May 5, 2025

New England Country Foods, LLC v. VanLaw Food Products, Inc. (Apr. 24, 2025, S282968) __ Cal. __

A food company outsourced the manufacturing of its product. The contract prohibited the manufacturer from “reverse-engineering” the food company’s product but limited damages in any lawsuit to “direct damages and injunctive relief.” When the manufacturer sought to reverse-engineer and replicate the product, the food company sued in federal court for willful breach of contract and tortious interference. The district court granted the manufacturer’s motion to dismiss, reasoning that the contractual limitations on damages were valid and that California Civil Code section 1668 prohibits “contracts that completely exempt parties from liability, not simply limit damages.” The food company appealed and the Ninth Circuit certified the question of section 1668’s applicability to the California Supreme Court.

The Supreme Court held that “limitations on damages for willful injury to the person or property of another are prohibited by section 1668.” The court explained that section 1668’s bar on releases of liability applies beyond contractual clauses that exempt “all responsibility.” A broad reading of section 1668 comports with the purpose of the tort system designed to “ ‘prohibit parties from granting themselves licenses to commit future aggravated wrongs.’ ” Accordingly, the court held that the parties’ contractual limitation on damages was invalid under section 1668.