PNCEF, LLC v. Oz General Contracting Co., Inc. et al

Filing 31

ORDER ADOPTING REPORT AND RECOMMENDATIONS: SO ORDERED that Magistrate Judge Lindsay's Report is adopted as an order of the Court. Deft's motion to dismiss the Complaint [Docket Entry No. 16] pursuant to Rule 12(b )( 6) of the Federal Rules of Civil Procedure is granted to the extent that plaintiffs claims for breach of contract and breach of implied warranty are dismissed with prejudice and plaintiffs claims for breach of express warranty and misrepresentation are dismissed without pre judice. Plaintiff is granted leave to file a second amended complaint in accordance with the Report and this Order within thirty (30) days of the date of entry of this Order; in the event plaintiff fails to do so, plaintiffs claims will be deemed dis missed in their entirety with prejudice and this case will be closed. In accordance with Rule 77(d) of the Federal Rules of Civil Procedure, the Clerk of Court shall serve a copy of this order upon all parties and shall record such service on the docket. Ordered by Judge Sandra J. Feuerstein on 9/21/2012. (Florio, Lisa)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

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OZ GENERAL CONTRACTING CO., INC.,
Plaintiff,

ORDER
11-CV-724 (SJF)(ARL)

-againstTIMESA VERS, INC.

FILED
IN CLERK'S OFFICE
US DISTRICT COURTED N y

Defendant.

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*

FEUERSTEIN, J.

SEP 2 1 2012

*

LONG !:O!.ANu OFFICE
I.

Introduction
On March I, 2010, Oz General Contracting Co., Inc. ("plaintiff") served a third-party

complaint on Timesavers, Inc. ("defendant") in connection with an action in the Supreme Court
of the State of New York. After the third-party action was severed and removed to this Court,
plaintiff filed, with the consent of defendant, an amended complaint alleging breach of contract,
breach of express warranty, breach of implied warranty, misrepresentation, and unjust
enrichment (the "Complaint"). [Docket Entry No. 9]. Defendant has filed a motion to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6). [Docket Entry No. 12).
Presently before the Court is the Report and Recommendation (the "Report") of
Magistrate Judge Arlene R. Lindsay, dated August I, 2012, recommending that defendant's
motion to dismiss be granted in its entirety and plaintiff be granted leave to file a second
amended complaint with respect to plaintiffs breach of express warranty and misrepresentation
claims. [Docket Entry No. 27]. Plaintiff filed a timely objection to the Report (the "Objection").

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[Docket Entry No. 28]. For the following reasons, the Objection is overruled, and the Court
accepts Magistrate Judge Lindsay's Report in its entirety and adopts it as an order of the Court.
II.

Review of the Report and Recommendation
Rule 72 of the Federal Rules of Civil Procedure permits a magistrate judge to conduct

proceedings of dispositive pretrial matters without the consent of the parties. Fed. R. Civ. P.
72(b). Any portion of a report and recommendation on dispositive matters to which a timely
objection has been made is reviewed de novo. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b).
However, "when a party makes only conclusory or general objections, or simply reiterates the
original arguments, the Court will review the report strictly for clear error." Frankel v. Citv of
New York, Nos. 06 Civ. 5450, 07 Civ. 3436, 2009 WL 465645, at *2 (S.D.N.Y. Feb. 29, 2009).
The Court is not required to review the factual findings or legal conclusions of the magistrate
judge as to which no proper objections are interposed. See Thomas v. Am, 474 U.S. 140, 150
(1985). To accept the report and recommendation of a magistrate judge on a dispositive matter
to which no timely objection has been made, the district judge need only be satisfied that there is
no clear error on the face of the record. See Fed. R. Civ. P. 72(b); Johnson v. Goord, 487 F.
Supp.2d 377, 379 (S.D.N.Y. 2007), affd, 305 Fed App'x 815 (2d Cir. Jan. 9, 2009); Baptichon
v. Nevada State Bank, 304 F. Supp.2d 451, 453 (E.D.N.Y. 2004), affd, 125 Fed. App'x 374 (2d
Cir. Apr. 13, 2005). Whether or not proper objections have been filed, the district judge may,
after review, accept, reject, or modify any of the magistrate judge's findings or recommendations.
28 U.S.C. § 636(b)(l); Fed. R. Civ. P. 72(b).
III.

