Day Spring Enterprises, Inc. v. LMC International, Inc.

Full title: DAY SPRING ENTERPRISES, INC., Plaintiff, v. LMC INTERNATIONAL, INC. and…

Court: United States District Court, W.D. New York

Date published: Sep 24, 2004

98-CV-0658A(F) (W.D.N.Y. Sep. 24, 2004)

Opinion

98-CV-0658A(F).

September 24, 2004

HARTER, SECREST and EMERY, LLP, KENNETH W. AFRICANO, of Counsel, Buffalo, New York, Attorneys for Plaintiff.

SEYFARTH SHAW, THOMAS H. PECKHAM and CHRISTOPHER E. PAETSCH, of Counsel, Chicago, Illinois, Attorneys for Defendants.

HODGSON RUSS, LLP, PAUL I. PERLMAN, of Counsel, Buffalo, New York, Attorneys for Defendants.

REPORT and RECOMMENDATION DECISION and ORDER

LESLIE FOSCHIO, Magistrate Judge

JURISDICTION

This case was referred to the undersigned by Honorable Richard J. Arcara on April 14, 2000 for all pretrial matters, including preparation of a report and recommendation on dispositive motions. The matter is presently before the court on Defendants' motion, filed May 30, 2003, seeking partial summary judgment (Doc. No. 63), and Defendants' motions, filed October 27, 2003, to strike the affidavit of Kenneth W. Africano, Esq. (Doc. No. 87), and to strike portions of Plaintiff's fact statement pursuant to Local Rule of Civil Procedure 56.1 and to deem admitted portions of Defendants' fact statement pursuant to Local Rule of Civil Procedure 56.1 (Doc. No. 88).¹

1 As the dispositive and nondispositive motions pending in this action are related, the court addresses all pending motions together in the interests of clarity and judicial economy.

BACKGROUND

Plaintiff, Day Spring Enterprise, Inc., a manufacturer of confectionery products, including lollipops, commenced this contract action on October 13, 1998, seeking monetary relief, including damages in the form of lost profits and the costs of expanding its manufacturing facility, and punitive damages, from Defendants, LMC International, Inc. and Latini Machine Company, Inc., from whom Plaintiff purchased an allegedly defective lollipop manufacturing system and equipment. The Complaint contains six claims for relief,² including (I) breach of contract, (II) professional malpractice, (III) fraud and misrepresentation, (IV) breach of express warranty, (V) breach of implied warranty of merchantability, and (VI) breach of implied warranty for a particular purpose. On April 30, 1999, Defendants moved to dismiss the Complaint. In a Report and Recommendation filed on December 8, 1999 (Doc. No. 17) ("December 8, 1999 Report and Recommendation"), Magistrate Judge Carol E. Heckman³ recommended that the motion to dismiss be granted as to Plaintiff's Second Claim for Relief, alleging professional malpractice, but should otherwise be denied. By Order filed January 4, 2000 (Doc. No. 19) ("January 4, 2000 Order"), Judge Arcara adopted the December 8, 1999 Report and Recommendation, thereby dismissing Plaintiff's Second Claim for Relief. On January 14, 2000, Defendants filed an answer to the Complaint.

On May 30, 2003, Defendants filed a motion for partial summary judgment seeking dismissal of Plaintiff's claims for consequential damages, including lost profits and plant expansion costs, Plaintiff's Third Claim for Relief, alleging fraudulent misrepresentation, and the related punitive damages claim. The motion was supported by Defendants' Memorandum of Law in Support of Motion for Summary Judgment (Doc. No. 64) ("Defendants' Memorandum"), Defendants' Statement of Undisputed Material Facts Pursuant to Local Rule of Civil Procedure 56.1 (Doc. No. 65) ("Defendants' Rule 56.1 Statement"), and Defendants' Appendix to Local Rule 56.1 Statement of Material Facts (Doc. No. 66) ("Defendants' Appendix"), containing Defendants' exhibits lettered "A" through "W".⁴ On July 25, 2003, Plaintiff filed in opposition to partial summary judgment, the Memorandum of Day Spring Enterprises, Inc. in Opposition to Motion for Summary Judgment (Doc. No. 70) ("Plaintiff's Response"), Plaintiff's Statement of Disputed Material Facts Pursuant to Local Rule of Civil Procedure 56.1 (Doc. No. 71) ("Plaintiff's Rule 56.1 Statement"), the Declaration of George Sparks (Doc. No. 72) ("Sparks Declaration"), the Declaration of Randy Ferrell (Doc. No. 73) ("Ferrell Declaration"), the Affidavit of Roselyn Spaccio-Baran⁵ (Doc. No. 74) ("Spaccio-Baran Affidavit"), the Affidavit of Kenneth W. Africano, Esq. (Doc. No. 75) ("Africano Affidavit"), and Plaintiff's Appendix to Local Rule 56.1 Statement of Disputed Material Facts (Doc. No. 76) ("Plaintiff's Appendix"), containing Plaintiff's exhibits numbered "1" through "16".⁶ On October 27, 2003, Defendants filed a Reply Memorandum in Support of Motion for Summary Judgment (Doc. No. 89) ("Defendants' Reply").

4 References to "Defendants' Exh. ___" are to exhibits contained in Defendants' Appendix.

5 In the interest of consistency, the court refers to Roselyn Spaccio-Baran, who is also referred to in the papers as "Roe", "Roe Baran" and "Roselyn Baran", and "Baran," as "Spaccio-Baran" throughout this Report and Recommendation and Decision and Order.

6 References to "Plaintiff's Exh. ___" are to the exhibits contained in Plaintiff's Appendix.

Defendants also filed on October 27, 2003, a Motion to Strike the Affidavit of Kenneth W. Africano, Esq. (Doc. No. 87) ("Motion to Strike"), and a Motion to Deem Admitted Portions of Defendants' Rule 56.1 Statement and to Strike Portions of Plaintiff's Rule 56.1 Statement (Doc. No. 88) ("Motion Regarding Parties' Rule 56.1 Fact Statements").⁷

7 Neither the Motion to Strike nor the Motion Regarding Parties' Rule 56.1 Fact Statements were accompanied by supporting papers. Rather, within the actual motion documents, Defendants' attorney, Paul I. Perlman, makes statements explaining the nature of the relief requested as well as the reason for requesting such relief.

On November 20, 2003, Plaintiff filed a Memorandum in Response to Defendants' Motion to Strike Affidavit of Kenneth W. Africano, Esq. (Doc. No. 91) ("Plaintiff's Response to Motion to Strike"), and a Memorandum in Response to Defendants' Motion to Admit or Strike Portion of Defendants' Rule 56.1 Fact Statement (Doc. No. 92) ("Plaintiff's Response to Motion Regarding Parties' Rule 56.1 Fact Statements"). On December 3, 2003, Defendants filed a Combined Reply Brief, in further support of Defendants' Motion Regarding the Parties' Rule 56.1 Fact Statements (Doc. No. 93) ("Defendants' Combined Reply). Oral argument was deemed unnecessary.

Based on the following, Defendants' motion, filed May 30, 2003, seeking partial summary judgment (Doc. No. 63), should be DENIED in part and GRANTED in part; Defendants' motion filed October 27, 2003, to strike the affidavit of Kenneth W. Africano, Esq. (Doc. No. 87), is DENIED; and Defendants' motion filed October 27, 2003 and to deem admitted portions of Defendants' Rule 56.1 statement and to strike portions of Plaintiff's Rule 56.1 statement (Doc. No. 88), is GRANTED in part and DENIED in part.

FACTS ⁸

8 The fact statement is taken from the pleadings and motion papers filed in this action.

Plaintiff Day Spring International, Inc. ("Day Spring"), is a New York corporation engaged in the manufacturer of confectionery products, including lollipops. Day Spring's principal place of business, including its manufacturing facility, is located in the town of Cheektowaga, New York. At all times relevant to this action, Roselyn Spaccio-Baran ("Spaccio-Baran") was one of Day Spring's founders and its President, and George Sparks ("Sparks") was Day Spring's plant manager.

Defendant LMC International, Inc., and its corporate predecessor, Latini Machine Company, Inc. (together, "Defendants" or "LMC"), is an Illinois corporation engaged in the manufacture of equipment and the design of systems to produce confectionery products, including lollipops. At all times relevant to this action, Peter F. Loveland ("Loveland") was LMC's President and Randy Ferrell ("Ferrell") was a salesperson for LMC. From 1995 until his retirement in August 1998, Leo Latini ("Latini") was LMC's vice president of sales.

Since its inception in 1986, Day Spring has exclusively manufactured and sold flat lollipops, as opposed to ball-shaped lollipops, initially on four used lollipop manufacturing lines purchased between 1986 and 1991 from different candy companies. Day Spring's primary product is the "Rainbow Pop" which Day Spring describes as a "high quality lollipop . . . [which] comes in a variety of gourmet flavors and has a traditional sachet wrap." Spaccio-Baran Affidavit ¶ 2. The term "sachet wrap" refers to an "old-fashioned" style of wrapping wherein the lollipop's plastic covering is gathered in a single twist and is heat-sealed around the stick at the base of the lollipop, resulting in a more attractive flat lollipop than a heat shrink "sandwich wrapped lollipop" wherein a square piece of film is heat-sealed around the entire lollipop with the extra film extending beyond the lollipops edges. Prior to 1995, Day Spring manufactured its Rainbow Pops on four lines of equipment referred to as "LTW lines"⁹ which were manufactured by LMC until the 1980s.

9 "LTW" is an abbreviation for "lollipop twist wrap." Latini Deposition (Defendants' Exh. 6) at 21.

The manufacture of Rainbow Pops on the LTW lines involved several steps, with the unformed candy being prepared in the kitchen area of Day Spring's manufacturing facility. The unformed candy was then fed into the four LTW lines' batch rolling machines which formed the candy into rolls which were then sliced into individual pieces and formed into lollipops. During the formation, the LTW machines placed sticks into the lollipops and imprinted the lollipop faces with icing. With the lollipops "oriented" into the position required for wrapping, the lollipops proceeded to the wrapping portion of the LTW machines to be sachet-wrapped with the film covering each lollipop twisted around the stick and heat-sealed at the base of the lollipop. After wrapping, the lollipops fall onto a series of conveyors for transportation through a metal detector into a cooling room. After cooling, the lollipops are packaged by Day Spring employees. Day Spring was able to produce between 75 and 100 lollipops per minute on each LTW line.

In a letter dated March 30, 1995 ("March 30, 1995 Letter"), Defendants' Exh. C, sent to LMC by facsimile machine, Sparks advised LMC salesperson Ferrell of equipment Day Spring wanted to purchase "for our company's expansion plans." March 30, 1995 Letter at 2. The list of equipment included "one (1) cooling multi-pass cooling tunnel or other design," and "various conveyor [ sic] to move lollipops away from our present four (4) `Latini' lollipop lines." March 30, 1995 Letter at 2. On a facsimile cover sheet transmitted with the March 30, 1995 Letter, Sparks identified the subject of the facsimile correspondence as "purchasing equipment" and included the following handwritten comment to Ferrell: "[s]ee attached list, also I will need dimensions of equipment to do a complete layout for our new location." March 30, 1995 Letter at 1. It is undisputed that the lease for Day Spring's manufacturing facility, located at 45 Benbro Drive in Cheektowaga, was to expire in November 1995.

In June 1995, Spaccio-Baran and Sparks attended a trade show in Nashville, Tennessee where they met with Latini at LMC's trade show booth. Latini joked about Day Spring's manufacturing operations being "old and anitquated" and asked Spaccio-Baran if she were "ready to take [Day Spring] out of the stone ages." Spaccio-Baran Deposition Transcript ("Spaccio-Baran Deposition T."), Defendants' Exh. U at 55. Latini discussed with Spaccio-Baran and Sparks how Day Spring could produce a heat shrink-wrapped flat lollipop with the general appearance of a sachet-wrapped flat lollipop in the same size and shape as Day Spring's Rainbow Pops. Latini presented Spaccio-Baran with a sample ("the Sample") of such a shrink-wrapped lollipop manufactured by Spangler, another candy manufacturer. Latini further stated that an LMC manufacturing line that produced flat, heat shrink-wrapped lollipops like the Sample would reduce Day Spring's labor needs and produce 175 shrink-wrapped lollipops per minute, and that LMC could modify, retrofit or convert Day Spring's LTW lines to the more modern DPW lines.¹⁰ The DPW lines would allow Day Spring to produce shrink-wrapped flat lollipops like the Sample. Latini discussed using certain of LMC's equipment, including a heat shrink-wrap tunnel, Tricite 1000 film and its shrink properties, and a cooling tunnel in Day Spring's proposed revised lollipop manufacturing system. The updated system also would imprint the UPC code onto the wrapping film, thereby eliminating Day Spring's separate labeling operation and related labor. Latini further advised that a 12% "show" discount was applicable to purchases placed prior to September 1, 1995. Spaccio-Baran advised that if Day Spring decided to convert its current lollipop manufacturing process in accordance with Latini's suggestions, that such conversion would need to take place during the winter months when Day Spring's business typically was slow, and that Day Spring would need to convert one line at a time rather than all four lines at once so as not to disrupt its business. Following the conversation, Spaccio-Baran requested Latini provide her with a price quote for the various options LMC discussed to convert Day Spring's LTW lollipop manufacturing lines into DPW lines.

10 "DPW" is an abbreviation for "die pop with wrapper." Latini Deposition (Defendants' Exh. 6), at 21.

