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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. Well, maybe it's because they are unelected, and, they have a tendency to strike down laws by elected officials from all over the country. When you have been taught that "Democracy" is something almost sacred, then, you will have a tendency to frown on such imperious conduct. Lawyers get acculturated in law school into thinking that this is the very essence of high minded government, but to people who are more heavily than King George ever did, they may not like it. Thanks for the information.

  2. I pd for a bankruptcy years ago with Mr Stiles and just this week received a garnishment from my pay! He never filed it even though he told me he would! Don't let this guy practice law ever again!!!

  3. Excellent initiative on the part of the AG. Thankfully someone takes action against predators taking advantage of people who have already been through the wringer. Well done!

  4. Conour will never turn these funds over to his defrauded clients. He tearfully told the court, and his daughters dutifully pledged in interviews, that his first priority is to repay every dime of the money he stole from his clients. Judge Young bought it, much to the chagrin of Conour’s victims. Why would Conour need the $2,262 anyway? Taxpayers are now supporting him, paying for his housing, utilities, food, healthcare, and clothing. If Conour puts the money anywhere but in the restitution fund, he’s proved, once again, what a con artist he continues to be and that he has never had any intention of repaying his clients. Judge Young will be proven wrong... again; Conour has no remorse and the Judge is one of the many conned.

  5. Pass Legislation to require guilty defendants to pay for the costs of lab work, etc as part of court costs...

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