Highmark, Inc. v. Northwest Pipe Fittings, Inc.
Filing
192
Memorandum Opinion and Order granting 186 Motion for Reconsideration. Signed by U.S. District Judge Lawrence L. Piersol on 8/15/2016. (JLS)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA2
WESTERN DIVISION
FILED
AUG 16 2016
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HIGHMARK, INC.,
Plaintiff,
VS.
NORTHWEST PIPE COMPANY,
a Washington Corporation,
Defendant and
Third-Party Plaintiff,
vs.
FERBER ENGINEERING COMPANY,
LLC, a South Dakota Corporation; and
RUSTNOT CORROSION CONTROL
SERVICES, INC., an Idaho Corporation,
Third-Party Defendants.
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CIV 10-5089
MEMORANDUM OPINION
AND ORDER
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PlaintiffHighmark, Inc. moved for reconsideration of the Court's previous ruling of March 1,
2016.
The Court had held that the warranty limitations were not unconscionable.
That
determination is a law question to be determined by the Court and after previous submissions,
arguments, and reconsideration, that holding will not be changed. Highmark is a prevailing party
and it is entitled to attorney fees, that part of the previous ruling not, of course, being a part of the
Motion for Reconsideration.
The contract provisions in question are as follows:
10.
WARRANTIES: The goods sold hereunder are subject to Seller's standard
manufacturing variations, tolerances and classifications. Seller warrants that
it has good and sufficient title to the goods, that the goods are made in a
workmanlike manner and in accordance with the specifications therefor
supplied or agreed to by Contractor, and are made or packaged pursuant to
Seller's customary manufacturing procedures. Seller assumes no
responsibility for the adequacy of performance of engineering design or
specifications furnished by Contractor or others. Seller's sole obligation
under the foregoing express warranties shall be to repair, replace or refund
the purchase price of, at Seller's option, any article of goods, or part thereof,
which shall be returned to Seller's plant at Contractor's cost and proved by
Contractor to be other than as warranted. The remedy hereby provided shall
be the exclusive and sole remedy of Contractor for breach of the foregoing
express warranties. This express warranty will be for a period of (1) oneyear after the date of delivery of the goods.
THE ABOVE EXPRESS WARRANTIES OF SELLER ARE THE SOLE
WARRANTIES OF SELLER, AND ANY OTHER WARRANTIES,
EXPRESSED, IMPLIED IN LAW OR IN FACT, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OF FITNESS FOR A
PARTICULAR PURPOSE WHICH EXCEEDS THE FOREGOING
EXPRESS WARRANTIES, ARE HEREBY DISCLAIMED BY SELLER.
11.
EXCLUSION OF CONSEQUENTIAL AND INCIDENTAL DAMAGES:
No claim of any kind, whether as to goods delivered or for non-delivery of
goods, shall be greater in amount than the purchase price of the goods in
respect of which such damages are claimed, and failure to give notice of
claim within the time limits stated in paragraphs 9 and 10 above and shall
constitute a waiver by Contractor of all claims in respect of such goods. The
remedy hereby provided shall be the exclusive and sole remedy of Contractor,
except as otherwise provided herein.
Any right of Contractor to
consequential and incidental damages for the breach by Seller of any term
contained in this sales order, including the warranties provided in paragraph
10 above, is excluded.
The question of whether or not the warranty limitations under the circumstances caused the
limited remedy to fail from its essential purpose is a question for the jury if there is sufficient
evidence on that issue to present a jury question. Johnson v. John Deere Co., 306 N.W.2d 231 (S.D.
1981); Golden Reward Mining Co. v. Webb Co., 772 F. Supp. 1118 (D.S.D. 1991) (dicta). In
considering whether the circumstances caused the limited remedy to fail from its essential purpose,
the Court must consider the circumstances in the light most favorable to the Plaintiff, Highmark, Inc.
Highmark and the City did ultimately get pipe that met the specifications. The Court observed that
it is a close question as to whether or not the repair that took up to eight (8) months as opposed to
the sixty (60) days provided for repair in the contract caused the limitation of remedy to fail of its
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essential purpose under SDCL 57A-2-719(2).
