Reported / Citable
Background
Alta Power sought to build peaker plants (electricity generation facilities that operate during peak demand) and contracted with WattStock in February 2019 to purchase refurbished turbines. The Master Agreement included a broad mutual waiver of consequential damages applying to “any cause of action” arising from the agreement, explicitly protecting both parties and their “officers, directors, partners, employees, representatives, contractors, or subcontractors.” GE became a WattStock subcontractor in July 2019 under a separate arrangement memorialized in a 2017 Memorandum of Understanding.
When the turbine arrangement deteriorated in 2020, Alta sued WattStock for breach of contract and tort claims, eventually bringing GE in as a third-party defendant. After WattStock filed for bankruptcy, the case proceeded in federal court. GE moved for summary judgment based on the consequential-damages waiver. The district court granted GE’s motion, and Alta appealed on three grounds: that GE lacked intended third-party beneficiary status, that fraudulent inducement rendered the waiver unenforceable, and that the waiver did not extend to intentional torts.
The Court’s Holding
The Fifth Circuit affirmed the district court on all three issues. First, the court held that GE qualifies as an intended third-party beneficiary of the waiver. Although GE was not a party to the Master Agreement, the waiver’s text explicitly extended protection to the category of “subcontractors,” and GE became WattStock’s subcontractor in July 2019. The plain meaning of “subcontractor” does not require that the beneficiary hold that status at the time the contract was executed; the waiver’s only limitation is that disputes must be “connected in any way” to the Master Agreement, a requirement Alta’s claims easily satisfy.
Second, the court rejected Alta’s fraud argument, following Texas Supreme Court precedent in Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC. Because Alta and WattStock were sophisticated entities represented by counsel negotiating at arm’s-length, and because they bargained to limit consequential damages—not to waive fraud claims entirely—the waiver remains enforceable. The fact that GE was a non-party did not alter this analysis; what mattered was that Alta and WattStock intentionally bargained to protect third-party subcontractors from consequential-damage liability.
Third, the court held that the waiver applies to intentional torts. The waiver’s language covering “any cause of action including negligence, strict liability, breach of contract, and breach of strict or implied warranty” uses “including” in an expansive, not exhaustive, sense. Because a party can intentionally breach a contract or warranty, intentional conduct falls within the scope of the listed examples. The repeated use of “any” demonstrates the parties’ intent to cover a broad range of causes of action.
Key Takeaways
- Non-parties can enforce contractual waivers as intended third-party beneficiaries when the contract explicitly extends protection to their class or category, even if they did not exist or held that status at the time of contracting.
- Sophisticated represented parties negotiating at arm’s-length can contractually limit consequential damages even for fraud claims, provided the waiver does not eliminate the fraud claim itself but only restricts available remedies.
- Contractual language using “any cause of action” and “including” is interpreted expansively under Texas law and covers intentional torts absent explicit language excluding them.
- Courts will not rewrite contracts to impose limitations the parties did not bargain for, even when doing so might protect one party from the consequences of another’s alleged wrongdoing.
Why It Matters
This decision reinforces the enforceability of broadly-drafted limitation-of-liability clauses under Texas law, particularly when sophisticated parties negotiate at arm’s-length. By protecting non-party subcontractors through explicit contractual language, companies can extend liability protections across complex contractual chains without requiring each subcontractor to be a direct party to the principal agreement. The ruling also clarifies that fraudulent inducement by a third-party beneficiary does not automatically invalidate a limitation-of-liability clause when the parties bargained to limit damages rather than eliminate the underlying claim.
For parties drafting limitation-of-liability provisions, the decision provides guidance on how to extend protections to anticipated future subcontractors and confirms that carefully-drafted “any cause of action” language will be read to encompass intentional conduct. However, the court emphasized in a footnote that fraud may still constitute a “compelling reason” to override such provisions in contexts where sophistication and arm’s-length negotiation are absent, leaving room for narrower applications in less formal contractual relationships.