California Supreme Court nixes certain contractual limitation on damages

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

• Contract drafting must evolve. HMAs should now carefully separate contractual limitations of liability from carve-outs relating to intentional misconduct or fiduciary breaches.
• Litigation strategies will shift. Owners will increasingly assert fiduciary breach claims to reach damages beyond the scope of traditional contract remedies.
• Risk assessments change. Managers must consider that contractual limitations will not protect them where fiduciary breaches or other intentional misconduct are credibly alleged.

Broader National Context: Other Jurisdictions Follow Similar Rules

While the New England Country Foods decision directly interprets California law, it is consistent with how many other jurisdictions treat contractual attempts to limit liability for intentional misconduct. Courts across the country generally refuse to enforce damage caps or waivers for willful, wanton, or intentional torts, regardless of what the contract says.

For example:

• New York courts refuse to enforce limitations for intentional acts of misconduct (C.C. Metals, Inc. v. Municipal Warehouse Co. (1980) 50 N.Y.2d 657).
• Colorado law invalidates limitation clauses for willful and wanton conduct (S. Fire Ins. Co. v. Sonitrol Management Corp. (Colo. App. 2008) 192 P.3d 543).
• Nebraska courts strike down contractual caps covering gross negligence and intentional wrongdoing (New Light Co., Inc. v. Wells Fargo Alarm Services, Div. of Baker Protective Services, Inc. (1994) 247 Neb. 57).
• Georgia courts bar limitations of liability for willful misconduct as against public policy (Peck v. Rollins Protective Services, Inc. (Ga. Ct. App. 1988) 189 Ga.App. 381).

Thus, even for Owners and Managers operating outside California, the basic principle holds true nationally: contractual limitations of liability will not protect against claims based on willful misconduct, gross negligence, or breaches of fiduciary duty. Owners and Management Companies across the country should carefully review their agreements to ensure that liability protections are aligned with this well-established public policy trend.

Conclusion

The California Supreme Court’s decision in New England Country Foods reinforces that public policy forbids private parties from insulating themselves from liability for intentional wrongs, even in sophisticated, negotiated contracts like hotel management agreements. Hotel Owners can now more confidently challenge limitation of liability provisions where Managers have acted in bad faith or breached fiduciary duties. Management Companies must be aware that traditional contractual protections may not shield them from full liability where their conduct crosses from poor performance into intentional misconduct. Careful contract drafting, operational discipline, and litigation planning are more important than ever under California law — and increasingly, under national trends as well.

For more information about Hospitality Dispute Resolution, you can find below some links to selected articles by Mark S. Adams:

Why Judicial Reference is better than Arbitration for resolving Hotel Management Agreements & Hotel Franchise Agreements. Advanced Analysis of Judicial Reference features.

The better way to resolve hotel contract disputes: Judicial Reference or Arbitration? 

What’s best for hospitality contract dispute clauses? Arbitration, court litigation, or judicial reference in hotel management and franchise agreements?

Should New York law govern your hospitality contract? How about Texas, California or Florida law?

Meet Mark S. Adams, Hotel Dispute Lawyer – Hospitality Litigation, Arbitration & Dispute Resolution

How Pennsylvania Resort Fees Settlements Could Play Out for US Hotel Industry

Disclosing Mandatory Resort Fees – What Hoteliers Need to Know

Force Majeure – Contract provisions and governing law are important

History & origins of Force Majeure as a contract defense

JMBM’s Global Hospitality Group® announces 5th edition of The HMA & Franchise Agreement Handbook

Hotel Lawyer on HMAs: “The shrinking terms of hotel management agreements”

Losing the expectation of privacy bit by bit, byte by byte

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This is Jim Butler, author of www.HotelLawBlog.com and founding partner of JMBM and JMBM’s Global Hospitality Group®. We provide business and legal advice to hotel owners, developers, independent operators and investors. This advice covers critical hotel issues such as hotel purchase, sale, development, financing, franchise, management, ADA, and IP matters. We also have compelling experience in hotel litigation, union avoidance and union negotiations, and cybersecurity & data privacy.

JMBM’s Global Hospitality Group® has been involved in more than $125 billion of hotel transactions and more than 4,700 hotel properties located around the globe. Contact me at +1-310-201-3526 or jbutler@jmbm.com to discuss how we can help.

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