Schurtz v. BMW of North America, Inc.

• Decision Date: 21 June 1991
• Docket Number: GMC-BM,No. 880399,I,880399
• Parties: 1991-2 Trade Cases P 69,584, 15 UCC Rep.Serv.2d 878, Prod.Liab.Rep. (CCH) P 12,926 Hugh SCHURTZ, Plaintiff and Appellant, v. BMW OF NORTH AMERICA, INC., Clark Buick-Datson-nc., BMW of Murray, and Does I through X, Defendants and Appellees.
• Court: Utah Supreme Court

Page 1108

814 P.2d 1108

1991-2 Trade Cases P 69,584, 15 UCC Rep.Serv.2d 878,

Prod.Liab.Rep. (CCH) P 12,926

Hugh SCHURTZ, Plaintiff and Appellant, v. BMW OF NORTH AMERICA, INC., Clark Buick-Datson-GMC-BMW,

Inc., BMW of Murray, and Does I through X,

Defendants and Appellees.

No. 880399.

Supreme Court of Utah.

June 21, 1991.

David A. McPhie, Salt Lake City, for plaintiff and appellant.

Lewis T. Stevens, Craig W. Anderson, Salt Lake City, for defendant and appellee BMW of North America.

T. Patrick Casey, Salt Lake City, for defendant and appellee Clark Buick-Datsun-GMC-BMW.

ZIMMERMAN, Justice:

Hugh Schurtz brought suit against BMW of North America and against Clark Buick-Datsun-GMC-BMW, Inc., BMW of Murray, and John Does I through X (collectively "BMW") alleging (i) breach of express and implied warranties under (a) the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2310(d)(1) and 2301(6) (1974), and (b) Utah Uniform Commercial Code, sections 715 and 719, Utah Code Ann. §§ 70A-2-715 and -719 (1990); and (ii) negligent and/or intentional misrepresentation, in violation of the Utah Consumer Sales Practices Act, Utah Code Ann. §§ 13-11-1 to -23 (1990). The district court entered an order granting defendant BMW partial summary judgment, disallowing Schurtz's claim for incidental and consequential damages on a breach of warranty claim, and awarding Schurtz attorney fees in an amount less than the amount that Schurtz claimed he was owed. Schurtz appeals. He claims that the district court erred in granting BMW's motion for partial summary judgment on the damage issues. He also claims that the trial court erred in awarding judgment for less than the full amount of claimed attorney fees. We vacate both the summary judgment and the attorney fees award and remand the matter for further proceedings.

In February 1982, Hugh Schurtz purchased a 1982 BMW 320i from BMW of Murray. The car carried a written warranty limiting BMW's responsibility to the repair or replacement of defective parts within three years or 38,000 miles. The limited warranty specified that the decision to repair or replace was within the sole discretion of BMW. Of central concern for the purposes of the appeal were additional warranty provisions stating that "BMW of North America, Inc., makes no other express warranty on this product" and that "BMW of North America, Inc., hereby excludes incidental and consequential damages ... for any breach of any express or implied warranty." ¹

After allegedly encountering numerous problems with the car, Schurtz filed the present action. He claimed that immediately after purchase, he experienced difficulties with the car. He further asserted that BMW breached the limited warranty because it was either unable or unwilling to repair or replace the car. Schurtz claimed (i) breach of written and implied warranties in contravention of the Magnuson Moss Act, 15 U.S.C. §§ 2301(6) and 2310(d)(1) (1974); (ii) negligent misrepresentation; (iii) breach of the Utah Consumer Sales Practices Act, Utah Code Ann. §§ 13-11-1 to -23 (1990); and (iv) breach of express and implied warranties made actionable by code sections 70A-2-715 and -719 (1990). Schurtz sought damages including the purchase price of the automobile, incidental and consequential damages, attorney fees, costs, and punitive damages.

BMW filed a motion for summary judgment, seeking dismissal of all Schurtz's warranty claims. Pertinent to this appeal is the alternative motion for partial summary judgment in which BMW sought to have Schurtz's claims for incidental and consequential damages dismissed, arguing that these claims were barred by the express provisions of the limited warranty.

