Leading … An article in Norton Rose Fulbright’s Data Protection Report discusses a recent ruling by the 11th U.S. In addressing this argument, the court acknowledged the black-letter “foreseeable to a stranger/foreseeable to the parties” test of direct versus consequential damages, but decided that the Second Circuit’s “value of performance/additional losses” analysis was a helpful gloss on that test. But hackers accessed the portion of Silverpop’s network where LMT’s email list was stored, and  the list may have been misappropriated (though this could not be confirmed). On July 19, 2012, Silverpop filed this action, seeking a judgment declaring that LMT was not damaged by the data breach or that the damages incurred were consequential damages and, as such, not … Reassessment of the consequential damages waiver is especially important in the context of confidentiality and data security obligations. Silverpop’s system and appeared to have exported at least some of Leading Market’s e-mail addresses. (Stand-alone non-disclosure agreements might be exceptions). According to LMT, it is entitled to summary judgment because Silverpop breached Section 4.1 of the parties' agreement by failing to protect the LMT List from disclosure to third parties, the damages it incurred as a result of the breach were direct rather than consequential and, thus, recoverable under the contract, and even if those damages were consequential, … The Eleventh Circuit Court of Appeals, in Silverpop Systems, Inc. v. Leading Market Technologies, Inc., 2016 U.S. App. If the exposed data contains personal information or protected medical information subject to state and federal regulation, then the breach could also expose the company to breach notification and remediation expenses, which could be construed as consequential. Silverpop’s failure was a failure to uphold one specific term of the contract (the confidentiality provision), and, based on that, any damages from Silverpop’s lack of security were … In the absence of a breach of the confidentiality provision, LMT would not have incurred the loss to the sale value of the LMT List. However, lost profits are not the only kind of consequential damages. Norton Rose Fulbright LLP © 2020. 849 (11th Cir. 849 (11th Cir. Silverpop / IBM Campaign automation (Watson) is a marketing technology provider that offers a marketing automation solution built on a scalable email marketing platform. That position has some support from the recent decision of the Eleventh Circuit Court of Appeals in Silverpop Systems, Inc. v. Leading Market Technologies, Inc., 61 Fed. But this task confounds both lawyers and judges. The court’s analysis could apply to almost any breach of data provided to a vendor under an IT service contract, and highlights the need to carefully scrutinize a proposed waiver of consequential damages when confidential or sensitive data is involved in the contract. 641 (1997), which held that a waiver of consequential damages provision was enforceable and barred the plaintiff’s alleged consequential damages, even when the other party wrongfully terminated … “[T]o the extent that consequential damages are recoverable in breach of contract actions, a clause excluding such damages is valid and binding unless prohibited by statute or public … Limitation of Liability is one of the most important clauses you will find in almost any Terms and Conditions agreement. The U.S. Court of Appeals for the Eleventh Circuit—one of the highest federal courts below the Supreme Court—recently affirmed a decision in Silverpop Systems, Inc. v. Leading Market Technologies, Inc. finding that all damages flowing from a vendor’s data breach were barred by a standard provision in IT service contracts, disclaiming all liability for consequential damages. The power of a contract’s consequential damages waiver was most recently illustrated in an Eleventh Circuit Court of Appeals decision, Silverpop Systems, Inc. v. Leading Market Technologies, Inc. 2 In that case, the appellate court summarily affirmed the federal district court’s “well-reasoned and thorough decision,” finding, among other things, that the parties’ consequential damages waiver barred all damages caused by a technology vendor’s data breach. Here, LMT's damages are best characterized as consequential. Silverpop Sys., Inc. v. Leading Mkt. LEXIS 196 (11th Cir. Recent Case Highlights The Dangers Of Consequential Damage Waivers in IT Contracts. You also learn how to connect a Silverpop connector endpoint to the Silverpop … An article in Norton Rose Fulbright’s Data Protection Reportdiscusses a recent ruling by the 11th U.S. Silverpop … “Under Georgia law, [t]o the extent that consequential damages are recoverable 18 in breach of contract actions, a clause excluding such damages is valid and binding unless prohibited by statute or public policy.” Silverpop… In a telling passage, the court reasoned: [T]he loss suffered by LMT is of a type resulting from the breach of a specific term of the agreement. Consequential damage waivers are a frequent part of merger and acquisition agreements involving private company targets. Leading Marketing counterclaimed, arguing that it was justified in withholding payment since Silverpop had failed to keep the addresses secure. Silverpop moved for dismissal of that claim with the argument that those damages were consequential, and were therefore barred by the consequential damages waiver in their agreement. “In contracting for IT services, it is important for purchasers to thoughtfully consider the risks of harm presented by the services, and then negotiate terms that appropriately allocate those risks between the parties. It said that the parties’ agreement was not one for … 2000),  the influential Second Circuit Court of Appeals (which handles appeals from New York’s federal courts, among others) adds the test of whether damages compensate for “the value of the very performance promised,” such that they are direct damages, or whether they compensate for “additional losses (other than the value of the promised performance),” such that they are consequential damages. And if a court uses the Silverpop analysis and finds that maintaining the confidentiality of data is not the primary purpose of the IT contract, then damages from the confidentiality breach will be consequential. The defendant in that case, Leading Market Technologies, Inc. (“LMT”), is a digital marketer that had hired the plaintiff Silverpop Systems, Inc. (“Silverpop”) to use LMT’s confidential email address list to distribute advertising content. Every online business