Peregrine Pharmaceuticals Inc v. Clinical Supplies Management Inc

Filing 45

ORDER by Judge Jesus G. Bernal GRANTING IN PART AND DENYING IN PART Defendant's 35 Motion for Partial Summary Judgment: (see document image for specifics). For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART Defendants mo tion for partial summary judgment. The Court holds that the Limitations on Damages clauses in Paragraph 16 of the Master Services Agreement apply to the FACs causes of action for breach of contract, passive negligence, and negligence per se. The damages limitations do not apply to the claims in the FAC for active negligence, negligent misrepresentation, and constructive fraud. (ad)

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

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)
)
)
PEREGRINE
)
PHARMACEUTICALS, INC.,
)
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Plaintiff, )
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v.
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CLINICAL SUPPLIES
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MANAGEMENT, INC.,
)
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Defendant. )
)

Case No. SACV 12-1608
JGB (ANx)
ORDER GRANTING IN PART
AND DENYING IN PART
DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT

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Before the Court is Defendant’s motion for partial
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summary judgment.

(Mot., Doc. No. 35.)

After

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considering the papers filed in support of and in
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opposition to the Motion, and the arguments presented
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at the July 28, 2014 hearing, the Court GRANTS IN PART
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and DENIES IN PART the Motion.
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I.

BACKGROUND

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On September 24, 2012, Plaintiff Peregrine

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Pharmaceuticals, Inc. (“Plaintiff” or “Peregrine”)

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filed a Complaint against Defendant Clinical Supplies

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Management, Inc. (“Defendant” or “CSM”).

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No. 1.)

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stay the case for 120 days beginning on March 8, 2013

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to allow them to participate in a dispute resolution

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(Compl., Doc.

The Court granted the parties’ stipulation to

process required by contract.

(Doc. No. 11.)

On March 28, 2014, Plaintiff filed the operative

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First Amended Complaint which states five causes of

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action for: (1) breach of contract; (2) negligence; (3)

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negligence per se; (4) negligent

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misrepresentation/concealment; and (5) constructive

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fraud.

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(“FAC,” Doc. No. 26.)

On June 5, 2014, Defendant filed a motion for

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partial summary judgment.

(Mot., Doc. No. 35.)

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In

support of the Motion, Defendant attached:

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 Memorandum of Points and Authorities (Mot.);

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 Statement of Undisputed Facts (“SUF,” Doc. No.

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35-1);
 Declaration of Matthew L. Marshall (“Marshall
Decl.,” Doc. No. 2);
 Declaration of Jennifer Lauinger (“Lauinger
Decl.,” Doc. No. 35-3);

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 Compendium of Exhibits (“Comp.,” Doc. No. 35-4)

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including Exhibits A through G;1 and

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 Request for Judicial Notice (“RJN,” Doc. No.

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35-5) attaching Exhibits A and B.2

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On June 23, 2014, Plaintiff opposed the Motion
(Opp’n, Doc. No. 38), attaching:
 Statement of Genuine Disputes of Fact (“SGI,”

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Doc. No. 38-4);

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Due to the volume of evidence filed in support of
and in opposition to the Motion, the Court does not
enumerate each attached Exhibit, but describes the
documents in subsequent evidentiary citations as
needed.
Prior to filing the Motion, Defendant applied to
file Exhibits C to G of the Compendium under seal.
(Doc. Nos. 31-32.) On May 29, 2014, the Court granted
in part Defendant’s application finding that compelling
reasons existed to seal the documents insofar as they
contained confidential financial information of the
parties. (Doc. No. 34.) Because Defendant had not
articulated a sufficient factual basis justifying
sealing the remainder of the documents, the Court
ordered Defendant to publicly file redacted versions of
the exhibits redacting only confidential financial
information. (Id.) In this Order, the Court considers
the sealed versions of Exhibits C through G, including
the redacted financial information, insofar as
necessary.
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In its RJN, Defendant requests the Court take
judicial notice of the First Amended Complaint and
Answer filed in this action. (See generally RJN.)
Although the court may take judicial notice of its own
records, it is unnecessary for Defendant to file a
request for judicial notice of a pleading that has been
filed in this action. Therefore, the requests will be
DENIED as unnecessary. See Martinez v. Blanas, No.
2:06-CV-0088 FCD DAD, 2011 WL 864956, at *1 n.1 (E.D.
Cal. Mar. 10, 2011) (denying request for judicial
notice of the complaint as unnecessary as it is “a part
of the record in this action”); Low v. Stanton, No.
CVS05 2211MCE DAD P, 2007 WL 2345008, at *7 (E.D. Cal.
Aug. 16, 2007) (same).
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 Declaration of John K. Landay (“Landay Decl.,”

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Doc. No. 38-1);

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 Declaration of Jeffrey Masten (“Masten Decl.,”

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Doc. No. 38-2); and

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 Declaration of Joseph S. Shan, M.P.H. (“Shan

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Decl.,” Doc. No. 38-3).

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Defendant replied on June 30, 2014 (Reply, Doc. No.
39), including its Response to Plaintiff’s SGI

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(“Resp.,” Doc. No. 40) and Objections to evidence

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Plaintiff submitted in support of its opposition

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(“Obj.” Doc. No. 41).

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II. LEGAL STANDARD3

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A court may grant partial summary judgment to
determine “before the trial that certain issues shall
be deemed established in advance of the trial. The
procedure was intended to avoid a useless trial of
facts and issues over which there was really never any
controversy and which would tend to confuse and
complicate a lawsuit.”

Lies v. Farrell Lines, Inc.,

641 F.2d 765, 769 (9th Cir. 1981) (quotation omitted).
A motion for partial summary judgment is resolved under
the same standard as a motion for summary judgment.

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Unless otherwise noted, all references to “Rule”
refer to the Federal Rules of Civil Procedure.

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See California v. Campbell, 138 F.3d 772, 780 (9th Cir.

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1998).

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Summary judgment is appropriate if the “pleadings,

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depositions, answers to interrogatories, and admissions

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on file, together with the affidavits, if any, show

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that there is no genuine issue as to any material fact

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and that the moving party is entitled to judgment as a

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matter of law.”

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material when it affects the outcome of the case.

Fed. R. Civ. P. 56(c).

A fact is

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Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

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(1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir.

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1997).

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The party moving for summary judgment bears the

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initial burden of establishing an absence of a genuine

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issue of material fact.

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This burden may be satisfied by either (1) presenting

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evidence to negate an essential element of the non-

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moving party's case; or (2) showing that the non-moving

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party has failed to sufficiently establish an essential

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element to the non-moving party's case.

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Where the party moving for summary judgment does not

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bear the burden of proof at trial, it may show that no

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genuine issue of material fact exists by demonstrating

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that “there is an absence of evidence to support the

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non-moving party's case.”

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Celotex, 477 U.S. at 323.

Id. at 322-23.

Id. at 325.

However, where the moving party bears the burden of
proof at trial, the moving party must present

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compelling evidence in order to obtain summary judgment

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in its favor.

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Property at 8110 E. Mohave, 229 F. Supp. 2d 1046, 1047

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(S.D. Cal. 2002) (citing Torres Vargas v. Santiago

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Cummings, 149 F.3d 29, 35 (1st Cir. 1998) (“The party

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who has the burden of proof on a dispositive issue

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cannot attain summary judgment unless the evidence that

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he provides on that issue is conclusive.”)).

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to meet this burden results in denial of the motion and

United States v. One Residential

Failure

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the Court need not consider the non-moving party's

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evidence.

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229 F. Supp. 2d at 1048.

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One Residential Property at 8110 E. Mohave,

Once the moving party meets the requirements of

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Rule 56, the burden shifts to the party resisting the

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motion, who “must set forth specific facts showing that

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there is a genuine issue for trial.”

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U.S. at 256.

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burden by showing “some metaphysical doubt as to the

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material facts.”

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Zenith Radio Corp., 475 U.S. 574, 586 (1986).

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factual issues must exist that “can be resolved only by

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a finder of fact because they may reasonably be

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resolved in favor of either party.”

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at 250.

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Court must examine all the evidence in the light most

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favorable to the non-moving party.

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at 325.

Anderson, 477

The non-moving party does not meet this

Matsushita Elec. Indus. Co., Ltd. v.
Genuine

Anderson, 477 U.S.

When ruling on a summary judgment motion, the

Celotex, 477 U.S.

