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
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
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.
*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
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)
*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
[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.
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.
[*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
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:
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.
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
Dated: April 5, 1999
David S. Doty, Judge
United States District Court