Dallas v. Chicago Teachers Union
408 Ill. App. 3d 420, 945 N.E.2d 1201 (2011)
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Rule of Law:
A liquidated damages clause is enforceable if the parties intended to agree in advance to the settlement of damages, the amount was a reasonable forecast of potential harm at the time of contracting, and the actual damages would be uncertain and difficult to prove.
Facts:
- Theodore Dallas, the former vice president of the Chicago Teachers Union (CTU), was expelled from the union and terminated from his position following internal charges of misconduct.
- Dallas and the CTU entered into a confidential settlement agreement to resolve a lawsuit Dallas had filed against the union.
- The agreement included a clause (Paragraph 2.1) prohibiting the CTU from making any written or oral statements concerning Dallas.
- The clause stipulated that a violation would cause substantial damage, entitling the non-breaching party to a minimum of $100,000 in liquidated damages.
- After the agreement was signed, the CTU's official publication printed three articles referring to the 'former vice president' and his removal from office for 'inappropriate activities' and 'misuse of Union funds'.
- It is undisputed that the 'former vice president' mentioned in the articles was Theodore Dallas.
Procedural Posture:
- Theodore Dallas sued the Chicago Teachers Union (CTU) and several individuals in the circuit court of Cook County.
- The circuit court directed the parties to mediation, where they entered into a settlement agreement.
- Dallas filed a motion in the circuit court to enforce the settlement agreement, alleging a breach by the CTU.
- The circuit court granted Dallas's motion and entered a judgment against the CTU for $100,000 in liquidated damages.
- The CTU (appellant) filed an appeal of the circuit court's order.
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Issue:
Does a liquidated damages provision in a settlement agreement constitute an unenforceable penalty where it establishes a minimum damages amount for any statement made concerning a party, rather than a fixed amount for only disparaging statements?
Opinions:
Majority - Justice Harris
No. A liquidated damages provision is not an unenforceable penalty if the amount, viewed at the time of contracting, is a reasonable forecast of potential damages, even if it sets a minimum amount rather than a fixed sum. Here, the court found the $100,000 amount was reasonable because it was directly related to the potential harm to Dallas's reputation and future earning capacity, which could have been in the range of his former six-figure salary. The court distinguished this case from those where a clause is optional or allows for recovery of both liquidated and actual damages, which would indicate a penalty. Furthermore, the court held that the plain language of the agreement prohibited 'any statement concerning' Dallas, not just disparaging ones, and enforced the contract as written.
Analysis:
This decision reaffirms the traditional three-part test for enforcing liquidated damages clauses in Illinois, emphasizing that the reasonableness of the damages amount is assessed at the time of contracting, not in hindsight. The court clarifies that a provision setting a 'minimum' amount of damages is not inherently a penalty, distinguishing it from optional liquidated damages clauses which have been struck down. This case provides important guidance for contract drafting, particularly in settlement agreements involving confidentiality or non-disparagement, by showing that broadly worded prohibitions can be upheld and that a substantial, pre-estimated damages amount can be deemed a reasonable forecast of harm to reputation and future earnings.
