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Hoot Winc, L.L.C. v. RSM McGladrey Financial Process Outsourcing

November 12, 2009

HOOT WINC, L.L.C., PLAINTIFF,
v.
RSM MCGLADREY FINANCIAL PROCESS OUTSOURCING, LLC, AND DOES 1 TO 50, INCLUSIVE, DEFENDANTS.
RSM MCGLADREY FINANCIAL PROCESS OUTSOURCING, LLC, COUNTERCLAIMANT,
v.
HOOT WINC, LLC, COUNTERDEFENDANT.



The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

Defendant RSM McGladrey Financial Process Outsourcing, LLC ("Defendant" or "RSM") has filed a motion for partial summary judgment based on a limitation-of-liability clause contained in the contract between the parties. For the reasons discussed below, Defendant's motion is GRANTED IN PART AND DENIED IN PART.

I. BACKGROUND

Plaintiff Hoot Winc, LLC, ("Plaintiff" or "Hoot Winc") is a Kansas limited liability company which owns 23 Hooters restaurants, a casino and gaming operations in Spokane, and a management company. (Def.'s Undisputed Fact No. 6.)

On December 28, 2005, Plaintiff and Defendant RSM McGladrey Financial Process Outsourcing, LLC entered into a service agreement ("Service Agreement") pursuant to which Defendant agreed to provide an array of business support services to Plaintiff, including but not limited to preparation of financial statements, maintaining and processing payroll, invoice entry, invoice coding, weekly accounts payable and cash requirements, check preparation and mailing, processing of employee expense reports, preparation of 1099 forms, daily cash deposit verification, filing of tax returns, and making tax payments. (Service Agreement (Ex. A to Durone Decl. dated 4/9/09).)

The Service Agreement includes the following limitation-of-liability provision: The maximum liability of RSM for damages whether based on breach of warranty or other contract, negligence, strict liability, other tort, breach of statute or governmental rule, or any other legal or equitable theory shall not exceed one month/period's fees paid. (Service Agreement, ¶ 6.5.) The Service Agreement also provides, "[T]he laws of the State of Minnesota shall govern This Agreement, without reference to such state's conflicts of laws provisions."

In exchange for Defendant's business support services, Plaintiff agreed to pay Defendant a fee of $595 per restaurant per period plus an additional $350 per period for accounting services provided to Hoot Winc itself. (Pl.'s Undisputed Fact No. 12.) The total per-period fees amounted to $14,035. (Id.)

Plaintiff claims that Defendant failed to properly perform the contracted services. According to Plaintiff, throughout 2006, Defendant never delivered an accurate financial statement. Plaintiff ultimately terminated the Services Agreement in December, 2006 (Spitcaufsky Decl. ¶ 15.)

Plaintiff's First Amended Complaint alleges the following causes of action: (1) professional negligence; (2) breach of contract; (3) fraud; and (4) negligent misrepresentation.

In an order filed on August 10, 2009, the Court granted Defendant's motion for partial summary judgment on Count One of the FAC to the extent that it is based on California law. The Court held that pursuant to the choice-of-law provision in the Service Agreement, Minnesota law governed Plaintiff's claims and Plaintiff was therefore precluded from pursuing a professional negligence claim under California law.

II. DISCUSSION

Defendant seeks partial summary judgment with respect to Plaintiff's claims for professional negligence, breach of contract, and negligent misrepresentation. Defendant contends that Plaintiff's damages in connection with these claims are limited by the Service Agreement's limitation-of-liability clause. As discussed below, the Court finds that the limitation-of-liability clause is enforceable with respect to Plaintiff's breach of contract claim, negligent misrepresentation claim, and professional negligence claim to the extent it is premised on ordinary negligence. However, the clause does not operate to limit Plaintiff's damages in connection with its claim for willful or wanton professional negligence.

Under Minnesota law, if an exculpatory clause "is either ambiguous in scope or purports to release the benefited party from liability for intentional, willful or wanton acts, it will not be enforced." Schlobohm v. Spa Petite, Inc., 326 N.W.2d 920, 923 (Minn. 1982). In determining whether an exculpatory clause should be enforced, Minnesota courts apply a two-prong test and consider: (1) whether there was a disparity of bargaining power between the parties; and (2) the types of services being offered or provided (taking into consideration whether it is a public or essential service). Id. at 923.

Plaintiff argues that the language of the limitation-of-liability clause is broad enough to encompass intentional, willful, or wanton acts and that, therefore, the entire clause should be invalidated. However, Defendant seeks to enforce the clause as to Plaintiff's claims for breach of contract and ordinary negligence only. These claims clearly fall within the scope of the exculpatory clause. In Anderson v. McOskar Enterprises, Inc., 712 N.W. 2d 796 (Minn. App. 2006), the court held that the limitation-of-liability clause would be enforced with respect to the defendant's alleged acts of negligence because the parties expressed a clear intention to release ...


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