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Honeywell, inc. v. Ruby Tuesday Inc.- Should be under Minnesota

LEXSEE 43 F. SUPP. 2D 1074

 

 *Honeywell, Inc., Plaintiff, v. Ruby Tuesday, Inc., Defendant.*

 

 *Civil No. 97-2098 (DSD/JMM)*

 

 *UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA*

 

 *43 F. Supp. 2d 1074; 1999 U.S. Dist. LEXIS 4765*

 

 *April 5, 1999, Decided *

 

*April 5, 1999, Filed*

 

  *JUDGES: *David S. Doty, Judge, United States District Court.

 

 *OPINIONBY: *David S. Doty

 

 *OPINION: *

 

[*1075] *ORDER*

 

This matter is before the court on the parties' cross-motions for partial

summary judgment. Based on a review of the file, record, and proceedings

herein, the court (1) grants defendant's motion regarding the invalidity of

the one-year limitations clause, (2) continues the parties' cross-motions

regarding the validity of the attorney's fee clause, (3) grants in part and

denies in part plaintiff's motion regarding the validity of the exoneration

clause, and (4) denies the parties' cross-motions as they pertain [**2] to

other issues.

 

*BACKGROUND*

 

This case arises out of a dispute over alarm system contracts. For many

years, defendant Ruby Tuesday, Inc. ("RTI") contracted with plaintiff

Honeywell, Inc. concerning the installation, monitoring, and maintenance of

fire and burglar alarms at approximately 160 RTI restaurants in 27 states.

Although almost identical in form, separate contracts were negotiated for

each RTI restaurant. The pertinent provisions of the form contract will be

quoted as necessary in the discussion below.

 

In 1996, after what RTI alleges was a rash of alarm system failures, RTI

stopped making payment on these contracts. In 1997, after several

unsuccessful attempts to obtain payment from RTI, Honeywell terminated its

contracts with RTI and [*1076] brought this diversity action against RTI in

federal court, claiming breach of contract and unjust enrichment. Early in

1998, RTI filed a counterclaim against. Honeywell, alleging that Honeywell

had itself breached the contracts. The parties now bring cross-motions for

summary judgment, asking the court to rule on a number of threshold legal

issues before they begin discovery.

 

*DISCUSSION*

 

 *A. Standard for Summary Judgment* [**3]

 

[HN1] Rule 56(c) of the Federal Rules of Civil Procedure provides that

summary judgment is appropriate "if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if

any, show that there is no genuine issue as to any material fact and that

the moving party is entitled to a judgment as a matter of law." In order for

the moving party to prevail, it must demonstrate to the court that "there is

no genuine issue as to any material fact and that the moving party is

entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S.

317, 325, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Fed. R. Civ. P. 56(c). A

fact is material only when its resolution affects the outcome of the case.

See Anderson, 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202. A

dispute is genuine if the evidence is such that it could cause a reasonable

jury to return a verdict for either party. See id. at 252.

 

[HN2] On a motion for summary judgment, all evidence and inferences are to

be viewed in a light most favorable to the nonmoving party. See id. at 250.

However, if a plaintiff cannot support each essential element of its claim,

summary judgment must be granted because a complete [**4] failure of proof

regarding an essential element necessarily renders all other facts

immaterial. See 477 U.S. at 322-23.

 

 *B. Honeywell's Breach of Contract Claim*

 

Honeywell first moves for summary judgment on its breach of contract claim.

In doing so, however, Honeywell has failed to meet its threshold burden

under Rule 56(c), which requires that the moving party identify those

portions of the record supporting its contention that there is no genuine

issue of material fact. See Celotex, 477 U.S. at 323 (quotation omitted). At

this early point in the proceedings, the record consists merely of the

pleadings, a copy of the form contract at issue, some correspondence between

the parties, RTI's initial disclosures, and the affidavit of Frederick P.

Isaacs, Director of Loss Prevention at RTI, attesting to Honeywell's failure

to perform its duties under the contract. Honeywell has pointed to nothing

in that record that undermines the factual basis of RTI's defense as set

forth in its pleadings and in Isaacs's affidavit. Consequently, the court

must wait until after the close of discovery before assessing whether the

parties have demonstrated the existence or nonexistence of genuine

[**5] factual

issues. See Iverson v. Johnson Gas Appliance Co., 172 F.3d 524, 1999 U.S.

