Plaintiff Coast Cleaning Services LLC ("Plaintiff") commenced this action against Defendant Ambrosio Italian Restaurant of S.I. Inc. ("Defendant") by filing a Summons and Complaint on or about January 10, 2020. After Defendant failed to answer or otherwise appear in this action, the Honorable Robert J. Helbock, Jr. granted Plaintiff a default judgment against Defendant as to liability and set the matter down for an inquest on damages. Defendant again failed to appear in Court on April 18, 2022, at which time the Court held an inquest.

Plaintiff represents that it entered into an agreement to provide linen rentals to Defendant for its restaurant located at 2071 Clove Road, Staten Island, New York (the "Premises") on November 15, 2019 (the "Agreement"). The Court heard testimony from the president of the Plaintiff corporation, Brian Santorello ("Mr. Santorello") and reviewed documents that were submitted into evidence, including the Agreement, invoices, and an account receivable for the client "Ambrosio." Mr. Santorello testified that based upon the invoices and account receivable submitted into evidence, Defendant owed Plaintiff $813.18 for services that Plaintiff provided. Mr. Santorello further testified that under Section 13 of the Agreement, Defendant owes the Plaintiff $10,916.48 in liquidated damages due to its breach. When asked by the Court as to how he arrived at this amount, Mr. Santroello testified that he used the formula contained in Section 13 and calculated the liquidated damages by taking twenty-five (25%) of the weekly average of Defendant's previous invoice, which was $170.57, and multiplied this by the number of weeks [*2]remaining under the contract, which is two-hundred and fifty-six (256). At the conclusion of the trial, Plaintiff requested that the Court enter judgment in its favor in the amount of $11,729.61, which is comprised of the $813.18 in unpaid services plus $10,916.48 in liquidated damages.

Based upon the evidence provided during the inquest and the testimony of the owner of the Plaintiff LLC, the Court finds that Plaintiff proved prima facie that Defendant defaulted under the Agreement on or about November 18, 2019. The Court further finds that Plaintiff demonstrated that it suffered damages in the amount of $813.18 due to Defendant's default. However, the Court denies Plaintiff's request for "liquidated damages" in the amount of $10,916.48, as such damages constitute an unenforceable penalty.

The Court of Appeals has held that "as a general matter parties are free to agree to a liquidated damages clause "provided that the clause is neither unconscionable nor contrary to public policy." (172 Van Duzer Realty Corp. v Globe Alumni Student Assistance Ass'n, Inc., 24 NY3d 528, 536 [2014] (quoting Truck Rent-A-Ctr. v. Puritan Farms 2nd, 41 NY2d 420, 424 [1977])). Liquidated damages that constitute a penalty are unenforceable since such damages violate public policy. (See id.) According to the Court of Appeals, "a provision which requires damages "grossly disproportionate to the amount of actual damages provides for [a] penalty and is unenforceable." (Id. See also Truck Rent-A-Ctr., 41 NY2d 420, 424 [1977]). "Whether the early termination fee represents an enforceable liquidation of damages or an unenforceable penalty is a question of law, giving due consideration to the nature of the contract and the circumstances." (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 379 [2005]). "In interpreting a provision fixing damages, it is not material whether the parties themselves have chosen to call the provision one for 'liquidated damages'" "or have styled it as a penalty." (Truck Rent-A-Ctr., Inc. v Puritan Farms 2nd, Inc., 41 NY2d 420, 425 [1977]). Furthermore, "if the clause is rejected as being a penalty, the recovery is limited to actual damages proven." (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 380 [2005]. See 172 Van Duzer Realty Corp. v Globe Alumni Student Assistance Ass'n, Inc., 24 NY3d 528, 536 [2014]).

Here, the Court finds that the liquidated damages provision in the parties' Agreement is an unenforceable penalty. According to the "Liquidated Damages" Provision in Section 13 of the Agreement,

If customer terminates this agreement with Company prior to the expiration date contained within Paragraph 10 hereof, the parties agree that the actual damages sustained by Company will be substantial and difficult to ascertain. Therefore, If (sic) Customer terminates this agreement prior to the expiration date for any reason other than those found in Paragraph B, or terminated for cause by Company at any time, Customer will pay to Company, as liquidated damages, and not as penalty, 25% of the average weekly rental charges during the prior weeks of the agreement period multiplied by the number of weeks remaining in the agreement. If the breach or termination occurs within the first two weeks Customer will pay as liquidated damages and not as penalty, a sum equal to 100% of the cash investment for all linen supply-articles purchased for Customer.

Referencing a document titled the "Usage Analysis Report" included in Plaintiff's Exhibit 1, Mr. Santorello testified that Plaintiff calculated the weekly average rental charges to be $170.57 based upon the charges made to Defendant from November 10, 2019 through December 1, 2019. Plaintiff then multiplied this figure by 256, which represents the weeks remaining in [*3]the Agreement, to arrive at $43,665.92. Mr. Santorello testified that Plaintiff then took 25% of $43,665.92 to conclude that Defendant owed it $10,916.48 in liquidated damages.

Giving "due consideration to the nature of the contract and the circumstances", the Court finds that such a liquidated damages provision imposes damages on Defendant that are "grossly disproportionate to the amount of actual damages." (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 379 [2005]. See 172 Van Duzer Realty Corp. v Globe Alumni Student Assistance Ass'n, Inc., 24 NY3d 528, 536 [2014]). Though the terms of the Agreement state that the damages provided for in Section 13 are liquidated damages and not a penalty, such language is of no consequence since "it is not material whether the parties themselves have chosen to call the provision one for 'liquidated damages'" "or have styled it as a penalty." (Truck Rent-A-Ctr., Inc. v Puritan Farms 2nd, Inc., 41 NY2d 420, 425 [1977]). Furthermore, while this section of the Agreement states that "the parties agree that the actual damages sustained by the Company will be substantial and difficult to ascertain," such a determination is to be made by the Court.

Here, the only evidence that Plaintiff provided of the actual damages it suffered is the $813.18 that Defendant failed to pay for services actually provided. Plaintiff did not demonstrate that it invested funds to purchase the supplies necessary to provide rentals to the Defendant, nor did Plaintiff demonstrate that it lost any other funds based upon Defendant's failure to perform its part of the Agreement. The Court finds that Section 13 of the Agreement that requires damages of $10,916.48 is "grossly disproportionate to the amount of actual damages" here of $813.18 and therefore provides for a penalty.

Since such provision is unenforceable, the Court finds "the recovery is limited to actual damages proven" and Plaintiff is entitled to judgment in the amount of $813.18. (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 380 [2005]. See 172 Van Duzer Realty Corp. v Globe Alumni Student Assistance Ass'n, Inc., 24 NY3d 528, 536 [2014]).

Accordingly, it is hereby

ORDERED that Plaintiff is granted judgment in the amount of $813.18; and it is further

ORDERED that the Clerk of the Court shall enter judgment; and it is

ORDERED that any and all other requests for relief are denied.

The foregoing constitutes the Decision and Order of the Court.