Summary
upholding a similar limitation of liability/liquidated damages clause
Summary of this case from Middlesex Mut. v. De. Elec. SignalOpinion
No. 04C-11-276 (CLS).
Date Submitted: January 16, 2007.
Date Decided: April 30, 2007.
Upon Consideration of Defendants' Motion for Summary Judgment GRANTED as to Securitech Inc.'s Motion and GRANTED in part as to Lydia Security Inc.'s Motion.
Matthew J. Rifino, Esquire, White Williams LLP, Wilmington, Delaware, Attorney for Plaintiffs.
Laurence V. Cronin, Esquire, Smith, Katzenstein Furrlow LLP, Wilmington, Delaware, Attorney for Defendant and Third-Party Plaintiff.
David E. Brand, Esquire, Prickett, Jones Elliot, Wilmington, Delaware, Attorney for Third-Party Defendant.
ORDER
INTRODUCTION
This Motion for Summary Judgment arises from a Complaint alleging gross negligence due to a failure to report a fire that occurred on November 30, 2003 at The Front Porch, a restaurant and bar located in Wilmington, Delaware. Plaintiff Rob-Win, Inc. is a Delaware corporation which runs The Front Porch. Plaintiff Robinson Livingston Winnington is a Delaware partnership which owns this building. Hereinafter, Plaintiffs are collectively referred to as "The Front Porch".
The Front Porch entered into a contract with Third-Party Defendant Securitech Inc. ("Securitech") by which Securitech would install and monitor a security alarm system at The Front Porch. Thirteen years later, Securitech subcontracted with Defendant Lydia Security Monitoring, Inc. d/b/a C.O.P.S. Monitoring ("C.O.P.S.") to provide security monitoring services for the parties to which Securitech had entered into a contract.
After the November 30, 2003 fire, The Front Porch filed a Complaint generally alleging gross negligence on the part of C.O.P.S. Subsequently, C.O.P.S. filed a Third-Party Complaint adding Securitech as a defendant. The Front Porch then filed a Supplemental Complaint against Securitech.
Both Securitech and C.O.P.S. bring the following Motion for Summary Judgment based on contract defenses that arise from the initial contract agreement with The Front Porch. The following decision, therefore, addresses the application of these contract defenses here. In making a determination on these contractual issues, the Court finds that Third-Party Defendant Securitech's Motion is, hereby, GRANTED. However, C.O.P.S.' Motion is only GRANTED in part because it remains potentially liable for up to $250.
FACTS
The parties have filed a Stipulation setting out essential facts in order to present the Court with certain issues of law relevant to the Motion for Summary Judgment. As such, the facts specifically concerning this Motion are taken from this Stipulation. Where necessary, the Court has also supplemented the Stipulation with facts from the Complaint in regard to the gross negligence claim.
Plaintiffs The Front Porch entered into a contract with Third-Party Defendant Securitech on or about March 15, 1988. Securitech is a Delaware corporation with its principle place of business located in Greenville, Delaware. Pursuant to the 1988 Front Porch-Securitech contract, Securitech would install and monitor a security alarm system at The Front Porch. Securitech, therefore, provided security alarm monitoring services to The Front Porch from March 15, 1988 through November 5, 2002. At all relevant times, Securitech subcontracted the central station monitoring of the alarm system to third parties.
In the Motions given to the Court, the parties refer to the 1988 Front Porch-Securitech contract as the 1998 contract. However, the Front Porch-Securitech contract reflects the year 1988. The Court brought this fact to the parties' attention at the January 16, 2007 hearing, and the parties acknowledged their error. Both parties agreed that the Front Porch-Securitech contract agreement did, in fact, take place in 1988.
On or about August 13, 2001, Securitech entered into a contract with Defendant C.O.P.S. to provide security alarm monitoring services for certain third parties to whom Securitech was contractually obligated to provide alarm monitoring services. C.O.P.S. is a New Jersey corporation which provides its alarm monitoring services from a Central Station located in New Jersey.
The Front Porch asserts that it is not a party to the Securitech-C.O.P.S. contract and denies that this contract is controlling between C.O.P.S. and The Front Porch. While C.O.P.S. agrees that The Front Porch is not a named party to this contract, it asserts that The Front Porch is still subject to the limitation of liability provisions contained in the contract.
