Opinion
Civil No. 02-1218 (DWF/JSM)
May 17, 2004
Timothy Earle Branson, Esq., and Angela Michele Hall, Esq., Dorsey Whitney, Minneapolis, MN, Of counsel for Plaintiff
Edward F. Fox, Esq., and Kevin Patrick Hickey, Esq., Bassford Remele, Minneapolis, MN, Of counsel for Defendant
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on April 2, 2004, pursuant to Defendant Dynamic Air, Inc.'s ("Dynamic Air") Motion for Summary Judgment. By its Amended Complaint, Plaintiff Goodyear Tire Rubber Company ("Goodyear") alleges causes of action for breach of contract, breach of express warranty, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, misrepresentation, strict liability, and negligence against Dynamic Air. For the reasons stated below, Dynamic Air's Motion for Summary Judgment is denied in part and granted in part.
Background
Goodyear is an Ohio corporation that manufactures and sells tires. Goodyear owns and operates a tire manufacturing plant in Gadsden, Alabama (the "Gadsden Plant"). Dynamic Air is a Minnesota corporation that manufactures and sells pneumatic equipment and systems that use pressurized air or gases to convey materials in industrial manufacturing plants.Dynamic Air alleges that negotiations between the parties pertaining to a carbon black pneumatic conveyor system for the Gadsden Plant began as early as 1996. On July 1, 1998, Goodyear sent a Request for Proposal ("RFP") to Dynamic Air seeking a carbon black conveying system for the Gadsden Plant. Goodyear's specifications for the carbon black conveying system were included in a 31-page document that was developed by Goodyear, Engineering Specification #55212-4, revised on May 21, 1997 (the "Specification"). Goodyear provided the Specification to Dynamic Air with the RFP.
Goodyear's RFP provided a warranty clause in the specification at paragraph 4.4:
Warranty, All systems, equipment, design and software shall be warranted for twelve (12) months from the date Goodyear receives beneficial use of the system or the date of satisfactory completion of the acceptance tests specified in Section 4.3, whichever comes later. Satisfactory completion is defined to mean absence of defects in design, workmanship and material, and fulfillment of the operability and reliability criteria defined under Paragraph 3.6.3 during ordinary or normal use. During this period and at no additional cost to Goodyear, the Supplier shall furnish support, service, engineering, labor and materials necessary to correct deficiencies. Systems, equipment, design and software that cannot be corrected to Goodyear's satisfaction shall be replaced at Goodyear's request without charge.
The Supplier shall also warrant that the system delivered meets the performance criteria set out in this specification.
(Affidavit of Michael S. Dolejs ("Dolejs Aff"), ¶ 2, Ex. A at 30.) The Specification and RFP were silent regarding remedies available for breach of contract, such as consequential damages.
Dynamic Air responded to the Goodyear RFP and Specification with a detailed, 30-page proposal on July 20, 1998 (the "Proposal"). The sale price included in the Proposal for the necessary equipment was $1,029,630. Dynamic Air also noted that its Proposal was submitted "in accordance with Dynamic Air Terms and Conditions." (Dolejs Aff. ¶ 2, Ex. A at 28.) Dynamic Air enclosed a separate document with the proposal, entitled "Terms and Conditions," that expressly excluded Dynamic Air from liability for consequential damages, as follows:
WARRANTY. For a period of one (1) year from the date of shipment, Seller warrants that the system sold by Seller will perform and function within the specifications, conditions and limitations published by Seller in its proposal to Buyer.
Seller's liability under this Warranty is expressly limited to correction within a reasonable time, using Seller's best efforts, of any defects or errors, which in the judgment of Seller were made by it in the design of the system, and to the repair or replacement of any parts of the system which are defective in material or workmanship by making available FOB Seller's plant a repaired or replacement part, provided such defective parts are returned to Seller at Buyer's expense.
. . .
SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. The remedies set forth herein are exclusive and the liability of the Seller with respect to the system or any act or omission in connection therewith, whether in a contract, tort, or under any warranty or otherwise, shall not, under any circumstances, exceed the actual price of the system paid to Seller, and installation cost, if, and only if, such installation was performed by Seller, and less the value of any component parts of the system which may be retained and utilized by the Buyer.
THIS WARRANT IS IN LIEU OF ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THAT AGAINST BUT EXCEPTING THAT OF TITLE.
(Dolejs Aff, ¶ 3, Ex. C (emphasis in original).)
In response, Goodyear submitted a purchase order to Dynamic Air for one carbon black system on August 19, 998 (the "Purchase Order"). The Purchase Order included the following language:
ALL PER YOUR PROPOSAL DATED 07/20/98 TO THE EXTENT THAT THE CONDITIONS THEREOF ARE NOT IN CONFLICT WITH ANY TERMS OR CONDITIONS NOTED ON THIS PURCHASE ORDER.
(Dolejs Aff, ¶ 4, Ex. D. at 1 (emphasis in original).) In addition, the bottom of each page of the Purchase Order stated:
IMPORTANT-NOTICE-TO-SELLER
THIS PURCHASE ORDER IS EXPRESSLY MADE SUBJECT TO, AND YOUR ACCEPTANCE IS STRICTLY LIMITED TO, THE TERMS AND CONDITIONS STATED HEREIN, INCLUDING THE TERMS AND CONDITIONS STATED ON REVERSE SIDE HEREOF.
( Id. (emphasis in original).) The back page of the Purchase Order included 21 additional terms in smaller font, including the following:
(2) All rights and remedies of Purchaser specifically set forth in this Purchase Order shall be cumulative and in addition to any other or further rights and remedies provided in law or equity. Failure of Purchaser to insist upon strict performance of any term or condition of this Purchase Order shall not be deemed to be a waiver of Purchaser's rights and remedies. No waiver by Purchaser of any default by Seller of any term or condition of this Purchase Order shall be effective unless in writing and signed by an authorized representative of Purchaser, nor shall any such waiver constitute a waiver of any other default or of the same default on a future occasion.
(Dolejs Aff. ¶ 4, Ex. D at 2 (reverse side).)
Dynamic Air asserts that it replied to the Purchase Order on August 31, 1998, with a letter accepting the Purchase Order. The letter stated:
We thank you and acknowledge receipt of your subject purchase order for equipment as outlined in Dynamic Air proposal. . . . Dynamic Air accepts the above noted purchase order conditioned upon your assent to the following additional or different terms:
7. The terms and conditions stated in your purchase order are superseded by our Terms Conditions 961018 (enclosed) and as provided with our proposal. Please respond in writing indicating your assent to the above terms. If we do not hear from you within the next seven (7) business days, then we will assume that the additional or different terms have been accepted by you.
(Dolejs Aff. ¶ 6, Ex. E.) Goodyear does not acknowledge receipt of this letter.
The system was installed at the Gadsden Plant at some time in early 2000. Goodyear alleges that in late February, the system malfunctioned, allegedly causing a particular grade of carbon black to be conveyed into the wrong storage silo, contaminating its contents. Soon after Goodyear recognized the problem, two senior engineers from Dynamic Air visited the Gadsden Plant to examine the conveyor system, after which Goodyear submitted parts to metallurgical testing. Dynamic Air replaced the allegedly defective component in March 2000.
On May 16, 2001, Goodyear filed its Complaint in the Circuit Court for the Sixteenth Judicial District, Etowah County, Alabama. The case was removed to the United States District Court for the Northern District of Alabama, Middle Division, on June 19, 2001. Pursuant to Dynamic Air's Motion to Dismiss or Transfer Venue, the matter was transferred to this Court on March 31, 2002. In its Amended Complaint, Goodyear alleges that the defective conveyor resulted in tires that failed to meet specifications, requiring Goodyear to scrap the tires that had been manufactured with the mixed carbon blacking. Goodyear claims damages of nearly $2 million.
