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Aqua-Hot Heating Systems, Inc. v. Gorman-Rupp Co

United States District Court, D. Colorado

November 29, 2018



          R. Brooke Jackson United States District Judge

         There are four motions before the Court. First, defendant The Gorman-Rupp Company (“Gorman-Rupp”) has filed a motion for summary judgment against plaintiff Aqua-Hot Heating Systems, Inc. (“Aqua-Hot”). ECF No. 43. For reasons stated below, that motion is GRANTED in part and DENIED in part. Second, defendant has filed a motion for sanctions for spoliation of evidence against plaintiff. ECF No. 42. That motion is DENIED. Third, defendant moves to strike, in part, plaintiff's expert witness disclosures. ECF No. 44. That motion is GRANTED in part and DENIED in part. Fourth, plaintiff has filed a motion in limine to restrict defendant's two expert opinions. ECF No. 49. That motion is GRANTED in part and DENIED in part.

         I. BACKGROUND

         A. The Parties' Dispute.

         This case involves a contractual dispute between two merchants, Aqua-Hot and Gorman-Rupp. Aqua-Hot manufactures heating and water heating systems for use in recreational vehicles and trucks. Complaint, ECF No. 1, at 2. It then sells the water heating systems to third parties for use in the vehicles. Id. In 2012 Aqua-Hot was contemplating placing a large order for pumps, a component of its heating systems, with Gorman-Rupp, which is a pump manufacturer. Before proceeding with a purchase, however, plaintiff spent several months inspecting and testing the pumps. Id.

         On October 17, 2012 defendant provided plaintiff with a price quote for what the parties refer to as the “‘105 pumps.” See ECF No. 43-6, Ex. 6. The price quote included a description of the pump; a designated quantity of 8, 000 pumps; a unit price of $39.87; and Gorman-Rupp's “Terms and Conditions of Sale” which was part of what appears to be its standard form price quote document. On January 10, 2013 plaintiff submitted a purchase order for 8, 000 ‘105 pumps. ECF No. 43-7. The purchase order includes “Aqua-Hot Purchase Order Terms and Conditions, ” id. at 5, which, like defendant's terms and conditions, are found in a printed form that appears to be a part of Aqua-Hot's standard form used for purchases. On January 11, 2013 defendant returned an order acknowledgment form to plaintiff. ECF No. 43-9 at 2. Defendant did not reattach its terms and conditions, but it did explicitly incorporate Gorman-Rupp's standard terms and conditions into the acknowledgment. Id. at 3. At some point later plaintiff placed an order for an additional 8, 000 ‘105 pumps. Neither party can locate a purchase order for this transaction, but defendant has produced an order acknowledgment form dated March 12, 2014. ECF No. 43 at 3.

         Aqua-Hot alleges that the ‘105 pumps failed at a rate of about 30% after installation. It disassembled and examined failed pumps returned by customers and determined that they contained “debris, cracked magnets, shorted circuit boards, and cracked housings in the ‘105 pumps.” ECF No. 1 at 2. Aqua-Hot informed defendant of the issues it was having, and to rectify the problem, Gorman-Rupp offered to replace the failed pumps with an updated pump model (“‘108 pumps”). Id. at 3.

         On October 28, 2014 plaintiff modified its existing order to swap out the remaining ‘105 pumps scheduled for delivery with ‘108 pumps. ECF No. 43 at 4. On January 22, 2015 plaintiff submitted another purchase order for an additional 8, 000 ‘108 pumps. Id.; ECF No. 43-12, Ex. 12. The following day, defendant responded with an order acknowledgment form. ECF No. 43-13, Ex. 13. On July 13, 2015 plaintiff accepted its last shipment of ‘108 pumps. ECF No. 43 at 4. On August 12, 2015 plaintiff's product purchaser sent an email to defendant cancelling the remaining balance of pumps on its final two purchase orders. ECF No. 43-14, Ex. 14.

         In September 2015 Aqua-Hot was contemplating legal action based on losses it had sustained because of the failed ‘105 pumps. Mot. Summ. J., ECF No. 43 at 6. Before filing suit, however, Paul Harter, Aqua-Hot's president, met with Michael Hill, Gorman-Rupp's president, to discuss the pump problems and Aqua-Hot's associated losses. Id. Allegedly to appease Aqua-Hot, an existing customer, Mr. Hill agreed to refund plaintiff for the loss of 2, 439 pumps. ECF No. 43-19, Ex. 19.

