Stipulated Damages, Exculpatory Clauses and Unconscionability
On re-reading Discover Bank v. Superior Court (Cal. 2005) I found myself getting hung up on a conceptual problem you might be able to help me with. The Discover Bank court considered the validity of class action arbitration waivers. Holding such waivers unconscionable as a matter of law, the court halted (that is, until Concepcion) arbitration’s inexorable conquest of consumer litigation. The court reasoned was that such waivers presented issues of both procedural and substantive unconscionability. Procedural, the waivers were default-forcing “bill stuffers” and consequently not meaningfully chosen. Substantively, “they may operate effectively as exculpatory contract clauses . . . because . . . damages in consumer cases are often small . . and the class action is often the only effective way to halt and redress [wrongdoing.]“
The question I have is what distinguishes “exculpatory clauses” – typically thought to be against public policy – from ordinary “stipulated damages” clauses, which are subject to reasonableness review. I unaware of any scholarship that tries to define exactly what stipulated damages are (and are not). Consider two possibilities:
- To the extent that stipulated clauses are broadly defined, so as, for example, to include bespoke procedure, courts’ permissive treatment of stipulated damage clauses would seem to then imply vastly more private-party control over remedies than the traditionally-narrow scope that the term stipulated damage implies.
- But perhaps such clauses are narrowly defined – that is, the stipulation must relate only to damages flowing from the contract (i.e., a term that limited parties’ ability to seek specific performance would not count as a stipulated damages clause, nor would a waiver of damages for a tort). In that case the Discover Bank court’s categorical move is more defensible, but it’s not obvious that the line between damage and remedy makes sense analytically.
A third possibility is that stipulate damage reasonableness review is limited to scenarios where some remedies remain on the table, regardless of whether the remedy arises out of a claim related to the contract or not; the categorical public policy bar from Discover Bank applies when all remedies are precluded. Discover Bank is, again, a bad case for that claim, since not all contract remedies were precluded, only those which would deter future harms.
Anyway, it’s a puzzle. Thoughts?