It's not boilerplate, it's part of the contract

At the back of most contracts are provisions that lawyers and parties often refer to as "boilerplate".  The Free Dictionary defines it as "inconsequential, formulaic or stereotypical language."  A recent decision of the Wisconsin Supreme Court supports the interpretation I've given my colleagues for years:  there is no such thing as inconsequential language in a contract.  Yesterday's boilerplate is today's most critical wording.

The case involved the standard guaranty required by federal law.  At the end of the guaranty form, the supplier had added, "This Guaranty shall not render Seller liable for any incidental or consequential damages of whatsoever nature nor shall it extend to the benefit of persons or corporations other than" buyer.  The goods that were shipped under this guaranty were found contaminated with E. coli and the buyer sued for, among other things, its consequential damages.  The Wisconsin Supreme Court affirmed the intermediate appellate court's decision that this language was ineffective to disclaim consequential damages.  After the jump, we'll discuss why.

The supplier's problem is that this was the only disclaimer in any of its documents.  As an Article 2 merchant (see my previous entry), the supplier was subject to another warranty, the implied warranty of merchantability.  That warranty is given unless disclaimed,  Here, it was not disclaimed, and thus was given.  Damages for breach of warranty may also be limited or excluded if not unconscionable.  So the question became whether the exclusion of consequential damages in the Guaranty applied to damages for breach of the implied warranty of merchantability. 

The court answered that question in the negative, and it relied on the express words used in the disclaimer in the Guaranty.  "The words, 'This Guaranty,' focus the limitation of damages on those damages that may flow from a breach of the express warranties set out in 'This Guaranty' . . . .  They say nothing about damages that may arise from the breach of an implied warranty . . . ." 

Exactly.  The standard "boilerplate" provision reads more like this:  "Under no circumstances may either party be liable to the other for any special, incidental, consequential or punitive damges in any action arising out of this contract, whether considered in contract, in tort of otherwise."  The words attached to the Guaranty were far more limited, and the words were given meaning by the Wisconsin Supreme Court.

There are many factors to consider in deciding whether to disclaim implied warranties and whether to limit damages.  In contracts related to food, implied warranties are disclaimed far less frequently than in other sales of goods.  Parties often exclude incidental damages without understanding what they are giving up.  But the lesson from the Wisconsin Supreme Court is always good:  the words you choose matter.  There is no "inconsequential" boiilerplate.

 

Froot Loops Litigation: An Endless Loop for Kellogg's?

Just over forty years ago, Crosby, Stills, Nash & Young came out with their Déja Vu album. Attorneys at Kellogg USA are undoubtedly thinking, “We have all been here before.” 

Froot Loops pre-dated Crosby, Stills, Nash & Young.  I remember taking the Kellogg's factory tour in Battle Creek and being handed an individual-sized packet at the end of the tour, even before they hit the market.  I was seven years old, but I knew they were cereal not fruit.  Apparently, some other people think otherwise.

 

Ken has already blogged about the related, and dismissed, Crunchberry lawsuit.  At the ABA Business Law Section Spring Meeting last weekend, my friend Teresa Harmon Wilton mentioned the Crunchberry case in her annual round-up of commercial law cases, and mentioned that the decision was based on the prior Froot Loops case.  I looked down at my Blackberry, and that's when I realized there was an old Froot Loops case but I had just got notice of a new one. 

 

Two old ones, actually.

 

In 2007, the United States District Court for the Central District of California dismissed a claim against Kellogg USA for violations of various California statutes and common law causes of action based on the claim that Froot Loops do not contain fruit. 

 

In 2009, the United States District Court for the Eastern District of California dismissed a claim against Kellogg USA for violations of various California statutes and common law causes of action based on the claim that Froot Loops do not contain fruit.

 

On April 19, a complaint was filed in the United States District Court for the Northern District of California against Kellogg USA for violations of various California statutes and common law causes of action based on the claim that Froot Loops do not contain fruit.
 

There is clearly a pattern here. I would note that there is only one other federal court district in California, the Southern District in San Diego. Unless I missed a case there.

 

In the McKinniss case, the court dismissed claims for:

In the Videtto case, the court dismissed claims for:

  • Violation of the California Unfair Competition Law
  • Violation of the California False Advertising Law
  • Violation of the California Consumer Legal Remedies Act
  • Intentional Misrepresentation
  • Breach of Implied Warranties

In the Werbel complaint, plaintiff seeks damages for:

  • Violation of the California Unfair Competition Law
  • Violation of the California False Advertising Law
  • Violation of the California Consumer Legal Remedies Act
  • Intentional Misrepresentation
  • Breach of Implied Warranties

Each complaint referenced a study by the Strategic Alliance for Healthy Food and Activity Environments that found that foods it claimed suggested the presence of fruit did not in fact contain fruit. The courts have so far not cared much for this study, which doesn’t in any way demonstrate that anyone could be misled by the actual advertising on the package.

 

Raise your hand if you’re surprised at the fact that the same attorneys brought all three cases. Under our justice system, a plaintiff is not bound by the decision of a court to which he or she was not a party. An attorney is held to a different standard under Rule 11 of the Federal Rules of Civil Procedure.  It will be interesting to see if there is anything that comes from expecting the same conditions to lead to a different outcome.

 

Denny's Sodium Claims in Illinois Tossed on FRCP 12(b)(6) Motion

As anticipated, the "sodium" claims against Denny’s asserted in federal district court in Illinois have been dismissed on a Federal Rule of Civil Procedure (FRCP) 12(b)(6) motion. A copy of the court’s order is here. As discussed previously in this blog, the Illinois action alleges claims of consumer fraud, breach of implied warranty of merchantability, unjust enrichment, accounting and breach of contract implied in fact.

State consumer fraud claims based on “deceptive conduct” were tossed because they require under FRCP 9(b)’s “heightened pleadings requirement” allegations of a specific “communication containing a deceptive misrepresentation or one with a deceptive omission.” Denny's made no deceptive misrepresentations or deceptive omissions (nor were any alleged). To the contrary, as discussed previously in this blog, Denny's discloses clearly on its website and in its restaurants sodium content of its meals.  

Unjust enrichment and accounting claims were dismissed for largely the same reason as the consumer fraud claims.

The breach of contract claim was based upon the novel theory that the “bargained for” contract between class members and Denny’s required Denny’s to provide “a meal fit for human consumption.” The food sold, according to the plaintiff, “contained excessive amounts of sodium, such that it was not fit for human consumption.”

The contract claims were dismissed because there were no allegations that (1) a single meal that contains sodium in excess of the recommended daily maximum “is by itself unsafe” or (2) “Denny’s enters into an implied contract to sell only meals that contain less than a particular amount of sodium.”