         Unfortunately, pump issues continued into 2016. Aqua-Hot customers continued to complain and file warranty claims against plaintiff after their water heaters failed. ECF No. 1 at 3. Again, plaintiff determined that defendant's pumps-this time the ‘108 pumps-were the cause of the failures. Id. Like its predecessor, the ‘108 pump failed at a rate of about 30%. In total, plaintiff claims it has incurred over $1 million in out-of-pocket expenses because of the pump failures.

         Nevertheless, Gorman-Rupp received no communications from Aqua-Hot between its refund payment made in September 2015 and a demand letter that it received on March 6, 2017. ECF No. 43 at 8.

         B. The Conflicting Documents.

         As I have noted, the parties did not negotiate and execute a written contract, as such, for the purchase and sale of the pumps. Instead, they exchanged price quotes, purchase orders, and acknowledgement of purchase forms. Some of the terms in Gorman-Rupp's certain standard “Terms and Conditions of Sale” conflicted with terms and conditions in the “Aqua-Hot Purchase Order Terms and Conditions.” It appears to the Court that each party paid little, if any, attention to the other party's printed form. There is no evidence that either party acknowledged the other's terms and conditions, agreed to them, rejected them, or made any effort to negotiate a reconciliation of them. Rather, it appears to me that they were eager to do a deal which was likely viewed as lucrative to both sides, and the terms and conditions, likely drafted by the parties' respective lawyers and shaped to be as favorable to their respective clients as possible, went by the wayside.

         C. Procedural History.

         Plaintiff filed this lawsuit on June 16, 2017. It alleged six claims: (1) breach of contract; (2) negligence; (3) willful and wanton breach of contract; (4) breach of express warranty; (5) breach of the implied warranty of merchantability; and (6) breach of the implied warranty of fitness for a particular purpose. ECF No. 1 at 4-8. On September 28, 2018 defendant filed a motion for summary judgment. ECF No. 43. Plaintiff filed a response brief, ECF No. 46, and defendant filed a reply brief, ECF No. 50. The motion has been fully briefed and is ripe for review.


         Summary judgment is appropriate if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the burden to show that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party must “designate specific facts showing that there is a genuine issue for trial.” Id. at 324. A fact is material “if under the substantive law it is essential to the proper disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. This Court will examine the factual record and make reasonable inferences therefrom in the light most favorable to the nonmoving party. Concrete Works of Colorado, Inc. v. City & Cty. of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994).

         III. ANALYSIS

         A. Existence and Terms of the Parties' Contract.

         1. The Uniform Commercial Code (“UCC”) Applies.

         This case involves a sale of goods between two merchants. Thus, the UCC applies to this dispute to the extent that state law has adopted the UCC. Here, although the parties dispute whether Ohio or Colorado law applies, resolution of this dispute for the most part does not impact my legal analysis concerning contract interpretation because both parties agree that Ohio and Colorado have codified UCC § 2-207. ECF No. 43 at 11-12; ECF No. 46 at 7; see also Colo. Rev. Stat. § 4-2-207; Ohio Rev. Code § 1302.10. One area where choice of law does make a difference is discussed later in this order.

         2. The Contract.[1]

         Neither party denies that a contract existed at some point. However, they disagree as to when the contract was formed and which terms govern. Contract interpretation is generally a question of law for the court to decide. See, e.g., I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 887 (Colo. 1986).

         Defendant argues that its price quotation was an offer, and that its terms and conditions accompanying the quote were part of the offer. ECF No. 43 at 11. Defendant further argues that plaintiff accepted the offer within the 90-day timeframe specified in the offer by submitting a purchase order even though plaintiff attached its own terms and conditions which included additional or different terms. Id. Defendant submits that its terms concerning warranty and limitations on liability control because plaintiff's terms and conditions are silent on warranty and liability. Id. at 12. Finally, defendant adds that its terms and conditions continued to govern plaintiff's subsequent orders because plaintiff simply modified its existing order. Id.

         In its response brief plaintiff essentially concedes that defendant's price quote was an offer. Plaintiff's main argument is that its purchase order was a counteroffer per UCC § 2-207(1) because plaintiff's terms and conditions required defendant to accept plaintiff's terms and conditions.[2] ECF No. 46 at 6. According to the plaintiff, defendant accepted plaintiff's counteroffer when it issued a series of order acknowledgments. Id. at 9. Plaintiff then argues that defendant's terms and conditions cannot control because defendant's order acknowledgment failed to attach those terms and conditions. Id. at 6.

