Marvin Lumber & Cedar Co. v. PPG Industries, Inc.
2005 WL 659125, 401 F.3d 901 (2005)
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Rule of Law:
Under the Uniform Commercial Code, a boilerplate damages-limitation clause in an order acknowledgment constitutes a material alteration to a contract if its enforcement would result in unreasonable surprise or hardship to the other party. Furthermore, notice of breach is timely and adequate if it is given within a reasonable time after the buyer discovers or should have discovered the cause of the breach and is sufficient to inform the seller that the transaction is troublesome.
Facts:
- Marvin Lumber and Cedar Company (Marvin), a manufacturer of wooden doors and windows, purchased a wood preservative called PILT from PPG Industries, Inc. (PPG).
- From 1985 to 1988, Marvin used PILT on its products, having switched from a different preservative, Penta.
- PPG had represented to Marvin that products treated with PILT would last as long or longer than products treated with Penta.
- Beginning around 1989, Marvin began receiving an increasing number of complaints that its wood products were experiencing premature rot and decay.
- Marvin investigated several potential causes for the deterioration, including coatings, application methods, and geography.
- By 1993, a Marvin internal committee concluded that the only common factor among the failing products was the use of PPG's PILT preservative.
- In April 1993, Marvin formally notified PPG that it believed PILT was the cause of the widespread rot problems.
Procedural Posture:
- In 1994, Marvin filed a diversity suit against PPG in the United States District Court for the District of Minnesota on several legal theories.
- The district court dismissed or granted summary judgment to PPG on all of Marvin's claims.
- Marvin, as appellant, appealed to the U.S. Court of Appeals for the Eighth Circuit, where PPG was the appellee.
- The Eighth Circuit affirmed most dismissals but reversed on the claim for breach of express warranty of future performance and remanded it for trial (Marvin I).
- On remand, the case proceeded to a bifurcated jury trial in the district court.
- In the first phase, the jury found PPG gave Marvin a warranty of future performance that was part of their agreement.
- During the second phase of the trial, the district court granted judgment as a matter of law for Marvin on the issue of whether Marvin had provided adequate notice of breach to PPG.
- The jury then found the warranty was breached and awarded Marvin damages for out-of-pocket costs, past and future lost profits, and loss of goodwill, totaling over $185 million.
- The district court entered a final judgment in favor of Marvin for $156,118,625.92.
- PPG, as appellant, appealed the final judgment to the U.S. Court of Appeals for the Eighth Circuit, and Marvin, as appellee, filed a cross-appeal.
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Issue:
Does a boilerplate, fine-print term in a seller's order acknowledgment that limits damages to the purchase price materially alter a contract for a product with a warranty of future performance, thereby preventing it from becoming part of the contract under UCC § 2-207?
Opinions:
Majority - Bowman, Circuit Judge.
Yes, a boilerplate, fine-print damages limitation constitutes a material alteration of the contract under UCC § 2-207 when it results in surprise and hardship. The court affirmed the judgment for Marvin on liability but vacated the award for lost goodwill. On the issue of notice, the court found Marvin's 1993 notice was timely because its duty to notify arose only when it reasonably should have known PILT was the cause, and it was reasonable for Marvin to investigate other possibilities first. The notice was also adequate because it sufficiently informed PPG that the transaction was 'troublesome.' The damages limitation clause was deemed a material alteration because it caused both hardship and surprise. The hardship was severe, shifting the risk of catastrophic failure to Marvin and limiting a potential multi-million dollar liability to a $1.6 million refund. The surprise arose from the clause being non-negotiated, boilerplate, fine-print language, contrary to industry customs of making things right. The court vacated the $30 million award for lost goodwill, finding it duplicative of the future lost profits award and based on speculative evidence. Finally, the court held that under Minnesota statute, preverdict interest accrues from the date a lawsuit is filed on all pecuniary damages, even those not yet incurred.
Concurring-in-part-and-dissenting-in-part - Beam, Circuit Judge.
This opinion concurs with the majority on all issues except for the calculation of preverdict interest. The dissent argues that awarding interest on damages that have not yet been incurred is unreasonable and goes against the plain meaning of 'interest,' which is compensation for the loss of use of money. A party cannot lose the use of money it has not yet lost. This interpretation creates an unconstitutional penalty that chills a defendant's right of access to the courts by punishing them for litigating a close question. A constitutional construction of the statute would assess interest only from the time damages are actually incurred.
Concurring-in-part-and-dissenting-in-part - Bye, Circuit Judge.
This opinion concurs with the majority on all issues except for vacating the jury's award for lost goodwill. The dissent argues that damages for lost reputation are inherently difficult to quantify and do not require 'exacting precision.' Marvin presented substantial evidence of its damaged reputation, the importance of its brand quality, and the resulting financial strain. This evidence was sufficient to support the jury's award, which was a distinct component of Marvin's business loss and should have been affirmed.
Analysis:
This case provides a significant application of the UCC § 2-207 'battle of the forms' doctrine, reinforcing that courts will conduct a fact-intensive inquiry into the commercial context to determine material alteration. The decision establishes a strong precedent that a boilerplate damages limitation that dramatically shifts the risk of catastrophic loss for a product with a future performance warranty will likely be found to cause 'surprise or hardship' and thus be unenforceable. The ruling also clarifies that the UCC's notice requirement is flexible, allowing buyers a reasonable period for investigation before the duty to notify is triggered. The case serves as a warning to sellers that they cannot rely on fine-print terms to insulate themselves from foreseeable, large-scale consequential damages resulting from a product's failure.
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