SLG's 50 State Survey Part Four: Illinois

This is the fourth installment of a nationwide survey report we’re working on here at SLG, which will ask the questions listed below of each of the fifty U.S. states. Here’s our New York, California, and Florida coverage, respectively. Next up:

ILLINOIS

I. LIMITS OF LIABILITY

Are contractual caps, ceilings, or limits on direct damages enforceable?

Yes, based on the public policy principle of freedom of contract. Rayner Covering Systems, Inc. v. Danvers Farmers Elevator Co., 226 Ill. App. 3d 507, 512 (1992). However, clauses limiting direct damages are disfavored in Illinois and are strictly construed against a benefitting party. Hicks v. Airborne Express, Inc., 367 Ill. App. 3d 1005, 1011 (2006). All the more so when the benefitting party drafted the limiting clause. Harris v. Walker, 119 Ill. 2d at 542, 548 (1988). As such, to make direct limits of liability stick, drafters “must spell out the intention of the parties with great particularity [as such clauses] will not be construed to defeat a claim which is not explicitly covered by their terms.” Scott & Fetzer Co. v. Montgomery Ward & Co., 112 Ill. 2d 378, 395 (1986).

Are provisions that exclude all consequential damages enforceable?

Yes, unless they are unconscionable. 810 ILCS 5/2-719(3). Limiting consequential damages for someone’s physical injuries arising from a consumer goods contract is prima facie unconscionable, although limiting consequential damages where the loss is merely commercial is not. Id.

Can remedies be limited to those express remedies solely and exclusively provided for in a contract?

Yes, unless:

A. the exclusive remedy fails of its essential purpose; or

B. the exclusion is unconscionable. 810 ILCS 5/2-719(1)-(3).

An exclusive remedy—e.g. the repair and replacement of the contracted goods in question—may fail of its essential purpose if it deprives either party of the substantial value of the bargain. Razor v. Hyundai Motor America, 222 Ill.2d 75 (2006), quoting 810 ILCS Ann. 5/2-719, Uniform Commercial Code Comment 1, at 488 (Smith-Hurd 1993). For example, if the repair or replacement of originally contracted goods doesn’t work either, repeatedly. Id.

II. DAMAGES

Does Illinois cap the amount of (A) consequential damages, or (B) punitive damages that a party may recover?

A. No. Moreover, consequential damages resulting from a seller’s contract breach include those: (i) contemplated by the parties at the time of contracting, which could not reasonably be covered; and (ii) arising from an injury to a person or property proximately resulting from any breach of warranty. 810 ILCS 5/2-715(2)(a)-(b).

B. Yes, generally. 735 ILCS 5/2-1115.05(a). The amount of punitive damages that may be awarded for a civil claim covered by this statute may not exceed three times the amount awarded to the claimant for the related economic damages. Id. Those covered claims: “all cases on account of bodily injury, or physical damage to property based on negligence, or product liability based on any theory or doctrine.” Id.

Are punitive damages recoverable in contract matters? If so, when?

No. Bank of Lincolnwood v. Comdisco, Inc., 111 Ill. App.3d 822, 829 (1982). Exception: punitive damages are available in breach of contract matters where the defendant committed the applicable breach with “malice, wantonness or oppression,” and therefore committed an independent tort. Id. As such, the court must analyze the motive underlying the breach to determine whether it warrants punitive damages.

The Illinois Compiled Statues offer further guidance, stating that punitive damages in “cases on account of bodily injury, or physical damage to property based on negligence, or product liability based on any theory or doctrine” may be recovered only if:

A. actual damages are awarded; and

B. the plaintiff shows by clear and convincing evidence that the defendant acted “with evil motive or with a reckless and outrageous indifference to a highly unreasonable risk of harm and with a conscious indifference to the rights and safety of others.” 735 ILCS 5/2-1115.05(a)-(b).

Bonus note: punitive damages are prohibited—whether capped or not—in cases of legal or medical malpractice. 735 ILCS 5/2-1115.

III. DISCLAIMERS/LIMITATIONS OF WARRANTY

Are disclaimers of any and all implied warranties enforceable in Illinois?

