Contracting for the Right to Inflict Willful Injury Not Allowed. Quarterly Insights, Vol. XII.

Photo by Zachary DeBottis

Some More Nuggets on the BBQ Sauce Case

Last year, this blog covered a case where the 9th Circuit Court of Appeals requested that the California Supreme Court issue a decision in accordance with Cal. R. Ct. 8.548(b) because it determined that there was no controlling precedent. New England Country Foods, LLC v. VanLaw Food Products, Inc., 567 P.3d 63 (Cal. 2025). For regular readers, it was the blog on a barbecue sauce clone. Recall the key facts. A manufacturer was selling its barbecue sauce to Trader Joe’s. 567 P.3d at 64. At some point, the manufacturer outsourced manufacturing to a contract manufacturer. Id. Even though the written agreement that outsourced the manufacturing prohibited “reverse engineering” of the barbecue sauce, the contract manufacturer attempted to make the barbecue sauce itself and sell directly to Trader Joe’s. Id. at 65.

The original manufacturer did not like this. Id. A lawsuit ensued, in which the original manufacturer sued the contract manufacturer for breach of contract and tort causes of action. Id. But, in a twist, the agreement between the manufacturer and contract manufacturer contained this limitation of liability clause: “to the extent allowed by applicable law: (a) in no event will either party be liable for any loss of profits, loss of business, interruption of business, or for any indirect, special, incidental or consequential damages of any kind.” Id. at 64.

Since the only loss to the original manufacturer was loss of profits, shouldn’t this clause effectively end the lawsuit? The district court dismissed the complaint. Id. at 65. An appeal to the Ninth Circuit Court of Appeals ensued. Id. The question in front of the Ninth Circuit Court of Appeals was whether the limitation of liability clause in the agreement in question was invalid under California Civil Code section 1668, which prohibits all contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law. Id.

The Ninth Circuit Court of Appeals punted to the California Supreme Court. Id. In the second quarter of this year, the California Supreme Court finally provided an answer. Id.

In short, the answer was, yes, the limitation of liability clause was invalid. Id. at 67. In the opinion, the court began its analysis by restating the rule that ordinary negligence may be released in some circumstances, but that there is no similar flexibility for willful injury. Id. The Ninth Circuit Court of Appeals questioned whether the word “exempt” in section 1668 could be construed only to prohibit all provisions that categorically barred all liability. Id. But the California Supreme Court concluded that the Legislature did not intend to allow parties to privately negotiate how much they are willing to pay to inflict willful injury. Id. It further reasoned that the legal system's concern with vindicating social policy is at its zenith when it comes to willful wrongs. Id. at 68. For example, insurance companies may not contract to provide coverage for “willful torts.” Id.

At the end of the opinion, the California Supreme Court threw a bone to the contract manufacturer. It reviewed the rule that where the claims asserted are “nothing more than a breach of … contractual obligations,” section 1668 does not apply. Id. at 71. Or stated differently, parties cannot proceed in tort for what are essentially breaches of contract. Id. It also concluded, stating that for purposes of this opinion, it was assuming the manufacturer had adequately alleged willful tortious conduct independent of any breach of contract. Id.

My prediction here: We have not heard the last of this case. The ending nugget from the California Supreme Court was like a teaser at the end of a movie that suggests the sequel. Unless a settlement is reached, the contract manufacturer may attempt to argue that the alleged conduct does not rise to the level of tortious conduct and is merely a breach of contractual obligations. Stay tuned.

  YouTube Fiddles While Infringer Earns

The next case from the second quarter is ostensibly about service of process, but I believe it encapsulates some of the problems in the digital ecosystem related to copyright infringement. Over the years, on numerous occasions, I have sent notices on behalf of clients to various platforms in accordance with the Digital Millennium Copyright Act. The vast majority of these notices have resulted in a so-called “takedown” of the infringer’s material. But more recently, my perception is that the large platforms have become increasingly indifferent to the plight of the copyright holder.

