Contractual Waivers ...

Contractual Waivers of Punitive Damages are Enforceable Under Mississippi Law (at Least Sometimes)

July 19, 2023 | by E. Barney Robinson III

In 4-Way Electric Services, LLC v. Huntcole, LLC, __ So.3d __, 2023 WL 4114332 (Miss. June 22, 2023), the Mississippi Supreme Court considered a dispute between the sellers and buyer of a business that refurbishes electric transformers. Through an asset purchase agreement, the seller, Huntcole, in exchange for more than $11 million, transferred to the buyer, 4-Way, all property necessary to conduct the refurbishment business.

The asset purchase agreement did not include the building in which the business operated.  Id., 2023 WL 4114332, at *1. Instead, Huntcole leased that building to 4-Way through a separate lease.  Three years later, 4-Way announced it was moving its business to a different city. It began removing large pieces of commercial equipment it believed it had purchased from Huntcole under the asset purchase agreement. Huntcole sued, arguing that because the equipment was affixed to the building, it had not sold that equipment in the asset purchase agreement.  Id.

The trial court ruled that the affixed equipment had been excluded from the asset purchase agreement and granted summary judgment to Huntcole on its claims of conversion and breach of the lease. Id.  After a trial on damages, the trial court awarded Huntcole $1,013,310 in compensatory damages, $1 million in punitive damages, and $124,065.56 in attorneys’ fees.  Id.

The two issues on appeal were whether “4-Way converted property, and whether the trial court erred by not enforcing the Lease’s punitive damages waiver.”  Id., 2023 WL 4114332, at *4.  Regarding the latter, 4-Way had argued below that the asset purchase agreement barred any award of punitive damages to Huntcole.  Id., 2023 WL 4114332, at *7.  On appeal, the Mississippi Supreme Court held that “[b]ased on the punitive damages waiver in the lease and Huntcole’s failure to prove conversion, we reverse the $1 million award of punitive damages in full and render judgment in favor of 4-Way.”  Id.

4-Way involved a commercial contract – a business asset purchase and sale agreement.  4-Way failed to cite, let alone discuss, prior precedent regarding punitive damages waivers in the context of arbitration provisions in consumer contracts.[1]

Given 4-Way’s unequivocal holding that contractual waivers of punitive damages are enforceable, it is unclear whether the Mississippi Supreme Court intended to overrule, sub silentio, the long line of authority finding unconscionable putative waivers of punitive damages in consumer contracts.  Cf., Riverboat Corp. of Mississippi v. Harrison Cnty. Bd. of Sup’rs, 198 So. 3d 289, 295 (Miss. 2016) (King, J., dissenting) (“Our Supreme Court has professed a presumption against sub silentio holdings, based not only on the general preference that courts adhere to precedent and overrule earlier decisions expressly”).  Given this silence, it appears the enforceability of consumer contractual waivers of punitive damages is unresolved under Mississippi law.

[1] E.g., Covenant Health Rehab of Picayune, L.P. v. Brown, 949 So. 2d 732, 738–39 (Miss. 2007), overruled on other grounds by Covenant Health & Rehab. of Picayune, LP v. Est. of Moulds ex rel. Braddock, 14 So. 3d 695 (Miss. 2009) (“The trial court also struck the clauses concerning limited liability and punitive damages. …[Those provisions] are unenforceable and were properly stricken by the trial court from the admissions agreement”); Covenant, 23 So. 3d at 1099 (“Specifically, the following sections were held to be unconscionable in Brown: …(5) the language limiting the recovery of punitive damages…”); Trinity Mission of Clinton, LLC v. Barber, 988 So. 2d 910, 923 (Miss. Ct. App. 2007) (citation omitted) (“Section E–8 seeks to waive punitive damages in any dispute between the nursing home and the resident or responsible party. This exact clause was also considered in Brown and held to be unconscionable…”).