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GENERAL ELECTRIC CO. v. VARIG — S.A.

United States District Court, S.D. New York


February 6, 2004.

GENERAL ELECTRIC COMPANY, Plaintiff -against- VARIG — S.A. (VIACO AEREA RIO-GRANDENSE) Defendant

The opinion of the court was delivered by: RICHARD HOLWELL, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff General Electric Company ("GE") filed a complaint seeking declaratory judgment decreeing that an agreement entered into with defendant VARIG — S.A. (Viacao Aerea Rio-Grandense) ("VARIG") is enforceable as to its limited liability and choice of law provisions. GE now moves for summary judgment. VARIG has chosen not to oppose GE's motion. For the reasons stated herein, GE's motion for summary judgment is granted.

BACKGROUND

  GE filed its complaint on December 19, 2001, and the matter was initially assigned to the Honorable Sidney H. Stein, United States District Court for the Southern District of New York VARIG filed an answer on May 15, 2002. The parties then engaged in discovery and participated in several mediation sessions before the Honorable James C. Francis IV, United States Magistrate Judge for the Southern District of New York.

  On September 3, 2003, GE moved for summary judgment, in accordance with Local Civil Rule 56.1, GE submitted a Rule 56.1 Statement of Undisputed Material Facts in Support of Its Motion for Summary Judgment (hereinafter "Statement").

  By letter dated October 3, 2003, VARIG asked Judge Stein for an extension of time in Page 2 which to file its opposition brief so that it could properly consider whether it wanted to oppose the motion. Judge Stein granted VARIG's requested extension. By letter dated October 14, 2003, VARIG informed the Court that, "after due consideration," it had decided not submit opposition papers to GE's motion for summary judgment.

  This case was transferred to the Honorable Richard J. Holwell, United States District Court for the Southern District of New York, on December 18, 2003. Below are this Court's findings of fact and conclusions of law.

  FACTS

  The following facts are supported in the record provided by GE and are thus deemed admitted for purposes of this summary judgment motion. See Giannullo v. City of New York, 322 F.3d 139, 140 (2d Cir. 2003) ("If the opposing party then fails to controvert a fact so set forth in the moving party's Rule 56.1 statement, that fact will be deemed admitted.").

  GE is a New York corporation with its principal place of business in the State of New York. (Statement ¶ 1.) GE manufactured a GE Model CF6-80C2B2 airplane engine bearing the serial number 690-165 ("Engine"). (Id ¶ 5.)

  VARIG is a Brazilian corporation that is registered to do business in New York and operates flights out of John F. Kennedy International Airport in New York City, among other places. (Id. ¶¶ 2-3, 12.) In 1987, VARIG entered into an agreement, titled General Terms Agreement 6-5969 ("GTA"), with GE to buy the Engine. (Id. ¶ 6.)

  The GTA's choice-of-law provision stated that "[t]his Agreement shall be construed, interpreted and applied in accordance with the law of the State of New York." (Aff. of Louis Page 3 Martinez in Supp. of GE's Mot. for Summ. J., Ex. H at 9.) After defining VARIG as "Airline," the GTA further stated:

"Article XIII — Limitation of Liability
The liability of GE to Airline arising out of, connected with, or resulting from the manufacture, sale, possession, use or handling of any Product (including Engines installed on Airline's aircraft as original equipment) whether in contract, tort (including negligence) or otherwise, shall be set forth in the Product Support Plan included in Exhibit B hereof, and shall not in any event exceed the purchase price of the Product giving rise to Airline's claim. The foregoing shall constitute the sole remedy of Airline and the sole liability of GE. In no event shall GE be liable for special or consequential damages. THE WARRANTIES AND GUARANTEES SET FORTH IN THE PRODUCT SUPPORT PLAN ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES AND GUARANTEES WHETHER WRITTEN, STATUTORY, ORAL OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE)."' (Id. at 1, 7.)
  The Product Support Plan, Exhibit B to the GTA, contained a series of warranties and schedules for service and replacement of Engine parts. (Id. at B-1 to B-20.) In addition, the Plan repeated that this "Product Support Plan set[s] forth the maximum liability of GE with respect to claims of any kind, including negligence, arising out of manufacture, sale, possession, use or handling of the Products or Parts thereof or therefore, and in no case shall GE's liability to Airline exceed the purchase price of the Product giving rise to Airline's claim." (Id. at B-1 7.)