In a letter dated July 26, 1995, Defendants' Exh. D ("LMC July 26, 1995 Letter"), Latini discussed some of the costs of converting Day Spring's LTW machines to DPW machines, but did not set forth the costs of other equipment discussed at the Nashville trade show, including the cooling conveyor and heat tunnel to shrink-wrap the lollipops as Latini "needed to contact the shrink tunnel people and the people with the shrink film to discuss how we should approach the labeling operation." LMC July 26, 1995 Letter at 1-2. On August 17, 1995, LMC issued Day Spring a price quotation, Defendants' Exh. E ("Price Quote Document"), covering both the costs of converting Day Spring's LTW machines to DPW machines, as well as the costs and options for various pieces of additional equipment as discussed at the Nashville trade show, including a heat tunnel for shrink-wrapping the lollipops and three different cooling conveyors. Price Quote Document at 1-2. The price quote also provided that a deposit of 30% of the total order was required with the order, 50% of the balance was due prior to shipping and the balance was due within 30 days after the date of shipment. Price Quote Document at 2. The price quote was valid until October 1, 1995. Id. The terms, conditions and warranties relative to the proposal are found on a page appearing on the reverse of the Price Quote Document ("the Terms and Conditions Page"), and includes a warranty provision ("the Warranty Provision") which states that "[t]he following terms and conditions of sale become and are a part of the foregoing and all other proposals are hereby made a part of all orders or contracts for purchase or sale." Warranty Provision, Price Quote Document Terms and Conditions Page. The Warranty Provision states, in pertinent part:

All machines and parts manufactured by Latini Machine Company, Inc. are guaranteed to be free from defects in material and workmanship for six (6) months from date of shipment when given normal and proper usage and when owned and used only by the original purchaser. This guarantee does not cover parts or items which require periodic replacement under normal use. Whether a machine or part is defective in material or workmanship is subject to determination by seller after due inspection, and the sole judgment of Latini Machine Company, Inc. shall be conclusive and binding upon all parties. All machines and parts found to be defective in material or workmanship by Latini Machine Company, Inc. will be replaced by it free of charge, F.O.B. its factory. The foregoing is the only warranty of guarantee by Latini Machine Company, Inc. whether expressed or implied, and the seller shall not be liable for any representations or warranties by any salesman or representative unless specifically contained in the proposal, quotation or herein. Latini Machine Company, Inc. assumes no liability for loss of time, use, sales, profits or otherwise which may be suffered by purchaser as the result of malfunction or breakdown of any machine or part thereof, nor for any expense incurred by purchaser without the express authorization of seller, whether such loss or expense be suffered within the guarantee period or at any time after the expiration thereof.

Warranty Provision (italics added), Price Quote Document Terms and Conditions Page. The Price Quote Document's Terms and Conditions Page also contains a choice of law provision ("Choice of Law Provision") stating that

[i]n the event of conflict between the provisions herein and any other written or verbal representations or understandings whatsoever, the terms herein contained shall control and be binding upon all parties governed by the laws of the State of Illinois, U.S.A. Choice of Law Provision, Price Quote Document Terms and Conditions Page.

Day Spring maintains that as LMC sent the Price Quote Document only by facsimile transmission, Day Spring never received or saw the Terms and Conditions Page appearing on the reverse of the Price Quote Document and, thus, never agreed to the Warranty Provision or the Choice of Law Provision and that such provisions cannot be considered part of the contract at issue in this action.

On August 18, 1995, LMC sent Day Spring design drawings prepared by LMC, including a detailed layout depicting four converted lollipop manufacturing lines proceeding into four DPW machines for wrapping, with the DPW machines feeding the wrapped lollipops into two heat shrink tunnels before the lollipops are dropped onto conveyor belts leading into one main cooling tunnel. First Design Drawings, Plaintiff's Exh. 2. A second set of design drawings was also prepared by LMC. Second Design Drawings, Plaintiff's Exh. 3. Both sets of LMC's Design Drawings place the heat shrink tunnels before the cooling tunnel. Plaintiff's Exhs. 2 and 3; see also Sparks Declaration ¶ 11 (explaining First and Second Design Drawings).

In a letter dated September 1, 1995 ("the September 1, 1995 Letter"), Defendants' Exh. F, sent by facsimile transmission to Spaccio-Baran at Day Spring, Ferrell inquired as to whether Day Spring had made any decision regarding "the proposal made on the rebuild and new conveyors." September 1, 1995 Letter. Ferrell also offered to extend the 12% trade show discount until September 5, 1995. Id. Following some further price negotiations, Spaccio-Baran, on September 1, 1995, forwarded to LMC a form purchase order # 068019 ("Purchase Order # 068019"), Defendants' Exh. J, on which she wrote "Equipment — See list. OK your order # 11899." In an Order Acknowledgment sent to Day Spring by facsimile transmission on September 5, 1995 ("the Order Acknowledgment "), Defendants' Exh. I, LMC confirmed receipt of Day Spring's Purchase Order # 068019. The Order Acknowledgment includes an itemization of each item ordered, the price of each item and the items to which the 12% trade show discount applied. Order Acknowledgment. An invoice accompanying the Order Acknowledgment ("the Confirming Invoice"), Defendants' Exh. H, Plaintiff's Exh. 7, indicated the total price for the equipment ordered was $172,242.40, with a 30% deposit due. The Confirming Invoice also contained a copy of the Terms and Conditions Page. Defendants' Exh. H; Plaintiff's Exh. 7. Day Spring created a separate copy of the order by substituting Day Spring's letterhead for the top portion of the Order Acknowledgment and, following the words: "To Be Determined" after the words "Ship To:". Defendants' Exh. K; Plaintiff's Exh. 9.

By letter to LMC dated September 21, 1995 ("Day Spring September 21, 1995 Letter), Defendants' Exh. L, sent by facsimile transmission, Spaccio-Baran advised Latini that Day Spring was processing the 30% deposit for the equipment ordered, and requested LMC's assurance as to certain features and capabilities of the ordered equipment, including

1. That the forming part of the Latini machine will manufacture are least 175 3/4 oz. pops in our present shape per minute.

2. Print the graphics that we presently print at the 175 per minute speed per pop.

3. The shrink tunnel that we are getting will shrink the cello on each pop when receiving the 175 per minute for up to two lines of production.

4. That the cooling tunnel that we are ordering will cool up to four lines of production eventually so that we could pack pops right off the end of the line.

5. Provisions will be made to add a metal detector to the line that will handle all four lines.

Day Spring September 21, 1995 Letter at 1.

Spaccio-Baran continued with the following:

Leo, all financing has been based on these projections as far as new capabilities of the new and improved equipment. We have given you our needs and you've told us the equipment will perform. Please confirm this in writing so that the bank will be satisfied as well as myself.

Day Spring September 21, 1995 Letter at 1.

Latini responded to Day Spring's September 21, 1995 Letter that same day ("LMC September 21, 1995 Letter"), Defendants' Exh. M, assuring that with the rebuilt and new equipment, Day Spring's production capacity would increase in accordance with the five items specified in the Day Spring September 21, 1995 Letter. LMC September 21, 1995 Letter at 1-2. Latini further stated that if the stated specifications were not met, that LMC reserved the right to make any changes, modifications or corrections to any deficient equipment necessary to make the equipment perform as specified. LMC September 21, 1995 Letter at 2. Latini further stated

Day Spring Enterprises is responsible for installing and operating the equipment stated, and proper training and instructions are to be given to all operators of this equipment, with regards [ sic] to the operation, safety, cleaning, lubrication, and maintenance of said equipment. What shall determine successful operation and limit the term of this operational statement are two (2) consecutive normal eight (8) hour shifts operating at 95% efficient [ sic].

We are confident of the performance of our equipment, and we are sure that you will be pleased with your decision to proceed with this project. Since Latini Machine Company is not being contracted to be present for the initial start-up, it is very important that the equipment be installed properly and operated in a knowledgeable and professional manner. . . .

LMC September 21, 1995 Letter at 2.

Day Spring paid the 30% deposit on October 2, 1995.

As Day Spring had been considering expanding its operations, and as Day Spring's lease for its 45 Benbro Drive, Cheektowaga location was to expire in November 1995, Day Spring was also considering whether such expansion would best be accomplished by moving to a new location or expanding its current manufacturing facility at 45 Benbro Drive. By letter dated May 30, 1996 ("May 30, 1996 Letter"), Defendants' Exh. N, Latini requested Spaccio-Baran to "advise if your building is on target for our shipping of this equipment in mid to late August 1996?" Spaccio-Baran replied that "[a]s for our building expansion, the target date is 30-45 days out from construction start. As of today, a start date has not been set. Thus this will move your shipping date further, perhaps to mid to late September." Defendants' Exh. O. LMC sent Day Spring the second and third invoices for the balance of the equipment purchase on January 5, 1996 and December 30, 1996. Defendants' Exhs. P and Q. Day Spring paid each of the invoices and LMC delivered the equipment to Day Spring in January 1997.

On March 21, 1997, Day Spring executed a Lease Modification Agreement with the landlord of its Benbro Drive manufacturing facility, which provided for a build-out and expansion of the facility. Construction of the facility's expansion commenced in July 1997 and was completed in September 1997. The expanded facility could accommodate the new equipment layout in accordance with LMC's Design Drawings to handle the expected increased production from 400 lollipops per minute to 700 lollipops per minute, including the new conveyor system to be purchased from LMC that would lead the lollipops from four lines into the new cooling tunnel and installation of a larger corn syrup tank to increase the cooking capacity of the Day Spring kitchen to meet the anticipated requirements for the new lines. An internal wall was demolished to accommodate installation of the new corn syrup tank and to make room for the cooling tunnel to be purchased from LMC. With the addition of the cooling tunnel, Day Spring's cooling room was no longer needed and was eliminated. New duct work and electrical lines required to operate the lines were installed and compressors for the cooling tunnel were placed on the roof of the facility. The installation of the LMC equipment was completed by December 1997.¹¹ By letter dated December 15, 1997 (December 15, 1997 Letter), Defendants' Exh. R, Sparks advised Steve Wandtke of LMC that the new DPW line was "a major disappointment." According to Sparks, Day Spring was having several problems, including that Day Spring's printing dies did not fit the new unit, a gap in the roller caused the bar code to drift when printing onto the film, and the heat tunnel required a "swing chute at a high cost." December 15, 1997 Letter. Sparks also requested LMC's assistance in resolving the issues. December 15, 1997 Letter.

11 The precise date of completion is not provided in the record.

Between December 1997 and May 1998, Day Spring and LMC made several attempts to get Day Spring's new DPW manufacturing line to perform to Day Spring's satisfaction. LMC's suggestions included purchasing and installing alternative heat controls, using different shrink-wrap films, and setting the machine to operate at different speeds and temperatures. None of the suggested solutions, however, resulted in the production of saleable lollipops and, by June 1998, Day Spring had abandoned the DPM manufacturing line and the heat shrink sachet wrapping concept and returned to its previous method of manufacturing its Rainbow Pops in the sachet-wrapped style. Spaccio-Baran Affidavit ¶ 22. LMC admitted that the Design Drawings contained a "placement error" and that the cooling tunnel should have been placed between the DPW wrapping machine and the heat shrink tunnel. LMC Letter dated May 18, 1998 (Plaintiff's Exh. 5) at 2.¹² Day Spring, however, did not reposition the cooling tunnel because Day Springs own tests showed that cooling the lollipops before they were shrink-wrapped would not result in saleable lollipops and the repositioning of the cooling tunnel was not feasible given that once the lollipops fall onto the conveyor belt and move into the cooling tunnel, the lollipops are no longer in the "oriented position" necessary to be wrapped using the shrink-wrap method. The size of the cooling tunnel also rendered its repositioning not feasible as the entire lollipop manufacturing process was designed around the cooling tunnel and the location of the additional air ducts and compressors on the roof of the manufacturing facility had been determined based on the cooling tunnel's placement as it appeared in the LMC design drawings.

12 Specifically, LMC Customer Service Manager Steve Wandtke and Engineering Manager Bob Wagner wrote:

You will agree, as we believe, that the shrink tunnel should be relocated to a position after the cooling tunnel. It is obvious to all of us that the pops are too soft to withstand the tension of the shrink wrap just after they are formed. We regret this placement error.

LMC May 18, 1998 Letter at 2, ¶ 4 (underlining in original).

Day Spring later learned, during the course of discovery in this action, that LMC was never involved in Spangler's manufacturing process. Rather, Spangler produced lollipops like the Sample by cooling the lollipops on long conveyors prior to wrapping, and then manually placing the lollipops into the wrapping oriented position and manually trimming the excess film prior to heat shrinking the wrapping. Day Spring maintains that because such a process is heavily manually intensive, it did not and could not possibly produce heat shrink sandwich wrapped lollipops near the rate of 175 per minute as suggested by LMC. Day Spring further maintains that upon testing the heat tunnel prior to shipment, LMC knew that the heat tunnel could not consistently shrink-wrap Day Spring's Rainbow Pops in the same manner as the Sample, but that LMC hid the test results and that had Day Spring been aware of the problem, Day Spring could have put the project on hold until the problem was resolved, or the contract could have been canceled before Day Spring undertook the costly plant expansion.

DISCUSSION

1. Motion to Strike

Defendants have moved to strike the Affidavit of Kenneth W. Africano, Esq. on the basis that it "consists of legal conclusions, improper argument and self-serving statements." Motion to Strike ¶ 3. Defendants argue that striking the Africano Affidavit is also warranted as none of the information to which Africano attests is based on Africano's personal knowledge. Motion to Strike ¶ 3. Defendants characterize the Africano Affidavit as "essentially a written form of closing argument." Id. As the statements within the Africano Affidavit that are not based on personal knowledge are not admissible as evidence, Defendants conclude the Africano Affidavit is not a submission authorized under Fed.R.Civ.P. 56 to oppose summary judgment. Id. ¶ 8.