Yes, subject to drafting requirements for each warranty the drafter seeks to disclaim. 810 ILCS 5/2-316.

To disclaim or modify the implied warranty of merchantability, the applicable provision must:

A. mention merchantability; and

B. be conspicuous. 810 ILCS 5/2-316(2).

To disclaim the implied warranty of fitness the applicable provision must be conspicuously written. Id.

All implied warranties are also excludable via “language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty.” 810 ILCS 5/2-316(3)(a). This language includes “as is” or “with all faults.” Id.

Finally, implied warranties can also be excluded or modified through the parties’ course of dealing, course of performance, or usage of trade. 810 ILCS 5/2-316(3)(c).

Despite this statutory guidance, drafters should note that Illinois courts have invalidated disclaimers that conformed to the above requirements where “the evidence unequivocally demonstrated that the substantially defective nature of the [contracted good] clearly impaired its value to the plaintiffs and thus revocation of acceptance is appropriate even if the dealer has properly disclaimed all implied warranties.” Blankenship v. Northtown Ford, Inc., 95 Ill.App.3d 303, 306.

IV. STATE DISPUTE RESOLUTION

May claimants sue the State of Illinois for breach of contract? If so, does Illinois mandate any dispute resolution procedures with the State?

Yes, to both. Claimants may sue the State, however, claimants “aggrieved by an administrative action must first pursue all available administrative remedies before resorting to the courts.” Village of South Elgin v. Waste Management of Illinois, Inc., 348 Ill. App. 3d 929, 930 (2004) (citing Rockford Memorial Hospital v. Dep’t of Human Rights, 272 Ill. App. 3d 751, 757 (1995)). Also, contract breach claimants must sue the Illinois in the Court of Claims, as the Court of Claims Act grants the Court of Claims exclusive jurisdiction over “[a]ll claims against the State founded upon any contract entered into with the State of Illinois.” 705 ILCS 505/8(b).

SLG's 50 State Survey Part Three: Florida

This is the third installment of a nationwide survey report by SLG, which will ask the questions listed below of each of the fifty U.S. states. Here is our New York and California coverage, respectively. Next up:

FLORIDA

I. LIMITS OF LIABILITY

Are contractual caps on direct damages enforceable in Florida?

Yes, limits of liability clauses are enforceable in Florida. Mt. Hawley Ins. Co. v. Pallet Consultants Corp., No. 06-61763-Civ (S.D. Fla. 2009). However, drafters should “clearly and unequivocally” provide their limits, considering the general “disfavor” of exculpatory provisions among Florida courts. Id.

Are provisions that exclude all consequential damages enforceable in Florida?

Yes, generally. Florida’s Uniform Commercial Code: Sales states that consequential damages may be limited or excluded altogether unless the limitation or exclusion is unconscionable. Fla. Stat. § 672.719(3). However, commercial contract drafters must note that any limitation of consequential damages for injury to a person in the case of consumer goods is prima facie unconscionable, and therefore unenforceable. Id. Still, a limitation of damages where the loss is merely commercial is not automatically unconscionable, and therefore, may be enforceable. Id.

Can remedies be limited to those expressly and exclusively provided in a contract?

Yes. As long as the remedies are expressly provided as—and therefore agreed to be—exclusive, such exclusive remedies are enforceable. Fla. Stat. § 672.719(1)(a)-(b). However, where circumstances cause an exclusive (or limited) remedy to fail of its essential purpose, such remedy may not be exclusive of other applicable statutory remedies. Fla. Stat. § 672.719(2).

II. DAMAGES

Does Florida cap the amount of (a) consequential damages, or (b) punitive damages that a party may recover?

(a) No. Although, drafters should note that consequential damages are statutorily defined to include losses:

(A) stemming from needs that the seller, at the time of contracting, had reason to know of, and;

(B) that could not reasonably be prevented by cover or otherwise. Fla. Stat. § 672.715(2)(a).

Consequential damages also include losses due to injury to a person or property that are proximately caused by the seller’s breach of warranty. Fla. Stat. § 672.715(2)(b).

