This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2002).
STATE OF MINNESOTA
IN COURT OF APPEALS
Austin-Romtech, a division of Allegis Corporation,
a/k/a Austin Hardware, Inc.,
Filed May 4, 2004
Reversed and Remanded
Olmsted County District Court
File No. C2-02-2315
Robert G. Benner, Dunlap & Seeger, P.A., 206 South Broadway, Suite 505, Rochester, MN 55903; and
Brian W. McGrath (pro hac vice), Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee, WI 53202 (for appellant)
Patrick J. Rooney, Peter D. Gray, Rider Bennett, Egan & Arundel, LLP, 333 South Seventh Street, Suite 2000, Minneapolis, MN 55402 (for respondent)
Considered and decided by Randall, Presiding Judge, Klaphake, Judge, and Harten, Judge.
Appellant manufacturer sued respondent distributor for breach of contract, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, and negligent and intentional misrepresentation. The district court granted summary judgment to respondent on all claims. On appeal, appellant argues that the district court erred by (1) holding that the defect in locks did not constitute substantial impairment; (2) ruling that appellant could not revoke its acceptance without a showing that the breach proximately caused damages different than the purchase price; and (3) holding the locks were merchantable as a matter of law. Because we find summary judgment premature on appellant’s breach of contract claim, we reverse and remand.
Appellant Crenlo, Inc., is a business that manufactures custom designed industrial cabinets. In early 1999, appellant became interested in purchasing high-end door locks for cabinets it would assemble and sell to its customers. The locks would allow a user entering a personal identification number on a keypad to open the locks. Appellant discussed its interest with respondent Austin-Romtech, a distributor of industrial hardware. Respondent distributed such locks on behalf of Mas-Hamilton, Inc., one of the manufacturers it represented. On March 25, 1999, respondent provided appellant with an initial quote. The quote provided information on each available lock model including the price of each model based on the purchase quantity. On April 27, 1999, respondent issued a quote for a “400V modified” lock model with three modifications. The price was quoted at $309 per lock excluding tax.
On or about June 22, 1999, appellant entered into a purchase agreement with Equinix, Inc., a California corporation. Under the purchase agreement, appellant agreed to provide Equinix with custom manufactured cabinets. Appellant also agreed to provide Equinix with cabinets with associated panels, doors, and locking devices. The purchase agreement stated that appellant was to serve as Equinix’s “sole source” of the cabinets and related parts, including locking devices. The agreement’s stated term was two years, but either appellant or Equinix could “terminate this Agreement in its entirety with or without cause at any time by giving thirty days written notice of such cancellation or termination.”
Appellant and Equinix reviewed Mas-Hamilton’s sales literature which contained several different standard lock models that varied in features and unit costs. According to the materials, the standard 400V lock model was capable of supporting 99 access users. Respondent contends that appellant’s main concern was that the lock assemblies have an “open/door closed door audit date and time stamp information” feature (“in/out audit trail feature”). This feature would allow its customers to maintain a record as to when the lock was opened and closed, and how long the user had access to the equipment inside the cabinet. The standard 400V lock model also had this feature.
Appellant maintains that they decided to purchase the standard 400V lock model with all of its standard features but requested that three additional modifications be made to the lock. The modifications were as follows: (1) the lock would consist of a spring bolt or slam bolt rather than a standard dead bolt; (2) the lock would have a plain black face omitting the manufacturer’s name; and (3) the lock would contain the in/out audit trail feature. Appellant understood that it was receiving all of the features in the standard 400V lock model along with the three modifications. Respondent maintains that a customized lock was designed and manufactured that incorporated features from the 2100V, 500V, 400V, and 200V lock models.