In opposition to the motion to strike the Africano Affidavit, Day Spring maintains that Africano, in his affidavit, is not testifying to facts but, rather, the Africano Affidavit is simply intended to "place before the court relevant documents and the relevant portions of sworn testimony of witnesses with personal knowledge." Plaintiff's Response to Motion to Strike at 2. Day Spring maintains that the Africano Affidavit is "a summary guide through the voluminous materials generated by this action" and serves as a comprehensive presentation of such materials. Plaintiff's Response to Motion to Strike at 3.

Fed.R.Civ.P. 56(e) provides that:

[s]upporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein.

Accordingly, "[a] court may therefore strike portions of an affidavit that are not based upon the affiant's personal knowledge, contain inadmissible hearsay or make generalized and conclusory statements." Hollander v. American Cyanamid Co., 182 F.3d 192, 198 (2d Cir.), cert. denied, 528 U.S. 965 (1999). At issue in Hollander, supra, was an affidavit submitted by the plaintiff "in an attempt to establish the existence of a genuine issue of fact for trial, which the defendants had moved to strike the affidavit as not in compliance with Fed.R.Civ.P. 56(e). Hollander v. American Cyanamid Co., 999 F.Supp. 252, 255 (D.Conn. 1998). The District Court found that the plaintiff's affidavit was "riddled with inadmissible hearsay, conclusory statements and arguments, and information clearly not made on the affiant's personal knowledge," but, rather, "more resembles an adversarial memorandum than a bona fide affidavit" that "abused Rule 56(e) in an attempt to reiterate his legal and philosophical position." Id. at 256. Accordingly, the court struck the inappropriate portions of the plaintiff's affidavit, id., and such decision was upheld the Second Circuit Court of Appeals as not an manifestly erroneous. Hollander, supra, 172 F.3d at 198.

In contrast, in New York v. Solvent Chemical Co., Inc., 218 F.Supp.2d 319 (W.D.N.Y. 2002), the court denied a similar motion to strike, under Fed.R.Civ.P. 56, the affidavits of an attorney as not based on personal knowledge because the affidavits were made "on the basis of [the attorney affiant's] personal knowledge of the matters stated, or on the basis of Court papers, discovery or other documents in this proceeding." Solvent Chemical Co., Inc., supra, at 331. The court further observed that the documents attached to the attorney's affidavits "were created as part of the litigation ( e.g., discovery materials), with which [the] attorney is familiar." Id. In denying the motion to strike, the court held that the attorney was not, in the subject affidavits, testifying as to the facts at issue in the case but, rather, the affidavits were "vehicles placing before the court relevant, admissible documents and the relevant portions of sworn testimony of witnesses with personal knowledge." Id. Moreover, given the complexity of the case and the numerous documents and pages of testimony generated during discovery, the attorney's affidavits "present[ed] the evidence in a cohesive fashion." Id. (citing Moore's Federal Practice § 56.14[1][c], p. 56-160).

Similarly, in the instant case, the statements contained within the Africano Affidavit are made "based upon the accompanying affidavits of Randy Ferrell, Roselyn Baran, George Sparks and the deposition testimony and documents submitted together with this motion." Africano Affidavit ¶ 1. It is significant that a thorough review of the Africano Affidavit reveals nothing that is not found elsewhere in the record and Defendants do not argue otherwise. In fact, many of the statements within the Africano Affidavit reference other affidavits, deposition testimony and documents in the record as the source of such statements. See, e.g., Africano Affidavit ¶ 3 (referencing the Ferrell Affidavit), ¶ 11 (referencing Kiel Deposition Testimony, Plaintiff's Exh. 1, at 31), and ¶ 17 (referencing Plaintiff's Exhs. 1, 4, 5, 6 and 15). Accordingly, the court finds that the Africano Affidavit is based on personal knowledge garnered by Africano during his representation of Day Spring in this litigation, and serves only as a vehicle presenting the relevant facts of this case to the court in a cohesive manner. Solvent Chemical Co., Inc., supra, at 331. Defendants' motion to strike the Africano Affidavit is DENIED.

2. Motion Regarding Parties' Fact Statements

Defendants move to have deemed admitted portions of Defendants' Rule 56.1 Fact Statement which have not been controverted by Day Spring in any manner, including those statements set forth in Defendants' Rule 56.1 Fact Statement ¶¶ 1-7, 9-10, 12, 13, 20, 26-28, 31-33, 35-36, 39-40, 42-44, and 47-53. Motion Regarding Parties' Rule 56.1 Fact Statements ¶ 3. Defendants also urge the court to deem admitted those portions of Defendants' Rule 56.1 Fact Statement which Defendants maintain have not been properly controverted or to which Day Spring has responded in an insufficient manner, including those statements set forth in Defendants' Rule 56.1 Fact Statement ¶¶ 8, 11, 14, 15, 16-18, 19, 21, 22, 24, 25, 30, 34, 37, 38, 41, 45 and 46. Motion Regarding Parties' Rule 56.1 Fact Statements ¶ 4. Finally, Defendants seek to strike portions of Day Spring's Rule 56.1 Fact Statement, including those set forth in Day Spring's Rule 56.1 Fact Statement ¶¶ 1-3, 8-10, 13, 17, 20, 22-24 and 27-34, on the basis such statements contain legal argument or are conclusory statements without any record citation, in violation of Local Rules of Civil Procedure 56.1(b)'s requirement that "[t]he papers opposing a motion for summary judgment shall include a separate, short, and concise statement of the material facts as to which it is contended that there exists a genuine issue of fact to be tried." Motion Regarding Parties' Rule 56.1 Fact Statements ¶ 5.

Day Spring argues in opposition to the motion that many of Defendants' contentions that Day Spring has improperly controverted or insufficiently responded to Defendants' fact statements are predicated on the fact that Day Spring failed "to controvert [the] authenticity" of a particular exhibit. Plaintiff's Response to Motion Regarding Parties' Rule 56.1 Fact Statements at 1. Day Spring maintains that its failure to controvert the authenticity of a particular exhibit does not establish that Day Spring agrees or admits to Defendants' interpretation of statements within such exhibit. Plaintiff's Response to Motion Regarding Parties' Rule 56.1 Fact Statements at 1. Insofar as Defendants maintain that Day Spring has "argued additional facts" in opposing some of Defendants' Rule 56.1 Fact Statements, Day Spring characterizes such responses as "providing information or context that puts the fact in dispute." Id. at 2. As to Defendants' request to strike portions of Plaintiff's Rule 56.1 Statement, Day Spring states that should the court find any portion of Day Spring's Local Rule 56.1 Statement "outside the contemplation of the Rule, [Day Spring] respectfully requests that the court ignore that portion and entertain the merits of plaintiff's submission." Id. at 3.

In further support of the Motion Regarding Parties' Rule 56.1 Fact Statements, Defendants point to the fact that Day Spring has not opposed Defendants' request to deem admitted those statements set forth in Defendants' Rule 56.1 Fact Statement ¶¶ 8, 11, 14, 15, 16-18, 19, 21, 22, 24, 25, 30, 34, 37, 38, 41, 45 and 46. Defendants' Combined Reply at 3-4. As for the remaining statements to which Defendants' maintain Day Spring's responses do not comply with Local Rule 56.1(b), including those set forth in Day Spring's Rule 56.1 Fact Statement ¶¶ 1-3, 8-10, 13, 17, 20, 22-24 and 27-34, Defendants "acknowledge this Court's discretion to overlook noncompliance with Local Rule 56.1 and its ability to conduct an independent review of the record." Defendants' Combined Reply at 4 (citing Holtz v. Rockefeller Co., Inc., 258 F.3d 62, 73 (2d Cir. 2001)). Defendants request "that the Court consider the deficiencies outlined in [Defendants'] motion when considering the summary judgment record, including the purported record support for Day Spring's statement of disputed facts." Defendants' Combined Reply at 4. Defendants have not replied in further support of its request that portions of Plaintiff's Rule 56.1 Fact Statement be stricken.

A review of Plaintiff's Rule 56.1 Fact Statements establishes that those statements set forth in Defendants' Rule 56.1 Fact Statement ¶¶ 1-7, 9-10, 12, 13, 20, 26-28, 31-33, 35-36, 39-40, 42-44, and 47-53 have not been controverted in any manner, nor have Plaintiffs controverted such statements in opposition to the instant motion, with one exception, i.e., the statement set forth in ¶ 26 of Defendants' Rule 56.1 Fact Statement. Accordingly, such statements are deemed admitted, except for the statement set forth in Defendants' Rule 56.1 Fact Statement ¶ 26 which states, in pertinent part:

After receiving LMC's September 5^th letter, order acknowledgment and invoice, Day Spring sent a written purchase order with an accompanying equipment list to LMC.

Day Spring's response to such statement was that it

admits that Day Spring sent a written purchase order to LMC on September 5 after receiving the faxed letter, order acknowledgment and invoice but not after receiving an invoice with terms and conditions on it. Nothing in the documents exchanged on September 5, 1995 made any reference to terms and conditions.

Plaintiff's Rule 56.1 Fact Statement ¶ 14 (referencing Spaccio-Baran Affidavit ¶¶ 11-12).

Insofar as Day Spring's assertion that "[n]othing in the documents exchanged on September 5, 1995 made any reference to terms and conditions" may be construed as controverting any implied assertion to the contrary in ¶ 26 of Defendants' Rule 56.1 Fact Statement, such statement may not be deemed admitted.

As to the remaining statements for which Defendants have acknowledged the court has discretion to disregard any noncompliance with Local Rule 56.1 based on an independent review of the record, Defendants' Combined Reply at 4, the Second Circuit has held that where "the record does not support the assertions in a Local Rule 56.1 statement, those assertions should be disregarded and the record reviewed independently." Holtz, supra, at 74. Accordingly, inasmuch as Day Spring's responses to the statements set forth in Day Spring's Rule 56.1 Fact Statement ¶¶ 1-3, 8-10, 13, 17, 20, 22-24 and 27-34 do not fully comply with the requirements of Local Rule 56.1(b), a thorough review of the record amply demonstrates that such statements are, indeed, controverted by Day Spring. As such, the court will not deem admitted Defendants' statements as set forth in Day Spring's Rule 56.1 Fact Statement ¶¶ 1-3, 8-10, 13, 17, 20, 22-24 and 27-34.

Finally, as to Defendants' request that the court strike portions of Day Spring's Rule 56.1 Fact Statement, including those set forth in Day Spring's Rule 56.1 Fact Statement ¶¶ 1-3, 8-10, 13, 17, 20, 22-24 and 27-34, on the basis such statements contain legal argument or are conclusory statements without any record citation, in violation of Local Rules of Civil Procedure 56.1, the court will disregard any legal argument or unsupported conclusory statements and consider only the facts asserted therein. See Holtz, supra, at 73; see also Heidle v. Interval International U.S.A. Corp., 2003 WL 22383568, *1, n. 3 (W.D.N.Y. Sept. 9, 2003) (disregarding defendant's failure to comply with Local Rule 56.1's requirement that statements of fact be supported by citations to the record).

Defendants' Motion Regarding Parties' Rule 56.1 Fact Statements is GRANTED in part and DENIED in part.

3. Motion for Partial Summary Judgment

Defendants move for partial summary judgment, seeking dismissal of Day Spring's Third Claim for Relief alleging fraudulent misrepresentation, as well as Day Spring's claims for consequential damages, including lost profits and the costs of Day Spring's plant expansion, and punitive damages. Defendants' Memorandum at 2. Day Spring argues in opposition to summary judgment that the instant motion is an attempt by Defendants to reargue its previous motion to dismiss, and, in any event, genuine issues of fact exist as to whether LMC engaged in bad faith, fraud, deceit, willful misconduct and outright malice. Plaintiff's Response at 1. Defendants argue in further support of summary judgment that insofar as its motion for partial summary judgment "is based entirely on the admissions of Day Spring's own president and plant manager as set forth in their deposition testimony," and on documents disclosed during discovery, the motion cannot be considered an attempt to reargue Defendants' previous motion to dismiss. Defendants' Reply at 1. Defendants further challenge Day Spring's opposition to summary judgment insofar as it consists of post-deposition affidavits of Spaccio-Baran, Sparks and Ferrell, as attempting to create disputed issues of fact by contradicting prior deposition testimony. Id. at 1-2. Central to this action is whether LMC designed and sold to Day Spring a lollipop manufacturing system, or only sold Day Spring pieces of lollipop manufacturing equipment, an issue which the parties agree must be left for the trier of fact. See Defendants' Memorandum at 1-2; Plaintiff's Response at 20-21.

Summary judgment of a claim or defense will be granted when a moving party demonstrates that there are no genuine issues as to any material fact and that a moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a) and (b); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-51 (1986); Rattner v. Netburn, 930 F.2d 204, 209 (2d Cir. 1991). The court is required to construe the evidence in the light most favorable to the non-moving party. Tenenbaum v. Williams, 193 F.3d 58, 593 (2d Cir. 1999) (citing Anderson, supra, at 255). The party moving for summary judgment bears the burden of establishing the nonexistence of any genuine issue of material fact and if there is any evidence in the record based upon any source from which a reasonable inference in the non-moving party's favor may be drawn, a moving party cannot obtain a summary judgment. Celotex, supra, at 322; see Anderson, supra, at 247-48 ("summary judgment will not lie if the dispute about a material fact is "genuine," that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party"). In assessing a record to determine whether there is genuine issue of material fact, the court is required to resolve all ambiguities and draw all factual inferences in favor of the party against whom summary judgment is sought. Rattner v. Netburn, 930 F.2d 204, 209 (2d Cir. 1991).

