Opinion ID: 1318770
Heading Depth: 2
Heading Rank: 2

Heading: The Limited Liability Clause in the Advertising Contract Is Invalid

Text: The courts in Allen, 171 N.W.2d 689, Discount Fabric, 345 N.W.2d 417, [4] and Morgan, 466 So.2d 107, all determined that publication of the Yellow Pages was affected with the public interest, and that exculpatory clauses were unconscionable. ATU urges us to disregard the reasoning of these courts and to apply the majority position, thus validating its contractual exculpatory clause. ATU correctly asserts that publication of the Yellow Pages is not required by the APUC. However, such publication is affected with a public interest. ATU is in a unique position to publish the Yellow Pages only because it is authorized to operate the monopoly utility for the public. In defining a contract affected with a public interest, the Allen and Morgan courts relied on Tunkl v. Regents of the University of California, 60 Cal.2d 92, 32 Cal. Rptr. 33, 383 P.2d 441 (1963). The California court described transactions in which exculpatory provisions will be invalidated on public policy grounds. It concerns a business of a type generally thought suitable for public regulation. The party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public. The party holds himself out as willing to perform this service for any member of the public who seeks it, or at least for any member coming within certain established standards. As a result of the essential nature of the service, in the economic setting of the transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks his services. In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation whereby a purchaser may pay additional reasonable fees and obtain protection against negligence. Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or his agents. Id. 32 Cal. Rptr. at 37-8, 383 P.2d at 445-46 (footnotes omitted). [5] ATU fits squarely within this profile. ATU is a type of business suitable for regulation and is so regulated by the APUC. The publication of the telephone directory, in general, and the Yellow Pages, in particular, is a service of great importance to the public; Yellow Pages advertising is often the only affordable means of advertising for small businesses. ATU holds itself out as willing to perform this service, and indeed extols the benefits of Yellow Pages advertising in commercial advertising of its own. Thus, we conclude that publication of the Yellow Pages is affected with a public interest. Since we have so determined we must more closely scrutinize the transaction between ATU and the advertisers to ascertain whether the exculpatory clause is unconscionable. Most recently in Vochner v. Erickson, 712 P.2d 379 (Alaska 1986), we considered all of the circumstances surrounding the making of the contract and held that unconscionability may exist where those circumstances indicate a vast disparity of bargaining power coupled with terms unreasonably favorable to the stronger party. Id. at 381-83. See also Morrow v. New Moon Homes, 548 P.2d 279, 292 n. 43 (Alaska 1976) (approving of the definition of unconscionability in Williams v. Walker-Thomas Furniture, 350 F.2d 445, 449 (D.C. Cir.1965) (Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.); Restatement (Second) of Contracts § 208 comment d at 109 (1981). ATU argues that there was insufficient evidence that ATU was in an unfairly superior bargaining position vis-a-vis the plaintiff-advertisers. It asserts that no evidence was presented that the advertisers bargained for a different provision or that such bargaining was impossible. However, ATU did admit that the agreements entered into by the advertiser were on preprinted forms and that its sales representatives could not alter the terms of the advertising contracts. [6] Nevertheless, it implicitly contends that some one at GTE had the authority and would have renegotiated the terms. In opposing a motion for summary judgment the nonmovant must set forth specific facts showing that he could produce evidence reasonably tending to dispute or contradict the movant's evidence and thus demonstrate that a material issue of facts (sic) exists. State v. Green, 586 P.2d 595, 606 n. 32 (Alaska 1978) (citing Howarth v. First National Bank of Anchorage, 540 P.2d 486, 489-90 (Alaska 1975), aff'd on rehearing, 551 P.2d 934 (Alaska 1976)). ATU has presented no evidence that it would have negotiated individually with potential advertisers. The sales representatives' lack of authority to renegotiate terms would generally discourage, if not completely forestall, potential advertisers from seeking more favorable terms. In addressing the position held by many courts and advanced by the ATU