In New England Country Foods v. Vanlaw Food Products, a case about an asserted attempt to steal a barbeque sauce recipe, the Ninth Circuit today requested the California Supreme Court’s view on whether a type of damages-limitation clause in a contract is enforceable under California law.
The question asked by the federal appeals court panel is: “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?”
Section 1668 provides: “All contracts which have for their object, directly or indirectly, to exempt any one 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.”
The question arises in a case where the plaintiff company is seeking past and future lost profits allegedly caused by the defendant company’s intentional breach of contract. Ruling that a limitation-of-liability clause in the companies’ contract wasn’t voided by section 1668 because it didn’t bar all of the defendant’s liability (such as unpaid royalties, direct damages, and injunctive relief), but just particular types of relief (including the only relief the plaintiff sought), the district court dismissed the plaintiff’s complaint.
The Ninth Circuit said it needs help determining California law because the Supreme Court “has not addressed the precise question at the center of this appeal” and because of “an unresolved split of authority on this question among California state courts.” For the split, the appellate court cited on the clause-is-valid side Farnham v. Superior Court (1997) 60 Cal.App.4th 69 and CAZA Drilling (California), Inc. v. TEG Oil & Gas U.S.A., Inc. (2006) 142 Cal.App.4th 453, and on the invalidity side Health Net of California, Inc. v. Department of Health Services (2003) 113 Cal.App.4th 224 and Klein v. Asgrow Seed Co. (1966) 246 Cal.App.2d 87. There were no petitions for review/hearing in Farnham, CAZA Drilling, or Klein. The Supreme Court denied review and depublication in Health Net.
The Supreme Court should let the Ninth Circuit know by early February 2024 — give or take — whether it will answer the question. It usually says “yes,” having granted granted 20 of the last 22 Ninth Circuit requests for help with California law issues, dating back to July 2018. The most recent request was denied, however. Before that, the lone denial over the past five years was in October 2019.
[December 7 update: The Supreme Court has docketed the request.]
Related:
Asked and answered: California Supreme Court responses to Ninth Circuit questions
The constitutionality of the Supreme Court answering the Ninth Circuit’s legal questions
Ask not what the Supreme Court can do for the Ninth Circuit
Justice Kruger and Judge Owens talk about the Supreme Court answering Ninth Circuit questions
The shadow docket . . . of California’s Supreme Court, part 2
