Barry M. Klayman and Mark E. Felger

Everyone is familiar with the oft-times repeated example of chutzpah: The offspring who kills his parents and then begs the court for mercy on the grounds that he is an orphan. The example sprang to mind when reading the recent decision in Tibco Software v. Mediamath, C.A. No. N18C-07-066 CLS (Del. Super. July 10, 2019), wherein Judge Calvin Scott denied a motion for judgment on the pleadings on the grounds that the defendant's proffered interpretation of a liability limitation provision in a master service agreement was unreasonable.

The facts as presented in the opinion were not complicated. Tibco Software's predecessor and Mediamath entered into a master service agreement whereby Tibco's predecessor would provide information, technology, products, services and support to Mediamath for an established fee. Tibco later acquired the agreement. Between August 2014 and December 2017, Tibco or its predecessor provided services under the agreement to Mediamath as specified in an order form for such services. The agreement provided that Mediamath was to pay all fees as specified on the order form, but if not specified, within 30 days of receipt of an invoice. In January 2018, Tibco sent an invoice to Mediamath for $321,187.46. The invoice remained unpaid for more than 30 days. After making a demand for payment, Tibco instituted this action against Mediamath for breach of contract.

So far, the story resembles so many other routine contract disputes. However, Mediamath asserted a singular counterclaim seeking a declaratory judgment that the agreement capped Mediamath's liability at zero dollars. Specifically, the agreement contained a liability limitation provision, titled "Total limit on liability," which provided as follows:

"Neither party's aggregate liability arising out of or related to this agreement (whether through indemnification, in contract, tort or otherwise) will exceed the actual amount paid by customer within the 12 months preceding the event that gave rise to the liability."

Since the actual amount Mediamath had paid within the 12 months preceding the date of the invoice was zero dollars (it had paid for none of the services received from Tibco or its predecessor), Mediamath argued that it could not be held liable for the invoice amount. Dear Honorable Judge, I plead for mercy on the grounds I am an orphan!

Of more interest was the way in which Scott disposed of the motion, since on the face of the agreement, the liability limitation provision seemed to be clear and to require the result that Mediamath advocated.

Scott noted that a contractual provision that purports to relieve a party from liability for damages resulting from its own negligence is disfavored under Delaware law. Contract language will not suffice to relieve a contracting party of its failure to satisfy legal obligations unless the contract language makes it "crystal clear and unequivocal" that the parties specifically contemplated that the contracting party would be relieved of its own defaults. An ambiguity will be found when the provisions in controversy are reasonably or fairly susceptible of different interpretations; an unreasonable interpretation is one that produces an absurd result or one that no reasonable person would have accepted when entering the contract.

Scott found Mediamath's proffered interpretation unreasonable. "Surely no reasonable party would conclude that a failure to pay fees owed under an enforceable contract can be the same basis used to avoid responsibility for the same fees." Fundamental to the concept of a contractual limitation of liability is the presumption that there will be a good-faith effort by the contracting party to perform its contractual obligations.

Scott held that, for the liability limitation provision to relieve Mediamath from the results of its own alleged negligence, it must expressly show an intent to do so. It did not, and to find otherwise would produce an absurd result. He concluded that under the facts of the case, the proper interpretation of the agreement's liability limitation provision was an issue of material fact, and therefore Mediamath's motion for judgment on the pleadings had to be denied.

This is one of those cases where the right result just calls out to you, but how to reach that result requires a little more thought. Clearly Mediamath was advocating for an absurd result, yet it was quite consistent with the plain meaning of the liability limitation provision in the agreement. But Scott was correct in concluding that the provision at issue could not mean that the defaulting contracting party could get off "scott free" based on its own failure to pay for the services it had received. That result would simply be absurd, and by characterizing it as unreasonable, Scott found a way to render the provision ambiguous and thus open the door for further evidence of the parties' intent (and slam shut the door on the motion for judgment on the pleadings).

Scholars have studied the use of the term "chutzpah" in legal writings. See, e.g., Jack Achiezer Guggenheim's "The Evolution of Chutzpah as a Legal Term: The Chutzpah Championship, Chutzpah Award, Chutzpah Doctrine, and Now, the Supreme Court," Ky. L. J., vol. 87:2, art. 4 (1998). Although Scott did not expressly refer to the term, it is fair to suggest that he recognized a "chutzpah" defense when he saw it.

Barry M. Klayman is a member in the commercial litigation group and the bankruptcy, insolvency and restructuring practice group at Cozen O'Connor. He regularly appears in Chancery Court.

Mark E. Felger is co-chair of the bankruptcy, insolvency and restructuring practice group at the firm.