## Facts

- Washington County, Illinois sought to lease a coal reserve and granted Energy Plus Consulting, LLC (EPC) an 18-month exclusive right to seek developers, while reserving the right to reject proposals.
- EPC and Illinois Fuel Company, LLC and Appalachian Fuels, LLC (Fuels) agreed that EPC would present Fuels to the County; if the County executed an option giving Fuels the exclusive right to explore, Fuels would pay EPC $100,000.
- The agreement also required Fuels to pay EPC $720,000 upon the earlier of (a) 90 days after execution of the option unless Fuels had released the option, or (b) execution of a mining lease; if a mining lease was executed, Fuels also owed $720,000 annually for four years.
- The County and Fuels executed the option on August 13, 2001; Fuels paid EPC $100,000. The option term ran to February 13, 2002.
- After the original 90-day release period passed, the parties amended the agreement: Fuels paid $50,000 to extend the release deadline to December 31, 2001, and could extend again to February 13, 2002 by paying another $50,000 by December 31.
- Fuels did not pay the second $50,000 by December 31 and notified the County and EPC on January 4, 2002 that it was releasing the option.
- EPC demanded $720,000 under the stipulated-sum provision; Fuels refused.

## Issues

1. Whether the $720,000 stipulated-sum provision was an enforceable liquidated-damages clause or an unenforceable penalty under Indiana law.

## Decision

- The Seventh Circuit affirmed summary judgment for Fuels.
- The court held the $720,000 provision was an unenforceable penalty rather than a valid liquidated-damages clause.
- EPC could not recover $720,000 based on the provision triggered by failure to timely release the option.

## Legal Principles

- Under Indiana law, a liquidated-damages clause is enforceable only if, at the time of contracting, the amount is a reasonable forecast of anticipated loss and actual damages would be difficult to measure.
- A stipulated-sum provision is unenforceable if its function is to secure performance through the threat of a large payment and the amount bears little relation to probable actual damages.
- A fixed sum that applies without regard to the extent of delay or demonstrated harm is an indicator of a penalty, not compensation for expected loss.

## Conclusion

Because the $720,000 payment tied to a late release of the exploration option did not reasonably estimate EPC’s likely damages and operated mainly to pressure Fuels to decide quickly, the Seventh Circuit treated it as a penalty and affirmed judgment for Fuels.


Energy Plus Consulting, LLC v. Illinois Fuel Co., 371 F.3d 907 (7th Cir. 2004)