here  that advertisers are free to advertise elsewhere if the terms with the telephone company are not advantageous  the Alabama court in Morgan stated: The issue, however, is not whether there are other forms of advertising available, but whether such other modes are tied directly to the telephone service enjoyed by almost every home and business in the state. The telephone company has an exclusive private advertising business which is tied to its public utility service ... and which reaches almost every home and office in the state. Therefore, the telephone company can state to a customer that an ad will be published but name its own terms, including a limitation of its own liability for negligence. We are satisfied that the plaintiffs did not have a meaningful choice relative to the inclusion of an exculpatory clause in the ... contract and that the defendants had the bargaining power in a gross and unbalanced manner in determining the terms and conditions in the directory advertisement. Therefore, the exculpatory clause is unenforceable because, under [the Tunkl criteria], it is invalid as contrary to public policy. Morgan, 466 So.2d at 117-18 (emphasis added); see also Discount Fabrics, 345 N.W.2d 417. We are persuaded by such reasoning. We, therefore, believe that ATU had a decided advantage in bargaining with advertiser. Advertiser was presented with a form contract by sales representatives who had no authority to alter the provisions of the contract. Additionally the terms of the contract were decidedly unreasonable to advertiser. Under the contract, it could only recover the amount paid for a service that was negligently performed. The Discount Fabric court aptly described the clause as the nonbargaining, non-responsibility clause. 345 N.W.2d at 421. As a state-regulated monopoly, ATU cannot shield itself from its own negligence. Through its privileged position ATU has an exclusive private advertising business and has created a public interest in the Yellow Pages. The publication of the Yellow Pages is an inextricable and substantial benefit of the phone company's duty to provide service. Under such circumstances, we refuse to allow ATU to limit unilaterally its liability for negligence. ATU also argues that limiting its liability was reasonable since ascertaining damages for errors or omissions in the Yellow Pages would be difficult. The courts are split on this issue. Those which uphold the limited liability clause maintain that the clause protects the company from speculative damages. Gas House Inc. v. Southern Bell Telephone & Telegraph, 289 N.C. 175, 221 S.E.2d 499, 505 (1976). Those which invalidate such clauses reason that a party is protected from speculative damages by the jury system, the instructions given the jury, and the trial judge's rulings during the trial and motions after verdict. Discount Fabric, 345 N.W.2d at 422. The Discount Fabric court stated that: If the clause is found contrary to public policy and therefore unenforceable, this does not make the telephone company an insurer against consequential damages of its solicited advertisers; the telephone company would only be held liable to its subscribers for damages caused by its own negligent acts. That determination does not make the telephone company's position in the business world any different than the vast majority of other commercial enterprises. Id. (footnote omitted). See also Morgan, 466 So.2d at 115-16. Lost profits are often at issue in breach of contract cases. We have repeatedly held that lost profits, if proven, may be recovered. An award cannot stand, however, if the amount is the result of speculation, although it is not necessary to prove lost profits with exactness so long as actual loss of profits is shown and the jury has a reasonable basis on which to compute its award. City of Whittier v. Whittier Fuel and Marine, 577 P.2d 216, 222 (Alaska 1978) (citations and footnote omitted), disapproved on other grounds in Native Alaskan Reclamation & Pest Control v. United Bank of Alaska, 685 P.2d 1211, 1219 (Alaska 1984); see also Alaska Children's Services v. Smart, 677 P.2d 899, 902 (Alaska 1984); Guard v. P & R Enterprises, 631 P.2d 1068, 1071 (Alaska 1981); City of Palmer v. Anderson, 603 P.2d 495, 500 (Alaska 1979). The potential difficulty in ascertaining damages does not inhibit us from invalidating the exculpatory clause. Advertiser will have to show a reasonable basis for recovery. We therefore AFFIRM the trial court's grant of partial summary judgment to advertiser on the exculpatory issue. The limited liability clause in the advertising contract is unconscionable and void as against public policy. MATTHEWS, COMPTON and MOORE, JJ., not participating.