App. LEXIS 4786, 1999 WL 150329 *6 (8th Cir. 1999) ("If the failure to allow

discovery deprives the nonmovant of a fair chance to respond to the motion,

... summary judgment is not proper."); Hanson v. FDIC, 13 F.3d 1247, 1253

(8th Cir. 1994) ("At a minimum, the moving party must demonstrate that the

nonmoving party's evidence is insufficient to establish an essential element

of the nonmoving party's claim [or defense]."); Rosemount Cogeneration Joint

Venture v. Northern States Power Co., 1991 U.S. Dist. LEXIS 1504, 1991 WL

13729 *9 (D. Minn. 1991) ("On a blank record, these questions of fact and

law are not amenable to summary judgment.").

 

 *C. Acceleration Clause*

 

RTI brings a motion asking the court to void the acceleration clause

contained in Clause 10(A)(i). However, Honeywell now concedes that, in the

event the company [*1077] prevails on its claims, it is entitled to benefit

of the bargain damages only. The court therefore concludes that RTI's motion

regarding this issue is moot.

 

 *D. Attorney's Fee Clause*

 

The parties bring cross-motions regarding the validity of the attorney's fee

provision contained in Clause 10(A)(i). RTI contends [**6] that this clause,

which entitles Honeywell to recover 35 percent of the outstanding balance as

attorney's fees, functions as a penalty and is therefore unenforceable.

Honeywell argues that this clause is enforceable as a matter of law because

it was freely entered into by two sophisticated corporate entities dealing

at arm's length. At this early point in the litigation, however, the court

is not in a position to make a determination one way or the other regarding

the validity of this clause. A stipulated attorney's fee provision is

generally entitled to a presumption of reasonableness. See Smith v.

Combustion Resources Engineering, Inc., 431 So. 2d 1249, 1252 (Ala. 1983).

The reasonableness of the stipulated fee is, however, only a presumption.

If, at the close of the litigation, the court determines that a 35 percent

fee is unreasonably high, then the fee will be reduced to a reasonable

amount. n1 In the meantime, the court asks the parties to reserve their

motions on this issue until later in the proceedings.

 

 n1 However, the court will not grant RTI's request to completely strike the

attorney's fee provision. As authority cited by RTI itself states: "If the

stipulation is for a certain sum or percentage of attorney's fees which is

grossly out of proportion to the value of the services, it may well be

regarded as ... excessive or oppressive. The court may, in such a case,

allow a reasonable amount only." 17A Am. Jur. 2d, Contracts § 301 (1990)

(emphasis added).

 

 [**7]

 

 *E. One-Year Limitation Period*

 

The parties also bring cross-motions regarding the validity of the one-year

limitation period contained in Clause 4(B) of the contract:

 

 NO SUIT OR ACTION SHALL BE BROUGHT AGAINST HONEYWELL MORE THAN ONE (1) YEAR

AFTER THE ACCRUAL OF THE CAUSE OF ACTION THEREOF.

 

 RTI asserts that Alabama law should govern the court's evaluation of this

provision. Honeywell, on the other hand, contends that Minnesota law should

control.

 

[HN3] A federal court sitting in diversity must apply the choice of law

principles of the state in which it sits. See Minnesota Mining and Mfg. Co.

v. Kirkevold, 87 F.R.D. 324, 331 (D. Minn. 1980). When conducting a choice

of law analysis under Minnesota law, the court's threshold task is to decide

whether the choice of one state's law over another creates an actual

conflict. See Jepson v. General Cas. Co. of Wis., 513 N.W.2d 467, 469 (Minn.

1994). If an actual conflict is detected, the court's next step is to

determine whether the law involved is procedural or substantive. See Gate

City Fed. Sav. & Loan Ass'n v. O'Connor, 410 N.W.2d 448, 450 (Minn. App.

1987). [HN4] If the court concludes that the law involved [**8] is

procedural, then it will apply the law of the forum, i.e., Minnesota law,

without further analysis. See Davis v. Furlong, 328 N.W.2d 150, 153 (Minn.