In the underlying action, Plaintiffs generally allege that C.O.P.S. was grossly negligent in monitoring the alarm system at The Front Porch. Plaintiffs filed the initial Complaint against C.O.P.S. on November 29, 2004. According to Plaintiffs, the alarm system installed by Securitech contained a variety of sensors for detecting smoke, heat and motion. C.O.P.S. had a duty, under its contract with Securitech, to monitor the alarm system and report emergencies to appropriate authorities. Plaintiffs claim that, "Upon information and belief, approximately one year prior to November 30, 2003 (the day of the fire), Securitech warned C.O.P.S. that C.O.P.S.' computer system "might interpret and display signals from the alarm system at The Front Porch in such a way as to mislead human monitors to believe, in error, that the Front Porch was experiencing a burglary when, in fact, a fire was in
Pl. Compl. ¶ 10.
On November 30, 2003 at 2:50 a.m., C.O.P.S. notified Tom Winnington ("Winnington"), a principle of The Front Porch, that a fire had been detected at the Front Porch and that C.O.P.S. had notified the fire department. C.O.P.S. also notified 911 dispatch, but only reported a burglary; they did not mention anything about a fire. Winnington arrived at the Front Porch at 3:10 a.m. and found no one there. When he saw smoke inside the building, he reported the fire to 911 dispatch at 3:15 a.m. Firemen arrived by 3:20 and flames fully engulfed The Front Porch by 3:37 a.m. As such, Plaintiffs allege that C.O.P.S.' "failure to take action despite its duty to do so in the face of a known and present danger constitutes gross negligence." However, C.O.P.S. denies that it was negligent or grossly negligent in providing monitoring services to The Front Porch.
Pl. Compl. ¶ 27.
On March 5, 2005, C.O.P.S. filed a Third-Party Complaint against Securitech claiming entitlement to contractual indemnity and contribution. Plaintiffs, therefore, filed a Supplemental Complaint against Securitech on March 15, 2005. They allege that Securitech was also grossly negligent and seek compensatory damages and other relief from it. In response, Securitech has denied that it is liable to C.O.P.S. or to Plaintiffs.
In the Complaint, Plaintiffs claim that the fire caused approximately $600,000 worth of damage. Plaintiffs, therefore, request judgment against C.O.P.S. "for compensatory damages in an amount in excess of $600,000 together with interests, costs, attorney fees and such other relief the Court
Pl. Compl. ¶ 28.
STANDARD OF REVIEW
The Court may grant summary judgment if it concludes that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law." The moving party bears the initial burden of showing that no material issues of fact are present. Once such a showing is made, the burden shifts to the nonmoving party to demonstrate that there are material issues of fact in dispute. In considering a motion for summary judgment, the Court must view the record in a light most favorable to the nonmoving party. The Court's decision must be based solely on the record presented and not on all evidence "potentially possible."PARTIES' CONTENTIONS
In general, Plaintiffs contest the Motion for Summary Judgment of Defendant C.O.P.S. and Third-Party Defendant Securitech. According to Plaintiffs, Defendant C.O.P.S. may not invoke contract defenses because their claims are based in tort, not in contract. Plaintiffs further support this contention by stating that C.O.P.S.' alleged failure to address the faulty warning system constitutes an omission "not related to the performance of any contractual obligation."Both Defendants contest Plaintiffs' position. Defendant C.O.P.S. argues that regardless of the negligence issue, "it is undisputed that all of it arose pursuant to the duties imposed by the two agreements at issue." Defendant Securitech contends that Plaintiffs are purposefully trying to evade the repercussions of the contract provisions. According to Securitech, "If the (1988) contract is given effect, (Plaintiff's) lawsuit against Securitech is time-barred, limited to non-insured losses and limited to a $250 recovery."
Def. C.O.P.S. Reply at 5.
Def. Securitech Reply at 1.
Id.
DISCUSSION
The Court finds that Plaintiffs The Front Porch have, in fact, raised a genuine issue of fact as to the issue of gross negligence. For purposes of this Motion for Summary Judgment, the Court will address the contract defenses presented by Securitech and C.O.P.S. with regard to the gross negligence claim.The contract issues here essentially involve matters of legal intent for the Court to decide. In order to make a decision, the Court must look to the principles of contract construction in Delaware. "The primary rule of contract construction is (that) where parties have created an unambiguous integrated written (contract), . . . the language of that contract will control." A disagreement by parties on the meaning of a contract does not lead to the conclusion that the contract is ambiguous. "Rather, a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings." The Court must not determine "what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant."
Am. Legacy Found. v. Lorillard Tobacco Co., 886 A.2d 1, 19 (Del. Ch. 2005) (quoting U.S. WEST, 1996 WL 307445 at *9, 1996 Del. Ch. LEXIS 55 at *29-30).
Id. at 19-20 (quoting E.I. du Pont de Nemours Co. v. Allstate Ins. Co., 1059, 1061 (Del. 1997)).
