United States District Court, S.D. New York
February 5, 2015
RUSSELL PUBLISHING GROUP, LTD., Plaintiff,
BROWN PRINTING COMPANY, Defendant.
Richard Pu, Esq., Richard Pu, P.C., New York, New York, for Russell Publishing Group, Ltd.
Sammi Malek, Esq., Stephen L. Ball, Esq., Baker & Hostetler LLP, New York City, New York, for Brown Printing Company.
MEMORANDUM OPINION AND ORDER
SHIRA A. SCHEINDLIN, District Judge.
This Court issued an Opinion and Order on December 2, 2014 ("the December 2 Order") granting Brown's motion to dismiss and motion to strike. On December 9, 2014, Russell Publishing Group, Ltd. ("RPG") filed a motion for partial reconsideration of the December 2 Order RPG contends that the Court erred in (1) striking RPG's demand for consequential damages, (2) concluding that RPG was obligated to pay Brown the disputed amounts, and (3) construing sections of the Printing Agreement in the absence of extrinsic evidence showing the parties' course of dealing, trade usage, and course of performance. For the following reasons, RPG's motion is DENIED.
A. Legal Standard
The standard for granting a motion for reconsideration is strict. "Reconsideration will generally be denied unless the moving party can point to controlling decisions or data that the court overlooked - matters, in other words, that might reasonably be expected to alter the conclusion reached by the court." "Reconsideration of a court's previous order is an extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources.'" Typical grounds for reconsideration include "an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice."
B. The Limitation of Liability Clause Is Neither Unconscionable nor Contrary to Public Policy
RPG contends that the Court correctly held that a disclaimer of consequential damages will be upheld unless it is unconscionable. But RPG argues that the Court failed to consider that the disclaimer will nevertheless be unenforceable if it is void as against public policy. Under New York law, a limitation on liability will not exempt a party from liability for "willful or grossly negligent acts.'" Thus, in deciding whether a limitation on liability clause is enforceable, a court must determine if the acts underlying the breach of contract were willful or grossly negligent.
The December 2 Order stated that "the party's intent when breaching the contract is immaterial." This is correct up to a point. "[I]ntentional nonperformance... motivated by financial self-interest" will not render a limitation of liability clause unenforceable. That is, whether a breach is intentional (meaning non-accidental) or not does not bear on the enforceability of the clause. However, intent is relevant if the breach involved conduct that was willful (meaning "conduct in which defendant willfully intends to inflict harm") or grossly negligent. In such situations, the limitation on liability clause will not be enforced because "[u]nder announced public policy, [an exculpatory agreement] will not apply to exemption of willful or grossly negligent acts."
RPG argues that ordinary negligence will also void the clause, because the clause did not expressly state that negligent conduct was intended to be covered by the clause. First, RPG misstates the law on which it relies - the word "negligence" need not be included so long as it is clear that the parties intended to include negligent conduct within the exculpatory clause. Second, the cases on which RPG relies for this proposition are distinguishable in one crucial respect - all of the cases involved a contract clause that limited all liability. The courts in those cases strictly construed the exculpatory clauses because "the law frowns upon contracts intended to exculpate a party from the consequences of his own negligence." Here, by contrast, the clause merely limits RPG's remedies to ordinary contract damages. Thus, Brown is not excused from the consequences of its own negligence. In these situations, where sophisticated parties contract to limit the type of remedy of available, the limitation will be enforceable unless the conduct is willful or grossly negligent. Thus, ordinary negligence will not void the clause.
Further, RPG has not pleaded facts that would constitute either willful or grossly negligent conduct. "Only conduct that evinces a reckless disregard for the rights of others or smacks' of intentional wrongdoing' will constitute gross negligence for purposes of invalidating a limitation of liability clause." "Willful acts" are interpreted as conduct that is "tortious in nature, i.e., wrongful conduct in which defendant willfully intends to inflict harm on plaintiff at least in part through the means of breaching the conduct between the parties." In the three previous Opinions in this case, the Court reviewed the allegations in the First and Second Amended Complaints and concluded, as a matter of law, that the allegations did not support a finding of tortious conduct. RPG has not identified any facts that the Court overlooked. The few new facts in the Second Amended Complaint, as compared to the First Amended Complaint, do not give "rise to a strong inference of fraudulent intent." The First Amended Complaint alleged "that [in] nearly every single one of the monthly bills rendered from 2007 through 2012, there were billing errors in Defendant's favor." The Second Amended Complaint provides the specifics of these billing errors: "markups as much as 22%, 14%, 13%, 12% and in many instances, 9% or 10%." However, as discussed in the Court's previous Opinion, "none of these allegations establish Brown's wrongful intent. It is undisputed that Brown made a good faith effort to correct any billing errors."
C. RPG Was Not Entitled to a Setoff
RPG argues, for a third time, that it was entitled to a setoff in the amount it claims it was overbilled. RPG contends that, under New York law, there is a common law right of setoff that "allows entities that owe each other money to apply their mutual debts against each other...." However, "[t]here is no need to determine whether New York contract law includes a default rule that permits a right to offset [where]... [t]he terms of the Agreement make any such rule, if it exists, inapplicable to the case at bar. It is not, and could not plausibly be, contended that New York law provides a default rule that prevails over an explicit contractual provision that bars offset." That is exactly the case here. Paragraph 5.5 of the Printing Agreement sets out the procedure for disputed invoices - RPG was required to put the disputed amount into an escrow account if the dispute was not resolved within thirty days. As RPG did not follow this procedure, Brown was entitled to suspend performance under paragraph 5.4.
D. Construction of the Printing Agreement
Finally, RPG argues that the Court should not have construed the sections of the Printing Agreement regarding payment without considering extrinsic evidence that was not before the Court. As an initial matter, the Court may consider extrinsic evidence regarding course of dealing, usage of trade, and course of performance under UCC 2-202 in construing a contract's meaning "so long as that extrinsic evidence does not contradict the contract's language." However, any extrinsic evidence regarding these sections was unnecessary for the purposes of deciding Brown's motion to dismiss the fraud claim and motion to strike. This motion for reconsideration is limited to the December 2 Order. In that Order, I considered the payment sections of the contract solely for the purpose of determining whether RPG had alleged any conduct on Brown's part that would rise to the level of willful or grossly negligent acts, and therefore void the limitation on liability clause. Brown's conduct in retaining RPG's materials and suspending performance did not rise to the level of tortious conduct because those actions were expressly allowed by the Printing Agreement. No extrinsic evidence could have shown otherwise unless it expressly contradicted the contract's language permitting these actions. And - in that case - it could not have been considered.
For the foregoing reasons, RPG's motion for reconsideration is DENIED. The Clerk of the Court is directed to close this motion [Dkt. No. 100]. A conference is scheduled for March 3, 2015 at 4:30 p.m.