IMAX Corporation v. The Capital Center

Filing 29

MEMORANDUM re Pltf's MOTION for Judgment on the Pleadings 12 (Order to follow as separate docket entry)Signed by Honorable Sylvia H. Rambo on 1/11/16. (ma)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
:
:
:
Plaintiff
:
:
v.
:
THE CAPITAL CENTER D/B/A CAPITAL:
:
CENTER FOR THE ARTS, SCIENCE
:
AND EDUCATION, INC.,
:
:
Defendant
IMAX CORPORATION,

Civ. No. 1:15-CV-0378

Judge Sylvia H. Rambo

MEMORANDUM
In this breach of contract action, Plaintiff has moved for judgment on the
pleadings as to both its breach of contract claim and Defendant’s counterclaim regarding
nonpayment of a lease for commercial motion picture equipment. For the reasons below, the
court will grant Plaintiff’s motion.

I.

Background1
A.

Facts

Plaintiff IMAX Corporation (“Plaintiff” or “IMAX”) is a Canadian corporation
that specializes in motion picture technologies, offering proprietary software and theater
architecture and equipment for entertainment purposes. (Doc. 1, ¶¶ 3, 5.) In June of 1996,
Plaintiff entered into a lease with The Capital Center d/b/a Capital Center for the Arts,
Science and Education, Inc. (“Defendant”), which is a Pennsylvania non-profit corporation
1

As required on a motion for judgment on the pleadings, the following facts are taken from
Plaintiff’s complaint (Doc. 1), Defendant’s answer and counterclaim (Doc. 9), Plaintiff’s answer to
Defendant’s counterclaim (Doc. 11), and any exhibits attached to the pleadings, unless indicated otherwise.

that trades and does business as the Whitaker Center for Sciences and the Arts, for an IMAX
three-dimensional motion picture projection system and the right for Defendant to use
IMAX’s trademark. (Id. at ¶ 6; Doc. 9, p. 1 of 12.) The parties subsequently entered into
several renewals and amendments to the original lease agreement (collectively, the
“Agreement”) from 1998 to 2004. (Doc. 1 at ¶¶ 7-8.) At issue here is the final amendment
that the parties executed in 2004 (the “2004 Amendment”), which extended the original
lease term through September 8, 2019. (Id. at ¶ 9.)
Under the terms of the Agreement, Defendant leased the IMAX system in order
to operate an IMAX three-dimensional theater at the Whitaker Center, and agreed to pay
both an annual maintenance fee and an annual minimum rent to Plaintiff. (Id. at ¶¶ 10-12.)
The Agreement defines the maintenance fee as an annual payment of $41,400 due in May of
each year during the lease term, and the annual minimum rent as the greater of seven percent
of the box office receipts or $75,000, due in monthly payments. (Id., Ex. A at p. 4 of 26; Ex.
C at p. 2 of 12.) Upon default by Defendant, the Agreement provides that Plaintiff has the
right to terminate the Agreement, accelerate “the Minimum Rent for the unexpired portion of
the Term . . . as liquidated damages and not as penalty,” and regain possession of the IMAX
system. (Id. at ¶ 14; Ex. A at p. 11 of 26.) With regard to implied warranties during the
lease term, the Agreement includes a disclaimer, which states:
Disclaimer of Warranties and Limitation of Remedies. The
covenants, representations and warranties of I[MAX] contained
in this Agreement are in lieu of all other covenants,
representations and warranties, expressed, statutory or otherwise
2

implied, as to the System, its condition, fitness for use,
merchantability, durability or suitability for any particular use
intended by [Defendant] and [Defendant] hereby confirms that
I[MAX] has not given any such covenant, representation or
warranties.
(Id., Ex. A at p. 11 of 26.) Finally, the Agreement also contains an integration clause, which
states:
This Agreement represents the entire transaction between the parties
relating to its subject matter, and supersedes all prior agreements,
negotiations and proposals, written and oral, relating to its subject
matter. No agreement purporting to amend or modify this Agreement
shall be valid and binding upon the parties unless in writing and
signed by both parties.
(Id. at p. 12 of 26.)
Prior to entering into the 2004 Amendment, Defendant expressed its desire to be
able to play “Hollywood movies” on the IMAX system, and as part of the 2004 Amendment
made a “significant financial investment” to update the IMAX system to an improved Quick
Turn Reel Unit. (Doc. 9, Countercl., ¶¶ 3-4.) Plaintiff subsequently announced a new digital
projection technology that Defendant avers rendered its IMAX system incapable of playing
new Hollywood movies and therefore obsolete. (Id. at ¶¶ 6-7, 9.) Significantly, however,
the 2004 Amendment contains a clause providing that should IMAX develop new digital
projection technology during the lease term, Defendant had the right to lease such
technology at a price “equal to that which IMAX has provided to similar sized clients leasing
similar technology during the applicable calendar year.” (Doc. 1, Ex. C at p. 11 of 12.)

