St. Charles Cable TV v. Eagle Comtronics, Inc.

• Decision Date: 19 May 1988
• Docket Number: No. 83 Civ. 7126 (LFM).,83 Civ. 7126 (LFM).
• Citation: 687 F. Supp. 820
• Parties: ST. CHARLES CABLE TV, INC., Alexandria Realty Corporation, Energistics, Inc., Delta Telecommunications, a limited partnership, and Robert Broz, Plaintiffs, v. EAGLE COMTRONICS, INC., Defendant, v. CABLE HOLDINGS, INC., Counterclaim Defendant.
• Court: U.S. District Court — Southern District of New York

687 F. Supp. 820

ST. CHARLES CABLE TV, INC., Alexandria Realty Corporation, Energistics, Inc., Delta Telecommunications, a limited partnership, and Robert Broz, Plaintiffs, v. EAGLE COMTRONICS, INC., Defendant, v. CABLE HOLDINGS, INC., Counterclaim Defendant.

No. 83 Civ. 7126 (LFM).

United States District Court, S.D. New York.

May 19, 1988.

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Dow Lohnes & Albertson by Howard Graff and Laura J. Kahn, New York City, for plaintiffs and counterclaim defendant.

Scolaro, Shulman, Cohen, Lawler & Burstein, P.C. by Walter D. Kogut and Ted H. Williams, Syracuse, N.Y., for defendant.

OPINION

MacMAHON, District Judge.

Plaintiff, St. Charles Cable TV, Inc. ("SCC"), the buyer, brings this action against the seller, defendant Eagle Comtronics, Inc. ("Eagle"), for damages for breach of warranty, fraud, and negligent misrepresentation by Eagle in the sale of allegedly defective descramblers to SCC. Alexandria Realty Corp., Energistics, Inc., Delta Telecommunications, and Robert Broz (collectively "the licensees") join SCC's action as nominal coplaintiffs whose claims must stand or fall with SCC's. Eagle asserts counterclaims against SCC and its affiliate, Cable Holdings, Inc. ("Cable Holdings"), for the balance due on the purchase price and money claimed under other provisions of the underlying agreement. Eagle also asserts a counterclaim against the licensees, alleging that as owners of the cable system they are liable on a conversion theory for receiving wrongfully obtained descramblers.

The action was tried before the court, without a jury, on September 28, 29 and 30 and October 19, 20, 21, 28 and 29, 1987. The trial was bifurcated for determination of liability first, reserving the issue of damages for future resolution, if necessary.

After carefully considering the exhibits, hearing and observing the witnesses, weighing all of the evidence and arguments of counsel, and bearing in mind that it is not the quantity but the quality of the evidence that is ultimately determinative, we now make the following findings of fact and conclusions of law.

BACKGROUND

SCC is a Louisiana corporation with its principal place of business in Luling, Louisiana, where it constructed and now operates a cable television system pursuant to a franchise granted by the Parish of St. Charles. The licensees are citizens of Connecticut whose connection with this litigation arises from their present ownership interests in the SCC cable system.¹ Defendant Eagle, a New York corporation with its principal place of business in Syracuse, New York, manufactured and sold addressable descramblers² to Cable Holdings for use in the SCC cable system.

The sale resulted from a series of meetings and telephone conversations between Donald Behrman ("Behrman") and various Eagle representatives in the summer and fall of 1982. Behrman is chief engineer for counterclaim defendant Cable Holdings, a New York affiliate of SCC in the business of providing management and engineering services for cable television systems. Behrman spoke with Eagle representatives ten to twenty times (Trial Transcript ("Tr. ___") 70-85, 920-21). He also visited Eagle's plant in Syracuse in September 1982, where he observed the descramblers and discussed technical details about them with Eagle engineers (Tr. 73-75, 244-45).

Behrman knew, at least from his first visit, that Eagle's descrambler was only a prototype and that, although the prototypes had been tested in the laboratory and in field demonstrations by Eagle, they had not been used in any cable system (Tr. 244-46, 256-57, 787-88). Nevertheless, Cable Holdings decided that SCC would become the first cable system to use the Eagle descramblers (Tr. 257). Later, one of the descrambler components was modified as a result of further testing by an independent laboratory chosen by Behrman (Tr. 78-81, 248-52). Finally, because Cable Holdings was a multiple system operator representing a potential source for future sales, Eagle agreed to a substantial reduction of the per unit price of descramblers (Tr. 239-44, 841-45; Defendant's Exhibits ("DX ___") M, SSSS at 61-62).

