26 April 2025
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New California Supreme Court Decision Impacts Hotel Management Agreements:
Limitations on Damages for Intentional Wrongdoing Are Now Invalid
by
Mark S. Adams, Hotel Consigliere
Partner & Senior Member
JMBM’s Global Hospitality Group®
On April 24, 2025, the California Supreme Court issued a major decision in New England Country Foods, LLC v. VanLaw Food Products, Inc., clarifying that parties cannot use contract clauses to limit liability for intentional wrongdoing.
Under Civil Code section 1668, any attempt to restrict damages for willful injury — including breaches of fiduciary duty — is invalid as a matter of public policy, even between sophisticated commercial parties.
The decision is especially significant for hotel Owners and Management Companies, whose relationship often combines both contractual obligations and fiduciary duties. The decision requires Owners and Managers alike to rethink their approach both to drafting hotel management agreements’ (“HMAs”) limitation of liability clauses, and litigation strategies when disputes arise.
California Supreme Court Decision Impacts Hotel Management Agreements: Limitations on Damages for Intentional Wrongdoing Are Now Invalid
Owner–Manager Relationships and Fiduciary Duties
In California and most jurisdictions, hotel Managers owe fiduciary duties to Owners, in addition to their contractual obligations. The fiduciary duty arises by operation of law, and despite disclaimers in the agreements, because:
- The Manager controls the Owner’s property and financial operations,
- The Manager acts as the Owner’s agent in dealings with third parties,
- The Owner entrusts the Manager with discretionary authority over the hotel’s operations.
(Prickett v. Bonnier Corporation (2020) 55 Cal.App.5th 891, 901; Woolley v. Embassy Suites, Inc. (1991) 227 Cal.App.3d 1520; Pacific Landmark Hotel, Ltd. v. Marriott Hotels, Inc. (1993) 19 Cal.App.4th 615, modified, 19 Cal.App.4th 1552 (1993); Marriott Intern., Inc. v. Eden Roc, LLLP (N.Y. App. Div. 2013) 104 A.D.3d 583; FHR TB, LLC v. TB Isle Resort, LP. (S.D. Fla. 2011) 865 F.Supp.2d 1172.
Thus, even where the Management Agreement is carefully drafted, the law likely imposes independent fiduciary duties that cannot be waived by contract — including duties of loyalty, care, and disclosure.
Typical Damages Limitation Language Hotel Management Agreements
Many hotel management agreements contain broad limitations of liability, for example:
Limitation of Liability Clause:
“Notwithstanding any provision of this Agreement to the contrary, Manager shall not be liable to Owner for any consequential, indirect, incidental, special, exemplary, or punitive damages (including loss of profits or business interruption) arising out of or relating to Manager’s performance or failure to perform under this Agreement, regardless of the cause of action, even if advised of the possibility of such damages.”
Clauses like this are designed to cap the Manager’s exposure to damages arising from operational missteps or disputes; however, under the Supreme Court’s new decision, such clauses cannot be enforced to shield the Manager from damages resulting from willful misconduct or breaches of fiduciary duty.
When Breach of Contract May Also Be a Breach of Fiduciary Duty
The line between mere breach of contract and fiduciary breach is critical. If a Manager simply fails to meet operational standards — e.g., slow responses, minor budget overruns — the Owner’s remedy may be confined to contract damages, and typical damages limitations would apply; however, where the Manager’s conduct includes:
- Self-dealing (g., favoring affiliates, steering business to related entities),
- Bad faith (g., prioritizing short-term gains to boost incentive fees at the Owner’s long-term expense),
- Gross mismanagement coupled with concealment, or
- Systematic violations of Owner’s instructions or Owner’s interests,
The Owner may allege breach of fiduciary duty — an independent tort — triggering full tort remedies. In such cases, limitation of liability clauses would likely be invalid under Civ. Code, § 1668, as interpreted by New England Country Foods.
Key Takeaways for Hotel Owners and Managers
|
Hotel Owner Perspective |
Management Company Perspective |
| Damage limitations for intentional wrongs |
Cannot be used to shield the Manager from liability for breaches of fiduciary duty, fraud, or bad faith conduct. |
Exposure to full compensatory and potentially punitive damages where claims go beyond pure breach of contract. |
| Standard of conduct |
Alleging fiduciary breaches enhances remedies and invalidates contractual caps. |
Argue that claims are confined to pure contract breaches to maintain protection under limitations clauses. |
| Litigation strategy |
Plead independent fiduciary breach and/or intentional torts (e.g., interference with contractual relations, fraud). |
Focus defenses on economic loss rule, arguing conduct falls squarely within contract expectations. |
Implications for Hotel Management Agreements CONTINUE READING →
