There,Is,No,Prohibition,Sign,Above,The,Trap.,Restrictions,And

This one hurts to write about (from a trial lawyer’s perspective). Imagine this:

  • Your client sues his former business partners for breach of a non-compete.
  • You go to trial on behalf of your client, and win a hard fought victory: After a five-day jury trial, the jury returns a unanimous verdict in your client’s favor, conclusively finding that his business partners did breach the non-compete provision in the operative agreement.
  • But, when it comes time to enter judgment, the trial court determines that the $1,000,000 liquidated damages clause your client relied on is an unenforceable penalty.
  • The trial court also excludes from evidence the only other document calculating your client’s claimed damages arising out of the breach of the non-compete.
  • So, 9 years after commencing the action, a judgment is entered against your client, and in favor of the breaching defendants, for your client’s failure to pay his former partners’ distributions during the contested period.
  • The First Department, then, unanimously affirms the judgment and the trial court’s post-trial decision in its entirety.

Rough stuff for the plaintiff in today’s case: Levin v Salvini, 2026 NY Slip Op 01918 (1st Dept 2026).

Levin Global

Levin Global (sometimes referred to as the “Fund”), is a Chilean entity created in 2011 to serve as a holding company for a group of 15 operating companies that provide consulting and valuation services primarily in South America. The first such entity initially having been formed in Argentina by plaintiff Levin’s father who then handed the reins over to Levin in 1989, Levin Global’s operating companies have since expanded its reach into Brazil, Argentina, Mexico, Bolivia, Ecuador, Colombia, and Spain.

In 2011, in connection with the formation of Levin Global, plaintiff Levin decided to gift stock to six long-serving senior employees, including defendants Carlos Luis Salvini (10% interest) and Mauricio Gugliano (2% interest).

The six equity partners (referred to as “Contributors”) entered into an agreement in 2011 (the “Contributors Agreement”), as amended in 2015, which, among other things, contained a non-compete clause precluding them from engaging in any activity that “competes with any commercial or industrial activity carried out by the companies or entities controlled by the Fund.”

“Liquidated Damages”

The Contributors Agreement contains damages provisions that reads as follows:

13.1. The breach of any obligation or violation of any obligation of guarantee that did not provide for a specific penalty shall require the party in breach or the violator to pay to the Remaining Contributors a fine equivalent to 20,000 US dollars, to be distributed among the Remaining Contributors prorated for their interests in the Fund.

13.2. Said fine shall be a delinquent fine in nature, such that it does not prevent the Remaining Contributors from requesting payment for other applicable damages in accordance with the general rules of law.

The 2015 Amended Contributors Agreement contained identical language in both sections, except to increase the fine from $20,000 USD, to $1,000,000 USD.

The Dispute

In July 2015, Salvini and Gugliano tendered their resignation from Levin Brazil (the operating company defendants primarily managed).

Plaintiff Levin accused Salvini and Gugliano of launching a competing Brazilian venture—Real Valor—while still affiliated with Levin Global. Levin also accused defendants of sabotaging a major deal with a Brazilian energy company during the tail end of their affiliation with Levin Global, which he claims resulted in a significant reduction in scope of that project as well as blowback and increased scrutiny from Brazil’s energy sector regulator resulting a revocation of its accreditation.

Levin and Levin Global, thus, commenced an action against Salvini and Gugliano in 2017.

Trial, Post-Trial Decision & Judgment

The case came before New York County Commercial Division Justice Jennifer G. Schecter, who presided over the trial.

After a five-day jury trial, the jury returned a unanimous verdict finding, in relevant part, that: (1) Salvini and Gugliano breached the non-compete; and (2) Levin Global failed to pay Salvini and Gugliano their due dividends during the contested period.

Prior to the trial, Judge Schecter precluded plaintiffs’ damages exhibit showing, in line-item format, the costs and losses sustained by Levin Brazil as a result of defendants’ breach of the non-compete because it would require expert testimony to link the alleged losses of the operating companies (who are not signatories to the Contributors Agreement, nor are they parties to this action) in calculating Levin Global’s damages.