"[W]here the nonmoving party will bear the burden of proof at trial on a dispositive issue, a summary judgment motion may properly be made in reliance solely on the `pleadings, depositions, answers to interrogatories, and admissions on file.' Such a motion, whether or not accompanied by affidavits, will be `made and supported as provided in this rule [FRCP 56],' and Rule 56(e) therefore requires the non-moving party to go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex, supra, at 323-24 (1986) (quoting Fed.R.Civ.P. 56). Thus, "as to issues on which the non-moving party bears the burden of proof, the moving party may simply point out the absence of evidence to support the non-moving party's case." Nora Beverages, Inc. v. Perrier Group of America, Inc., 164 F.3d 736, 742 (2d Cir. 1998).

Summary judgment may be granted where the evidence proffered in support is sufficient to sustain a directed verdict in the movant's favor. Lightfoot v. Union Carbide Corp., 110 F.3d 898, 907 (2d Cir. 1997) ("Summary judgment is designed to pierce the pleadings to flush out those cases that are predestined to result in a directed verdict."). Once a party moving for summary judgment has made a properly supported showing as to the absence of any genuine issue as to all material facts, the non-moving party must, to defeat summary judgment, come forward with evidence that would be sufficient to support a jury verdict in its favor. Goenaga v. March of Dimes Birth Defects Foundation, 51 F.3d 14, 18 (2d Cir. 1995). Further, "even where facts are disputed, in order to defeat summary judgment, the non-moving party must offer enough evidence to enable a reasonable jury to return a verdict in that party's favor." World Trade Center Properties, L.L.C. v. Hartford Fire Ins. Co., 345 F.3d 154, 165-66 (2d Cir. 2003).

When a defendant seeks summary judgment on the ground that there is an absence of evidence to support an essential element of the plaintiff's claim, the plaintiff's burden to produce evidence in opposition to summary judgment is de minimis; nevertheless, in opposing a motion for summary judgment a party "may not simply rely on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Goenaga, supra, at 18 (citing cases). Further, where the burden of proof on an issue for which summary judgment is sought is on the movant, should the movant fail to meet its initial burden of establishing the absence of any genuine issue of material fact as to that issue, the non-movant will prevail even if the non-movant submits no evidentiary matter establishing there is indeed a genuine issue for trial. Zanghi v. Incorporated Village of Old Brookville, 752 F.2d 42, 47 (2d Cir. 1985). If, however, there is evidence in the record regarding a material fact as to which the moving party contends there is no dispute, from which a reasonable inference could be drawn in favor of the non-moving party, summary judgment is improper. Rattner, supra, at 209.

A. Law of the Case Doctrine

Initially the court addresses Day Spring's argument that Defendant's motion for partial summary judgment is foreclosed by Judge Arcara's January 4, 2000 order accepting the December 8, 1999 Report and Recommendation ("the Order") in which Judge Heckman found that genuine issues of fact as to whether the Price Quote Document's Warranty Provision became a part of the contract precluded granting Defendants' motion to dismiss the Complaint. According to Day Spring, the Order makes Judge Heckman's findings the "law of the case," thereby precluding further consideration of the issues on subsequent motions and requiring the submissions of the issues to a trier of fact. Day Spring's Response at 4-7. Defendants maintain that Day Spring's "law of the case" argument "ignores the distinction between a pre-discovery motion to dismiss and a post-discovery motion for summary judgment." Defendants' Reply at 3.

Although the arguing on a motion for summary judgment of the same legal issue which has already been denied on a motion to dismiss for failure to state a claim potentially may be barred under the "law of the case" doctrine, "where a party has argued an issue during one motion before a given judge, the doctrine does not necessarily preclude a different judge from considering the same argument proffered during a subsequent motion [for summary judgment]." Dawes v. Leonardo, 885 F.Supp. 375, 376-77 (N.D.N.Y. 1995). Rather, that a complaint has been found, on a motion to dismiss, to state a claim on its face does not guarantee that resolution of such claim will require a trial. Rivervale Realty v. Town of Orangetown, N.Y., 816 F.Supp. 937, 946 n. 9 (S.D.N.Y. 1993) (citing Zdanok v. Glidden Co., 327 F.2d 944, 952-53 (2d Cir.), cert. denied, 377 U.S. 934 (1964)). Significantly, as a ruling in favor of a plaintiff on a motion to dismiss does not address the merits of a case, such ruling will not preclude a subsequent ruling in favor of a defendant on the same issue on a motion for summary judgment following discovery. McKenzie v. Bellsouth Telecomm, Inc., 219 F.3d 508, 513 (6^th Cir. 2000) (finding that prior Sixth Circuit Court of Appeal's "holding on motion to dismiss does not establish the law of the case for purposes of summary judgment, when the complaint has been supplemented by discovery."). See also Golden Pacific Bancorp v. Federal Deposit Insurance Corp., 2003 WL 21496842, *5 n. 14 (S.D.N.Y. June 27, 2003) (observing previous ruling on motion to dismiss did not foreclose further judicial inquiry on subsequent summary judgment motion); In re AHT Corp., 292 B.R. 734, 746 (S.D.N.Y. 2003) (prior order denying defendants' motion to dismiss complaint merely established that debtor would have opportunity to present evidence supporting its claims, not that debtor would succeed in doing so, and did not preclude court under law of the case doctrine from subsequently entering summary judgment, after discovery, in defendants' favor).

Similarly, in the instant case, although the decision in Day Spring's favor on Defendants' motion to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failing to state a claim for which relief could be granted was based on the fact that, prior to discovery, the Complaint, as pleaded, demonstrated the existence of factual issues going to the merits of the claims contained therein, such decision did not establish that discovery, which had yet to commence, would not reveal evidence extinguishing such factual issues. Following the Order, the parties engaged in a course of discovery designed to garner evidence supporting each side's position in the instant litigation. It is quite possible that during such discovery Defendants have obtained evidence which invalidated any evidence proffered by Day Spring in support of their claims, thereby extinguishing the previously open factual issues. Accordingly, there is no merit to Day Spring's assertion that the law of the case doctrine precludes this court's consideration of Defendants' summary judgment motion.

B. Third Claim for Relief — Fraudulent Misrepresentation

Defendants argue that summary judgment should be granted in favor of Defendants on Day Spring's fraudulent misrepresentation claim (Claim for Relief III), as the deposition testimony of Spaccio-Baran contradicts ¶ 31 of the Complaint, which Defendants maintain sets forth Day Spring's fraudulent misrepresentation claim and, as such, forecloses a finding of fraud at trial. Defendants' Memorandum at 21-24. Day Spring argues in opposition to summary judgment that Defendants' motion is predicated on only selected portions of Spaccio-Baran's deposition testimony and that such testimony, read in its entirety, along with other evidence in the record demonstrates the existence of material issues of fact precluding summary judgment in favor of Defendants on the fraudulent misrepresentation claim. Plaintiff's Response at 21-24. Defendants argue in further support of summary judgment that although Spaccio-Baran avers in her affidavit in opposition to summary judgment that Latini represented to her at the June 1995 Nashville trade show "that `LMC had designed the [shrink-wrap] system and manufactured the equipment for Spangler,'" Defendants' Reply at 16 (quoting Spaccio-Baran Affidavit ¶ 5 (bracketed text in original)), Spaccio-Baran's deposition testimony on the same subject was that "Latini represented `that he would be able to provide me with the same equipment that he provided Spangler with.'" Defendants' Reply at 16-17 (quoting Spaccio-Baran Deposition T. at 55) (emphasis in original). Defendants maintain this statement is "crucial" as it establishes that Spaccio-Baran did not believe that LMC designed Spangler's entire lollipop manufacturing system, in contrast to the averment in Spaccio-Baran's affidavit that LMC mislead Day Spring into believing that LMC designed Spangler's "entire system." Defendants' Reply at 17. Defendants further maintain that the balance of Day Spring's fraudulent misrepresentation argument pertains to allegedly false statements made after the contract was formed and, as such, cannot support Day Spring's assertion that it was fraudulently induced into entering into the contract. Defendants' Reply at 17.

To prevail on a fraudulent misrepresentation claim under New York law,¹³

a plaintiff must show `(1) that [the defendant] made a misrepresentation (2) as to a material fact (3) which was false (4) and known to be false by [the defendant] (5) that was made for the purpose of inducing [the plaintiff] to rely on it (6) that [the plaintiff] rightfully did so rely (7) in ignorance of its falsity (8) to his injury.'

Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994) (bracketed text in original) (quoting Murray v. Xerox Corp., 811 F.2d 118, 121 (2d Cir. 1987)).

13 As Plaintiff's Third Claim for Relief alleging fraudulent misrepresentation is a tort claim, the Price Quote Document Choice of Law Provision does not apply. See Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1540 (2d Cir. 1997) ("under New York law, a contractual choice of law provision governs only a cause of action sounding in contract, not one sounding in tort"). Nevertheless, should the District Judge find that the fraudulent misrepresentation claim is a contract claim such that Illinois law applies, and as the Price Quote Document provides that Illinois law is to govern any conflicts arising thereunder, a claim for fraudulent misrepresentation under Illinois law is established by essentially the same elements as required under New York law. See LaScola v. U.S. Sprint Communications, 946 F.2d 559, 567-68 (7th Cir. 1991) (holding that to state a claim for fraudulent misrepresentation under Illinois law, a plaintiff must allege the following: (1) the representation was a statement of material fact, rather than a mere promise or opinion; (2) the statement was false; (3) the person making the statement knew or believed that the representation was false; (4) the person to whom the representation was made reasonably relied on the truth of the statement; (5) the statement was made for the purpose of causing the other party affirmatively to act; and (6) the reliance by the person to whom the statement was made led to his injury). The parties do not argue otherwise. See Defendants' Memorandum at 21 n. 4 (stating the elements of a fraudulent representation claim are the same under New York law and Illinois law), Plaintiff's Reply at 21-22 (referencing only New York law in discussing elements necessary to sustain fraudulent misrepresentation claim).

In the instant case, a fair reading of the record, including Spaccio-Baran's testimony and affidavit, together with other corroborating evidence in the record, demonstrates the existence of genuine issues of fact precluding summary judgment.

Initially, the court observes Defendants' assertion that Day Spring's fraudulent misrepresentation claim is set forth in ¶ 31 of the Complaint which states:

In June 1995, at a trade convention in Nashville, Tennessee, and several times thereafter, Leo Latini and other agents of Defendants advised Day Spring representatives that the Sample had been manufactured by Defendants' system at Spangler, and that the equipment and system that Defendants designed for Day Spring was an established, proven system that could manufacture a product equal in quality to the Sample. Victor Dencan also stated on or about December 16, 1996, that Defendants would ship the equipment and system to Day Spring only if the equipment and system was [ sic] tested and performing properly (the "Statements").

A fair reading of Spaccio-Baran's Deposition Testimony does not demonstrate that such testimony is inconsistent with such allegation or that Defendants intended to sell Day Spring only equipment.

Specifically, although Spaccio-Baran stated at her deposition that, while at the June 1995 Nashville Trade Show, Latini "showed me a Spangler lollipop, and he said that he would be able to provide me with the same equipment that he provided Spangler with," Spaccio-Baran Deposition T. at 56, Spaccio-Baran protested that Day Spring was not interested in making any changes that would change the look of its flat, sachet-wrapped Rainbow Pops. Id. Spaccio-Baran continued that "Latini proceeded to explain by showing me the Spangler lollipop, how my lollipops could be manufactured now by reworking my forming part and he would be able to speed that up to one hundred seventy-five a minute." Spaccio-Baran Deposition T. at 56-57. In response to defense counsel's question as to whether Spaccio-Baran was referring to the "forming part of the LTW machine," id. at 57, Spaccio-Baran proceeded to describe the rest of Latini's proposal as follows:

The forming part of my LTW, yes, and the difference would be the way it's wrapped. Currently, it's a sachet wrap. That's — that's a heat seal at the base. He [Latini] said this would be sent through a different wrapping piece of equipment, which would sandwich wrap the product after it was formed and imprinted. And then, it would be sent through a shrinking process that would form the excess film from the square sandwich wrap around the pop, itself, giving it a nice little V at the base, which, you know, he [Latini] pointed out, too, would be an even easier way for a consumer to just pull that — pull at that little V and get the wrap off. He [Latini] also asked us [Spaccio-Baran and Sparks] how we were currently doing, you know, running our lines, because he [Latini] hasn't been to our [Day Spring's] facility. I told him [Latini] that we had a batch roller operator at each batch roller, that we were running around between ninety and one hundred lollipops a minute, and then it would get formed, printed, semi-cooled, sachet wrapped, and then it would go through a labeler process where a UPC number would be affixed to the back of each pop, and then its sent through our cooling line. And he [Latini] proceeded to tell us [Spaccio-Baran and Sparks] that with a sizer and his [LMC's] system, that we would only require one operator per two lines. We could also eliminate the labeler and the labeling aspect of this whole process, because we could get imprinted film now that would have that UPC scan bar on it. So I got really, really excited, and so did George [Sparks], because there were so many positive aspects to this. But the most important thing that — not the most important, but one of the important things was that, you know, he [Latini] told me that we [LMC] designed this and we [LMC] manufactured this equipment and that Spangler is currently doing it. Here's a sample and I could keep it. So you know, I told him that, you know, if I could be assured that we wouldn't have to change anything about my [Day Spring's Rainbow Pop's] size, my [Day Spring's Rainbow Pop's] imprint, and we could increase our output and decrease the labor force, it sounded very, very positive. I said I'm interested Leo [Latini]. I'd like you to get back to me with the details on everything that would have to be done.