The Court cannot engage in credibility

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determinations, weighing of evidence, or drawing of

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legitimate inferences from the facts; these functions

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are for the jury.

Anderson, 477 U.S. at 255.

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III. FACTS

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A.

Undisputed Facts

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For purposes of this Motion, the parties do not

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dispute any of the material facts.4

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material facts are sufficiently supported by admissible

The following

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None of the purported disputes identified in the
SGI actually provide or cite to evidence disputing the
evidence propounded by Defendant. Instead, Plaintiff
challenges Defendant’s characterization of the facts as
described in the SUF. (See, e.g., SGI ¶¶ 8
(“[D]isputed in part to the extent CSM is implying that
the services are not far more detailed.”), 11, 24.)
Such “disputes” are improper, and the Court relies on
the undisputed facts in the SUF to the extent they are
adequately supported by the evidence. See Hanger
Prosthetics & Orthotics, Inc. v. Capstone Orthopedic,
Inc., 556 F. Supp. 2d 1122, 1126 (E.D. Cal. 2008);
Contract Associates Office Interiors, Inc. v. Ruiter,
No. CIV 07-0334 WBS PAN, 2008 WL 2916383, at *5 (E.D.
Cal. July 28, 2008) (“[T]he court will not consider
Contract Associates' objections to SSUF Nos. 60, 64,
and 75 because these objections are aimed only at
Ruiter's characterization and purported misstatement of
the evidence-as represented in her SSUF-rather than the
actual underlying evidence.”).
Similarly, instead of disputing the evidence
provided in the SGI, Defendant “disputes” many of
Plaintiff’s facts by directing the Court to its
evidentiary objections. (Resp. ¶¶ 6-7, 9-10, 13-14,
18, 20, 22-26, 28-32, 35-59.) Evidentiary objections
disguised as disputes lack merit and do not create
genuine issues of fact. See Headley v. Church of
Scientology Int'l, No. CV 09-3986 DSF(MANX), 2010 WL
3157064, at *1 n.1 (C.D. Cal. Aug. 5, 2010), aff'd, 687
F.3d 1173 (9th Cir. 2012). Thus these facts are
similarly undisputed for purposes of this Motion.
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evidence and are uncontroverted; they are “admitted to

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exist without controversy” for purposes of the Motion.5

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L.R. 56-3.

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Peregrine is a clinical-stage biopharmaceutical

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corporation that develops pharmaceuticals focused on

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the treatment of cancer and other diseases.

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SGI ¶ 1.)

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services in support of clinical research programs.

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(SUF ¶ 2; SGI ¶ 2.)

(SUF ¶ 1;

CSM provides clinical supply management

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Without providing any argument or explanation,
Peregrine objects to nearly every statement made in the
Shan and Masten Declarations submitted in support of
the Opposition. (Obj.)
As to almost every fact proffered by Peregrine, CSM
argues that it is irrelevant and/or speculative. (See,
e.g., Obj. ¶¶ 2-7, 9, 10, 13, 15-16, 18-59.) Error!
Main Document Only.“Objections to evidence on the
ground that it is irrelevant, speculative, and/or
argumentative, or that it constitutes an improper legal
conclusion are all duplicative of the summary judgment
standard itself" and are thus "redundant" and
unnecessary to consider here. Burch v. Regents of
Univ. of California, 433 F. Supp. 2d 1110, 1119 (E.D.
Cal. 2006); see Anderson, 477 U.S. at 248 ("Factual
disputes that are irrelevant or unnecessary will not be
counted."). Thus, the Court OVERRULES CSM’s relevance
and speculation objections.
With regard to the remaining evidentiary
objections, the Court finds that the majority of the
objected-to evidence is immaterial to the issue before
the Court and does not rely on it here. Insofar as the
Court relies on evidence which CSM objects to as
hearsay, the Court finds that that evidence could be
presented in an admissible form at trial and thus the
Court may consider it in deciding the summary judgment
motion. Fraser v. Goodale, 342 F.3d 1032, 1036-37 (9th
Cir. 2003) (noting that at the summary judgment stage,
the Court does "not focus on the admissibility of the
evidence's form," but rather on the admissibility of
its contents). The Court also finds that as Peregrine
employees who designed and executed the Phase II trial
(Shan Decl. ¶¶ 5, 8) and carried out the CSM audit
(Masten ¶¶ 3-5), Shan and Masten have personal
knowledge of the facts the Court relies upon herein.
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In 2010, Peregrine initiated a randomized, double-

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blind, placebo controlled Phase IIb clinical trial of

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the drug, bavituximab, on 121 late stage lung cancer

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patients (“Phase II trial”).

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Decl. ¶¶ 6-7.)

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divided into three groups.

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“A” group was to receive docetaxel (chemotherapy) plus

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a placebo.

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receive 1 mg/kg doses of bavituximab plus docetaxel.

(SUF ¶ 3; SGI ¶ 3; Shan

The patients in the Phase II trial were

(Id.)

(Id. ¶ 8.)

The control or

The “B” group patients were to

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(Id.)

The third “C” group was to take 3 mg/kg doses of

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bavituximab plus docetaxel.

(Id.)

Peregrine hired eight main vendors to perform the

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necessary work for the Phase II trial.

(SUF ¶ 4; SGI ¶

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4.)

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chain services, including ensuring proper labeling of

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the drug vials, distribution to the 40 sites, and

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reconciling the product vials in inventory.

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Decl. ¶ 13.)

Peregrine contracted with CSM to provide supply

(Shan

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After several rounds of revisions and negotiations,

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on March 18, 2010, the parties fully executed the final

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version of the Master Services Agreement (“MSA”).

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(Comp., Exh. F.)

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service that CSM was to provide in the Phase II trial

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would be set forth in greater detail in subsequent Work

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Orders and Change Orders.

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Orders and Change Orders, when finalized and signed by

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the parties, were subject to the MSA.

The MSA provides that the specific

(MSA ¶¶ 1, 2, 5.)

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The Work

(MSA ¶¶ 1.A,

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2.A.)

In exchange for its performance of the Work and

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Change Orders, Peregrine agreed to pay CSM each month

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for services rendered.

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included an indemnification provision, which provided

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that CSM and Peregrine would indemnify each other in

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certain situations.

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MSA, CSM agreed to provide its services in compliance

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with the study protocol, written instructions of

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Peregrine, generally accepted standards of good

(Id. ¶ 6.)

(Id. ¶ 12.)

The MSA also

At two points in the

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clinical practice and good manufacturing practice, and

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all applicable laws, rules, and regulations, including

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the Federal Food, Drug and Cosmetic Act (“FDCA”) and

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regulations of the Food and Drug Administration

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(“FDA”).

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(Id. ¶¶ 3.A, 15.)

Primarily at issue in this Motion is the section of

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the MSA entitled “Limitations.”

(Id. ¶ 16.)

In

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relevant part, this section includes two Limitations on

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Damages (“LOD”) clauses which provide:

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16. LIMITATIONS
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A.
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Except as expressly set forth in
this agreement, CSM does not make
any warranty, express or implied,
with respect to the services or
the results obtained from its
work, including, without
limitation, any implied warranty
of merchantability or fitness for
a particular purpose. In no event
shall CSM, or any of its
affiliates, directors, officers,
employees, consultants or agents
be liable for consequential,
incidental, special, or indirect
damages, regardless of whether it

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has been advised of the
possibility of such damages.6
. . .

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B.

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C. In no event will the collective,
aggregate liability of CSM and its
affiliates, directors, officers,
employees, consultants or agents under
this Agreement, the Work Orders or
Change Orders exceed the amount of
payments actually received by CSM from
[Peregrine] for the applicable Work
Order(s), including any Change
Order(s).

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In order to reach the final version of the MSA, the
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parties engaged in three rounds of revisions and
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negotiations of contract terms.

(SUF ¶ 10; SGI ¶ 10.)

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In February 2010, CSM sent a draft Master Services
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Agreement to Peregrine.

(“Draft MSA,” SUF ¶ 5; SGI ¶

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5.)

On February 18, 2010, Peregrine sent a revised,

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redlined version of the MSA to CSM, which included at
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least thirty-one changes to the payment terms, the
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method of preparation of Work Orders, CSM’s duties with
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regard to regulatory compliance, the term of the MSA,
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termination and indemnification provisions, and the
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choice of law and force majeure clauses.

(“Revised

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MSA,” Comp., Exh. C.)