3

As alleged in the complaint, Defendant failed to pay its annual minimum rent as
of July 31, 2014, and was in default on the maintenance fee as of September 21, 2014. (Doc.
1 at ¶¶ 17-18.) By letter dated September 4, 2014, Plaintiff notified Defendant that it was in
default of its rent obligation, and, per the terms of the Agreement, if it did not cure the
default within thirty days, Plaintiff had the right to terminate the Agreement and demand all
amounts due, including the minimum rent for the remainder of the lease term. (Id. at ¶¶ 1920.) On September 22, 2014, after Defendant made no attempt to cure the alleged default,
Plaintiff took possession of the IMAX system. (Doc. 9, Countercl. at ¶18; Doc. 19, p. 2 of
13.) On October 30, 2014, Plaintiff terminated the Agreement via letter and demanded
payment of all amounts due. (Doc. 9, Countercl. at ¶ 21.)
B.

Procedural History

Plaintiff initiated this action by filing a complaint on February 20, 2015. (Doc.
1.) Attached to the complaint are the Agreement, the relevant amendments to the
Agreement, and the two letters notifying Defendant of its alleged default and terminating the
Agreement. (Id., Exs. A-E.) The complaint contains a single count for breach of contract, in
which Plaintiff alleges that Defendant breached the Agreement by failing to make its
scheduled payments on the maintenance fee and minimum rent for the IMAX system. (Id. at
¶¶ 26-33.) On April 24, 2015, Defendant responded with an answer, affirmative defenses,
and a counterclaim. (Doc. 9.) In its response, Defendant did not dispute that it ceased
making payments under the Agreement, but rather alleged that it had no obligation to
4

continue making payments because, inter alia, Plaintiff fraudulently induced Defendant to
enter into the 2004 Amendment to the Agreement, violated the implied warranties of
merchantability and fitness for a particular purpose, frustrated the purpose of the Agreement,
retook possession of the IMAX system, and itself breached the Agreement. (Id. at pp. 7-9 of
12.) Plaintiff filed an answer to the counterclaim on May 18, 2015, asserting the affirmative
defenses of waiver, estoppel, and statute of limitations. (Doc. 11.)
On May 21, 2015, Plaintiff filed a motion for judgment on the pleadings (Doc.
12), followed by a brief in support thereof on May 22, 2015 (Doc. 13). Defendant filed an
opposition to the motion on June 15, 2015 (Doc. 19), and Plaintiff replied on June 23, 2015
(Doc. 21). The dispute was subsequently referred to mediation on July 7, 2015 (Doc. 24),
which ended unsuccessfully on September 3, 2015 (Doc. 27). Thus, the matter has been
fully briefed and is ripe for disposition.

II.

Legal Standard
Federal Rule of Civil Procedure 12(c) allows any party to move for judgment on

the pleadings after the pleadings have closed, but not within such time as to delay trial. See
Fed. R. Civ. P. 12(c). In considering such a motion, the court must view the facts alleged in
the pleadings as true and draw any inferences therefrom in the light most favorable to the
non-movant. Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 220 (3d Cir. 2005). In order to
prevail on a motion for judgment on the pleadings, the movant must show “that there is no
5

