Introduction. The Texas Supreme Court has now held that contractual limitation of liability clauses barring a party’s right to recover punitive damages are enforceable, even if one of the parties to the contract commits fraud. Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 17-0578, 2019 WL 406075, at *8 (Tex. Feb. 1, 2019)
Background. In the Bombardier case, the plaintiffs sued defendant for breach of contract, breach of warranty, and fraud. In 2010, plaintiffs purchased a Challenger 300 aircraft from defendant for $19,850,000. In the purchase negotiations the plaintiffs specified that the aircraft was to be new. However, the written purchase and aircraft management agreements contained limitation of liability clauses under which the plaintiffs agreed to waive their rights to recover punitive damages.
Subsequent to the purchase, plaintiffs discovered that the aircraft was sold with used engines. The jury awarded the plaintiffs $2,694,160 in actual damages and $5,388,320 in punitive damages. The trial court entered judgment based upon the verdict and the Dallas Court of Appeals affirmed.
Holding. The Texas Supreme Court reversed the Court of Appeals regarding the portion of the judgment awarding $5 million+ in punitive damages on the grounds that the plaintiffs waived their rights under the contracts to recover punitive damages. The Court held that, generally, contractual limitation of damages clauses are valid and enforceable. This is the law even when a party to a contract commits fraud.
Lessons learned. This case shows why a purchasing party to a contract should carefully consider whether to accept clauses limiting the right to recover damages or waiving a claim for fraud. It also shows how the seller under a contract can limit exposure to liability through careful and meticulous drafting.