El Centro Mall, LLC v. Payless ShoeSource, Inc.

Defendant Payless ShoeSource, Inc. (Payless), ceased operations at a shopping center owned by plaintiff El Centro Mall, LLC (ECM), before the end of its lease term. Per a lease provision, ECM charged Payless liquidated damages of 10 cents per square foot of leased space for each day Payless did not operate, totaling $98,010. Payless refused to pay, alleging the liquidated damages provision in the lease was an unenforceable penalty under Civil Code section 1671.

Payless contends the trial court erred when it determined the provision did not constitute an unlawful penalty. Payless argues the evidence demonstrates the liquidated damages provision was arbitrarily applied to the tenants at ECM’s shopping center and therefore could not be a reasonable estimate of potential damages at the time the lease was signed. ECM asserts its evidence demonstrates the liquidated damages clause was intended to reimburse ECM for the loss in synergy, goodwill, and patronage the shopping center and other tenants would lose if Payless ceased operation.

We conclude substantial evidence supports the trial court’s judgment. Under section 1671, subdivision (b), the liquidated damages clause was…