material issue of fact to resolve, and that it is entitled to judgment in its favor as a matter of
law.” Mele v. Fed. Reserve Bank of N.Y., 359 F.3d 251, 257 (3d Cir. 2004); DiCarlo v. St.
Mary Hosp., 530 F.3d 255, 259 (3d Cir. 2008).
When a motion for judgment on the pleadings seeks dismissal of a claim, the
standard of review is nearly identical to that for a motion to dismiss under Rule 12(b)(6).
See Volunteer Firemen’s Ins. Servs., Inc. v. Fuller, Civ. No. 12-cv-2016, 2012 WL 6681802,
*4 (M.D. Pa. Dec. 21, 2012) (citing Turbe v. Gov't of Virgin Islands, 938 F.2d 427, 428 (3d
Cir. 1991)) (citations omitted). The only notable difference is that on a motion for judgment
on the pleadings, the court reviews not only the complaint but also the answer and any
written instruments and exhibits attached to the pleadings. Id. (citing 2 Moore's Fed.
Practice Civil § 12.38 (2004)); see also Prima v. Darden Rests., Inc., 78 F. Supp. 2d 337,
341-42 (D.N.J. 2000). Despite this difference, courts in this circuit have consistently stated
that the distinction between the two standards is “merely semantic.” Christy v. We The
People Forms & Serv. Ctrs., USA, Inc., 213 F.R.D. 235, 238 (D.N.J. 2003); see Smith v. City
of Phila., 345 F. Supp. 2d 482, 485 (E.D. Pa. 2004) (citing Regalbuto v. City of Phila., 937
F. Supp. 374, 376-77 (E.D. Pa. 1995) (“A motion for judgment on the pleadings pursuant to
Federal Rule of Civil Procedure 12(c) is treated using the same standard as a motion to
dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).”)). Just
as a complaint will survive a motion to dismiss under Rule 12(b)(6) if the facts alleged are
sufficient to “raise a right to relief above the speculative level” such that the plaintiff's claim
6

is “plausible on its face,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007), so will
a claim survive a motion for judgment on the pleadings.

III.

Discussion
In its complaint, Plaintiff brings a single claim for breach of contract against

Defendant due to Defendant’s failure to continue paying both the maintenance fee and the
minimum rent as defined in the Agreement, despite there being nearly five years left on the
lease term. (See Doc. 1.) Although Defendant asserted several affirmative defenses in its
answer and counterclaim (Doc. 9), it relies primarily on just four arguments in defense of
Plaintiff’s breach of contract claim: (1) the doctrine of mutual mistake is not barred from
consideration by either the Agreement’s integration clause or the parol evidence rule, and
serves as a basis for rescinding the Agreement; (2) the doctrine of frustration of purpose is
likewise not barred by the integration clause or the parol evidence rule and is an independent
basis for rescission of the Agreement; (3) Plaintiff is in possession of the IMAX system and
therefore cannot seek continued lease payments for property in its own possession; and (4)
the disclaimer of implied warranties contained in the Agreement is insufficiently
“conspicuous” and therefore unenforceable. (Doc. 19, p. 3 of 13.) The court will address
these arguments in turn.

7

A.

Mutual Mistake2

Defendant first argues that it entered into the 2004 Amendment with the
understanding that the IMAX system would continue to play “Hollywood 3D movies”
throughout the term of the Agreement, and because the system is no longer capable of doing
so, Defendant was mistaken when it executed the amendment. (Doc. 19, p. 5 of 13.)
Pennsylvania adopts the Restatement (Second) of Contracts, which allows for a contract to
be voided “[w]here a mistake of both parties at the time a contract was made as to a basic
assumption on which the contract was made has a material effect on the agreed exchange of
performances.” Restatement (Second) of Contracts § 152 (1981). A mistake by only one
party to a contract is considered a mutual mistake where the non-mistaken party knows of
the mistaken party’s erroneous belief and does not correct the misapprehension. See Eagle
Traffic Control, Inc. v. United Rentals, Inc., Civ. No. 02-cv-7439, 2004 WL 228686, *4
(E.D. Pa. Feb. 4, 2004) (citing In re Allegheny Int’l, Inc., 954 F.2d 167, 180 (3d Cir. 1992)).
However, “the erroneous belief must relate to the facts as they exist at the time of the
making of the contract. A party's prediction or judgment as to events to occur in the future,
even if erroneous, is not a ‘mistake.’” Commonwealth Group-Winchester Partners, L.P. v.
Winchester Warehousing, Inc., 332 F. App’x 913, 922 (4th Cir. 2009) (quoting Restatement

2

Because the court has jurisdiction over this matter based on diversity of citizenship pursuant
to 28 U.S.C. § 1332, it will apply the contract law of Pennsylvania as the forum state. See Salve Regina
Coll. v. Russell, 499 U.S. 225, 226 (1991) (citing Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)).
8

