Milgard Tempering, Inc. v. Selas Corp. of America
| Citation | 902 F.2d 703 |
| Decision Date | 24 April 1990 |
| Docket Number | Nos. 87-4067,87-4068,s. 87-4067 |
| Parties | 11 UCC Rep.Serv.2d 558 MILGARD TEMPERING, INC., Plaintiff-Appellee/Cross-Appellant, v. SELAS CORPORATION OF AMERICA, a foreign corporation, Defendant-Appellant/Cross-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Edward M. Lane, of Edward M. Lane & Associates, Tacoma, Wash., James M. Sweet and David L. Hall, Drinker Biddle & Reath, Philadelphia, Pa., for defendant-appellant/cross-appellee.
J. Richard Creatura, Sal Mungia and Bradley A. Maxa, Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, Tacoma, Wash., for plaintiff-appellee/cross-appellant.
Appeal from the United States District Court for the Western District of Washington.
Before TANG, HALL, and BRUNETTI, Circuit Judges.
This appeal marks the end of nearly seven years of litigation over a "sure fire" glass tempering furnace purchased over ten years ago. The seller, Selas Corporation of America ("Selas") appeals the judgment of the district court awarding the buyer, Milgard Tempering, Inc. ("Milgard"), damages resulting from its failure to repair serious defects in the furnace. Milgard cross-appeals the district court's denial of attorneys' fees. We have jurisdiction under 28 U.S.C. Sec. 1291 (1988) and affirm.
Milgard Manufacturing, Inc. ("Milgard Manufacturing") cuts and installs glass for use in residential construction. On June 11, 1979, it entered into a carefully-negotiated contract with appellant/cross-appellee Selas to purchase a horizontal batch tempering furnace. With Selas' consent, Milgard Manufacturing assigned the contract to appellee/cross-appellant, Milgard.
Under the contract, Selas agreed to design and manufacture the furnace for $1.45 million. 1 Its design was complex, and in Selas' eyes, experimental. However, Selas marketed it as a working piece of equipment. The contract provided a $50,000 bonus if Selas delivered all the major components before January 31, 1980. It also provided a penalty of $5,000 per week (not to exceed a total of $25,000) for every week of late delivery after March 31, 1980. Selas failed to meet either deadline, having completed delivery of major components in November, 1982.
Selas agreed to assemble the furnace at Milgard's plant and to assist in a "debugging period" that both parties expected would end June or July 1980. The contract also required Selas, in a series of preacceptance tests, to demonstrate that the furnace was capable of achieving designated yield and cycle rates. 2 Section 28.5 of the contract limited Selas' liability for breach of warranty to repair or replacement of the furnace and barred liability for consequential damages. The parties modified the contract and agreed to forego the preacceptance tests and instead place the furnace in commercial production in July, 1980, thus making glass available for the "debugging" process.
By January, 1982, Selas continued work on the furnace, but failed to achieve yield and cycle rates that substantially conformed with the contract specifications. Milgard then filed suit against Selas for breach of contract.
In March 1982, the parties, without counsel, attempted to enter into a contractual agreement to settle the dispute. Under the proposed agreement, Selas would take over the tempering operation for 60 days to demonstrate the furnace's ability to achieve a 90% yield rate. It would also pay any operating losses Milgard incurred during that period. Then, if Milgard operated the furnace for six months without incident, Selas would "finetune" the furnace to achieve a 95% rate. Selas did the work and paid Milgard's operating losses.
Milgard then dismissed the suit without prejudice. However, during the six-month period, the furnace failed to perform to the specifications of either the contract or the attempted settlement agreement.
Milgard initiated a second lawsuit on March 4, 1983, alleging breach of contract and breach of warranty. On June 29, 1984, Judge Tanner in the district court granted summary judgment in favor of Selas. He found that the cap on consequential damages was a conscionable allocation of risk between sophisticated parties and therefore enforceable. He further held that the parties had reached an accord and satisfaction in March, 1982. The court awarded Selas the balance of the purchase price minus the delivery bonus. It also awarded Selas attorneys' fees under Sec. 28.1(f) of the contract but denied fees to Selas' in-house counsel for time devoted to the litigation.
