1800 Ocotillo, L.L.C. v. The WLB Group, Inc. – 1/29/2008
Arizona Court of Appeals Division One Holds Limitation-of-Liability Clauses in Personal Service Contracts are Not Void as Against Public Policy, but as a Form of Assumption of Risk a Jury Must Decide Their Enforceability.
Real estate developer 1800 Ocotillo, L.L.C. contracted with The WLB Group, Inc. for surveying, engineering and landscape architecture services. The contract included a limitation-of-liability provision that limited WLB’s liability for negligence to the amount paid under the contract. When WLB’s survey failed to identify an existing right-of-way on Ocotillo’s land, Ocotillo sued for breach of contract and professional negligence. The trial court granted partial summary judgment in favor of WLB, holding the limitation-of-liability provision in the contract was enforceable, to which Ocotillo appealed.
On appeal, Ocotillo argued that limitation-of-liability provisions in personal service contracts are void as against public policy. To support their argument, Ocotillo pointed to A.R.S. § 10-2234, which states that shareholders of a professional corporation remain liable for negligence. The Court held the plain language of § 10-2234 did not support Ocotillo’s position. Ocotillo also argued that because indemnity clauses in construction contracts are considered void as against public policy under A.R.S. § 32-1159, limitation-of-liability clauses should be void as well. The Court disagreed, noting that indemnity clauses completely exonerate from liability, while limitation-of-liability clauses only cap the amount of liability. In addition, the Court noted that nothing in the legislative history of § 32-1159 supported Ocotillo’s public policy argument, and that absent public policy to the contrary, parties in Arizona are free to contract as they wish. Accordingly, the Court held limitation-of-liability clauses in personal service contracts are not void as against public policy.
Ocotillo next argued that Article 18, Section 5 of the Arizona Constitution, which requires juries to decide the defenses of contributory negligence and assumption of risk, also requires juries to decide the enforceability of limitation-of-liability clauses. Relying on Phelps v. Firebird Raceway, Inc., 210 Ariz. 403, 111 P.3d 1003 (2005), the Court held limitation-of-liability clauses are a form of assumption of risk; therefore, their enforceability must always be decided by a jury. The Court reversed and remanded for a jury trial on the issue.
Judge Timer authored the majority opinion, with Chief Judge Gemmill and Judge Orozco concurring.