(Second) of Contracts § 151 cmt. a.); see also Charlton v. Gallo, Civ. No. 09-cv-2447, 2010
WL 653155, *6 (E.D. Pa. Feb. 19, 2010) (citing same).
Here, Defendant alleges that, at the time of contracting for the 2004 Amendment,
Plaintiff knew or should have known that the IMAX system would not be able to play
“Hollywood 3D movies” throughout the full lease term. Plaintiff counters that it had no way
to know what the prevailing film projection technology would be ten to fifteen years in the
future, and that Defendant’s “mistake” was therefore not as to a fact in existence at the time
of contracting, but instead would require a prediction as to a future event. The court finds
Plaintiff’s argument, and specifically its reliance on M. Leff Radio Parts Inc. v. Mattel, Inc.,
706 F. Supp. 387 (W.D. Pa. 1988), persuasive.
In Mattel, the plaintiff acted as a distributor and resaler of video game cartridges
pursuant to a contract with Mattel. Id. at 391. An unexpected and sudden decrease in the
demand for video games in the early 1980s caused Mattel to stop producing the video game
system that played the cartridges and to stop supporting the system and cartridges with
advertising. Id. Unable to sell its remaining inventory of cartridges, Defendant attempted to
return them to Mattel, but Mattel refused. Id. Plaintiff then filed suit against Mattel seeking
to void its purchase obligations under the contract based upon, inter alia, a theory of mistake
that is almost identical to that of Defendant in the instant case. Id. at 398. The plaintiff in
Mattel argued that it was mistaken as to Mattel’s intention to continue producing and
supporting the video game system and cartridges, and, as in the instant case, that the other
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party knew of its mistaken belief and took no steps to correct it. Id. Significantly, rumors of
Mattel ceasing to produce the video game system had spread and Mattel sent correspondence
to the plaintiff assuring it that the rumors were false a mere three months before deciding to
stop production of, and support for, the system. Id. at 397. Nonetheless, the Mattel court
found that any mistaken belief that Mattel would continue manufacturing the video game
system was “clearly predicated on ‘a party’s prediction or judgment as to events to occur in
the future[,]’” and did not relieve the plaintiff of its contractual obligations. Id. at 398
(quoting Restatement (Second) of Contracts § [151] cmt. a).
In the instant case, Defendant’s defense of mutual mistake fails for the same
reason. Defendant’s defense is predicated on a “fact” it does not allege existed at the time
the parties entered into the 2004 Amendment: a subsequent technology for showing
“Hollywood 3D movies” that was incompatible with the IMAX system it leased. Not only
did IMAX, as alleged by Defendant, release its technology after the parties entered into the
2004 Amendment, the court is not persuaded that the subsequent film technology rendered
Defendant’s leased IMAX system obsolete because Defendant continued to utilize the
system and meet its financial obligations under the Agreement for nearly a decade after the
execution of the 2004 Amendment. Furthermore, Defendant’s argument that it was under
the erroneous belief that the IMAX system would play “Hollywood 3D movies” throughout
the entirety of the Agreement does not a create a mutual mistake where: 1) the Agreement
makes no mention of “Hollywood 3D movies;” 2) as part of the 2004 Amendment that
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extended the Agreement for a period of fifteen years, Defendant upgraded the system to the
then-new Quick Turn Reel Unit technology only eight years after entering into the original
Agreement; and 3) the 2004 Amendment itself specifically contemplates a future upgrade to
digital projection technology. Indeed, the clause regarding the new digital technology
appears under its own separate heading, immediately preceding the clause regarding the
Quick Turn Reel Unit upgrade, and states:
Digital Technology
If, during the [lease term], IMAX develops new digital projection
technology (“DP Technology”) for use in the [t]heatre and [Defendant]
is desirous of leasing DP Technology, IMAX shall provide pricing
equal to that which IMAX has provided to similar sized clients leasing
similar technology during the applicable calendar year.
(Doc. 1, Ex. C at p. 11 of 12.) The combination of upgrading as part of the 2004
Amendment and the inclusion of language regarding the next anticipated upgrade belie
Defendant’s argument that it reasonably expected the system to be able to play “Hollywood
3D movies” for the full fifteen-year lease term. Accordingly, the court finds that there was
no mutual mistake that would make the Agreement voidable.
B.

