Arris Grp., Inc. v. Cyberpower Sys. (USA), Inc.

• Decision Date: 12 November 2021
• Docket Number: s. 1-19-1850 & 1-20-0241 (cons.)
• Citation: 2021 IL App (1st) 191850,192 N.E.3d 86,455 Ill.Dec. 669
• Parties: ARRIS GROUP, INC., Plaintiff-Appellee, v. CYBERPOWER SYSTEMS (USA), INC., and CyberPower Systems, Inc., Defendants-Appellants.
• Court: United States Appellate Court of Illinois

2021 IL App (1st) 191850

192 N.E.3d 86

455 Ill.Dec. 669

ARRIS GROUP, INC., Plaintiff-Appellee,

v.CYBERPOWER SYSTEMS (USA), INC., and CyberPower Systems, Inc., Defendants-Appellants.

Nos. 1-19-1850 & 1-20-0241 (cons.)

Appellate Court of Illinois, First District, FIFTH DIVISION.

Filed November 12, 2021

Kevin M. Forde and Joanne R. Driscoll, of Forde & O'Meara LLP, of Chicago, for appellants.

Mark P. Miller, Mark L. Durbin, Lindsey D.G. Dates, and Dana Amato Sarros, of Barnes & Thornburg, LLP, of Chicago, for appellee.

JUSTICE CONNORS delivered the judgment of the court, with opinion.

¶ 1 Defendant, CyberPower Systems (USA), Inc. (CyberPower USA) executed a corporate supply agreement (CSA) with Motorola, Inc. (Motorola), which was a predecessor of plaintiff, Arris Group, Inc. (Arris) The subject of the CSA was a battery backup unit (BBU) that Motorola bought from CyberPower USA and placed in a module that was later sold to Verizon. In a separate transaction, the BBUs were also sold to Tellabs, which were in turn supplied to Verizon as well.¹ Verizon claimed that the BBUs malfunctioned, resulting in a $12.56 million settlement between Arris and Verizon. Arris sought indemnity under the CSA from CyberPower USA and its parent company, CyberPower Systems, Inc. (CP Taiwan). CyberPower USA and CP Taiwan (collectively, the CyberPower defendants) refused and a lawsuit ensued. After the parties filed cross-motions for summary judgment, the circuit court granted summary judgment to Arris, entered judgment against the CyberPower defendants, and ordered them to pay Arris $12.56 million in damages and over $3 million in prejudgment interest. On appeal, the CyberPower defendants seek reversal on the grounds that (1) a time-limited warranty applied to Arris's claim for indemnity, (2) the award of $12.56 million in damages was unreasonable, (3) prejudgment interest was improperly awarded, and (4) CP Taiwan was not liable. Because there is a question of material fact about whether CP Taiwan is liable under the CSA, we affirm in part, reverse in part, and remand for further proceedings.

¶ 2 I. BACKGROUND

¶ 3 A. Agreements and the Amended Complaint

¶ 4 The CSA was dated June 1, 2007, and signed by a representative of Motorola and the president of CyberPower USA as "Supplier." Section 1.1 of the CSA stated that "Supplier" included:

"[A]ll entities of each respective Party that control, are controlled by, or are under common control with, that Party. An entity ‘controls’ another entity when it owns more than fifty percent of the voting stock or other ownership interest of that entity or has the ability to direct its management."

Section 11.2 of the CSA stated:

"Supplier will fully defend, indemnify, and hold harmless Motorola and all of its past, present, and future affiliates, *** successors, [and] assigns *** (the ‘Motorola Indemnitees’) against all Claims brought by a third party under any theory of liability or recovery, arising from, or connected with, Supplier's acts or omissions under this Agreement, or the acts or omissions of the Supplier's past, present, or future offices, directors, employees, contractors, representatives, or agents under this Agreement, including without limitation the delivery of Products that are defective, non-conforming, or that otherwise fail to comply with Supplier's warranties as set forth in this Agreement. Supplier will reimburse the Motorola Indemnitees for all losses, costs, and expenses the Motorola Indemnitees incur as a result of such Claims, including court costs and attorneys’ fees."

Section 6.4 of the CSA stated:

"Supplier represents and warrants that each Product is free of any defect that would pose a potential safety hazard. Further, unless specified otherwise in the applicable Product Schedule, for a period of thirty (30) months from the date of Product Delivery or for the period of Supplier's standard warranty, whichever is longer, Supplier expressly warrants that all Products are free from defects in design, materials, and workmanship, *** and conform to the Product specifications."

