NuAire, Inc. v. Merrill Manufacturing Corporation

Filing 29

MEMORANDUM OF LAW & ORDER. IT IS HEREBY ORDERED that Defendant's Motion for Partial Summary Judgment 13 is DENIED. (Written Opinion). Signed by Chief Judge Michael J. Davis on 8/6/12. (GRR)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

NUAIRE, INC.,
Plaintiff,
v.

Memorandum of Law & Order
Civ. No. 11-1249

MERRILL MANUFACTURING CORP.,
Defendant.

Jonathan M. Bye and Anthony N. Kirwin, Lindquist & Vennum, P.L.L.P.,
Counsel for Plaintiff.
Lenae M. Pederson, Michael D. Hutchens, Kathleen M. Ghreichi, John E. Radmer,
Meagher & Geer, P.L.L.P., Counsel for Defendant.

I.

Introduction
This matter is before the Court on Defendant Merrill Manufacturing

Corporation’s Motion for Partial Summary Judgment. [Docket No. 13.] The
Court heard oral argument on April 6, 2012.
II.

Background
A.

The Dispute

Plaintiff NuAire, Inc. (“NuAire”) manufactures and sells laboratory
equipment for hospitals and universities. Defendant Merrill Manufacturing
1

Corporation (“Merrill”) manufactures and sells custom wire-form component
parts. For many years, Merrill made stainless steel “door catches,” which it sold
to NuAire for installation on incubators. The material used for the door catches
on the incubators was crucial because they are exposed to water while the
incubator is in operation. This lawsuit arises out of a single December 2009
shipment of approximately one thousand door catches that were not made of
stainless steel. It is undisputed that those door catches were made of basic steel,
a material susceptible to rust. The nonconforming door catches began to rust,
and incubators began to leak. NuAire now sues Merrills for damages caused by
the rusted catches.
B.

Business Relationship between NuAire and Merrill

NuAire has been buying incubator door catches from Merrill since 1993.
When Merrill first began to sell door catches to NuAire, it provided NuAire with
quotations which provided pricing for items based on quantities ordered. The
footer of each quotation stated:
All orders from Customer for all or any portion of the goods
described above shall not be binding upon [Merrill] until accepted in
writing by an authorized officer of [Merrill] at [Merrill’s] home office
in Merrill, WI and shall be subject to Customer agreeing to all of
[Merrill’s] standard terms and conditions of sales.

2

(Pederson Decl. [Docket No. 16], Ex. E.) Merrill sent NuAire quotations for door
catches in 1998, 2002, and 2005. Each quotation included the same language.
The parties agree that these quotations did not constitute “offers.”
Transactions between the parties would generally begin with a purchase
order sent by NuAire to Merrill. The reverse side of NuAire’s purchase orders
contains terms and conditions, but it is undisputed that Merrill never received a
copy of those terms and conditions because only the front side of NuAire’s
purchase orders was transmitted to Merrill.
Upon receipt of a purchase order from NuAire, Merrill would then send
an acceptance to NuAire. Sometimes, the acceptance would be a separate
document; at other times, Merrill would fax the purchase order back to NuAire
with a handwritten acceptance. Before 2006, Merrill would also mail NuAire an
acknowledgment form which a contained pre-printed “Terms of this Offer to
Sell” in a small font on the reverse side of the form. (See Pederson Decl., Ex. N.)
One of the terms listed on that form stated that Merrill’s liability for
nonconforming goods
SHALL IN NO EVENT EXCEED THE PURCHASE PRICE OF [THE
NONCONFORMING GOODS] AND ALSO SHALL BE LIMITED
TO, AT SELLER’S OPTION, REPLACING OR REPAIRING OR

3

ISSUING A CREDIT OR REFUND FOR THAT PART OF THE
PURCHASE PRICE OF SUCH GOODS . . .
(Id. ¶ 20.) The terms further stated:
SELLER SHALL HAVE NO LIABILITY FOR ANY COSTS OR
EXPENSES OF DISASSEMBLY, REMOVAL, REASSEMBLY OR
REINSTALLATION OF ANY DEFECTIVE, REPAIRED OR
REPLACEMENT GOODS OR OF FINISHING THE
REINSTALLATION THEREOF.
(Id.) Merrill’s “Terms of this Offer to Sell” also disclaimed all warranties. Forms
with these terms were sent by Merrill to NuAire until 2006, when Merrill
changed to a system in which acknowledgments were sent automatically via fax
or email. The acknowledgments sent by the new system did not include the
“Terms of this Offer to Sell.” As a result, the documents memorializing the 29
agreements which Merrill and NuAire consummated between 2006 and 2009 did
not include language purporting to limit Merrill’s liability or disclaim
warranties.
C.