Frustration of Purpose

Defendant next argues that the Agreement is voidable because the purpose for
which Defendant entered into it – to play “Hollywood 3D movies” – has been frustrated.3

3

Defendant appears to conflate this argument with its argument for mutual mistake, and, indeed, cites
case law discussing the doctrine of mistake. (See Doc. 19, pp. 8-9 of 13 (citing Hart v. Arnold, 884 A.2d
316, 334-35 (Pa. Super. Ct. 2005) (stating that contract could be rescinded for mutual mistake of fact).) To
11

The doctrine of frustration of purpose is to be applied sparingly. Dorn v. Stanhope Steel,
Inc., 534 A.2d 798, 812 (Pa. Super. Ct. 1987). A party may avoid its performance on a
contract under the defense of frustration of purpose only where “after a contract is made, a
party’s performance is made impracticable without his fault by the occurrence of an event
the non-occurrence of which was a basic assumption on which the contract was made.”
Ragnar Benson, Inc. v. Hempfield Twp. Mun. Auth., 916 A.2d 1183, 1190 (Pa. Super. Ct.
2007) (quoting Restatement (Second) of Contracts § 261).
Here, no such unexpected intervening event occurred after execution of the 2004
Amendment. Rather, Defendant contends that the IMAX system’s inability to play new
films that require digital projection technology caused the frustration of purpose. As
discussed above, based on the clause in the Agreement that specifically contemplated an
upgrade to digital technology, and Defendant’s upgrading the technology of the IMAX
system in 2004, it is not reasonable that the parties both entered into the 2004 Amendment
on the basic assumption that the system would need no upgrades over the course of a fifteenyear lease term. Accordingly, frustration of purpose does not provide a basis upon which to
void the Agreement.
C.

Lease Payments for Repossessed Property

Defendant next argues that Plaintiff is precluded from seeking accelerated rent
payments pursuant to the Agreement because Plaintiff took repossession of the IMAX
the extent Defendant’s argument is based on mistake, that argument was addressed and rejected by the court
supra, section III.A.
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system. Plaintiff counters that it is not precluded from seeking acceleration of the rent due,
despite being in possession of the leased equipment, because Defendant voluntarily returned
the IMAX system and Plaintiff did not accept the return as surrender.
Generally, a lessor of equipment has a choice, upon the lessee’s breach of the
lease, to seek either repossession of the property and actual damages, or acceleration of the
rent due for the remainder of the lease term. Kingsly Compression, Inc. v. Mt. V Oil & Gas,
Inc., Civ. No. 09-cv-0316, 2010 WL 4929076, *5 (W.D. Pa. Nov. 30, 2010) (citing 1600
Penn Corp. v. Comput. Scis. Corp., Civ. No. 06-cv-5329, 2008 WL 4443016, *14 (E.D. Pa.
Sept. 30, 2008)); see also Finkle v. Gulf & W. Mfg. Co., 744 F.2d 1015, 1021 (3d Cir. 1984).
However, possession of the leased property itself does not preclude a lessor from seeking to
accelerate the remaining rent where the lessee relinquishes possession voluntarily. Rather, a
lessee still must establish by clear and convincing evidence that the lessor accepted the
surrender of the leased property. Kingsly, 2010 WL 4929076, at *5 (citing Onal v. BP
Amoco Corp., 275 F. Supp. 2d 650, 668 (E.D. Pa. 2003)). To establish acceptance of
surrender, the lessee cannot merely show that the lessor regained possession of the property,
but must prove that the lessor’s actions were adverse to the repossession of the property by
the lessee. Onal, 275 F. Supp. 2d at 669 (citing Stonehedge Square Ltd. P’ship v. Movie
Merchs., Inc., 685 A.2d 1019, 1023 (Pa. Super. Ct. 1996)). In other words, “[i]f the lessor
does not accept surrender of the goods and the lease contains an acceleration clause, the
lessor is entitled to receive as a lump sum all rents that will fall due during the unexpired
13

