Enforceability of “Any Breach” Carve-Outs in Covenants Not to Sue

Introduction

In Stony Battery RD Property Owner LLC v. QVC Inc., the Third Circuit addressed the scope and enforceability of a covenant not to sue containing a broad carve-out for “any” breach of the underlying sale agreement. The dispute arose after QVC sold a warehouse and materials handling equipment (MHE) to Stony Battery, and later removed critical warehouse-management software, rendering the equipment inoperable. Stony Battery sued QVC for breach of contract and related claims. QVC counterclaimed that Stony Battery’s suit violated a release and covenant not to sue in the parties’ sale agreement, excepting only claims for “any breach” of that agreement. The District Court granted summary judgment for Stony Battery, holding the carve-out permitted its suit even though its claims ultimately failed on the merits. The Third Circuit affirmed.

Case Background and Key Issues

Parties: QVC, Inc. (seller) and Stony Battery RD Property Owner LLC (buyer).
Transaction: Sale Agreement for warehouse & MHE in November 2019, including a release and covenant not to sue.
Covenant Not to Sue: Broad waiver of all claims “in any way connected” with the assets but a carve-out allowing suits “for any breach of [QVC’s] obligations set forth in th[e] Agreement.”
Dispute: After leaseback ended, QVC wiped its proprietary WMS21 software, making the MHE unusable. Stony Battery sued for breach of contract, promissory estoppel, unjust enrichment, and conversion. QVC counterclaimed that the suit violated the covenant.
Procedural History: District Court awarded summary judgment to Stony Battery on QVC’s counterclaim. QVC appealed.

Summary of the Judgment

The Third Circuit, applying Pennsylvania contract law and de novo review of summary judgment, held that:

The covenant not to sue was unambiguous and expressly carved out “any” claim for breach of the Sale Agreement, without limiting merit or form.
Pennsylvania’s plain-meaning rule requires enforcing the parties’ deliberate choice of the word “any,” which naturally carries an expansive scope.
Because Stony Battery’s claims alleged breaches of obligations under the Sale Agreement—even if unsuccessful—they fell squarely within the carve-out and did not violate the covenant.
Allowing carve-out claims does not render the covenant meaningless or permit frivolous suits, since Rule 11 sanctions remain available and non-contractual claims remain barred.

The Court affirmed the District Court’s judgment in all respects.

Analysis

Precedents Cited

Pennsylvania ex rel. Kane v. UPMC, 129 A.3d 441 (Pa. 2015): Established the plain-meaning rule for unambiguous contractual language.
United States v. Gonzales, 520 U.S. 1 (1997): Interpreted “any” to have an expansive, unrestricted meaning.
Babb v. Wilkie, 589 U.S. 399 (2020): Confirmed “any” is broad in ordinary usage.
Steuart v. McChesney, 444 A.2d 659 (Pa. 1982): Presumed parties deliberately chose each word in a carefully negotiated contract.
M & G Polymers USA, LLC v. Tackett, 574 U.S. 427 (2015): Reaffirmed that a written contract is presumed to encompass the entire agreement of the parties.

Legal Reasoning

The Court applied the following key principles:

Plain-Meaning Rule: When contract terms are clear, courts must enforce them as written, without rewriting or adding unstated limitations.
No Implied Merit Requirement: The carve-out’s language—“any breach”—does not condition a permitted suit on proving an “actual” or “meritorious” breach.
Deliberate Word Choice: By including “any” without qualifiers, the parties intentionally granted Stony Battery the right to litigate all alleged breaches of the Sale Agreement, successful or not.
Anticipating Frivolous Claims: The availability of Rule 11 sanctions for frivolous litigation ensures that broad carve-outs do not encourage meritless suits.

Impact and Significance

This decision clarifies that under Pennsylvania law:

Covenants not to sue must be read in light of their precise language: a broad carve-out prevails over any implied restriction.
Parties seeking to limit litigation rights to only meritorious or adjudicated claims should explicitly draft such conditions into their agreements.
Courts will not rewrite or imply qualifications into unambiguous contractual carve-outs.
Future litigants will rely on this case to argue that any breach of contract claim falls outside a non-suit covenant when “any” is used, shifting more emphasis to careful contract drafting.

Complex Concepts Simplified

Covenant Not to Sue: A contractual promise by one party not to bring legal claims against the other.
Carve-Out: An exception in a covenant not to sue that preserves the right to enforce certain claims, here for “any breach” of the Sale Agreement.
Plain-Meaning Rule: A principle stating that clear contractual language controls, and courts will not add or subtract terms under the guise of interpretation.
Summary Judgment (Fed. R. Civ. P. 56): A procedure to dispose of claims when no genuine dispute of material fact exists and the moving party is entitled to judgment as a matter of law.
Rule 11 Sanctions: Penalties for filing frivolous or groundless litigation under the Federal Rules of Civil Procedure.

Conclusion

Stony Battery RD Property Owner LLC v. QVC Inc. establishes a clear rule: when a covenant not to sue explicitly carves out “any breach” of the contract, even unsuccessful breach-of-contract claims do not violate the covenant. The Third Circuit’s ruling underscores the importance of precise drafting in waivers and covenants, reinforces the plain-meaning rule, and reminds drafters that broad exceptions must be explicitly narrowed if they wish to limit permitted litigation to only adjudicated or meritorious claims.