(b) Yes, generally. Fla. Stat. § 768.73(1)(a). Punitive damages may not exceed the greater of:

(i) three times the compensatory damages awarded to each claimant; and

(ii) $500,000. Id.

However, Florida law raises this cap where the proven wrongful conduct was:

(1) motivated solely by unreasonable financial gain; and

(2) actually known to be unreasonably dangerous, with a high likelihood of resultant injury. This knowledge may be possessed by a managing agent, director, officer, or other person responsible for making policy decisions on behalf of the defendant. Fla. Stat. § 768.73(1)(b).

Here, the punitive damages cap is the greater of:

(y) four times the compensatory damages awarded to each claimant; and

(z) $2 million. Id.

Despite the foregoing, Florida law does not cap punitive damages at all where the defendant had a specific intent to harm the claimant at the time of injury, and such harm-minded conduct succeeded in harming the claimant. Fla. Stat. § 768.73(1)(c).

Are punitive damages recoverable in contract matters? If so, when?

Yes, unless the defendant establishes, before trial, that that punitive damages have already been awarded against that defendant for the same act or course of conduct. Fla. Stat. § 768.73(1)(d)(2)(a). Still, even in these doubled-up cases, punitive damages remain available if a court determines by clear and convincing evidence that the prior punitive damages were insufficient to punish the defendant’s behavior. Fla. Stat. § 768.73(1)(d)(2)(b).

III. DISCLAIMERS/LIMITATIONS OF WARRANTY

Are disclaimers of any and all implied warranties enforceable in Florida?

Yes. But it has to be done right. To exclude or modify the implied warranty of merchantability, for example, contract language must:

(i) mention merchantability; and

(ii) be conspicuous. Fla. Stat. § 672.316(2).

To exclude or modify any implied warranty of fitness, a contractual exclusion must be conspicuous. Id. Generally, expressions like “as is” or “with all faults” successfully exclude all implied warranties. Fla. Stat. § 672.316(3)(a).

Fun fact: There is no implied warranty that cattle or hogs are free from sickness or disease—unless the seller knowingly sells the beasts diseased. Fla. Stat. § 672.316(3)(d).

IV. STATE DISPUTE RESOLUTION

May claimants sue the State of Florida for breach of contract? If so, does Florida mandate any dispute resolution procedures with the State?

Yes. While the State of Florida waived its sovereign immunity for torts in 1975, clearing the way for claimants to sue the Sunshine State for everything from personal injury to ministerial fails, Fla. Stat. § 768.28, no statutory provisions waive Florida’s sovereign immunity regarding contracts. Florida courts undertook this matter instead, and have ruled consistently that claimants may sue Florida for contract breach as long as such suits concern “express, written contracts into which the state agency has statutory authority to enter.” Pan–Am Tobacco Corp. v. Dep't of Corr., 471 So.2d 4, 6 (Fla.1984). However, “[w]hen an alleged contract is merely implied, [Florida’s] sovereign immunity protections remain in force.” City of Fort Lauderdale v. Israel, No. 4D15–1008 (FL. Dist. Ct. App. 2015).

Florida requires no particular dispute resolution procedures for contract disputes with the State.

SLG's 50 State Survey Part Two: California

This is the second installment of a nationwide survey report we’re working on here at SLG, which will ask the questions listed below of each of the fifty U.S. states. Here’s our New York coverage. Next up:

CALIFORNIA

I. LIMITS OF LIABILITY

Are contractual caps, ceilings, or limits on direct damages enforceable?

Yes.  Courts in California uphold contractual provisions that limit liability for contract breach damages, including for ordinary negligence.  Health Net of California, Inc. v. Department of Health Services, 113 Cal.App.4th 224, 243 (2003).  Except, that is, when (i) the applicable provision affects the public interest, or (ii) another statute expressly prohibits it.  For example, per the California Civil Code, a contractual limit of liability for fraud, willful injury, or violation of law would be unenforceable, Civ. C. § 1668, as may deals struck between parties of unequal bargaining power (more on this below).  Also, California courts may kill limits of liability that are unconscionable.  Civ. C. § 1670.5(a).

