On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Bergen County, Docket No. DC-27443-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Sabatino and Kennedy.
This contract dispute returns on plaintiff's renewed appeal following a remand to the Special Civil Part that we ordered in an unpublished opinion some three years ago. See Supreme Sec. Sys., Inc. v. Aaron Med. Transp., Inc., No. A-0368-08 (App. Div. Oct. 23, 2009). On remand, the trial judge found that the boilerplate liquidated damages provision in the parties' contract for the leasing of security equipment was unenforceable under the circumstances of this case. The judge slightly increased, however, the net compensatory damages payable by defendants to plaintiff.
In its renewed appeal, plaintiff contends that the judge erred in refusing to enforce the liquidated damages provision and that, accordingly, its recovery from defendants should be substantially increased to include the sum due under the liquidated damages formula. In particular, plaintiff maintains that the judge erred in finding the liquidated damages provision unenforceable primarily because of plaintiff's supposed failure to mitigate damages. Plaintiff argues in its appellate brief that it is a "lost volume seller" and thereby would not be able to mitigate damages by attempting to lease the returned equipment to another customer.
We agree with plaintiff that a non-breaching seller's failure to mitigate damages at the time of a breach does not necessarily invalidate a liquidated damages provision in a fungible-goods context involving a lost volume seller. Nevertheless, we are constrained to remand this case a second time because the factual record was not developed in the trial court to establish whether or not plaintiff qualifies as such a lost volume seller.
The relevant facts are already detailed in our 2009 unpublished opinion and need not be repeated here at length. By way of summary, plaintiff Supreme Security Systems, Inc., contracted with defendants Aaron Medical Transportation, Inc., and Joseph Thomas to design a surveillance system and install surveillance cameras at defendants' business premises. The agreement called for an installation fee of $2200, plus a monthly charge of $188 payable to plaintiff over five years. During the installation, the parties agreed to make some modifications to the equipment which, in turn, affected the installation charge and the monthly fees. Ultimately, the total agreed upon price for installation was $2800.
When the parties agreed to these arrangements in May 2006, their contract reflected that defendants would be moving to a new location, and that plaintiff would move the system to defendants' new quarters on a "time and material basis." The contract also stated that in the event of a default, defendants would be responsible for 80% of the unpaid monthly charges for the contract's "unexpired term." More specifically, the liquidated damages provision stated:
14. Default of Subscriber. In the event of any default by Subscriber, without limiting the rights of Company under this Agreement or at law or equity, Company shall be entitled to retain all prepayments received and Subscriber shall immediately pay to Company (a) all payments then due and payable, (b) all charges for labor, material and equipment incurred by Company due to such default based on a time and material basis at Company's then prevailing charges, and (c) eighty percent (80%) of all payments which would be due hereunder for the unexpired term as liquidated damages and not as a penalty; and Company shall have no further obligation to perform under this Agreement. In addition, if any suit or alternative dispute resolution proceeding is instituted and Company is the substantially prevailing party by judgment, award, finding or settlement, Subscriber shall pay directly or reimburse Company for all of its costs and expenses including, without limitation or example, consultants' and professionals' fees and costs including, without limitation or example, reasonable attorneys' fees and costs. [Emphasis added.]
Shortly after the five-year contract began and the equipment was installed at their business, defendants experienced problems with the system. They consequently refused to pay plaintiff the bulk of the remaining amount due. Defendants also advised plaintiff that they were moving from the site in January 2007, and that plaintiff would have to remove the system or their landlord would dispose of it when the building was demolished. Some discussion ensued about installing the system in defendants' new quarters, but plaintiff refused to do that unless defendants paid all of the past due balances. Defendants failed to pay the full balance that plaintiff alleged was due. Plaintiff then recovered its equipment, which had a value, as ultimately determined by the trial court, of $2800.
Plaintiff then filed the present breach of contract action against defendants in the Special Civil Part. The complaint sought the unpaid amount due from defendants, plus liquidated damages equaling 80% of the remaining installments on the balance of the contract. Defendants counterclaimed, asserting that plaintiff, not they, had breached the contract by selling them a defective security system.
After a bench trial in August 2008 at which plaintiff's account receivables clerk and defendants' principal Thomas testified, the trial judge entered a judgment in favor of plaintiff in an oral opinion. Taking into account the payments that defendants had already made and the value of the equipment returned to plaintiff's possession, the judge initially awarded plaintiff a judgment for $200 in net compensatory damages, plus court costs. ...