Dynamic Air filed this Motion for Summary Judgment on March 1, 2004, asserting that Goodyear is not entitled to consequential damages, that Minnesota's economic loss doctrine precludes Goodyear's tort claims, and that Dynamic Air is entitled to summary judgment on Goodyear's misrepresentation claim. Goodyear opposes the motion, except for the dismissal of its misrepresentation claim in Count V of the Amended Complaint.
Discussion
I. Standard of Review
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). The court must view the evidence and the inferences which may be reasonably drawn from the evidence in the light most favorable to the nonmoving party. See Enterprise Bank v. Magna Bank of Missouri, 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated, "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy, and inexpensive determination of every action.'" Fed.R.Civ.P. 1; Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986).
The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. See Enterprise Bank, 92 F.3d at 747. The nonmoving party must demonstrate the existence of specific facts in the record which create a genuine issue for trial. See Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik, 47 F.3d at 957.
II. The Contract Provisions
Dynamic Air asserts that the language of the documents exchanged between the parties, and the resulting contract, exclude any claims for consequential damages. Specifically, Dynamic Air contends that the specific terms of the Proposal sent to Goodyear from Dynamic Air on July 20, 1998, are not negated by the general terms of Goodyear's Purchase Order, and that these documents do not establish conflicting terms. On this basis, Dynamic Air asserts that Goodyear's exclusive remedy for breach of warranty is repair or replacement of any defective components and that Goodyear is not entitled to consequential damages related to the sale of the carbon black system.
In contrast, Goodyear contends that the forms exchanged between the parties are in conflict as to the damages remedy. Goodyear points to the differences between Dynamic's Proposal and the Goodyear Purchase Order. Based upon the conflict between these forms, Goodyear contends that it is still entitled to consequential damages for the alleged breach of warranty and product defect under the gap-filling provisions of the Uniform Commercial Code ("UCC").
In support of its argument, Goodyear places significant reliance upon the First Circuit's decision in Ionics, Inc. v. Elmwood Sensors, Inc., 110 F.3d 184 (1997). In Ionics, the court addressed the conflict between a purchase order and a later acknowledgment form that were exchanged between the parties. Ionics' purchase orders sent to Elmwood listed various conditions in small type. The "Remedies" provision of Ionics' purchase order stated, in part, "The remedies provided Buyer herein shall be cumulative, and in addition to any other remedies provided by law or equity." Id. at 185. Elmwood's acknowledgment form, sent in response to the purchase order, stated:
SELLER WILL NOT BE LIABLE FOR ANY GENERAL CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING WITHOUT LIMITATION ANY DAMAGES FROM LOSS OF PROFITS, FROM ANY BREACH OF WARRANTY OR FOR NEGLIGENCE, SELLER'S LIABILITY AND BUYER'S EXCLUSIVE REMEDY BEING EXPRESSLY LIMITED TO THE REPAIR OF DEFECTIVE GOODS F.O.B. THE SHIPPING POINT INDICATED ON THE FACE HEREOF OR THE REPAYMENT OF THE PURCHASE PRICE UPON THE RETURN OF THE GOODS OR THE GRANTING OF A REASONABLE ALLOWANCE ON ACCOUNT OF ANY DEFECTS, AS SELLER MAY ELECT.Id. (emphasis in original). After reviewing § 2-207 of the UCC, the court found that these terms conflicted, and thus that § 2-207(3), governed the contract. Id. at 187. The court noted that the case was "squarely addressed" by comment 6 of § 2-207 which states, in part:
Where clauses on confirming forms sent by both parties conflict[,] each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result[,] the requirement that there be notice of objection which is found in subsection (2) [of 2-207] is satisfied and the conflicting terms do not become part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act.Id. at 188 (quoting Mass. Gen. L. ch. 106, § 2-207, Uniform Commercial Code Comment 6).
