Dresser Industries v. Gradall Co., 86-C-0137.

Citation702 F. Supp. 726
Decision Date15 December 1988
Docket NumberNo. 86-C-0137.,86-C-0137.
PartiesDRESSER INDUSTRIES, INC., WAUKESHA ENGINE DIVISION, a foreign corporation, Plaintiff-Counterdefendant, v. The GRADALL COMPANY, a foreign corporation, Defendant-Counterplaintiff.
CourtU.S. District Court — Eastern District of Wisconsin

COPYRIGHT MATERIAL OMITTED

Jon P. Christiansen, Foley & Lardner, Milwaukee, Wis., for plaintiff-counterdefendant.

Michael M. Lorge, Laser, Schostok, Kolman & Frank, Chicago, Ill., for defendant-counterplaintiff.

DECISION AND ORDER

WARREN, Chief Judge.

The Waukesha Engine Division of Dresser Industries, Inc. ("Waukesha") brought suit against The Gradall Company ("Gradall") over a dispute arising from Gradall's purchase of engines from Waukesha. Gradall answered and counterclaimed. Presently pending before the Court is Waukesha's motion for summary judgment on Gradall's counterclaims. Based on the decision below, the motion will be granted in part and denied in part.

Background

Dresser Industries, Inc. is a Delaware corporation. Its Waukesha Engine Division has an office and principal place of business in Waukesha, Wisconsin. The Waukesha Division is a manufacturer of natural gas and diesel powered engines for industrial and other applications. The Gradall Company is an Ohio corporation with its principal place of business in New Philadelphia, Ohio. Gradall is a manufacturer of industrial equipment used primarily in the construction industry.

In the middle to late 1970s, Waukesha developed a small engine called the VRD 220S, which was for use in construction and industrial equipment. One of Waukesha's first customers for this engine was Loed, Inc., a Wausau, Wisconsin, manufacturer of construction equipment. Loed, through an independent Waukesha distributor, purchased approximately 60 engines. Loed used the engines in two types of its construction vehicles.

In October of 1982, Loed sold a line of its equipment (including those using the VRD 220S engine) to Gradall. In December of 1982, Gradall contacted Waukesha in an attempt to purchase engines directly. Soon thereafter, Gradall began purchasing engines from Waukesha. Between February of 1983 and mid-1984, Gradall purchased approximately 380 VRD 220S engines directly from Waukesha pursuant to 20 or 21 separate transactions. Each transaction involved an exchange of sales forms between Gradall and Waukesha. Gradall would send a purchase order, which stated on the front of the form:

ENTER OUR ORDER FOR MATERIALS OR SERVICES SUBJECT TO ALL
INSTRUCTIONS, PROVISIONS, TERMS AND CONDITIONS ON FACE AND REVERSE SIDE, ALL OF WHICH FORM A PART OF THIS ORDER.

The reverse sides of the purchase orders contained preprinted terms and conditions. The first paragraph contained the following clause:

ACCEPTANCE — ENTIRE AGREEMENT — MODIFICATION.
Acceptance of this order shall be limited to the terms and conditions contained herein and incorporated herein by reference. This order shall be deemed accepted upon the return of the acknowledgement copy of this order or commencement of performance by Seller. Gradall rejects any additional or inconsistent terms and conditions offered by Seller at any time irrespective of Gradall's acceptance of or payment for the items. These terms and conditions and those incorporated herein by reference constitute the entire agreement between the parties and no change to or modification of this order shall be binding on Gradall unless signed by an authorized Gradall representative.

The terms and conditions of the warranty provision were as follows:

WARRANTY. Seller warrants to Gradall its successors and customers that all items furnished (including all replacement items and all replacement or corrected components which Seller furnishes pursuant to this section 11) will be free from defects in material and workmanship for a period of fifteen (15) months after delivery to Gradall (or for such longer period as may be extended by Seller and any warranty to its most favored customer for similar items during the term of this order), will conform to applicable information, date, drawings, specifications, samples and other descriptions furnished or specified by Gradall or Seller, and to the extent items are not manufactured to Gradall's specific design will be merchantable, suited for the intended purposes and free from all other defects, including defects in design. In the event Seller is required to replace or correct any component of any item pursuant to a breach of the foregoing warranty, the running of the warranty period for the item for which the defective component is a part shall be suspended from the date Seller receives notice of the breach of warranty until the date the component is replaced or corrected. Gradall's approval of Seller's samples or first items shall not be construed as a waiver by Gradall of any requirement of the applicable information, data, drawings, specifications, and/or other descriptions or of any express or implied warranty.

