United Air Lines, Inc. v Austin Travel Corp.

United Air Lines, Inc. (United) (plaintiff) owns and operates a computerized reservation system (CRS) called “Apollo” and a business and accounting system known as “Apollo Business System” (ABS). United leased Austin Travel Corp. (Austin) is a travel agency that operates multiple offices in New York. Austin leased Apollo and ABS from United for use in four of Austin’s offices. Austin used a competitor CRS program in its other offices. Each of Austin’s leases from United was governed by a separate contract containing a provision providing for the payment of liquidated damages upon premature termination of the contract. Specifically, if Austin terminated its contracts with United early, Austin would be required to pay eighty percent of the remaining fixed monthly fees due under the contract; eighty percent of any variable charges for the month preceding termination, multiplied by the number of months remaining in the contract term; and fifty percent of the average revenue from monthly booking fees charged to customers using Apollo to book reservations with Apollo, multiplied by the number of months remaining in the contract term. In June 1986, Austin breached its contracts with United by adopting a competitor CRS system before expiration of its Apollo and ABS contracts. United brought suit in federal district court against Austin alleging breach of contract and claiming liquidated damages. Austin defended and counterclaimed on the ground that the liquidated damages clauses in its Apollo and ABS contracts were unenforceable penalties. The trial court upheld the liquidated damages provisions and awarded $408,375 in liquidated damages to United. Austin appealed.