## Facts

- Lear Corporation (Lear) supplied automotive parts for a General Motors Corporation (GM) program and contracted with Exemplar Manufacturing Company (Exemplar) for Exemplar to manufacture certain parts for that program.
- Exemplar performed but asserted it was losing about $500,000 per month on the GM program work.
- In September 2002, Exemplar and Lear entered into a written “Resourcing Agreement” under which Lear agreed to “resource” (move) the GM program away from Exemplar.
- The Resourcing Agreement included a stipulated-damages provision stating that if resourcing continued after November 7, 2002, Lear would pay Exemplar $16,667 per day (calculated as one-thirtieth of $500,000) for each day after that date until resourcing was completed.
- Around the same time, Exemplar entered into a separate agreement with Lear, GM, Ford Motor Company (Ford), and other customers granting those customers a right of access, upon Exemplar’s default, to enter Exemplar’s facilities and produce parts there.
- In October 2002, Ford exercised its access rights and began producing parts at Exemplar’s facilities.
- Lear completed the resourcing on November 23, 2002, and paid Exemplar $16,667 per day pursuant to the Resourcing Agreement for the post–November 7 period.
- Exemplar and its subsidiary later filed for bankruptcy and, during the bankruptcy case, filed an adversary complaint against Lear seeking $266,676 in additional damages under the Resourcing Agreement.
- Exemplar and Lear filed cross-motions for summary judgment. Lear argued the daily amount was an unenforceable penalty and that Exemplar had not pleaded any recoverable actual damages.

## Issues

1. Whether the Resourcing Agreement’s $16,667-per-day provision was enforceable as liquidated damages under Michigan law or void as a penalty.
2. If the provision was a penalty, whether Exemplar could obtain additional recovery without pleading and supporting a claim for actual damages caused by the alleged breach.

## Decision

- The court denied Exemplar’s motion for summary judgment.
- The court granted Lear’s motion for summary judgment.
- The court held the $16,667-per-day clause was an unenforceable penalty under Michigan law because it did not reasonably estimate probable damages from a resourcing delay.
- After refusing to enforce the clause, the court determined Exemplar could not recover additional sums because it had not pleaded (and did not show) actual damages attributable to Lear’s alleged breach beyond what Lear had already paid.

## Legal Principles

- Under Michigan law, a stipulated-damages clause is enforceable only when, at the time of contracting, actual damages would be difficult to determine and the stated amount is a reasonable estimate of probable loss.
- A stipulated amount that is not reasonably related to anticipated harm from the specific breach, or that operates mainly to compel performance through a large fixed charge, is an unenforceable penalty.
- When a liquidated-damages provision is invalid, the claimant must pursue and support actual damages; a party that seeks only the invalid stipulated amount and does not plead or prove actual damages cannot obtain additional recovery.

## Conclusion

The bankruptcy court ruled that the Resourcing Agreement’s $16,667-per-day clause was a penalty rather than a valid liquidated-damages provision under Michigan law, and it entered summary judgment for Lear because Exemplar, having relied on the invalid clause, failed to plead and support any actual damages claim for additional amounts.


In re Exemplar Manufacturing Company, 331 B.R. 704 (2005)