¶ 5 Arris filed an amended complaint on April 9, 2014, which stated in part as follows. In 2011, Verizon received reports of failing modules. After Hurricane Sandy caused power outages in 2012, Verizon received reports of thousands of failed modules, the cause of which was traced to the failure of the BBUs. Arris alleged that the BBUs did not conform to applicable product specifications and were found to contain a design defect that caused the BBUs to fail after power outages. In 2013, Verizon demanded that Arris remedy the defective BBUs through replacement and reimbursement. Eventually, Arris and Verizon entered into a settlement that cost Arris $12.56 million. After settling with Verizon, Arris demanded that the CyberPower defendants indemnify it, but the CyberPower defendants refused. Arris asserted claims for breach of contract against CyberPower USA and CP Taiwan.

¶ 6 The settlement between Arris and Verizon was signed on September 26, 2013, and noted that Arris (formerly Motorola) and Verizon had entered into an agreement for the modules in April 2005. The settlement had three main components. Arris would pay $2.43 million to reimburse Verizon for costs to replace the BBUs. By December 31, 2016, Arris would provide 153,000 replacement BBUs at a cost of $4.13 million. If Verizon migrated to a new technology in lieu of BBUs, Arris would provide a credit equal to the purchase price for the new technology, provided that the total cost of the replacement BBUs and the credits equal $4.13 million. Arris would also pay $6 million to reimburse Verizon for operating expenses related to replacing the BBUs. The record contains tables listing what was shipped under the settlement and the amount of credit that remained after each shipment. Verizon also entered into a settlement with Tellabs.

¶ 7 B. Summary Judgment Proceedings

¶ 8 On May 1, 2019, the CyberPower defendants filed a motion for summary judgment, asserting in part that CyberPower USA's duty to indemnify was limited to breaches of the express warranties in the CSA. The warranty period had already expired when the problems with the BBUs arose. The CyberPower defendants further contended that CP Taiwan was not liable because it was not a party to the CSA and was not otherwise bound by its terms. CyberPower USA and CP Taiwan were separate and distinct companies.

¶ 9 Arris also filed a motion for summary judgment, contending in part that indemnity was required under the CSA because Arris's losses were caused by the CyberPower defendants’ acts or omissions.

¶ 10 We summarize the affidavits, depositions, and other documents that were attached to the parties’ motions.

¶ 11 In his affidavit and deposition, Douglas Summers, CyberPower USA's vice president for sales and marketing, stated that he was the primary point of contact between CyberPower USA and its customers and was responsible for all sales negotiations between CyberPower USA and Arris/Motorola. Summers explained that CP Taiwan was CyberPower USA's design and manufacturing company. CyberPower USA bought products from CP Taiwan and sold those products to customers in the United States. The general manager of CyberPower USA reported to the president of CP Taiwan. Summers recalled among those involved in negotiating the CSA were Summers's "team from Taipei," including "our legal counsel, Bill Jonas," and Robert Lovett, the president of CyberPower USA. According to Summers, the standard warranty offered by CyberPower USA was 36 months. Summers averred that neither he nor any other representatives of CyberPower USA consulted or otherwise communicated with Arris and/or Verizon about the proposed terms of the settlement between those two companies. Also, CyberPower USA was not made aware of the proposed terms before the settlement was executed, and CyberPower USA never consented to the terms.

¶ 12 Lovett, who had been the president of CyberPower USA, stated in his deposition and affidavit that CP Taiwan had been the ultimate parent company of CyberPower USA since 1998, though at times CP Taiwan had owned a company that in turn owned CyberPower USA. In 2007, CP Taiwan became the direct parent of CyberPower USA. CP Taiwan manufactured products and CyberPower USA managed North American sales, marketing, and some engineering. Lovett's main contact at CP Taiwan was Michael Ho. CyberPower USA's in-house counsel was "Bill Joanis." Generally, CP Taiwan would be aware that there was a customer relationship or one was about to be established. CP Taiwan had no say over who CyberPower's customers were and the opening of business with Motorola was entirely within CyberPower USA's domain. Lovett was involved in the negotiation, review, and execution of the CSA. Lovett stated that the existence of CP Taiwan was not raised and CP Taiwan was not involved in the negotiation and execution of the CSA.

¶ 13 Ho stated in his affidavit that he was president of CP Taiwan, which was the parent company of its wholly owned subsidiary, CyberPower USA. The two entities were separate and distinct corporations, each with its own directors, officers, shareholders, and employees. Further, CP Taiwan was not involved in the negotiation, review, or analysis of the CSA. CP Taiwan was not even aware that CyberPower USA was negotiating a contract with Motorola. Ho also stated that CP Taiwan did not interact or have contact with any of the Motorola employees involved in the CSA before it was signed.

¶ 14 Charles Hsu, a product manager and department head at CP Taiwan, stated in his deposition that he attended meetings in the United States with CyberPower USA employees. Hsu also attended customer meetings in the United States. Asked who were the customers for products other than BBUs, Hsu stated, "[o]urselves mainly through CyberPower USA. *** We authorize CyberPower USA for sales."

¶ 15 In a June 2005 e-mail, Michael Ho invited someone with a "motorola.com" e-mail...