On October 12, 1982, Behrman telephoned an order for 4,000 Eagle descramblers together with other equipment needed to set up the SCC system (Tr. 85-86; DX L, N). Not surprisingly, some statements made during the negotiations leading to the purchase order are disputed. The parties agree, however, that (1) the descramblers were warranted by Eagle for a period of one and one-half years, with an additional year and one-half fixed-price replacement option; (2) the price was $52.50 per descrambler; and (3) gas tubes for surge protection were to be added to the descramblers. The parties disagree, however, on the content of Eagle's warranty and on the other terms of their agreement.

SCC contends that as part of the agreement Eagle made the following representations: (1) the addressable descramblers were based on proven technology; (2) they were more secure from tampering than other addressable descramblers on the market; (3) their failure rate would be less than four percent; and (4) Eagle would stand behind the addressable system and fully support it. Eagle denies making any representation concerning the failure rate and asserts that the other representations were either true or were not part of the basis of the agreement, as required by N.Y. UCC § 2-313(1)(a). Eagle further maintains that the sole agreement between the parties is contained in Eagle's written sales order acknowledgment forms.

Eagle sent sales order acknowledgment forms to Cable Holdings following the initial October 12, 1982 telephone order from Behrman and on each subsequent order (DX L). Each acknowledgment, on its face, states the price, the number of descramblers, the warranty period, and that gas tubes would be added to the descramblers. A conspicuous note, at the bottom of the forms, states: "Subject to the Terms and Conditions on Reverse Side." Those terms, in relevant part, are that the order form constitutes the entire and only contract of sale; that any varying terms or modifications are excluded unless accepted by Eagle in writing; that the buyer relies on its own knowledge of the subject matter and not on any representations by the seller; that Eagle warrants the goods to be free from defects in material and workmanship under normal use and service for a period of ninety days from delivery; that the buyer's remedy under Eagle's warranty is limited to repair or exchange of defective goods; that all other warranties are excluded; that the buyer must provide notice of defects within fifteen days of delivery; that the buyer is responsible for freight charges and legal costs and interest arising out of any contract dispute; and that New York law governs the agreement (Tr. 214-15; DX L). Invoices accompanying each delivery of descramblers included the same printed form (Tr. 214-15; DX L).

Neither Cable Holdings nor SCC ever objected to the terms in the acknowledgment form, but no representative of Cable Holdings or SCC ever signed the form and defendant produced no direct evidence that either corporation knew of the terms and conditions.

In November 1982, Eagle began delivering descramblers at the rate of a few hundred every week (Tr. 86). Shortly thereafter, SCC complained that the descramblers caused a "beat" or minor interference on one of thirty-three channels (Tr. 93-95, 791-92). Eagle accepted a return of the descramblers and repaired them to eliminate the beat problem (Tr. 284-85, 791-96; Plaintiffs' Exhibit ("PX ___") 4; DX Z).

In February 1983, Behrman advised Eagle that he had learned that the descrambler was vulnerable to a certain method of tampering which could descramble all scrambled channels, thereby permitting a subscriber to steal additional cable channels (Tr. 118-20). Eagle proposed that a crowbar clamp-down circuit be added to the descramblers to prevent that method of tampering (Tr. 124-25, 796-800). Behrman reviewed the schematics of the crowbar circuit during a two-day trip to Syracuse and approved the modification (Tr. 125, 796-800). In addition, Behrman ordered 150 traps from Eagle to prevent theft of scrambled channels until the modified descramblers were installed (Tr. 264-66; DX Q). Eagle added the crowbar circuit to 399 descramblers which had not been returned to SCC after the December modification for the beat problem and to 1,500 additional descramblers ordered by Behrman on January 20, 1983 (Tr. 856-57; DX AA, O). No additional charge was made for this modification (Tr. 910). The crowbar circuit worked and prevented theft of signals by the tampering method Behrman had feared (Tr. 187).

In March 1983, Eagle was paid $50,000.00 (Tr. 699-702; PX 3), leaving a balance of $285,846.00. Eagle agreed at that time to add the crowbar circuit to all of the remaining descramblers in SCC's possession as they were removed from subscribers' homes on an attrition basis (Tr. 132-34).

In April 1983, Eagle developed another design modification called an "auto-tracking circuit" and, in response to SCC's complaints about descrambler performance,³ gave SCC the option of taking new units incorporating the auto-tracking and crowbar circuits ("Type 2"), or returning the original units ("Type 1") for modification (Tr. 132-33, 858-62). SCC chose Type 2 descramblers (Tr. 132-33). Eagle sent sales order acknowledgments stating on their face that "credit will be issued against invoice when old units are returned" (DX R). The acknowledgments also contained the same terms and conditions on the reverse side as those related above.

Eagle began shipping the Type 2 descramblers to SCC on June 25, 1983 and continued shipments of a few hundred every week or two until all 5,500 were delivered by September 1, 1983 (Tr. 188; DX EEEEE). Behrman admitted that the parties intended that SCC would return all the old Type 1 descramblers as they were replaced by the new Type 2...