Contracts often include exculpatory provisions, usually known as “limitation of liability” clauses. An exculpatory clause typically relieves one party of liability for damages they may cause to the other party during the execution of the contract. A party will usually limit its liability to the amounts it would have been paid under the contract. When a party includes an exculpatory clause that disclaims all liability from its failure to perform the contract, it raises a question of whether the clause is enforceable. Because the party has no enforceable obligation to perform its contract, then it has not really agreed to do anything. Courts may find this clause renders the entire contract to be “illusory” and unlikely to be enforceable. Peter Mavrick is a Miami business litigation attorney, and also represents clients in business litigation in Fort Lauderdale and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringment litigation, and other legal disputes in federal and state courts and arbitration.
In Pier 1 Cruise Experts v. Revelex Corp., 929 F.3d 1334 (11th Cir. 2019), Pier 1 Cruise Experts (“Pier 1”) hired Revelex Corp. (“Revelex”) to build a customized website. The parties entered into a service agreement. The service agreement had an exculpatory clause, which stated, in pertinent part:
Revelex shall not be liable … for any direct, special, indirect, incidental, consequential, punitive, exemplary or any other damages regardless of kind or type (whether in contract, tort (including negligence), or otherwise), including but not limited to loss of profits, data, or goodwill, regardless of whether Revelex knew or should have known of the possibility of such damages…. Customer waives any and all claims, now known or later discovered, that it may have against Revelex and its licensors and vendors arising out of this agreement and the services.
The service agreement further stated that “[i]n any event, [defendant’s] total cumulative liability to customer or any third party for all damages, losses, and causes of action (whether in contract, tort (including negligence), or otherwise) relating in any way to this agreement exceed one hundred dollars ($100.00).” The parties later disputed whether the phrase “shall not” should be inserted into this sentence, i.e. “total…liability…relating to this agreement shall not exceed one hundred dollars ($100.00).”
The parties also separately negotiated and executed a scope of work agreement (“scope agreement”) that memorialized the necessary customizations for the website and indicated that the total cost of the software was $100,097. The service agreement and the scope agreement both included cross-references to each other, i.e. the service agreement contemplated that the parties would enter a “scope of work” agreement, and the scope agreement stated that it was issued pursuant to the terms and conditions of service agreement.
As of December 2015, the software still was not completed. Pier 1 ceased making licensing payments, and Revelex terminated Pier 1’s access to the software. Pier 1 filed a lawsuit against Revelex and asserted claims for, among other things, breach of contract and negligent misrepresentation. Both parties filed motions for summary judgment, and each contended the exculpatory clause of the service agreement should have been read in its favor. The district court granted partial summary judgment for Pier 1 and held that, as a matter of law, the exculpatory clause rendered the entire service agreement illusory. In other words, Pier 1 was bound to pay Revelex pursuant to the service agreement, but Revelex was free to breach the contract because it could not be held responsible for its breach. The district court held that such an “arrangement does not create a binding contract,” because there was no mutuality of obligation. The district court concluded that the service agreement was not a valid agreement.
Both parties requested clarification with respect to whether the scope agreement was part of the service agreement, which was now non-existent or if it survived independently. The district court clarified that the scope agreement survived as a separate contract independent of the service agreement. At trial, the jury found that Revelex (1) breached the scope agreement and (2) made negligent misrepresentations to Pier 1. The jury awarded Pier 1 $100,097 in damages—the software cost specified in the scope agreement. Both parties filed an appeal. Revelex appealed the district court’s judgment against it, and Pier 1 cross-appealed the court’s rejection of its lost profits claim and attorney’s fee request.
The United States Court of Appeals for the Eleventh Circuit affirmed the district court’s judgment that: (1) the scope agreement is independent of, and thus, survived the invalidation of the service agreement; (2) Pier 1 was not entitled to its lost profits, and (3) Pier 1 was not entitled to its attorney’s fees. However, the Eleventh Circuit certified to the Florida Supreme Court, the question of whether a contractual “exculpatory clause” that purports to protect one of the signatories from any damages, regardless of kind or type, is enforceable? Alternatively, does the broad-sweeping nature of the clause render the entire contract enforceable, or just the clause itself and the remainder of the contract survives.
An exculpatory clause may be enforceable so long as (1) the contracting parties have equal bargaining power and (2) the clause’s provisions are clear and unambiguous. Cooper v. Meridian Yachts, Ltd., 575 F.3d 1151 (11th Cir. 2009). As to the second requirement, “the intention to be relieved from liability [must be] made clear and unequivocal and the wording must be so clear and understandable that an ordinary and knowledgeable person will know what he is contracting away.” Cain v. Banka, 932 So. 2d 575 (Fla. 5th DCA 2006). Exculpatory clauses are “strictly construed against the party seeking to be relieved of liability.” Cain v. Banka supra.
The Eleventh Circuit found that Pier 1 and Revelex had equal bargaining power and the exculpatory clause in the service agreement was unambiguous. The federal appellate court found that Revelex rather unambiguously communicated its intent to disclaim all liability. The federal appellate court concluded that the service agreement’s exculpatory clause was not invalid as a matter of public policy. The more difficult issue illustrated by the federal appellate court was whether this broad-sweeping exculpatory clause was enforceable as a matter of law. If not, did that invalidate the entire agreement or just the clause. The Eleventh Circuit, therefore, certified the question to the Florida Supreme Court.
Peter Mavrick is a Miami business litigation lawyer who also practices business litigation in Fort Lauderdale and Palm Beach. The Mavrick Law Firm has substantial experience with business litigation. This article does not serve as a substitute for legal advice tailored to a particular situation.