Dowty Communications v. Novatel Computer Systems, Civ. No. HAR 91-3734.
| Decision Date | 09 November 1992 |
| Docket Number | Civ. No. HAR 91-3734. |
| Citation | 817 F. Supp. 581 |
| Parties | DOWTY COMMUNICATIONS INCORPORATED, Plaintiff, v. NOVATEL COMPUTER SYSTEMS CORPORATION, Defendant. |
| Court | U.S. District Court — District of Maryland |
Thomas M. Goss, Goodell, DeVries, Leech and Gray, Baltimore, MD, Sandra E. Lundy, Testa, Hurwitz and Thibeault, Boston, MA, for plaintiff.
Morton Edelstein, Edelstein & Stahl, P.A., Baltimore, MD, William N. Rogers, Shaffer and Rogers, Rockville, MD, for defendant.
This is a dispute between two sophisticated corporations involved in the business of selling high-tech communications equipment. Behind the attempt to characterize it as a business tort, the case fundamentally sounds in contract. Pursuant to a Master Distributorship Agreement ("MDA") dated July 1, 1991, the Plaintiff, Dowty Communications Incorporated ("Dowty"), a designer, manufacturer and seller of telecommunication equipment, agreed to supply "Series DPC9506 T-1 network access multiplexers" to the Defendant, Novatel Computer Systems Corporation ("Novatel").1 After receiving the multiplexers from Dowty, Novatel intended to distribute some of the devices to "end-users" under the Novatel logo and name. (Novatel Opp., p. 6-7).
On December 31, 1991, Dowty initiated the above-captioned action claiming that between July and November 1991, Dowty had supplied Novatel with multiplexers and that despite Dowty's submission of invoices for sales, service and repair, Novatel had failed to tender payment. (Dowty Complaint ¶ 15). In an attempt to collect its receivables, Dowty alleged four causes of action against Novatel: (1) Monies due on account; (2) Breach of contract; (3) Breach of implied covenant of good faith and fair dealing; and (4) Quantum meruit.
In its Answer, Novatel denied that it owed Dowty the sums alleged, and pursuant to Fed.R.Civ.P. 13(a), raised four counterclaims: (1) Fraud; (2) Intentional interference with prospective business advantage; (3) Breach of contract; and (4) Breach of the implied covenant of good faith and fair dealing. During the subsequent course of this litigation, Novatel abandoned its second and fourth counterclaim.2
Presently before the Court is Dowty's Motion for Partial Summary Judgment on Novatel's remaining counterclaims. Summary judgment will be granted when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). In considering a motion for summary judgment, the Court views, the underlying facts and all reasonable inferences drawn therefrom in the light most favorable to Novatel, the party opposing summary judgment. Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). With that in mind, the Court has reviewed the memoranda submitted by the parties; no hearing is deemed necessary. Local Rule 105(6). For the reasons stated more fully herein, the Court finds that Dowty is entitled to partial summary judgment.
(Novatel counterclaim, ¶ 30). In its prayer for relief on the breach of contract claim, Novatel seeks two million dollars in damages, plus interest, costs, expenses and attorneys' fees.
Dowty counters that the explicit terms of the MDA limit both the claims for relief and the remedies available to Novatel. More specifically, Dowty argues that Novatel's breach of contract claims are limited by the "warranty disclaimers" in the contract. In addition, Dowty asserts that the "remedial limitations" of the agreement restrict Novatel's possible recovery to the repair or replacement of the products in question, or to a refund of the purchase price.
Dowty warranted to Novatel that its products and repair work would be "free from defects in material and workmanship for a period of fifteen (15) months from the date of shipment in the case of Products, and ninety (90) days in the case of repair work." (MDA ¶ 10.2). The paragraph discussing warranty goes on to provide, in capital letters:
THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES INCLUDING ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER TYPE, WHETHER EXPRESSED OR IMPLIED.
Dowty argues that this express contractual limitation on warranties restricts Novatel's breach of contract claims to representations made by Dowty within the four corners of the MDA. The Court agrees.
The MDA is a written contract for the sale of telecommunications equipment between two sophisticated merchants. Paragraph 19 of the MDA, "Choice of Law," indicates that the contract is to be "governed by and interpreted, construed and enforced in accordance with the laws of the State of Maryland." As the agreement contemplates a "transaction in goods," the Maryland Uniform Commercial Code, ("UCC") applies. Maryland Commercial Law Article, § 2-101 et seq.
Section 2-316 of the UCC, "Exclusion or modification of warranties," permits sellers to exclude or modify both express and implied warranties. Express warranties can be negated or limited to those stated in the contract by express language to that effect. UCC § 2-316(1); Boatel Industries v. Hester, 77 Md.App. 284, 300, 550 A.2d 389 (1988). Implied warranties can also be disclaimed. UCC § 2-316(2) states that "to exclude or modify the implied warranty of merchantability ... the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be in writing and conspicuous." All other implied warranties "are excluded ... by language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty." UCC § 2-316(3). Finally, Official Comment 3 to UCC § 2-719 specifically states that "the seller in all cases is free to disclaim warranties in the manner provided in Section 2-316."3
The clear, unambiguous and conspicuously typed language of MDA paragraph 10.2 complies with the criteria articulated in the UCC for excluding express and implied warranties. In fact, nowhere in its opposition does Novatel argue that the warranty disclaimers of the MDA are inoperative or non-binding. Therefore, the Court finds that Novatel is limited in the pursuit of its breach of contract counterclaim to the representations and warranties expressed in the written agreement. Novatel cannot attempt to show that Dowty's failure to supply products that complied with representations made by Dowty during negotiations constituted a breach of the contract. Despite the warranty disclaimers, had Novatel's fraud counterclaim survived summary judgment, evidence concerning representations made during negotiations would have been appropriate. See discussion infra p. 590-92.
Dowty argues that in addition to its warranty limitations, the MDA restricts any Novatel recovery to the costs for repair and replacement of defective parts or to a refund of the purchase price. Specifically, Dowty refers to paragraph 11 of the MDA which states:
Novatel's EXCLUSIVE REMEDY, and Dowty Communication's TOTAL LIABILITY, FOR ANY AND ALL LOSSES AND DAMAGES ARISING OUT OF ANY CAUSE WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT, NEGLIGENCE, STRICT LIABILITY, OTHER TORT OR OTHERWISE) SHALL IN NO EVENT EXCEED THE PURCHASE PRICE OF THE PRODUCTS (OR REPAIR PRICE OF THE WORK) IN RESPECT TO WHICH SUCH CAUSE ARISES. IN NO EVENT SHALL Dowty Communications BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES RESULTING FROM ANY SUCH CAUSE INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS.
Dowty asserts that paragraph 11 precludes Novatel from seeking damages for loss of business, damages for injury to reputation and goodwill, as well as punitive and exemplary damages.
UCC § 2-719(1)(a) and (2). In addition, "consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable." UCC § 2-719(3).
The contractual language of MDA paragraph 11 creates a two-tiered limitation on Dowty's potential liability. On the first level, Dowty's exposure is limited to the cost of repairing or replacing nonconforming multiplexers, or in the alternative, to the refunding of the purchase price. If that limitation were deemed to be not effective, the second level operates to preclude Novatel from recovering incidental, consequential, special and punitive damages, as well as lost profits. Under the UCC, these two levels of restrictions must be analyzed separately.
Novatel's ability to recover damages from Dowty in excess of the cost to repair or replace the defective multiplexers, or in excess of the purchase price, depends on its ability to persuade the Court that the MDA's...
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