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Specificity requirement does not extend to limitations of liability, 7th Circuit rules

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The 7th Circuit Court of Appeals has ruled that a contract clause limiting liability stands because the two commercial entities that entered into the agreement were sophisticated and knowingly negotiated the terms.

SAMS Hotel Group LLC filed a diversity-jurisdiction suit against Environs, Inc., an architectural firm, for breach of contract and negligence. The hotel group had contracted with Environs to build a six-story Homewood Suites hotel in Fort Wayne.

Shortly after the contract was signed in March 2007, the design and construction process began. However, just as the hotel was nearing completion, structural defects were discovered that eventually led to the structure being condemned and demolished.

SAMS estimated its loss topped $4.2 million.

The original contract the two parties entered into provided Environs a flat fee of $70,000 for its work. The contract also contained a clause limiting Environs’ liability for breach of contract to an amount not exceeding “the total lump sum fee due to negligence, errors, omissions, strict liability, breach of contact or breach of warranty.”

SAMS filed a diversity-jurisdiction suit against Environs for breach of contract and negligence. The U.S. District Court of the Southern District of Indiana held the limitation of liability clause was enforceable which capped SAMS’s breach of contract claim at $70,000.

In SAMS Hotel Group, LLC, doing business as Homewood Suites Hotel v. Environs, Inc., 12-2717, the 7th Circuit affirmed.

SAMS argued that the limitation of liability provision in the contract was not enforceable because the provision did not refer specifically to a limit on damages for Environs’ own negligence. The provision, SAMS asserted, covered only Environs liability for negligence of third parties.

While Indiana courts have made specificity a requirement in indemnification and exculpatory clauses, they have not spoke clearly regarding limitation of liability clauses in sophisticated commercial contracts. SAMS argued the differences among the provisions were not significant so the specificity requirement should apply to the limitation of liability.

The Circuit Court was not persuaded. It held that the difference types of clauses serve different purposes and Indiana case law does not indicate they should be analyzed alike. Moreover, while a limitation of liability clause can be harsh when it limits a party’s liability to only nominal damages, SAMS knew what it was getting into.

“…SAMS and Environs were sophisticated commercial entities that knew the risks and freely bargained for the terms of the contract, including the limitation of liability clause. SAMS did not unknowingly agree to the limitation of liability clause or assume these risks,” Judge David Hamilton wrote for the court. “To the extent it suffered a harsh result, it cannot blame the general nature of limitation of liability clauses.”
 

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  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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