Cardinal Health 301, Inc. v. Tyco Electronics Corp.

• Decision Date: 15 December 2008
• Docket Number: No. D049623.,D049623.
• Citation: 169 Cal.App.4th 116,87 Cal. Rptr. 3d 5
• Court: California Court of Appeals Court of Appeals
• Parties: CARDINAL HEALTH 301, INC., Plaintiff and Appellant, v. TYCO ELECTRONICS CORPORATION et al., Defendants and Appellants; REMEC, INC., Defendant and Respondent.

169 Cal.App.4th 116

87 Cal. Rptr. 3d 5

CARDINAL HEALTH 301, INC., Plaintiff and Appellant, v. TYCO ELECTRONICS CORPORATION et al., Defendants and Appellants REMEC, INC., Defendant and Respondent.

No. D049623.

Court of Appeals of California, Fourth District, Division One.

December 15, 2008.

Rutan & Tucker, Richard K. Howell, Steven J. Goon, Treg A. Julander and Ako S. Williams for Plaintiff and Appellant.

Lewis Brisbois Bisgaard & Smith, Peter L. Garchie, Ernest Slome, Raul L. Martinez and Jeffry A. Miller for Defendant and Appellant Tyco Electronics Corporation.

Niddrie, Fish & Buchanan, Michael H. Fish; Thompson & Alessio, Kris P. Thompson, Jeffrey K. Miyamoto and Christina G. Bernstein for Defendant and Appellant Thomas & Betts Corporation.

DLA Piper US, Michael S. Tracy, Matthew B. Dart and Stanley J. Panikowski for Defendant and Respondent.

OPINION

HALLER, Acting P. J.

Plaintiff Cardinal Health 301, Inc. (Cardinal), developed the MedStation 2000, a machine used by hospitals to supply patient medication to medical personnel. Defendants Tyco Electronics Corporation (Tyco) and Thomas & Betts Corporation (T&B) manufactured certain electrical parts for the MedStation, known as spring probe connectors. After Cardinal sold numerous MedStations to hospitals, the machines did not always work properly, and testing showed the problems could be attributed to defects in the spring probe connector.

Cardinal then sued Tyco and T&B claiming the defects in the spring probe connectors required Cardinal to replace the connectors and thus caused Cardinal to suffer damages. After a six-week trial, the jury was asked to decide whether Cardinal proved three causes of action against T&B: (1) breach of contract; (2) breach of an express warranty; and (3) breach of the implied warranty of fitness for a particular purpose. The jury was also asked to decide one cause of action against Tyco: breach of the implied warranty of fitness for a particular purpose. The jury returned verdicts finding in Cardinal's favor on each of these causes of action. The jury awarded approximately $12.2 million against Tyco, consisting of $6.7 million in past damages and $5.5 million in future damages. The jury awarded $451,351.02, against T&B, consisting only of past damages.

Tyco and T&B appeal.

Tyco contends the judgment must be reversed because (1) there was no privity between Tyco and Cardinal supporting an implied warranty cause of action and/or the court improperly instructed on the privity requirement; and (2) insufficient evidence supported the judgment on several elements of the warranty cause of action, including causation and damages. We reject these arguments, except we conclude the future damages award is unsupported, and strike that portion of the damages award from the judgment. We affirm the remaining portions of the judgment against Tyco.

As to T&B, we reverse the judgment based on two independent grounds: (1) Cardinal filed the action against T&B beyond the applicable limitations period; and (2) Cardinal failed to comply with statutory notice requirements with respect to T&B.

Cardinal filed a protective cross-appeal against Tyco and T&B. Because we affirm the Tyco judgment except for the future damages amount, it is not necessary to reach Cardinal's arguments on the cross-appeal regarding Tyco. With respect to T&B, we conclude Cardinal's arguments in the cross-appeal are without merit.

In its complaint, Cardinal also sued Remec, Inc., which had a contractual relationship with Cardinal for the assembly of the MedStation circuit boards. During trial, the court granted Remec's motion for nonsuit. Cardinal appealed this ruling, but in a separate order we dismissed the appeal based on a finding the appeal was untimely. Cardinal now appeals the order awarding Remec costs. We affirm the cost award.

FACTUAL AND PROCEDURAL SUMMARY

In about 1998, Cardinal, a health care products company, began to develop an automated medication dispensing machine for hospital use.¹ Although hospitals had previously used medication dispensing machines, Cardinal wanted to develop a new type of delivery system that had removable pockets to permit the pharmacy department to fill the pockets with medication, and then deliver the secure pockets to the machine located on a patient floor. The purpose of the machine was to safeguard and protect the administration of prescription medicines, ensuring each patient was given the proper medication and providing a computerized medication inventory system.

