Opinion
Case No. 2:20-cv-4880
07-01-2021
CONTINENTAL CASUALTY COMPANY, other The Markley Group, Plaintiff, v. VERTIV SERVICES, INC., now known as Vertiv Corporation, et al., Defendants.
John C. DeSimone, John B. DiSciullo, Mitchell & DeSimone, Boston, MA, Michael R. Traven, Robert B. Graziano, FisherBroyles, LLP, Columbus, OH, Stephen M. Winning, Pro Hac Vice, Dugan, Brinkmann, Maginnis and Pace, Philadelphia, PA, for Plaintiff. Marc J. Kessler, Hahn Loeser & Parks, Columbus, OH, Nathaniel R. B. Koslof, Sullivan & Worcester LLP, Boston, MA, Sarah K. Dunkley, Pro Hac Vice, Hahn Loeser & Parks LLP, Chicago, IL, for Defendant Vertiv Services, Inc. D. Patrick Kasson, Thomas N. Spyker, Reminger Co., LPA, Columbus, OH, for Defendant SBE, Inc. D. Patrick Kasson, Reminger Co., LPA, Columbus, OH, for Defendants SB Electronics, Advanced Power Conversion Solutions.
John C. DeSimone, John B. DiSciullo, Mitchell & DeSimone, Boston, MA, Michael R. Traven, Robert B. Graziano, FisherBroyles, LLP, Columbus, OH, Stephen M. Winning, Pro Hac Vice, Dugan, Brinkmann, Maginnis and Pace, Philadelphia, PA, for Plaintiff.
Marc J. Kessler, Hahn Loeser & Parks, Columbus, OH, Nathaniel R. B. Koslof, Sullivan & Worcester LLP, Boston, MA, Sarah K. Dunkley, Pro Hac Vice, Hahn Loeser & Parks LLP, Chicago, IL, for Defendant Vertiv Services, Inc.
D. Patrick Kasson, Thomas N. Spyker, Reminger Co., LPA, Columbus, OH, for Defendant SBE, Inc.
D. Patrick Kasson, Reminger Co., LPA, Columbus, OH, for Defendants SB Electronics, Advanced Power Conversion Solutions.
OPINION AND ORDER
MICHAEL H. WATSON, JUDGE
Defendant Vertiv Services, Inc. ("Vertiv") moves for a partial judgement on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Mot., ECF No. 42. For the following reasons, Defendant's motion is DENIED .
The Court accepts Plaintiff's factual allegations as true for purposes of Defendant's motion.
The Markley Group ("Markley") provides "a climate controlled and electronically safe environment for its customers’ computer and networking hardware" at its office in Boston, Massachusetts. Amend. Compl. ¶ 9, ECF No. 37. Vertiv, an Ohio company, manufactures, distributes, and sells uninterrupted power supply ("UPS") systems. Id. ¶ 5. Markley purchased several UPS systems from Vertiv in December 2017. Id. ¶¶ 10–11.
On June 22, 2018, a fire started in one of the UPS systems due to the failure of a capacitor which was not properly rated for the system. Id. ¶¶ 19–23, 28. The failure caused electrical arcing and physical damage to a component part. Id. ¶ 30. The heat from the arcing triggered the fire-prevention sprinklers, the water from which caused substantial damage to Markley's facility. Id. ¶ 31.
As Markley's insurer, Plaintiff covered Markley's losses, and now brings this cause of action pursuant to its rights of subrogation. Id. ¶ 32. Plaintiff asserts claims against Vertiv for negligence, breach of warranty, breach of contract, product liability, and negligent misrepresentation. Id. ¶¶ 33–58. Vertiv moves for a partial judgment on the pleadings. Mot., ECF No. 42. Vertiv argues that Plaintiff's claims for damages are limited by the limitation-of-remedy clause in the contract between Vertiv and Markley. Id.
