On April 24, 2025, the California Supreme Court held that contract clauses that limit damages for injuries caused by willful tortious conduct are prohibited by Section 1668 of the California Civil Code.
In New England Country Foods, LLC v. VanLaw Food Products, Inc., No. S282968, 2025 Cal. LEXIS 2299 (Cal. Apr. 24, 2025), a barbecue sauce company sued a manufacturer for allegedly secretly attempting to replicate its popular barbecue sauce and sell it to Trader Joe’s. The barbecue sauce company, New England Country Foods (NECF), asserted both contract and tort claims against VanLaw, but VanLaw responded that the claims were barred by a contractual clause between the two parties that purported to limit damages for willful injuries caused by either party.
NECF, on the other hand, argued that the limitation on damages clause was unenforceable under California Civil Code Section 1668 because it effectively exempted VanLaw from all liability stemming from their own allegedly willful tortious conduct.
The limitation on damages clause stated:
[I]n no event will either party be liable for any loss of profits, loss of business, interruption of business, or for any indirect, special, incidental or consequential damages of any kind, even if such party has been advised of the possibility of such damages.
After the contract between NECF and VanLaw expired, Trader Joe’s ended its roughly two-decade relationship with NECF. Then, through a separate lawsuit, NECF discovered emails between VanLaw’s president and Trader Joe’s management in which VanLaw’s president allegedly promised to “clone” the barbecue sauce and sell it to Trader Joe’s. In light of the emails, NECF sued VanLaw in federal court, asserting claims for breach of contract, intentional interference with prospective economic relations, intentional interference with contractual relations, negligent interference with prospective economic relations, and breach of fiduciary duty. NECF sought lost profits and punitive damages.
The U.S. District Court for the Central District of California initially dismissed NECF’s complaint without prejudice on the grounds that the limitation on damages clause limited suits between the parties to “direct damages or injunctive relief” and thus barred NECF’s claims for lost profits and punitive damages. See New England Country Foods, LLC v. VanLaw Food Prods., Inc., No. 21-01060, 2021 WL 6751898, at *5 (C. D. Cal., Nov. 23, 2021). However, the court allowed NECF to amend and re-file its complaint to “seek remedies permitted under” the contract or “plead why the available remedies are unavailable or so deficient as to effectively exempt Defendant from liability.” Id.
NECF then filed an amended complaint which stated: “Upon information and belief, all of Plaintiff’s harm from the wrongful conduct alleged herein is a form of lost profits (both past and future). Further, the only possible harm to Plaintiff from the wrongs committed by Defendant are a loss of profits.” The amended complaint also stated that the limitation on damages provision “would completely exempt Defendant from liability for the wrongs alleged” and should therefore be invalidated pursuant to California Civil Code Section 1668.
In response, the district court again dismissed the complaint—this time with prejudice. New England Country Foods, LLC v. VanLaw Food Prods., Inc. No. 21-01060, 2022 WL 266050, at *3 (C. D. Cal., Jan. 20, 2022). The court held that the limitation on damages clause was enforceable and that NECF’s claims were “facially barred” by the provision. Id. The court reasoned that a party cannot “erase bargained-for contract provisions simply because one party now wishes they were different.” Id.
NECF appealed to the Ninth Circuit, but because the underlying legal issue was “a question of California [state] law,” the Ninth Circuit held that the California Supreme Court was better suited to address this question and thus certified the question to the California Supreme Court pursuant to California Rules of the Court Rule 8.548. Under this rule, federal appellate courts can request that the California Supreme Court exercise its discretion and decide questions of California state law that “could determine the outcome of a matter pending in the requesting court.” Thus, the Ninth Circuit asked the California Supreme Court to determine whether contract clauses that “substantially” limit damages for willful tortious conduct—but do not “entirely exempt a party from liability for all possible damages”—are valid under California Civil Code Section 1668. The California Supreme Court granted the request and answered the question.
Section 1668 provides: “All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.” The California Supreme Court explained that Section 1668 exists to “vindicate social policy” by preventing parties from “granting themselves licenses to commit future aggravated wrongs.” See Rattagan v. Uber Techs., Inc.,17 Cal. 5th 1, 19 (2024) (holding that the “existence of a contractual relationship between two parties does not mean one party can tortiously injure the other but limit its liability to a contract remedy”); Castelo v. Xceed Fin. Credit Union, 91 Cal. App. 5th 777, 789 (Cal. App. 2023) (explaining that Section 1668 exists to “preclud[e] releases of liability” for future tortious conduct, but not for prior tortious conduct).
The Court then noted that clauses that limit liability for intentional tortious conduct undermine community standards of “ensuring wrongdoers compensate those they harm.” New England Country Foods, 2025 Cal. LEXIS 2299, at *5. Specifically, the Court outlined that “[w]hile ordinary negligence may be released in some circumstances,” releases for gross negligence or “willful or wanton” conduct are “categorically unenforceable.” Id.
Accordingly, the Court concluded that the limitation on damages clause at issue here violated Section 1668 and was therefore entirely invalid and unenforceable. In reaching this conclusion, the Court held that “no context-dependent analysis is required to determine whether a particular release of liability for ‘willful injury’ is barred by section 1668” because all such releases of future tortious conduct “are against the policy of law.” Id. The Court further explained that unlike provisions that only limit liability for ordinary negligence, provisions that broadly limit liability for willful conduct are entirely invalid because they are “repugnant to every sentiment of justice and propriety.” Id. at *8 (citing Perkins v. New York Cent. R.R. Co., 24 N.Y. 196, 211 (1862) (Selden, C.J., concurring)).
This reasoning aligns with the California Supreme Court’s holding in City of Santa Barbara v. Superior Court that all clauses that “eliminate liability for gross negligence” are unenforceable. 41 Cal. 4th 747, 754 (2007). Finally, the Court emphasized that while “private parties have wide latitude to form contracts, that latitude is bounded by these broader social policies. And our tort system’s concern with vindicating social policy is at its zenith when it comes to willful wrongs.” New England Country Foods, 2025 Cal. LEXIS 2299, at *10-11 (citing J.C. Penney Cas. Ins. Co. v. M.K., 52 Cal. 3d 1009, 1021 (1991) (emphasis added)).
This decision impacts the ability of California companies to avoid liability via contractual provisions for injuries caused by willful tortious conduct.