Id. at 20 (quoting Rhone-Poulenc Basic Chemicals Co. v. American Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992)).
Id.
I. The Subcontractor Provision in the 1988 Contract
Paragraph 29 of the 1988 Front Porch-Securitech contract explicitly states that the provisions of this contract apply to all subcontractors. As such, Defendant C.O.P.S. argues that it "is entitled to the benefits of the 1988 contract". The Court agrees with this contention. C.O.P.S. provided services to The Front Porch as a subcontractor of Securitech, so the provisions of the 1988 contract also apply to C.O.P.S.
Paragraph 29 of the 1988 Front Porch-Securitech contract provides:
SUBSCRIBER agrees and acknowledges that the provisions of this Agreement insure to the benefit of and are applicable to any subcontractors engaged by COMPANY to provide service set forth herein to SUBSCRIBER, and bind SUBSCRIBER to said subcontractor(s) with the same force and effect as they bind SUBSCRIBER to COMPANY. SUBSCRIBER specifically agrees to defend, indemnify and hold harmless COMPANY from and against all claims by any subcontractor engaged by COMPANY.
Def. C.O.P.S. Mot. Summ. J. at 5. In accordance with this contention, C.O.P.S. also adopts the arguments presented by Securitech's Motion for Summary Judgment.
II. The Time-Bar Provision in the 1988 Contract
Paragraph 24 of the 1988 Front Porch-Securitech contract establishes a one-year deadline for filing suit regarding disputes between the parties. Defendant Securitech, therefore, asserts that Plaintiffs' Complaint is time-barred because they filed suit three and one-half months after the deadline for filing a cause of action.
Paragraph 24 of The Front Porch-Securitech 1988 contract provides:
All claims, actions or proceedings, legal or equitable, against COMPANY (Securitech) must be commenced in court within on (1) year after the cause of action has accrued or the act, omission or event occurred from which the claim, action or proceeding arises, whichever is earlier, without judicial extension of time, or said claim, action or proceeding is barred, time being of the essence of this paragraph.
Under the statute of limitations in Delaware, a party must file suit for the claims at issue within three years of the cause of action. Delaware law, however, provides that "contractual limitation of action periods are valid if they are reasonable." Courts generally uphold this type of limitation because it "hastens the enforcement and complements the policy behind the statute of limitations." Hence, the Court finds the one-year deadline established by the 1988 Front Porch-Securitech Contract valid.
10 Del. C. § 8106 provides in part:
No action to recover damages for. . . . no action based on a promise, no action based on a statute, and no action to recover damages caused by an injury unaccompanied with force or resulting indirectly from the act of the defendant shall be brought after the expiration of 3 years from the accruing of the cause of such action . . .
Shaw v. Aetna Life Insurance Co., 395 A.2d 384 (Del.Super. 1978) (citing, 20 Appleman, Insurance Law and Practice § 11601; Murray v. Lititz Mutual Ins. Co., 61 A.2d 409 (Del.Super. 1948)).
Id. (citing 1A Corbin on Contracts § 218 (1963); 20 Appleman, Insurance Law and Practice § 11601).
The Court further holds that applying this time-bar to the case at hand prohibits all of the Front Porch's claims against Securitech. The fire at issue occurred on November 30, 2003, and C.O.P.S.' Third-Party Complaint adding Securitech as a defendant was filed on March 7, 2005. Plaintiffs The Front Porch subsequently filed a Supplemental Complaint against Securitech on March 15, 2005. As such, Plaintiffs did not file their Complaint against Securitech within the requisite one year time period. The Court must, therefore, dismiss The Front Porch's claims against Defendant Securitech.
Because the 1988 contract bars Plaintiffs' claims against Defendant Securitech, this Opinion does not require a discussion regarding the 1988 waiver of subrogation clause and the 1988 limitation of liability clause as it pertains to Securitech.
Finally, the Court holds that applying this time-bar to the current matter does not prohibit The Front Porch's claims against C.O.P.S. On November 29, 2004, The Front Porch filed the initial Complaint against C.O.P.S. Because the fire at issue occurred on November 30, 2003, The Front Porch filed this Complaint within the requisite one year time limitation.
III. The Liability of Limitation Clause in the 1988 and 2001 Contracts
Paragraph 3 of the Front-Porch-Securitech 1988 contract generally limits the liability of Securitech to a sum of $250 for any liability arising from contract, tort or equity and including general, direct, special, incidental, exemplary, punitive and/or consequential damages. Defendant Securitech, therefore, argues that, "Even if Securitech is found liable to The Front Porch, the contract limits that liability to $250."