The Revised MSA also deleted a

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portion of Paragraph 16A which read:
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In no event shall CSM, or any of its
affiliates, directors, officers,
employees, consultants or agents be
liable for consequential, incidental,
special, or indirect damages, or for
acts of negligence which are not
intentional or reckless in nature,

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In the MSA, Paragraph 16.A was printed in all
capital letters. (SUF ¶ 23; SGI ¶ 23.) For ease of
reading, the Court omits the capitals in this Order.
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regardless of whether it has been
advised of the possibility of such
damages.

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(Revised MSA ¶ 16.A.)

On February 18, 2010, Peregrine

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also sent a “clean copy” of the Revised MSA to CSM

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which included two additional revisions to the Draft

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MSA, including a change to CSM’s hourly rate and its

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right to terminate the MSA.

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Comp., Exh. D.)

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revisions to the MSA.

(SUF ¶ 17; SGI ¶ 17;

CSM accepted all of Peregrine’s
(SUF ¶ 18; SGI ¶ 18.)

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According to Peregrine, CSM’s role in the Phase II

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trial was to receive shipments of the placebo, 1 mg/kg

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bavituximab, and 3 mg/kg bavituximab totaling

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approximately 8,000 vials, label them as instructed,

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and distribute them to patient sites.

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13.)

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administration of the doses and the patient groups

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until the study was unblinded.

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(Shan Decl. ¶

CSM was also supposed to keep track of the

(Id. ¶ 14.)

Peregrine claims that in September 2012, it became

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aware that the “A” and “B” treatment assignments may

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have been switched during the trial.

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Peregrine then undertook an audit of CSM’s performance

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which allegedly revealed that all “C” group patients

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were correctly treated, but there was evidence of vial

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mislabeling between the placebo and 1 mg/kg groups.

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(Masten Decl. ¶ 6.)

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mislabeling implicated up to 25 percent of the placebo-

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labeled doses and up to 25 percent of the 1 mg/kg

(Id. ¶ 16.)

Peregrine contends that the

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vials.

(Id.)

Based on these purported failures,

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Peregrine claims CSM breached the MSA and failed to

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comply with good clinical practices, FDA regulations,

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and industry standards.

(Opp’n at 5-7; FAC ¶ 19.)

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IV. DISCUSSION

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CSM moves for partial summary judgment to enforce

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the Limitations on Damages (“LOD”) clauses in the MSA
and thus limit the damages sought by Peregrine in the
FAC.

(Mot. at 23.)

Peregrine argues that the LOD

clauses are unenforceable and no damages limitation
should apply in this action.

(See generally Opp’n.)7

Two provisions of the MSA are relevant to CSM’s
arguments.

First, the second sentence of Paragraph

16.A provides: “In no event shall CSM, or any of its
affiliates, directors, officers, employees, consultants
or agents be liable for consequential, incidental,
special, or indirect damages, regardless of whether it
has been advised of the possibility of such damages.”
(MSA ¶ 16.A.)

In addition, Paragraph 16.C states: “In

no event will the collective, aggregate liability of
CSM and its affiliates, directors, officers, employees,
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The MSA states that the agreement and any
applicable Work Order and Change Orders “will be
construed, governed, interpreted, and applied in
accordance with the laws of the State of California . .
. .” (MSA ¶ 17.) In conformity with this provision,
the parties rely on California contractual
interpretation laws. The Court similarly applies
California law.
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consultants or agents under this Agreement, the Work

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Orders or Change Orders exceed the amount of payments

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actually received by CSM from [Peregrine] for the

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applicable Work Order(s), including any Change

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Order(s).”

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(MSA ¶ 16.C.)

Generally, “a limitation of liability clause is

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intended to protect the wrongdoer defendant from

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unlimited liability.”

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Safe Sys. USA, Inc., 209 Cal. App. 4th 1118, 1126

Food Safety Net Servs. v. Eco

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(2012) (quoting 1 Witkin, Summary of Cal. Law,

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Contracts, § 503 (10th ed. 2005)).

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type “have long been recognized as valid in

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California.”

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Court, 227 Cal. App. 3d 705, 714 (1991); see also Nat'l

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Rural Telecommunications Coop. v. DIRECTV, Inc., 319 F.

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Supp. 2d 1040, 1048 (C.D. Cal. 2003) (“Under California

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law, parties may agree by their contract to the

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limitation of their liability in the event of a

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breach.”).

Clauses of this

Markborough California, Inc. v. Superior

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A.

Interpretation of the LOD Clauses

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“Whether an exculpatory clause covers a given case

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turns primarily on contractual interpretation, and it

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is the intent of the parties as expressed in the

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agreement that should control.

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knowingly bargain for the protection at issue, the

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When the parties

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protection should be afforded.

This requires an

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inquiry into the circumstances of the damage or injury

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and the language of the contract; of necessity, each

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case will turn on its own facts.”

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Sweep, 123 Cal. App. 4th 1057, 1066 (2004) (internal

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quotation omitted).

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govern its interpretation, if the language is clear and

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explicit, and does not involve an absurdity.”

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Civ. Code § 1638.

Burnett v. Chimney

“The language of a contract is to

Cal.

Under California law,

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[t]he interpretation of a contract is
a judicial function. . . . In
engaging in this function, the trial
court “give[s] effect to the mutual
intention of the parties as it
existed” at the time the contract was
executed. [Cal.] Civ. Code, § 1636.
Ordinarily, the objective intent of
the contracting parties is a legal
question determined solely by
reference to the contract's terms.
[Cal.] Civ. Code, § 1639 (“[w]hen a
contract is reduced to writing, the
intention of the parties is to be
ascertained from the writing alone, if
possible”); [Cal.] Civ. Code, § 1638
(the “language of a contract is to
govern its interpretation”).

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Cachil Dehe Band of Wintun Indians of Colusa Indian

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Cmty. v. California, 618 F.3d 1066, 1073 (9th Cir.

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2010) (citations omitted).

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clauses seeking to limit liability will be strictly

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construed and any ambiguities resolved against the

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party seeking to limit its liability . . . .”

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Turfgrass, Inc. v. Vaughan-Jacklin Seed Co., 200 Cal.

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App. 3d 1518, 1538 (1988); see Queen Villas Homeowners

However, “contractual

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Nunes

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Ass'n v. TCB Prop. Mgmt., 149 Cal. App. 4th 1, 6 (2007)

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(“[E]xculpatory clauses are construed against the

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released party.”).

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Here, even strictly construed against CSM, the

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clear, unambiguous and express language of Paragraph 16

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limits CSM’s liability.

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“in no event” will CSM be liable for consequential,

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incidental, special, or indirect damages, nor will its

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collective, aggregate liability under the MSA exceed

The Paragraph provides that

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the amount Peregrine actually paid to CSM.

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provisions clearly limit the amount and types of

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damages for which CSM can be liable.

13

These

Peregrine argues in opposition that the LOD

14

provisions are ambiguous.

(Opp’n at 11-12.)

“A

15

contract provision is considered ambiguous when the

16

provision is susceptible to more than one reasonable

17

interpretation.”

18

Associates, Inc., v. Nautilus, Inc., 782 F. Supp. 2d

19

1096, 1110 (S.D. Cal. 2011) (citing MacKinnon v. Truck

20

Ins. Exchange, 31 Cal.4th 635 (2003)).

21

Peregrine claims that Paragraph 16.A only disclaims

22

liability for breaches of express and implied

23

warranties because the sentence prior to the LOL clause

24

states that CSM does not make any warranty with respect

25

to its services.

26

the warranty provision, the LOD clause states that “in

27

no event” is CSM liable for consequential, incidental,

S. California Stroke Rehab.

(Opp’n at 11-12.)

28
16

First,

However, following

1

special or indirect damages.

2

Net Servs. v. Eco Safe Sys. USA, Inc., 209 Cal. App.

3

4th 1118, 1128 (2012), considered the same argument

4

based on nearly identical contractual provisions and

5

held that “[i]n view of this broad and unqualified

6

language, the clause must be regarded as establishing a

7

limitation on [CSM]'s liability sufficient to encompass

8

[Peregrine]'s claims . . . .”

9

The court in Food Safety

Similarly, Peregrine argues that the phrase

10

“[e]xcept as expressly set forth in this agreement” is

11

ambiguous.

12

is in the first sentence of Paragraph 16.A and does not

13

apply to the LOD clauses.

