AMF INC. v. Computer Automation, Inc.

• Decision Date: 12 October 1983
• Docket Number: No. C-3-81-223.,C-3-81-223.
• Citation: 573 F. Supp. 924
• Parties: AMF INCORPORATED, Plaintiff, v. COMPUTER AUTOMATION, INC., Defendant.
• Court: U.S. District Court — Southern District of Ohio

573 F. Supp. 924

AMF INCORPORATED, Plaintiff, v. COMPUTER AUTOMATION, INC., Defendant.

No. C-3-81-223.

United States District Court, S.D. Ohio, W.D.

October 12, 1983.

Gregor F. Gregorich, New York City, Gordon H. Savage, Dayton, Ohio, for plaintiff.

David S. Cupps, Columbus, Ohio, Benjamin E. King, Los Angeles, Cal., for defendant.

DECISION AND ENTRY ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT; MOTION SUSTAINED IN PART, AND OVERRULED IN PART; ISSUES OF CONSPICUOUSNESS AND UNCONSCIONABILITY RULED UPON AS MATTER OF LAW

RICE, District Judge.

Plaintiff AMF Incorporated (AMF) filed this diversity action on April 10, 1981, against Defendant Computer Automation, Inc. (CAI). The case arises out of CAI's delivery of computer equipment to AMF in the late 1970's, pursuant to contracts entered into between the parties in 1976 and 1977. AMF alleges, inter alia, that the equipment was faulty, and that CAI failed to properly repair it. A more detailed factual summary of the background of this case can be found in the Court's previous decision, overruling CAI's motion for a change of venue. See, AMF, Inc. v. Computer Automation, Inc., 532 F.Supp. 1335, 1337-39 (S.D.Ohio 1982). Plaintiff has alleged six counts in its amended complaint: breach of contract, breach of warranty, gross negligence, misrepresentation, strict liability, and recovery of attorney's fees.

After extensive discovery, Defendant has moved (Doc. # 83 & 100) for summary judgment on all counts, pursuant to Fed.R. Civ.P. 56. Oral argument was heard on the motion on September 15, 1983. The parties have exhaustively discussed the relevant facts and applicable law in their excellent and lengthy memoranda, and the Court need not summarize same at any length. The Court, for the reasons set out below, sustains the pending motion in part and overrules same in part. Defendant's motion for summary judgment is sustained with respect to Counts III and V, and to limited aspects of Counts I and II (conspicuousness and unconscionability). The motion is overruled with respect to the other counts. Trial will go forward on Counts I and II (concerning whether the limited remedy failed of its essential purpose and the meaning of certain contract language) and IV (concerning alleged fraudulent conduct). In addition, Count VI remains as one remedy for the Plaintiff, should it prevail upon the merits at trial.

I. Choice of Law

At the outset, the Court must address the issue of which state's law should apply to this case. It is well settled, of course, that a federal court sitting in diversity must apply the choice of law rules of the forum state. Day & Zimmerman, Inc. v. Challoner, 423 U.S. 3, 4, 96 S.Ct. 167, 168, 46 L.Ed.2d 3 (1975) (per curiam) (citing, Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). In the 1977 contract at issue herein, the parties specify that the "agreement shall be governed by the laws of California." Such forum selection clauses in contracts are generally enforced by federal courts, The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 13, 92 S.Ct. 1907, 1915, 32 L.Ed.2d 513 (1972) and Ohio courts, Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co., 6 Ohio St.3d 436, 453 N.E.2d 683 (1983), and neither party has attacked the validity of that provision. Accordingly, California statutory and decisional law governs the contract claims advanced by AMF (Counts I & II).

Likewise, this Court suggested in its earlier decision that, based on Ohio choice-of-law rules, Ohio law would govern the resolution of the tort claims (Counts III & V). 532 F.Supp. at 1347 n. 19. The parties have not seriously disputed this conclusion, and the Court will adhere to same.

However, the parties do contest the applicable law on the misrepresentation (Count IV) and attorney's fees (Count VI) claims, as well as on certain limited aspects of the tort claims. Rather than address these latter issues out of context, the Court will address them as they arise.

II. Defendant's Summary Judgment Motion

Under Fed.R.Civ.P. 56 (Rule 56), Defendant's motion can only be sustained when the movant conclusively demonstrates, based on the pleadings, affidavits, and other material on record, that there exists no genuine issue of material fact, all evidence and inferences drawn therefrom having been construed in the light most favorable to the party opposing the motion. Fed.R. Civ.P. 56(c); Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319, 1324 (6th Cir.1983); Atlas Concrete Pipe, Inc. v. Au & Son, Inc., 668 F.2d 905, 908 (6th Cir.1982).

