United Dairyman ofArizona v. Rawlings – 2/28/2008

March 4, 2008

Arizona Court of Appeals Division One Holds that Liquidated Damage Provisions in Cooperative Marketing Association Marketing Agreement Are Enforceable Under A.R.S. § 10-2016(D), Without Regard to Reasonableness or Actual Damages.

Pursuant to a cooperative marketing agreement between David Rawlings, a dairy owner and operator, and the United Dairyman of Arizona, Rawlings agreed to deliver all milk he produced to UDA in exchange for UDA’s marketing and distribution of the milk.  The agreement included a provision requiring Rawlings to pay liquidated damages in a sum equal to forty percent of the gross sale price of the milk he produced but did not deliver to UDA.  After Rawlings’ breached the agreement, UDA was awarded liquidated damages by a jury.     

Rawlings argued on appeal that, under common law principles, the liquidated damages provision was an unenforceable contractual penalty.  TheArizonaAppeals Court rejected that argument explaining first that A.R.S. § 10-2016(D) expressly permits liquidated damage provisions in cooperative marketing association marketing agreements.  In light of this specific statute, the Court explained, liquidated damage provisions in marketing agreements should be construed in accordance with their terms without regard to common-law principles which might otherwise limit the enforceability of such provisions. 

Presiding Judge Brown authored the opinion, with Judges Kessler and Winthrop concurring.