to punish” (313)
“Because Kalenka does not prohibit reasonable flat-rate per diem liquidated damages clauses and because the superior court recognizes Carr-Gottstein's clause as a reasonable liquidated damages clause, we REVERSE the court's grant of summary judgment to Benedict and order the superior court to grant Carr-Gottstein liquidated damages.” (313)
Factual background
Carr-Gottstein developed the Southport Subdivision and recorded covenants requiring lot owners to complete dwelling construction within one year. The covenant imposed a $25-per-day charge for violations. Benedict began construction on September 20, 1999, but had not completed it by the time Carr-Gottstein notified her of the violation on October 31, 2000. The developer sought completion of construction and liquidated damages, while Benedict challenged the enforceability of the damages provision.
Procedural history
Carr-Gottstein sued to require completion of construction on Benedict's lot and to recover liquidated damages for violating a one-year construction covenant. The superior court granted Carr-Gottstein partial summary judgment on Benedict's noncompliance but granted Benedict summary judgment invalidating the liquidated-damages clause based on Kalenka v. Taylor. Carr-Gottstein appealed the judgment in Benedict's favor.
Remand instructions
The superior court was ordered to grant Carr-Gottstein liquidated damages.