         In the alternative, plaintiff argues that its purchase order was not a “definite and seasonable expression of acceptance or written confirmation which [was] sent within a reasonable time” per UCC § 2-207(1). Id. at 8. Plaintiff notes that it required three months of testing prior to assenting to the offer, and thus, it didn't accept the offer within a reasonable time. Id. This argument leads plaintiff to UCC § 2-207(3). Plaintiff believes that the parties' conduct recognized the existence of a contract per UCC § 2-207(3). Id. at 7. Therefore, because there was no agreement as to the warranties or limitations of remedies, those provisions are “knocked out” of the contract. Id.

         Two cases from this Circuit are instructive here. In Daitom, Inc. v. Pennwalt Corp., the defendant submitted a price quote for the sale of rotary vacuum dryers. 741 F.2d 1569, 1571 (10th Cir. 1984). The defendant attached terms and conditions and explicitly made the terms an integral part of its proposal. Id. The defendant's terms imposed a one-year period of limitations for warranties. Id. at 1572. A month later, the plaintiff submitted a purchase order for the vacuum dryers. Id. The plaintiff's purchase order included standard terms and conditions on the back of its order form. Id. The most relevant provisions in the plaintiff's terms and conditions were the provisions reserving all warranties and remedies available at law. Id. at 1573. Almost two years after the parties exchanged documents, the plaintiff notified the defendant that the dryers had stopped working. Id. at 1572. Unable to resolve the issues, the plaintiff sued. Id.

         The plaintiff argued that its purchase order didn't constitute an acceptance because its purchase order explicitly made acceptance conditional on the defendant's assent to the additional or different terms. Id. at 1573. Instead, the contract was formed by the parties' conduct, and the resulting contract consisted solely of the written terms agreed upon. Id. Any gaps in the contract would be filled by relevant UCC provisions. Id. Alternatively, if the purchase order did constitute acceptance of the proposal, the plaintiff argued` that all conflicting terms between the two merchants' terms and conditions were “knocked out” of the contract. Id. Thus, the contract solely consisted of the agreed upon terms and any supplemental terms. Id.

         The Tenth Circuit found that the defendant's price quote constituted an offer, and that the plaintiff's purchase order constituted acceptance. Id. at 1575. The court ruled that the plaintiff's expressly conditional “boilerplate” terminology did not preclude the formation of a contract per UCC § 2-207(1). Id. at 1575-76. In so ruling, the Tenth Circuit determined that the plaintiff's purchase order was a “conditional acceptance.” Id. at 1577. To be a valid counteroffer, “the offeree must explicitly communicate his or her unwillingness to proceed with the transaction unless the additional or different terms in its response are accepted by the offeror.” Id. In the end, the Daitom court recognized the existence of the contract, knocked out any conflicting terms, and used UCC gap-fillers to complete the contract. Id. at 1578-80.

         Next, in Westinghouse Elec. Corp. v. Nielsons, Inc., the seller submitted a price quotation to sell electrical material to the buyer. 647 F.Supp. 896, 897-98 (D. Colo. 1986). The seller attached standard terms and conditions to the quote. Id. at 898. In response, the buyer submitted a purchase order to buy the items. Id. Like the seller, the buyer attached its own list of standardized conditions. Id. Paragraph 12 of the buyer's conditions stated, “Execution of this agreement constitutes an acceptance expressly limited to the terms herein and any additional or different terms suggested by Seller are hereby rejected unless expressly agreed to in writing by Buyer.” Id. Unlike in Daitom, however, the parties disputed whose terms and conditions would apply. Id. The court used Colo. Rev. Stat. § 4-2-207 (Colorado's codification of UCC § 2-207) to determine the terms of the contract.

         The court found that the seller's quotation was an offer, and then found that the buyer's purchase order constituted an acceptance. Relying on Daitom, the court determined that paragraph 12's language did not invalidate the acceptance. Id. at 900. Thus, under Colo. Rev. Stat. § 4-2-207(1), the parties formed a contract. Id. at 899-900. The court then proceeded to § 4-2-207(2), where it found that all three exceptions applied. Therefore, “[n]either set of terms c[ould] become part of the contract between these two merchants . . . .” Id. at 900. Having found that neither party's terms were added to the contract under § 4-2-207(2), the court looked to § 4-2-207(3). Id. at 901. The court determined that the parties' conduct clearly recognized the existence of a contract. Id. Relying on Daitom yet again, the court read both parties' terms and conditions into the contract, but it eliminated any conflicting terms. Id.

