Synnex Corp. v. Adt Security

• Decision Date: 13 July 2007
• Docket Number: No. A-3740-05T5.,A-3740-05T5.
• Citation: 928 A.2d 37,394 N.J. Super. 577
• Parties: SYNNEX CORPORATION, as Successor in Interest to Synnex Information Technologies, Inc., Plaintiff-Respondent/Cross-Appellant, v. ADT SECURITY SERVICES, INC., ADT Operations, Inc., ADT Holdings, Inc., and ADT, Defendants-Appellants/Cross-Respondents.
• Court: New Jersey Superior Court

928 A.2d 37

394 N.J. Super. 577

SYNNEX CORPORATION, as Successor in Interest to Synnex Information Technologies, Inc., Plaintiff-Respondent/Cross-Appellant, v. ADT SECURITY SERVICES, INC., ADT Operations, Inc., ADT Holdings, Inc., and ADT, Defendants-Appellants/Cross-Respondents.

No. A-3740-05T5.

Superior Court of New Jersey, Appellate Division.

Argued May 1, 2007.

Decided July 13, 2007.

Timothy I. Duffy, Morristown, argued the cause for appellants/cross-respondents (Coughlin Duffy, attorneys; Mr. Duffy, of counsel and on the brief; Neil M. Day, on the brief).

Keith E. Whitson, Pittsburgh, PA, of the Pennsylvania Bar, admitted pro hac vice, argued the cause for respondent/cross-appellant (Schnader Harrison Segal & Lewis, attorneys; Harris Neal Feldman and Mr. Whitson, on the brief).

Before Judges SKILLMAN, LISA and GRALL.

The opinion of the court was delivered by

SKILLMAN, P.J.A.D.

The primary question presented by this appeal is whether an exculpatory clause in a contract for the sale of a burglar alarm system, which requires the buyer to rely solely on its own insurance for any loss from theft, is contrary to public policy and therefore unenforceable in light of a statute that subjects sellers of alarm systems to licensing and regulatory controls. We conclude that such an exculpatory clause is not contrary to public policy because it simply allocates responsibility to the buyer of an alarm system to maintain insurance coverage, and the buyer is in the best position to know the value of its property and to insure against any loss.

Plaintiff Synnex is a distributor of information technology products. Defendant ADT is a distributor of burglar alarm systems.

In 2002, Synnex leased a large warehouse in Edison to use as a distribution center for computers and computer-related equipment. Synnex asked ADT to design and install a burglar alarm system for the building. As a result, an ADT account representative met with Synnex's regional operations director and subsequently submitted a series of proposals for the required system.

After the parties reached an agreement concerning the burglar alarm system and purchase price, the ADT sales representative submitted a form ADT contract to the Synnex regional operations director, which they both signed on July 11, 2001. The agreed purchase price was $7,154 plus an annual service charge of $1,142 for a five-year term.

The form ADT contract contained a clause, which stated: "This Agreement is not binding unless approved in writing by an authorized Representative of ADT." Although the contract was signed by an authorized representative of Synnex and the ADT sales representative, it was not signed by an "authorized Representative of ADT."

The parties executed two riders to the contract, which provided for additional equipment for the burglar alarm system. One rider, executed on August 13, 2002, provided for the addition of door contacts, a motion sensor and related equipment for an additional one-time charge of $1,308, plus annual charges of $56. The second rider, executed on September 24, 2002, provided for various other alarm-related parts and services for a one-time charge of $1,086, plus annual charges of $31. The riders stated that they were "part of" the original contract, which "shall . . . remain in full force and effect in accordance with all of the terms and conditions thereof, modified only as in this Rider specifically provided." Both riders were subsequently executed by a person designated as an "authorized Representative of ADT."

The form ADT contract includes a broad exculpatory clause, set forth in large capital letters, around which this appeal revolves, which states in pertinent part:

IT IS UNDERSTOOD THAT ADT IS NOT AN INSURER, THAT INSURANCE, IF ANY, SHALL BE OBTAINED BY THE CUSTOMER AND THAT THE AMOUNTS PAYABLE TO ADT HEREUNDER ARE BASED UPON THE VALUE OF THE SERVICES AND THE SCOPE OF LIABILITY AS HEREIN SET FORTH AND ARE UNRELATED TO THE VALUE OF THE CUSTOMER'S PROPERTY OR PROPERTY OF OTHERS LOCATED IN CUSTOMER'S PREMISES. CUSTOMER AGREES TO LOOK EXCLUSIVELY TO CUSTOMER'S INSURER TO RECOVER FOR INJURIES OR DAMAGE IN THE EVENT OF ANY LOSS OR INJURY AND RELEASES AND WAIVES ALL RIGHT OF RECOVERY AGAINST ADT ARISING BY WAY OF SUBROGATION. ADT MAKES NO GUARANTY OR WARRANTY, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY

OR FITNESS, THAT THE SYSTEM OR SERVICES SUPPLIED, WILL AVERT OR PREVENT OCCURRENCES OR THE CONSEQUENCES THEREFROM, WHICH THE SYSTEM OR SERVICE IS DESIGNED TO DETECT. IT IS IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE ACTUAL DAMAGES, IF ANY, WHICH MAY PROXIMATELY RESULT FROM FAILURE ON THE PART OF ADT TO PERFORM ANY OF ITS OBLIGATIONS HEREUNDER. THE CUSTOMER DOES NOT DESIRE THIS CONTRACT TO PROVIDE FOR FULL LIABILITY OF ADT AND AGREES THAT ADT SHALL BE EXEMPT FROM LIABILITY FOR LOSS, DAMAGE OR INJURY DUE DIRECTLY OR INDIRECTLY TO OCCURRENCES, OR CONSEQUENCES THEREFROM, WHICH THE SERVICE OR SYSTEM IS DESIGNED TO DETECT OR AVERT; THAT IF ADT SHOULD BE FOUND LIABLE FOR LOSS, DAMAGE OR INJURY DUE TO A FAILURE OF SERVICE OR EQUIPMENT IN ANY RESPECT, ITS LIABILITY SHALL BE LIMITED TO A SUM EQUAL TO 10% OF THE ANNUAL SERVICE CHARGE, OR $1,000, WHICHEVER IS GREATER, AS THE AGREED UPON DAMAGES AND NOT AS A PENALTY, AS THE EXCLUSIVE REMEDY; AND THAT THE PROVISIONS OF THIS PARAGRAPH SHALL APPLY IF LOSS, DAMAGE OR INJURY, IRRESPECTIVE OF CAUSE OR ORIGIN, RESULTS DIRECTLY OR INDIRECTLY TO PERSON OR PROPERTY FROM PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS IMPOSED BY THIS CONTRACT OR FROM NEGLIGENCE, ACTIVE OR OTHERWISE, STRICT LIABILITY, VIOLATION OF ANY APPLICABLE CONSUMER PROTECTION LAW OR ANY OTHER ALLEGED FAULT ON THE PART OF ADT, ITS AGENCY OR EMPLOYEES.

After execution of the two riders, ADT installed the burglar alarm system in the Synnex warehouse sometime in the late summer and early fall of 2002.

Approximately six months after installation of this system, someone broke into the warehouse and stole a substantial quantity of computers and computer equipment. A post-crime investigation revealed that the intruders disabled or destroyed parts of the alarm system, including the cellular backup. Following the break-in, Synnex installed additional security features, including a two-way radio and more motion detectors in both the warehouse and control room.

The company that insured the contents of the warehouse, Mitsui Sumitomo Insurance Group, paid Synnex $7.1 million in settlement of its claim for the merchandise and equipment lost as a result of the burglary and then brought this subrogation action in Synnex's name. The complaint alleged that ADT had been negligent both in designing the burglar alarm system and in communicating with Synnex after it received alarm signals on the night of the burglary. The complaint also asserted claims for breach of express and implied warranties, strict liability, wanton and wilful misconduct, negligent misrepresentation and violations of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20.

ADT filed a series of motions for summary judgment based on the previously quoted exculpatory clause, the disposition of which was complicated by the fact that they were heard by different judges. The trial court eventually granted summary judgment with respect to Synnex's strict liability claim and part of its Consumer Fraud Act claim, but denied summary judgment with respect to Synnex's other claims. The court ruled that the absence of the signature of an "authorized Representative of ADT" on the original contract precluded ADT from relying upon the exculpatory clause. The court also ruled that, even if the contract had been signed by ADT's authorized representative, the exculpatory clause would have been ineffective because it was contrary to public policy as expressed in a 1997 amendment to the Electrical Contractors Licensing Act, N.J.S.A. 45:5A-1 to -38, which extended the statute to alarm companies. L. 1999, c. 305.

The case was tried before a jury. The trial court dismissed Synnex's wanton and wilful misconduct, breach of express warranties, negligent misrepresentation, breach of implied warranties and Consumer Fraud Act claims during the course of trial. The jury returned a verdict finding Synnex and ADT each 50% negligent and determining that the total losses sustained by Synnex as a result of the burglary were $7,645,580. The court molded the verdict and entered a judgment for $3,822,740 plus prejudgment interest in Synnex's favor. The court subsequently denied ADT's motion for judgment notwithstanding the verdict.

ADT appeals from the judgment in Synnex's favor, arguing that the previously quoted exculpatory clause was part of its contract for the sale of a burglar alarm system to Synnex, even though the contract was not signed by a person designated as an "authorized Representative of ADT," and that this clause is not contrary to public policy. Synnex has filed a conditional cross-appeal from the dismissal of its Consumer Fraud Act, breach of implied warranties and wanton and wilful misconduct claims.

We conclude that ADT's performance of the contract with Synnex by delivery and installation of the burglar alarm system constituted acceptance of the contract, despite the absence of a signature by an authorized representative of ADT, thus binding both parties to the terms of that contract, including the exculpatory clause. We also conclude that the exculpatory clause is not unenforceable as contrary to public policy because it simply allocates responsibility to Synnex to maintain insurance coverage for the theft of its property. We reject the arguments Synnex presents in support of its conditional cross-appeal as clearly without merit.

I

The form ADT contract contains three blanks for signatures: one for the ADT sales representative, the second for the customer and the third for an "authorized Representative of ADT." The form contract states in the lower right hand corner:

This Agreement is...