## Facts

- Autauga Quality Cotton Association is a nonprofit cotton-marketing cooperative that pools members’ cotton and markets it (including through futures), then remits net proceeds to members.
- The Crosbys, through their farming operation, joined the cooperative and executed a marketing agreement pledging all cotton grown on specified farms for delivery to Autauga.
- The agreement included a liquidated-damages provision applicable when equitable relief was unavailable; it calculated damages using a futures-market price during a defined period and the highest price per pound Autauga received for similar cotton from that crop year.
- For the 2010 crop year, the Crosbys did not deliver the pledged cotton to Autauga and instead sold it to another buyer.
- Autauga sought liquidated damages, asserting amounts that rose from about $1.305 million to about $1.696 million.
- Autauga’s expert testified the clause was intended to create a “disincentive” for nonperformance, not to estimate Autauga’s likely loss.

## Issues

1. Under Alabama law, whether the marketing agreement’s liquidated-damages provision was enforceable as a reasonable pre-breach estimate of probable loss or void as an impermissible penalty.

## Decision

- The Eleventh Circuit affirmed the district court’s summary judgment for the Crosbys.
- Applying Alabama’s three-part test for liquidated damages, the court held the provision imposed a penalty and was void and unenforceable.
- The court accepted that damages from nondelivery could be difficult to estimate in advance but found the clause failed the intent and reasonableness requirements.
- The court rejected policy and statutory arguments that cooperative-marketing considerations or Alabama cooperative statutes displaced Alabama’s common-law limits on penalty clauses.

## Legal Principles

- Under Alabama law, a stipulated-damages clause is enforceable only if: (1) the injury from breach is difficult to estimate, (2) the parties intend compensation rather than coercion, and (3) the amount is a reasonable pre-breach estimate of probable loss.
- Evidence that a clause is designed to deter breach (including admissions that it functions as a “disincentive”) supports a finding that it is a penalty.
- A formula that uses a benchmark such as the “highest” price received and yields amounts untethered to probable loss is not a reasonable estimate of damages and is unenforceable as a penalty.
- Public-policy considerations favoring strict cooperative remedies do not override Alabama’s settled distinction between valid liquidated damages and penalties absent clear legislative authorization.

## Conclusion

The Eleventh Circuit held that Autauga’s liquidated-damages provision functioned to coerce performance and could generate sums grossly disproportionate to probable loss; under Alabama law it was an unenforceable penalty, so Autauga could not recover under the clause for the 2010 nondelivery.


Autauga Quality Cotton Ass'n v. Crosby, 893 F.3d 1276 (11th Cir. 2018)