         With these two cases in mind, I turn to the facts of this case. A price quote is normally not an offer. Instead, courts typically treat a price quote as an invitation to negotiate or bargain. Master Palletizer Sys., Inc. v. T.S. Ragsdale Co., 725 F.Supp. 1525, 1531 (D. Colo. 1989). However, some price quotations are so detailed that a court may deem them an offer. See Id. In this case, I find that defendant's price quote was sufficiently detailed. Gorman-Rupp's offer included the specific type of good (the ‘105 pump), a quantity of 8, 000 pumps, a price of $39.87, and it stated that the quote would be valid for 90 days. Therefore, I conclude that defendant's price quote constituted a legal offer.

         Near the end of the 90-day acceptance window, plaintiff submitted a purchase order for 8, 000 ‘105 pumps for $39.87. Under most circumstances, plaintiff's purchase order would easily constitute an acceptance of defendant's offer. But in this case, plaintiff argues that its purchase order was a counteroffer because the first paragraph of the terms and conditions contains conditional language. Per UCC § 2-207(1), plaintiff argues that this paragraph's conditional language precludes acceptance and turns the purchase order into a counteroffer.

         Although the express language of UCC § 2-207(1) arguably could support plaintiff's position, the Daitom and Westinghouse courts rejected that argument. Plaintiff did not “explicitly communicate [its] unwillingness to proceed with the transaction unless the additional or different terms in its response [were] accepted by the offeror.” Daitom, 741 F.2d at 1577. To the contrary, plaintiff willingly proceeded with the transaction without ever discussing its terms and conditions with defendant. I find that plaintiff's purchase order constituted a valid acceptance. I now must determine the terms of the agreement.

         Per UCC § 2-207(2), because both parties are merchants, plaintiff's additional terms found in its terms and conditions become part of the contract unless defendant's “offer expressly limits acceptance to the terms of the offer” or plaintiff's additional terms “materially alter” the contract. UCC § 2-207(2)(a)-(b). In this case, both exceptions apply.

         First, the only paragraph on defendant's one-page price quote states, “This quotation is made subject to our standard Terms & Conditions of Sale as printed on the reverse side of this sheet.” ECF No. 43-6, Ex. 6. Further, defendant's one-page order acknowledgment form states, “This acceptance of your order and any sale or delivery of goods or services there under is subject to the ‘terms and conditions of sale' which are appended by the reference to and made part of this order acknowledgment.” ECF No. 43-9, Ex. 9.

         Second, the different terms[3] found in plaintiff's purchase order do attempt to materially alter the terms of the contract. There are two relevant provisions in plaintiff's terms and conditions. The terms state that they “supersede any additional or different terms and conditions” found in defendant's terms and conditions. ECF No. 43-7, Ex. 7. And, they include a governing law provision stating that Colorado law shall apply. Id.

         Plaintiff's governing law section does not materially alter the contract. However, the provisions overriding defendant's terms and conditions do. Courts typically hold that warranty disclaimers and liability limitations materially alter contracts under UCC § 2-207(2)(b). See Leica Geosystems, Inc. v. L.W.S. Leasing, Inc., 872 F.Supp.2d 1191, 1200 (D. Colo. 2012) (collecting case law and applying it to Colo. Rev. Stat. § 4-2-207(2)(b)). A competing provision attempting to eliminate such disclaimers materially alters the contract.

         In sum, neither party's terms may be added to the contract under UCC § 2-207(2). See Westinghouse, 647 F.Supp. at 900. I therefore must look to § 2-207(3).

         Colo. Rev. Stat. § 4-2-207(3) provides,

Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case, the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this title.

         I conclude that both parties' conduct effectively recognized the existence of a contract under subsection (3). That leaves the task of determining which terms were actually agreed.

         Because plaintiff's purchase order constituted an acceptance to defendant's price quote, I find that plaintiff accepted defendant's terms and conditions. “In the absence of fraud or concealment, a party signing a contract cannot deny knowledge of its contents.” Master Palletizer Sys., 725 F.Supp. at 1531. Likewise, when defendant submitted its order acknowledgment form the day after receiving plaintiff's purchase order, it accepted plaintiff's terms and conditions. In such a case, the conflicting terms of defendant's price quote and plaintiff's purchase order “eliminate each other and fall away from the contract.” Westinghouse, 647 F.Supp. 896, 901 (D. Colo. 1986) (citing Daitom, 741 F.2d at 1579). If there were any missing terms, the UCC would step in to fill the gaps in the contract. Id.