The Court finds the legal reasoning of Ionics persuasive. Similar to the terms in Ionics, Dynamic Air's Proposal and Goodyear's Purchase Order are in direct conflict. Dynamic Air's Proposal provided that "Seller's liability under this Warranty is expressly limited to . . . the repair or replacement of any parts of the system which are defective in material or workmanship . . . SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES." (Dolejs Aff. ¶ 3, Ex. C (emphasis in original).) Goodyear's Purchase Order stated that "Seller expressly warrants that all goods will . . . be merchantable [and] suitable for the purposes intended." (Dolejs Aff. ¶ 4, Ex. D at 2 (reverse side).) Similar to the remedy provision set forth in the purchase order in Ionics, Goodyear's Purchase Order contained the following provision: "All rights and remedies of Purchaser specifically set forth in this Purchase Order shall be cumulative and in addition to any other or further rights and remedies provided in law or equity." ( Id.) The Court finds that even though the parties established a contract by their conduct, the parties' remedy provisions contradict each other. Dynamic Air's Proposal limits damages to repair or replacement and excludes a consequential damages remedy, while Goodyear's Purchase Order allows for virtually all legal and equitable remedies.
Minn. Stat. § 336.2-207(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.
Because of the conflicting terms in the documents exchanged between the parties, the U.C.C. § 2-207(3) applies. Here, U.C.C. § 2-207(3) acts to cancel out the conflicting warranty and remedy provisions, and the contract terms are determined by other provisions of the UCC. See White Consol. Indus., Inc. v. McGill Mfg. Co., Inc., 165 F.3d 1185, 1192 (8th Cir. 1992). The applicable gap-filling provisions of the UCC provide for the implied warranty of merchantability and the implied warranty of fitness for a particular purpose. See Minn. Stat. §§ 336.2-314, 336.2-315. In addition, the UCC allows for recovery of incidental and consequential damages. See Minn. Stat. §§ 336.2-714, 336.2-715. Thus, Dynamic Air's motion for summary judgment, requesting that the Court reject Goodyear's claim for consequential damages, is denied.
The Court finds that U.C.C. §§ 2-207(1) and (2) do not apply to resolve Dynamic Air's position. Goodyear's Purchase Order specifically made Goodyear's acceptance conditional upon Dynamic Air's acceptance of Goodyear's terms and conditions. The Purchase Order stated, "THIS PURCHASE ORDER IS EXPRESSLY MADE SUBJECT TO, AND YOUR ACCEPTANCE IS STRICTLY LIMITED TO, THE TERMS AND CONDITIONS STATED ON THE REVERSE SIDE HEREOF." (Dolejs Aff. ¶ 4, Ex. D at 1, 2 (emphasis in original).) Dynamic Air never assented to these terms. See White, 165 F.3d at 1191-92.
III. Economic Loss Doctrine
Dynamic Air also asserts that Goodyear's tort claims are barred by the economic loss doctrine. The economic loss doctrine was first fully articulated by the Minnesota courts in the 1981 case of Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn. 1981). The essence of the economic loss doctrine as pronounced in Superwood was that "[E]conomic losses that arise out of commercial transactions, except those involving personal injury or damage to other property, are not recoverable under the tort theories of negligence or strict products liability." Id. at 162. The rationale for the economic loss doctrine was that "to allow tort liability in commercial transactions would totally emasculate" provisions of the UCC. Id. The economic loss doctrine remained largely unchanged by statute or case law until 1990. In 1990, the Minnesota Supreme Court overruled the "damage to other property" exception to the economic loss doctrine. Hapka v. Pacquin Farms, 458 N.W.2d 683 (Minn. 1990).
