## Facts

- Royal Papers, Inc. was party to a collective bargaining agreement (CBA) with Teamsters Local No. 688 covering warehouse employees.
- The CBA required Royal to contribute $31.00 per week per covered employee to the Teamsters Negotiated Pension Plan.
- The plan was administered under a trust agreement incorporated by reference into the CBA.
- The CBA and trust agreement did not include a clause imposing a fee or damages for late pension contributions.
- The plan’s trustees issued a memorandum announcing a policy that employers more than 15 days late would be assessed a “late penalty” of 10% of total monthly contributions due (unless a CBA specified otherwise).
- In two months in 1995, Royal’s contributions were late; the trustees assessed $210.80 as the 10% late charge.
- The trustees sued in the Circuit Court of the City of St. Louis to collect the assessed amount; both sides moved for summary judgment.

## Issues

1. Whether the trustees’ 10% late charge for delinquent pension contributions was enforceable as liquidated damages or unenforceable as a penalty under Missouri law.
2. Whether the court needed to decide ERISA preemption or contract-formation disputes to resolve enforceability of the late-charge provision.

## Decision

- The Missouri Court of Appeals affirmed summary judgment for Royal Papers, Inc.
- The court held the 10% late charge was an unenforceable penalty rather than an enforceable liquidated-damages provision.
- The court declined to decide ERISA preemption and whether the memorandum became part of a binding contract, because the charge failed under Missouri penalty/liquidated-damages doctrine even assuming those questions favored the trustees.

## Legal Principles

- A liquidated-damages clause is enforceable only if, at the time of contracting, damages from breach are difficult to estimate and the stipulated amount is a reasonable forecast of just compensation.
- If the stipulated amount is designed to compel performance or exceeds a reasonable estimate of probable loss, the provision is a penalty and is unenforceable.
- Where harm from late payment (e.g., lost investment earnings or administrative costs) is readily measurable and susceptible of proof, a substantial fixed percentage of the amount due is less likely to qualify as liquidated damages.
- Labels are not controlling, but describing a charge as a “penalty” supports an inference that it is punitive rather than compensatory.

## Conclusion

The court held the trustees could not collect the plan’s 10% late charge because it operated as a coercive sanction untethered to reasonably estimated losses from delayed contributions, making it an unenforceable penalty under Missouri contract law.


Diffley v. Royal Papers, Inc., 948 S.W.2d 244 (Mo. Ct. App. 1997)