II. STANDARD OF REVIEW
"For purposes of a motion for judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment." Fritz v. Charter Twp. of Comstock , 592 F.3d 718, 722 (6th Cir. 2010) (citing JPMorgan Chase Bank v. Winget , 510 F.3d 577, 581 (6th Cir. 2007) (internal citations and quotation marks omitted)). "The standard of review for a Rule 12(c) motion is the same as for a motion under Rule 12(b)(6) for failure to state a claim upon which relief can be granted." Ziegler v. IBP Hog Market, Inc. , 249 F.3d 509, 511–12 (6th Cir. 2001) (citation omitted). As with a 12(b)(6) motion, a claim survives a motion for judgment on the pleadings if it "contain[s] sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation omitted). "The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (citation omitted). This standard "calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of [unlawful conduct]." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A pleading's "[f]actual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the [pleading] are true (even if doubtful in fact)." Id. at 555, 127 S.Ct. 1955 (internal citations omitted). While the court must "construe the [pleading] in the light most favorable to the [non-moving party]," Inge v. Rock Fin. Corp. , 281 F.3d 613, 619 (6th Cir. 2002), the non-moving party must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ; see also Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.
III. ANALYSIS
As a preliminary matter, the Court concludes that the operative contract is the 2017 contract ("the Contract"), not the 2015 contract. The Service Terms and Conditions page of the 2017 contract expressly provides that "[t]hese Service Terms and Conditions supersede all other communications, negotiations and prior or written statements regarding the subject matter of these Service Terms and Conditions." Mot., Ex. B 6, ECF No. 42-2. Further, the 2015 contract indicates that it covers a "twelve (12) month service period." Mot. Ex. 1, 9, ECF No. 42-1. For these reasons, the Court concludes that the 2017 contract was the operative contract at the time of the alleged capacitor malfunction (June 2018).
Turning to the parties’ arguments, Vertiv argues that Plaintiff's recovery is limited by the limitation-of-remedy clause in the Contract between Vertiv and Markley. The clause reads as follows:
SELLER SHALL NOT BE LIABLE FOR DAMAGES CAUSED BY DELAY IN PERFORMANCE AND THE REMEDIES OF BUYER SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE. IN NO EVENT, REGARDLESS OF THE FORM OF THE CLAIM OR CAUSE OF ACTION (WHETHER BASED IN CONTRACT, INFRINGEMENT, NEGLIGENCE, STRICT LIABILITY, OTHER TORT OR OTHERWISE), SHALL SELLER'S
LIABILITY TO BUYER AND/OR ITS CUSTOMERS EXCEED THE PRICE PAID BY BUYER FOR THE SPECIFIC SERVICES OR PARTS PROVIDED BY THE SELLER GIVING RISE TO THE CLAIM OR CAUSE OF ACTION.
Mot., Ex. B 13, ECF No. 42-2. Plaintiff responds by pointing to the "delay" language in the clause. Id. ("Seller shall not be liable for damages caused by delay ...") (emphasis added). According to Plaintiff, that language limits the entire clause to damages flowing from a delay and, therefore, judgment for Defendant is improper.
The Court agrees with Plaintiff that judgment for Defendants is inappropriate at this time, but for different reasons. After careful consideration, the Court concludes that the Contract is for the sale of goods, and therefore is governed by Ohio's UCC provisions. Under those provisions, a limitations-of-remedy clause is void if it leaves the buyer without a meaningful remedy. For these reasons, discussed more fully below, Vertiv's motion is denied.
A. Is the contract for services or for the sale of goods?
A limitation-of-remedy clause is invalid for failing its essential purpose only in contracts for the sale of goods. See, e.g. , Pichey v. Ameritech Interactive Media Servs., Inc. , 421 F. Supp. 2d 1038, 1050 (W.D. Mich. 2006). Therefore, the Court must first determine whether the Contract is for the sale of goods or services.
The Contract encompasses both goods and services, so the Court must apply the predominant purpose test. See Cranpark, Inc. v. Rogers Grp., Inc. , 498 F. App'x 563, 568 (6th Cir. 2012). This test considers "whether the predominant factor and purpose of the contract is the rendition of service, with goods incidentally involved, or whether the contract is for the sale of goods with labor incidentally involved." Id. (internal quotation marks and citations omitted). This Court has previously considered the following factors when applying the predominant purpose test:
The contract is titled a "Proposal for Services" and describes services, like testing and installations, that Vertiv would perform for Markley. Mot., Ex. B 2, 14, ECF No. 42-2. Yet, the contract also lists several goods, like premium capacitors, that Vertiv would sell to Markley. Id. at 4, 5, 14.
