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CONFER PLASTICS, INC. v. HUNKAR LABS. INC.

April 4, 1997

CONFER PLASTICS, INC., Plaintiff,
v.
HUNKAR LABORATORIES INC., Defendant.



The opinion of the court was delivered by: HECKMAN

 The parties have consented to have the undersigned conduct any and all further proceedings in this case, including the entry of final judgment, in accordance with 28 U.S.C. § 636(c). Pending for decision is defendant's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure (Item 7). For the following reasons, defendant's motion is granted in part and denied in part.

 BACKGROUND

 Plaintiff is a corporation engaged in plastic extrusion manufacturing with its principal place of business located in North Tonawanda, New York. Defendant designs, manufactures, and supplies industrial controls, computer systems, and monitoring devices. Its principal place of business is located in Cincinnati, Ohio.

 On June 10, 1992, defendant submitted a quotation (number 10781) proposing to sell to plaintiff a computer integrated manufacturing "starter" system (CIM-1, Version II) for $ 47,588.00, plus costs and expenses of training and service (Item 7, Ex. A). The quotation was sent under a cover letter that stated, in part:

 
The complete system can allow you to implement SPC, SQC and plant-wide communications for optimum manufacturing management. Regardless of your initial starting point, the modular expansion capability facilitates evolving your system to virtually every process in the plant.
 
We have based this proposal on your conversations with Pete and our sales representative, Bruce Buchman, and we are confident that this configuration offers you significant profit improvement potential in the next 12 months.

 (Item 9, Ex. 1). A document setting forth defendant's terms and conditions, titled "Standard Conditions of Sale-Warranty," (Standard Conditions) was also included with the quotation. The conditions included the following warranty limitations:

 
LIMITATIONS
 
THE WARRANTIES HEREIN ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OF ANY EQUIPMENT, PRODUCT, OR CONTROL SYSTEM (WHETHER HARDWARE OR SOFTWARE) MANUFACTURED, DESIGNED OR SOLD BY HUNKAR LABORATORIES INC. HUNKAR LABORATORIES INC. SHALL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM THE USE, SALE, OR OPERATION OF ANY EQUIPMENT, PRODUCT, OR CONTROL SYSTEM (WHETHER HARDWARE OR SOFTWARE) MANUFACTURED, DESIGNED OR SOLD BY HUNKAR LABORATORIES INC. THE REMEDIES OF OUR CUSTOMERS SET FORTH HEREIN ARE EXCLUSIVE . . . .

 (Item 7, Ex. B). On July 22, 1992, plaintiff issued a purchase order (number 31713) for the CIM-1, Version II system offered by defendant (Item 7, Ex. C).

 On September 30, 1992, at plaintiff's request, defendant submitted another quotation (number 10866) for equipment supplemental to the CIM system already ordered (Item 7, Ex. D). The revised quotation included a change in the central computer from an IBM PS Model 30/286 to an IBM industrial grade computer. It also added six DAT-II machine monitor terminals to the three originally purchased. Defendant quoted a total system price of $ 109,520.00, less a credit of $ 47,588.00 for plaintiff's existing purchase order number 31713, for a net additional charge of $ 61,932.00. Defendant's Standard Conditions were included with this quotation as well. On October 9, 1992, plaintiff issued a purchase order (number 31713A) for the supplemental equipment (Item 7, Ex. E).

 On October 29, 1992, defendant acknowledged plaintiff's purchase orders as an acceptance of the terms set forth in defendant's quotation of September 30, 1992 (Item 7, Ex. E). All components were to be shipped to plaintiff by April 1, 1993 (Item 7, Ex. D). Plaintiff was to pay defendant a total of $ 109,520.00 plus shipping. To date, plaintiff has paid $ 94,068.38.

 Defendant claims it shipped all of the equipment described in its quotations in October 1992 (Item 7, p. 5). *fn1" Plaintiff asserts that the system was delivered on or about April 4, 1993 (Item 9, p. 2). *fn2"

  The record indicates that plaintiff first contacted defendant regarding its dissatisfaction with the CIM system in April 1993. *fn3" In a letter dated April 14, plaintiff informed defendant of specific problems with the system including the manner in which the new DAT terminals handled reporting with respect to rejected parts, the limited time period that production data could be stored on the main computer, the fact that the DATs were set to automatically reject parts, and the lack of provisions for family molds (Item 9, Ex. 5). *fn4" On that same date, defendant offered to upgrade plaintiff's system from a CIM-I to a CIM-III at no charge.

 An internal memorandum, dated August 27, 1993, indicates that plaintiff continued to experience problems importing data and generating reports after the CIM-III upgrade was installed. Plaintiff characterized defendant as "very responsive" and "genuinely interested in helping resolve our problems," but noted little progress toward resolution at that time (Item 9, Ex. 7). On August 31, 1993, plaintiff wrote to defendant detailing the problems it was currently experiencing (Item 9, Ex. 8). *fn5"

 Defendant expressed its intent to resolve the stated problems and responded to seven of plaintiff's eight concerns on October 1, 1993 (Item 9, Exs. 11 & 12). Plaintiff was asked to supply data files to assist in resolving the remaining problem (Item 9, Ex. 12).

 On October 27, 1993, plaintiff acknowledged resolution of "the numerous problems that were plaguing our CIM system installation," and stated that it would forward the files defendant had requested relating to plaintiff's inability to generate customer history reports. In addition, plaintiff requested a quotation on hardware and software to install a satellite CIM terminal (Item 9, Ex. 14).

 On March 3, 1994, plaintiff sent defendant a check for one-half of the then outstanding balance, acknowledging that most of the outstanding problems had been resolved (Item 9, Ex. 15). Plaintiff expressed its intent to pay the balance after monitoring the system for the following two to four weeks for overall functioning and accuracy of reports generated (Id.). *fn6" Plaintiff again mentioned its need to order additional components to expand the system (Id.).

 On February 9, 1995, plaintiff wrote to defendant expressing dissatisfaction with defendant's parts replacement services, maintenance services, and technical support (Item 9, Ex. 16). Plaintiff stated that the system had been a costly mistake and expressed a desire to disassemble it and return it to defendant for the purchase price paid to date (Id.). While plaintiff referred to the system's history of problems, there was no mention of ongoing software problems at this time.

 On May 1, 1995, plaintiff filed a complaint specifically alleging that defendant breached its performance warranty, breached its warranty of merchantability, breached its warranty of fitness for a particular purpose, breached its warranty of fitness for ordinary purposes, made false statements to plaintiff in connection with its warranties and representations, and failed to supply plaintiff with personnel and services necessary for the proper operation of the goods at issue (Item 1, PP 7, 13, 17, 20, 23, 31). Plaintiff claims that as a result of each such breach or failure, it is entitled to reimbursement of the purchase price already paid, plus damages, for a total of $ 250,000.00 (Item 1, PP 8, 14, 18, 21, 28, 33). The essence of plaintiff's claim is 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). *fn7" 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).

 DISCUSSION

 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, ...


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