In re: Dow Corning Corp., Bear Stearns Government Securities v. Dow Corning Corp.
United States Court of Appeals for the Sixth Circuit
419 F.3d 543 (2005)
Dow Corning (Dow) (defendant) settled breast-implant injury claims with plaintiffs for $17 million paid in installments, agreeing to pay $100 per day for any late payment to a given plaintiff — a provision proposed first as a penalty but relabeled "liquidated damages" in the final agreement. After Dow went bankrupt and stopped paying, the plaintiffs sold their settlement rights to Bear Stearns (plaintiff), and the bankruptcy court's reorganization plan paid Bear Stearns the remaining principal and interest but denied the additional $8.75 million claimed as liquidated damages. The district court granted Dow summary judgment, finding the damages clause an unenforceable penalty, and Bear Stearns appealed.
Whether a settlement agreement's per-day-late damages clause is a valid liquidated damages provision, or an unenforceable penalty, when the anticipated damages from late payment may have been difficult to estimate but the parties never actually discussed a reasonable dollar forecast when negotiating the clause.