Purchase Order No. 153274

On November 5, 2009, NuAire emailed to Merrill Purchase Order No.
153274 (“Purchase Order”). (Mariette Aff., Ex. A.) The Purchase Order
requested 1,000 incubator door catches, made in accordance with particular
specifications, including the requirement that they be made of “304” stainless
4

steel. The Purchase Order did not contain references to additional terms or
conditions.
Merrill responded to the Purchase Order on the next day, faxing it back to
NuAire with the words “Price o.k.” and “Delivery o.k.” handwritten on it. (Id.,
Ex. B.) It is not clear whether Merrill sent an electronic acknowledgement, but
there is no dispute that any such acknowledgement would not have included the
“Terms of this Offer to Sell.” The only other documents produced with respect
to the transaction are Merrill’s “picking ticket” and invoice, which indicated that
the door catches in the shipment were made of stainless steel. (Id., Exs. C, D.)
Neither document set out any terms or conditions.
Without verifying the material of the door catches, NuAire installed them
in its incubators. NuAire began receiving complaints about leaky incubators in
December 2010. NuAire then contacted Merrill, and Merrill informed NuAire
that the door catches in the December 2009 shipment were not made of stainless
steel. NuAire states that it has so far incurred $487,000 in replacing 104
incubators which were assembled with rust-susceptible door catches. It expects
to spend another $307,000 replacing 61 others. NuAire filed this action in May
2011, alleging breach of contract (Count I), breach of express warranty (Count II),

5

breach of implied warranty of fitness (Count III), breach of implied warranty of
merchantability (Count IV), and reckless misrepresentation (Count V).
By order of this Court, discovery in this matter was bifurcated into two
phases. (Pretrial Scheduling Order [Docket No. 12].) The parties were ordered
to first “conduct immediate discovery relating to liability, including Merrill's
defense that NuAire is precluded from recovering incidental or consequential
damages, and then move the Court for partial summary judgment on that issue.”
(Id. at 1.) Pursuant to that order, Merrill has now brought this motion for partial
summary judgment. Merrill concedes that it breached its contract with NuAire
but argues that its liability should be limited in accordance with “Terms of this
Offer to Sell.” In other words, Merrill contends that consequential damages are
precluded, that NuAire has waived its warranty claims, and that Merrill’s
liability is therefore limited to the price of the nonconforming door catches.
Merrill also argues that it is entitled to summary judgment on NuAire’s reckless
misrepresentation claims.

6

III.

Discussion
A.

Standard

Summary judgment is appropriate if, viewing all facts in the light most
favorable to the non-moving party, there is no genuine dispute as to any material
fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ.
P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The party seeking
summary judgment bears the burden of showing that there is no genuine dispute
as to any material fact. Id. at 323. Summary judgment is only appropriate when
“there is no dispute of fact and where there exists only one conclusion.”
Crawford v. Runyon, 37 F.3d 1338, 1341 (8th Cir. 1994) (citation omitted).
“Only disputes over facts that might affect the outcome of the suit under
the governing law will properly preclude the entry of summary judgment.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Factual disputes that
are irrelevant or unnecessary will not be counted. Id. “[I]n ruling on a motion
for summary judgment, the nonmoving party’s evidence ‘is to be believed, and
all justifiable inferences are to be drawn in [that party’s] favor.’” Hunt v.
Cromartie, 526 U.S. 541, 552 (1999).

7

B.

