that defendant failed to supply a fully operational system as warranted and failed thereafter to correct the deficiencies.
Defendant filed a counterclaim on June 16, 1995, alleging that plaintiff breached its contract with defendant when it failed to pay in accordance with the terms of the agreement (Item 2).
On August 15, 1996, defendant filed the pending motion, claiming that no genuine issue of fact exists with respect to plaintiff's claims (Item 7).
I. APPLICABLE SUBSTANTIVE LAW.
This court's jurisdiction is based on diversity of citizenship pursuant to 28 U.S.C. § 1332 (1993). It is well-established that a federal court sitting in diversity jurisdiction, while using its own rules governing procedural matters, will apply the substantive law of the state in which it sits. Erie R.R. Co. v Tompkins, 304 U.S. 64, 78-80, 82 L. Ed. 1188, 58 S. Ct. 817 (1938); Consorti v. Armstrong World Indus., Inc., 72 F.3d 1003 (2d Cir. 1995), vacated on other grounds, U.S. , 116 S. Ct. 2576, 135 L. Ed. 2d 1091 (1996). This includes the forum state's conflict of laws rules. Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 313 U.S. 487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941); Bank of New York v. Amoco Oil Co., 35 F.3d 643, 650 (2d Cir. 1994).
Defendant claims that Ohio substantive law governs in the present case. Plaintiff's action is based on its purchase of a computer system, consisting of hardware and software, from defendant.
Under the law of New York, the transaction at issue constitutes a sale of goods, and is therefore governed by the Uniform Commercial Code. See Triangle Underwriters, Inc. v. Honeywell, Inc., 457 F. Supp. 765, 769 (E.D.N.Y. 1978) (computer software, though intangible, is more readily characterized as "goods" than "services"), aff'd in part, rev'd in part and remanded on other grounds, 604 F.2d 737 (2d Cir. 1979); Communications Groups, Inc. v. Warner Communications Inc., 138 Misc. 2d 80, 527 N.Y.S.2d 341, 344 (N.Y. Civ. Ct. 1988) (computer software is a tangible and movable item qualifying as a "good" under Article 2 of the U.C.C.).
The New York Uniform Commercial Code allows parties to a sale agreement to stipulate which state's law will govern their rights and duties, provided that the transaction bears a "reasonable relation" to the state chosen. N.Y.U.C.C. § 1-105(1) (McKinney 1993). Defendant's "Standard Conditions of Sale-Warranty" provides that Ohio law applies to any agreement arising out of this transaction. Plaintiff does not dispute the validity or applicability of this term. As defendant is a citizen of the State of Ohio, this transaction is reasonably related to the state chosen.
Under Ohio law, the transaction at issue is a sale of goods. Delorise Brown, M.D., Inc. v. Allio, 86 Ohio App. 3d 359, 620 N.E.2d 1020, 1021-22 (Ohio App. 1993) (where hardware and software are provided in a single agreement, both are "goods" as defined in Article 2). Therefore, the agreement is governed by Article 2 of the Uniform Commercial Code as codified in Chapter 1302 of the Ohio Revised Code and as interpreted by Ohio state courts.
II. SUMMARY JUDGMENT.
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In reaching this determination, the court must assess whether there are any material factual issues to be tried while resolving ambiguities and drawing reasonable inferences against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir. 1995). A dispute regarding a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, supra, 477 U.S. at 248; see Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.), cert. denied, 502 U.S. 849, 116 L. Ed. 2d 117, 112 S. Ct. 152 (1991).
The moving party has the initial burden of demonstrating the absence of a genuine issue of material fact. To avoid summary judgment, the nonmoving party must then come forward with enough evidence to support a jury verdict in its favor. The nonmoving party cannot prevail "merely by vaguely asserting the existence of some unspecified disputed material facts," Borthwick v. First Georgetown Securities, Inc., 892 F.2d 178, 181 (2d Cir. 1989), or on the basis of "mere speculation or conjecture." Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 12 (2d Cir. 1986) cert. denied, 480 U.S. 932, 94 L. Ed. 2d 762, 107 S. Ct. 1570 (1987). When a dispute in fact is shown to exist, it must be material in light of the substantive law. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, supra, 477 U.S. at 248.
A. Breach of Express Performance Warranty.
Plaintiff alleges that "the Defendant represented and warranted and agreed that the said equipment would perform properly and according to the specifications submitted" and that "the equipment and software has never properly complied" (Item 1, PP 6, 7). Plaintiff asserts that defendant's cover letter to its quotation dated June 10, 1992 warranted that the goods would "work without exception in the Plaintiff's factory" (Item 9, p. 7). Specifically, plaintiff refers to those portions of the letter quoted above regarding defendant's experience in the plastics industry, the CIM system's place on the leading edge of technology, and defendant's confidence regarding the system's potential to significantly improve plaintiff's profit (Item 9, p. 5).
Defendant argues that it provided plaintiff with a warranty against defects in equipment only, and that it made no performance warranty (Item 7, p. 11). In addition, defendant claims that all express warranties have expired, that plaintiff is seeking a remedy to which it is not entitled, and that, in any event, plaintiff voided the warranties contained in the agreement when it failed to pay pursuant to the terms specified therein (Item 7, pp. 14, 16).
1. Extent of Defendant's Warranty
It is undisputed that plaintiff accepted the terms of defendant's proposals when it issued purchase orders # 31713 and # 31713A (Item 3, P 1). The parties' dispute centers primarily on whether the entire agreement is contained within the quotation and standard conditions, as defendant argues, or whether it also includes statements made in the cover letter, as plaintiff claims.