should have a Terms and Conditions agreement that lays out rules for customers and users, as well as any necessary legal terms. This requires both parties to reconsider the standard vendor-friendly term waiving all consequential damages. After an … Thus, considering the purpose of the parties’ agreement, the damages LMT seeks are not the type that “arise naturally and from the usual course of things.” LMT’s damages are consequential rather than direct. The decision that was made in this case was actually a pretty important one to the world of information technology. The district court then assessed whether the contract prohibited the damages LMT sought … Silverpop is a digital marketing software company focused on helping marketers transform the customer experience— increasing engagement and driving revenue. If the IT contract contains a standard waiver of consequential damages, then the aggrieved party may be without a remedy. Matthew Spohn and David Navetta explain that the court’s analysis could apply to almost any breach of data provided to a vendor under an IT service contract, and highlights the need to carefully scrutinize a proposed waiver of consequential damages when confidential or sensitive data is involved in the contract. Recent Case Highlights Dangers of Consequential Damage Waivers in IT Contracts. Jan. 5, 2016), which summarily affirmed the federal district court’s “well-reasoned and thorough decision” finding, among other things, that the parties’ consequential damages waiver barred all damages from an IT vendor’s data breach. Silverpop Systems, Inc. v. Leading Market Technologies, Inc. Silverpop argued that it was engaged to provide access to its online system, not specifically to keep data secure. (quote omitted). Recent Case Highlights The Dangers Of Consequential Damage Waivers in IT Contracts By Matthew Spohn (US) and David Navetta (US) on September 26, 2016, Norton Rose Fulbright US LLP The U.S. Court of Appeals for the Eleventh Circuit —one of the highest federal courts below the Supreme Court—recently affirmed a decision in Silverpop … This confusion is compounded by the fact that courts will often add layers of additional analysis to distinguish direct and consequential damages. The type of consequential damages most often sought is lost operating profits of a business. All Rights Reserved. Circuit Court of Appeals that affirmed a decision in Silverpop Systems, Inc. v. Leading Market Technologies, Inc., finding that all damages flowing from a vendor’s data breach were barred by a standard provision in IT service contracts, disclaiming all liability for consequential damages. Silverpop Systems specializes in planning, executing, and managing permission-based e-mail marketing campaigns. This analysis is significant, because it could apply in almost any IT services contract. … The result is that judges, attorneys, and scholars regularly note that the distinction between direct and consequential damages is difficult to apply, and one should never rest easy in believing that potential damages are one or the other. Previously known as the Silverpop … To understand the effects of a consequential damages waiver, one must first understand what consequential damages are. LEXIS 196, the US Court of Appeals for the Eleventh Circuit held that losses associated with a data breach “are best characterized as consequential” and recovery on a contract claim should be barred when the contract contains a prohibition the award of consequential damages. The court then dismissed LMT’s claim for breach of contract because it had agreed to waive all consequential damages—even though claims for breach of confidentiality were exempted from the contract’s separate cap on total damages. This requires both parties to reconsider the standard vendor-friendly term waiving all consequential damages,” the authors write. Consequential (also known as special) damages, one capping the vendor’s total liability at some amount (often the total fees paid under the contract, or fees paid in the prior twelve months), and. in no event shall the regents or contributors be liable for any direct, indirect, incidental, special, exemplary, or consequential damages (including, but not limited to, procurement of substitute goods or services; … Against this background, breaches of confidentiality agreements present unique challenges in sorting direct from consequential damages. Silverpop then sued for declaratory judgment that LMT wasn’t entitled to any damages, and LMT filed its negligence and breach-of-contract counterclaims. The Limitation of Liability clause clarifies a business's legal liability and responsibilities in the case of legal litigations in the future. Circuit Court of Appeals that affirmed a decision in Silverpop Systems, Inc. v. Leading Market Technologies, Inc., finding that all damages flowing from a vendor’s data breach … The contract contained the following exclusion " In no event will Silverpop be liable to the other party for consequential damages ". Only damages foreseeable at the time of contracting are recoverable in the event of a contract breach. In contracting for IT services, it is important for purchasers to thoughtfully consider the risks of harm presented by the services, and then negotiate terms that appropriately allocate those risks between the parties. More than a news source, the Data Protection Report provides thought leadership on emerging privacy, data protection and cybersecurity issues, and helps its readers proactively address risks and anticipate next steps in this crucial emerging field. Fine-tune email marketing and lead-generation activities with these four tips for using Silverpop connector activities with IBM WebSphere Cast Iron. And anyway, if LMT suffered any damages, they were indirect or consequential and consequential such damages … It was therefore critical for the Court to decide whether the damages … Ga. App. That position has some support from the recent decision of the Eleventh Circuit Court of Appeals in Silverpop Systems, Inc. v. Leading Market Technologies, Inc., 61 Fed. 3 Appx. Silverpop makes this possible by using customer data and each individual’s behaviors to inform and drive every interaction in real time. The typical vendor-friendly IT service contract will contain a section titled “limitation of liability” with two key provisions: Purchasers will often focus on the first provision but fail to address the second provision, perhaps because it reads like boilerplate language that reasonably confirms that the vendor will not be liable for speculative damage claims.