Applicability of Merrill’s “Terms of this Offer to Sell”

Merrill argues that the “Terms of this Offer to Sell” which appeared on its
printed acknowledgment forms prior to 2006 apply to the 2009 transaction at
issue here. The parties agree that Minnesota law applies to this diversity action
and that the disputed transaction is covered by Minnesota’s Uniform
Commercial Code (“UCC”), Minn. Stat. § 336.1-101 et seq. 1 Merrill argues first
that this case is covered by UCC § 2-207, which applies to a “battle of the forms,”
and that its acceptance of NuAire’s Purchase Order should be understood to
have incorporated the liability-limiting language of its “Terms of this Offer to
Sell.” Merrill also argues that those terms supplement the agreement because
they are part of a course of dealing between Merrill and NuAire. NuAire
responds that there is no “battle of the forms” here, that the terms advanced by
Merrill cannot be considered part of the parties’ course of dealing, and that the
additional terms which Merrill seeks to apply are otherwise inapplicable or
unenforceable.
1. UCC § 2-207(2)
The parties agree that the “Terms of this Offer to Sell” were not printed on
any document exchanged in the transaction in question or any other transaction
1

Subsequent citations refer directly to the relevant UCC section.
8

after 2006. Merrill nonetheless frames the issue in this case as one of a “battle of
the forms” under UCC § 2-207. Under that section, “terms [in an acceptance]
additional to or different from those offered or agreed upon” become “part of the
contract,” if the contract is “[b]etween merchants,” and unless the offer
“expressly limits acceptance to the terms of the offer,” the additional terms
“materially alter” the contract, or an objection is raised “within a reasonable time
after notice of them is received.” See UCC § 2-207(1)-(2). “For a ‘battle of the
forms’ to arise and trigger the provisions of § 2-207, there must be conflicting
forms to begin with, each of which satisfies the common-law or statutory
requirements for an offer.” Litton Microwave Cooking Prods. v. Leviton Mfg.
Co., Inc., 15 F.3d 790, 794 (8th Cir. 1994).
Merrill contends that its “Terms of this Offer to Sell” were a part of its
acceptance in the transaction at issue here, though those terms do not appear in
any document exchanged in the transaction at issue. Merrill cites three cases in
support of its position, but crucial factual differences distinguish each of those
cases from this one.
In Nordyne, Inc. v. Int’l Controls & Measurements Corp., 262 F.3d 843, 846
(8th Cir. 2001), the Court reasoned that, in spite of the general rule that a

9

manufacturer’s quotation is not an offer, the particular quotation at issue
constituted an offer under Missouri law. Id. A forum selection clause in that
quotation was therefore determined to be incorporated into the offer. Id. Here,
the parties agree that the quotations provided by Merrill were not offers. In any
event, the terms that Merrill seeks to incorporate were not in its quotations, but
were rather in acknowledgement forms pertinent to transactions occurring at
least three years before the transaction at issue here.
In CFMOTO Powersports Inc. v. NNR Global Logistics USA, Inc., Civ. No.
09-2202 (JRT/JJK), 2009 WL 4730330, at *2-*3 (D. Minn. Dec. 4, 2009), this Court
incorporated into an agreement one party’s “Terms and Conditions of Service”
which purported to govern transactions between the parties, were provided at
the time of the transaction, and to which the other party had explicitly assented
at the time of the transaction. Here, there is no evidence that NuAire ever
expressly consented to being governed by Merrill’s “Terms of this Offer to Sell”
or that those terms were provided at the time of the transaction. Moreover, the
very title of Merrill’s “Terms of this Offer to Sell” itself indicates that those terms
were meant to apply to a particular offer (“this Offer to Sell”), not to future
transactions between the parties.

10

Finally, in General Mills Operations, LLC v. Five Star Custom Foods, Ltd.,
789 F. Supp. 2d 1148, 1157-58 (D. Minn. 2011), this Court concluded that terms
and conditions contained on the reverse side of a party’s purchase order were
incorporated into the transaction at issue. That case bears little resemblance to
this one, however, because here there is no assertion that the “Terms of this Offer
to Sell” were printed on or referenced in any document exchanged in the 2009
transaction.
Merrill’s analysis puts the cart before the horse, presupposing that the
“Terms of this Offer to Sell” was included in its acceptance of NuAire’s Purchase
Order. Those terms were not printed on any document related to the transaction
involving the nonconforming door catches. The cases cited by Merrill do not
support the proposition that its acceptance should be interpreted to include
terms which, by Merrill’s own admission, had not been sent to NuAire in over
three years. There simply is no evidence that there were “conflicting forms to
begin with” such that a “battle of the forms” could have ensued. Litton
Microwave Cooking Prods., 15 F.3d at 794.