Respondent sold appellant the 400V modified lock assemblies that were ultimately incorporated into the Equinix cabinets. Mas-Hamilton manufactured the lock assemblies. On April 11, 2000, appellant and respondent entered into a stocking agreement. Pursuant to the agreement, respondent agreed to maintain specific inventory levels of lock assemblies that appellant could draw upon, as needed, to meet the requirements of appellant’s purchase agreement with Equinix. The agreement also stated that:
The term of this Agreement is specified in the item detail. Upon expiration of the said time frame, [respondent] will notify [appellant] of all remaining bound by this contract. [Appellant] agrees to accept responsibility for payment of all delivered and undelivered inventories from [respondent] and it’s a supplier, including all freight charges, for those items specified in the item detail upon the expiration time. Furthermore, [appellant] agrees to indemnify [respondent] against any loss incurred as a result of obsolescence or discontinuance of any item specified in the “item detail.”
On June 27, 2001, Ben Wu, an Equinix representative, informed Peggy Elliott, appellant’s Field Sales Engineer, of a problem with the 400V modified’s access user feature. The email stated that Equinix techs “cannot issue a user [number greater than] 21 in our locks, not the [five] I mentioned on the phone with you.” Wu’s email also gave a comparison of lock features between the 400V modified, and the standard 200V, and 400V lock models.
Appellant claims it first notified respondent of the problem with the 400V modified’s access user feature in July 2001, when Elliott called Duncan Woodhull, respondent’s outside sales territory manager. On August 7, 2001, respondent’s product manager sent an email to Elliott stating that in order to meet the three required modifications they had to merge the features of the 2100V, 500V, 400V, and 200V lock models. On September 18, 2001, Tim Montague, respondent’s representative, sent an email to Frank Srp, appellant’s representative, stating that appellant did not ask for the 99 access user feature. The email from Montague stated that “[i]n meeting your requests we had to give up users to input all other requirements of [appellant].” On September 27, 2001, Srp followed up with an email to Woodhull again advising him that the locks were not capable of supporting 99 access users.
On October 24, 2001, appellant requested that respondent accept return of the defective lock assemblies and reimburse appellant for the purchase price. Appellant maintained that the locks were defective because they were supposed to have the 99 access user feature contained in the standard 400V lock model. On November 12, 2001, respondent denied appellant’s request. On November 19, 2001, Equinix gave appellant written notice that it was terminating the purchase agreement. The letter gave no explanation for the termination.
On April 23, 2002, appellant sued respondent for breach of contract, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, and negligent and intentional misrepresentation. During depositions, Peggy Elliott testified that appellant understood the lock assemblies supplied by respondent would contain all of the features of the standard 400V lock model plus three modifications. Both Elliott and Nate Cook, appellant’s Engineering Design Supervisor, testified that appellant’s main concern was that the lock assemblies contain the in/out audit trial feature. Elliott also testified that she was unaware of any difference in the value and price of the 400V modified and the other lock models. Elliott testified during her deposition that between June 1999, and November 2001, Equinix purchased approximately 3,000 of the respondent supplied and Mas-Hamilton manufactured lock assemblies. She stated that during this time, a small number of lock assemblies were returned to respondent, and then Mas-Hamilton, due to minor manufacturing defects. Elliott also testified that during this time none of the lock assemblies were returned because the number of access users was inadequate. Cook testified that he understood the reason Equinix terminated the agreement was because of a downturn in Equinix’s business.
After discovery, respondent moved for summary judgment. The district court granted respondent’s motion. Regarding the breach of contract claim, the district court did find a material dispute on the terms, but concluded that since appellant failed to prove any damages, appellant was not entitled to revoke acceptance of the lock assemblies and respondent was entitled to summary judgment.
On appellant’s other issues, the district court dismissed appellant’s breach of warranty claims finding that appellant failed to provide evidence that the locks were not merchantable, and not fit for their particular purpose. The court also found that appellant failed to prove damages with respect to the warranty claims. Regarding the negligent misrepresentation claim, the court concluded that the claim was statutorily barred, and that respondent had no duty to speak as to the matters concerning the purported misrepresentation. Finally, the district court found that appellant failed to provide evidence of reliance and damages with respect to the their intentional misrepresentation claim. The district court entered judgment pursuant to the parties’ stipulation resolving appellant’s counterclaim, while preserving appellant’s right to appeal the dismissal of their claim and to seek an offset against the judgment for respondent on the counterclaim. This appeal follows.
