On March 31, 2026, the First Department issued a decision in Levin v. Salvini, 2026 NY Slip Op. 01918, holding that a liquidated damages clause was an unenforceable penalty, explaining:
Although defendants conceded that plaintiffs’ damages were not readily ascertainable, Supreme Court properly concluded that section 13.1 of the contributors agreement was not enforceable because the amount of liquidated damages constituted a penalty rather than, as plaintiff claims, a reasonable estimate of what was necessary to compensate the contributors for a breach of the noncompete clause. As the court noted, all the credible evidence indicated that the amount of the liquidated damages was not calculated with any precision and was intended to sufficiently disincentivize disloyalty. Testimony from one of plaintiffs’ directors indicated the $1 million liquidated damages amount was equivalent to the Fund’s entire pre-tax revenue in 2014, making it disproportionate. Although it is immaterial whether the parties elected to call the amount liquidated damages or a fine, plaintiff’s testimony demonstrated that the amount was chosen with no mathematics to discourage Contributors from violating the noncompete provisions of the Contributors Agreement. Further evidence that it was a penalty rather than fair compensation for damages is that section 13.2 of the Contributors Agreement provided for recovery of actual damages. The evidence indicates the goal was punishment, not fair compensation for damages.
(Internal quotations and citations omitted).