As developed, the MedStation resembles a large cabinet, with up to eight drawers that slide open. Inside each drawer is a circuit board called a MOAB. Attached to each MOAB are the 30 removable plastic pockets, called "Cubie pockets" or "Cubies," that hold medication. Each Cubie pocket has a latch and a lid. The MedStation machines are generally located on nursing floors. The hospital pharmacy fills each Cubie pocket with a particular type of medication, and the pocket is then brought to the nursing floor and placed in the machine. A nurse can then input a command on the MedStation's keyboard, and a Cubie lid will open, allowing the nurse to access the proper medication. The Cubie has a memory chip that can be programmed at a remote site.

To make this system work, Cardinal needed a special electrical connection between the Cubie and the MOAB. The Cubie pocket was designed to be repeatedly removed from, and returned to, the MedStation, and therefore the connection between the removable Cubie pocket and the circuit board had to be capable of mating and demating thousands of times.

Because Cardinal did not have experience in designing or manufacturing electrical connectors, Cardinal contacted T&B, which had substantial expertise in this field, to discuss the possibility of T&B supplying the electrical connector attached to the MOAB. In its initial dealings with T&B, Cardinal described the MedStation's functions and characteristics and showed T&B the prototype MedStation, the Cubie pocket, and the MOAB.

T&B then presented Cardinal with a proposed design drawing for a spring probe connector (the stationary connector that would be attached to the MOAB), based on Cardinal's stated requirements. This spring probe connector contained five small pins. Each pin consisted of a barrel, a plunger (fitting within the barrel) and a spring located at the base of the plunger. T&B designed the connector so that when the Cubie pocket is pushed down into the MOAB and locked into place, the springs inside each pin depress yet still maintain physical contact (and therefore an electrical connection) with the Cubie pocket. Because each MOAB contains approximately 30 Cubie pockets and each spring probe connector has five pins, there are approximately 150 connector pins on each MOAB.

In December 1998, Cardinal and T&B entered into a purchase agreement, known as the "1998 Scheduling Agreement," for T&B to sell one million spring probe connectors to Cardinal. The agreed price was $1.17 for each connector. T&B agreed that the spring probe connectors would be "free of defects in material and workmanship." The scheduling agreement contained detailed drawings of the agreed-upon connector design, and included written product requirements. These written requirements included (1) "mechanical life 50,000 cycles"; (2) "materials: [¶] contact: copper alloy, gold plated (30 micro inches min in contact area, 20 micro inches min in solder area) insulator: thermoplastic polyester"; (3) "mates with B121548 mobile connector"; (4) "current rating: 1 amp"; and (5) "maximum contact resistance: 100m ohms." (Capitalization omitted.) When the parties entered into the scheduling agreement, T&B understood that Cardinal intended to retain a manufacturer to assemble the MOAB's, and T&B expressly agreed to "honor [the $1.17 price] for the ... authorized contract manufacturer chosen ...." (Capitalization omitted.)

After successfully testing various prototypes, T&B began delivering the spring probe connectors to Cardinal. T&B eventually delivered 85,000 connectors directly to Cardinal.

In approximately August 1999, Cardinal selected Remec as the entity that would manufacture and assemble the MOAB's, including attaching the T&B spring probe connectors to the MOAB's. Cardinal then "cancelled" its agreement with T&B, and entered into a new agreement with Remec for the supply of the completed MOAB's. Remec's function was to purchase all of the raw materials (including the spring probe connectors) and put the product together for Cardinal, consistent with Cardinal's specifications. Remec then entered into a separate agreement with T&B for the supply of the remaining approximately 900,000 spring probe connectors. After numerous product tests, in about May 2000, Cardinal began selling the MedStation machines to hospitals for $65,000 each.

About the same time, in May 2000, Tyco purchased the electrical connector division of T&B. Cardinal learned of this fact when Brian Sherman, a Tyco employee formerly employed by T&B, informed Lisa Files, a Cardinal employee responsible for the Cubie product, that the acquisition had occurred and that "nothing changes until we tell you further." Files understood that she was to direct all of her inquires to Tyco personnel. Cardinal's relationship with Tyco remained the same as its relationship with T&B before the acquisition. T&B continued to exist, manufacturing and selling other electrical products.

Shortly after the acquisition, Tyco entered into an agreement with Remec for the sale of the spring probe connectors. Remec purchased the spring probe connectors directly from Tyco, and then mounted them on the MOAB's, and delivered the product to Cardinal. Tyco adopted all of the specifications and design drawings that had been negotiated between Cardinal and T&B. Tyco manufactured the connectors in the same manner as had T&B, used the custom-made tools T&B had created for the...