11

2. UCC § 2-207(3)
Merrill argues that the parties’ course of dealing incorporated the “Terms
of this Offer to Sell” and that those terms therefore should be considered to have
been “supplementary terms” to the agreement. A course of dealing “is a
sequence of conduct concerning previous transactions between the parties to a
particular transaction that is fairly to be regarded as establishing a common basis
of understanding for interpreting their expressions and other conduct.” UCC §
1-303(b). Under UCC § 1-303(d), a course of dealing “may supplement or qualify
the terms of [an] agreement.”
UCC § 2-207(3) provides:
Conduct by both parties which recognizes the existence of a contract
is sufficient to establish a contract for sale although the writings of
the parties do not otherwise establish a contract. In such case the
terms of the particular contract consist of those terms on which the
writings of the parties agree, together with any supplementary
terms incorporated under any other provisions of this chapter.
Courts are split on the question of whether the term “supplementary terms”
referenced in UCC 2-207(3) encompass terms implied by a course of dealing. As
the Eighth Circuit has explained:
Courts and commentators have read § 2–207(3)’s reference to
“supplementary terms” differently. Compare Dresser Indus., Inc. v.
Gradall Co., 965 F.2d 1442, 1451 (7th Cir. 1992) (holding that “all of
12

the U.C.C.'s provisions should be used in discerning the terms of a
contract under § 2–207(3), including those provisions that allow us
to examine the parties’ performance.”); 2 W. Hawkland, Uniform
Commercial Code Series § 2–207:04, at 109–10 (1990) (arguing that
parties’ course of conduct should be considered under § 2–207(3)),
with Itoh, 552 F.2d at 1237 (limiting “supplementary terms” to those
supplied by the stock “gap-filler” provision of Article Two); 1 J.
White & R. Summers, Uniform Commercial Code, § 1–3 at 45 (3d ed.
1988) (asserting that “supplementary terms” should be limited to
UCC’s explicit “gap-fillers”).
PCS Nitrogen Fertilizer, L.P. v. Christy Refractories, L.L.C., 225 F.3d 974, 981 n.4
(8th Cir. 2000).
In Nitrogen Fertilizer, the Court assumed “arguendo that supplementary
terms include terms arrived at through a course of dealing” but never so held.
Id. The Court concluded that, in any event, the course of dealing between the
parties was not sufficient to establish the terms sought by the party asserting
them. Id. The Court held that “the fact that [the defendant had] repeatedly sent
its customer acknowledgment form to [the plaintiff did] not establish a course of
dealing; the multiple forms merely demonstrated [the defendant’s] desire to
include [a particular] term of the contract.” Id.
While Merrill cites Nitrogen Fertilizer as authority for its assertion that the
parties’ course of dealing may supplement the December 9, 2009 transaction, that
case seems to foreclose its argument. Merrill, like the defendant in Nitrogen
13

Fertilizer, “repeatedly sent its customer [NuAire] an acknowledgment form.” Id.
In Nitrogen Fertilizer, the Court held that “[c]ourse of dealing analysis is not
proper in an instance where the only action taken has been the repeated delivery
of a particular form by one of the parties.” Id. (emphasis added) (quoting In re
CFLC, Inc., 166 F.3d 1012, 1017 (9th Cir. 1999)); see also Step–Saver Data Sys., Inc.
v. Wyse Tech., 939 F.2d 91, 104 (3d Cir. 1991). The Court cannot supplement the
agreement as Merrill requests; to do so would be contrary to the holding in
Nitrogen Fertilizer.
The Court further notes that the case for supplementing the agreement at
issue in Nitrogen Fertilizer was stronger than it is here. The acknowledgment
forms at issue in Nitrogen Fertilizer were contemporaneous with the contested
transaction. Here, Merrill had not sent an acknowledgment form containing the
“Terms of this Offer to Sell” for a period of three years before the 2009
transaction, even as the parties entered into nearly 30 contracts during that time.
Thus the parties’ course of dealing for the three years prior to the Merrill’s
shipment of nonconforming goods simply did not include any reference to the
terms Merrill now seeks to apply.

14

The Court concludes that Merrill’s acceptance of NuAire’s Purchase Order
did not include the “Terms of this Offer to Sell” and those terms were not
otherwise incorporated into the agreement by way of the parties’ course of
dealing. 2 The Court therefore cannot grant Merrill’s request that NuAire’s
recovery of direct damages be capped at the cost of the nonconforming goods,
nor can it dismiss NuAire’s warranty claims.
C.

