LeBlanc Bland P.L.L.C. Announces Important Fifth Circuit Maritime Ruling

Decision Addresses Enforceability of Liquidated Damages Provision

NEW ORLEANS--(BUSINESS WIRE)--An important Fifth Circuit decision in a dispute over the enforceability of a liquidated damages provision -- here, triggered by breaches of a non-compete clause in the sale of two vessels -- constitutes only the third time the Fifth Circuit has addressed this enforceability issue under maritime law.

“This decision signifies the Fifth Circuit’s willingness to uphold such provisions, even where the amount is significant, particularly where sophisticated parties expressly negotiated the terms.”

The decision was handed down last week in the case of International Marine, L.L.C. and International Offshore Services, L.L.C. versus Delta Towing L.L.C., where the Fifth Circuit found in favor of the seller, Delta, and upheld the enforceability of the liquidated damages provision.

In 2006, Delta sold two tugboats to International under the provision that International would not charter out the vessels without giving Delta the opportunity to charter them first. If Delta declined, International was required to pay Delta 10% of the total charter. The vessel sales agreement also provided that liquidated damages would be assessed per occurrence if the non-compete clause was breached.

Two years later, Delta discovered breaches of the non-compete clause and subsequently made demands for payment of the liquidated damages. Eventually, claims were brought in the Eastern District of Louisiana, where the district court issued a midstream ruling in Delta’s favor on the enforceability of the liquidated damages provision. The issue of enforceability was certified for appeal, then an appeal was filed by International. The Fifth Circuit has now ruled in favor of Delta, finding that the liquidated damages provision satisfied the Fifth Circuit test requiring that the liquidated damages amount was reasonably related to the potential damages anticipated by the parties.

The decision is important in maritime law. Actual damages in non-compete agreements are inherently difficult to prove; thus, parties to such agreements typically agree to a liquidated damages provision that they should be able to rely upon being enforced. According to David Bland of LeBlanc Bland PLLC, “This decision signifies the Fifth Circuit’s willingness to uphold such provisions, even where the amount is significant, particularly where sophisticated parties expressly negotiated the terms.”

LeBlanc Bland P.L.L.C. is a versatile and dynamic law firm committed to serving clients spanning the Gulf Coast, the nation and the world. Through its offices in Houston, Texas and New Orleans, Louisiana, LeBlanc Bland rapidly responds to the needs of clients with resourceful assistance and solutions. They specialize in effectively resolving complex commercial disputes and maritime cases and in providing general counsel to clients, particularly in the marine, offshore, shipbuilding and energy sectors.

LeBlanc Bland P.L.L.C may be reached at www.leblancbland.com or by calling David Bland at [phone] or [phone]
[e-mail].

If you would like any further information on any issue raised in this update please contact:

David S. Bland
Beau E. LeBlanc
Matthew C. Guy
LeBlanc Bland PLLC

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New Orleans, LA 70112
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