07/15/2019
Exculpatory Clause in a Contract—ENFORCEABLE OR NOT?
With an opinion that begins, "Dear Florida Supreme Court: We need your help," the Eleventh Circuit sent a certified question to the Sunshine State's highest court over whether an exculpatory clause in a contract between a travel agency and website developer can be enforced to bar the travel agency's breach of contract claims.
The federal appeals court said Thursday it needs assistance in the dispute between Brazilian travel agency Pier 1 Cruise Experts and Florida-based software company Revelex Corp. over a failed contract to build a website for the agency. The contract contains a broad exculpatory clause that says Revelex will not be liable for damages, including loss of profits, data or goodwill, regardless of whether it knew or should have known of the possibility of those damages.
The Eleventh Circuit said the clause is clear and both parties had equal bargaining power in the negotiations, so it is valid as a matter of public policy, but the more difficult question is whether it is enforceable.
Revelex argues that it should be enforced to bar all of Pier 1's claims, while Pier 1 argues that the clause immunizes Revelex from all liability and therefore renders the entire agreement illusory and void. The Eleventh Circuit said Florida law supports both positions, as well as another position that would construe the clause to bar only negligence claims but not breach of contract claims.
"Among other much simpler issues, this case presents a knotty and important state-law contract question that is more appropriately answered by you than by us," the Eleventh Circuit said.
The dispute stems from a service agreement signed in August 2013 under which Revelex would build a website for Pier 1 that would have content in Portuguese and prices in reais, according to the opinion. The agreement stated that Revelex would provide Pier 1 access to a proprietary booking engine in exchange for licensing fees.
A scope of work agreement was finalized in January 2014 and stated that the site would have two parts: a business-to-business section that would allow travel agents to book and manage cruise reservations, and a direct-to-consumer section that would allow customers to book their own cruises online, according to the opinion. Under the terms of that agreement, Pier 1 said it would pay $100,097 for the site.
Revelex estimated it would take about six months to get the site up and running, but by December 2015, the booking tools were still not complete, so Pier 1 stopped making its licensing payments and Revelex terminated Pier 1's access to the tools, according to the opinion.
Pier 1 then sued for breach of contract and negligent misrepresentation, as well as fraudulent misrepresentation and unjust enrichment. The agency later dropped the latter two claims.
Revelex argued that the exculpatory clause in the agreement barred Pier 1's claims. Revelex's president told the court that the breadth of the language in the clause was intentional and that the company offers low prices, so it cannot afford to take on any liability.
Pier 1 argued that the clause made the contract unenforceable, and the district court agreed, granting partial summary judgment and holding that the clause made the entire deal illusory.
But that left alive breach of contract and negligent misrepresentation claims stemming from the scope of work agreement. A jury found that Revelex had breached that agreement and awarded $100,097 in damages.
But because the district court had concluded that the service agreement, including its attorney fee provision, was void, it denied Pier 1's request for $485,779 in attorneys' fees.
On appeal, the Eleventh Circuit agreed with the district court on the attorney fees, finding that no matter how the service agreement is interpreted, Pier 1 is not entitled to fees. The appeals court said that even if the service agreement is enforceable, the attorney fee provision commits Pier 1 to pay all fees and costs but does not operate in reverse, and the court cannot expand the terms of an agreement in the name of enforcing reciprocity.
The Eleventh Circuit also affirmed the district court granting judgment as a matter of law on Pier 1's claim for lost profits because of insufficient proof. Pier 1 only provided testimony of its financial manager, who was not an expert witness, to back up its claim that it lost millions in revenue without the website.
The federal appeals court also agreed with the district court that the scope of work agreement was an independent, standalone contract that survived the striking of the service agreement. The Eleventh Circuit said that Florida law would generally construe the two together as a single contract, but Revelex has waived this argument after expressly conceding at trial that the scope of work agreement was valid.
"Having led the district court down the primrose path — and, in doing so, having succeeded in knocking out one of Pier 1's three remaining claims — Revelex cannot now ask us to hold the district court in error for following," the Eleventh Circuit said.
Read more at: https://www.law360.com/florida/articles/1177554/11th-circ-to-florida-high-court-we-need-your-help-?copied=1
WHAT ARE YOUR THOUGHTS???
With an opinion that begins, "Dear Florida Supreme Court: We need your help," the Eleventh Circuit sent a certified question to the Sunshine State's highest court over whether an exculpatory clause in a contract between a travel agency and website developer can be enforced to bar the travel agency's...