Spaccio-Baran Deposition T. at 57-58.

Spaccio-Baran continued by recounting how Latini described that LMC would take each of Day Spring's LTW machines into LMC's plant where the LTW machines would be reworked "so that they [the LTW machines] could do the one hundred seventy-five a minute output," Spaccio-Baran Deposition T. at 59, as well as the discussion that to avoid Day Spring having to shut down all four of its lollipop producing lines at the same time, LMC would rework Day Spring's four LTW machines one at a time. Id. According to Spaccio-Baran, "I told him [Latini], get back to me with more of the details and, you know, the quotes and things and what this type of project would cost." Spaccio-Baran Deposition T. at 61 (italics added). Defense counsel characterized the discussion between Spaccio-Baran and Latini as referring to "the need to convert an LTW to a DPW machine." Id. at 67.

Spaccio-Baran's deposition testimony is corroborated by Spark's deposition testimony that at the June 1995 Nashville trade show

Leo [Latini] showed — took out a lollipop and presented it to Roe [Spaccio-Baran]. I was standing alongside Roe [Spaccio-Baran]. And he [Latini] said, this is what we [LMC] can put you [Day Spring] into, and he [Latini] was discussing different lollipop concepts, I guess, if you want to call it."

Sparks Deposition Transcript ("Sparks Deposition T.") (Defendants' Exh. V) at 33. Sparks then compared the features of Day Spring's Rainbow Pops to the Spangler Sample Latini allegedly gave to Spaccio-Baran, including that the Sample was a flat, round lollipop with a wrap that "gave the appearance of our [Day Spring's Rainbow Pop" look, by using a "totally different technique." Sparks Deposition T. at 34-37. In response to defense counsel's inquiry regarding Latini's description as to how Spangler's [process works," Sparks testified that

it [Spangler] was using existing or Latini equipment, I should say, LMC equipment. It was at place in Spangler, and we couldn't run that on our LMC — our machines are called LTWs, and that would not run that. It would have to either be a new line, totally new, or cost effective, we could take one of our old lines. Or as it led into discussions, we had four lines, to redo all four lines, modify, retrofit, as it were, to handle that kind of a wrap.

Sparks Deposition T. at 38.

Sparks then defined the term "line" as "where you put the product in and it goes through various processes and comes out the other end as your desired product." Id. at 38-39. Defense counsel inquired whether Sparks used the term "line" in reference to "operations at Day Spring?" and Sparks responded "[y]es, I do." Id. at 39.

The record also contains two sets of Design Drawings prepared by LMC and sent to Day Spring in August 1995, which include a detailed layout of four converted lollipop manufacturing lines proceeding into four DPW machines for wrapping, then into heat shrink tunnels before dumping onto conveyor belts leading into one main cooling tunnel. Plaintiff's Exhs. 2 and 3. Both sets of LMC's Design Drawings place the heat shrink tunnel before the cooling tunnel. Id. It is significant that LMC later admitted, in a letter to Day Spring dated May 18, 1998 ("May 18, 1998 Letter") (Plaintiff's Exh. 5), that "a fundamental error was made in planning this project," May 18, 1998 Letter at 1, and that the placement of the shrink tunnel before the cooling conveyor was a "placement error." May 18, 1998 Letter at 2.

Former LMC salesperson Randy Ferrell, characterizes LMC's 1995 transaction with Day Spring as the sale of "the heat shrink lollipop manufacturing system," Ferrell Affidavit ¶ 2 (italics added), and that "LMC was selling Day Spring a system for the manufacture and wrapping of lollipops and was not merely selling individual pieces of equipment." Ferrell Affidavit ¶ 3. Ferrell maintains that he "had been told repeatedly by engineering at LMC that this system would work and that LMC had the expertise to make it work. Based upon this belief, I [Ferrell] pursued the sale to Roselyn [Spaccio-]Baran and repeatedly represented to her that the system would work to manufacture lollipops with a heat shrink wrap at the rate of approximately 175 per minute (plus or minus 5%)." Ferrell Affidavit ¶ 3 (italics added).

A reasonable jury could, upon reading the deposition testimony of Spaccio-Baran and Sparks and the Ferrell Affidavit, as well as considering LMC's Design Drawings, conclude that LMC falsely represented to Day Spring that LMC had designed the lollipop manufacturing system, employing LMC equipment described by Latini to Day Spring, utilized by Spangler to produce lollipops like the Sample, that such statements were made to entice Day Spring into placing a relatively large order with LMC for additional equipment and the "modification" or "retrofitting" of Day Spring's current LTW lines into DPW lines. That the contract calls for more than the sale of new LMC equipment is also demonstrated by the fact that Day Spring's LTW lines were to be "modified" or "retrofitted" by LMC, a fact that LMC does not dispute. LMC's admission that LMC's Design Drawings contain a "placement error" further corroborates Day Spring's fraudulent misrepresentation claim, as does Ferrell's statement that he had been repeatedly assured by LMC's engineers that LMC possessed the necessary expertise to provide Day Spring with the proposed shrink-wrap flat lollipop system, using LMC equipment, including the two heat tunnels and cooling conveyor as configured by LMC, and that, based on such assurances, Ferrell made similar representations to Spaccio-Baran. Ferrell Affidavit ¶ 3.

Defendants urge the court not to consider the Ferrell Affidavit in ruling on the summary judgment motion, arguing that the Ferrell Affidavit is "demonstrably false" as the Ferrell Affidavit contains statements that are inconsistent with the prior deposition testimony of Spaccio-Baran. Defendants' Reply at 15-16. In particular, Defendants point to Ferrell's statement that LMC's test of the equipment to be shipped to Day Spring was unsuccessful as "[a]pproximately 70% of the test lollipops has not been properly shrunk wrapped. . . . They [LMC representatives] then proceeded to hand pick from the test samples those pops which had the best appearance and told me to send those hand picked samples to Day Spring, which I did. " Defendants' Reply at 15 (quoting Ferrell Affidavit ¶ 9 (bracketed text and emphasis in original)). Defendants maintain that Spaccio-Baran's deposition testimony that she "never received shrink wrapped samples of Day Spring pops [produced by Defendants on the LMC system before shipping to Day Spring]," establishes that the Ferrell Affidavit is false. Defendants' Reply at 15 (quoting Spaccio-Baran Deposition T. at 282). That the Ferrell Affidavit, however, was made after the deposition of Spaccio-Baran and contains statements contradicting Spaccio-Baran's deposition testimony does not render the Ferrell Affidavit inadmissible to oppose summary judgment.

Specifically, insofar as Ferrell may have made statements in his affidavit contradicting Spaccio-Baran's deposition testimony, such inconsistency does not create a material issue of fact intended to avoid entry of summary judgment as the rule against submitting an affidavit containing statements contradicting prior testimony to create an issue of fact to avoid summary judgment applies only where both the challenged affidavit and the deposition testimony are made by the same witness.¹⁴ See Raskin v. Wyatt Co., 125 F.3d 55, 63 (2d Cir. 1997) (applying the rule in the Second Circuit that "`a party may not create an issue of fact by submitting an affidavit in opposition to a summary judgment motion that, by omission or addition, contradicts the affiant's previous deposition testimony.'"); Trans-Orient Marine Corp. v. Star Trading Marine, Inc., 925 F.2d 566, 572-73 (2d Cir. 1991) ("The rule is well-settled in this circuit that a party may not, in order to defeat a summary judgment motion, create a material issue of fact by submitting an affidavit disputing his own prior sworn testimony."); Mack v. United States, 814 F.2d 120, 124 (2d Cir. 1987) ("It is well settled in this circuit that a party's affidavit which contradicts his own prior deposition testimony should be disregarded on a motion for summary judgment."). Accordingly, any statements made by Ferrell in his affidavit that are inconsistent with Spaccio-Baran's prior deposition testimony cannot be considered as intended to create an issue of fact to avoid summary judgment. Rather, any inconsistency between the Ferrell Affidavit and Spaccio-Baran's Deposition Testimony calls into question the credibility of both the Ferrell Affidavit as well as the Spaccio-Baran Deposition Testimony given that the inconsistency between the two can be reconciled only by choosing to believe either one over the other. Such inconsistency, if any, can only be resolved at trial.

14 In fact, there is no indication in the record that Ferrell was ever deposed in connection with this litigation.

Nor do the statements contained in the Day Spring September 21, 1995 Letter, in which Spaccio-Baran seeks assurance as to several purported representations Latini made regarding the proposed sale to Day Spring foreclose Day Spring's fraudulent misrepresentation claim, as Defendants' maintain. Defendants' Memorandum at 23-24. In particular, Defendants argue that Spaccio-Baran's deposition testimony that the Day Spring September 21, 1995 Letter seeking Latini's written assurance as to the capacity of the ordered equipment contradicts Day Spring's allegation that Defendants falsely represented that LMC had designed the manufacturing system Spangler used to produce the Sample lollipop. Defendants' Memorandum at 23-24 n. 5. However, a plain reading of Day Spring's September 21, 1995 Letter demonstrates that the assurances Spaccio-Baran sought therein mirror the capacity representations Spaccio-Baran maintains Latini made at the June 1995 Nashville trade show when Latini allegedly invited Spaccio-Baran to "take [Day Spring] out of the stone ages" by updating Day Spring's "old and antiquated" lollipop manufacturing operations, Spaccio-Baran Deposition T. at 55, and provided Spaccio-Baran with the Sample lollipop manufactured by Spangler. Accordingly, a reasonable jury could find that such capacity representations were based on the results reported by Spangler using the system that produced the Sample lollipop and, as such, are not necessarily inconsistent with the Day Spring September 21, 1995 Letter.

The instant record thus contains "enough evidence to enable a reasonable jury to return a verdict in [Day Spring's] favor," World Trade Center Properties, L.L.C., supra, at 165-66, on Day Spring's fraudulent misrepresentation claim. Summary judgment as to Day Spring's Third Claim for Relief should therefore be DENIED.

C. Damages

Defendants also seek summary judgment dismissing Day Spring's claims for consequential damages, including for lost profits and the costs of expanding Day Spring's facility to accommodate the new lollipop manufacturing system, and the punitive damages sought by Day Spring in connection with the fraudulent misrepresentation claim.

1. Consequential Damages

Day Spring seeks to recover in excess of $2 million in lost profits Day Spring maintains it would have made if it had been able to produce its Rainbow Pops using the heat shrink wrap process as anticipated upon updating its lollipop manufacturing operations in accordance with LMC's suggestions, as well as the costs Day Spring incurred in expanding its lollipop manufacturing facility to accommodate the new manufacturing system.¹⁵ Defendants maintain they are entitled to summary judgment on Day Spring's consequential damages claims because (1) there is no evidence establishing that the parties ever contemplated, prior to or at the time of the contract, that LMC would assume liability for Day Spring's lost profits or expansion costs as required under New York law, (2) the Price Quote Document's Warranty Provision expressly exonerates LMC from liability for such costs and is enforceable under Illinois law, (3) it is undisputed that Day Spring had determined to expand its manufacturing facility prior to placing an order for new equipment with LMC thereby negating Day Spring's claim for an award of expansion costs which are also excluded by the Warranty Provision, and (4) as the record is devoid of any indication that LMC failed to provide Day Spring with the proper dimensions of the new equipment, Day Spring cannot claim that it unnecessarily expanded its manufacturing facility to accommodate the new equipment purchased from LMC. Defendants' Memorandum at 15, 20-21.

15 The court's reference to Day Spring's new lollipop manufacturing "system" is not intended as indicating the court agrees with Day Spring's assertion that it purchased from LMC a complete system to manufacture lollipops, in contrast to Defendants' assertion that LMC sold Day Spring only pieces of lollipop manufacturing equipment. Rather, the word "system" is used only in recognition of the fact that the purchase order Day Spring placed with LMC was intended to update Day Spring's lollipop manufacturing operations. Whether LMC sold Day Spring a complete lollipop manufacturing system or only pieces of equipment to be installed as configured by Day Spring remains an issue for the trier of fact.

Day Spring argues in opposition that (1) the record establishes the parties contemplated LMC's liability for lost profits should the new lollipop manufacturing system not function as anticipated, (2) LMC was on notice before Day Spring placed its purchase order with LMC of the likelihood that Day Spring would suffer lost profits if the new lollipop manufacturing system designed by LMC failed to produce lollipops like the Sample at the increase production rate assured by LMC, (3) Day Spring never saw the reverse side of the Price Quote Document containing both the Warranty Provision and the Choice of Law Provision and, as such, those provisions cannot be considered as part of the contract, (4) any contractual limitation to Day Spring's recovery of lost profits was rendered unenforceable by LMC's bad faith conduct, and (5) the Warranty Provision on which Defendants rely in seeking to avoid liability for lost profits is, by its own terms, inapplicable as the Warranty Provision is limited to situations involving the "malfunction or breakdown" of equipment sold by LMC, in contrast to the Complaint's allegation that LMC designed and sold to Day Spring a complete lollipop manufacturing system that failed to produce flat, shrink-wrapped lollipops with a sachet-wrapped look, similar to the Sample. Plaintiff's Response at 8-21. Defendants argue in further support of summary judgment that Spaccio-Baran admitted during her deposition testimony that the parties never discussed liability for lost profits, and that Spaccio-Baran "worked off" the Price Quote Document when placing Day Spring's order which precludes Day Spring from ignoring the Price Quote Documents' Warranty Provision's limitation at to any consequential damages claim. Defendants' Reply at 4-16.