term of the lease.” Kingsly, 2010 WL 4929076, at *5 (citing 1600 Penn Corp., 2008 WL
4443016, at *14).
Defendant relies almost exclusively on the Kingsly decision to support its
argument that Plaintiff may not seek acceleration of rent under the lease while in possession
of the leased property. (See Doc. 19, pp. 10-11 of 13.) However, the Kingsly court clearly
stated that “[a] lessee simply leaving the property in the lessor’s custody is not clear and
convincing proof of acceptance of surrender.” Kingsly, 2010 WL 4929076, at *5. In
Kingsly, the parties entered into a lease for a natural gas compressor. After the lessor
reconditioned the compressor and made it available for delivery, the lessee refused to take
possession. Id. The lessee made partial payments under the lease, but later decided it did
not want the compressor, attempted to terminate the lease, and demanded return of its partial
payments. Id. at *2. The lessor subsequently attempted, unsuccessfully, to sell or relet the
compressor. Id. Despite the lessee never taking possession and the lessor attempting to relet
the equipment, the court nonetheless found that the facts did not constitute acceptance of
surrender because the lessor’s actions had not interfered with the lessee’s possessory rights.
Id. at *5.
Here, Defendant requested that Plaintiff take possession of the IMAX system,
and Plaintiff acquiesced. However, Defendant’s request came well after Plaintiff’s notice of
default and demand for acceleration of the rents still due under the Agreement, and at no
point did Plaintiff demand repossession of the IMAX system. While Pennsylvania’s general
14

rule, in order to prevent a lessor from obtaining a double recovery, is that a lessor must
ordinarily choose between 1) repossession and actual damages or 2) acceleration of all rents
due, see id. at *7 (citing Onal, 275 F. Supp. 2d at 668 (citing Finkle, 744 F.2d at 1021));
1600 Penn Corp., 2008 WL 4443016, at *14; Homart Dev. Co. v. Sgrenci, 662 A.2d 1092,
1100 (Pa. Super. Ct. 1995), “where the lessor is not asking the court to award both
possession and . . . accelerated rent, the risk of double recovery is not present and not
relevant.” Kingsly, 2010 WL 4929076, at *7 (citing Hirsh v. Carbon Lehigh Intermediate
Unit # 21, 65 Pa. D. & C. 4th 390, 418 (Pa. Com. Pl. 2003)). Because Plaintiff has not asked
this court to award both possession and accelerated rent, the court finds that Plaintiff is in the
same position as the plaintiff in Kingsly, and therefore is not precluded from seeking to
accelerate the rent, despite being in possession of the leased property.
The same is not true regarding the annual maintenance fee. First, the acceleration
clause does not mention the annual maintenance fee, only stating that “the Minimum Rent
for the unexpired portion of the Term shall be accelerated . . . and shall become due and be
paid upon the demand of [IMAX].” (Doc. 1, Ex. A at p. 11 of 26.) Thus, Plaintiff has no
contractual claim to acceleration of the annual maintenance fee. Second, Plaintiff would be
unjustly enriched if it were allowed to accelerate the annual maintenance fee where it is in
possession of the IMAX system and cannot possibly have any future maintenance
obligations to Defendant. See Mitchell v. Moore, 729 A.2d 1200, 1203 (Pa. Super. Ct. 1999)
(holding that a party is unjustly enriched where, under the circumstances, it would be
15

inequitable for the party to retain a benefit for which it has not provided value). Plaintiff
would essentially be paid for nothing, which would result in it obtaining “a benefit that
would be unconscionable for it to retain.” Martin v. Little, Brown & Co., 450 A.2d 984, 988
(Pa. Super. Ct. 1981). Accordingly, Plaintiff may not pursue acceleration of the annual
maintenance fee.
D.

Implied Warranties

Defendant’s final defense to Plaintiff’s breach of contract claim, which also
serves as the basis for Defendant’s counterclaim for breach of contract, is that the disclaimer
of implied warranties contained in the Agreement is unenforceable. In this regard,
Defendant claims that Plaintiff failed to adhere to the implied warranty of fitness for a
particular purpose, as Plaintiff knew or should have known that Defendant’s particular
purpose for entering into the Agreement was to play “Hollywood movies” through the entire
lease term. (See Doc. 9, Countercl. at ¶¶ 7-11.) Plaintiff contends that the disclaimer is
enforceable and properly disclaims the implied warranty of fitness for a particular purpose,
and, therefore, both Defendant’s affirmative defense and counterclaim based on that implied
warranty fail. (Doc. 21, pp. 9-10 of 11.)
The Pennsylvania Uniform Commercial Code allows for implied warranties,
including the implied warranty of fitness for a particular purpose, to be disclaimed as long as
the disclaimer is “conspicuous.” 13 Pa. C.S.A. § 2316(b). A clause or term is deemed to be
“conspicuous” when it is “so written, displayed or presented that a reasonable person against
16

