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Asch Webhosting, Inc. v. Adelphia Business Solutions Investment, LLC

Civ. Act. No. 04-2593 (MLC)(D.N.J., July 23, 2007)

Court upholds validity of exculpatory clause in the parties’ contract, which bars plaintiff from recovering consequential damages as a result of defendant’s alleged breach of the agreement.  As a result, the Court granted defendant’s motion for summary judgment, and dismissed plaintiff’s claims for consequential damages.  These claims arose out of defendant’s termination of the parties’ agreement, and refusal to provide plaintiff with internet connectivity services, due to complaints received by defendant that plaintiff was engaged in ‘spamming other customers’ in violation of defendant’s acceptable use policy.

Defendant Adelphia Business Solutions Investment LLC (“Adelphia”) entered into an agreement to provide plaintiff Asch Webhosting internet services for a three year period.  The parties’ contract contained an exculpatory clause which provided that:

Customer releases Telcove (defendant) from all liability or responsibility for any direct, indirect, incidental or consequential damages, including but not limited to damages due to loss of revenues or loss of business suffered by the customer in connection with their use of or inability to use the Telcove internet services. … In no event shall Telcove’s aggregate liability exceed the amount paid by customer to Telcove for the Telcove services.

The clause was printed in bold and capital block letters in the parties’ agreement.

Defendant terminated the parties’ agreement because it received complaints that plaintiff was spamming other customers in violation of defendant’s acceptable use policy.

Upset with this termination, plaintiff brought suit, charging Adelphia with breaching the parties’ agreement.  Plaintiff sought $1.4 million in consequentioal damages due to its alleged loss in business due to the termination.  Plaintiff asserted such a claim notwithstanding the fact that evidence in the record demonstrated that plaintiff was offered replacement services by another internet service provider for approximately one thousand dollars more than defendant had charged.

Defendant moved for summary judgment, dismissing plaintiff’s claim, arguing it was barred by the exculpatory clause contained in the parties’ agreement.  Holding the clause enforceable, the court agreed, and dismissed plaintiff’s claim.
 Under New Jersey law, exculpatory clauses will be enforced “unless a party to the contract is either under a public duty entailing the exercise of care … or if there is unequal bargaining power between the parties …”.  Such clauses cannot protect a party from its own gross negligence, nor can it be unconscionable.

Finding the clause the product of a legitimate arms length business transaction entered into between two commercial entities, the Court held it barred plaintiff’s claim here.  It was neither unconscionable, nor the result of unequal bargaining power.  Nor had plaintiff submitted evidence that it was being applied to protect defendant from gross negligence.  Quite the contrary, held the court, the evidence established that defendant terminated the agreement based on a good faith belief that plaintiff was engaging in spamming activities.

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