A review of the record and relevant law establishes that summary judgment dismissing Day Spring's claims for consequential damages cannot be granted for several reasons. First, there is an issue of fact as to whether, under the contract, LMC sold Day Spring only pieces of equipment, or whether LMC designed and sold to Day Spring an entire system for manufacturing shrink-wrapped Day Spring's Rainbow Pops. Second, should it ultimately be determined that LMC designed and sold to Day Spring an entire system for manufacturing Rainbow Pops, then although the record establishes, as discussed, infra, at 49, that the Warranty Provision was made part of the contract, issues of fact exist as to whether the Warranty Provision is applicable as a defense to Day Spring's breach of warranty and contract claims. Third, assuming, for the sake of discussion, the Warranty Provision is applicable to Day Spring's breach of warranty and contract claims, then there is a question as to whether the Warranty Provision, by excluding liability for failure of the malfunction of the lollipop manufacturing system, fails of its essential purpose so as to be considered unconscionable. Fourth, assuming, arguendo, that the Warranty Provision is both applicable and does not fail of its essential purpose so as to be considered unconscionable, there exists an issue of fact as to whether Defendants' alleged bad faith conduct rendered the Warranty Provision without effect.

a. Choice of Law

Integral to the court's discussions of each of these issues is whether the Price Quote Document's Choice of Law Provision, directing that Illinois law governs the construction of the contract, applies. Because New York is the forum state for this diversity action, New York law controls any choice of law issues. Gilbert v. Seton Hall University, 332 F.3d 105, 109 (2d Cir. 2003) ("In diversity cases, federal courts apply the choice of law rules of the forum state, in this case, New York.") (citing Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496-97 (1941)). "New York law is unambiguous in the area of express choice of law provisions in a contract. . . . [A]bsent fraud or violation of public policy, contractual selection of governing law is generally determinative so long as the State selected has sufficient contacts with the transaction." International Minerals Resources v. Pappas, 96 F.3d 586, 593 (2d Cir. 1996) (internal citations and quotations omitted). See Restatement (second) of Conflict of Laws §§ 186 and 187 (1971). The Choice of Law Provision which Defendants maintain applies to this action provides that

[i]n the event of conflict between the provisions herein and any other written or verbal representations or understandings whatsoever, the terms herein contained shall control and be binding upon all parties governed by the laws of the State of Illinois, U.S.A.

Choice of Law Provision, Price Quote Document, Terms and Conditions Page. Here, Illinois has sufficient contacts with the transaction at issue, including Illinois's status as the forum of choice, and the activities of LMC, the seller of the lollipop manufacturing equipment or system to which the Price Quote Document pertains, such that the Choice of Law Provision is determinable, see International Minerals Resources, supra, at 593 (holding England had sufficient contacts with the subject transaction, given England was the contracted choice of forum and the activities of the seller's London brokers, as to render English law applicable to the contract formation issue), provided the Choice of Law Provision became part of the contract. As such, the Choice of Law Provision will apply provided it was made part of the contract.

The contract pertaining to the sale transaction that is the subject of this action is governed by Article 2 of the Uniform Commercial Code ("the U.C.C."), which has been adopted by both New York and Illinois. See Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 779 n. 1 (2d Cir. 2003) (noting New York adopted the Uniform Commercial Code, effective September 27, 1964); Smith v. Navistar International Transportation Corporation, 957 F.2d 1439, 1442 n. 5 (7^th Cir. 1992) (noting Illinois adopted the Uniform Commercial Code, effective July 1, 1962).¹⁶

16 Although the contract as issue also contemplated the provision of certain services by LMC, including providing a layout for the new equipment, See Design Drawings submitted as Plaintiff's Exhs. 2 and 3, and training Day Spring's employees to operate the new equipment after its installation by Day Spring, LMC September 21, 1995 Letter at 2, such services were "merely incidental or collateral to the sale of goods," such that the contract is for the sale of goods, which is subject to the U.C.C., rather than a contract for the provision of services, which would not be subject to the U.C.C. Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 742-43 (2d Cir. 1979). See also Zayre Corp. v. S.M. R. Co., Inc., 882 F.2d 1145, 1153 (7^th Cir. 1989) (observing that under Illinois law, whether U.C.C. governs mixed contract providing both for sale of goods and provision of services, depends on whether contract's predominant is sale of goods, in which case the U.C.C. applies, as opposed to the provision of services, to which the U.C.C. does not apply).

As relevant to the instant case, the U.C.C. provides that

(1) A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.

(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

U.C.C. § 2-204(1) and (2).

Further,

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants,¹⁷ such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

17 The term "merchant" is defined under the U.C.C. as

a person who deals in goods of the kind or otherwise by his occupation holds him self out as having knowledge or skill peculiar to the practice or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.

U.C.C. § 2-104(1).
Here, both LMC, which deals in the kind of goods at issue in this action, i.e., lollipop manufacturing equipment, and Day Spring, which has knowledge or skill peculiar to the goods at issue in this action, i.e., lollipop manufacturing, qualify under the U.C.C. as "merchants." See Central Illinois Public Service Co. v. Atlas Minerals, Inc., 965 F.Supp. 1162, 1171 (C.D.Ill. 1997) (under Illinois law, coal sale contract between coal company, company's marketing representative, and electric utility was contract between merchants for purposes of U.C.C. § 2-104).

(b) they materially alter it; or

(c) notification or objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any provisions of this Act.

U.C.C. § 2-207.

In the instant case, the parties do not dispute that a valid contract governed the sales transaction between LMC and Day Spring from which the instant litigation arises. Additionally, the record establishes that such contract was comprised of Day Spring's Purchase Order # 068019, as well as LMC's Order Acknowledgment and Confirming Invoice. Significantly, the record also establishes that attached to the Confirming Invoice was a copy of the Terms and Condition Page, on which the Choice of Law Provision appears, although Day Spring maintains that it did not receive a copy of the Terms and Conditions Page until after the contract was made.

Whether the Choice of Law Provision became part of the contract depends on whether the Terms and Conditions Page was provided to Day Spring before the contract was formed, and whether, if so provided, Day Spring timely objected to the Choice of Law Provision. U.C.C. § 2-207(1) and (2). With regard to Defendants' earlier motion to dismiss, the court held that an issue of fact existed as to whether Day Spring was provided with a complete copy of the Price Quote Document given that the Terms and Conditions Page appears only on the reverse side of the Price Quote Document which LMC initially delivered to Day Spring by facsimile transmission such that Day Spring saw only the front pages of the Price Quote Document. December 8, 1999 Report and Recommendation at 4-5. The court further observed that the Terms and Conditions Page was not included with Day Spring's Purchase Order # 068019, nor with LMC's Order Acknowledgment. Id. Day Spring, however, does not dispute that it eventually received an original of the Price Quote Document containing, on the reverse side, the Terms and Conditions Page, or that Day Spring received the original Price Quote Document prior to placing its order with LMC.

In particular, during Spaccio-Baran's deposition, Spaccio-Baran was shown a Price Quote Document which was received and marked for identification as "Defendants' Exhibit 94." Included as Defendants' Exh. E is the same Price Quote Document bearing an "Exhibit" stamp in the bottom left-hand corner indicating that such Price Quote Document is Defendants' Exh. 94 submitted on December 11, 2002, the same date as Spaccio-Baran's deposition. Defendants' Exh. E is a complete copy of the Price Quote Document which includes the Terms and Conditions Page on which the subject Choice of Law Provision appears. Defendants' Exh. E at 3. Spaccio-Baran further stated at her deposition that the Price Quote Document identified at Spaccio-Baran's deposition as Defendants' Exhibit No. 94 was the same document Spaccio-Baran reviewed with Sparks and Latini in determining what Day Spring should order from LMC to update Day Spring's lollipop manufacturing operations. Spaccio-Baran Deposition T. at 72-74. Significantly, Day Spring has not challenged the authenticity of, nor argued that Defendants' Exh. E is not the same document shown to Spaccio-Baran during her deposition and which Spaccio-Baran identified as having received "in August of 1995," Spaccio-Baran Deposition T. at 73, prior to placing Day Spring's order with LMC.¹⁸ Spaccio-Baran further admitted during her deposition that when placing Day Spring's order with LMC, Spaccio-Baran "worked off" the Price Quote Document identified as Defendants' Exh. 94. Spaccio-Baran Deposition T. at 99.

18 Defense counsel's precise question to Spaccio-Baran was, "Do you have any doubt, though, that you received this document sometime in August 1995?" Spaccio-Baran Deposition T. at 73. Spaccio-Baran replied, "I have no doubt that I did." Id.

Evidence submitted by Day Spring otherwise established that LMC provided Day Spring with the Terms and Conditions Page when the contract was formed. In particular, the copy of LMC's September 5, 1995 Confirming Invoice, attached as Exhibit B to the Affidavit of LMC President David Kiel ("Kiel Affidavit"), Plaintiff's Exh. 7, also contains the Terms and Conditions Page, including the Choice of Law Provision and Day Spring does not argue otherwise. It is significant that Kiel identifies "the documents comprising the parties' agreement to sell Day Spring the lollipop manufacturing equipment at issue" as consisting of Day Spring's Purchase Order # 068019 and LMC's September 5, 1995 confirming invoice. Kiel Affidavit, Plaintiff's Exhibit 7, ¶ 2. It is of further significance that in her deposition testimony, Spaccio-Baran, rather than arguing that LMC failed to provide Day Spring with a copy of the Terms and Conditions Page prior to receiving Day Spring's Purchase Order # 068019, asserts only that she failed to "observe the reverse side" of the Price Quote Document. Spaccio-Baran Deposition T. at 80. Although Spaccio-Baran stated in her subsequent affidavit that she did not "read the `terms and conditions' of the back side of this quotation [the Price Quote Document] or on any invoices and, in entering into the contract, was continuing to rely upon the repeated oral assurances and promises made by Leo Latini and Randy Ferrell that this system would manufacture shrink wrapped lollipops at a quality equal to the quality of the Spangler sample pop and at a rate of approximately 175 pop per minute," Spaccio-Baran Affidavit ¶ 11, such statement does not controvert Spaccio-Baran's identification at her deposition of Defendants' Exh. 94, which includes the Terms and Conditions Page, as the Price Quote Document which Spaccio-Baran received in August 1995. Nor does Day Spring challenge LMC President Kiel's statement that the documents comprising the contract included Day Spring's Purchase Order # 068019 and LMC's September 5, 1995 Confirming Invoice. Day Spring also fails to aruge that the Terms and Conditions Page was not attached to LMC's September 5, 1995 Confirming Invoice.

A plain reading of the relevant portions of Spaccio-Baran's Deposition testimony thus supports Defendants' assertion that Spaccio-Baran received a complete copy of the Price Quote Document, including the Terms and Conditions Page, prior to placing Day Spring's order with LMC. The record further establishes that the September 5, 1995 Confirming Invoice LMC sent to Day Spring also contained the same Terms and Conditions Page. That Day Spring never raised any objection to the Choice of Law Provision is not disputed. Accordingly, the record establishes that LMC provided Day Spring with the Terms and Conditions Page before Day Spring submitted Purchase Order # 068019, and that LMC provided Day Spring with another copy of the Terms and Conditions Page with LMC's Confirming Invoice, before Day Spring ever sent any money to LMC, and that Day Spring never timely objected to anything found on the Terms and Conditions Page, including the Choice of Law Provision. Accordingly, the Choice of Law Provision, directing Illinois law be applied in interpreting conflicts involving the contract, is part of the contract and the court applies Illinois law.¹⁹

19 In addition to arguing that the contract, as construed under Illinois law, expressly excludes LMC's liability for Day Spring's lost profits, Defendants' Memorandum at 15, 17-20; Defendants' Reply at 4-10, Defendants also argue, without any explanation, that under New York law, Day Spring cannot recover lost profits because the record is devoid of any evidence establishing that the parties contemplated, either prior to, or at the time the contract was made, that LMC would assume liability for Day Spring's lost profits. Defendants' Memorandum at 15-17; Defendants' Reply at 10-14. In particular, Defendants rely on Kenford Company, Inc. v. County of Erie, 493 N.E.2d 234 (N.Y. 1986), for the proposition that New York permits lost profits to be awarded as damages only where there is no contractual provision governing the availability of such damages as a remedy for a breach, in which case "the commonsense rule to apply is to consider what the parties would have concluded had they considered the subject." Kenford Company, supra, at 243. Accordingly, Defendants maintain the fact that the Warranty Provision specifically excludes liability for lost profits, establishes the parties considered the subject of lost profits and decided such damages would not be available in the event of a breach. However, as discussed, infra, at 51-52, the Warranty Provision is, by its terms, limited only to the "malfunction or breakdown of any machine or part thereof," but does not pertain to the malfunction of an entire lollipop manufacturing system. Assuming, arguendo, that New York law did apply to Day Spring's lost profits claims and, further, that the trier of fact found that Day Spring had purchased form LMC an entire lollipop manufacturing system such that the Warranty Provision does not apply, summary judgment could not be granted on Day Spring's claims for lost profits as there is evidence in the record from which it may be concluded that had the parties considered the issue, the parties would have provided for Day Spring to recover lost profits in the event the lollipop manufacturing system did not operate as promised. Such evidence includes that Day Spring insisted that the new manufacturing system be installed during the winter months when Day Spring's business typically was slow, and that Day Spring needed to convert only one of its four lollipop manufacturing lines at a time because a conversion of all four lines at once would have been too great a disruption to Day Spring's business. See Facts, supra, at 9.