  In 1997, VARIG and GE amended the products and parts delivery terms of the GTA. (Id., Ex. H; Statement ¶ 11.) However, the amendment stated: "Except as set forth herein, all other provisions of the GTA remain unchanged and in full force and effect." (Aff. of Louis Martinez in Supp. of GE's Mot. for Summ. J., Ex. H; Statement ¶ 11.)

  On or about June 7, 2000, the Engine malfunctioned as the plane in which it was mounted (owned by VARIG) was preparing to take off. (Statement ¶¶ 9, 12-14.) The pilots safely Page 4 stopped the airplane on the runaway before take-off. (Id. ¶ 14.)

  In October 2001, VARIG threatened GE with a lawsuit seeking damages allegedly incurred from the malfunctioning of the Engine, including alleged damage to the hull of the aircraft and indemnification for legal fees and awards that arose from passenger liability claims. (Id. ¶ 15.) In light of VARIG's threats, GE commenced this lawsuit for declaratory judgment limit GE's liability to the scope of the liability provision in the GTA, which was in full force on June 7, 2000.*fn1 (Id. ¶¶ 16, 18.)

  DISCUSSION

  Summary judgment is appropriate when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). It is the movant's burden to show that no genuine factual dispute exists and all reasonable inferences must be drawn in the non-movant's favor. See Giannullo, 322 F.3d at 140 (quotations omitted). Furthermore, though facts in an unopposed statement pursuant to Rule 56.1 of the Local Civil Rules of the United States District Courts for the Southern and Eastern Districts> of New York are deemed admitted, "[t]he local rule does not absolve the party seeking summary judgment of the burden of showing that it is entitled to judgment as a matter of law, and a Local Rule 56.1 statement is not itself a vehicle for making factual assertions that are otherwise unsupported in the record." Id. A court may grant summary judgment only when "no reasonable trier of fact could find in favor of the nonmoving party." Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir. 1995) (quotations omitted).

  Generally, after the movant has shown the absence of any genuine issue of material fact, Page 5 to the material facts". Matsushita Elec. Indus. Co. v. Zenith Radio Co., 475 U.S. 574, 586 (1986). Rather, a non-movant must support their claims with admissible facts and "may not rest upon the mere allegations or denials of the adverse party's pleadings". Fed.R.Civ.P. 56(e). Here, however, the non-moving party has chosen not to oppose the motion. Thus, the questions whether plaintiff is entitled to judgment as a matter of law given the supported facts presented.

  The interpretation of an unambiguous contract is a question of law for the court, and a dispute on such an issue may properly be resolved by summary judgment. See Omni Quartz, Ltd, v. CVS Corp., 287 F.3d 61, 64 (2d Cir. 2003). The Court begins by examining what law to apply in interpreting the GTA and then whether that law would support the enforcement of the parties' choice-of-law and limitation of liability provisions.

  In diversity cases, courts look to the law of the forum state for guidance on contract interpretation. See Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996). Since this suit was brought in the Southern District of New York, New York law is applicable here and "New York law gives full effect to parties' choice-of-law provisions".*fn2 Id. In this case, the parties' choice-of-law provision also specifies New York law. Having determined that New York law is properly applicable here, the Court now turns to consider the limitation of liability provision under New York law. Page 6

