Background
Alta Power sought to build peaker plants in Texas and contracted with WattStock in February 2019 to purchase refurbished turbines manufactured by General Electric. The Master Agreement between Alta and WattStock included a broad mutual waiver of consequential damages covering claims “arising out of or connected in any way to” the agreement and protecting, among others, the parties’ “subcontractors.” In July 2019, GE became an official WattStock subcontractor under the collaboration. When the turbine arrangement deteriorated in 2020, Alta sued GE alleging tortious conduct and sought damages including lost profits and loss of business.
Alta raised three objections to GE’s enforcement of the consequential-damages waiver. First, Alta argued GE was not an intended third-party beneficiary because it became a subcontractor after the contract was signed and the tortious conduct occurred. Second, Alta contended the waiver was unenforceable due to GE’s alleged fraudulent inducement. Third, Alta claimed the waiver did not apply to intentional torts. The district court granted summary judgment to GE, and Alta appealed.
The Court’s Holding
The Fifth Circuit affirmed, holding that GE qualifies as an intended third-party beneficiary eligible to enforce the consequential-damages waiver. The court rejected Alta’s argument that “subcontractor” status requires a timing or capacity restriction. Under the plain meaning of the term, a subcontractor is simply one who enters into an agreement with a contractor—GE did so with WattStock. The waiver’s only limitation is scope-based (disputes must be “connected” to the Master Agreement), not temporal. Alta bargained with WattStock to benefit subcontractors broadly, and courts must not rewrite agreements by implying restrictions the parties did not include.
On the fraud issue, the court applied Texas Supreme Court precedent from *Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC* (2019), holding that sophisticated parties represented by counsel can contractually limit liability, including for fraud. Here, Alta and WattStock did not waive the fraud claim itself but only the recovery of consequential damages as a measure of harm from fraud. The waiver’s scope limitation ensures recovery of direct damages remains available. The court emphasized that context matters: these were sophisticated, represented parties negotiating at arm’s length, and they bargained to protect both themselves and third parties against consequential-damage liability for disputes connected to the agreement.
Finally, the court held that the waiver applies to intentional torts. The language covers “any cause of action including negligence, strict liability, breach of contract, and breach of strict or implied warranty.” The word “including” introduces examples, not an exhaustive list, and the broad language “any cause of action” supports an expansive reading. The negative-implication canon—that listing some items excludes others—does not apply here because the parties’ use of “any” shows they considered a broad range of claims.
Key Takeaways
- Non-signatories can be intended third-party beneficiaries of contractual waivers if the contracting parties intended to benefit a class or category of persons, even if those persons become involved after contract execution.
- Under Texas law, sophisticated parties represented by counsel in arm’s-length transactions may contractually limit or waive damages for fraud or other misconduct, so long as the limitation is sufficiently clear and the waiver does not purport to waive the claim itself—only a measure of damages.
- Broad contractual language using “any cause of action” will be interpreted expansively to encompass intentional torts and other causes not explicitly enumerated.
Why It Matters
This decision reinforces Texas contract law’s strong preference for freedom of contract among sophisticated parties. It clarifies that limitation-of-liability clauses protect non-party third-party beneficiaries and survive challenges based on alleged fraud or intentional misconduct when drafted broadly enough and when the parties are sophisticated and represented. The holding moderates the traditional maxim that “fraud vitiates all it touches” by restricting that principle to situations lacking clear contractual language limiting damages.
For practitioners, the decision signals that well-drafted consequential-damages waivers with expansive language covering “any cause of action” will likely cover intentional torts and fraud claims under Texas law. Parties seeking to preserve liability for fraud or intentional conduct must do so through explicit, unambiguous carve-outs, not by invoking interpretive canons or arguing that such liability was “implied” in the agreement’s omissions.