In Timeless Prod. FZ LLC v. Vieconnect, 2025 U.S. Dist. LEXIS 115831, the Plaintiff alleges that Defendants unlawfully reproduced Plaintiff's works in multiple videos and uploaded them Defendant’s YouTube channels. In April 2025, the Plaintiff submitted “DMCA” complaints (the vernacular term for complaints submitted to platforms pursuant to the Digital Millennium Copyright Act) to YouTube, requesting the removal of three specific videos for copyright infringement. Id. at 2. YouTube temporarily removed the videos, but Defendants filed “false counter notices” and Plaintiffs were forced to file the lawsuit. Id. at 2-3.

If your experience is anything like mine, then you have noticed that when you leave America, you often have increased, ahem, opportunities for purchasing counterfeit goods. In the most extreme cases, like Hong Kong or Marrakech, I began to wonder if anything I saw was a legitimate article. In much the same way, it seems the online copyright infringers live beyond the U.S. borders. Over the years, I have submitted DMCA complaints against infringers in Cyprus, Eastern Europe, and oddball Caribbean Islands.

In Timeless Prod. FZ LLC v. Vieconnect, at 2, the alleged infringers are purportedly located in Vietnam. In the complaint filed on April 30, 2025, the Plaintiffs requested to serve Defendants via alternative means pursuant to Federal Rule of Civil Procedure 4(f)(3). Id. at 3. The Court denied the request and instead ordered the Plaintiff to serve Defendants according to the terms of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters (the "Hague Convention"). Id. The Court stated as well that Plaintiff could renew the request to serve via alternative means at a later date and that if such a request was made, it should detail Plaintiff's efforts at service as well as its attempts to understand and comport with the law governing service of process in the relevant countries. Id. The Court extended the deadline for service of process to June 14, 2025. Id. at *4.

On June 5, 2025, Plaintiff renewed the motion to serve Defendants via alternative means pursuant to Federal Rule of Civil Procedure 4(f)(3). Id.

The district court set out the rule for whether to grant the motion. Id. It stated that it was a three-step analysis. Id. First, to assess whether the proposed method of service is prohibited by international agreement. Id. Second, whether Plaintiff has demonstrated that the facts and circumstances of the present case necessitate the district court's intervention. Id. Third, the court must confirm that the proposed method of service comports with constitutional notions of due process by being "reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. Id. at *4-5.

There was some grumbling by the district court that the Plaintiff had not been abundantly clear in its motion as to the type of alternative service it sought to use. Id. at 7. Instead, it had mentioned several possibilities, including via email, WhatsApp, and YouTube messaging. Id. at 6. The Court stated, however, that even if it assumed service via email or WhatsApp, the Plaintiff had failed to demonstrate that these mechanisms were reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. Id. at *7.

The district court quibbled with the Plaintiff’s motion, finding that Plaintiff had not provided the Court with a document that showed Defendants used email and WhatsApp to communicate with Plaintiff, as compared to counternotices that may have been emailed from Defendants to YouTube, and in turn were sent from YouTube to Plaintiff. Id. at 8. Next, the district court found that Plaintiff had not revealed the details of their investigation to the Court to verify the Defendants’ use of the email and WhatsApp. Id. at 9. The Court stated that if Plaintiff had conducted such an investigation, then Plaintiff should include all the relevant details, with an explanation of the results, in a declaration or affidavit with supporting documentation and record citations. Id. Finally, the Court concluded that even if Plaintiff had provided the supporting documentation that the email address and WhatsApp were in fact being used, there was nothing in the record that showed the email address and WhatsApp were for all three Defendants. Id. at *8-9.

At the top of my analysis, unfortunately, I have to agree that the Court came to the right conclusion of the law. Whether the Defendants have meaningful notice of the lawsuit being brought against them, I think, is a bedrock of the U.S. legal system. In a normal scenario, as well, if Plaintiffs had obtained a default judgment when enforcing that judgment against the Defendants, it would be in the interest of the Plaintiffs to have a strong record with respect to their service and attempts of service.

However, in a broader sense, while this opinion applies the law correctly, it constitutes a miscarriage of justice. The frustration I feel for this Plaintiff is nearly as strong as if they were my own client.