This court, in Milgard Tempering, Inc. v. Selas Corp. of America, 761 F.2d 553 (9th Cir.1985) [hereinafter Milgard I ], reversed and remanded for trial. We held that the enforceability of the consequential damages limitation not only depended upon the conscionability of the provision when drafted, but upon the circumstances surrounding Selas' breach and inability to repair. Because these circumstances were disputed, we found summary judgment inappropriate. Id. at 556-57. We further noted that serious factual disputes surrounding the alleged accord and satisfaction required trial of that issue as well. We also vacated the award of attorneys' fees pending determination of the prevailing party at trial.
On remand, after a five-week bench trial, Judge Bryan in the district court found that the furnace had never lived up to the specifications in the contract. He held that the limited repair remedy failed of its essential purpose and that Selas' default was sufficiently severe to expunge the cap on consequential damages. He awarded Milgard $1,076,268 in net damages. He also denied Milgard's claims for attorneys' fees.
Nearly two months after the trial judge delivered his oral ruling, 3 Selas filed a motion for a new trial and new judge, alleging that an ex parte contact between the law clerk assigned to the case and Milgard's counsel created the appearance of judicial impropriety. The court denied the motion and entered its judgment order the following day.
Selas appeals the judgment and denial of its motion for new trial and judge. Milgard cross-appeals the denial of attorneys' fees. We affirm.
Selas first argues that the district court erred in ruling that the limited repair remedy failed of its "essential purpose" and that such failure lifted the contractual cap on consequential damages.
Section 28.5 of the contract limited Milgard's remedies in the event of breach of warranty to repair or replacement of the defective equipment. 4 Such limitations on a party's remedies are permitted by Washington's version of the U.C.C., Wash.Rev.Code Sec. 62A.2-719(1)(a) (West Supp.1989). 5
An exclusive or limited remedy, however, must be viewed against the background of Sec.62A.2-719(2), which provides: "Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Title." This section requires a court to examine the contract in general and the remedy provision in particular to determine what the remedy's essential purpose is and whether it has failed.
A limited repair remedy serves two main purposes. First, it serves to shield the seller from liability during her attempt to make the goods conform. Second, it ensures that the buyer will receive goods conforming to the contract specifications within a reasonable period of time. See Chatlos Systems v. National Cash Register Corp., 635 F.2d 1081, 1085 (3d Cir.1980), cert. dismissed, 457 U.S. 1112, 102 S.Ct. 2918, 73 L.Ed.2d 1323 (1982); S.M. Wilson & Co. v. Smith Int'l, Inc., 587 F.2d 1363, 1375 (9th Cir.1978) ().
A contractual provision limiting the remedy to repair or replacement of defective parts fails of its essential purpose within the meaning of Sec. 62A.2-719(2) if the breaching manufacturer or seller is unable to make the repairs within a reasonable time period. Lidstrand v. Silvercrest Indus., 28 Wash.App. 359, 623 P.2d 710, 714 (1981). Accord Milgard I, 761 F.2d at 556. It is not necessary to show negligence or bad faith on the part of the seller, for the detriment to the buyer is the same whether the seller's unsuccessful efforts were diligent, dilatory, or negligent. See Wilson, 587 F.2d at 1375.
The district court in this case found that the furnace had never lived up to the specifications of the contract. Finding 23. Moreover, the court found that the few successful improvements were not made within a reasonable period of time, taking over two and one-half years. 6 We agree that under these circumstances, the unreasonable delay and ultimate failure in repair made the repair remedy ineffective; thus, the remedy failed of its essential purpose.
Washington courts have not addressed the issue of whether failure of a limited repair remedy may serve to invalidate a consequential damages exclusion. Therefore, it is our responsibility to determine how the state's supreme court would resolve it. In undertaking this task, we may draw upon recognized legal sources including statutes, treatises, restatements, and published opinions. Molsbergen v. United States, 757 F.2d 1016, 1020 (9th Cir.), cert. denied, 473 U.S. 934, 106 S.Ct. 30, 87 L.Ed.2d 706 (1985). We may also look to "well-reasoned decisions from other jurisdictions." Takahashi v. Loomis Armored Car Serv., 625 F.2d 314, 316 (9th Cir.1980). We review the district court's construction of Washington law de novo. See In re McLinn, 739 F.2d 1395, 1400 (9th Cir.1984) (en banc).
We begin our analysis with Fiorito Bros., Inc. v. Fruehauf Corp., 747 F.2d 1309, 1314-15 (9th Cir.1984). In that case, we held that under Washington law, the failure of a repair remedy does not automatically remove a cap on consequential damages. We predicted that Washington courts would take a case-by-case approach and...
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