Virginia Court Declines to Enforce Liability Disclaimer in Business Contract

Faced with an issue that has not yet been decided by the Virginia Supreme Court, a federal court sitting in Roanoke, Virginia, ruled that contracting parties may not agree in advance to exempt each other from liability resulting from future intentional misconduct. To the extent parties include in their contract a disclaimer purporting to limit liability and legal theories to exclude causes of action targeted at intentional or reckless misconduct, Virginia courts should strike them down as violative of public policy, the court held.

The case was filed in January by All Business Solutions, Inc., against NationsLine, Inc. Both companies provide telecommunications services. The parties entered into a contract providing that NationsLine would manufacture certain telecommunications products and that ABS would market and sell them for a commission. According to ABS, when one of its customers for direct inbound dialing numbers (“DIDs”) realized that ABS was also conducting business with one of its competitors, it resolved to “injure or destroy” ABS and caused NationsLine to abruptly terminate the contract.

One legal theory pursued by ABS was that of statutory business conspiracy under the Virginia Business Conspiracy Act, Va. Code ยง 18.2-499, -500. Thecontract.jpg business conspiracy statute is popular among plaintiffs’ attorneys due primarily to its triple-damages provision and allowance for recovery of attorneys’ fees. NationsLine moved to dismiss the claim, arguing (among other things) that the claim was barred by the limitation of liability provision in the parties’ contract.

The clause at issue disclaimed liability as follows: “In no event shall NationsLine be liable for special, indirect, incidental, punitive or [consequential] damages, including loss of profits, arising through the relationship or the conduct of business contemplated herein.” According to the disclaimer, ABS’s sole remedy was for commissions earned.

The court, after observing that the Virginia Supreme Court has apparently not yet determined the effect of such contractual language, held that while parties to a business contract may generally limit their risk of loss through contract, it would be against Virginia public policy to exempt a party from liability for intentional, conspiratorial misconduct. The motion to dismiss was denied.

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