NuAire’s Misrepresentation Claim

Merrill argues that NuAire cannot establish a prima facie case of reckless
misrepresentation. To prove such a claim, NuAire must show that
(1) there was a false representation by a party of a past or existing
material fact susceptible of knowledge; (2) made with knowledge of
the falsity of the representation or made as of the party’s own
knowledge without knowing whether it was true or false; (3) with
the intention to induce another to act in reliance thereon; (4) that the
representation caused the other party to act in reliance thereon; and
(5) that the party suffer pecuniary damage as a result of the reliance.
Zutz v. Case Corp., 422 F.3d 764, 770-71 (8th Cir. 2005) (citation omitted).
Merrill argues that NuAire’s misrepresentation claim was not pleaded
with sufficient particularity under Rule 9(b) of the Federal Rules of Civil

Because the Court concludes that the terms did not apply, the Court need
not address whether they would have materially altered the agreement between
the parties or whether they were unreadable or unconscionable.
15
2

Procedure. To meet the Rule 9(b) standard, the facts alleged must “give
Defendants notice of what conduct is complained of and [allow them] to prepare
a defense to such claim of misconduct.” First Presbyterian Church of Mankato,
Minn. v. John G. Kinnard & Co., 881 F. Supp. 441, 445 (D. Minn. 1995) (citation
omitted). In its complaint, NuAire stated that Merrill falsely represented that
“the catches were stainless steel.” In response to Merrill’s interrogatories,
NuAire has stated that Merrill “represented in the documents relating to the sale
at issue that the catches it delivered to NuAire would be, and were, stainless steel
when, in fact, they were not.” Merrill argues that these statements fail to
sufficiently state “who made the representation that the door catches were made
of stainless steel, or when and where such a representation was made.”
By this point in the litigation, however, NuAire’s allegations are plain
enough. There are only a handful of “documents relating to the sale at issue,”
and each of them references stainless steel. The Purchase Order had a drawing
attached which specified that the required material was “304,” which the parties
agree signifies stainless steel. (Mariette Aff., Ex. A.) Merrill returned the
Purchase Order with the words “Price o.k.” and “Delivery o.k.” written on it.
(Id., Ex. B.) The picking ticket and invoice provided by Merrill with the

16

shipment of nonconforming door catches both stated that the door catches were
“TYPE 302/304 SS WIRE X COIL.” (Id., Exs. C, D.) The Purchase Order
acceptance, picking ticket, and invoice were each undisputedly authored by
Merrill employees on the dates specified on the documents. To the extent that
NuAire’s complaint was too vague, its interrogatory answers have constructively
amended and clarified the claim. NuAire’s allegations give Merrill “notice of
what conduct is complained of” and allow Merrill “to prepare a defense to such
claim of misconduct.” First Presbyterian Church, 881 F. Supp. at 445.
Merrill further argues that NuAire cannot establish that “there was a false
representation by a party of a past or existing material fact susceptible of
knowledge.” See Zutz, 422 F.3d at 770-71. Merrill focuses on the fact that the
door catches had not yet been manufactured when it accepted NuAire’s Purchase
Order. Thus any statement that the door catches would be made of stainless
steel pertained to a future act, not a “past or existing material fact.” Id.
Generally, “a representation or expectation as to future acts is not a sufficient
basis to support an action for fraud merely because the represented action or
event did not take place.” JCA P’ship v. Wenzel Plumbing & Heating, Inc., 978
F.2d 1056, 1062 (8th Cir. 1992) (citation omitted).

17

Merrill’s shipment of nonconforming door catches, after it had represented
that they would be made of stainless steel, created more than a misrepresentation
of a future act. Viewing the evidence in the light most favorable to NuAire,
Merrill was not merely silent on the question of the materials which it used to fill
NuAire’s order. Rather, documents authored by Merrill contemporaneously
with the shipment of the door catches, stated that they were made of stainless
steel. Merrill’s invoice and picking ticket, both dated December 21, 2009, made
representations about the existing condition of the door catches. Because
NuAire’s misrepresentation claim are sufficiently particular under Rule 9(b) and
satisfy the first element of a reckless misrepresentation claim, the Court will deny
Merrill’s motion for summary judgment on that claim.

Accordingly, based on the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendant’s Motion for Partial Summary Judgment is
DENIED.

Dated: August 6, 2012

s/ Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court
18