14

clauses indicate that they apply more broadly, stating

15

that “in no event” will CSM be liable for additional

16

damages.

17

(Opp’n at 12.)

Once again, this language

To the contrary, both LOD

Peregrine also contends that the indemnity

18

provisions of the MSA permit unlimited recovery from

19

CSM for any property damage CSM caused.

20

The indemnification provisions provide that CSM shall

21

indemnify Peregrine and defend and hold it harmless

22

from and against any liability, loss, or damage because

23

of bodily injury or property damage arising from CSM’s

24

actions or inactions under the MSA.

25

language of this provision demonstrates that it is a

26

standard indemnity agreement by which CSM guarded

27

Peregrine against certain third-party claims; it does

28
17

(Opp’n at 12.)

(MSA ¶ 12.A.)

The

1

not apply to claims between the contracting parties.

2

See Myers Bldg. Indus., Ltd. v. Interface Tech., Inc.,

3

13 Cal. App. 4th 949, 969 (1993) (“A clause which

4

contains the words ‘indemnify’ and ‘hold harmless’ is

5

an indemnity clause which generally obligates the

6

indemnitor to reimburse the indemnitee for any damages

7

the indemnitee becomes obligated to pay third persons.

8

[citation omitted] Indemnification agreements

9

ordinarily relate to third-party claims.”); Hathaway

10

Dinwiddie Const. Co. v. United Air Lines, Inc., 50 F.

11

App'x 817, 823 (9th Cir. 2002) (holding that a standard

12

indemnity provision in a contract between general

13

contractor and project owner guarded owner against

14

third-party claims and thus did not apply to require

15

contractor to indemnify owner for claims it asserted

16

against owner).

17

Strictly construing the clauses against CSM, the

18

Court finds that the LOD clauses are unambiguous and

19

contemplate a bar on recovery of consequential,

20

incidental, special, and indirect damages as well as

21

damages in excess of the amount paid by Peregrine to

22

CSM for its work under the MSA.

23

v. Atomic Park.com, LLC, No. C-04-0222 EMC, 2005 WL

24

3310093, at *4 (N.D. Cal. Dec. 7, 2005) (finding

25

unambiguous a clause which stated “In no event shall

26

either party be liable for any indirect, incidental,

27
28
18

See Coremetrics, Inc.

1

special or consequential damages, including without

2

limitation damages for loss of profits . . . .”).

3
4

B.

Cal. Civ. Code Section 1668

5
6

Peregrine dedicates most of its opposition to

7

arguing that the LOD clauses are unenforceable because

8

they violate California Civil Code Section 1668.8

9

(Opp’n at 13-24.)

Section 1668 provides:

10
All contracts which have for their
object, directly or indirectly, to
exempt anyone from responsibility for
his own fraud, or willful injury to
the person or property of another, or
violation of law, whether willful or
negligent, are against the policy of
the law.

11
12
13
14
15

Cal. Civ. Code § 1668.

Specifically, Peregrine argues

16

that Section 1668 prohibits enforcement of the LOD

17

clauses in the MSA as applied to Peregrine’s claims for

18

breach of contract, negligence, negligence per se,

19

negligent misrepresentation/concealment, and

20

constructive fraud.

(Opp’n at 15.)

21
8

22
23
24
25
26
27
28

Throughout its opposition, Peregrine alternately
refers to Section 1668 as § 1668 and § 1688. (See,
e.g., Opp’n at 1 (“exculpatory clauses that run afoul
of California Code of Civil Procedure § 1668 (‘section
1688’)”). The relevant section is in the civil code,
not the code of civil procedure and is found at section
1668. Similar careless errors can be found throughout
the Opposition. (See, e.g., Opp’n at 10 (“section
1668”); id. at 12 (alternating between “1668” and
“1688”); id. at 13 (incorrectly quoting a judicial
opinion and including the incorrect section number as
1688).) Such errors are distracting, confusing, and
misleading to the Court.
19

1

Initially, the Court notes the persuasiveness of

2

CSM’s argument in Reply.

(Reply at 5-6.)

Based on the

3

plain language, the Court is skeptical of the

4

applicability of Section 1668 to the claims at issue

5

here.

6

have for their object, directly or indirectly, to

7

exempt anyone from responsibility . . . .”

8

Code § 1668.

9

from responsibility for any of the causes of action in

The statute only applies to contracts “which

Cal. Civ.

Here, the LOD clauses do not “exempt” CSM

10

this litigation.

They merely limit the amounts and

11

types of damages available to Peregrine for these

12

violations.

13

Nevertheless, the Court recognizes that courts

14

applying California law have analyzed damage limitation

15

clauses in light of the restrictions of Section 1668.

16

See Food Safety Net, 209 Cal. App. 4th at 1126-28

17

(applying analysis of § 1668 to clauses nearly

18

identical to those here); Nunes Turfgrass, 200 Cal.

19

App. 3d at 1538; Civic Ctr. Drive Apartments Ltd.

20

P'ship v. Sw. Bell Video Servs., 295 F. Supp. 2d 1091,

21

1105-06 (N.D. Cal. 2003); 1 Witkin, Summary of Cal.

22

Law, Contracts, § 660, 737-38 (10th ed. 2005) (“The

23

present view is that a contract exempting from

24

liability for ordinary negligence is valid where no

25

public interest is involved [] and no statute expressly

26

prohibits it []. [citation omitted] Limitation of

27

liability provisions are valid in similar

28
20

1

circumstances.”).

But see Farnham v. Superior Court

2

(Sequoia Holdings, Inc.), 60 Cal. App. 4th 69, 77

3

(1997) (“[A] contract exempting liability for ordinary

4

negligence is valid under some circumstances,

5

notwithstanding the language of section 1668. In our

6

view, it follows that a contractual limitation on the

7

liability . . . is equally valid where, as here, the

8

injured party retains his right to seek redress from

9

the corporation.”).

10

In Health Net of California, Inc. v. Dep't of

11

Health Servs., 113 Cal. App. 4th 224 (2003), the court

12

considered a contractual clause prohibiting monetary

13

remedies for non-compliance with laws not expressly

14

incorporated into the contract, but permitting

15

equitable remedies.

16

argued that this provision was not invalid under

17

Section 1668 because the clause is “a limitation on

18

liability and is not a complete exemption.”

19

239.

20

fact, been applied to invalidate provisions that merely

21

limit liability.”

22

to find that limiting plaintiff to injunctive relief

23

“surely rises to the level of an ‘exemption from

24

responsibility’ within the meaning of the plain

25

language of section 1668.”9

Id. at 228-29.

The defendant

Id. at

The court first noted that “section 1668 has, in

Id.

Nonetheless, the court went on

Id.

The court found it

26
9

27
28

The Court notes that Peregrine claims that CSM
caused Peregrine direct damages totaling $20,000,000.
(Opp’n at 8.) According to the evidence submitted,
(continued . . .)

21

1

necessary to distinguish Farnham and held that “section

2

1668 affords some leeway in the enforcement of

3

exculpatory clauses” and should apply to the situation

4

presented because it involved the public interest and

5

statutory and regulatory violations. Id. at 240-41.

6

Thus, the court applied an analysis under Section 1668

7

to the restriction on available remedies.

8

Pink Dot, Inc. v. Teleport Commc'ns Grp., 89 Cal. App.

9

4th 407, 415 (2001) (holding that under § 1668 the

See also

10

terms of the contract “could not have precluded

11

liability for . . . gross negligence up to $10,000 in

12

damages[]”).

13

Even if on its face the statutory language of

14

Section 1668 does not clearly encompass limitations on

15

liability, California courts have frequently applied

16

the statute’s analysis to cases in which the clauses at

17

issue merely limited or capped the remedies available

18

to a plaintiff.

19

1668 is applicable to damage limitation clauses,

20

“Section 1668 is not strictly applied” and does not per

Although the analysis under Section

21
22
23
24
25
26
27

( . . . continued)

Peregrine paid CSM approximately $600,000 for its
services under the MSA. (Comp., Exh. G.) Thus, due to
the damages cap in the MSA, Peregrine would be
foreclosed from recovering $19,400,000 in direct
damages. Peregrine does not quantify its consequential
damages but argues that CSM’s errors substantially
delayed FDA approval of bavituximab and cost Peregrine
at least a six month loss in time to market. (Opp’n at
8.) Under the LOD clauses, Peregrine would not be able
to recover for these indirect damages, even if proved.