Appellant argues that the district court erred by granting summary judgment on its breach of contract claim. To prevail on a breach of contract claim, the plaintiff must show (1) the formation of a contract; (2) the plaintiff’s performance of any conditions precedent to its right to demand performance from defendant; (3) and the defendant’s breach of the contract. Indust. Rubber Applicators, Inc. v. Eaton Metal Prods. Co., 285 Minn. 511, 513, 171 N.W.2d 728, 731 (1969), overruled on other grounds by Standslast v. Reid, 304 Minn. 358, 231 N.W.2d 98 (1975). The plaintiff must also show that the breach caused damages. Nguyen v. Control Data Corp., 401 N.W.2d 101, 105 (Minn. App. 1987).
First, the district court found that a contract existed between the parties, and both parties agree on that issue. Appellant argues that it raised genuine issues of material fact sufficient to withstand summary judgment on its breach of contract claim. The district court concluded that, while summary judgment was improper on the issue of whether the contract between the parties required respondent to supply lock assemblies capable of supporting 99 access users, summary judgment for respondent was appropriate because the court found, as a matter of law, that appellant had no damages. We agree with the district court that there are disputed fact issues on the terms of the contract (See Donnay v. Boulware, 275 Minn. 37, 45, 144 N.W.2d 711, 716 (1966) (stating that summary judgment is inappropriate where terms of a contract are at issue and those terms are ambiguous or uncertain)), but find the district court erred when it concluded there was no issue on whether appellant suffered damages. We easily find enough of a material dispute on the issue of damages to survive summary judgment.
Appellant offered evidence that the contract required respondent to supply lock assemblies containing all the features of the standard 400V lock model plus three modifications. Appellant submitted Mas-Hamilton’s sales literature showing that the standard 400V lock model contains a 99 access user feature. Appellants also offered the April 27, 1999 quote that named the lock assembly supplied by respondent as the “400V modified.” Appellant argued that the name “400V modified” indicated that the lock was a standard 400V lock model containing all three modifications requested by appellant. Appellant presented the deposition testimony and affidavit of its Field Sales Engineer Peggy Elliott. Elliott stated that appellant understood the 400V modified would contain all of the standard features of the 400V lock model including its 99 access user feature plus three modifications. Appellant also offered an email from Equinix representative Ben Wu. In the email, Wu stated that Equinix’s technicians were having problems with the 400V modified’s number of access users.
Respondent offered evidence that the contract never required the lock assemblies to contain a 99 access user feature. Respondent submitted the statements in an email from their product manager to Elliott. The email stated that in order to comply with appellant’s three requested modifications, it incorporated features from the 2100V, 500V, 400V, and 200V lock models. Respondent then offered an email from Montague that stated that in order to meet appellant’s requests, it had to decrease the number of access users in the 400V modified.
Respondent also submitted the testimony of appellant’s employees Elliott, and Cook. Both testified that appellant’s main concern was that the lock assemblies have the “in/out audit trail” feature. Respondent also offered their testimony to demonstrate that appellant disputed the terms of the contract only after Equinix terminated its agreement with appellant. Elliott testified that although appellant returned a small number of the lock assemblies due to minor manufacturing defects, it never tried to return any of the 3,000 locks it purchased due to user capabilities. Cook testified that he thought the reason for Equinix’s termination of the agreement was their downturn in business, and not the number of access users in the 400V modified.
Appellant asserts that genuine issues of material fact exist as to the amount of damages of any alleged breach by respondent. We agree. A breach of contract claim fails as a matter of law if the plaintiff cannot establish that it has been damaged by the alleged breach. See Logan v. Norwest Bank Minn., N.A., 603 N.W.2d 659, 663 (Minn. App. 1999). “[T]here can be no recovery for damages which are remote, conjectural, or speculative.” Carpenter v. Nelson, 257 Minn. 424, 428, 101 N.W.2d 918, 921 (1960). But damages need not be proved with certainty; it is legally sufficient that a reasonable basis for approximating loss is shown. Polaris Indus. v. Plastics, Inc., 299 N.W.2d 414, 419 (Minn.1980).