In response to this alternative motion, Schurtz argued that the limited warranty's provision excluding incidental and consequential damages and limiting the remedy for breach to repair or replacement was invalid under section 2-719(2) of the Utah U.C.C. He reasoned that a provision excluding incidental and consequential damages is invalid under section 70A-2-719(2) if the warranty to repair or replace "fails of its essential purpose" and that the limited BMW warranty failed of its essential purpose because BMW was either unable or unwilling to repair his car.

BMW responded to this argument by contending that under the U.C.C. the limited warranty provision excluding incidental and consequential damages remains valid even if the warranty of repair or replacement fails of its essential purpose. BMW argued that section 2-719(3) governs incidental and consequential damage provisions and specifically allows a provision to exclude incidental and consequential damages unless it is "unconscionable." BMW argued that "unconscionability" under subpart (2) does not arise merely because a limited warranty to repair or replace fails of its "essential purpose."

The issue thus joined is the critical issue of this appeal. Specifically, are subparts (2) and (3) of section 2-719 of the Utah U.C.C. to be read dependently, as Schurtz argues, or independently, as BMW claims and the trial court found? A dependent reading would mean that any limitation on incidental and consequential damages under subpart (3) would be ineffective in the event that the contingency in subpart (2), a failure of the essential purpose of the limited warranty, occurred. An independent reading would mean that the occurrence of the condition specified in subpart (2) would not mean the automatic invalidity of a limitation on incidental and consequential damages. Because the disposition of this issue turns on section 70A-2-719 of the Utah U.C.C., we set it forth here:

(1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages,

a) the agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and

b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.

(2) Where circumstances cause an exclusive remedy or limited remedy to fail of its essential purpose, remedy may be had as provided in this act.

(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

The motion for partial summary judgment was heard on July 22, 1988, and taken under advisement by the court. The matter came for trial on August 1, 1988. On the first day of trial, a jury was impaneled, counsel made their opening statements, and Schurtz was called as the first witness. On the second day of trial, before any further evidence was taken, the court ruled on the summary judgment motion filed previously by BMW. The court denied BMW's motion to dismiss all Schurtz's warranty claims, but it granted BMW's motion with respect to Schurtz's claim for incidental and consequential damages. The court agreed with BMW and concluded that subparts 70A-2-719(2) and (3) operate independently. When a warranty limits the remedies available to the buyer to repair or replacement and also provides that the buyer may not recover incidental and consequential damages, if the repair or replacement provision fails of its essential purpose, the incidental and consequential damages limitation in the warranty remains valid.

Following this decision, an agreement was reached between the parties under which BMW, although not conceding the issues of breach of warranty and breach of contract, would refund the car's purchase price of $14,500 to Schurtz upon return of the car, minus a credit to BMW for actual use by Schurtz in the amount of 16 cents per mile for 22,516 miles, for a total credit of $3,602.56. It was further agreed that Schurtz would be deemed the prevailing party for the purpose of obtaining attorney fees as provided for by the Magnuson-Moss Act, 15 U.S.C. § 2310(d)(2). Under that provision, the prevailing party is entitled to such fees as the court determines were "reasonably incurred" in prosecuting the action.

Following entry of the parties' agreement, the court held a hearing to determine the reasonable attorney fees due Schurtz. Schurtz requested fees of $44,069.15, the amount which he claimed he had incurred in prosecuting the claim. BMW contended that he was not entitled to any attorney fees or, in the alternative, entitled only to an award sufficient to compensate him to the point where he filed his complaint and received an offer for settlement based on rescission on the theory that the lawsuit was unnecessary and the fees were unreasonable. The court awarded Schurtz only $10,000 on the ground that the matter "could have been and probably should have been settled very early in the proceedings, for an amount roughly equal to the ultimate outcome." The court, in awarding a discounted sum of fees to Schurtz, operated on the assumption that Schurtz should have known that he was not entitled to incidental and consequential damages and therefore spent more money prosecuting the action than was justified. Schurtz appeals from the grant of summary judgment and from the award of fees.

We note at the outset that a challenge to a summary judgment presents for review only conclusions of law because, by definition, cases decided on summary judgment do not resolve factual disputes. See Utah R.Civ.P. 56(c); Landes v. Capital City Bank, 795 P.2d 1127, 1129 (Utah 1990). We therefore accord no deference to a trial court's legal conclusions given to support the grant of summary judgment, but review them for correctness. See, e.g., Allen...