1983) ("[Minnesota follows] the almost universal rule that matters of

procedures and remedies [are] governed by the law of the forum state.").

However, if the court concludes that the law involved is substantive, then

it must apply the five choice-influencing factors first articulated by the

Minnesota Supreme in Milkovich v. Saari: (1) predictability of result; (2)

maintenance of interstate order; (3) simplification of the judicial task;

(4) advancement of the forum's governmental interest; (5) application of the

better rule of law. 295 Minn. 155, 203 N.W.2d 408, 412 (Minn. 1973).

Finally, as a general matter, the court must bear in mind the requirements

of the federal constitution when conducting the foregoing analysis: "'For a

State's substantive law to be selected in a constitutionally permissible

manner, that State must have a significant [*1078] contact or significant

aggregation of contacts, creating state interests, such that choice of its

law is neither arbitrary nor fundamentally unfair.'" Phillips Petroleum Co.

v. Shutts, 472 U.S. [**9] 797, 818, 86 L. Ed. 2d 628, 105 S. Ct. 2965 (1985)

(quoting Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13, 66 L. Ed. 2d 521,

101 S. Ct. 633 (1981)).

 

Here, there is an apparent tension between the laws of Minnesota and Alabama

regarding one-year contractual limitation clauses. n2 Under Alabama law, a

clause of this kind is illegal per se insofar as it limits the time in which

RTI may bring an action against Honeywell to less than that provided by

Alabama's statute of limitations. See Ala. Code § 6-2-15 ("Any agreement or

stipulation, verbal or written, whereby the time for the commencement of any

action is limited to a time less than that prescribed by law for the

commencement of such action is void.").

 

 n2 As for the other legal issues raised in the parties' motions, the

parties seem to agree that Alabama and Minnesota law do not conflict. Thus,

in addressing these other issues, the court will follow the lead of the

parties and draw freely from the caselaw of both states.

 

 [HN5] Under Minnesota law, however, [**10] "it is generally held that

contracts stipulating a limited time within which an action may be brought

thereon are valid unless unreasonable." Henning Nelson Constr. Co. v.

Fireman's Fund Amer. Life Ins. Co., 383 N.W.2d 645, 650 (Minn. 1986); see

also Minn. Stat. sec. 541.05, subd. 1 ("The following actions shall be

commenced within six years: (1) Upon a contract or other obligation, express

or implied, as to which no other limitation is expressly prescribed ...."

(emphasis added)). Because of this apparent tension, the court will assume

for purposes of analysis that an actual conflict exists between the laws of

Minnesota and Alabama. n3

 

 n3 In fact, this may be assuming too much. Despite the apparent tension

between Alabama and Minnesota law on the issue of contractual limitations

periods, RTI makes a persuasive argument that there is no actual conflict

when the two laws are applied to the facts of the present case. First, the

Minnesota Supreme Court has held that a one-year limitation period is

"unreasonably short" in the context of a casualty loss insurance policy, a

setting analogous to that of the present case. Henning Nelson, 383 N.W.2d at

651. Second, the supreme court has stated that it will not enforce

contractual provisions limiting liability if it finds that the agreement

"create[s] an imposition or advantage to either" party. Independent

Consolidated Sch. Dist. No. 24, Blue Earth Co. v. Carlstrom, 277 Minn. 117,

151 N.W.2d 784, 787 (Minn. 1967). Here, the one-year limitation period

restricts RTI's ability to sue, not Honeywell's, thereby granting Honeywell

a significant contractual advantage.

 

Thus, it may well be that, even under Minnesota law, the one-year

limitations period would be deemed unreasonable and therefore invalid. In

the interest of fully addressing the arguments of both parties, however, the

court will proceed with its choice of law analysis.

 

 [**11]

 

The next step requires the court to determine whether the law involved is

procedural or substantive. Honeywell contends that because Minnesota courts

consider statutes of limitations procedural, see Davis, 328 N.W.2d at 153,

Minnesota law should control. As RTI points out, however, the present case

involves a contractual limitations period, not a statutory limitations

period. And issues related to the interpretation and validity of contractual

provisions are inarguably substantive in nature. See Despatch Oven Co. v.

