In Dental Health Products, Inc. v. Sunshine Cleaning Services, Inc., No. 21-C-1358, 2023 WL 2163495 (E.D. Wis., Feb. 23, 2023), a federal district court in Wisconsin recently dismissed the breach of contract claims brought by a buyer against a seller of medical gloves based upon the terms of the purchase agreement. This ruling reminds contracting parties that their ability to succeed in future litigation may be limited by previously agreed-upon contractual language.
Case Background
In February 2021, Dental Health Products (“DHP”) and Sunshine Cleaning General Services (“Sunshine”) entered into a purchase agreement whereby DHP was to purchase from Sunshine a minimum of 240,000 boxes of gloves per week for 24 weeks at a price of $11.00 per box. DHP shortly thereafter made a payment of over $2.7 million to Sunshine’s escrow account for the first shipment of gloves, with an expected arrival day of March 9, 2021.
When Sunshine’s contracted supplier, The Global Group Funding (“Global”), did not receive the gloves from its business parties, Sunshine, DHP and Global agreed on an alternative brand of gloves. However, Global was unable to locate an alternative supplier of gloves, leaving Sunshine unable to fulfill its obligation to supply the gloves to DHP. DHP demanded the return of its $2.7 million from Sunshine’s escrow, which Sunshine provided. Nevertheless, DHP brought suit against Sunshine for failure to provide the gloves because it was unable to honor the contracts it made with its customers, resulting in claimed financial damages of over $17.5 million.
The Parties’ Agreement Excluded Consequential Damages, thereby Barring Buyer’s Claim for Lost Profits
In its breach of contract claim, DHP sought lost profits. Sunshine argued that DHP’s lost profits were not recoverable under the parties’ agreement. The court agreed with Sunshine, finding that lost profits are consequential damages under Wisconsin law. The court explained that Wisconsin law defines consequential damages as “including lost profits from future sales.” Accordingly, the court held that DHP’s breach of contract claim failed because the only damages sought were consequential damages, which were explicitly excluded by the “Liability Limitation” provision of the parties’ agreement.
Sunshine’s Lack of Performance was Excused by the Force Majeure Provision
Additionally, Sunshine argued that its failure to deliver the gloves to DHP was excused under the Force Majeure clause of the parties’ agreement. “Force Majeure” was defined in the agreement to mean “any cause or causes which wholly or partly prevent or delay the performance of obligations arising under this contract.” The requirement went on to provide, by way of example, a non-exclusive list of causes that the parties agreed would constitute Force Majeure that would relieve either party of liability for delays or failures in performance. One of the examples was the “inability to obtain supplies.” The court agreed with Sunshine, finding that the phrase “inability to obtain supplies” applied to Sunshine’s inability to deliver the gloves to DHP, and thereby Sunshine was not liable for its failure to perform in accordance with the parties’ agreement.
Practical Takeaways
- Review routine contract clauses, such as limitations of liability and force majeure provisions, with your legal counsel carefully to understand their potential effect.
- Interpretations of consequential damages can be ambiguous. An express contractual prohibition on liability for consequential damages could prevent a contracting party from recovering lost profits or lost revenue in the event of a dispute.
- Contracting parties should pay careful attention to a contract’s governing law provisions and consult with legal counsel to assess the implications of agreeing to governing law in a particular state.
- In the event of a contractual dispute, the court’s aim is to give effect to the parties intentions, and courts will look to the language of the contract as a key indicator of the parties’ intent.
- A thoughtfully drafted agreement is one of the best ways to prevent misunderstandings between the parties. Involving legal counsel in the early stages of contracting can help organizations avoid costly litigation in the future.
If you have any questions, please contact:
- David Honig at (317) 977-1447 or dhonig@hallrender.com;
- Chad Sukurs at (317) 977-1452 or csukurs@hallrender.com;
- Kathryn Jones at (248) 457-7846 or kejones@hallrender.com;
- Sadie Zurfluh at (414) 721-0472 or szurfluh@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
