Decorative Components Incorporated, Inc. et al v. Icon Computing Solutions, Inc.
Filing
67
OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
DECORATIVE COMPONENTS
INCORPORATED, INC., et al.,
Plaintiffs,
File No. 1:10-cv-1217
v.
HON. ROBERT HOLMES BELL
ICON COMPUTING SOLUTIONS, INC.,
d/b/a/ ICON PARETO,
Defendant.
/
OPINION
This matter is before the Court on Plaintiffs’ motion for partial summary judgment on their
breach of contract claim (Count I) and on Defendant’s breach of contract counterclaim (Dkt. No. 21).
Also raised in Defendant’s response brief is a cross-motion for summary judgment on Plaintiffs’
claim under the Michigan Special Tools Lien Act (Count III). For the reasons that follow, Plaintiffs’
motion and Defendant’s cross-motion will be denied.
I.
Plaintiffs manufacture commercial products of various kinds. Defendant is in the business
of selling technology and technology platforms in the medical industry. In February 2010, Plaintiffs
and Defendant began to explore a business relationship in which Plaintiffs would design and
manufacture point-of-care mobile medical carts (“POC carts”) for Defendant, who would equip the
carts with their technology and sell them to medical care providers.
On February 19, 2010, the parties agreed to a letter of intent outlining their business
understanding. (Dkt. No. 58, Ex. B.) In that letter, Plaintiffs agreed to take steps toward designing
and manufacturing (a) a cable management system for Defendant’s existing Modo cart, (b) a
redesign of Defendant’s existing Modo cart addressing a number of areas of concern identified by
Defendant, and (c) a new model of cart to replace Defendant’s existing Modo cart. (Id.)
Plaintiffs allege that they proceeded in March to design the new cart, that Defendant placed
five purchase orders for the carts on July 13, 2010,1 and that at some unspecified time prior to
placing the orders, Defendant approved the new design. (Id.)
After receiving samples of the newly manufactured POC carts, Defendant made several
design request changes in September and October of 2010. (Dkt. No. 50 at 3; Dkt. No. 58 at 3.)
Representatives from Plaintiffs flew to Defendant’s headquarters several times to address
Defendant’s concerns. (Dkt. No. 58 at 3.) The parties’ characterizations of these meetings and
design changes are a main dispute in this case. Defendant alleges that Plaintiffs’ design did not
conform to the parties’ agreement or industry standards, that the requested changes were attempts
to bring the design into conformity, and that Plaintiffs failed to timely address all of the deficiencies.
Plaintiffs, on the other hand, characterize the requests as post-production engineering changes. (Dkt.
No. 50 at 3.) Plaintiffs also maintain that they accommodated and satisfied all of Defendant’s
requests.
It is undisputed that Defendant did not pay for Plaintiffs’ design and manufacturing work.
Defendant did provide Plaintiffs with a check for $533,582 on October 2010, but that check was
dishonored on three occasions. (Id.) After manufacturing 4,030 POC carts without receiving
payment, Plaintiffs halted production and filed this action. Defendant has filed a counterclaim (Dkt.
1
These orders called for the production of approximately 6,500 carts over five delivery periods, for
the total price of $7,338,507.
2
No. 21) alleging that the POC carts manufactured by Plaintiffs are nonconforming, and seeking
damages resulting from Plaintiffs’ alleged failure to deliver conforming goods
II.
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper if
there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a
matter of law. In evaluating a motion for summary judgment, the Court must look beyond the
pleadings and assess the proof to determine whether there is a genuine need for trial. Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In considering a motion for
summary judgment, the Court must construe the evidence and draw all reasonable inferences in favor
of the nonmoving party. Minges Creek, L.L.C. v. Royal Ins. Co. of Am., 442 F.3d 953, 955-56 (6th
Cir. 2006) (citing Matsushita, 475 U.S. at 587). Nevertheless, the mere existence of a scintilla of
evidence in support of nonmovant’s position is not sufficient to create a genuine issue of material
fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The proper inquiry is whether the
evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.; see
generally Street v. J.C. Bradford & Co., 886 F.2d 1472, 1476-80 (6th Cir. 1989).
III.
A. Breach of Contract Liability
Plaintiffs seek summary judgment on their breach of contract claim on the basis that
Defendant did not pay for any of the design or manufacturing services rendered. Plaintiffs also seek
summary judgment on Defendant’s breach of contract counterclaim. Defendant’s affirmative
defense (and the basis for Defendant’s counterclaim) is that the POC carts produced by Plaintiff were
nonconforming goods.
