UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NEW YORK
August 19, 1997
EARL RONEKER, Plaintiff,
KENWORTH TRUCK COMPANY and DETROIT DIESEL CORP., Defendants.
The opinion of the court was delivered by: HECKMAN
DECISION AND ORDER
The parties have consented to have the undersigned conduct all further proceedings in this matter, including entry of judgment, in accordance with 28 U.S.C. § 636(c). Defendants Kenworth Truck Company ("Kenworth") and Detroit Diesel Corp. ("DDC") have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the following reasons, defendants' motions are granted.
The factual and procedural background of this action has been set forth at length in this court's decision and order in which it ruled on defendants' prior summary judgment motions, see Roneker v. Kenworth Truck Co., 944 F. Supp. 179 (W.D.N.Y. September 18, 1996), and will be repeated here only as necessary to a determination of the issues presented by the motions now pending. On February 21, 1995, plaintiff filed his complaint in this action. He alleged that the 1993 Kenworth T600B truck he purchased in December of 1992 developed numerous mechanical problems, and that both Kenworth and DDC breached their respective warranties by failing to remedy the problems. Plaintiff alleged that he suffered "actual, consequential and replacement damages" as a result of the breaches, in the amount of $ 650,000.00 (Item 1, P 15).
On June 7, 1996, defendants moved for summary judgment on the grounds that the Kenworth warranty agreement covering the sale of the truck and the DDC warranty covering the engine each contained language limiting plaintiff's remedy to repair and replacement of defective parts, and excluding consequential damages. In its September 18, 1996 ruling, this court found that material factual issues existed precluding summary judgment as to whether the warranties limited plaintiff's remedy to repair or replacement. However, the court granted defendants' motions to the extent they sought a ruling on the validity of the exclusionary clauses in the warranties. The Kenworth warranty provided:
IT IS AGREED THAT KENWORTH . . . SHALL NOT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES including, but not limited to: loss of income; damage to vehicle, attachments, trailers and cargo; towing expenses, attorney's fees and the liability you may have in respect to any other person.
(Item 24, Ex. F(B)). The DDC warranty provided:
DDC is not responsible for incidental or consequential costs or expenses which the owner may incur as a result of a malfunction or failure covered by this warranty, such as communication expenses, meals, lodging, overtime, towing, loss of use of the Engine or vehicle ("downtime"), loss of time, inconvenience, cargo loss or damage, and other similar costs and expenses.
(Item 21, Ex. A).
The court determined that these express limitations of consequential damages were not unconscionable, and should therefore be given effect to bar plaintiff's claims for consequential damages in this case. However, because the information in the record on the prior summary judgment motions did not support a "precise demarcation between direct and consequential damages," the court left this question for the jury. Roneker v. Kenworth, supra, 944 F. Supp. 179 at 186. Defendants now move for summary judgment seeking a ruling that all of the damages sought by plaintiff in this case are consequential damages within the scope of the warranty exclusions, or are otherwise unrecoverable. For the following reasons, defendants' motions are granted.
"Consequential damages" are defined in the Uniform Commercial Code as follows:
Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach of warranty.
N.Y.U.C.C. § 2-715(2). Direct damages, on the other hand, are those "which are the natural and probable consequence of the breach." Kenford Co., Inc. v. County of Erie, 73 N.Y.2d 312, 319, 540 N.Y.S.2d 1, 537 N.E.2d 176 (1989).
As this court recognized in its prior decision in this case, as a general matter "'the precise demarcation between direct and consequential damages is a question of fact . . . [which] must be left for resolution at trial.'" Roneker v. Kenworth, supra, 944 F. Supp. 179 at 186 (quoting American Elec. Power Co. v. Westinghouse Elec. Corp., 418 F. Supp. 435, 459 (S.D.N.Y. 1976)). However, where "the parties have gone a long way in defining the scope of consequential damages in the contract itself . . .," American Elec. Power Co., supra, and "there are no material issues of fact, or contract interpretation, as to whether the damages sought constitute direct or consequential damages . . .," American Telephone and Telegraph Co. v. New York City Human Resources Admin., 833 F. Supp. 962, 990 n. 22 (S.D.N.Y. 1993), the court may find, "as a matter of law, that the damages sought by the [plaintiff] . . . constitute consequential damages, rather than direct damages." Id.
In essence, consequential damages are economic losses, such as lost profits. See PC Com, Inc. v. Proteon, Inc., 946 F. Supp. 1125, 1135 (S.D.N.Y. 1996); Canal Elec. Co. v. Westinghouse Elec. Corp., 756 F. Supp. 620, 627 (D.Mass. 1990), aff'd in part, rev'd in part, 973 F.2d 988 (2d Cir. 1992). As explained in the American Telephone and Telegraph case, "it is well-accepted that 'any items of increased costs incurred as a consequence of the breach will be considered as consequential damages.' On the other hand, 'expenditures which are not incurred as a consequence of the breach, but were instead incurred before the breach occurred and in reliance on the contractual warranties, are recoverable as direct damages.'" American Telephone and Telegraph, supra, 833 F. Supp. at 991 n. 22(quoting American Elec. Power Co., supra, 418 F. Supp. at 460 n. 44).
Put another way, "consequential damages do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting." Petroleo Brasileiro, S. A., Petrobras v. Ameropan Oil Corp., 372 F. Supp. 503, 508 (E.D.N.Y. 1974)(citing Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854)
; 51 N.Y.Jur. Sales, § 236 (1966)); see also Ebasco Services, Inc. v. Pennsylvania Power & Light Co., 460 F. Supp. 163, 213 n. 62 (E.D.Pa. 1978)("Both Pennsylvania and New York have traditionally considered expenses incurred or gains prevented beyond the immediate buyer-seller transaction to be consequential damages."); American Elec. Power Co. v. Westinghouse Elec. Corp., supra, 418 F. Supp. at 459-60 & n. 44 ("Clearly, any items of increased costs incurred as a consequence of the breach will be considered as consequential damages.").
The damages alleged in this case are itemized in plaintiff's supplemental interrogatory response, set forth in a March 29, 1996 letter from plaintiff's counsel and verified by plaintiff, as follows:
1. (a) Loss of income due to "down time:"
1993 = $ 12,400.00
1994 = $ 32,558.00
1995 = $ 27,735.00
(b) Future lost earnings:
$ 22,000.00 per year for five years = $ 110,000.00
TOTAL = $ 182,693.00
2. Repair costs and excessive maintenance:
(a) excessive oil use (Kenworth/DDC) = $ 936.88
(b) compressor (Kenworth) = $ 810.95
(c) engine fuel filter (DDC) = $ 119.46
(d) coolant (DDC) = $ 152.30
TOTAL = $ 2019.59
3. Loss incurred by replacing 1993 truck:
(a) loss of new trade-in 1993 vehicle
to 1995 vehicle = $ 3,682.18
(b) 48 additional monthly payments
for 1995 vehicle (total = $ 112,752)
over and above amount owed for
1993 vehicle (total = $ 50,808) = $ 61,944.00
TOTAL = $ 65,626.18
TOTAL DAMAGES ALLEGED = $ 250,338.77
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