CASE SUMMARY

PROCEDURAL POSTURE: Appellant engineering firm appealed an order of the District Court of Bernalillo County (New Mexico) awarding appellee client over $ 110,000 in damages for negligence, over $ 240,000 in attorney fees, and prejudgment interest. The court refused to enforce an indemnity clause on the ground that it violated N.M. Stat. Ann. § 56-7-1 (1971) prohibiting any party to a construction contract from agreeing to indemnify any entity for its own negligence.

OVERVIEW: Inter alia, the client argued that the trial court correctly found the limitation of liability clause to be unenforceable because it violated the anti-indemnification statute. The Court of Appeals of New Mexico held that the limitation of liability clause did not seek to contract away all liability for the firm's negligence but sought to limit the amount of damages it had to pay for its own negligence. The contract did not indemnify the firm against its own negligence. Indeed, it provided that it could be liable for damages, based on its own negligence, that were in fact, twenty eight times higher than the amount of the contract. The client argued that the large difference between its total damages (over $ 1,000,000) and the contract limitation ($ 50,000) violated public policy. However, in the instant case, the cap of $ 50,000 was 28 times the amount of remuneration the firm received under the contract, which was $ 1,750 plus tax. Similar to the determination in Valhal, where the cap was only seven times the expected fee, the Court of Appeals of New Mexico concluded the cap in the instant case left the firm exposed to substantial damages and did not negate its liability.

OUTCOME: The trial court's determination that the limitation of liability clause was void was reversed, and the case was remanded for entry of an order limiting the damages awarded against the firm to $ 50,000. The award of attorney fees and prejudgment interest were affirmed.

CORE TERMS: limitation of liability, attorney fees, cap, unenforceable, liquidated damages, own negligence, prevailing party, prejudgment interest, attorney fees, indemnitee, anti-indemnification, indemnify, tenant, times, fee award, unreasonable delay, beneficiary, fault, indemnity clause, present case, violates public policy, prejudgment, exculpatory, awarding, entity, breach of contract, negligence claim, contract provision, amount of damages, tort claims

LexisNexis® Headnotes

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HN1

See N.M. Stat. Ann. § 56-7-1 (1971).

 
 
 
 

HN2

The standard of appellate review is de novo when an issue concerns the interpretation of both a contract and a statute.  More Like This Headnote

 
 
 
 

HN3

The Court of Appeals of New Mexico does not read N.M. Stat. Ann. § 56-7-1, the anti-indemnification statute for construction contracts, as prohibiting a limitation of liability based on one's own negligence but as prohibiting the avoidance of all liability for one's own negligence.  More Like This Headnote

 
 
 

HN4

The Court of Appeals of New Mexico is not persuaded that the correct measure of whether a cap is so small as to render an indemnification clause unenforceable is the difference between the damages suffered and the cap.  More Like This Headnote

 
 

HN5

Both the Pennsylvania and New Mexico anti-indemnification statutes deal with provisions to indemnify or hold harmless. N.M. Stat. Ann. § 56-7-1. Neither statute addresses a partial limitation of liability or cap on damages. § 56-7-1. Limitation of liability clauses differ significantly from hold harmless and indemnity clauses. The Court of Appeals of New Mexico concludes that the statutes are similar in all material respects.  More Like This Headnote

 
 

HN6

Enforcement of limitation of liability clauses when personal injury or property damage is involved is not precluded; these clauses are routinely enforced when such damages are not involved.  More Like This Headnote

 
 
 

HN7

The relative sophistication of the parties as one factor in evaluating the unconscionability of an indemnification clause.  More Like This Headnote

 
 
 
 
 
 

HN8

A liquidated damages clause fixes recovery for damages and will be unenforceable when the stipulated amount is so extravagant or disproportionate as to show fraud, mistake, or oppression.  More Like This Headnote

 
 
 
 

HN9

A liquidated damages clause applies when the parties to a contract have agreed in advance on the measure of damages to be assessed in the event of default.  More Like This Headnote

 
 
 
 

HN10

The standard for disproportionality between actual damages and a liquidated damages clause's cap is not furnished by the plaintiff's actual loss or injury, but by the loss or injury which might reasonably have been anticipated at the time the contract was made.  More Like This Headnote

 
 
 

HN11

A clause that fails to fix damages is not a liquidated damages clause.  More Like This Headnote

 
 
 
 
 
 

HN12

While a trial court has broad discretion when awarding attorney fees, that discretion is limited by any applicable contract provision. Consequently, the Court of Appeals of New Mexico looks to the contract language to determine the parties' intentions.  More Like This Headnote | Shepardize: Restrict By Headnote

 
 
 

HN13

Regarding an award of attorney fees, under New Mexico law, at the end of the entire action, the prevailing party is the party who wins on the merits or on the main issue of the case. This is so even if the party does not prevail to the extent of his original contention. In determining who was the prevailing party, and whether there was one, the Court of Appeals of New Mexico considers all the claims made by both sides in the lawsuit and the court recognizes that there can be situations in which neither side is a prevailing party.  More Like This Headnote

 
 
 

HN14

The absence of judgment in favor of a party is a factor in evaluating whether it could be considered a prevailing party for the purposes of attorney fees.  More Like This Headnote

 
 

HN15

To preserve error for review, a party must fairly invoke a ruling of the district court on the same grounds argued in the Court of Appeals of New Mexico.  More Like This Headnote

 
 
 
 
 

HN16

The purpose of prejudgment interest is to foster settlement and prevent delay. Or, put another way, the legislature allows awards of prejudgment interest to ensure that just compensation to the tort victim is not eroded by the dilatory tactics of the tortfeasor.  More Like This Headnote

 
 
 

HN17

See N.M. Stat. Ann. § 56-8-4 (1993).