Are agreements that exclude all indirect (i.e. consequential, incidental) damages enforceable?

Yes.  Under the California Commercial Code, consequential damages may be “limited or excluded unless the limitation or exclusion is unconscionable.”  Cal. Com. Code § 2719(3).  However, where consequential damages are limited “for injury to the person in the case of consumer goods,” such limitation is invalid unless proved not unconscionable.  Id.

Can remedies be limited to those express remedies solely and exclusively provided for in a contract?

Yes.  For example, a sales contract may limit liability to the “return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts.”  Cal. Com. Code § 2719(1)(a).  Also, for a stated remedy to be exclusive and mandatory, its exclusivity must be expressly agreed—otherwise, it’s only “optional.”  Cal. Com. Code § 2719(1)(b).

II. DAMAGES

Does California mandate any blanket limits on the amount of (a) consequential damages, or (b) punitive damages that a party may recover in commercial contracts?

(a) No.  However, recovering consequential (or “special”) damages requires that those damages were “foreseeable by the parties at the time of contracting.”  Martin v. U-Haul Co. of Fresno (1988) 204 Cal. App. 3d 396, 409.  Meaning, the breaching party (i) knew, or (ii) should’ve known his/her breach may instigate these damages.

(b) No.  However, punitive damages must stem from a tort, not a contract breach alone.  Civ. C. § 3294(a).

Are punitive damages recoverable in contract matters? If so, when?

No.  Punitive damages are generally unavailable for breach of contract, even where the defendant was malicious, willful, or fraudulent.  However, if a tort (i.e. fraud) independent to a breach of contract is pled and proven, punitive damages may be available.  Cates Construction, Inc. v. Talbot Partners (1999) 21 C4th 28.

 III. DISCLAIMERS/LIMITATIONS OF WARRANTY

Are disclaimers of any and all implied warranties enforceable in California?

Yes.  To disclaim the implied warranty of merchantability, a disclaimer must: (i) mention merchantability, and (ii) when written, be written conspicuously.  Cal. Com. Code § 2316(2).  To disclaim the implied warranty of fitness, a disclaimer must be written conspicuously.  Id.  The following also eliminate or modify implied warranties:

-          Expressions like “as is” or “with all faults,” which spotlight the exclusion of implied warranties.  Cal. Com. Code § 2316(3)(a).

-          The buyer examining the subject goods/sample/model “as fully as he desired,” or refusing to examine the goods—but only regarding defects an examination ought to have “revealed to him.”  Cal. Com. Code § 2316(3)(b).

-          A course of dealing, course of performance, or usage of trade that is counter to the implied warranties.  Cal. Com. Code § 2316(3)(c).

-          Liquidated damages or limits of liability provisions.  Cal. Com. Code § 2316(4).

IV. DISPUTE RESOLUTION

When the State of California is sued over a contract dispute, are there any mandatory dispute resolution procedures such as venue requirements or jury trial requirements?

No, generally.  In most scenarios, when suing a California agency for breach of contract, plaintiff must file an administrative claim within one year of the date of the alleged breach.  The government has 45 days to respond.  If the government agency denies the claim during the 45 days, plaintiff has 6 months to file a lawsuit in court from date the agency mailed the denial or personally delivered this “right to sue letter” to plaintiff.  California Government Code § 945.6.  If Plaintiff does not receive this letter (i.e. the government takes no responsive action to plaintiff’s claim) within 45 days, plaintiff has two years to file a lawsuit from the date of the alleged breach.

Exception: as of late 2016, many California public entities and contractors involved in public works construction must adhere to specific dispute resolution processes, both informal (“meet and confer”) and formal (mediation, an alternative non-binding process, civil action, or arbitration), for disputed claims of payment.  Assembly Bill No. 626.

