On June 13, 2025, Justice Patel of the New York County Commercial Division issued a decision in APMSF Inv. LLC v. PM Mezz Buyer LLC, 2025 NY Slip Op. 32117(U), enforcing a liquidated damages clause, explaining:
Plaintiff moves for summary judgment seeking enforcement of Section 25(b) of the Agreement, which provides that in the event Purchaser fails to close for any reason other than a default by Seller, Seller is entitled to retain the $1 million Deposit as liquidated damages. Plaintiff’s entitlement to retain the Deposit turns on whether this provision is enforceable as a matter of law.
It is undisputed that Purchaser failed to close on the transaction. Purchaser concedes that it was unable to proceed because a necessary investor failed to materialize, not due to any alleged breach or misconduct by Seller. The sole question, therefore, is whether Deposit constitutes a valid liquidated damages clause or is an unenforceable penalty.
The Court of Appeals has long held that liquidated damages clauses are enforceable where: (i) actual damages were difficult to determine at the time of contract execution, and (ii) the amount fixed is not plainly or grossly disproportionate to the probable loss.
The Court finds that actual damages were not readily ascertainable at the time the parties executed the Agreement. The Note had a face value of $275 million, but was subordinated to a $1.5 billion senior mortgage, rendering its recovery prospects as uncertain. As the Rosania Affidavit acknowledges, the Note was under water when the contract was signed. The Purchase Price reflected a significant discount from face value and was structured as part of a broader recapitalization plan involving a multi-year extension of the senior loan and a $130 million equity infusion into the Parkmerced Project. Seller expected to complete the transfer of the Note on the terms set forth in the Agreement and represented its ability and readiness to do so.
In light of these circumstances—including the speculative value of the Note, the absence of a robust secondary market, and the unique financing conditions surrounding the Project—the parties expressly acknowledged the difficulty of calculating damages in the event of breach. Section 25(b) of the Agreement provides that the parties understood and agreed that it is difficult to estimate or otherwise determine the total amount of damages that would be incurred by Seller should Purchaser default in its obligations under this Agreement.
This acknowledgment of uncertainty and pre-agreed damages allocation supports the enforceability of the clause. Under New York law, a contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation. Moreover, the burden rests on the party challenging the provision to show that the amount fixed is, in fact, a penalty. Here, the speculative nature of Plaintiff’s loss—stemming from reputational exposure, prolonged asset illiquidity, and lost opportunity costs—justified the parties’ ex ante agreement to liquidated damages. The liquidated damages sum at issue of $1 million represents approximately 1.7% of the $58 million Purchase Price and approximately 0.4% of the face value of the underlying Note. This amount falls well within the range that New York courts have routinely upheld.
Defendant does not substantiate that a liquidated damages clause equal to 1.7% of the contract price is presumptively unenforceable, and its reliance on Trustees of Columbia Univ. v. D’Agostino Supermarkets, Inc., 36 N.Y.3d 69 (2020), and Atlantis Mgt. Group II LLC v. Nabe, 216 A.D.3d 526 (1st Dept. 2023), is misplaced. In Trustees, the Court of Appeals invalidated a clause that reinstated over $1 million in rent obligations—more than seven times the amount due under the parties’ surrender agreement—upon a minor delay in payment, finding it to be grossly disproportionate and punitive. In Atlantis, the First Department struck a provision that compelled the forfeiture of ownership interests for $1.00 upon any breach of an operating agreement, regardless of materiality, and held it to be an unenforceable penalty.
By contrast, Section 25(b) applies only in the event of a material failure to close, and fixes liquidated damages at $1 million, which is approximately 1.7% of the Purchase Price. The clause expressly acknowledges that the damages resulting from a failed closing would be difficult to quantify. This clause is tailored to a specific breach, is proportionate to the anticipated harm, and stands in stark contrast to the blanket penalty provisions at issue in Trustees and Atlantis.
The Court also finds significant that the parties are sophisticated commercial entities, represented by counsel, and that the Agreement was negotiated at arm’s length. Such circumstances warrant judicial deference to the parties’ liquidated damages provision.
Defendant’s argument that the Note was worthless is immaterial. Under New York law, the enforceability of a liquidated damages clause is assessed at the time of contracting—not in hindsight. At the time of execution, both parties recognized the speculative nature of the Note and the broader economic stakes involved in the transaction, which was tied to a $130 million capital infusion and the restructuring of a $1.5 billion senior mortgage.
Accordingly, the Court concludes that Section 25(b) of the Agreement constitutes an enforceable liquidated damages clause.
(Internal quotations and citations omitted).