28
22

1

se invalidate limitations on liability as applied to

2

all claims in an action.

3

at 74.

4

1668 prohibits enforcement of the LOD clauses as

5

applied to Peregrine’s claims against CSM.

See Farnham, 60 Cal. App. 4th

The Court turns to the issue of whether Section

6
7

1.

Breach of Contract

8
9

“With respect to claims for breach of contract,

10

limitation of liability clauses are enforceable unless

11

they are unconscionable, that is, the improper result

12

of unequal bargaining power or contrary to public

13

policy.”

14

(applying section 1668); Civic Ctr. Drive Apartments,

15

295 F. Supp. 2d at 1106 (noting that a limitation of

16

liability clause may be enforced where a plaintiff

17

alleges a breach of contract claim unless, in

18

contravention of § 1668, “the provision is

19

unconscionable or otherwise against public policy”).

20

Food Safety Net, 209 Cal. App. 4th at 1126

Peregrine does not argue that the LOD clauses are

21

unconscionable.

Under California law, a contract

22

provision is unenforceable due to unconscionability

23

only if it is both procedurally and substantively

24

unconscionable, but the elements need not be present in

25

the same degree.

26

Servs., Inc., 498 F.3d 976, 981 (9th Cir. 2007).

27

there is no evidence of procedural unconscionability,

Shroyer v. New Cingular Wireless

28
23

Here,

1

as CSM admits that the MSA was not presented on a take-

2

it-or-leave-it basis (SUF ¶ 6; SGI ¶ 6), the parties

3

negotiated the terms of the contract (SUF ¶ 10; SGI ¶

4

10), and there is no evidence of unequal bargaining

5

power.

6

are not substantively unconscionable.

7

Software, Ltd. v. Photon Infotech Private, Ltd., No.

8

5:12-CV-04382-EJD, 2014 WL 1728705, at *4 (N.D. Cal.

9

May 1, 2014) (“Many contracts contain . . . limitation-

Moreover, clauses limiting damages generally
See Simulados

10

of-liability clauses and courts have not found these

11

clauses to be substantially unconscionable as a matter

12

of law.

13

prevent Simulados from recovery in the event of a

14

breach.

15

allows for recovery of the total amount received by

16

Photon. As such, the Contract is not unconscionable and

17

not a contract of adhesion.”).

18

unconscionability, the Court turns to whether the LOD

19

clauses are contrary to public policy.

20

The contract does not, as Simulados argues,

The limitation-of-liability clause expressly

Without any evidence of

The California Supreme Court in Tunkl v. Regents of

21

University of California, 60 Cal.2d 92 (1963) provided

22

an outline of the characteristics which mark a contract

23

as involving the public interest under Section 1668:

24
25
26
27
28

[1] It concerns a business of a type
generally thought suitable for public
regulation. [2] 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. [3] The party holds
24

1
2
3
4
5
6
7
8
9
10
11
12

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. [4] 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. [5] In exercising
a superior bargaining power the party
confronts the public with a
standardized adhesion contract of
exculpation, and makes no provision
whereby a purchaser may pay additional
reasonable fees and obtain protection
against negligence. [6] 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.

13
Id. at 98-101 (footnotes omitted).

Peregrine argues

14
that the MSA and the TOD clauses at issue satisfy the
15
Tunkl characteristics.

(Opp’n at 15-18.)

CSM

16
disagrees.

(Reply at 8-9.)

17
Of primary importance to the second and third
18
factors in Tunkl is the classification of the
19
transaction between Peregrine and CSM.

Peregrine

20
characterizes the transaction as one involving
21
essential medical services that are a matter of
22
necessity.

(Opp’n at 17.)

CSM conversely insists that

23
this is a commercial contract for services involving
24
two sophisticated corporations.

(Reply at 6.)

25
Peregrine relies on Tunkl, Health Net, and Westlake
26
Cmty. Hosp. v. Superior Court, 17 Cal. 3d 465, 480
27
(1976) to support its position.
28
25

However, this case,

1

unlike those cited by Peregrine, does not involve the

2

provision of medical services to the general public.

3

Tunkl and Westlake involved contracts between a patient

4

or doctor and hospital, respectively.

5

focused on the fact “[t]hat the services of the

6

hospital to those members of the public who are in

7

special need of the particular skill of its staff and

8

facilities constitute a practical and crucial necessity

9

is hardly open to question.”

Both courts

Tunkl, 60 Cal. 2d at 101;

10

Westlake, 17 Cal. 3d at 480 (“Hospitals . . . provide a

11

service of great importance to both the public and to

12

doctors seeking to use their facilities.”).

13

did not involve a medical facility and was several

14

steps removed from the provision of health care

15

services to patients.

16

that a third-party vendor, Perceptive, directed CSM to

17

distribute doses “to the trial sites, to thereafter be

18

processed by pharmacists and distributed to physicians

19

to administer to the patients in the study”).)

20

Net presents a closer case, but remains

21

distinguishable.

22

contracted with the Department of Health Services

23

(“DHS”) to be one of two health plans providing managed

24

care services to Medi–Cal patients in a particular

25

county.

26

assigned all patients who failed to select a plan to

27

the competing health plan.

The MSA

(See Shan Decl. ¶ 14 (describing

Health

There, a health plan provider

However, in violation of a statute, DHS

The court found the

28
26

1

transaction affected the public interest because it

2

involved provision of “managed care for Medi–Cal

3

beneficiaries.”

4

Comparatively, CSM and Peregrine contracted to provide

5

clinical services, specifically labelling and tracking

6

of drug vials, to trial sites serving 121 patients in

7

the Phase II trial.

8

trials “are of great importance to the public” and the

9

outcome of the Phase II trial is “a matter of

Health Net, 113 Cal. App. 4th at 238.

Peregrine argues that the clinical

10

‘necessity,’ indeed urgency, for certain members of the

11

public.”

12

here is not provision of clinical trial services to

13

patients, but rather labeling and distribution of drug

14

vials to trial sites.10

(Opp’n at 17.)

However, the service at issue

While the Court recognizes the

15
10

16
17
18
19
20
21
22
23
24
25
26
27
28

In Gardner v. Downtown Porsche Audi, 180 Cal.
App. 3d 713 (1986), the court stated that “this element
of the Tunkl test appears to boil down to the following
question: Is the service merely an optional item
consumers can do without if they don't want to waive
their rights to recover for negligence or is it
something they need enough so they have little choice
if the provider attaches a liability disclaimer?”
Gavin W. v. YMCA of Metro. Los Angeles, 106 Cal. App.
4th 662, 672 (2003) (quoting Gardner, 180 Cal. App. 3d
at 718). Here, CSM’s services were clearly optional to
Peregrine, as Peregrine could have obtained another
vendor to perform clinical supply management services.
Unlike Peregrine, clinical trial patients are not
subject to the MSA and did not waive their rights to
recover for negligence against CSM. See Philippine
Airlines, Inc. v. McDonnell Douglas Corp., 189 Cal.
App. 3d 234, 243 (1987) (“The damage to PAL was
economic, and PAL expressly contracted to limit its
remedies for economic loss. The injured passengers may
still seek recovery from MDC should they so choose.”);
Delta Air Lines, Inc. v. Douglas Aircraft Co., 238 Cal.
App. 2d 95, 104 (Cal. Ct. App. 1965) (“The upholding of
the exculpatory clause will not adversely affect rights
of future passengers. They are not parties to the
(continued . . .)

27

1

importance of clinical trials to the safety,

2

effectiveness, and eventual public utilization of

3

curative or therapeutic pharmaceuticals, the Court

4

cannot find that a contract concerning the labeling and

5

distribution of vials used in such a trial of 121

6

patients transforms the contract into one which renders

7

limitation of liability clauses unenforceable under §

8

1668.

9

& Gas U.S.A., Inc., 142 Cal. App. 4th 453, 469 (2006)

See CAZA Drilling (California), Inc. v. TEG Oil

10

(“While the production of oil is of great importance to

11

the public, the drilling of a particular oil well is

12

generally only important to the party who will profit

13

from it.”).

14

Tunkl factor weighs only slightly in favor of

15

implicating the public interest.

16

Thus, the Court finds that the second

Turning to the remaining Tunkl factors, the first

17

factor is satisfied because CSM’s business of labeling,

18

warehousing, and distributing drugs is regulated by the

19

FDA.11

20

211).)

