Opinion ID: 1356124
Heading Depth: 1
Heading Rank: 7

Heading: Enforceability of Limitation of Remedies Clause

Text: Mortenson contends even if the limitation of remedies clause is part of its contract with Timberline, the clause is unconscionable and, therefore, unenforceable. Limitations on consequential damages are generally valid under the U.C.C. unless they are unconscionable. RCW 62A.2-719(3). Whether a limitation on consequential damages is unconscionable is a question of law. RCW 62A.2-302(1); American Nursery Prods., Inc. v. Indian Wells Orchards, 115 Wash.2d 217, 222, 797 P.2d 477 (1990) (citing Schroeder v. Fageol Motors, Inc., 86 Wash.2d 256, 262, 544 P.2d 20 (1975)). Exclusionary clauses in purely commercial transactions ... are prima facie conscionable and the burden of establishing unconscionability is on the party attacking it. American Nursery Prods., 115 Wash.2d at 222, 797 P.2d 477. If there is no threshold showing of unconscionability, the issue may be determined on summary judgment. Nelson v. McGoldrick, 127 Wash.2d 124, 132-33, 896 P.2d 1258 (1995). Washington recognizes two types of unconscionability substantive and procedural which we will now address in turn. 1. Substantive Unconscionability. Mortenson asserts Timberline's failure to inform it of the defect in the software prior to its purchase renders the licensing agreement substantively unconscionable. `Substantive unconscionability involves those cases where a clause or term in the contract is alleged to be one-sided or overly harsh....' Nelson, 127 Wash.2d at 131, 896 P.2d 1258 (quoting Schroeder, 86 Wash.2d at 260, 544 P.2d 20). `Shocking to the conscience', `monstrously harsh', and `exceedingly calloused' are terms sometimes used to define substantive unconscionability. Nelson, 127 Wash.2d at 131, 896 P.2d 1258 (quoting Montgomery Ward & Co. v. Annuity Bd. of S. Baptist Convention, 16 Wash. App. 439, 444, 556 P.2d 552 (1976)). As an initial matter, it is questionable whether clauses excluding consequential damages in a commercial contract can ever be substantively unconscionable. See American Nursery Prods., 115 Wash.2d at 237-38, 797 P.2d 477 (Utter, J., concurring) (citing Tacoma Boatbuilding Co. v. Delta Fishing Co., 28 U.C.C. Rep. Serv. 26, 35 (W.D.Wash.1980)). Even if the doctrine is applicable, however, the clause here is conscionable because substantive unconscionability does not address latent defects discovered after the contracting process. RCWA 62A.2-302(1) & cmt. 1; American Nursery Prods., 115 Wash.2d at 237, 797 P.2d 477 (Utter, J., concurring). In Tacoma Boatbuilding, the Western District of Washington considered whether a contractual clause limiting consequential damages was substantively unconscionable under Washington law, where mechanical problems developed in several boat engines after the contracting process. Like Mortenson, the purchaser in Tacoma Boatbuilding argued because the product did not work properly, the limitation clause was unconscionable. The court rejected this theory: Comment 3 to [U.C.C.] § 2-719 generally approves consequential damage exclusions as merely an allocation of unknown or undeterminable risks. Thus, the presence of latent defects in the goods cannot render these clauses unconscionable. The need for certainty in risk-allocation is especially compelling where, as here, the goods are experimental and their performance by nature less predictable. Tacoma Boatbuilding, 28 U.C.C. Rep. Serv. at 35 (citation omitted). We find the result in Tacoma Boatbuilding an accurate analysis of Washington's law of substantive unconscionability and adopt it here. In a purely commercial transaction, especially involving an innovative product such as software, the fact an unfortunate result occurs after the contracting process does not render an otherwise standard limitation of remedies clause substantively unconscionable. An example of the proper focus of the substantive unconscionability doctrine is found in Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 254, 676 N.Y.S.2d 569 (1998). There, a shrinkwrap software license similar to the license in the present case included a mandatory arbitration clause, which required the use of a French arbitration company, payment of an advance fee of $4,000 (half which was nonrefundable), significant travel fees borne by the consumer, and payment of the loser's attorney fees. Brower, 246 A.D.2d at 249, 676 N.Y.S.2d 569. The Brower court found this clause substantively unconscionable. Brower, 246 A.D.2d at 254, 676 N.Y.S.2d 569. In contrast, Timberline's consequential damages clause, when examined at the time the contract was formed, does not shock the conscience in the manner of the Brower mandatory arbitration clause; it is not substantively unconscionable. 2. Procedural Unconscionability. Mortenson also contends the licensing agreement is procedurally unconscionable because the license terms were never presented to Mortenson in a contractually-meaningful way. Supplemental Br. of Pet'r at 17. Procedural unconscionability has been described as the lack of a meaningful choice, considering all the circumstances surrounding the transaction including `[t]he manner in which the contract was entered,' whether each party had `a reasonable opportunity to understand the terms of the contract,' and whether `the important terms [were] hidden in a maze of fine print....' Nelson, 127 Wash.2d at 131, 896 P.2d 1258 (alterations in original) (quoting Schroeder, 86 Wash.2d at 260, 544 P.2d 20). Examining the contracting process between the parties based on the above factors, we hold the clause to be procedurally conscionable. The clause was not hidden in a maze of fine print. Nelson, 127 Wash.2d at 131, 896 P.2d 1258. The license was set forth in capital letters on each diskette pouch and on the inside cover of the instruction manuals. A license to use the protection device was wrapped around each such device. The license was also referenced in the opening screen of the software program. This gave Mortenson more than ample opportunity to read and understand the terms of the license. Mortenson is also not an inexperienced retail consumer, but a nationwide construction contractor that has purchased licensed software from Timberline in the past. See Northwest Acceptance Corp. v. Hesco Constr., Inc., 26 Wash.App. 823, 830-31, 614 P.2d 1302 (1980) (finding liquidated damages clause conscionable in part because parties were commercially experienced). [12] Unconscionability was never intended as a vortex for elements of fairness specifically embodied in other Code provisions. Tacoma Boatbuilding, 28 U.C.C. Rep. Serv. at 33. We find Mortenson's unconscionability claim unpersuasive and, therefore, find the limitation of remedies clause to be enforceable.