GE Transportation Parts, LLC v. Central Railway Manufacturing, LLC

Background

GE Transportation Parts, LLC sued Central Railway Manufacturing, LLC, its former subcontractor, for breach of express warranty, breach of contract, and indemnification. The dispute concerned a locomotive data event recorder called a GEER, which was intended to work with GE Transportation’s LocoVISION digital video system.

GE Transportation alleged that Central manufactured GEERs that did not meet required specifications, causing problems with the products and costs involving a U.S. Customer and a Canadian Customer. GE Transportation also alleged that, after Central announced it would stop manufacturing the GEER, the Supply Agreement required Central to license its technology on commercially reasonable terms. GE Transportation claimed Central instead demanded a price several times higher than a reasonable valuation. Finally, GE Transportation alleged that Central had to indemnify it for a payment made under a settlement with the U.S. Customer.

Motions and forum-selection clauses

Central moved under Section 1404 to transfer the case to the Middle District of Florida. It alternatively asked the court to dismiss on the ground that Florida was the more appropriate forum or to stay the case in favor of an apparently not-yet-filed Florida action. Central relied on a Florida forum-selection clause in the settlement agreement between GE Transportation and the U.S. Customer. GE Transportation relied on a New York forum-selection clause in an attachment to the Supply Agreement.

The court denied the transfer motion. It reasoned that Central had not shown a clear or manifest intent in the settlement agreement to give Central rights as a third-party beneficiary. The release covered the U.S. Customer and that customer’s related parties, but Central was a former subcontractor of GE Transportation, not of the U.S. Customer, in the arrangement alleged by Central. The settlement agreement also expressly contemplated later proceedings between GE Transportation and Central. The court therefore concluded that transfer, dismissal based on an inconvenient forum, and a stay were not warranted.

Motion to dismiss

A motion to dismiss for failure to state a claim tests whether the complaint alleges enough facts to make relief reasonably plausible. The court generally accepted the complaint’s allegations as true and drew reasonable inferences for GE Transportation at this stage.

Express-warranty claim

The court dismissed the express-warranty claim. GE Transportation based that claim on technical specifications in an Interface Control Document, or ICD. The Supply Agreement’s warranty stated that the GEERs would conform to specifications furnished or approved by GE Transportation, but the court held that this general reference did not clearly identify and incorporate the ICD under New York law.

The court rejected GE Transportation’s argument that the Uniform Commercial Code supplied a different result. The court explained that the cited provision identifies when an express warranty exists but does not determine whether another document has been incorporated into the contract. The Supply Agreement’s integration clause also prevented GE Transportation from relying on course of dealing or performance as an alternative incorporation theory because that theory was not the theory pleaded in the complaint. The warranty claim therefore failed because the Supply Agreement did not make the ICD binding.

Breach-of-contract claim

The court denied dismissal of the claim that Central breached its obligation to offer a license and related technology on commercially reasonable terms after discontinuing the GEER. The court proceeded on the assumption that the Uniform Commercial Code applied and supplied a duty to make a good-faith, commercially reasonable proposal when the contract lacked a price term. Central reserved its right to challenge that legal premise but did not pursue the argument for purposes of the motion, so the court treated it as waived for that motion.

GE Transportation alleged that Central never offered anything better than a price several times higher than a reasonable valuation and based its proposals on commercially unreasonable assumptions. The court held that these allegations were enough to make the claim plausible. Documents submitted by Central concerning negotiations did not conclusively defeat the claim at the pleading stage.

Indemnity claim

The court dismissed the indemnity claim in part and denied dismissal in part. To the extent GE Transportation sought indemnity based on Central’s alleged warranty breach, that portion was dismissed because the warranty claim itself was dismissed. But the portion based on Central’s alleged failure to provide a commercially reasonable technology license survived.

The court held that the materials Central submitted did not conclusively show that the U.S. Customer ended its relationship for reasons unrelated to the GEER. Taking GE Transportation’s allegations and reasonable inferences in its favor, it was plausible that a technology license allowing repairs would have prevented the termination and settlement payment.

Disposition

The court denied Central’s motion to transfer, dismiss for an inconvenient forum, or stay the case. It granted in part and denied in part Central’s motion to dismiss for failure to state a claim: dismissal was granted as to the express-warranty claim and as to the indemnity claim insofar as it relied on a warranty breach, and was otherwise denied. The court denied GE Transportation’s motion to strike as moot. The opinion states that an initial pretrial conference would be scheduled separately.