V. ADDITIONAL NOTES

1. Pertaining to liability caps: A liability cap provision affects the public interest if it exhibits “some or all of the following characteristics.” Tunkl v. Regents of University of California, 60 Cal.2d 92 (1963).  (i) It concerns a business of a type generally thought suitable for public regulation.  (ii) The breaching party performs a service of great importance to the public, which is often a matter of practical necessity for some members of the public.  (iii) The breaching party holds itself out as willing to perform this service for any member of the public who seeks it, or at least for any member coming within certain established standards.  (iv) Due to the essential nature of the service, in the economic setting of the transaction, the breaching party possesses a decisive advantage of bargaining strength against any member of the public who seeks its services.  (v) In exercising a superior bargaining power, the breaching party confronts the public with a standardized adhesion contract of exculpation, and makes no provision whereby a purchaser may pay additional reasonable fees and obtain protection against negligence.  (vi) As a result of the transaction, the person or property of the purchaser is placed under the control of the seller subject to the risk of carelessness by the seller or his agents. So: the less equal the bargaining power, and/or the more publicly important the contract’s subject (i.e. health care services), the less enforceable the applicable limitation clause.

2. Pertaining to liability caps: Regarding contracts for goods (i.e. manufactured goods), the California Commercial Code adds another exception to the enforceability of limits of liability provisions, providing that where “circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this code [i.e. via restitution under Cal. Com. Code § 2718].”  Cal. Com. Code § 2105(2).

3. Pertaining to unconscionability overall: “Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”  A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473 (1982).  Both the substantive and procedural elements inherent to this analysis are necessary for a court to rule a contract unconscionable and so, unenforceable.  Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064.

SLG's 50 State Survey Part One: New York

This post is a preview of a nationwide survey report we’re working on here at SLG, which will ask the questions listed below of each of the fifty U.S. states. Our preview, like the coming survey, discusses the keys to contract disputes: (i) limits of liability, (ii) damages, (iii) warranty disclaimers, and (iv) dispute resolution—and the parameters of each within the subject State.

For now, New York seemed a fine place to start.

NEW YORK

I. LIMITS OF LIABILITY

Are contractual caps, ceilings, or limits on direct damages enforceable?

Yes. Unless the damages stem from gross negligence or willful misconduct, as discussed below.

Are agreements that exclude all indirect (i.e. consequential, incidental) damages enforceable?

No. New York courts insert an implicit exception to these blanket caps, even if the applicable agreements explicitly don’t. Where the damages at play arise from gross negligence or willful misconduct, public policy dictates the offenders are limitlessly liable, and the cap fails. So, no matter what, liability for such egregious behavior is unlimited.

Despite this exception, caps on indirect damages are enforceable against other (less egregious) claims.

Additional Notes on Gross Negligence in New York:

1.       Drafters should note that evidencing gross negligence or willful misconduct can be difficult, these standards high. Parties must show that a breaching party’s “egregious intentional misbehavior evince[s] some extreme culpability.” Otherwise, no gross negligence or willful misconduct is present, and the relevant liability remains limited under the contract. Metropolitan Life Ins. Co. v. Noble Lowndes Int'l, Inc., 643 N.E.2d 504, 506-07 (N.Y. 1994) (defendant’s “voluntary and intentional … refusal to perform a contract [to develop and install software] for economic reasons,” without plaintiff proving fraud or other willful intent, fell short of gross negligence and willful misconduct and the limit of liability survived; also, entering a contract intending never to perform is not in itself gross negligence or willful misconduct).

Can remedies be limited to the express remedies solely and exclusively provided for in a contract?

Yes.  Per New York’s adoption of the Uniform Commercial Code ("UCC") § 2-316 (more on this below), remedies for breach of warranty may be limited to liquidation or limitations of damages as captured by a contract, or via a contractual modification of the subject remedies.  However, these routes carry their own rules and limitations.  For example, per UCC § 2-718, liquidated damages must represent “an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy.”  An unreasonably large liquidation of damages is, therefore, void.

II. DAMAGES

Does New York law mandate any blanket limits on the amount of (a) consequential damages, or (b) punitive damages that a party may recover?

(a)       No. Unlimited consequential damages resulting from a breach of contract are generally available to parties under traditional contract principles. That is, so long as these damages were (i) a foreseeable result of the breach; (ii) “within the contemplation of the parties” when contracted; and (iii) not unconscionable. The UCC adds that consequential damages may be limited or excluded—except where those limits or exclusions are unconscionable themselves. UCC § 2-719 (3).