Since this is a diversity case, South Dakota law determines if it is a fact or law question as
to whether the circumstances caused an exclusive or limited remedy to fail of its essential purpose.
Johnson v. John Deere Co., supra, is binding precedent on that question. The Johnson court at 23 7
in reversing the trial court determination stated that "where there is any evidence to support the claim
(of the failure of the warranty to fulfill its purpose), is a question of fact for the jury;". This Court
was incorrect in deciding that question as a matter of law as there is some evidence to support that
claim. For another example of submitting failure of the essential purpose issue to the jury, see Riley
v. Ford Motor Co., 442 F.2d 670 (5th Cir. 1971) (Alabama law). There are fact issues of whether
all of the delay is chargeable to the Defendant seller, and then the factual question of was that
chargeable delay such that under the circumstances it caused the exclusive or limited remedy to fail
of its essential purpose. The essential purpose was to deliver pipe that met the specifications. That
was accomplished but only after substantial delay. Often the failure in question is unwillingness or
inability to perform. However, in the present case, as in Johnson v. John Deere, there ultimately was
performance, but the delay was substantial.
Plaintiff relies upon Soo Line R. Co. v. Fruehauf Corp., 54 7 F .2d 1365 (8th Cir. 1977)
(Minnesota law). That case is distinguishable in that Fruehauf as the seller refused to accept
responsibility for the repairs of the underframes of the 500 railcars. The jury and then the Eighth
Circuit concluded at 13 70 "that the remedial limitation contained within the contract failed of its
essential purpose and is therefore unenforceable." The Eighth Circuit went on to state at 1371,
"Based on this evidence, we conclude that the contract's limited remedy of repair failed of its
essential purpose, and therefore all available Uniform Commercial Code remedies apply. See Minn.
Stat. Ann. § 336.2-719(2) and 336.2-714." Among other damages affirmed was $182,444 for
revenue lost while the cars were undergoing repairs.
That element of damages is clearly
consequential damages. This 1977 holding allowing consequential damages despite a contract
limitation of any such damages. A finding of a limited remedy failing of its essential purpose under
Minnesota law as defeating damage limitations in a contract is not now the law in Minnesota in a
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commercial setting. Transport Corp. ofAmerica v. IBM, Inc., 30 F.3d 953, 960 (8th Cir. 1994) "An
exclusion of consequential damages set forth in advance in a commercial agreement between
experienced business parties represents a bargained-for allocation ofrisk that is conscionable as a
matter oflaw."; International Financial Services, Inc. v. Franz, 534 N.W.2d 261 (Minn. Supreme
Court 1995). (Holding that a consequential damages limitation survives as between commercial
contractors even if the jury determines that the exclusive or limited remedy failed of its essential
purpose, the damages limitation being separate from the warranty limitation. The warranty limitation
can be defeated if it fails of its essential purpose.) The physical separation of the repair and
replacement provision and the consequential damage provision, as is present here, was relied upon
in Franz as well as in American Elec. Power Co. v. Westinghouse Elec. Corp., 418 F.Supp. 435
(S.D. N.Y. 1976).
Plaintiff again relies upon Hartzell v. Justus Co., 693 F .2d 770 (8th Cir. 1982). That case
is of no assistance as it was a consumer case and no remedy to the defects in the house was ever
provided by the seller.
Plaintiff also relies upon Dermalogix Partners, Inc. v. Corwood Labs., Inc., 2000 WL 760732
(D. Me. 2000)(Maine law). Plaintiff claims that Dermalogix was on appeal to the District Court.
Instead, the District Court decided the case on motion for summary judgment. Dermalogix had a
damage cap similar to paragraph 11 of the contract in the present case. The damage cap was found
to not be unconscionable and the Court also found that the damage cap did not cause the limitation
to fail of its essential purpose. The agreements did not have an exclusive or limited remedy
provision other than the damage cap, so there was no consequential damages limitation under
consideration. On the scanty factual record, it was unclear what damages were being awarded by
summary judgment under Maine law.