21

interest as CSM does not hold itself out as providing

22

services to the public, but only for a small number of

(See Opp’n at 5-6 (citing 21 C.F.R. §§ 210,
The third factor weighs against finding public

23
24
25
26
27
28

( . . . continued)

contract and their rights would not be compromised.
They retain their right to bring a direct action
against Douglas for negligence.”); see also Cont'l
Airlines, Inc. v. Goodyear Tire & Rubber Co., 819 F.2d
1519, 1527 (9th Cir. 1987).
11
CSM does not dispute that its business is
regulated by the FDA.
28

1

clinical-stage pharmaceutical corporations.

See CAZA,

2

142 Cal. App. 4th at 469; Appalachian Ins. Co. v.

3

McDonnell Douglas Corp., 214 Cal. App. 3d 1, 29-30

4

(1989) (“The high price of obtaining the service, in

5

and of itself, precludes nearly all members of the

6

public from obtaining the service. . . . None of the

7

sales were to an individual member of the general

8

public; all were to large, sophisticated commercial and

9

governmental entities.”).

10

Most importantly here, the fourth through sixth

11

factors demonstrate the absence of a public interest in

12

this transaction.

13

was no unequal bargaining power, the parties fully

14

negotiated the contract – including revising several

15

provisions of the MSA, and no property was under the

16

control of the CSM.12

Here, it is undisputed that there

(See Shan Decl. ¶¶ 12, 14.)

17
18
19
20
21
22
23
24
25
26
27
28

12

At the hearing, Peregrine argued that it was
under the control of CSM because the double-blinded
nature of the study meant CSM was “on [its] own” and
Peregrine was subject to the risk of CSM’s careless
errors. (See Shan Decl. ¶ 14 (“Due to the blinded
nature of the study, Peregrine . . . was dependent on
CSM to strictly floor the protocol . . . .”). The
sixth factor asks the Court to consider whether
Peregrine’s property was placed under the control of
CSM and subject to its carelessness. Like in
Appalachian, several parties took control of
Peregrine’s vials after CSM and Peregrine hired a
“clinical trial consultant” to coordinate all the
vendors, including CSM, and oversee their work. (Shan
Decl. ¶ 10.) Thus, Peregrine has not made the
requisite showing of control. See Appalachian Ins. Co.
v. McDonnell Douglas Corp., 214 Cal. App. 3d 1, 31
(1989) (“Once the satellite was placed in the Space
Shuttle, McDonnell Douglas no longer had control; the
satellite and the PAM were under NASA's control.”).
29

1

“Although the Supreme Court [in Tunkl] did not

2

specifically exclude contracts between relatively equal

3

business entities from its definition of contracts in

4

the public interest, it is difficult to imagine a

5

situation where a contract of that type would meet more

6

than one or two of the requirements discussed in

7

Tunkl.”

8

Philippine Airlines, 189 Cal. App. 3d at 237

9

(“Commercial entities, such as PAL and MDC, are

CAZA, 142 Cal. App. 4th at 468-69; see

10

entitled to contract to limit the liability of one to

11

the other, or otherwise allocate the risk of doing

12

business.”); Delta Air Lines, Inc. v. Douglas Aircraft

13

Co., 238 Cal. App. 2d 95, 102 (1965) (“Perhaps more

14

important, the case at bench involves none of the

15

elements of inequality of bargaining on which the cited

16

cases, and other recent cases of the same sort, have

17

laid their stress.”); Reudy v. Clear Channel Outdoors,

18

Inc., 693 F. Supp. 2d 1091, 1116 (N.D. Cal. 2010),

19

aff'd sub nom. Reudy v. CBS Corp., 430 F. App'x 568

20

(9th Cir. 2011) (finding no public interest where “the

21

Release in question between Plaintiffs and Defendants

22

was between two business entities with equal bargaining

23

power, and not a consumer and a larger entity”).

24

Finally, several California court have held that where

25

the provisions of the contract are negotiable, the

26

exculpatory clause should not be invalidated on public

27

policy grounds.

See Food Safety, 209 Cal. App. 4th at

28
30

1

1127; McCarn v. Pac. Bell Directory, 3 Cal. App. 4th

2

173, 182 (1992) (“The existence of an offer to

3

negotiate the limits of liability in the preprinted

4

contract is fatal to plaintiff's public policy claim. .

5

. . The limitation in Directory's contract was simply

6

not compulsory-it was negotiable.”).

7

was free to and did negotiate thirty-one terms of the

8

MSA, including the LOD clauses, it cannot post facto

9

seek to invalidate the terms it freely negotiated with

10
11

Since Peregrine

a relatively equal business entity.
Considering all of the Tunkl factors, the Court

12

concludes that the MSA and the LOD clauses contained

13

therein are not contrary to public policy.

14

first and second factors weigh in favor of invalidating

15

the limitations clauses, and they are strongly

16

outweighed by the third through sixth factors.

17

Accordingly, the LOD clauses apply to the breach of

18

contract claim and limit Peregrine’s damages thereunder

19

to direct damages in an amount equal to or less than

20

the payments made to CSM.

21

Food Safety, 209 Cal. App. 4th at 1127 (finding that

22

clauses similar to those here did not affect the public

23

interest where the defendant claimed plaintiff failed

24

to properly conduct a laboratory study of the efficacy

25

of defendant’s food disinfection equipment as required

26

by their agreement); Cont'l Airlines, 819 F.2d 1519 at

27

1527 (“[I]t makes little sense in the context of two

Only the

(MSA ¶¶ 16.A, 16C.)

28
31

See

1

large, legally sophisticated companies to invoke the

2

Tunkl . . . doctrine.”); see also Fosson v. Palace

3

(Waterland) Ltd., 78 F.3d 1448, 1455 (9th Cir.1996)

4

(“[A] clear and unambiguous contractual provision

5

providing for an exclusive remedy for breach will be

6

enforced.”) (citations omitted).

7
8

2.

Negligence13

9
10

Peregrine makes a contractual interpretation

11

argument specific to its negligence claim.

(Opp’n at

12

11-12.)

13

attempts to avoid liability or secure exemption for

14

one's own negligence, and such provisions are strictly

15

construed against the person relying upon them.”

16

Burnett v. Chimney Sweep, 123 Cal. App. 4th 1057, 1066

17

(2004) (quotation omitted).

18

construed as precluding liability for ‘active’ or

19

‘affirmative’ negligence, there must be express and

20

unequivocal language in the agreement which precludes

“[T]he law does not look with favor upon

“‘For an agreement to be

21
13

22
23
24
25
26
27
28

For the first time at the hearing, CSM argued
that under the economic loss rule, Peregrine’s tort
claims should be barred because they rely exclusively
on a breach of the contract. See United Guar. Mortgage
Indem. Co. v. Countrywide Fin. Corp., 660 F. Supp. 2d
1163, 1180 (C.D. Cal. 2009) (“The economic loss rule
generally bars tort claims for contract breaches,
thereby limiting contracting parties to contract
damages.”). Because this argument was raised for the
first time at the hearing, it was untimely and shall
not be considered by the Court. See Day v. Sears
Holdings Corp., 930 F. Supp. 2d 1146, 1168 n.84 (C.D.
Cal. 2013) (citing cases).
32

1

such liability. [citations omitted] An agreement which

2

seeks to limit generally without mentioning negligence

3

is construed to shield a party only for passive

4

negligence, not for active negligence. [Citations.]’”

5

Id. (quoting Salton Bay Marina, Inc. v. Imperial

6

Irrigation Dist., 172 Cal. App. 3d 914, 933 (1985)).

7

Notably, the Burnett court applied this rule to an

8

exculpatory clause which shielded the defendant from

9

liability for all property damage or personal injury

10

and to a damages limitation clause which precluded

11

payment for lost profits resulting from any cause of

12

action.

13

Id. at 1066-67.14

Here, neither of the LOD clauses in Paragraph 16

14

“specifically mention negligence.”

Id. at 1066.

15

Accordingly, barring any evidence to the contrary,

16

these provisions are construed as shielding CSM from

17

damages liability “only for passive negligence, not for

18

active negligence.”