The parties made their respective motions for a directed verdict under CPLR 4401, focused on whether the liquidated damages clause constituted an unenforceable penalty.

Following post-trial briefing, Judge Schecter issued a post-trial decision, holding that Section 13.1 constitutes an unenforceable penalty:

The court does not believe that the $1,000,000 fine, “which is delinquent in nature” and is payable above and beyond “other applicable damages in accordance with the general rules of law,” was intended as a reasonable estimation of actual damages.

The court further found: “All of the credible evidence pointed to the increase of the fine as a measure intended to sufficiently disincentivize disloyalty and make it worthwhile for the Fund to punish it.”

The court also held that the non-compete clause does not provide for a forfeiture of shares as a penalty for breach of the non-compete. The court concluded:

Accordingly, section 13.1 is an unenforceable penalty, defendants’ shares were not forfeited and plaintiffs were not entitled to their shares.

Following its decision after trial and the parties’ submission of proposed judgment, the court entered judgment against plaintiff Levin, and in favor of defendants Salvini and Gugliano, for their unpaid distributions.

First Department Affirms

The First Department unanimously affirmed (read the appellate briefs here, here, and here).

The appellate court held that the “Supreme Court properly concluded that section 13.1 of the contributors agreement was no enforceable because the amount of liquidated damages constituted a penalty rather than, as plaintiff claims, a reasonable ‘estimate of what was necessary to compensate the contributors for a breach of [the noncompete clause].”

“As the court noted, all the credible evidence indicated that the amount of the liquidated damages was not calculated with any precision and was intended to sufficiently disincentivize disloyalty.”

The First Department honed in on: testimony by one of plaintiffs’ directors, indicating that the $1 million in liquidated damages was equivalent to the Fund’s entire pre-tax revenue in 2014; and testimony by plaintiff, that the fine was selected with “no mathematics” and was done to “discourage Contributors from violating the noncompete”.

The appellate court also looked to Section 13.2, which provides for the additional recovery of actual damages, further militating toward a finding that the liquidated damages provision was a “penalty rather than fair compensation for damages.”

Finally, the appellate court sustained the exclusion of plaintiffs’ damages exhibit at trial, finding that the damages calculations contained therein were based on “losses that were sustained by various Levin business entities, not by plaintiffs” and therefore “could not be recovered either by Levin individually or by the Fund,” rendering plaintiffs incapable of establishing “a link between those losses and plaintiffs’ damages.”

The Judgment stands.

A Cautionary Tale for Corporate Counsel and Litigators Alike

New York courts (as well as courts of other jurisdictions) strongly disfavor disproportionate contractual penalties as against public policy. Peter Sluka wrote about a similar such case in 2022—coincidentally (or not?) also decided by Judge Schecter—where the court granted plaintiff’s summary judgment motion on its claim for a breach of the books and records provision of the operating agreement, but rejected a $1 buyout provision triggered by “any breach,” calling such provision “draconian,” “grossly disproportionate, unreasonable, unenforceable penalty,” the intent of which is “purely punitive” and unenforceable as against public policy (Atlantis Mgt. Group II LLC v Nabe, 2022 NY Slip Op 30399[U] [Sup Ct, NY County 2022]).

For our drafters of shareholder, partnership, and LLC agreements: if your client wants to include an enforceable a fixed-sum remedy, the provision must read like damages, not discipline. In Levin, calling the liquidated damages provision a “fine” or “penalty” was not fatal in and of itself. But the more a remedial provision looks cumulative and punitive, the more vulnerable it becomes to a public policy challenge.

For our litigators: one of the harsher realities in trial practice is that proving damages can be just as difficult and complicated as proving liability. Aggrieved clients are often focused on the wrongdoing. They feel strongly that they have been cheated (or, on the flip side, falsely accused) and want vindication of their position. But the remedy phase can be its own minefield. As we saw in today’s case, a party can win the battle (liability), but still lose the war (damages).