Unreported / Non-Citable
Background
Treehouse California Almonds, LLC purchased an industrial almond roaster from CPM Wolverine Proctor LLC under a March 2015 purchase agreement. The agreement contained a choice of law provision designating Pennsylvania law, a limitation of actions provision requiring any action for breach of the agreement or any warranty to be commenced within 12 months, and an exclusion of damages provision disclaiming liability for proximate, incidental, consequential and other damages, including damages arising in tort or strict liability. After the roaster allegedly malfunctioned and caused a January 2021 fire that destroyed Treehouse's warehouse in Earlimart, Treehouse and its insurers, StarNet Insurance Company and Certain Underwriters at Lloyd's of London, filed separate lawsuits against CPM alleging strict products liability, ordinary negligence, and gross negligence; the cases were consolidated with the StarNet action as lead case.
CPM moved for summary judgment, arguing the complaints were filed beyond the 12-month limitation period, and alternatively moved for summary adjudication of the three tort causes of action based on the exclusion of damages provision. The trial court granted summary judgment, finding under Pennsylvania's gist of the action doctrine that the claims sounded in contract and were time-barred, and declined to rule on summary adjudication. Plaintiffs appealed the resulting judgment.
The Court’s Holding
The Court of Appeal reversed the order granting summary judgment. Applying the Nedlloyd test for contractual choice of law provisions, the court held Pennsylvania law governs because CPM's principal place of business is in Pennsylvania and applying Pennsylvania law would not violate a fundamental California policy. The court then held that strict products liability causes of action sound in tort, not contract, under both Pennsylvania and California law, so the limitation of actions provision—which reaches only actions for breach of the agreement or warranty—does not bar them.
On the exclusion of damages provision, the court held that whether it bars the strict products liability claims depends on factual determinations the trial court never made, such as the parties' relative bargaining power and Treehouse's expertise. The provision is unenforceable as to gross negligence under both California and Pennsylvania law, which prohibit disclaiming liability for gross negligence. But the provision is enforceable as to ordinary negligence because the transaction between two commercial entities does not affect the public interest, so CPM is entitled to summary adjudication of the ordinary negligence claims. The court remanded with directions to vacate the judgment, enter summary adjudication as to ordinary negligence, and conduct further proceedings.
Key Takeaways
- Contractual limitation of actions provisions covering breach of contract or warranty claims do not bar strict products liability claims, which sound in tort under both California and Pennsylvania law.
- Choice of law provisions in contracts between commercial entities are analyzed under the Nedlloyd test, not the governmental interest test that applies absent a contractual choice.
- Whether an exclusion of damages provision bars strict products liability claims between commercial entities depends on case-specific factual findings about bargaining power, risk allocation, and the parties' relative expertise.
- Both California and Pennsylvania law prohibit contractual disclaimers of liability for gross negligence as contrary to public policy.
- An exclusion of damages provision disclaiming ordinary negligence is enforceable in a commercial transaction between sophisticated parties that does not affect the public interest.
Why It Matters
The opinion clarifies how contractual defenses interact with tort claims, confirming that a limitation of actions clause limited to contract and warranty claims cannot extinguish strict products liability claims, which arise from duties imposed by law rather than by agreement. It also draws a bright line in commercial exculpatory clauses: ordinary negligence may be disclaimed between sophisticated business entities, gross negligence may not, and strict liability disclaimers turn on factual findings about the parties' relative positions.
The decision reinforces that choice of law clauses will be enforced when the chosen state has a substantial relationship to the parties and its law does not offend fundamental forum policy, and it illustrates the de novo review that lets an appellate court recharacterize claims regardless of the trial court's rationale.