Limitation of Liability Clause Cannot Render Contract Illusory

Innovate Technologies LP entered into a contract with another information technology firm, Youngsoft, Inc., to provide IT services on a project for one of Innovate’s clients. The job did not go well.  Youngsoft sued Innovate for nonpayment, and Innovate counterclaimed for breach of warranty and breach of contract. The trial court granted summary judgment and directed verdict against Innovate’s counterclaims, based on a limitation of liability clause that  provided Youngsoft “shall not be liable for any incidental, ancillary, direct, indirect, special or consequential damages, including but not limited to lost profits, whether in tort or contract, and based on any theory of liability.”  Elsewhere in the contract, however, Youngsoft expressly agreed to indemnify Innovate from “all claims, damages and judgments . . . arising out of or relating to any breach of this Agreement.”  The Court of Appeals reconciled those apparently conflicting provisions — which threatened to render the entire agreement illusory and unenforceable — by agreeing with Innovate that the limitation of liability clause applied to claims brought against Youngsoft by third parties, not to claims brought by its counter-party, Innovate. The Court therefore reversed the trial court’s rulings and remanded the case for a new trial.

Innovate Tech. Solutions, L.P. v. Youngsoft, Inc., No. 05-12-00658-CV