Paragraph 3 of the Front-Porch Securitech 1988 contract provides:
" SHOULD THERE ARISE ANY LIABILITY ON THE PART OF (SECURITECH), WHETHER IN CONTRACT, TORT OR EQUITY, INCLUDING, BUT NOT LIMITED TO, ANY GENERAL, DIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE AND OR CONSEQUENTIAL DAMAGES, IRRESPECTIVE OF CAUSE, SUCH LIABILITY SHALL BE LIMITED TO THE MAXIMUM SUM OF $250.00 AND THIS LIABILITY SHALL BE EXCLUSIVE." (bold and capitals in original)
Def. Securitech Mot. for Summ. J. at 4.
Similarly, Paragraph 9 of the Securitech-C.O.P.S. contract also provides a $250 limitation of liability clause that applies to general, direct, special, incidental, exemplary, punitive, statutory and/or consequential damages. The provision in this contract, however, specifically provides a limitation of liability arising not only from negligence, but gross negligence as well. As such, Defendant C.O.P.S. also argues that the gross negligence claims are subject to the $250 Limitation of Liability Clause contained in the 2001 Securitech-C.O.P.S. agreement. C.O.P.S. consequently asserts that because The Front Porch is a third-party beneficiary of the 2001 agreement, this limitation liability provision applies to The Front Porch.
Paragraph 9 of the Securitech-C.O.P.S. 2001 contract provides:
" . . . SHOULD THERE ARISE ANY LIABILITY ON THE PART OF COMPANY OR BUSINESS FOR PERSONAL INJURY, INCLUDING DEATH, AND/OR PROPERTY DAMAGE, REAL OR PERSONAL, WHICH IS IN CONNECTION WITH, ARISES OUT OF OR FROM, OR REULTS FROM SERVICES, REMOTE PROGRAMMING, MONITORIGNG OR ANY EQUIPMENT OR SYSTEM, THE FAILURE OF IMPROPER DISPATCH OF INDIVIDUALS TO THE PREMISES, THE FAILURE OR FAULT OPERATION OF THE CENTRAL STATION FACILITIES, THE ACTIVE OR PASSIVE SOLE, JOINT OR SEVERAL NEGLIGENCE (INCLUDING GROSS NEGLIGENCE AND/OR NEGLIGENCE PER SE). . . . . . . . . WHETHER IN CONTRACT, TORT OR EQUITY, INCLUDING, WITHOUT LIMITATION, ANY GENERAL, DIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE, STATUTORY AND/OR CONSEQUENTIAL DAMAGES, IRRSEPECTIVE OR CAUSE, SUCH LIABILITY SHALL BE LIMITED TO THE MAXIMUM SUM OF $250.00 COLLECTIVELY FOR COMPANY AND BUSINESS, AND THIS LIABILITY SHALL BE EXCLUSIVE.
IN THE EVENT THAT THE DEALER WISHES TO INCREASE THE MAXIMUM AMOUNT OF SUCH LIMITED LIABILITY, DEALER MAY OBTAIN A HIGHER LIMIT BY PAYING AN ADDITIONAL AMOUNT FOR THE INCREASE IN SUCH LIMIT OF LIABILITY, BUT THIS HIGHER LIMITATION SHALL IN NO WAY BE INTERPRETED TO HOLD COMPANY OR BUSINESS AS AN INSURER." (bold and capitals in original)
A. Third-Party Beneficiary Status
Assuming that Plaintiffs are third-party beneficiaries to the 2001 Securitech-C.O.P.S. contract, as argued by C.O.P.S., the Court finds that C.O.P.S. may not hold Plaintiff liable under this contract. Delaware law generally does not address whether a contract may be " enforced against a third-party beneficiary." However, the United States District Court for the District of Delaware dealt with this same issue. It found no case law imposing an obligation on the third-party beneficiary. The Court stated, "The court knows of no rule or law nor any reason why a third party beneficiary should be liable on a contract to which it was not a party." This Court arrives at the same conclusion here. The Court holds that Defendant C.O.P.S. cannot raise any contract defenses under the 2001 contract against Plaintiffs.
Harper, Jr. v. Del. Valley Broadcasters, Inc. et al., 1990 U.S. Dist. LEXIS 10036 (D. Del.), at *23.
Id.
Id.
B. The Limitation Liability Clause
C.O.P.S. cannot enforce 2001 contract provisions against The Front Porch. The Court need only address whether the 1988 limitation of liability clause applies to The Front Porch's gross negligence claims, since previous courts in Delaware have not directly addressed the applicability of a limitation liability clause to a claim for gross negligence. The Delaware Superior Court case of Donegal Mutual Ins. Co. v. Tri-Plex Security Alarm Sys. is similar to the case at hand. Donegal only differs from the present matter in one aspect; the Court addresses the applicability of a liability limitation clause to negligence instead of gross negligence.