Rauenhorst, 229 Minn. 436, 40 N.W.2d 73, 77 (Minn. 1949) ("The purpose of a

written contract is to define and limit the duties, obligations, and

liabilities of the contracting parties flowing therefrom."); Jepson, 513

N.W.2d 467, 469-73 (choice of law question involving the validity of a

contractual provision subjected to Milkovich analysis). n4

 

 n4 The present case demonstrates precisely this point: when evaluating the

contractual limitations provision under Minnesota law, the court is required

to carry out a substantive analysis of whether the limitations period is

reasonable or not. See Henning Nelson, 383 N.W.2d at 650; supra note 3.

 

 [**12]

 

[*1079] Moreover, [HN6] Minnesota law recognizes an exception to the general

rule that statutes of limitations are procedural: when a limitation period

"does not merely bar the remedy for the violation of a right, but limits or

conditions the right," it is considered substantive. See Fredin v. Sharp,

176 F.R.D. 304, 308 (D. Minn. 1997). This exception typically applies when a

statute creating a specific right contains its own limitations provision.

See id. However, the present case involves a closely analogous scenario: the

rights of the parties were created and defined by the contracts, so that the

limitation period contained therein may properly be understood to

substantively condition those rights. Having concluded that contractual

limitations are an issue of substantive law, the court must now conduct an

analysis under Milkovich. The contracts at issue in this case were signed

and delivered in Alabama and payment was made from RTI's headquarters in

Alabama. Further, Minnesota's connection to the contracts is based solely on

its status as Honeywell's corporate home. Thus, with regard to the first two

Milkovich factors -- predictability of result and maintenance of interstate

[**13] order -- the conclusion of the Minnesota Supreme Court in Jepson

applies equally to this case: "preserving the parties' justified

expectations and enhancing the predictability of what state's law will

govern in a contractual dispute points away from application of Minnesota

law." 513 N.W.2d at 471. With regard to the third Milkovich factor,

simplification of the judicial task, the application of Alabama law presents

no special challenge to this court. Finally, with regard to the fourth and

fifth factors -- advancement of the forum's governmental interest and

application of the better law -- Minnesota has no strong policy interest in

promoting contractual limitations periods of less than the statutory

prescription. Indeed, the Minnesota Supreme Court has stated that "such

provisions are not generally favored and are strictly construed against the

party invoking them." Henning Nelson, 383 N.W.2d at 651; see also Prior Lake

State Bank v. National Surety Corp., 248 Minn. 383, 80 N.W.2d 612, 616

(Minn. 1957). In sum, application of the Milkovich factors weighs heavily in

favor of applying Alabama law. n5 Thus, the court will grant RTI's motion

regarding the invalidity [**14] of the one-year limitations period.

 

 n5 This ruling obviates the need for the court to address the difficult

question of whether Minnesota substantive law can be constitutionally

applied under Shutts.

 

  *F. Clauses Limiting Liability*

 

Finally, Honeywell moves the court for a ruling that certain clauses

contained in the contracts protect it from liability. Under both Minnesota

and Alabama law, [HN7] contractual provisions limiting liability are

generally disfavored. See Schlobohm v. Spa Petite, 326 N.W.2d 920, 923

(Minn. 1982); Alabama Great Southern Railroad Co. v. Sumter Plywood Corp.,

359 So. 2d 1140, 1145 (Ala. 1978). As the Minnesota Supreme Court stated in

Schlobohm, "[a] clause exonerating a party from liability will be strictly

construed against the benefitted party. If the clause is either ambiguous in

scope or purports to release the benefitted party from liability for

intentional, willful or wanton acts, it will not be enforced." 326 N.W.2d at

923.

 

Here, three contractual clauses purport [**15] to limit Honeywell's

liability. First, Clause 4(A) provides:

 

 that Honeywell is not liable for losses which may occur in cases of

malfunction or nonfunction of any system provided by Honeywell, that

Honeywell is not liable for losses which may occur in the monitoring,

repairing, signal handling or dispatching aspects of the service, even if

due to Honeywell's negligence or failure of performance; that Honeywell is

not liable for losses resulting from failure to warn or inadequate training.