(b)       No.

Additional notes:

1.       Similarly, courts will generally enforce a contractual cap on consequential damages unless the cap is unconscionable, violates public policy, or enforcement causes the contract to fail of its essential purpose. Taylor Inv. Corp. v. Weil, 169 F. Supp. 2d 1046, 1058-59 (D. Minn. 2001).  If the provision was reasonable and negotiated as part of an arms-length agreement, however, proving unconscionability may be difficult. Finally, New York does not allow a manufacturer to disclaim liability borne of its own gross negligence, willful, wanton or intentional conduct. Kalisch-Jarcho Inc. v. New York, 58 N.Y.2d 377, 448 N.E.2d 413 (N.Y. 1983).

2.       In recent years New York made it possible for policyholders to squeeze insurers for unlimited consequential damages for breach of policy. This remedy is available where the insurer’s denial of policy benefits (i) breaches the covenant of good faith and fair dealing; and (ii) the applicable damages were foreseeable at the contracting time.

Are punitive damages recoverable in contract matters? If so, when?

Generally, no. Even if a breach is willful and without justification. Campo v. 1st Nationwide Bank, 857 F.Supp. 264, 273 (EDNY 1994).

Additional Notes:

1.       Contract claims fused with tort claims may earn punitive damages. Meaning, where a tort claim stems from a contractual relationship. There a plaintiff must show: (i) the defendant’s conduct is actionable as an independent tort; (ii) the tortious conduct is egregious; (iii) the egregious conduct is directed at the plaintiff; and (iv) the defendant’s conduct is part of a pattern directed at the public generally. Conocophillips v. 261 E. Merrick Rd. Corp., 428 F.Supp.2d 111, 129 (EDNY 2006).

2.       In New York, certain fraudulent conduct may also earn punitive damages, i.e. fraud with “evil and reprehensible motives.” Solutia Inc. v. FMC Corp., 456 F.Supp.2d 429, 453 reconsideration denied (SDNY 2006).

3.       Contracts commonly exclude all incidental, indirect, and consequential damages subject to certain exceptions; punitive damages may be expressly excluded.

III. DISCLAIMERS/LIMITATIONS OF WARRANTY

Are disclaimers of any and all implied warranties enforceable in New York?

Yes. Regarding all issues concerning implied warranties, New York adopted UCC § 2-316, which states that all implied warranties may be disclaimed.  However, such disclaimers must use contract language that is commonly understood to call a buyer's attention to the exclusion of warranties.  Expressions like "as is" or "with all faults" suffice, per the UCC, to adequately warn buyers and, thus, establish warranties.

For the two most prevalent implied warranties—those of merchantability and fitness—New York and the UCC permit sellers to disclaim:

(A) the implied warranty of merchantability, as long as the disclaimer is:

(i) conspicuous, and

(ii) explicitly includes the word “merchantability.”

(B) the implied warranty of fitness as long as such disclaimer is

(i) "affected by a writing," and

(ii) "conspicuous.”

Drafters should note, however, that the UCC places a limitation on these disclaimers: they’re valid “unless the circumstances indicate otherwise.”  Meaning, if the facts indicate that a warranty did exist—perhaps as a deciding factor in the subject sale of goods—regardless of what the contract purports to disclaim, a warranty may exist.  Also noteworthy is the UCC § 2-316’s dictate that “an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.” Although these are likely tougher to prove than black and white ink on a contract is to read.

IV. DISPUTE RESOLUTION

When the State of New York is sued over a contract dispute, does New York mandate any dispute resolution procedures such as venue requirements or jury trial requirements?

No.  The Court of Claims has jurisdiction over contract dispute claims brought against the State of New York and certain State-related authorities.  Rather, to serve New York with a suit for breach of contract, a claim must be delivered to a New York Assistant Attorney General at an office of the Attorney General within six months after the claim’s accrual.  The claim's venue is determined by the county where the claim accrued.