1) the nature and language of the contract; 2) the nature of the business of the supplier or seller; 3) the price or value allocation in the contract between goods and services to be provided; and 4) the issues involved in the dispute.... It also is useful to consider the compensation structure of the contract in this analysis.
Executone of Columbus, Inc. v. Inter-Tel, Inc. , 665 F. Supp. 2d 899, 907 (S.D. Ohio 2009) (quoting Heidtman Steel Products, Inc. v. Compuware Corp. , No. 3:97CV7389, 2000 WL 621144, at *5 (N.D. Ohio Feb. 15, 2000) ). As explained in Cranpark, Inc. v. Rogers Group, Inc. , these factors are merely guidance, not required analytical steps. No. 4:04CV1817, 2010 WL 11469140, at *3 (N.D.Ohio Aug. 9, 2010). Thus, the Court does not rely on any of these factors as necessary or dispositive, but it does find them helpful in evaluating the predominant purpose of the contract.
Whether a contract involves goods or services is normally a question of fact for the jury. Executone of Columbus, Inc. , 665 F. Supp. 2d at 907. "A jury, however, should only resolve this issue if there is a true factual dispute, not if the division between goods and services merely involves a close call." Mecanique C.N.C., Inc. v. Durr Env't, Inc. , 304 F. Supp. 2d 971 (S.D. Ohio 2004). Here, the Court discerns no true factual dispute and, therefore, evaluates whether the contract is for goods or services as a matter of law.
Turning to the first factor, the nature and language of the Contract support that it predominantly involves goods, though some of the language also discusses services to be provided. For instance, the Contract is titled a "Proposal for Services" and has subheadings that include "Service Summary" and "Service Performed." Mot., Ex. B 2, 6–10, ECF No. 42-2; but see Timken Co. v. MTS Sys. Corp. , No. 5:19-CV-00584, 539 F.Supp.3d 770, 785–86, (N.D. Ohio May 14, 2021) (explaining that the specific language in agreements’ titles have "little if any relevance"). Furthermore, the Contract states that "Vertiv [is] to install Premium Capacitors in UPS ... [and the] work [is] to include all AC & DC capacitors for each of the (4) Modules on UPS 421." Id. at 14. On the other hand, the Contract details the cost of certain components and contains a "purchase order," which indicates the sale of goods. Id. at 4–5, 14. Also, Markley agrees to buy "Misc[ellaneous] electrical devices Premium Capacitors," which further indicates that the Contract was for goods. Id. at 14. Moreover, the contract repeatedly refers to Markley as a "Buyer" and Vertiv as "Seller," (as opposed to "contractor," "provider" or "customer") which further suggests that the Contract was for goods. See, e.g., id. at 13.
On balance, although the Contract provides for some services, the types of services encompassed (e.g., installations and repairs), are incidental to the goods Markley purchased from Vertiv. See Mecanique C.N.C., Inc. , 304 F. Supp. 2d at 977 (holding that the "installation service provided by Plaintiff, though extensive, was merely incidental to [defendant's] purpose of procuring the necessary ductwork"); see also LaBounty v. Big 3 Auto., 2019-Ohio-1919, ¶ 69, 2019 WL 2158336 (Ohio Ct. App. 2019) (finding that the defendant's "installation of the parts was incidental to the sale of the performance parts"). Accordingly, this factor weighs in favor of finding that the Contract was predominantly for goods.
As to the second factor, the nature of Vertiv's business further supports that the Contract was for goods. According to the Amended Complaint, Vertiv is engaged "in the manufacture, distribution and sale of uninterruptible power supply (UPS) systems." Am. Compl. ¶ 4, ECF No. 37. Courts have repeatedly found contracts between manufactures and distributors to be contracts for goods. See, e.g. , Executone , 665 F. Supp. 2d at 908 ; Mecanique C.N.C., Inc. , 304 F. Supp. 2d at 977. Manufacturers or distributors certainly can enter into contracts for services, but in this case, the description of Vertiv's business weighs in favor of finding that the Contract was predominantly for goods.