In my travels, I distinctly remember in Bangkok, after visiting two or three tailors, I asked to return to my hotel. But the driver of the “tuk tuk” said he had some place else to take me. (As an aside, the fine line between kidnapping and chauffeuring in Bangkok is worthy of another blog article.) We arrived on a side street. The door was not marked. Once inside, I found boxes of “Louis Vuitton” bags, with “Burberry” coats and “Fendi” jackets under fluorescent-like lights. While these items are typically quite merchandised in the U.S., in this instance, they were either on the ground, in cardboard boxes or on very basic shelves. On another trip to Madrid, the Ivorian traders on the plaza evaded the police by placing similar goods on blankets with strings attached to the four corners. On the first sign of enforcement, they ran as fast as their legs could carry them with the whole of their merchandise in the closed blanket.

My point is that those who traffic in infringing items are often not the most reputable businesses. In my prior experience with some online infringers, mail has been returned because the address does not actually exist. Perhaps because it never existed, or, like the Ivorian traders, the infringers have moved on to evade enforcement. While it is possible that the Defendants in Timeless Prod. FZ LLC v. Vieconnect are reputable businesses; maybe it’s time to question whether YouTube, with its $3.3 trillion market cap, ought to step in and make enforcement easier for owners of intellectual property? 2025 U.S. Dist. LEXIS 115831. It could be as easy as requiring U.S.-based registered agents for accounts that exceed a certain threshold of clicks or views. The Digital Millennium Copyright Act was enacted in 1998. The limitations of liability for platforms and internet companies were structured and created with the understanding that the internet was a nascent industry. That is no longer the case.

Who Decides Which One of Us Decides?

In the third and final case from the second quarter of the year, a generation of lawyers is learning (or perhaps, relearning) an important principle in the tighter economy. For years, during a long period of prosperity, the dispute resolution clauses in many agreements became friendlier. Some contained requirements that the parties work together in good faith before filing suit. Others required formal mediation prior to filing suit, without stating timing or procedures. And so on.

These feel good when money is flowing, and, indeed, we all should strive to have the kind of business partners who would do those things without being required to do them. But it’s in these small cracks of ambiguity where lawsuits blossom.

In Hagopian v. Maher, 2025 Cal. App. Unpub. LEXIS 2824, a healthcare marketing agency in Alameda County, hired the Appellant. The Appellant’s responsibilities included managing finances, handling matters relating to human resources, insurance, loans, employee benefits, and payroll. Id. at *2. The Appellant was an employee, but was somehow given the title of Managing Partner. Id.

At some point in time (I think between 2016 and 2018, but the record was not entirely clear), as part of her role, she entered into an agreement on behalf of the marketing agency with TriNet Group, Inc. to handle the company's payroll and benefits. Id. TriNet became a “co-employer,” and when employees, including Appellant, signed up for their benefits, they agreed to TriNet’s agreement, which contained a dispute resolution procedure. Id. at *3.

Fast forward to June of 2021, and the agency is sold. Id. at 4. Each of the employees, including the Appellant, was given a Transaction Bonus of $100,000, provided the employee executed a Transaction Bonus Agreement that contained a typical broad release of all claims (e.g., “known and unknown, etc., etc., etc.) in exchange for receipt of the bonus. Id. The Appellant signed the Transaction Bonus Agreement and received $100,000. Id. In the period after, however, Appellant claimed that she had participated in the sale negotiations and had been verbally promised $1,000,000 if the sale occurred. Id. at 5.

The three former owners of the marketing agency (presumably being threatened with arbitration) filed a suit for declaratory judgment. Id. The suit sought a declaration that the Appellant had never been granted in equity in the agency and was not entitled to any share of the proceeds from the sale. Id. at *5-6.

Appellant, relying on the dispute resolution clause in the TriNet Agreement, filed a demand for arbitration with JAMS. Id. When the former owners of the marketing agency did not participate in the arbitration, Appellant filed a motion to compel arbitration in the suit for declaratory judgment. Id. The trial court denied the motion to compel arbitration. Id.

On appeal, there were two issues. Id. Was the arbitrability of the dispute properly resolved by the court or by the arbitrator? Id. And did the broad releases in the Transaction Bonus Agreement override the dispute resolution clause? Id. at *7.

