## Facts

- James E. Harrell worked as a truck driver for Smelkinson SYSCO, Inc. (SYSCO) for approximately 13 years and asserted multiple employment-related claims against SYSCO, including discrimination and workers’ compensation matters.
- The parties negotiated and executed a confidential global settlement and general release dated July 2, 2001, later approved in the workers’ compensation context.
- As part of the settlement, Harrell resigned, agreed not to seek reemployment with SYSCO, and promised not to disparage SYSCO or voluntarily aid or assist third-party claims against SYSCO.
- SYSCO agreed to pay Harrell $185,000 and to refrain from challenging Harrell’s unemployment compensation appeal.
- The agreement treated the non-disparagement/no-assistance obligations as material and included a stipulated-damages provision providing that breach of those obligations would support a breach-of-contract action and entitle the aggrieved party to recover damages flowing from the breach, including (but not limited to) the $185,000 paid to Harrell, and stated the amount was not a penalty.
- After the settlement, Harrell wrote a letter assisting another SYSCO employee in a racial-discrimination claim against SYSCO.
- The circuit court found Harrell’s conduct breached the settlement but held the stipulated-damages provision unenforceable as a penalty and entered judgment for nominal damages of $1.

## Issues

1. Did the trial court err in refusing to enforce the settlement agreement’s stipulated-damages provision?
2. Did the trial court err in refusing to allow the jury to determine SYSCO’s actual damages?

## Decision

- The Court of Special Appeals held that the disputed term, while not a classic liquidated-damages clause, was a reasonable and enforceable stipulated-damages remedy.
- The court vacated the $1 nominal-damages judgment.
- The court remanded with instructions to enter a damages award consistent with the settlement agreement’s stipulated-damages remedy (reflecting recovery tied to the $185,000 payment).
- Because the stipulated-damages remedy controlled, a jury determination of actual damages was not required.

## Legal Principles

- Maryland enforces stipulated-damages provisions when they represent a reasonable allocation of anticipated loss at the time of contracting and are not punitive.
- In distinguishing enforceable stipulated damages from an unenforceable penalty, courts consider the parties’ intent, proportionality between the stipulated amount and anticipated harm, and the difficulty of measuring actual damages.
- Where breach causes harms that are hard to quantify (including loss of negotiated finality, reputational effects, and increased exposure from related claims), parties may contract in advance for a monetary remedy without requiring proof of actual damages dollar-for-dollar.
- A stipulated remedy tied to the consideration exchanged for a material settlement promise may be enforced as a contractual allocation of risk rather than treated as a forfeiture.

## Conclusion

The appellate court required enforcement of the settlement’s stipulated-damages remedy for Harrell’s breach of a material no-assistance obligation, vacating the nominal-damages award and remanding for entry of damages consistent with the parties’ agreement.


Smelkinson SYSCO, Inc. v. Harrell, 875 A.2d 188 (Md. Ct. Spec. App. 2005)