CAI has divided its argument under four headings: (1) Counts I & II are barred by provisions of the contract and by the Uniform Commercial Code (UCC); (b) Counts III & V are barred by the contract and by the Ohio statute of limitations; (c) Count IV is barred by the contract and presents no genuine issues of material fact; and (d) Count VI is barred by Ohio law. These arguments are considered seriatim.

A. The Defendant's motion is overruled in part and sustained in part with respect to Counts I & II under the Contract

Both the 1976 and 1977 AMF/CAI contracts have provisions which spell out warranties and attempt to limit liabilities. Those provisions (in pertinent part), found in attachment "C" to both contracts, are as follows:

3. WARRANTY

A. Seller warrants that products manufactured by Seller shall be free from defects in material and workmanship during a standard warranty period, as follows:

* * * * * *

A.3 All other equipment i.e. all equipment relevant to this action is warranted for a period of one (1) year from the date of original shipment to the Purchaser.

Each warranty herein is made to Purchaser and additionally to the party purchasing directly from such Purchaser.

B. Seller's sole obligation in the event of breach of product warranty shall be the repair or replacement of defective equipment.

* * * * * *

D. Seller does not warrant the merchantability of the equipment or the fitness of the equipment for any particular purpose and makes no warranty, express or implied, other than those specifically contained herein.

9. LIMITATION OF LIABILITY

Seller shall not be liable for any loss or damage which results from the use or application, by Purchaser or any other party of equipment delivered under this Agreement, unless the loss or damage results from defects in the equipment delivered by Seller. Under no circumstances shall Seller be liable to Purchaser or to any third party for any loss of profits or other direct or indirect cost, expenses, losses or consequential damages.

In Counts I & II, Plaintiff has alleged that, by various actions, Defendant breached the 1977 contract and express and implied warranties contained therein. CAI argues that these causes of action are barred by the contract and the UCC. Under UCC § 2-719(1)(a)-(b),¹ parties to a contract may expressly provide that a certain remedy is exclusive. Such a limitation is not enforceable "where circumstances cause an exclusive or limited remedy to fail of its essential purpose ...." UCC § 2-719(2). Herein, CAI points out that the contract provides an exclusive remedy of "repair or replacement of defective equipment." This exclusive remedy should bar all others, CAI concludes, since the remedy did not "fail of its essential purpose," and, in fact, was fully exercised in this case.

AMF, in contrast, acknowledges the existence of an exclusive remedy but argues that it did "fail of its essential purpose," or at least that triable issues of fact exist on same. Moreover, they argue that the contractual language limiting the implied warranties was not "conspicuous," as required by UCC § 2-316(2), and that the language excluding consequential damages is ambiguous, justifying the use of extrinsic evidence (at trial) to enable the finder of fact to construe that provision. For the following reasons, the Court agrees with AMF's position.

As both parties acknowledge, the leading case interpreting the California enactment of UCC § 2-719(2) is S.M. Wilson & Co. v. Smith International, Inc., 587 F.2d 1363 (9th Cir.1978) (Wilson). In Wilson, the Court held that whether a remedy failed of its essential purpose (in the context of a limited repair remedy, as herein) will depend on whether the warrantor diligently made repairs, whether the repairs cured the defects, and whether the consequential loss in the interim was negligible. Id. at 1375 (quoting, Eddy, On the "Essential" Purposes of Limited Remedies: The Metaphysics of U.C.C. Section 2-719(a), 65 Calif.L.Rev. 28, 63 (1977)). The last factor need not be considered, however, if the contract otherwise excludes liability for consequential damages. Id.

Counsel have devoted considerable space in their memoranda on whether CAI met the first two Wilson factors (i.e., diligent repairs which cured the defects). CAI emphasizes that it set up a "task force" to deal with the complaints from AMF of improperly functioning computer equipment, that its repair centers "provided substantial service" to AMF, and that numerous subassemblies were, in fact, repaired (many more than once) by CAI. In contrast, AMF contends (see the 15-page recital of facts in its Memorandum Contra, Doc. # 111, pp. 5-20) that the CAI repair effort was inadequate, in that CAI attempted (through virtually the entire period in question) to place the blame on AMF for some or all of the malfunctions, that the formation of the CAI "task force" was tardy, that the quality of repairs was poor, and that certain retrofits and other repairs were not completed until 1979 or 1980, almost three years after the problems initially manifested themselves.

The Court must construe these assertions in the light most favorable to AMF. Under that construction, the Court simply cannot conclude, as a matter of law, that the exclusive remedy did or did not "fail of its essential purpose," as that term is defined in Wilson. A conclusion that the remedy did not ...