Bae Sys. Info. & Elecs. Sys. Integration v. Spacekey Components, Inc.

• Decision Date: 22 April 2013
• Docket Number: Civil No. 10–cv–370–LM.
• Citation: 941 F.Supp.2d 197
• Parties: BAE SYSTEMS INFORMATION AND ELECTRONICS SYSTEMS INTEGRATION, INC. v. SPACEKEY COMPONENTS, INC.
• Court: U.S. District Court — District of New Hampshire

941 F.Supp.2d 197

BAE SYSTEMS INFORMATION AND ELECTRONICS SYSTEMS INTEGRATION, INC.

v.SPACEKEY COMPONENTS, INC.

Civil No. 10–cv–370–LM.

United States District Court, D. New Hampshire.

April 22, 2013.

Jonathan M. Shirley, Joshua M. Wyatt, Daniel E. Will, Devine Millimet & Branch PA, Manchester, NH, for BAE Systems Information and Electronics Systems Integration, Inc.

Jeffrey C. Spear, Orr & Reno PA, Concord, NH, for SpaceKey Components, Inc.

ORDER

LANDYA McCAFFERTY, United States Magistrate Judge.

In an order dated January 11, 2013, the court directed the parties to show cause why three legal issues in this case should not be decided in the manner described in that order. The parties' show-cause briefing is now before the court. Based upon that briefing, and for the reasons that follow, this order resolves the issues described in the show-cause order largely along the lines proposed in that order.

Issue One

In their assented-to statement of the case, the parties frame the first issue this way:

The first [issue] is a dispute over purchase order SKC12508 and BAE Systems' delivery of flight RH1280B field programmable gate arrays (“FPGAs”) to SpaceKey in 2009 and 2010. BAE Systems seeks to recover the balance under purchase order SKC12508 that remains unpaid by SpaceKey as well as the costs and attorneys' fees it has incurred to pursue collection of this amount. (Amended Complaint Counts III, IV, V, IV.) SpaceKey contends it is entitled to damages because the flight RH1280B FPGAs BAE Systems delivered did not conform to BAE's express warranties. (Counterclaim Count Four.)

Def.'s Pretrial S'ment (doc. no. 115) 1; Pl.'s Pretrial S'ment (doc. no. 119) 1–2. In its previous order, the court directed

SpaceKey [to] show cause why BAE should not be granted judgment as a matter of law on: (1) the claim for breach of contract stated in Count IV of BAE's amended complaint; and (2) the claim for breach of warranty stated in Count Four of SpaceKey's counterclaim.

Order (doc. no. 122) 13.

The court's proposed resolution of Issue One is based upon a three-part rationale. First, the Uniform Commercial Code (“U.C.C.”) permits a buyer and seller to limit the buyer's remedies for breach of warranty by agreement, so long as the agreed-upon remedy does not fail of its essential purpose. SeeN.H.Rev.Stat. Ann. (“RSA”) §§ 382–A:2–719(1)(a) & (2). Second, Section 8(b) of the 2007 Terms of Sale (“TOS”) ¹ provides that if the hardware BAE delivered thereunder did not substantially conform to BAE's specifications, then SpaceKey's sole remedy was “return within 60 days of delivery of any nonconforming Deliverables for credit, repair or replacement, at BAE SYSTEMS' sole option.” Pl.'s Mot. for Leave, Rea Decl., Ex. G (doc. no. 112–3), at 27. Third, the remedy provided by the TOS did not fail of its essential purpose, which precludes SpaceKey from receiving any remedy for BAE's asserted breach of warranty other than the one described in the TOS.

SpaceKey raises a host of objections to the reasoning outlined above. Specifically, it argues that: (1) the cases the court cited in its previous order are irrelevant because they involve contracts with purchase-price damage ceilings and claims for consequential damages; (2) the cases the court cited do not state a general rule that a refund never fails of its essential purpose, and there is no difference between the “value” and the “benefit” of a bargain; (3) while the return-for-credit remedy described in Section 8(b) of the TOS is apparently fair and reasonable, it failed in its purpose because of circumstances; (4) the cases the court cited are distinguishable because they do not address the sufficiency of a credit remedy, and the failure of BAE's RH1280s to conform to BAE's warranties was latent; and (5) there is no procedural basis for the court to grant judgment as a matter of law as it proposed to do in its previous order. The court considers each of those five arguments, beginning with the last one.

A. SpaceKey's Fifth Argument

SpaceKey argues that the court's show-cause order lacks a procedural foundation, and contends that the court should not: (1) treat proposed findings of fact as if they are facts found at trial; (2) grant summary judgment sua sponte without identifying evidence appropriate to that procedural posture; or (3) find facts and draw inferences unfavorable to it.

In particular, SpaceKey objects to the following portion of the court's previous order:

[T]he court turns to the undisputed facts of this case. All agree that ... after it learned of the alleged TID shortfall, SpaceKey submitted purchase order (“PO”) SKC12508(C) to BAE, in which it offered to buy 535 FPGAs with a TID of 100K rad(Si) and 100 more FPGAs with a TID of 50K rad(Si).

