Opinion ID: 75842
Heading Depth: 2
Heading Rank: 3

Heading: Enforcement of the Judgment Against the Corporate Defendants as a Penalty

Text: 36 The Corporate Appellants argue that the district court's enforcement of the $8 million Intercredit judgment against Matthews constitutes an unenforceable penalty under Georgia law because it bears no relationship to the $1 million in damages actually suffered by Nippon. In the Intercredit litigation, Nippon sought to recover the default of $80 million in loans made to Intercredit Corporation. R21-231, Ex. Videotaped Deposition of Yoichi Nishio (Nishio Dep.) at 34-35. In one of the provisions of the settlement agreement in that action, Matthews agreed to pay Nippon $8 million. Id., Ex. 4 at 1. The settlement agreement provided that the amount of judgment would be reduced if $4 million was paid within a prescribed period but that the failure to make these payments would result in the enforcement of the $8 million judgment. Id. at 2. Either of these figures, the full $8 million or the reduced $4 million, represented substantial reductions in the amount sought by Nippon in the litigation. The settlement agreement upon which the judgment was based was signed by Matthews both as chief executive officer of Intercredit and on his own behalf, and was signed by counsel for both Intercredit and Matthews. Id. at 9-10. In exchange for the settlement agreement, Nippon waived the right to sue for $80 million. Id. at 3. After Matthews failed to make the $4 million payment, Nippon obtained a judgment for $8 million. Matthews neither contested nor appealed the entry of the judgment. 37 In Georgia, the determination of whether a provision constitutes liquidated damages or a penalty is controlled by the effect it was intended to have and whether it was reasonable. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340, 342 (Ga.1976). A provision will be considered as liquidated damages if (1) the injury caused by the breach would be difficult to estimate, (2) the parties intend to provide for damages, (3) the provided amount was a reasonable estimate of a probable loss, and (4) both parties are bound by the agreement. Id. at 343. The judgment does not constitute a penalty. The judgment was based on a settlement agreement which substantially reduced the amount sought in the underlying litigation. The agreement provided for damages from a breach which would be difficult to estimate, shows that the parties intended for damages from such a breach, allowed for a sum based on a reasonable estimate of the probable loss, and bound both parties. The Corporate Defendants' argument on this issue is meritless.