Kenmode Tool & Engineering, Inc. v. Technical Plating, Inc.

Background

Kenmode and Technical Plating entered into an agreement covering Technical Plating’s processing and plating of metal parts. The agreement included warranties that the work would meet written specifications and be free from defects. It also limited Technical Plating’s liability to the lesser of the direct labor and material cost of the damaged product or twice the processing charges.

After Kenmode’s customer reported solderability problems, the parties disputed the cause. Kenmode attributed the defects to Technical Plating’s failure to use the correct process. Technical Plating attributed the failure to Kenmode’s specifications, which it said called for plating thickness below industry standards for soldering. Technical Plating issued Kenmode credits totaling $77,979.83 and later issued a $436,327 credit memorandum, but it ultimately disavowed that memorandum.

Kenmode asserted claims for breach of contract, breach of express warranty, breach of the implied warranty of merchantability, and breach of the implied warranty of fitness for a particular purpose. Technical Plating sought a declaration that it had satisfied any liability under the contract. Both parties moved for summary judgment, which asks whether the evidence shows that no genuine dispute of important fact exists and that a party is entitled to judgment under the law.

Liability limitation

Applying Minnesota law, the court held that the liability limitation was unambiguous and enforceable. The agreement involved commercial services, Kenmode had substantial experience negotiating contracts, and the record did not show unequal bargaining strength or other facts establishing unconscionability. The court also determined that the provision was better understood as a liability limitation rather than a liquidated-damages clause because it required proof of damages.

The parties agreed that the processing charges were $19,649.19. Twice that amount was $39,298.38, while Technical Plating had issued $77,979.83 in credits. The court therefore granted Technical Plating summary judgment on the legal validity of the liability limitation and on the fact that the credits exceeded the contractual cap if the cap applied.

The court nevertheless found a genuine factual dispute about waiver. Waiver means intentionally giving up a known contractual right. Kenmode presented evidence that Technical Plating issued a $436,327 credit memorandum, that an authorized employee issued it, and that Technical Plating’s president allegedly said he would make Kenmode whole and apply credits against approximately $436,000. Technical Plating presented contrary evidence that the memorandum was intended only as an open credit while damages were determined and that its president did not authorize the stated amount. A factfinder could conclude from this evidence that Technical Plating waived the liability limit, so summary judgment was not appropriate on that issue.

Breach and warranty claims

The court denied summary judgment on Kenmode’s breach-of-contract, express-warranty, and implied-warranty-of-merchantability claims because the evidence raised a factual dispute about causation. Technical Plating admitted using an incorrect application on some parts but also asserted that Kenmode’s specifications caused the soldering failure. The court found that a factfinder must resolve that dispute.

The court also denied summary judgment on the implied warranty of fitness for a particular purpose. That claim requires proof that the seller knew of the buyer’s particular purpose, knew the buyer was relying on the seller’s skill or judgment, and that the buyer actually relied on it. The evidence conflicted about whether Technical Plating knew the parts would be soldered. The contract documents did not establish that fact with enough certainty to decide the claim on summary judgment.

Declaratory-judgment counterclaim

The court granted Kenmode summary judgment on Technical Plating’s declaratory-judgment counterclaim. Technical Plating did not respond to Kenmode’s argument that the counterclaim was redundant. The court also concluded that the counterclaim served no useful purpose because resolving Kenmode’s claims would resolve the same issues—whether the liability limitation was enforceable and whether the credits satisfied Technical Plating’s liability.

Disposition

Judge Eric C. Tostrud ordered that Technical Plating’s motion for summary judgment was granted in part: the contract’s liability limitation was valid and enforceable, and the motion was denied in all other respects. The court ordered that Kenmode’s motion for summary judgment was granted in part on Technical Plating’s declaratory-relief counterclaim and denied in all other respects.