Furthermore, insofar as the parties dispute whether the Warranty Provision became part of the contract, as the Warranty Provision appears on the same Terms and Conditions Page which the court has determined was made part of the contract, and as nothing in the record demonstrates that Day Spring ever timely objected to the Warranty Provision, the Warranty Provision is, thus, also part of the contract.

b. Applicability of the Warranty Provision

Although the court has determined that the Warranty Provision was made part of the contract, fact issues regarding the applicability of the Warranty Provision preclude summary judgment. Day Spring argues that as the Warranty Provision, by its own terms, applies only to the "malfunction or breakdown" of equipment, it does not pertain to the complete failure of Day Spring's lollipop manufacturing system (assuming that the trier of fact finds that the sale was for a shrink-wrap lollipop manufacturing system and not merely for pieces of lollipop manufacturing equipment), allegedly designed and sold by LMC. Plaintiff's Response at 20-21. Day Spring also maintains that if the Warranty Provision's terms do not render it inapplicable, then issues of fact exist as to whether the Warranty Provision fails of its essential purpose. Plaintiff's Response at 14-17. Finally, Day Spring argues that Defendants' alleged bad faith conduct has rendered the Warranty Provision without effect. Plaintiff's Response at 17-20. Defendants argue in opposition that LMC sold Day Spring only pieces of equipment and neither designed nor sold to Day Spring an entire system for manufacturing lollipops. Defendants' Reply Memorandum at 17. Defendants further argue that even if the Warranty Provision is inapplicable, Day Spring cannot establish the degree of bad faith required under both Illinois and New York law to impose liability for consequential damages, nor does applying the Warranty Provision to bar Day Spring from recovering consequential damages cause the Warranty Provision to fail of its essential purpose. Defendants' Reply Memorandum at 14-16. Because the parties cite both New York and Illinois law in support of their respective arguments regarding the applicability of the Warranty Provision, the court first addresses the choice of law issue.

As discussed, supra, at 48-49, upon determining that the Terms and Conditions Page became part of the Contract at issue, the Choice of Law Provision found on the Terms and Conditions Page also became part of the Contract and the parties do not argue otherwise. Accordingly, the court analyzes the applicability of the Warranty Provision under Illinois law.²⁰

20 As both New York and Illinois have adopted the U.C.C., the analysis of the Warranty Provision's applicability is the same under both New York and Illinois law as to any issue to which the U.C.C. applies.

The Warranty Provision provides

All machines and parts manufactured by Latini Machine Company, Inc. are guaranteed to be free from defects in material and workmanship for six (6) onths from date of shipment when given normal and proper usage and when owned and used only by the original purchaser. This guarantee does not cover parts or items which require periodic replacement under normal use. Whether a machine or part is defective in material or workmanship is subject to determination by seller after due inspection, and the sole judgment of Latini Machine Company, Inc. shall be conclusive and binding upon all parties. All machines and parts found to be defective in material or workmanship by Latini Machine Company, Inc. will be replaced by it free of charge, F.O.B. its factory. The foregoing is the only warranty of guarantee by Latini Machine Company, Inc. whether expressed or implied, and the seller shall not be liable for any representations or warranties by any salesman or representative unless specifically contained in the proposal, quotation or herein. Latini Machine Company, Inc. assumes no liability for loss of time, use, sales, profits or otherwise which may be suffered by purchaser as the result of malfunction or breakdown of any machine or part thereof, nor for any expense incurred by purchaser without the express authorization of seller, whether such loss or expense be suffered within the guarantee period or at any time after the expiration thereof.

Warranty Provision, Price Quote Document (italics added).

Provided the trier of fact agrees with Day Spring's assertion that the shrink-wrap flat lollipop manufacturing system Day Spring purchased from LMC never functioned in accordance with the representations LMC allegedly made to Day Spring, then the Warranty Provision is unenforceable because the Warranty Provision, by its terms, does not apply to the design and sale of manufacturing systems, and if the Warranty Provision is construed as providing the only remedy, then the Warranty Provision fails of its essential purpose.

Specifically, the language in the Warranty Provision on which Defendants rely for their argument that the contract between LMC and Day Spring excluded LMC's liability for consequential damages, i.e., that "Latini Machine Company, Inc. assumes no liability for loss of time, use, sales, profits or otherwise which may be suffered by purchaser as the result of malfunction or breakdown of any machine or part thereof," Defendants' Memorandum at 20 (quoting Warranty Provision) (italics added), does not, by its own terms, cover damages resulting from the complete inability of Day Spring's lollipop manufacturing system to produce lollipops in accordance with the assurances made by LMC, including the representations set forth by Latini in LMC's September 21, 1995 Letter. Plaintiff contends that even if the terms of the Warranty Provision do apply to LMC's design and sale of a complete shrink-wrap lollipop manufacturing system to Day Spring, then Defendants' reliance on the Warranty Provision to avoid liability for consequential damages would cause the contract to fail of its essential purpose, thereby depriving Day Spring of the benefit of its bargain. Plaintiff's Response at 14-17.

The U.C.C. permits a seller to exclude or modify warranties, U.C.C. § 2-316, as well as to limit remedies for the breach of a warranty. U.C.C. §§ 2-316(4),²¹ 2-719. AES Technology Systems, Inc. v. Coherent Radiation, 583 F.2d 933, 938 (7^th Cir. 1978). The U.C.C. provides, in relevant part, that

21 U.C.C. § 2-316(4) provides that "[r]emedies for breach of warranty can be limited in accordance with the provisions of this Article, and on liquidation or limitations of damages and on contractual modification of remedy (Sections 2-718 and 2-719)."

[c]onsequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

U.C.C. § 2-719(3).

In the instant case, because the loss of which Day Spring complains is commercial, i.e., lost profits and unnecessary renovation costs, the Warranty Provision, which attempts to limit recovery of damages to the free replacement of any defective machines and parts manufactured by LMC and to exclude any other consequential damages including for "loss of time, use, sales, profits or otherwise which may be suffered by purchaser as the result of malfunction or breakdown of any machine or part thereof," as well as "for any expense incurred by purchaser without the express authorization of seller, whether such loss or expense be suffered within the guarantee period of or at any time after the expiration thereof," Warranty Provision, Price Quote Document at 3, is not prima facie unconscionable. U.C.C. § 2-719(3).

Nevertheless, that the Warranty Provision is not prima facie unconscionable does not, as a matter of law, require a finding that the Warranty Provision precludes Day Spring from recovering any consequential damages in connection with its claims for relief against Defendants. Rather, "[a]lthough the U.C.C. permites parties to limit the remedies available in the event of a breach (e.g., by precluding the recovery of consequential damages), it does require that there at least be a minimum adequate remedy for the victim of a breach." Congitest Corp. v. Riverside Publishing Co., 107 F.3d 493, 496 (7^th Cir. 1997). Pursuant to U.C.C. § 2-719(2), "[w]here circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act." Illinois courts have construed U.C.C. § 2-719(2) as permitting the recovery of consequential damages, despite the existence of an express limitation of damages clause, such as the Warranty Provision, where the seller unreasonably and wilfully fails to meet its repair or replacement obligations under the warranty such that the limited remedy clause "fails of its essential purpose." See Intrastate Piping Controls, Inc. v. Robert-James Sales, Inc., 733 N.E.2d 718, 724 (Ill.App.Ct. 1^st Dist. 3d Div. 2000). Further, although under U.C.C. § 2-719, parties to a contract

are free to shape their remedies to their particular requirements and reasonable agreement limiting or modifying remedies are to be given effect,. . . . it is of the very essence of a sales contract that at least minimum adequate remedies be available. . . . [Furthermore,] where an apparently fair and reasonable clause because of circumstances fails in its essential purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provisions [provided under Article 2 of the U.C.C.].

Intrastate Piping Controls, Inc., supra, at 724-25 (quoting 810 ILCS Ann. 5/2-719, Uniform Commercial Code Comment 1, at 488 (Smith-Hurd 1993), and citing cases) (bracketed text added).

In cases involving the applicability of a remedy limitations provision,

the court must make three inquiries:

(1) whether the contract limited the remedy to repair or replacement; (2) whether, if the remedy were so limited, it failed of its essential purpose; (3) whether, if the limited remedy failed of its essential purpose, consequential damages may be recovered because their exclusion is unconscionable.

Intrastate Piping Controls, Inc., supra, at 724 (internal quotation marks omitted).

In the instant case, the Warranty Provision contains both a warranty limitation, insofar as it limits recovery of damages to the repair or replacement of any defective machine or part manufactured by LMC, as well as a warranty exclusion insofar as the Warranty Provision excludes certain remedies, including consequential damages, in the event of liability for a warranty breach. U.C.C. § 2-316(4). As stated, the U.C.C. permits parties to a contract to limit the express warranties otherwise applicable in the event of a breach. U.C.C. § 2-719(1)(a).

It is undisputed that the terms of the Warranty Provision limits Day Spring's remedies to the repair or replacement of any malfunctioning or defective parts. Warranty Provision. Moreover, the Warranty Provision states that it is the Purchaser's, i.e., Day Spring's, exclusive remedy. Id.

The warranty and remedy in a case like the instant case, "while distinct, go hand-in-hand." AES Technology Systems, Inc., supra, at 939. In a properly functioning system, a defect is detected, and the repair or replacement is promptly made. Id. If, however, "after repeated efforts by the seller to place a product into warranted condition, and the seller cannot or will not do so, the remedy of repair or replacement may be deemed to have failed of its essential purpose and other remedies under the U.C.C. may be called into play. Id. (italics added).

The purpose of an exclusive remedy of replacement or repair of defective parts, whose presence constitute a breach of express warranty, is to give the seller the opportunity to make the goods conforming while limiting the risks to which he is subject by excluding direct and consequential damages that might otherwise arise. From the point of view of the buyer, the purpose of the exclusive remedy is to give him goods that conform to the contract within a reasonable time after a defective part is discovered. When the warrantor fails to correct the defect as promised, within a reasonable time he is liable for a breach of that warranty.

AES Technology Systems, Inc., supra, at 939 n. 5 (citing Beal v. General Motors Corp., 354 F.Supp. 423, 426 (D.Del. 1973)).

Should the jury determine, at a trial, that LMC designed and sold to Day Spring a complete shrink-wrap lollipop manufacturing system, rather than merely pieces of manufacturing equipment, a reasonable jury could also conclude that by limiting LMC's liability to replacing, at LMC's cost, "any machine and parts found to be defective in material or workmanship," deprived Day Spring of any recourse for a malfunctioning system that is unable to produce shrink-wrapped lollipops in accordance with LMC's representations, thereby causing the Warranty Provision to fail of its essential purpose and depriving of the benefit of its bargain in violation of U.C.C. § 2-719(2). Specifically, if the parties contracted for a shrink-wrap lollipop manufacturing system and the system as sold and installed as described by LMC was incapable of producing such lollipops because of the incorrect sequence of the heat tunnel that shrink-wrapped the lollipops, and the cooling tunnel, replacing either a defective heat tunnel component or the cooling tunnel would not render the system capable of producing the product for which it was purchased.

Further, a determination that a warranty has failed of its essential purposes is not dependent on a finding that the seller's failure to remedy the situation was willful or negligent. Id. at 939 n. 6. Nevertheless, although the U.C.C.'s remedies provide for recovery of incidental and consequential damages "in a proper case," U.C.C. § 2-714(3),²² a determination that a warranty has failed of its essential purpose does not, without more, automatically entitle the injured party to such damages. Id. at 941. Whether a case is a "proper" one for the recovery of consequential damages requires an examination of "the individual factual situation including the type of goods involved, the parties and the precise nature and purpose of the contract." AES Technology, supra, at 941.

22 U.C.C. § 2-715 defines "consequential damages" as including "any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise."

In the instant case, as evidence in the record demonstrates that a reasonable jury could conclude that LMC designed and sold to Day Spring an entire shrink-wrap lollipop manufacturing system intended to produce shrink-wrapped lollipops like the Sample, the jury could also conclude that LMC understood that the failure to provide such a system would jeopardize Day Spring's continued viability and that Day Spring's decision to expand its manufacturing facility's was based on Day Spring's anticipated increase production and the need for more room to accommodate the new system. Under these circumstances, a reasonable jury could conclude that the instant action is a "proper case" warranting an award of consequential damages.²³

23 Defendants assert that "a limited warranty of repair or replacement and a consequential damages exclusion are two distinct concepts which are to be judged under different standards — one may be enforced even if the other is not." Defendants' Reply at 13. Specifically, Defendants maintain that where a limited warranty of repair or replacement is at issue, the test is whether such limited warranty "fails of its essential purpose," in contrast to a written consequential damages exclusion, such as the Warranty Provision's language stating that LMC "assumes no liability for loss of time, use, sales, profits or otherwise," which is to be upheld unless such exclusion is "unconscionable." Defendants' Reply at 13-14. In support of this dichotomy, Defendants rely on dicta in Navistar, supra, at 1444, which references Chatlos Systems v. National Cash Register Corp., 635 F.2d 1081, 1086 (3d Cir. 1980). However, cases decided by the Seventh Circuit under Illinois law establish not that limited remedy warranties are evaluated under a "failure of essential purpose" test, while warranty exclusions, including consequential damages exclusions, are evaluated under an "unconscionable" test but, rather, whenever warranty remedies are limited or excluded, a determination must be made as to whether such limitation or exclusion causes the warranty to fail of its essential purpose and, if so, whether the failure of the warranty's essential purpose renders the limitation or exclusion of liability unconscionable such that consequential damages may be recovered. See Cognitest Corp., supra, at 496 ("consequential damages such as lost profits may be limited or excluded by parties to a contract unless the limitation or exclusion is unconscionable."); Navistar International Transporation Corp., supra, at 1443 (observing that a consequential damages disclaimer need not be automatically severed from a contract upon determining that such warranty limitation caused the warranty to fail of its essential purpose but, rather, requires a determination based on the circumstances as to whether consequential damages may be recovered); AES Technology Systems, Inc., supra, at 941 (considering, subsequent to determining that warranty limited to repair or replacement failed of its essential purpose, whether, under circumstances in which product could not be made to function as intended, there was a "proper case" for awarding consequential damages despite consequential damages disclaimer); and Interstate Piping, supra, at 724-25 (observing three-part inquiry to be made in determining whether consequential damages could be awarded where limited remedy's failure of its essential purpose rendered exclusion of consequential damages unconscionable). As discussed, Discussion, supra, at 56-57, in the instant case there is evidence in the record supporting a determination by the trier of fact that by limiting LMC's liability to replacing, at LMC's cost, "any machine and parts found to be defective in material or workmanship," the Warranty Provision failed of its essential purpose by depriving Day Spring of any recourse in the event of the complete malfunction of Day Spring's lollipop manufacturing system and that the subsequent exclusion of LMC from liability for consequential damages attributed to the malfunctioning system was unconscionable.