622 A.2d 1086 (Del.Super. 1992).
In Donegal, the Court upheld the validity of a limitation liability clause in reference to a claim for negligence. The plaintiff in Donegal insured a building owned by International Wholesale Tire Center for which he hired defendant Tri-Plex to secure an alarm system. On behalf of plaintiff, Tri-Plex entered into a central system services agreement with defendant Affiliated Central. The agreement contained a limitation liability clause for $250. As in the case at hand, a fire broke out in the building at 1:00 a.m. and defendant Affiliated notified the fire department at 1:08 a.m.; the fire department arrived at 1:15 a.m. The building and its contents sustained $500,000 worth of damages.
622 A.2d 1086 (Del.Super. 1992).
Id. at 1087.
Id.
Id.
Id.
Id.
The plaintiff insurance company in Donegal paid the building owner for the loss sustained and sought reimbursement from both defendants TriPlex and Affiliated. However, Affiliated "denie(d) that it was a insurer of the building but argue(d) that should any liability arise on its part, the liability is limited to $250.00 pursuant paragraph 5 of the Alarm Monitoring Agreement." In deciding whether this limitation liability clause barred Donegal's negligence and breach of contract actions, the Court analyzed whether a genuine issue of fact existed as to "whether $250 is reasonable and proportionate to the damages reasonably anticipated".
622 A.2d 1086, 1087 (Del.Super. 1992).
Id.
Id. at 1089.
In its analysis of this issue, the Donegal Court reviewed Delaware case law concerning liquidated damage clauses. Delaware recognizes the validity of liquidation of damages clauses. These clauses are "enforceable where damages are uncertain and the amount agreed upon is reasonable." However, "if damages from breach are easily ascertainable or the amount fixed is excessive, the provision is void as a penalty." Donegal related these contentions to the limitation liability clause at issue by stating that Courts in other jurisdictions generally find no difference between liquidated damages clauses and liability limitation clauses in cases involving commercial contracts.
Id. (citing In re Ross Son, Inc., 95 A. 311 (Del.Ch. 1915)).
Id. (citing Lee Builders v. Wells, 103 A.2d 918, 919 (Del.Ch. 1954)).
Id. (citing Wilmington Housing Authority v. Pan Builders, Inc., 665 F. Supp. 351 (D. Del. 1987)).
Id. (citing General Bargain Center v. American Alarm Co. Inc., 430 N.E.2d 407, 412 (Ind.Ct.App. 1982); Schrier v. Beltway Alarm Co., 73 (Md.App. 1987)).
Finally, the Donegal Court analyzed the certainty and reasonableness of the terms in the contract at issue by looking at several factors. For example, the Court explained, "The clause here is in plain bold type. The contract is not lengthy and the language is clear. Twice in the clause any claim for affiliated's own negligence is plainly disclaimed and/or limited."
622 A.2d 1086, 1089 (Del.Super. 1992).
Id. at 1090.
An analysis of these factors led the Court to find the disputed clause to be both reasonable and certain.
Like the Court in Donegal, this Court must also analyze the reasonableness and certainty of the contract provisions at issue. The Court finds that the limitation of liability clause in the 1988 contract is printed in plain bold type. This contract, therefore, presents the limitation liability provisions clearly within the 1988 contract. Furthermore, this provision clearly provides protection against all potential claims. Paragraph 3 limits liability for all claims " WHETHER IN CONTRACT, TORT OR EQUITY, INCLUDING, BUT NOT LIMITED TO, ANY GENERAL, DIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE AND OR CONSEQUENTIAL DAMAGES, IRRESPECTIVE OF CAUSE." Hence, this clause is both certain and reasonable. Simply reading this clause leads to the conclusion that the limitation of liability pertains to all claims, including gross negligence.
The Court, therefore, finds that the $250 limitation liability clause in the 1988 Front Porch-Securitech contract is valid. This contract protects both Securitech and its subcontractors from claims of gross negligence. The Front Porch can, therefore, only maintain a cause of action for gross negligence against C.O.P.S. for up to $250.
CONCLUSION
Based on the foregoing, Defendant Securitech's Motion for Summary Judgment is, hereby, GRANTED. The Court must dismiss all claims by The Front Porch against Securitech.In addition, Defendant C.O.P.S.' Motion for Summary Judgment is, hereby, GRANTED in part. C.O.P.S.' liability, if any, is limited to $250.
IT IS SO ORDERED.