As to the third factor, the price allocation between goods and services also indicates that the Contract predominantly involves goods. In the Contract, Markley agrees to pay $63,130.00 for "Misc[ellaneous] electrical devices Premium Capacitors" and $11,670 for "Vertiv to install [these] Premium Capacitors ..." Mot., Ex. B 14, ECF No. 42-2. Consequently, Markley spent over five times more on goods (the capacitors) than on the service (the installation). This disparity in the value allocation between goods and services demonstrates that Markley's main purpose of entering the Contract was acquiring the necessary capacitors for its datacenter. See Boardman Steel Fabricators, Ltd. v. Andritz, Inc. , No. 14-2-GFVT, 2015 WL 5304293, at *5 (E.D. Ky. Sept. 9, 2015) (finding that a mixed contract was for the sale of goods where "the contract price was primarily calculated based on the costs of [the goods]").
Finally, the fourth factor (the issues involved in the dispute) also suggests that the Contract was for goods. Of Plaintiff's five claims against Vertiv, four involve the capacitors that Vertiv delivered and the representations Vertiv made about them. Am. Compl. ¶¶ 33–58, ECF No. 37. As a whole, then, Plaintiff primarily takes issue with the defective or underperforming nature of the provided capacitors. See Timken Co. , 539 F.Supp.3d at 786–88, (concluding the contract was for goods where the plaintiff "primarily takes issue with [the goods]" the defendant supplied). Because Plaintiff is mostly concerned with the goods in the contract, this factor weighs in favor of the Contract predominantly involving goods, and, as all four factors weigh in favor of goods, the Court concludes that the Contract was for the sale of goods.
B. Does the limitation-of-remedy clause fail its essential purpose?
Having determined that the Contract is for the sale of goods, the Court next turns to whether the limitation-of-remedy clause fails its essential purpose. Generally, a contract may limit the buyer's remedies to "return of the goods and repayment of the purchase price or to repair and replacement of nonconforming goods or parts." O.R.C. 1302.93(A)(1). Such a clause, however, "will fail if the limitation is unconscionable or fails its essential purpose." WEL Companies, Inc. v. Haldex Brake Prod. Corp. , 467 F. Supp. 3d 545, 563 (S.D. Ohio 2020) (citing Traxler v. PPG Indus. , 158 F. Supp. 3d 607, 613 (N.D. Ohio 2016) ). So, "an exclusive-remedies provision fails of its essential purpose if it deprives the purchaser of the substantial value of its bargain, leaving the purchaser without a remedy. " Adelman's Truck Parts Corp. v. Jones Transp. , 797 F. App'x 997, 1002 (6th Cir. 2020) (internal citations and quotation marks omitted) (emphasis in the original). A "purchaser can be deprived of the value of its bargain where the goods purchased under the contract contain latent defects, which are defects that are not detectable until it is impractical to effectuate the exclusive remedy." WEL Companies, Inc. , 467 F. Supp. 3d at 563 (internal quotation marks and citations omitted). For example, "where the purchase price is insignificant compared to the damages to the purchaser's property caused by the defect, the remedy of a refund represents no remedy at all." Traxler , 158 F. Supp. 3d at 615 (citations omitted).
However, "factual inquiries—such as whether [the product] had any latent defects present—will not be adequately determined absent discovery, and underlie the determination of whether an express warranty failed of its essential purpose." Traxler , 158 F. Supp. 3d at 614 (N.D. Ohio 2016) (citations omitted). Thus, "[w]hether an exclusive-remedy provision in a limited warranty has failed of its essential purpose is a question of fact." Id.
Here, the limitation-of-remedy clause in the contract purports to limit Plaintiff's recovery to no more than the cost of replacing the allegedly malfunctioning capacitors. Plaintiff alleges that these capacitors had a latent defect that caused a fire and extensive property damage. The cost of replacing the allegedly malfunctioning component parts is almost certainly significantly less than the cost of the property damage. For Plaintiff, then, the remedy of a refund or replacement is "no remedy at all." WEL Companies, Inc. , 467 F. Supp. 3d at 564 (internal quotation marks and citations omitted). However, it is usually inappropriate to determine whether a clause fails its essential purpose before discovery. Thus, the Court declines to decide whether the limitation-of-remedy clause fails its essential purpose at this time, but the Court believes that discovery may reveal evidence that supports finding the limitation-of-remedy clause invalid. Consequently, the Court concludes that ruling in Defendant's favor at this time would be premature.
IV. CONCLUSION
For these reasons, Defendant's motion is DENIED .