The first issue, arbitrability, is a little like the famous philosophical question of the Roman poet Juvenal: who guards the guardians? In this case does the court get to decide whether the dispute is within the purview of the arbitration clause or does the arbitrator get to decide who if the dispute is within the purview of the arbitration clause?

The appellate court held that the arbitration clause must contain "'clear and unmistakable'" evidence that the parties intended for gateway issues like arbitrability to be decided by the arbitrator. Id. at 8. In this case, the Appellant conceded that the TriNet Agreement did not expressly require arbitrability issues to be decided by the arbitrator, but that it referred to JAMS to govern the arbitration. Id. at 8-9. And the JAMS rules required:

"Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator. Id. at 9. Unless the relevant law requires otherwise, the Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter." Id. at 9.

But the appellant court zeroed in on whether JAMS was, in fact, required under the TriNet Agreement. Id. It found the clause: Arbitration begins by bringing a claim under the applicable employment arbitration rules and procedures of the Judicial Arbitration and Mediation Services, Inc. ('JAMS') or any other dispute resolution provider agreed to by the parties, as then in effect and as modified by any superseding provisions in this [Dispute Resolution Protocol]." (Emphasis added). Id.

It was this contemplation of the possibility of another dispute resolution provider that made the appellate court determine that the court had properly heard the issue of arbitrability:

We disagree that the TriNet Agreement manifests a "clear and unmistakable" intent by the parties to enforce any particular version of the JAMS Rules. The Agreement itself does not address who resolves issues of arbitrability. The issue is supposedly addressed by the JAMS Rules, but those rules are not required by the contract, they are simply a default set of rules to be used if the parties were unable to agree upon another arbitration provider and its rules. Id. at *9-10. Further, the appellate court reasoned, since the rules change over time mere incorporation of them would not evidence “clear and unmistakable” intent for issues of arbitrability to be determined by the arbitrator. Id.

So, the trial court had been correct in determining it had the authority to determine the arbitrability of the agreement, but the appellate court found it had improperly determined that the arbitration provisions in the TriNet Agreement were waived by execution of the Transaction Bonus Agreement. Id. at *14.

  The crux of the review centered on this provision in the TriNet Agreement:

  “If at the time of a covered dispute there is an agreement between you and your company governing the resolution of the covered dispute, then to the extent inconsistent with this DRP, that agreement will be controlling as between you and your company (and its employees, officers, and agents)." Id. at *14-15.

The trial court had essentially found that the release agreement was inconsistent with the “DRP,” but the appellate court found that there was a distinction between the merits of the claim and the procedures of the claim. Id. at *15-16.

For the contractual exception to arbitration to trigger, both elements had to be satisfied: a separate agreement governing resolution of the claim, and an inconsistency between the separate agreement and the DRP. Id. at *17. Neither condition was satisfied here. Id. Accordingly, the arbitration provision governs the dispute. Id.

  Your eyes may be bleeding by now if you have not fallen asleep. I think the appellate court got it right, but I will make a few comments more in plain language. Why did the TriNet Agreement contemplate the possibility of another dispute resolution provider other than JAMS? Let’s look at the language again:

  “Arbitration begins by bringing a claim under the applicable employment arbitration rules and procedures of the Judicial Arbitration and Mediation Services, Inc. ('JAMS') or any other dispute resolution provider agreed to by the parties. . .” Id. at *9.

It’s not clear why this language exists. If it existed to make the point that arbitration would be the path forward even if JAMS ceased to exist, then arguably the language is necessary. But if it were allowing the parties to make an agreement, then it’s hard to justify its inclusion. And in this case, it made the selection of JAMS appear permissive and therefore contributed to the appellate court’s reasoning that the arbitrability of issues was properly done by the court instead by the arbitrator.

On the second issue, the appellate court’s reasoning was sound. I would have added that “governing the resolution” very nearly acted as a present-tense verb, which supports the appellate court’s argument that the language was about procedure.

The case added to my general sensibility: if the courts can find a way to kick a matter over into private arbitration, they will. The practice tips: avoid extraneous language in dispute resolution clauses, and if you want the arbitrator to decide gateway issues, make that “clear and unmistakable” inside the agreement. Finally, put venue and jurisdiction clauses in any settlement agreement.