19

933; see also Philippine Airlines, 189 Cal. App. 3d at

20

239 (“There is in the limitation of liability clause no

21

mention of negligence and the writing must be strictly

Salton Bay, 172 Cal. App. 3d at

22
14

23
24
25
26
27
28

At the hearing, CSM argued that this rule applies
only to indemnity clauses. However, Burnett did not
involve an indemnity clause or any claims for
indemnity. See Burnett, 123 Cal. App. 4th at 1061
(lessee of commercial space sued lessor for negligence,
breach of contract, and other claims where the lease
shielded lessor from liability for injury or damage and
limited lessor’s damages liability); see also CAZA, 142
Cal. App. 4th at 466-67 (applying Burnett to portion of
the contract limiting contract damages and allocating
liability for tort damages).
33

1

construed, with the result that it does not cover

2

defendant's own negligence.”) (quotation omitted).
This interpretation is confirmed by the intent of

3
4

the parties as expressed in the negotiations of the

5

MSA.

6

of Paragraph 16.A which could have exempted CSM from

7

liability for “acts of negligence which are not

8

intentional or reckless.”

9

erasing that phrase, the MSA eliminates any reference

In the Revised MSA, Peregrine deleted a portion

(Revised MSA ¶ 16.A.)15

By

10

to CSM’s negligence, making it liable for active

11

negligence.

12

Enthusiasts, Ltd., 147 Cal. App. 3d 309, 318 (1983)

13

(“We, therefore, conclude that to be effective, an

14

agreement which purports to release, indemnify or

15

exculpate the party who prepared it from liability for

16

that party's own negligence or tortious conduct must be

17

clear, explicit and comprehensible in each of its

18

essential details.”).

See Ferrell v. S. Nevada Off-Rd.

19

“Whereas passive negligence involves ‘mere

20

nonfeasance, such as the failure to discover a

21

dangerous condition or to perform a duty imposed by

22
23
24
25
26
27
28

15

At the hearing, Peregrine incorrectly argued that
the erasure of negligence from Paragraph 16.A applied
only to CSM’s liability for consequential, incidental,
special or indirect damages resulting from negligence.
However, the language of the unamended sentence makes
clear that the original version would have exempted CSM
from any liability for negligence. (See Revised MSA ¶
16.A (“In no event shall CSM . . . be liable for
consequential, incidental, special, or indirect
damages, or for acts of negligence . . . .”.).)
34

1

law,’ active negligence involves ‘an affirmative act,’

2

knowledge of or acquiescence in negligent conduct, or

3

failure to perform specific duties.”

4

v. 350 N. Canon Drive, LP, 202 Cal. App. 4th 35, 48

5

(2011) (quotation omitted).

6

SGI raise a triable issue of fact as to whether CSM was

7

actively negligent in failing to perform the specific

8

duties under the MSA and Work Orders.

9

Frittelli, Inc.

The facts put forth in the

The cases relied upon by CSM – which enforced

10

liability limitation clauses against negligence claims

11

– all included contractual provisions which expressly

12

and unequivocally stated the parties’ intent to limit

13

liability for negligence.

14

App. 4th at 1126-27; CAZA, 142 Cal. App. 4th at 466-67;

15

Markborough California, Inc. v. Superior Court, 227

16

Cal. App. 3d 705, 709 (1991); Nat'l Rural

17

Telecommunications, 319 F. Supp. 2d at 1047.

18

there is no similar expression of contractual intent in

19

the MSA, the Court finds that the LOD clauses leave CSM

20

open to unlimited liability for active negligence.

21

See Food Safety, 209 Cal.

Because

The question remains then whether Section 1668 bars

22

the damages limits in the LOD clauses as applied to

23

CSM’s passive negligence, if proved.

24

breach of contract claim, “a contract exempting from

25

liability for ordinary negligence is valid where no

26

public interest is involved . . . and no statute

27

expressly prohibits it . . . .”

28
35

Like with the

Blankenheim v. E. F.

1

Hutton & Co., 217 Cal. App. 3d 1463, 1472 (1990)

2

(quotation omitted); Frittelli, 202 Cal. App. 4th at

3

43.

4

implicate the public interest.

5

1668, CSM does not present the Court with any statute

6

which invalidates the limitation on damages for

7

negligence.

8

Peregrine’s claims for passive negligence and limit its

9

recovery in accordance therewith.16

As discussed above, the MSA and LOD clauses do not
Other than Section

Accordingly, the LOD clauses apply to

10
11

3.

Negligence Per Se

12
13
14

Section 1668 bars as against public policy “[a]ll
contracts which have for their object, directly or

15
16

16
17
18
19
20
21
22
23
24
25
26
27
28

At the hearing, the parties discussed whether
Peregrine’s claims for gross negligence, subsumed under
its negligence claim, would survive. Certainly if the
language of the TOD clauses does not encompass
affirmative negligence, it also could not reach gross
negligence. See Wallace v. Busch Entm't Corp., 837 F.
Supp. 2d 1093, 1101 (S.D. Cal. 2011) (“Gross negligence
is different from ordinary negligence in that ordinary
negligence ‘consists of a failure to exercise the
degree of care in a given situation that a reasonable
person under similar circumstances would employ to
protect others from harm,’ whereas gross negligence
requires ‘a want of even scant care or an extreme
departure from the ordinary standard of conduct.’”)
(quotation omitted). In any event, limitations on
liability for gross negligence are generally
unenforceable. See City of Santa Barbara v. Superior
Court, 41 Cal. 4th 747 (2007) (holding an agreement
purporting to release liability for future gross
negligence unenforceable as a matter of public policy);
Rosencrans v. Dover Images, Ltd., 192 Cal. App. 4th
1072, 1081 (2011) (“[W]hile plaintiffs' claims for
ordinary negligence are barred by the Release, their
claim for gross negligence would not be barred by the
Release due to public policy concerns.”).
36

1

indirectly, to exempt anyone from responsibility for .

2

. . violation of law, whether willful or negligent . .

3

. .”

4

of the statute, Peregrine argues that the LOD clauses

5

do not apply to its cause of action for negligence per

6

se, as it incorporates violations of law.

7

18-20.)

8

several FDA regulations contained in 21 C.F.R. §§

9

211.125, 211.130, 211.142, and 211-150.

Cal. Civ. Code § 1668.

Relying on this portion

(Opp’n at

Specifically, Peregrine claims CSM violated

(FAC ¶¶ 14,

10

19, 33.)

CSM does not dispute that its alleged conduct

11

violated FDA regulations or that these regulations

12

constitute “violation[s] of law” under Section 1668.

13

See Health Net, 113 Cal. App. 4th at 234 (“The

14

statute's prohibition against contractual provisions

15

that exculpate violations of statutory law has also

16

been construed to include regulatory violations.”).17

17

The only issue to be decided is whether the LOD

18

provisions are invalid under Section 1668 as applied to

19

Peregrine’s negligence per se claims.

20
21
17

22
23
24
25
26
27
28

As opposed to claims for active negligence, the
Court was unable to find and the parties have not
identified any case where the court required express
and unequivocal language limiting liability for
negligence per se. Cf. Burnett, 123 Cal. App. 4th at
1066. The Court finds negligence per se claims more
closely resemble passive negligence, which involves
“mere nonfeasance, such as the failure . . . to perform
a duty imposed by law.” Frittelli, 202 Cal. App. 4th
at 48. Accordingly, like passive negligence, the LOD
clauses need not expressly state their intent to apply
to negligence per se claims in order for the damages
limitations to apply.
37

1

There is a split in the case law regarding whether

2

a party can limit its liability for negligent

3

violations of statutory law.

4

F. Supp. 2d 1082, 1094 (D. Or. 2012) (examining

5

California law and stating “[t]here appears to be a

6

degree of ambiguity in the case law construing Section

7

1668 as to whether the statute operates to void

8

contractual provisions which do not entirely exculpate

9

statutory violations . . . , but purport instead merely

See Morris v. Zusman, 857

10

to limit the money damages available to an aggrieved

11

party arising out of such violations or conduct.”).

12

Peregrine relies on Health Net, 113 Cal. App. 4th at

13

234 and Capri v. L.A. Fitness Int'l, LLC, 136 Cal. App.

14

4th 1078, 1084 (2006), for the proposition that “[i]t

15

is now settled—and in full accord with the language of

16

the statute—that notwithstanding its different

17

treatment of ordinary negligence, under section 1668,

18

‘a party [cannot] contract away liability for his

19

fraudulent or intentional acts or for his negligent

20

violations of statutory law,’ regardless of whether the

21

public interest is affected.”

22

App. 4th at 234 (citations omitted); Capri, 136 Cal.

23

App. 4th at 1084.