Plaintiffs Objection
Plaintiff argues that Magistrate Judge Lindsay erred in holding that defendant's
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disclaimer of the implied warranties of merchantability and fitness for a particular purpose in the
contract is not unconscionable. 1 Specifically, plaintiff argues that the choice of law provision in
the contract calling for the application of Minnesota law was waived by defendant and Magistrate
Judge Lindsay thus "erred by not giving full consideration to the New York authorities in the
parties' papers." Objection at 3. However, it is unnecessary to address whether the choice oflaw
provision was waived, as the disclaimer is not unconscionable under New York law.
In New York, "[a] determination of unconscionability generally requires a showing that
the contract was both procedurally and substantively unconscionable when made .... " Gillman
v. Chase Manhattan Bank. N.A., 73 N.Y.2d l, 10 (1988). With regard to procedural
unconscionability, "[t]he focus is on such matters as the size and commercial setting of the
transaction, whether deceptive or high-pressured tactics were employed, the use of fine print in
the contract, the experience and education of the party claiming unconscionability, and whether
there was disparity in bargaining power." Id. at II (citation omitted). The substantive
unconscionability prong focuses on "the substance of the bargain to determine whether the terms
were unreasonably favorable to the party against whom unconscionability is urged." Id. at 12.
Plaintiff relies exclusively on one case, Industralease Automated & Scientific Equipment
Com. v. R.M.E. Enterprises. Inc., 396 N.Y.S.2d 427 (App. Div. 1977), in arguing that the
disclaimer is unconscionable under New York law. Objection at 3. In Industralease, the owners

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A contractual disclaimer of the implied warranties of merchantability and fitness for a
particular purpose is expressly permitted under the Uniform Commercial Code ("UCC"), adopted
in both Minnesota and New York, provided that the writing is conspicuous and, in regard to the
implied warranty of merchantability, the language specifically mentions merchantability. MINN.
STAT. ANN.§ 336.2-316(2) (West 2012); N.Y. U.C.C. LAW§ 2-316(2) (McKinney 2012).
Plaintiff does not object to Magistrate Judge Lindsay's finding that the disclaimer is conspicuous
and unambiguous.
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of a picnic grove leased a garbage incinerator from the incinerator's manufacturer. 396 N.Y.S.2d
at 428. The lease included a "manufacturer's warranty of new equipment." Id. at 428 n.l. In
preparation for delivery of the equipment, the picnic grove owners installed a concrete slab,
underground wiring and a fuel tank. Id. at 428. However, prior to delivery and shortly before the
picnic grove's operating season, the manufacturer insisted that the picnic grove owners sign a
new equipment lease with a third party. Id. The new lease contained an unqualified disclaimer
of all express and implied warranties, eliminating the manufacturer's warranty and all other
implied warranties. Id. Thus the "interposition of the [third party] in the transaction served only
the purpose of [the manufacturer] and not of the [picnic grove owners]." Id. at 432.
In holding the disclaimer to be unconscionable, the court in Industralease focused on the
contract formation process, emphasizing that the "atmosphere of haste and pressure on the
[picnic grove owners was] clearly pervasive." Id. at 432. The court stated that due to the short
period before the operating season, the picnic grove owners "were clearly at a disadvantage to
bargain further and, indeed, did not profess to understand the size and mechanism of the
equipment which would satisfy their needs." Id. The court also relied on its finding that "the
evidence plainly establishes that the equipment did not work at all, [and] that it achieved none of
the purposes of the parties." Id. With regard to this latter basis for its decision, the court
acknowledged that the UCC "prescribes that we are to determine unconscionability as of the time
ofthe making ofthe contract," but nonetheless stated that it could not "divorce entirely the
events which occur later." Id. Plaintiff points to the court's consideration of the subsequent
dysfunction of the equipment in Industralease and argues that the sander here has, like the
incinerator in Industralease, failed to function as intended, thereby rendering the disclaimer
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unconscionable. Objection at 4.
Even if the Industralease court was correct to consider the subsequent performance of the
equipment in contravention of the UCC's directive to assess unconscionability at the time of
contract formation, "Industralease makes clear[ that] the plaintiff still must demonstrate a level of
procedural unconscionability." Dallas Aerospace. Inc. v. CIS Air Corn., 352 F.3d 775, 788 (2d
Cir. 2003). Plaintiff, however, has alleged no flaws in the contract formation process, such as
deceptive or high-pressured tactics, to support a determination of unconscionability. The absence
of an allegation of procedural unconsionability is fatal to plaintiff's argument, as the case at bar
does not constitute one ofthe "exceptional cases where a provision of the contract is so
outrageous as to warrant holding it unenforceable on the ground of substantive unconsionability
alone." Gillman, 73 N.Y.2d at 12; see also State v. Wolowitz, 468 N.Y.S.2d 131, 145 (App. Div.
1983) ("While there may be extreme cases where a contractual term is so outrageous and
oppressive as to warrant a finding of unconscionability irrespective of the contract formation
process, such cases are the exception.") (citation omitted).
In the Objection, plaintiff also cites a Minnesota case, Durfee v. Rod Baxter Imports. Inc.,
262 N.W.2d 349 (Minn. 1977), in support of the argument that defendant's disclaimer of implied
warranties is unconscionable. The plaintiff in Durfee purchased an automobile and sought to
revoke acceptance and rescind the contract after the defendants failed to repair or replace
numerous defective parts and the automobile continued to stall repeatedly.' Id. at 351-52. The

