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California Supreme Court:
Party Cannot Waive Any Future Damages for Intentional Torts
Civil Code §1668 Given Broad Interpretation by Unanimous Court
By a MetNews Staff Writer
The California Supreme Court held yesterday that Civil Code §1668—which nullifies contractual clauses which act to “exempt” a party from liability for willful acts of misconduct that causes harm—extends to provisions that limit liability for intentional torts.
Justice Goodwin H. Liu wrote for a unanimous court in responding to this question certified to it by the Ninth U.S. Circuit Court of Appeals:
“Is a contractual clause that substantially limits damages for an intentional wrong but does not entirely exempt a party from liability for all possible damages valid under California Civil Code Section 1668?”
That code section says:
“All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.”
‘Substantially’ Eliminated
Although the Ninth Circuit queried as to the applicability of §1668 where a contractual clause “substantially” limits damages, Liu did not include that word in declaring, flatly:
“We hold that a limitation on damages for willful injury to the person or property of another is invalid under section 1668.”
He went on to repeat those words exactly in one instance, also saying, with a slight variation:
“We hold that limitations on damages for willful injury to the person or property of another are prohibited by section 1668.”
The jurist concluded by saying:
“We hold that section 1668 invalidates limitations on damages for willful injury to the person or property of another.”
Legislative Intent
Liu explained:
“We conclude that the Legislature did not intend to allow parties to privately negotiate how much they are willing to pay to inflict willful injury. Beginning with the language of the statute, we do not read the word “exempt” to mean that section 1668 bars only full releases of liability….[T]he phrase ‘exempt...from responsibility’ does not necessarily mean exempt from all possible responsibility (…italics added.)…Certainly, a limitation on damages that would otherwise be available for tortious conduct—and for which another tortfeasor would be responsible for paying—constitutes a release of responsibility.”
Addressing public policy, he said:
“Importantly, reading section 1668 to apply to limitations on damages effectuates its purpose of safeguarding our tort system….[T]ort law arises from social policy, imposing duties on every community member for the protection of every other community member….Although private parties have wide latitude to form contracts, that latitude is bounded by these broader social policies. And our tort system’s concern with vindicating social policy is at its zenith when it comes to willful wrongs. For example, insurance companies may not contract to provide coverage for ‘willful torts.’…Similarly, permitting contracts that reduce accountability for willful harm would effectively allow parties to put a price on violating our social policy against such harm.”
Underlying Litigation
The issue over the breadth of §1668 arose in an action by New England Country Foods, LLC (“NECF”) against VanLaw Food Products, Inc., headquartered in Fullerton Calif. The plaintiff owns “TJ’s Bold & Smoky Kansas City Style Barbecue Sauce” which VanLaw manufactured for NECF, and which NECF had been selling to Trader Joe’s since 1999.
NECF alleged in its action in the U.S. District Court for the Central District of California that VanLaw made a deal with Trader Joe’s under which it would clone the barbecue sauce and sell it directly to the retail chain. Its effort to duplicate the recipe failed, according to the complaint, but meanwhile, Trader Joe’s stopped buying the barbecue sauce.
Pointing to a limitation on liability clause in a contract between it and NECF, VanLaw argued that NECF has no viable claim against it in light of §1688. District Court Judge David O. Carter dismissed the action without leave to amend, holding that §1688 “does not bar all liability, just liability for specific types of relief.”
The Ninth Circuit, after hearing oral arguments on NECF’s appeal, certified its question to the California Supreme Court, saying its answer, should it provide one, would decide whether Carter’s decision stands.
Contractual Claims Fail
Liu said that while §1688 invalidates the contractual clause as to NECF’s claims of intentional interference with contractual relations, intentional interference with prospective economic relations, and breach of fiduciary duty, it breathes life only in those actions for intentional torts, and not those alleging nontortious contractual breaches, saying:
“…Section 1668 does not preclude parties from limiting their liability for pure breaches of contract absent a violation of an independent duty that falls within the ambit of section 1668….This approach is consistent with the California Uniform Commercial Code, which applies to various commercial transactions and explicitly allows parties to exclude consequential damages and limit their remedies….
“Reading section 1668 to encompass intentional breaches of contract would erode fundamental distinctions between contract law, which is meant to enforce promises of individual parties, and tort law, which is meant to vindicate social policy.”
The case is New England Country Foods v. Vanlaw Food Products, 2025 S.O.S. 1124.
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