24

discussed, here, CSM did not contract away its

25

liability for regulatory violations, it merely limited

26

its liability for damages resulting from those

27

violations.

Health Net, 113 Cal.

However, as the Court previously

Making this point, CSM cites CAZA, 142

28
38

1

Cal. App. 4th at 472, and Farnham, 60 Cal. App. 4th at

2

74, which uphold “contractual limitations on liability,

3

even against claims that the breaching party violated a

4

law or regulation.”

5

CAZA, 142 Cal. App. 4th at 472.

As applied to this action, the Court finds the

6

later line of cases more persuasive.

Peregrine’s cases

7

are largely distinguishable.

8

recognized, “Capri is significantly different from the

9

present case because it involved personal injury to a

10

consumer. Here, the contract was between two business

11

entities and the damages claimed are entirely

12

economic.”

13

Net, the court found that a clause which prohibits “any

14

liability for any damages for any statutory violation

15

surely rises to the level of an ‘exempt[ion] from

16

responsibility’ within the meaning of the plain

17

language of section 1668,” but left open the

18

possibility that “some contractual limitations over the

19

scope of available remedies need not necessarily run

20

afoul of section 1668.”

21

at 239.

22

exemption described in Health Net.

23

for direct damages in an amount equal to the sum it

24

received from Peregrine.

25

at 1096 (synopsizing the Health Net rule as: “any

26

limitation of liability that, while facially falling

27

short of an absolute elimination of liability, would

As the CAZA court

CAZA, 142 Cal. App. 4th at 471.

In Health

Health Net, 113 Cal. App. 4th

The LOD clauses do not rise to the level of
CSM remains liable

See Morris, 857 F. Supp. 2d

28
39

1

nevertheless be unenforceable under Section 1668 to the

2

extent that it so limited the money damages available

3

as to constitute a de facto exemption from

4

responsibility for intentional misconduct or violation

5

of statutory law”).

6

the Court found that the transaction at issue does not

7

affect the public interest.

8
9

Moreover, unlike in Health Net,

Id. at 241.

By comparison, in CAZA, TEG hired CAZA to drill a
well and executed a contract that excluded

10

consequential damages and allocated liability for tort

11

damages caused by negligence.

12

457, 466.

13

blowout, resulting in the death of a CAZA employee,

14

injury to others, and complete destruction of the well.

15

CAZA filed a complaint against TEG, alleging breach of

16

contract and other causes of action.

17

filed a cross-complaint contending that CAZA was liable

18

for negligence per se because it violated various

19

statues and regulations in performing drilling

20

activities.

21

numerous California cases and held that the challenged

22

provisions “represent[] a valid limitation on liability

23

rather than an improper attempt to exempt a contracting

24

party from responsibility for violation of law within

25

the meaning of section 1668.”

26

stated:

27
28

142 Cal. App. 4th at

A few days after drilling began, there was a

Id. at 470.

Id. at 458.

TEG

The CAZA court reviewed

Id. at 475.

The court

CAZA did not seek or obtain complete
exemption from culpability on account
of its potential negligence or
40

violation of any applicable
regulations. It merely sought to limit
its liability for economic harm
suffered by TEG. The parties foresaw
the possibility that a blowout could
occur and agreed between themselves
concerning where the losses would
fall. . . . [T]he limitation of
liability provisions did not adversely
affect the public or the workers
employed by CAZA. . . . [W]here the
only question is which of two equal
bargainers should bear the risk of
economic loss in the event of a
particular mishap, there is no reason
for the courts to intervene and remake
the parties' agreement.

1
2
3
4
5
6
7
8
9
10

CAZA, 142 Cal. App. 4th at 475.

Similarly here, the

11

LOD provisions merely limit CSM’s liability for

12

economic harm.

13

foresaw the centrality of the FDA regulations and CSM’s

14

compliance with professional standards.

15

3A, 15.)

16

patients in the Phase II trial or the general public.

17

Peregrine and CSM, two equal bargainers, apportioned

18

the risk for violations of law in the MSA , and the

19

Court shall not disturb the parties’ agreement.

20

Farnham, 60 Cal. App. 4th at 78 (“[T]he “sole remedy”

21

provision[, which preserved an employee’s claims

22

against his corporate employer but waived his right to

23

sue the corporation’s officers,] in Farnham's contract

24

does not conflict with any public interest but is

25

instead the result of a private, voluntary transaction

26

in which Farnham simply agreed to look to Sequoia to

27

shoulder a risk that might otherwise have fallen on its

The MSA reveals that the parties

(See MSA ¶¶

The LOD clauses do not adversely affect the

28
41

See

1

officers, directors and shareholders.”); Morris, 857 F.

2

Supp. 2d at 1097 (“[N]egotiated agreements to cap

3

available money damages at reasonable levels would not

4

be within the scope of [Section 1668].”); Reudy, 693 F.

5

Supp. 2d at 1118 (applying CAZA and stating “Presumably

6

two business entities with equal bargaining power

7

should be able to voluntarily enter into a Release

8

Agreement whereby one pays the other in order to

9

continue its' allegedly wrongful conduct. . . . This

10

does not appear to . . . be the sort of Agreement that

11

was meant to run afoul of Section 1668, and is clearly

12

distinguishable from the facts of the cases cited by

13

Plaintiffs in which the parties signed broad contracts

14

releasing new, unknown and unspecified wrongdoing that

15

might happen in the future[.]”).

16

Relying on these cases, the Court finds that

17

Section 1668 does not invalidate the LOD clauses as

18

applied to CSM’s alleged violations of law used to

19

support Peregrine’s claim for negligence per se.

20

Court holds that the damages caps in Paragraph 16 apply

21

to this claim.

The

22
23

4.

Fraud

24
25

Finally, the FAC includes two fraud claims for

26

negligent misrepresentation and constructive fraud.

27

See Blankenheim, 217 Cal. App. 3d at 1472-73 (“[C]ase

28
42

1

law has long held that negligent misrepresentation is

2

included within the definition of fraud.”); Cal. Civ.

3

Code § 1573.

4

Unlike claims involving negligent violations of law

5

under Section 1668, there is no split in the caselaw

6

regarding intentional torts.

7

that “limitation of liability clauses are ineffective

8

with respect to claims for fraud and

9

misrepresentation,” regardless of whether the public

The cases uniformly hold

10

interest is implicated.

11

at 1126; Blankenheim, 217 Cal. App. 3d at 1471–1473.

12

Food Safety, 209 Cal. App. 4th

None of the cases cited by CSM uphold the

13

application of a liability limitation clause to a fraud

14

claim, even where the clause amounts to a limitation on

15

damages limitations as opposed to an outright

16

exemption.

17

(“[C]ontractual releases of future liability for fraud

18

and other intentional wrongs are invariably

19

invalidated.”); Civic Ctr. Drive, 295 F. Supp. 2d at

20

1106 (“Under § 1668 of the California Civil Code,

21

contracts which ‘have for their object . . . to exempt

22

any one from responsibility for his own fraud . . . are

23

against the policy of the law.’”) (quotation omitted).

24

See Farnham, 60 Cal. App. 4th at 71

In accordance with the precedent, the Court holds

25

that the LOD clauses are inapplicable to Peregrine’s

26

claims for negligent misrepresentation and constructive

27

fraud.

See WeBoost Media S.R.L. v. LookSmart Ltd., No.

28
43

1

C 13-5304 SC, 2014 WL 2621465, at *9-10 (N.D. Cal. June

2

12, 2014) (holding that “section 1668 renders the T &

3

C's limitation of liability unenforceable to the extent

4

that it would insulate Defendant from intentional tort

5

liability” where the clauses at issue, like those here,

6

barred consequential damages and limited liability to

7

“the total amount paid . . . to Defendant under this

8

Agreement,” but did exculpate liability for the claims

9

at issue).

10
11

V.

CONCLUSION

12
13

For the foregoing reasons, the Court GRANTS IN PART

14

and DENIES IN PART Defendant’s motion for partial

15

summary judgment.

16

on Damages clauses in Paragraph 16 of the Master

17

Services Agreement apply to the FAC’s causes of action

18

for breach of contract, passive negligence, and

19

negligence per se.

20

apply to the claims in the FAC for active negligence,

21

negligent misrepresentation, and constructive fraud.

The Court holds that the Limitations

The damages limitations do not

22
23
24
25
26
27

Dated: July 30, 2014

____________________________
Jesus G. Bernal
United States District Judge

28
44