'Minnesota law provides that a buyer "may revoke an acceptance of a lot or commercial
unit whose nonconformity substantially impairs its value to the buyer." MINN. STAT. ANN.
§ 336.2-608(1) (West 2012). Goods are conforming "when they are in accordance with the
obligations under the contract." Id. at§ 336.2-106(2).
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automobile was expressly warranted to be free from defects in material and workmanship. Id. at
353 n.3. After a bench trial, the trial court found that the defendants breached the warranty but
held that the breach did not entitle the plaintiff to rescind the contract. Id. at 352. The plaintiff
appealed from the trial court's ruling with respect to the appropriate remedy for the breach, and
the appellate court reversed, holding that the defects did substantially impair the value of the
automobile to the plaintiff. Id. at 355. The appellate court then considered whether a provision
in the owner's manual limiting the buyer's remedy to the repair and replacement of defective
parts prevented the plaintiff from exercising the remedy of rescission generally available in a case
of substantial impairment. Id. at 356 3 The court held that the trial court's "explicit finding that
the car could not or would not be placed in reasonably good operating condition ... compels the
conclusion that the [part repair-and-replacement] remedy failed of its essential purpose" and that
the plaintiff was therefore entitled to revoke acceptance and rescind the contract. Id. at 357-58.
According to Plaintiff, "the defects in the automobile in Durfee were significant enough
for that court to disregard the exclusive remedy available to the plaintiff therein and allow for a
recovery of the purchase price. The defects in the [s]ander are, at a minimum, as grave as those
affecting performance of the automobile in Durfee." Objection at 6.
Plaintiffs reliance on Durfee is misplaced. The court in Durfee did not consider the
unconscionability of a disclaimer of implied warranties; rather, it addressed whether a part repair3

The UCC states that an "agreement may provide for remedies in addition to or in
substitution for those provided in this article ... , as by limiting the buyer's remedies to ...
repair and replacement of nonconforming goods or parts," but that such a limitation is invalid
"[w]here circumstances cause ... [the]limited remedy to fail of its essential purpose." MINN.
STAT.§ 336.2-719(l)(a), (2). According to the court in Durfee, "[a]n exclusive remedy fails of
its essential purpose if circumstances arise to deprive the limiting clause of its meaning or one
party of the substantial value of its bargain." 262 N.W.2d at 356.

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and-replacement remedy provided for in the contract was adequate to compensate the plaintiff for
the defendants' established breach of an express guaranty. Id. at 355-56. Unlike the plaintiff in
Durfee, plaintiff fails to adequately alleged that defendant is in breach of any contractual
obligation. Plaintiffs reliance on Durfee thus conflates the threshold issue ofliability with the
subsidiary issue of whether the remedy provided under the contract is adequate. The implied
warranty disclaimer acts to shield defendant from liability for the equipment's failure to perform
at any particular specifications not expressly guaranteed in the contract, and the mere presence of
a remedy limitation clause in the contract cannot provide a basis for not enforcing an otherwise
valid disclaimer of implied warranties.
For the foregoing reasons, defendant's disclaimer of implied warranties is enforceable,
and plaintiffs breach of implied warranty cause of action must be dismissed. Plaintiffs
Objection is accordingly denied.
The Court is satisfied that the remainder of the Report is not facially erroneous.
IV.

Conclusion
For the foregoing reasons, Magistrate Judge Lindsay's Report is adopted as an order of

the Court. Defendant's motion to dismiss the Complaint [Docket Entry No. 12] pursuant to Rule
12(b)( 6) of the Federal Rules of Civil Procedure is granted to the extent that plaintiffs claims for
breach of contract and breach of implied warranty are dismissed with prejudice and plaintiffs
claims for breach of express warranty and misrepresentation are dismissed without prejudice.
Plaintiff is granted leave to file a second amended complaint in accordance with the Report and
this Order within thirty (30) days of the date of entry of this Order; in the event plaintiff fails to
do so, plaintiffs claims will be deemed dismissed in their entirety with prejudice and this case
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will be closed.
In accordance with Rule 77(d) of the Federal Rules of Civil Procedure, the Clerk of Court
shall serve a copy of this order upon all parties and shall record such service on the docket.
SO ORDERED.

s/ Sandra J. Feuerstein
§andra J. Feuektein
United States District Judge
Dated:

September OZ I, 2012
Central Islip, New York.

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