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exculpatory clause excludes liability for lost data
August 25, 2018
exculpatory clause excludes liability for lost data
    It's refreshing when a court gets it right, especially in Minnesota. Who would have guessed?
    A translation service engaged an IT company to provide computer consulting services including back up services. Data was lost. Lawsuit commenced. The engagement was pursuant to written contract and that contract contained an exculpatory clause. The customer sued for breach of contract and negligence, claiming the exculpatory clause was not enforceable. The lower court dismissed the action and the appellate court affirmed. 
    Step by step the court layed out the law for exculpatory clauses in contracts:
    "An exculpatory clause may be unenforceable if (1) it is ambiguous in scope; (2) it purports to release a party from liability for intentional, willful, or wanton acts; (3) a disparity in bargaining power existed between the parties to the contract; or (4) the exculpated party offers or provides either a public or an essential service." 
    The customer claimed the clause was ambigious, not properly placed in the contract and not enforceable because it cannot exculpate liability for willful conduct. The court had this to say:
    "An exculpatory clause cannot release a party from liability for intentional, willful, or wanton acts, but a clause that is broad enough to cover the negligence of the benefitted party is enforceable. And an exculpatory clause need not explicitly refer to “negligence.” In Otis Elevator, this court held that an exculpatory clause that purported to release a party from responsibility for “damage to property caused by seller’s act or omission during the performance of the work,” but did not use the word negligence, was enforceable." citations omitted
    The court then dismissed the negligence claim:
    "The district court did not err in dismissing the negligence claim.
    Appellant contends that the district court erred by dismissing East View’s negligence claim. This argument lacks merit. The elements of negligence are: “(1) the existence of a duty of care; (2) a breach of that duty; (3) an injury; and (4) the breach of the duty being the proximate cause of the injury.” To prevail on a negligence claim brought along with a breach-of-contract claim, an appellant must demonstrate a duty independent of the duty established by contract. “when a contract provides the only source of duties between the parties, Minnesota law does not permit the breach of those duties to support a cause of action in negligence.” (quotation omitted)).
    In setting forth its cause of action for negligence, East View alleged that Xigent “had a duty to use reasonable care at all times while at [East View]’s place of business and when accessing [East View]’s electronic devices, backup servers, network, and electronically stored information.” And it alleged that “[Xigent] also had a duty to hire and train competent IT professionals, and supervise its employees and contractors to ensure they were meeting industry standards.”
    As the district court properly found and the record reveals, these duties were established by the contract, and East View failed to plead Xigent’s extra-contractual duty. Although East View claims that discovery might reveal that Xigent’s misconduct occurred outside of the contract’s scope, this court is not permitted to go outside of the pleadings on a motion to dismiss for failure to state a claim." 

2018 WL 3966233 Court of Appeals of Minnesota. East View Information Services, Inc., Appellant,
v. Xigent Solutions, LLC, Respondent. A17-2066
    Your contract is your first line of defense when a mistake is made or happens. Could be your fault or, as more often the case, not your fault. But you get sued anyway. Your contract will make the difference between an easy and quick resolution, typically a departure from the lawsuit, or a tortured few years where you will be not only wasting your time but worrying if the claim exceeds your insurance coverage. A properly worded Exculpatory clause, and where and how it's displayed in your contract, can make all the difference. Stop messing around this something this important. Get and use the Standard Form Call our Contract Administrator Eileen Wagda at 516 747 6700 x 312 for assistance.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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