"Generally, a writing should be interpreted as a whole and all the writings that are part of the same transaction should be interpreted together." Abram & Tracy, Inc. v. Smith, 88 Ohio App. 3d 253, 623 N.E.2d 704, 708 (Ohio App. 1993) (citing Restatement of the Law 2d, Contracts (1981) 86, § 202(1) and (2); 2 Farnsworth, Contracts (1990) 255-56, § 7.10) [emphasis added]. Ohio courts have often considered language contained in a cover letter in determining the validity or defining the terms of a disputed agreement. See id., note 1 (court, in determining extent of defendant's contractual obligations, considered cover statements to be part of the contract); Ohio Knife Corp. v. A.C. Strip, 1992 Ohio App. LEXIS 5351, Nos. C-910482, C-910488, 1992 WL 308365, at *5 (Ohio App. Oct. 21, 1992) (finding that trial court's interpretation of ambiguous contract term was buttressed by language in cover letter sent with draft of the agreement); Karkomi v. Americare Corp., 1990 Ohio App. LEXIS 4288, No. 89 AP-1116, 1990 WL 140682, at *3 (Ohio App. Sept. 25, 1990) (conditions in cover letter determinative in finding that no agreement had been reached as a matter of law).
Defendant argues that summary judgment is appropriate because plaintiff is alleging the existence of warranties not set forth in their final written agreement. Defendant relies on the parol evidence rule applicable to U.C.C. sales contracts in concluding that plaintiff's claims are barred. The rule states that:
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement . . . .
Ohio Rev. Code Ann. § 1302.05 (Anderson 1993); U.C.C. 2-202.
Defendant's argument is unpersuasive. Plaintiff has identified specific language in defendant's cover letter of June 10, 1992 as the basis for its claim. The letter, written on the same date as defendant's quotation # 10781, is neither a "prior agreement" between the parties nor a "contemporaneous oral agreement." Therefore, the cover letter is not excluded under the parol evidence rule.
Plaintiff has succeeded in raising material issues as to whether the cover letter accompanying defendant's quotation is part of their final agreement and, if so, whether it contains any warranties or representations regarding the performance of the CIM system. In other words, does the letter contain affirmations of fact rather than mere puffery.
2. Expiration of Express Warranties
Defendant argues that it is entitled to summary judgment because its Standard Conditions disclaims any warranty other than those set forth in that document, and that all applicable warranties have expired. Specifically, defendant claims that the goods were shipped in October 1992 and that all applicable warranties expired within one year from that date. While there is ambiguity in the record as to whether the goods were actually sent in a single shipment or in installments, it does appear that all goods were shipped more than one year prior to the date on which plaintiff commenced this action.
In response, plaintiff refers to letters from defendant, written subsequent to the agreement, in which defendant promised to correct outstanding problems. These letters, dated September 27, 1993 (Item 9, Ex. 11), October 1, 1993 (Id., Ex. 12), and October 5, 1993 (Id., Ex. 13), indicate an intent to work with plaintiff toward resolution of its problems in October 1993 and until defendant could ensure that "all outstanding issues are corrected" (Id.).
Under Ohio law, the terms of a commercial sales contract can be modified by subsequent agreements. Software Clearing House, Inc. v. Intrak, Inc., 66 Ohio App. 3d 163, 583 N.E.2d 1056, 1061 (Ohio App. 1990). This includes modification of express warranties. Koukios v. Mktg. Dynamics, Inc., 1994 Ohio App. LEXIS 3945, C-930555 (Hamilton App. Sept. 7, 1994). Such a warranty modification can be expressed in a letter. Cincinnati Ins. Co. v. Quikrete Companies, 1996 Ohio App. LEXIS 4059, No. 96 APE04-424, 1996 WL 532188 (Ohio App. Sept. 17, 1996). Thus, plaintiff's exhibits raise a material issue as to whether defendant's subsequent letters modified the warranties it provided in the agreement.
In addition, as stated above, plaintiff raises issues of fact as to whether the defendant's cover letter constitutes part of the agreement and whether the statements therein are sufficient to create an express warranty. Should such a warranty exist, there is no indication that it would have expired by October 1993.
Thus, questions of fact exist as to whether all warranties expired prior to commencement of this action.
3. Plaintiff's Remedy under Defendant's Warranty.
Defendant also claims that summary judgment should be granted because plaintiff is seeking money damages, a remedy that is unavailable under the agreement.
Plaintiff, for its part, alleges that defendant breached its agreement with plaintiff when it supplied goods that did not perform as warranted and then failed to repair the defects. Plaintiff asserts that it never accepted defendant's nonconforming goods, or alternatively, that it properly revoked its acceptance.
Under Ohio law, a purchaser who has not accepted goods or who has justifiably revoked acceptance is permitted to recover the contract price that has been paid and other money damages. Ohio Rev. Code Ann. § 1302.85; U.C.C. 2-711. In addition, section 1302.89 allows a buyer to recover incidental and consequential damages resulting from seller's breach. U.C.C. 2-715.
Defendant argues that those remedies are inapplicable here because the Uniform Commercial Code allows parties to contractually modify or limit remedies, and such limitations are clearly stated in the agreement at issue. Ohio Rev. Code Ann. § 1302.93; U.C.C. 2-719. In this case, the Standard Conditions expressly warrants discrete system components (Item 7, Ex. B). In each instance, defendant's liability is limited to repair or replacement of defective equipment. The document further states that:
. . . THE LIABILITY OF HUNKAR LABORATORIES INC. WITH RESPECT TO ANY CONTRACT OR SALE, OR ANYTHING DONE IN CONNECTION THEREWITH, WHETHER IN CONTRACT, IN TORT, UNDER ANY WARRANTY OR OTHERWISE, SHALL BE LIMITED TO THAT EXPRESSLY PROVIDED ABOVE.