Two new decisions
coming out of courts in North Carolina and the District of Columbia
offer some interesting reading and lessons for meetings industry
In the case decided by the Court of
Appeals of North Carolina, the issue at hand was liquidated
damages. In a nutshell, an organization had canceled a meeting but
refused to pay the price outlined in a liquidated damages clause in
the contract, calling the clause unenforceable and the fees
unreasonable. So the hotel sued.
In this case, the judge concluded the
law was clear -- the two parties had entered into a contract that
outlined what would happen if the event was canceled, therefore,
the organization owed the hotel money. He determined that no trial
was needed on this part of the complaint.
But the judge did decide a trial could
be held over the enforceability of the liquidated damages clause.
If it was enforceable, the hotel would be entitled to the amount
outlined in the contract. It’s important to note that some damages
still would be owed the hotel, even if the liquidated damage clause
was not enforceable.
The trial court concluded the
liquidated damages clause was enforceable, and therefore there
would be no need for the parties to present evidence on the issue
of how much money was owed the hotel, as that amount was outlined
in the contract. In the end, the judge found in favor of the hotel,
which was to receive $118,499.03 with interest.
The defendant, the meeting host,
appealed that ruling, but the appeal was dismissed for being
without merit. The appellate court found the only issue was whether
the liquidated damage clause was enforceable. In concluding that it
was, then under the basic principles of freedom of contract, the
parties have a “broad right to stipulate in their agreement the
amount of damages recoverable in the event of a breach, and the
courts will generally enforce such an agreement.”
The lesson? If you sign a contract that
outlines how much your organization will pay if you cancel your
event, be prepared to pay that amount. When a contract is breached,
the party in default will be liable to the full extent of the
liquidated damage clause. There is no mitigation requirement here;
the plaintiff needs only to prove the existence of the clause.
The second case, heard by the District
of Columbia Court of Appeals, involved a group that did not reserve
or pay for the minimum number of rooms in its block. In the suit,
the hotel sought relief from the district’s 14.5 percent sales tax
that would be imposed on the group’s attrition fees. The court
concluded the fees were subject to the sales tax.
The hotel’s key argument asserted that
because attrition fees are only charged when a group fails to meet
its minimum room reservations, the district no longer has the
authority to tax the fees since no rooms were actually furnished
and the hotel only charged the fee for a failure to meet the
But the court agreed with the
district’s argument that the tax was applicable because the hotel
had reserved the rooms for the participants, who did have the right
to occupy those rooms even though they did not do so.
Since the hotel measured the attrition
fee as lost room revenues, the court concluded it was the same as
other lost revenues the hotel might recover, and thus would be
bound by the tax law.
Not all jurisdictions levy taxes on
attrition and cancellation fees, so it’s important to note that
this practice has been upheld in the District of Columbia but might
not hold elsewhere.
Jonathan T. Howe,
Esq.,is a senior partner in the Chicago, St.
Louis and Washington, D.C., law firm of Howe & Hutton Ltd.,
which specializes in meetings, travel and hospitality law. Legal
questions can be e-mailed to him email@example.com