Waukesha responded to each purchase order with an "Order Acknowledgment" form. The acknowledgment form contained the following language:

Your order has been entered expressly subject to and conditioned on the understanding that our terms of sale stated on the front and reverse sides hereof, and no others, apply to this sale. Please contact us immediately if you have any questions. IF WE DO NOT HEAR FROM YOU WITHIN TEN (10) DAYS, WE WILL PROCEED WITH PERFORMANCE AND SHIPMENT ON THE ASSUMPTION THAT YOU AGREE TO TERMS OF SALE STATED OR REFERRED TO HEREIN.

The acknowledgement form also contained a limited warranty provision entitled, "Warranty and Limitation of Remedy and Liability." It read, in part:

A. Seller warrants only that its products and parts, when shipped, and its work (including start-up), when performed, will meet all applicable specifications and other specific product and work requirements, including those of performance, if any, of this agreement, and will be free from defects in material and workmanship.... THE FOREGOING IS EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES WHATSOEVER, EXPRESS, IMPLIED AND STATUTORY INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES TO MERCHANTABILITY AND FITNESS. ...
B. ...
C. THE FOREGOING IS SELLER'S ONLY OBLIGATION AND BUYER'S EXCLUSIVE REMEDY FOR BREACH OF WARRANTY AND, EXCEPT FOR GROSS NEGLIGENCE, WILLFUL MISCONDUCT AND REMEDIES PERMITTED UNDER THE PERFORMANCE, INSPECTION AND ACCEPTANCE AND THE PATENTS CLAUSES HEREOF, THE FOREGOING IS BUYER'S EXCLUSIVE REMEDY FOR ALL CLAIMS ARISING HEREUNDER OR RELATING HERETO WHETHER SUCH CLAIMS ARE BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHER THEORIES. BUYER'S FAILURE TO SUBMIT A CLAIM AS PROVIDED ABOVE SHALL SPECIFICALLY WAIVE ALL CLAIMS FOR DAMAGES OR OTHER RELIEF, INCLUDING BUT NOT LIMITED TO CLAIMS BASED ON LATENT DEFECTS. IN NO EVENT SHALL BUYER BE ENTITLED TO INCIDENTAL OR CONSEQUENTIAL DAMAGES. ANY ACTION ARISING HEREUNDER OR RELATING HERETO WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHER THEORIES, MUST BE COMMENCED WITHIN ONE (1) YEAR AFTER THE CAUSE OF ACTION ACCRUES OR IT SHALL BE BARRED.

The VRD 220S engine did not perform as Gradall expected. Gradall used the engines in a vehicle called the 534B. Various problems soon arose, including failures of head gaskets, cylinder liners, water pumps, head bolts, oil pumps and crankshafts. Gradall, its dealers, and customers submitted hundreds of warranty claims to Waukesha for these failures. Gradall eventually ceased using the Waukesha engine and replaced those that had been placed in Gradall's 534B vehicle. Gradall also ceased making payments on outstanding balances from the purchase of engines and parts from Waukesha.

On February 9, 1986, Waukesha filed this suit, seeking $113,154.12 as the outstanding balance owed on the purchase of the engines. Waukesha also sought a declaratory judgment establishing the provisions of the contract or contracts applicable to the dealings between the parties. Gradall answered and counterclaimed. The counterclaim alleged nine "counts": (1) breach of express warranty, (2) breach of implied warranty of merchantability, (3) breach of implied warranty of fitness for a particular purpose, (4) breach of contract, (5) negligence, (6) negligent misrepresentation, (7) intentional misrepresentation, (8) strict liability, and (9) punitive damages.

Pursuant to a scheduling order signed by the Court on March 24, 1988, Waukesha on June 1, 1988, filed a motion for summary judgment on all counterclaims. The motion has been fully briefed and is now ready for resolution.1 The motion raises issues on: what choice of law governs the dispute; what warranty controls the raising of claims; whether Gradall can maintain tort actions for purely economic losses; whether Gradall can maintain a claim for intentional misrepresentation; and whether Gradall can recover punitive damages.

Choice of Law

A preliminary issue that must be resolved is what law governs the various issues in dispute. Gradall's form specified that Ohio law would govern the contract and disputes arising thereunder; Waukesha's form designated Wisconsin law.

Since this is a diversity case, this Court, sitting in Wisconsin, must follow the Wisconsin choice of law rules. See Day and Zimmerman, Inc. v. Challoner, 423 U.S. 3, 4, 96 S.Ct. 167, 168, 46 L.Ed.2d 3 (1975). Wisconsin law, which has incorporated the Uniform Commercial Code, see Wis.Stats. § 401.101, et seq., holds that parties to a commercial goods contract may agree to be bound by the law of Wisconsin or of any other state which bears a reasonable relation to the transaction, Wis.Stats. § 401.105. But where, as in the case at hand, the sales documents at issue contain conflicting provisions on the governing law, Wisconsin courts apply the "grouping of contacts" approach for resolution of conflicts pertaining to the validity and rights created by the provisions...

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