Delta Towing Wins Out in Legal Tussle

LeBlanc Bland P.L.L.C. announces important Fifth Circuit Maritime Ruling: decision addresses enforceability of liquidated damages provision.

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.

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.

Law firm LeBlanc Bland P.L.L.C. serves clients spanning the Gulf Coast, the nation and the world through its offices in Houston, Texas and New Orleans.