Order (doc. no. 122) 10. In support of its objection to that statement, SpaceKey points to evidence that it mentioned TIDs of 50K and 100K rad(Si) in its purchase order not because it was ordering FPGAs with those specifications but, rather, to create contemporaneous documentation of BAE's inability to produce FPGAs with a TID of 300K rad(Si).

Based upon the parties' pretrial statements, it became evident that the trial in this case could involve several complex factual issues. For example, BAE proposes to prove that the FPGAs it delivered to SpaceKey actually conformed to its warranty, and plans to do so by showing that the standards for measuring TID have changed over time such that an FPGA that would have been rated at 300K rad(Si) at some point in the past would only test out at 100K rad(Si) today. For its part, SpaceKey proposes to prove the value of the allegedly nonconforming FPGAs that BAE delivered, based upon the diminished use life of a 50K or 100K rad(Si) FPGA as opposed to one rated at 300K rad(Si). The point of the court's previous order was to determine whether the complicated and no doubt costly trial the parties envision is actually necessary, based upon the undisputed facts and the relevant law.

In the discussion that follows, the court: (1) assumes that the FPGAs BAE sold SpaceKey did not meet the warranted specifications; (2) accepts as true, for purposes of this order, SpaceKey's explanation for the inclusion of TIDs of 50K and 100K rad(Si) in PO SKC12508(C); and (3) relies only upon facts that were undisputed on summary judgment, plus those contained in the 2007 TOS, which has made a belated appearance in this case. In sum, the order that follows engages in no factfinding, only a legal analysis of the undisputed facts, undertaken in an effort to conserve judicial resources and those of the parties by avoiding a costly trial of factual matters that are immaterial to resolving the claims in this case.

B. SpaceKey's First Argument

In its first argument, SpaceKey devotes considerable attention to four of the opinions to which the court turned for guidance on the question of when and how a contractual remedy fails of its essential purpose. Those opinions are PDC Laboratories, Inc. v. Hach Co., No. 09–1110, 2009 WL 2605270 (C.D.Ill. Aug. 25, 2009); Cox v. Lewiston Grain Growers, Inc., 86 Wash.App. 357, 936 P.2d 1191 (1997); Leprino v. Intermountain Brick Co., 759 P.2d 835 (Colo.App.1988); and Viking Yacht Co. v. Composites One LLC, Civ. Action No. 05–538(JEI), 2007 WL 2746713 (D.N.J. Sept. 18, 2007). SpaceKey's point is that the cases that resulted in PDC Labs,Cox,Leprino, and Viking Yacht are distinguishable from this case, making those opinions irrelevant, because unlike this case, those cases all involved claims for consequential damages asserted in the face of contractual clauses limiting damages to the contract price. SpaceKey also contends that the court erred by relying upon those four cases because the courts that decided them all did so in ways that run counter to New Hampshire law as stated in Xerox Corp. v. Hawkes, 124 N.H. 610, 475 A.2d 7 (1984).

Starting with SpaceKey's second argument, the court cannot agree that PDC Labs, Cox, Leprino, and Viking Yacht are contrary to New Hampshire law. In Xerox, the New Hampshire Supreme Court explained that a seller can limit the remedies available for a breach of warranty to repair or replacement, under RSA 382–A:2–719(1)(a), and may limit or exclude consequential damages as an available remedy, under RSA 382–A:2–719(3). See124 N.H. at 617, 475 A.2d 7. A limited remedy is permissible under RSA 382–A:2–719(a)(1) so long as it does not fail of its essential purpose, see RSA 382–A:2–719(2), and a limitation or exclusion of consequential damages is permissible so long as the limitation or exclusion is not unconscionable, see RSA 382–A:2–719(3). Substantively, the Xerox court determined that in the case before it, “the allegations [did] not provide the basis for a ruling that a material issue may exist regarding possible unconscionability of the clauses in dispute.” 124 N.H. at 618, 475 A.2d 7.

Regarding the interplay between RSA 382–A:2–719(2) and (3), the court in Xerox explained:

[O]ther courts, interpreting the effect of the “failure of essential purpose” Code provision in cases where there is proof of an inability to repair nonconforming goods, have not invalidated contractual limitations on incidental or consequential damages. Those portions of a contract disallowing incidental and consequential damages are considered separate and distinct from the language dealing with repair and replacement. Such damage limitations survive even if the contractual provision limiting the buyer's remedies to repair or replacement is judicially stricken. See Polycon Industries, Inc. v. Hercules, Inc., 471 F.Supp. 1316, 1324–25 (E.D.Wis.1979); County Asphalt, Inc. v. Lewis Welding & Engineering Corp., 323 F.Supp. 1300, 1309 (S.D.N.Y.1970); S.M. Wilson & Company v. Smith Intern., Inc., 587 F.2d [1363,] 1375 [ (9th Cir.1978) ]. In County Asphalt, Inc. v. Lewis Welding & Engineering Corp.[,] supra, the federal district court held that a consequential damage limitation would not be...