Far East Aluminium Works Co. Ltd. v. Viracon, Inc.

Background

Far East alleged that it contracted with Viracon for 18,681 specially coated glass panes, called “lites,” for the Wynn Cotai Resort in Macau. After installation, some lites changed color and failed to retain their bronze appearance. The alleged failures continued from October 2016 through January 2019, and Far East alleged that 1,603 lites had failed.

Viracon tested some defective lites and found that a power surge during the coating process was partly responsible. The parties agreed that Viracon had replaced the defective lites without charge. Far East nevertheless sought about $2.8 million for removing the defective glass, installing replacement glass, and reinstalling the units. It also sought $5.2 million in indemnification based on demands from the project’s general contractor, as well as a declaration that Viracon had an ongoing duty to contribute to future damages.

Viracon moved to dismiss under the rule governing whether a complaint states a legally sufficient claim. The court accepted plausible factual allegations as true for purposes of the motion but did not decide the ultimate facts or liability.

Express Warranty

The warranty limited Far East’s remedy to repair or replacement of defective glass and excluded removal, installation, labor, materials, and other incidental or consequential damages. Under Minnesota’s version of the Uniform Commercial Code, a limited remedy may be disregarded if circumstances cause it to fail of its essential purpose—that is, if it deprives a party of the substantial value of the bargain.

The court held that Far East adequately pleaded that the replacement remedy failed of its essential purpose. Far East alleged that replacing each defective lite required removing it from the façade, replacing it, and resealing the unit, with costs significantly greater than the cost of the glass. The court said whether the evidence would ultimately establish that the warranty was invalid was a question for a later stage. The court rejected Far East’s separate argument that the remedy failed merely because some replacement lites were also defective.

The court separately held that the damages Far East claimed for removal and installation were consequential rather than direct damages. Because Viracon had supplied replacement lites without charge, Far East had not incurred direct damages measured by the value of the defective goods themselves. The court held that the consequential-damages exclusion was not unconscionable. Both parties were sophisticated businesses with relatively equal bargaining power, and Far East had not alleged that it unsuccessfully tried to negotiate better terms or find another vendor. Thus, the court enforced the exclusion even though it found that Far East had adequately pleaded failure of the remedy’s essential purpose.

Other Claims

The court held that Far East’s breach-of-contract claim was not viable because the damages alleged were consequential and barred by the terms of sale.

The court held that the disclaimers of the implied warranties of merchantability and fitness for a particular purpose were conspicuous and enforceable. The disclaimers appeared in capital letters in the warranty and terms of sale. The court also determined that Far East’s complaint itself showed that the quotation incorporated the terms of sale, and Far East did not plausibly allege that it could not locate or understand those terms.

The court rejected the indemnification claim because the terms of sale expressly barred indemnification relating to the glass, including removal and reinstallation costs. It rejected the contribution claim because Far East did not allege that another party shared liability for the same harm; the case was based solely on defective glass manufactured by Viracon. Finally, the court held that the declaratory-judgment claim failed because it depended on the indemnification and contribution claims, and because declaratory relief is a remedy rather than a separate cause of action.

Disposition

The court ordered that Viracon’s motion to dismiss was granted in part and denied in part. The opinion’s reasoning allowed the express-warranty claim to proceed at the pleading stage based on the alleged failure of the replacement remedy, while rejecting the other claims and enforcing the consequential-damages exclusion. Judge David S. Doty signed the order on February 19, 2021.