  "It. is axiomatic that parties to a contract must remain free to allocate risks and shield themselves from liability." McNally Wellman Co. v. New York State Elec. & Gas Corp.. 63 F.3d 1188, 1195 (2d Cir. 1995). To that end, "New York has adopted the Uniform Commercial Code ("UCC"), under which parties to a commercial contract, absent any question of unconscionability, may agree to limit the seller's liability for damages." Proto Constr. & Dev.Corp. v. Superior Precast, Inc., No. 99-CV-2851 (NG), 2002 WL 1159593, at *7 (E.D.N.Y. May 28, 2002) (quotations omitted). "[T]he UCC displaces the common law when a particular section at issue produces a result that would be contrary to that obtained under ordinary contract law." McNally Wellman Co., 63 F.3d at 1196. Parties can also agree to limit their liability to one another in tort actions related to the contract if their intention to limit tort liability is clearly expressed. See O'Brien v. Grumman Corp. 475 F. Supp. 284, 289 (S.D.N.Y. 1979) ("It is settled law in New York that an exculpatory clause in a contract intended to insulate one of the parties from liability for his own negligence is enforceable, absent certain limited public policy considerations.").

  In deciding whether a contract is for the sale of goods, and thus plainly covered by the UCC, courts look to the main objective of the contract. See Proto Constr. & Dev. Corp., 2002 WL 1 159593, at *7. In the present case, although the Product Support Plan includes terms under which GE agreed to service, maintain, and supply spare parts for the Engine, the ultimate objective of the GTA was the sale of the Engine. Therefore, the Court finds that the GTA is a commercial contract for the sale of goods and is governed by the UCC.

  Under N.Y. UCC § 2-719, the "parties are left free to shape their remedies to their Page 7 particular requirements and reasonable agreements limiting or modifying remedies are to be given effect." N.Y. UCC § 2-719, Official Comment 1. For contracts concerning the sale of goods, UCC § 2-719 provides two independent methods for parties to agree to limit liability: (a) limiting a buyer's remedies to repair and replacement costs, as long as doing so would not deprive a party of the substantial value of the bargain; and (b) excluding consequential damages, as long as such exclusion is not unconscionable. See Proto Constr. & Dev. Corp., 2002 WL 1159593, at *8. Unconscionability generally requires a showing that one of the parties did not have a meaningful choice in the contract and that the contract terms are unreasonably favorable to one party. See McNally Wellman Co., 63 F.3d at 1198.

  The GTA, along with the Product Support Plan, uses both methods for limiting GE's liability and both limitations are enforceable under the UCC. See, e.g., Proto Constr. & Dev. Corp., 2002 WL 1159593, at *8. The provision does not deprive VARIG of the substantial value of the contract, as VARIG received and made good use of the Engine. The provision is also not unconscionable "because the contract is not the type of contract entered into by an unwary consumer, but rather was a complex and painstakingly negotiated commercial agreement between two highly competent parties". Proto Constr. & Dev. Corp., 2002 WL 1159593, at *9 (quotations omitted).

  In fact, the language of the GTA and Product Support Plan is similar to language in a limitation of liability provision considered and found enforceable in Tulgar Contracting Corp. v. Star Bldg. Sys., Inc., No. 01 Civ. 6853 (JSR), 2002 WL 986994 (S.D.N.Y. May 14, 2002). Like the parties in that case, VARIG and GE are sophisticated companies. They bargained for and Page 8 agreed to this limitation of liability provision. This Court finds the limitation of of liability PROVISION OF THE GTA, AND ACCOMPANYING PRODUCT SUPPORT PLAN, IS ENFORCEABLE.

  CONCLUSION

  For the reasons set forth above, this Court enters summary judgment, granting plaintiffs request for declaratory judgment. In particular, this Court decrees that: (1) the GTA between, VARIG and GE is in full force and effect, and applies to the engine malfunction incident of June 7, 2000; (2) the GTA shall be construed, interpreted, and applied in accordance with the substantive law of the State of New York; (3) the sole remedy of VARIG and its representatives, successors, or assigns against GE for the June 7, 2000, incident is as set forth in the GTA; (4) under the GTA, GE is not liable in contract or tort (including negligence) to VARIG or its representatives, successors, or assigns for economic loss, including but not limited to, damage to the hull of VARIG's airplane, loss of use of that airplane, legal and surveyors' fees, interest, and/or amounts VARIG paid to settle passenger liability claims and expenses arising out of the June 7, 2000, incident. The Clerk is directed to close this case. SO ORDERED.


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