which it is to operate ought to have noticed it.” 13 Pa. C.S.A. § 1201(b)(10). As this court
has held, in assessing whether a disclaimer is “conspicuous,” “the court may consider the
disclaimer’s placement within the warranty document, the size of the typeface in which the
disclaimer appears, and the use of typographic styles, colors, and highlighting to call
attention to the disclaimer.” Woolums v. Nat’l RV, 530 F. Supp. 2d 691, 702 (M.D. Pa.
2008).
Here, the disclaimer found in the Agreement appears as follows:
Disclaimer of Warranties and Limitation of Remedies. The
covenants, representations and warranties of I[MAX] contained
in this Agreement are in lieu of all other covenants,
representations and warranties, expressed, statutory or otherwise
implied, as to the System, its condition, fitness for use,
merchantability, durability or suitability for any particular use
intended by [Defendant] and [Defendant] hereby confirms that
I[MAX] has not given any such covenant, representation or
warranties.
(Doc. 1, Ex. A at p. 11 of 26.) While the disclaimer is in the same size font as the
surrounding text and is not highlighted, it does appear in boldface type and the heading is
underlined. The disclaimer is found in Schedule B of the Agreement, which covers the
general terms and conditions of the lease. Schedule B is seven pages in length and,
significantly, the disclaimer is the only clause that appears in boldface type. Courts in this
circuit have routinely held that disclaimers in boldface type, unlike the surrounding
provisions of the agreements in which they are located, are sufficiently “conspicuous” to
disclaim implied warranties. See, e.g., Mack Trucks, Inc. v. BorgWarner Turbo Sys., Inc.,
17

Civ. No. 08-cv-2621, 2011 WL 1045108, *7 (E.D. Pa. Mar. 22, 2011) (finding a disclaimer
of implied warranties in boldface type in a contract between sophisticated parties to be
“conspicuous”); D & D Transp. v. Freightliner, L.L.C., Civ. No. 07-cv-0960, 2008 WL
919599, *5 (M.D. Pa. Apr. 2, 2008) (“[T]he disclaimer is the same size as [the] surrounding
text, but it is in bold format. Much of the text on the same page is not in bold. The
disclaimer is in its own separate paragraph. The court concludes that a reasonable person
ought to have noticed this disclaimer.”); Hornberger v. Gen. Motors Corp., 929 F. Supp.
884, 889 (E.D. Pa. 1996) (finding a disclaimer “conspicuous” where the disclaimer was in
boldface type and the surrounding text was not).
Accordingly, the court finds that the disclaimer of the implied warranty of fitness
for a particular purpose found in the Agreement is sufficiently “conspicuous” and therefore
enforceable. Because the court finds that the implied warranty of fitness for a particular
purpose was properly disclaimed in the Agreement, Plaintiff must be awarded judgment as
to Defendant’s counterclaim.
E.

Leave to Amend its Pleadings

Finally, Defendant argues that, should the court be inclined to award judgment on
the pleadings to Plaintiff as to both its breach of contract claim and Defendant’s
counterclaim, the court should instead grant Defendant leave to amend its pleadings in order
to more specifically aver its defenses and claims based on mutual mistake and frustration of
purpose. (Doc. 19, pp. 9-10 of 13.) Generally, leave to amend a pleading pursuant to
18

Federal Rule of Civil Procedure 15(a) should be “freely give[n] when justice so requires.”
Fed. R. Civ. P. 15(a)(2). However, a court need not grant leave to amend in the presence of
bad faith, undue delay, undue prejudice, or futility. See Lorenz v. CSX Corp., 1 F.3d 1406,
1414 (3d Cir. 1993). Defendant has requested to amend its pleading with regard to its
theories of mutual mistake and frustration of purpose, which the court has already rejected
herein. Because the clear language of the Agreement defeats Defendant’s arguments for
mutual mistake or frustration of purpose, any amendment as to those issues would be futile.
Accordingly, Defendant’s request for leave to amend its pleading will be denied.

IV.

Conclusion
Plaintiff has properly pleaded a breach of contract claim against Defendant, and

Defendant has not disputed the underlying facts, namely, nonpayment of fees due under a
lease agreement. For the reasons stated herein, Defendant’s affirmative defenses and
counterclaim fail as a matter of law. In addition, Defendant’s request for leave to amend its
pleadings is futile and will be denied. Accordingly, Plaintiff will be awarded judgment on
the pleadings as to its breach of contract claim as well as Defendant’s counterclaim.
An appropriate order will issue.

s/Sylvia H. Rambo
SYLVIA H. RAMBO
United States District Judge
Dated: January 11, 2016
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