In 1991, the Minnesota Legislature responded, at least in part, to the Hapka ruling by codifying its own version of the economic loss doctrine. See Marvin Lumber and Cedar Co. v. PPG Indus., Inc., 34 F. Supp.2d 738, 743 (D. Minn. 1999), affirmed in part and reversed in part, 223 F.3d 873 (8th Cir. 2000). Minnesota Statute § 604.10 provides:
(a) Economic loss that arises from a sale of goods that is due to damage to tangible property other than the goods sold may be recovered in tort as well as in contract, but economic loss that arises from a sale of goods between parties who are each merchants in goods of the kind is not recoverable in tort.
(b) Economic loss that arises from a sale of goods, between merchants, that is not due to damage to tangible property other than the goods sold may be recovered in tort.
(c) The economic loss recoverable in tort under this section does not include economic loss due to damage to the goods themselves.
(d) The economic loss recoverable in tort under this section does not include economic loss incurred by a manufacturer of goods arising from damage to the manufactured goods and caused by a component of the goods.
(e) This section shall not be interpreted to bar tort causes of action based upon fraud or fraudulent or intentional misrepresentation or limit remedies for those actions.
Dynamic Air initially focuses on the language of § 604.10(a), and contends that Goodyear is a merchant in goods of the kind as defined by that statute. The Eighth Circuit recently adopted a narrower definition of the term merchant in goods of the kind in Holden Farms, Inc. v. Hog Slat, Inc., 347 F.3d 1055 (8th Cir. 2003). Under Holden Farms, a party is a merchant in goods of the kind only if the party is a dealer in the specific type of goods at issue. See id.; see also Jennie-O Foods, Inc. v. Safe-Glo Products Corp., 582 N.W.2d 576 (Minn.Ct.App. 1998). The Court finds that Goodyear does not satisfy the definition of a merchant in goods of the kind because Goodyear is not a dealer in pneumatic conveyance systems.
Primarily in its Reply Brief in Support of its Motion for Summary Judgment, Dynamic Air further contends that Goodyear falls within the definition of "merchant" under Minnesota Statute § 336.2-104 and thus that Minnesota Statute § 604.10(b) applies to bar Goodyear's request for relief. Minnesota Statute § 336.2-104 defines "merchant" as:
a person who deals in goods of the kind or otherwise by occupation holds out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by employment of an agent or broker or other intermediary who by occupation holds out as having such knowledge or skill.
To support its position, Dynamic Air contends that Goodyear has purchased and uses carbon black conveying systems in its plants throughout the world. Specifically, Dynamic Air points to Goodyear's purchase of 10-15 similar pneumatic conveyance systems from Dynamic Air between 1989 and 1999 for use at Goodyear tire plants in the United States and throughout the world. ( See Dolejs Aff. ¶ 1; Affidavit of James R. Steele at ¶¶ 2-5.) In addition to Goodyear's alleged engineering expertise in this area, Dynamic Air notes that Goodyear employs specialized purchasing personnel who are trained in contract formation and documentation.
The Court agrees with Dynamic Air that Goodyear is a "merchant" under Minnesota Statute § 336.2-104. Goodyear's extensive experience with and specialized knowledge of pneumatic conveyance systems falls squarely within the statutory definition of merchant in § 336.2-104. The Court finds persuasive the detailed specification sent to Dynamic Air related to the purchase of the carbon black conveyance system at issue here and that Goodyear purchased 10-15 of these systems from Dynamic Air alone in the past 16 years. Based on these considerations, Goodyear's claims for negligence and strict liability are barred by the economic loss doctrine of Minnesota Statute § 604.10(b).
For the reasons stated, IT IS HEREBY ORDERED THAT:
1. Defendant's Motion for Summary Judgment (Doc. No. 55) is DENIED IN PART and GRANTED IN PART, as follows:
a. Defendant's Motion for Summary Judgment is DENIED as to Defendant's claim that the contract provisions preclude consequential damages; and
b. Defendant's Motion for Summary Judgment is GRANTED as to Defendant's claim that the economic loss doctrine bars Plaintiff's claims for strict liability and negligence.
2. Counts V, VI, and VII of the Amended Complaint are DISMISSED WITH PREJUDICE.