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California Supreme Court Rules that Contract Clauses Limiting Damages for Willful Injury are Invalid under California Law
On April 23, 2025, the Supreme Court of California ruled that contract clauses that limit damages for willful tortious injury to the person or property of another are invalid under California Civil Code section 1668. The ruling came in response to a certified question from the United States Court of Appeals for the Ninth Circuit inthe case New England Country Foods LLC v. VanLaw Food Products, Inc.
Background on the Ruling
New England Country Foods (NECF) contracted to have VanLaw Food Products manufacture barbecue sauce that NECF sold to Trader Joe’s. NECF thereafter sued VanLaw in federal court, alleging that in violation of the contract, VanLaw reverse engineered the sauce and tried to sell to Trader Joe’s directly. NECF asserted claims for breach of contract and several torts, including intentional interference with contractual relations and breach of fiduciary duty.
The federal district court dismissed the case on a Rule 12(b)(6) motion, reasoning that the parties’ contract expressly disallowed lost profits damages and punitive damages, NECF’s only claimed damages. The court rejected NECF’s argument that the contract’s limitation on damages was invalid under California Civil Code section 1668. That section states that “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 court reasoned that the contract did not “exempt” VanLaw from liability or from all money damages, it merely limited liability to certain kinds of money damages that NECF had not suffered. NECF appealed.
On appeal, the United States Court of Appeals for the Ninth Circuit certified to the Supreme Court of California the following question of state law: Is a contractual clause that substantially limits damages for an intentional wrong but does not entirely exempt a party from liability for all possible damages valid under California Civil Code Section 1668?
The California Supreme Court Ruling
The Supreme Court of California answered no. It held that “a limitation on damages for willful injury to the person or property of another is invalid under section 1668.” The Court made clear that Section 1668 thus invalidates a contract clause that excludes key categories of damages for such injury (e.g., lost profits and punitive damages) — even if the clause does not purport to exclude all liability or possible damages for such conduct. The Court further confirmed that Section 1668 applies in this manner even if the contracting parties are sophisticated commercial entities.
However, the Court clarified that Section 1668 does not preclude parties from limiting their liability for standard contract breaches that do not involve fraud, violation of law, or violation of an independent duty resulting in willful injury to the person or property of another. In addition, the Court made clear that limitations on liability for negligence are still sometimes valid, subject to public policy considerations set out in Tunkl v. Regents of University of California, 60 Cal.2d 92 (1963).
Key Takeaway:
Under California law, a contract cannot limit damages for willful tortious injury to the person or property of another.
Case citation: New England Country Foods, LLC v. VanLaw Food Prods., Inc., 2025 WL 1190980 (Cal. Apr. 24, 2025).
Nathan Walker, an experienced litigator and strategic advisor who represents clients in intellectual property litigation and other complex commercial disputes, can be contacted at nwalker@nortonlaw.com or 510.956.2001.