As this case involves a dispute of product design and performance, there are a number of
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disputed technical issues which the Court is not prepared to decide on a motion for summary
judgment. Whether or not the design and performance flaws identified by Defendant exist, and
whether they were remedied by Plaintiffs in advance of this litigation are disputed questions of fact
which should be reserved for trial. However, a much closer question is whether summary judgment
is appropriate on the basis of Plaintiffs’ argument that Defendant never provided design
specifications.
Plaintiffs argue that their product could not be non-conforming because “[a]t no time did
Defendant provide Plaintiffs with complete design specifications.” (Dkt. No. 50 at 2.) Plaintiffs
contend that all of the design problems raised by Defendants were merely post-production concerns
raised by Defendant as part of a collaborative process, not “defects.” Plaintiffs do not believe that
Defendant can show nonconformity without some kind of design standard.2
In search of a standard, Defendant points to a letter of intent signed by the parties on February
19, 2010, which purportedly lists “specific objectives for the design of the POC Cart.” (Dkt. No. 58
at 2.) Examination of the letter does not reveal any design specifications explicitly addressed to the
new cart which Plaintiffs were to design and manufacture, though the letter does list a number of
objectives for the related project of improving Defendant’s existing Modo cart. Even granting
Defendant’s assertion that those objectives were understood to apply to the new design, they do not
amount to detailed design specifications. Furthermore, the letter states that “this is a letter of intent
only, which is nonbinding.” (Id.)
There is considerable evidence supporting the view that this business relationship was
2
Plaintiffs also allege in passing that Defendant approved a prototype of Plaintiffs’ design in July
(before the beginning of production). (Dkt No. 50 at 2.) However, this allegation is unsupported
by any documentation, and Defendant denies it. (Dkt. No. 58 at 2-3.)
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conceived and operated as an ongoing collaboration. The lack of a formal contract with explicit
design specifications is one factor; indeed, the letter of intent states that “[t]he scope of this new
model design will be subject to further discussion and definition.” (Id.) Additionally, the documents
cited by Defendant as evidence that it informed Plaintiffs that
the new POC carts were nonconforming3 contain no explicit rejection of the carts,4 and
would appear to be consistent with Plaintiffs’ characterization of the changes as ongoing efforts to
improve or modify the cart at Defendant’s request.
In the face of this evidence, Defendant maintains that the parties understood that the new
POC cart would be benchmarked against the existing Modo cart, and that the new POC cart is
nonconforming because it compares unfavorably with the older cart. This is a far more difficult
means of showing nonconformity than the typical evaluation of a product with respect to detailed
design specifications. However, granting all reasonable inferences in favor of Defendant, there
remains a triable issue of fact as to whether the carts can be considered nonconforming goods.
B. Plaintiffs’ Special Tools Lien Act Claim
Count III of Plaintiffs’ complaint is a claim under the Michigan Special Tools Lien Act,
which in some circumstances provides a lien on special tools used to manufacture goods. Defendant
argues that Plaintiffs’ claim must fail because the POC carts are not “special tools” but finished
goods, and because Plaintiffs did not put required identifying information on the carts.
3
Defendant relies on an August 16, 2010, “technology exhibit report” which identified “areas for
improvement” based on comments received from medical professionals who previewed the new cart
at a technology conference held in Nevada. (Dkt. No. 58, Ex. G.) Defendant also references an
October 6, 2010, list of “items to finalize,”(Dkt. No. 58, Ex. M), and an October 28, 2010, email
identifying a number of design issues and improvements. (Dkt. No. 58, Ex. L.)
4
In fact, there is documented evidence that Defendant explicitly accepted at least 1900 of the carts.
(Dkt. No. 50, Ex. 15.)
5
Plaintiffs concede that the Act does not cover the POC carts, which are indeed finished
goods. However, Plaintiffs maintain that they do have a lien under the Act pertaining to the tools
which Plaintiffs created in order to manufacture the carts. (Dkt. No. 62 at 6.) This distinction was
not addressed by Defendant. Accordingly, Defendant’s cross-motion will be denied.
III.
Granting all reasonable inferences in favor of the nonmoving party, there remains a triable
issue of fact as to whether the new POC carts were nonconforming goods. As Defendant has raised
the alleged nonconformity of the carts both as an affirmative defense to Plaintiffs’ breach of contract
claim and as the basis of Defendant’s breach of contract counterclaim, Plaintiffs’ motion for partial
summary judgment will be denied. Defendant’s cross-motion for partial summary judgment on
Plaintiffs’ Special Tools Lien Act claim will also be denied.
Dated: November 15, 2011
/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE
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