 

 Second, in the event that the exculpatory provision in Clause 4(A) is

"judicially determined to be invalid or unenforceable," the contract

provides that Honeywell's liability [*1080] is limited to the lower of $

10,000 or the annual service charge -- in this case, $ 360 per contract. See

Honeywell Contract, cl. 4(B). Third, the contract expressly disclaims all

warranties, express or implied, with respect to the security systems. See

Honeywell Contract, cl. 4(F). As the case law makes clear, however,

Honeywell cannot limit by contract its liability for intentional or grossly

negligent acts. Thus, while the foregoing provisions are effective against

RTI's allegations of passive or negligent [**16] breach of contract, they do

not foreclose RTI from bringing a counterclaim based on Honeywell's willful

negligence or intentional acts. See Morgan Co. v. Minnesota Mining & Mfg.

Co., 310 Minn. 305, 246 N.W.2d 443, 448 (1976) (exculpatory clause valid as

to acts of negligence but not applicable to claims of "willful and wanton

negligence, intentional misconduct, and fraud and misrepresentation"); Armi

v. Huckabee, 266 Ala. 91, 94 So. 2d 380, 384 (exculpatory clause may not bar

claims for "active" negligence). Nor can these provisions limit the monetary

amount of Honeywell's liability for such conduct. See D. L. Lee & Sons v.

ADT Sec. Systems, Mid-South, 916 F. Supp. 1571, 1583 (S.D. Ga. 1995) ("A

clause in a contract limiting liability for negligent acts does not serve to

limit liability for willful or wanton conduct."). To conclude otherwise

would allow Honeywell to obtain through the back door of damages limitations

what the law says it cannot achieve through an express exoneration clause.

Accordingly, the court concludes that RTI's counterclaim remains viable to

the extent it complains of willfully negligent or intentional conduct.

 

Finally, Honeywell argues that RTI has [**17] not alleged conduct by

Honeywell egregious enough to meet the threshold of willful negligence. The

court disagrees. As recently stated by a Minnesota court in the context of

liability under a burglar alarm contract:

 

 [HN8]

 

Willful and wanton negligence is the failure to exercise ordinary care after

discovering a person or property in a position of peril. ... It contemplates

that the injury to be avoided is not only foreseeable, but impending. Thus a

cause of action for willful and wanton negligence arises where there has

been "a reckless disregard of the safety of the person or property of

another by after and not before discovering the peril to exercise ordinary

care to prevent the impending injury."

 

  Peterson v. Honeywell, Inc., 1994 Minn. App. LEXIS 150, 1994 WL 34200 *4

(Minn. Ct. App. Feb. 8, 1994) (quoting Brannan v. Shertzer, 242 Minn. 277,

64 N.W.2d 755, 757 (1954)). Here, RTI generally alleges that Honeywell

"failed to provide the service promised in the contracts" and "negligently

and ineptly provided those services which Honeywell did provide." RTI's

Answer and Counterclaim, at 6. RTI also specifically alleges that Honeywell

"ineptly secured RTI's contracted-for premises," "notified [**18] the wrong

persons in the event of alarms," "harassed RTI," "failed to detect actual

burglaries," and "failed to remedy problems upon RTI's reasonable requests."

Id. at 7. Depending on the circumstances, this alleged conduct may support a

claim based on willful and wanton negligence. However, the court cautions

RTI that once discovery has closed, the court will closely examine whether

the record evidence reasonably supports a claim against Honeywell based on

willfully negligent or intentional acts.

 

*CONCLUSION*

 

For the foregoing reasons, *IT IS HEREBY ORDERED* that:

 

1. Defendant's motion for partial summary judgment regarding the invalidity

of the one-year limitations clause is granted.

 

2. The parties' cross-motions for partial summary judgment regarding the

validity of the attorney's fee clause are continued.

 

3. Plaintiff's motion for partial summary judgment regarding the validity of

the exoneration clause is granted in part and denied in part.

 

[*1081] 4. The parties' cross-motions as they pertain to other issues are

denied.

 

 Dated: April 5, 1999

 

David S. Doty, Judge

 

United States District Court

 

 __________________________________________________