         3. Defendant's Warranty, Limitations and Disclaimers.

         Because plaintiff's terms and conditions are silent regarding warranties, limitations, returns, and remedies, defendant's terms control. Defendant's warranty reads, “Seller warrants to Buyer that products sold by it will upon shipment conform to the description on the face hereof and any written specifications expressly approved by Seller and be free from defects in title, material and workmanship.” ECF No. 43-6 at 5. Plaintiff contends that the pumps delivered by defendant were not as warranted by defendant. Id. Rather, at least some of the pumps (excluding the pumps whose cost were refunded per the agreement between the two presidents) were defective. Defendant counters that plaintiff fully inspected and tested the ‘105 pumps before the first purchase; that the ‘108 pumps were an upgraded version; that the majority of the pumps did not fail; and that the others did not fail because of any defect in their design or manufacturing. These are genuine and material fact disputes.

         Defendant also relies on two limitations that are included in the warranty section of its price quote. Before discussing those limitations, I note that plaintiff argues that these limitations were inconspicuous and should not be honored. ECF No. 46 at 10-11. For support, plaintiff cites cases from the Illinois Court of Appeals and the District of Nevada. Neither case persuades me. Rather, I find useful guidance in Colo. Rev. Stat. § 4-1-201(10) which states, “[w]hether a term is ‘conspicuous' or not is a decision for the court.” Colo. Rev. Stat. § 4-1-201(10). It then roughly defines a conspicuous term. There should be a heading “in contrasting type, font, or color, ” and the language in the body should be “in contrasting type, font, or color” so to call attention to the language. Id. I find that defendant's terms and conditions, including the warranty and its limitations, were conspicuous. The print was small but readable. The headings of the different sections, including section 3, “Warranty, Returns, ” were bolded.[4] The problem was not that the terms were inconspicuous but that Aqua-Hot seemingly did not pay attention to them at the time.

         The first limitation on which defendant relies is the requirement that notice of a defective or non-conforming product must be given within 15 months after the manufacturing date of the product. Defendant notes that after September 2015 it heard nothing from Aqua-Hot about any alleged pump defects until it received a demand letter dated March 6, 2017. ECF No. 43 at 8. Because this was more than 15 months after the ‘108 pumps were manufactured, defendant argues that notice was untimely, and the warranty is void. Id. Plaintiff responds that this warranty restriction is invalid because the standard statute of limitations for a breach of contract claim in Colorado is three years. Colo. Rev. Stat. § 13-80-101. Further, Colorado's UCC states that the period of limitations “may not be varied by agreement of the parties.” § 4-2-725(a). Defendant argues that the length of its warranty is an issue distinct from the applicable statute of limitations. Plaintiff provides no authority to the contrary.

         I agree with the defendant. The statute governs when a legal claim for breach of warranty can be asserted; it does not change the length of the warranty. Nevertheless, I find that there is a genuine issue of fact as to whether plaintiff provided timely written notice of its express warranty claim. While it is undisputed that no pumps were manufactured after September 2015, a reasonable factfinder could conclude that plaintiff provided notice of the continuing pump failures. For example, in September 2015 when the presidents of the respective companies discussed the pump failures, Mr. Harter told Mr. Hill in an email that plaintiff already had to replace 2, 500 pumps, and that this “number does continue to increase.” ECF No. 46-1. A reasonable factfinder could determine that plaintiff put defendant on notice about impending future pump failures through its September 2015 communications.

         The second relevant limitation is that the remedy for breach is limited to repair or replacement of the defective or non-conforming product. Plaintiff contends that this limitation of remedy is void because it has failed its essential purpose: the ‘108 pump that defendant offered as a replacement to the ‘105 pump failed at the same rate. ECF No. 46 at 14-15. For support, plaintiff cites a case from the District of Connecticut, where the court noted that “[w]hether a limited remedy failed of its essential purpose is, in most instances, a fact-laden issue inappropriate for determination on summary judgment.” McKernan v. United Techs. Corp., Sikorsky Aircraft Div., 717 F.Supp. 60, 69 (D. Conn. 1989).

         In McKernan, the plaintiffs argued that “no amount of repair or replacement with similar [helicopter] engines would correct the inherent defect in the S-76A helicopter.” Id. at 68. Whether that is true here is another genuine dispute of fact. On the one hand, plaintiff admits that the ‘108 pump had a 70% success rate. See ECF no. 46 at 12. On the other hand, apparently something like 30% failed. If that failure was because of a defect, and given that the ‘108 pumps were supposedly an upgrade over the ‘105 pumps, a reasonable factfinder could find that repair or replacement of the failed pumps is a remedy that fails of its essential ...

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