O’Brian v. Langley School
507 S.E.2d 363 (Va. S. Ct. l998)
Introduction; When I asked Professor Markell for this case, he gave me Fern O’Brian’s e-mail address. She and her husband now live in London England. Mrs. O’Brian sent a reply from her office with Arnold & Porter. She mentioned that this matter was resolved on remand in a settlement between them and the school.
Facts; The O’Brian’s enrolled their daughter in Langley School for the second grade by paying a deposit of $1055 and signing the school agreement form in February. Four months later on June 13th, the O’Brians sent a letter to the school letting them know they had to withdraw their daughter. Five days after this, June 18th and June 20th, Langley School sent letters to the O’Brians stating they were obligated to pay the entire amount of the tuition ($9745) because they did not notify the school by the agreed time in the contract of “received by an administrative employee of the school no later than 4:30pm on June 1st” and they agreed to the liquidated damages (clause #4 page 650-51 of case book). Liquidated damages were tuition, court cost and legal fees. The O’Brians refused to pay. Langley filed a motion for judgment alleging the O’Brians breached the agreement and sought enforcement of the liquidated damages clause. The O’Brians then attempted to submit evidence to court that they asked the school whether it had made reasonable efforts to fill the spot made available by the withdraw of their daughter (mitigation of damages).The school claimed it had no obligation to do so. The O’Brians filed a motion to compel discovery which the circuit court denied. Thereafter, Langley moved for and was granted summary judgment for $9745 tuition, + late fees from June 1st and $8900 attorney’s fees ($18,645!). The O’Brians appealed to the Supreme Court of Virginia.
Issue: Whether the circuit court erred by awarding summary judgment to Langley school before permitting the O’Brians to conduct discovery with regard to their defense that the liquidated damage clause is not valid.
Holding; yes, the circuit court erred. The appeals court held that the O’Brians were entitled to discovery because they were the ones challenging the validity of the liquidated damage clause and bear the burden of proving whether the clause is actually an unenforceable penalty.
Liquidated damage clauses can be challenged. The clause will not be enforced and will be void as a penalty if;
1) The amount is unreasonable in light of anticipated damages at the time of contract formation, or
2) The amount is unreasonable in light of the actual harm caused by the breach.
Only need to prove one or the other of these elements to have the liquidated damage clause be an unenforceable penalty.
The O’Brians were attempting to investigate item #2. If the school had a way to fill the spot, a full-years tuition loss was not the actual harm caused by the breach.
Class discussion addressed the difficulty in really determining this “actual harm”. What about the academic standing of the school now that a possibly “less academic” wait-list student is used to fill the spot. What about the charity contributions two lawyer parents and relatives may make to the school on their daughter’s behalf.
Jeanne Williams