The damage cap agreed to in the present case would be applicable, but the damages to be
awarded cannot be consequential damages. Dermalogix had no consequential or exclusive or limited
remedy other than the damages cap limitation and the court there applied the damages cap limitation
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as it was found to not be unconscionable. In the present case there is not only a damages cap
limitation but also other limitations including an exclusion on consequential and incidental damages.
This Court has determined that the limitation excluding consequential damages is not
unconscionable as between these commercial contractors. As in Johnson, that limitation remains
even if the jury determines that the exclusive or limited remedy failed of its essential purpose. A
good discussion of the two views on that issue is in International Financial Services, Inc. v. Franz,
supra, (holding in accord with Johnson, supra). These holdings as well as this Order are not
applicable to consumer transactions. The Johnson Court also observed at 238 that the buyer was
"willing to trade off the remedy for consequential loss for the warranty of replacement and repair.
... Thus, although the repair and replacement warranty may have subsequently failed of its essential
purpose, thereby entitling him to general damages for breach of contract as outlined in the code, the
limitation on remedy was not unconscionable at the time it was made, either procedurally or
substantively, and he would not be entitled to recover consequential damages."
Johnson at 239 was remanded "for a new trial on the issue of failure of a limited remedy
under SDCL 57 A-2-719(2), and for determination of such damages, if any, allowable in conformity
with this opinion."
The "damages, if any," is what was and is concerning this Court. At the previous hearing,
the Court asked the parties what damages would be recoverable if no incidental or consequential
damages were recoverable.
Among the various damage measures suggested by Plaintiff in its Motion for Reconsideration
was the contract value of the pipe as specified. If Seller had not ultimately furnished pipe that met
the specifications, or had refused to so provide, the contract amount for the pipe would be a proper
cap on non-consequential or non-incidental damages for the Plaintiff to recover.
However,
conforming pipe was ultimately delivered. Plaintiff claims that the damages caused by the delay in
getting the pipe treated so that it conformed to the specifications are not incidental or consequential
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damages. The delay damages claimed are consequential damages as defined in SDCL § 57A-2715(2). Consequential damages may be limited or excluded unless the limitation or exclusion is
unconscionable, SDCL § 57A-2-719(3). Once again, under the contract, consequential damages
were excluded.
Plaintiff also argues for general contract damages. Such damages would be available but for
the contract limitations.
Plaintiff also argues generally that the contract is ambiguous and should be construed against
Northwest Pipe as the drafters. The Court finds that the contract is not ambiguous.
Defendant Ferber Engineering argues that cover provisions of the law apply to this situation
and that the ultimate provision of pipe by Northwest Pipe that met the specifications was a no cost
cover to the Plaintiff. Cover normally is getting the contract object from another source. The record
in this case does not reflect an ability to timely get cover from another source as the record is that
these pipes are not an off the shelf product but instead have to be specifically manufactured for this
contract. Accordingly, the Court views the initial provision of non-conforming pipe to be a nondelivery under SDCL 57-A-713. That approach yields the same result, in that those damages were
limited by contract to repair or replacement, which is what happened. No other damages are
available.
As a result, there are no damages to award if the jury did decide that the circumstances
caused an exclusive or limited remedy to fail of its essential purpose.
As a result, the remaining damage issue for Plaintiff to recover upon is Plaintiffs attorney
fees and it is so ordered. Accordingly,
IT IS ORDERED:
1.
That Plaintiff Highmark, Inc.' s Motion for Reconsideration of Motion for
Summary Judgment, Doc. 186, is granted in that the prior ruling of the Court
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was reconsidered and the Court concluded upon reconsideration that the issue
of whether circumstances caused an exclusive or limited remedy to fail of its
essential purpose was in this case a jury question due to the circumstances.
This is an empty victory for Plaintiff as Plaintiff has shown no potential
damages other than incidental or consequential damages and the contract
preclusion of those damages has been upheld as not being unconscionable.
2.
That Plaintiff as previously ordered is entitled to offer proof of reasonable
attorney fees as damages.
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Dated this {£day of August, 2016.
BY THE COURT:
JtVSfJ---
ATTEST:
JOSEPH HAAS, CLERK
BY:
L wrence L. Piersol
nited States District Judge
rlifffir
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