Accordingly, insofar as it may ultimately be determined by the trier of fact that Day Spring purchased from LMC a shrink-wrap lollipop manufacturing system, rather than merely pieces of equipment, the consequential damages Day Spring seeks in connection with the instant action, as pleaded, are not, as a matter of law, precluded by the terms of the Warranty Provision. Moreover, construing the Warranty Provision as excluding liability for the failure of a complete shrink-wrap lollipop manufacturing system designed and sold by LMC would cause the Warranty Provision to fail of its essential purpose thereby depriving Day Spring of the benefit of its bargain which would be unconscionable. Defendants' reliance on the Warranty Provision to avoid liability for consequential damages, in the event that Day Spring is found to have purchased an entire lollipop manufacturing system designed and sold by LMC, rather than to have merely purchased pieces of equipment, is therefore misplaced, and summary judgment should not be granted on this ground.

c. Whether Defendants' Alleged Bad Faith Renders the Warranty Provision Invalid

As it is only because the court has found that the Warranty provision became part of the contract that the court is able to reach Day Spring's argument that Defendants' bad faith conduct rendered the Warranty Provision without effect, the court must analyze Day Spring's argument under Illinois law in accordance with the Price Quote Document's Choice of Law Provision which also became part of contract.²⁴ Discussion, supra, at 48-49. In particular, Day Spring argues that a purported limitation of consequential damages clause, like the Warranty Provision, "may be rendered unenforceable if LMC engaged in bad faith conduct in the performance of the parties' agreement." Plaintiff's Response at 14. Defendants argue in reply that even assuming, arguendo, that a warranty limited only to repair or replace were at issue, Day Spring cannot establish the degree of bad faith required under both Illinois and New York law to impose liability for consequential damages. Defendants' Reply at 14-16.

24 Whether to apply New York law or Illinois law in considering whether Defendants' bad faith conduct has rendered the Warranty Provision without effect is actually a moot issue as New York law and Illinois law are the same and the parties do not argue otherwise. See Plaintiff's Response at 14 n. 1 (noting "[t]choice of law on this issue is of no particular significance as both New York and Illinois recognize the failure of an otherwise valid exclusion of consequential damages based upon a seller's bad faith performance of its limited warranty to repair or replace."); see also Defendants' Reply at 14-16 (analyzing issue according to both New York and Illinois law).

As discussed in connection with Day Spring's Third Claim for Relief alleging fraudulent misrepresentation, Discussion, supra, at 30-39, a reasonable jury could find, based on the evidence in the record, that LMC fraudulently misrepresented to Day Spring that LMC had designed the shrink-wrap lollipop manufacturing system which produced the Sample lollipop, knowing that Day Spring would rely on such misrepresentation in placing an order with LMC to update Day Spring's lollipop manufacturing operations. "`Bad faith' is a term of art in [Illinois] contract law; it refers to one party's manipulation of contractual terms in order to take commercial advantage of another party." Zeidler v. A W Restaurants, Inc., 301 F.3d 572, 574-75 (7<sup>th</sup> Cir. 2002) (citing Interim Health Care of N. Ill., Inc. v. Interim Health Care, Inc., 225 F.3d 876, 885-86 (7th Cir. 2000); The Original Great American Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d 273, 280 (7th Cir. 1992)). Under Illinois law, "[c]ontract law imposes a duty, not to `be reasonable,' but to avoid taking advantage of gaps in a contract in order to exploit the vulnerabilities that arise when contractual performance is sequential rather than simultaneous." The Original Great American Chocolate Chip Cookie Co., supra, at 280 (citing Market Street Associates Limited Partnership v. Frey, 941 F.2d 588, 593-96 (7^th Cir. 1991)). Further, "`[w]here a party acts with improper motive . . . that party is exercising contractual discretion in a manner inconsistent with the reasonable expectations of the parties and therefore is acting in bad faith.'" Peterson v. HR Block Tax Services, Inc., 971 F.Supp. 1204, 1211 (N.D.Ill. 1997) (quoting Dayan v. McDonald's Corporation, 466 N.E.2d 958, 972 (App.Div. 1^st Dist. 1^st Div. 1984)). "If a party is found to have acted in bad faith, then the other party is relieved of the effects of contractual breaches caused by that bad faith." Id. at 575 (citing Interim Health Care, supra, at 885-86).

In Interim Health Care, supra, the Seventh Circuit, applying Illinois law, reversed the lower court's grant of summary judgment to defendant-franchisor who was sued for wrongful termination of a franchisee's contract based on the franchisee's default on royalty payments owed to the franchisor where evidence existed that the defendant-franchisor usurped its franchisee's territory in bad faith and that such usurpation arguably forced the franchisee to default on the royalty payments. Interim Health Care, supra, at 885-86. In Peterson, supra, the court held that the complaint's allegations that the defendant tax service company had transgressed the plaintiff's "reasonable expectation" of receiving accurate tax advice by duping the plaintiff into paying money for a rapid refund service, knowing that such service was unavailable to the plaintiff sufficiently alleged bad faith. Peterson, supra, at 1212. The Seventh Circuit has further stated, in applying Illinois law,

[s]uppose A hires B to paint his portrait to his satisfaction, and B paints it and A in fact is satisfied but says he is not in the hope of chivvying down the agreed-upon price because the portrait may be unsaleable to anyone else. This, as we noted in Morin Building Products Co. v. Baystone Construction, Inc., 717 F.2d 413, 415 (7th Cir. 1983), would be bad faith, not because any provision of the contract was unreasonable and had to be reformed but because a provision had been invoked dishonestly to achieve a purpose contrary to that for which the contract had been made.

The Original Great American Chocolate Chip Cookie Co., supra, at 280.

Similarly, in the instant case, a reasonable jury could conclude, based on the evidence in the record, that LMC transgressed Day Spring's reasonable expectation of receiving a lollipop manufacturing system that produced lollipops in accordance with the representations, including the Sample, made to Day Spring, with knowledge that the system could not produce lollipops similar to the Sample. Particularly relevant to the jury's so holding would be a determination that LMC was aware that Day Spring's operations, as well as its continued viability, would be jeopardized if the updated lollipop manufacturing operations did not function as anticipated by Day Spring, that LMC knew before it delivered the system to Day Spring that it would not function properly, that LMC understood that Day Spring was basing its decision to expand its lollipop manufacturing facility on the fact that such expansion was necessary to accommodate the new manufacturing operations based on LMC's design of the system's components, but that despite such knowledge, LMC failed to disclose to Day Spring that the system's failures in time for Day Spring to postpone or cancel the plant expansion project. See Facts, supra, at 8-9, 15-17.

Accordingly, Defendant's motion to dismiss Day Spring's claims for consequential damages, including lost profits and expansion costs, should be DENIED. 2. Punitive Damages

Day Spring seeks punitive damages only in connection with its Third Claim for Relief alleging fraudulent misrepresentation. Complaint ¶ 37. Assuming, arguendo, the District Judge agrees with the undersigned's recommendation that summary judgment be denied as to Day Spring's Third Claim for Relief, the court addresses Day Spring's request for punitive damages in connection with such claim.²⁵

25 If, however, the District Judge disagrees with the undersigned's recommendation and grant Defendants' motion for summary judgment as to Day Spring's Third Claim for Relief, then Defendants' motion for summary judgment as to Day Spring's claim for punitive damages will be moot.

Although Day Spring and Defendants agree that disputes arising under the Price Quote Document would be resolved according to Illinois law, the Choice of Law Provision does not apply to tort causes of action unless the choice of law provision "covers any controversy arising out of or relating to" the relevant contract. Turtur v. Rothschild Registry International, Inc., 26 F.3d 304, 309 (2d Cir. 1994). Rather, "under New York law, a contractual choice of law provision governs only a cause of action sounding in contract, not one sounding in tort." Lazard Freres Co., supra, at 1540. In the instant case, the Choice of Law Provision, by its terms, is not so broad as to "cover any controversy arising out of or relating to" the Price Quote Document but, rather, is limited by its terms to "conflict[s] between the provisions herein and any other written or verbal representations or understandings whatsoever." Price Quote Document. Insofar as Day Spring's request for punitive damages pertains to Day Spring's claim for fraudulent misrepresentation, which sounds in tort rather than in contract, the Price Quote Document's Choice of Law Provision does not apply. Instead, the "law of the jurisdiction with the strongest interest in the resolution of the particular issue presented" governs. James v. Powell, 225 N.E.2d 741, 747 (N.Y. 1967).

In applying the interest analysis to tort claims, "New York courts distinguish between conflicts involving conduct-regulating rules and conflicts involving loss-allocating rules." Guidi v. Inter-Continental Hotels, Corp., 2003 WL 1907901, *1 (S.D.N.Y. April 16, 2003). As for conflicts involving conduct-regulating rules, such as punitive damages or standards of care, as opposed to loss-allocation rules, such as vicarious liability principles, "the law of the jurisdiction which has the greatest interest in regulating behavior within its borders" applies. Cooney v. Osgood Mach., 612 N.E.2d 277, 280 (N.Y. 1993). New York's interest analysis conflict of laws rules with respect to fraud claims hold that the place of injury controls. See, e.g., Gray v. Busch Entertainment Corp., 886 F.2d 14, 15 (2d Cir. 1989) (under "interest analysis" approach of New York choice-of-law rules, when parties' domiciles differ, location of injury determines the governing substantive law absent special circumstances); Schultz v. Boy Scouts of America, Inc., 480 N.E.2d 679, 682-83 (N.Y. 1985) (where defendant's unlawful conduct occurs in one jurisdiction and plaintiff's injuries are suffered in another jurisdiction, the place of wrong is considered to be the place where the last event necessary to make defendant liable occurred, i.e., where the place where the plaintiff's injuries occurred). In the instant case, as Day Spring's alleged injuries occurred in New York, Day Spring's punitive damages claims is analyzed under New York law. See Cooney, supra, at 281 (in loss allocation conflict involving split domicile between parties, usual governing law will be that of place where tort occurred).

New York law permits a plaintiff to recover punitive damages in tort actions arising from the parties' contractual relationship "if the plaintiff demonstrates (1) that the defendant's conduct is `actionable as an independent tort; (2) the tortious conduct must be of [an] egregious nature; (3) the egregious conduct must be directed to plaintiff; and (4) it must be part of a pattern directed at the public generally.'" New York Marine and General Ins. Co. v. Tradeline (L.L.C.), 266 F.3d 112, 130 (2d Cir. 2001) (bracketed text in original) (quoting New York Univ. v. Cont'l Ins. Co., 662 N.E.2d 763, 767 (N.Y. 1995), and upholding District Court's dismissal of punitive damages claim as such claim "alleged no facts regarding the fourth prong"). Defendants maintain that Day Spring cannot support the second and fourth prong of a punitive damages claim based on fraudulent misrepresentation. Defendants' Memorandum at 24-25. Day Spring argues in opposition to summary judgment on this issue that whether Defendants' alleged fraudulent conduct is sufficiently egregious as to support punitive damages is an issue of fact for the jury, and that New York law does not require a public harm to recover punitive damages based on fraud. Plaintiff's Response at 24-29. In further support of summary judgment, Defendants maintain that Day Spring has not pointed to any evidence establishing that Defendants' alleged fraudulent actions were sufficiently egregious to be "evil and reprehensible" as required under the second prong of the punitive damages test. Defendants' Reply at 17-18. Defendants further maintain that the cases on which Day Spring's relies in support of its assertion that New York law does not require a public harm to recover on a punitive damages claim pre-date the controlling case law. Defendants' Reply at 18-20.

As to the second prong of the test for a punitive damages claim, "[i]t is settled in New York that punitive damages are not available in the ordinary fraud and deceit case." Orlando v. Novurania of America, Inc., 161 F.Supp.2d 220, 226 (S.D.N.Y. 2001) (citing cases). Rather, punitive damages may be sanctioned "in a fraud and deceit case where the defendant's conduct evinced a high degree of moral turpitude and demonstrated such wanton dishonesty as to imply a criminal indifference to civil obligations." Walker v. Sheldon, 179 N.E.2d 497, 499 (N.Y. 1961). See Rocanova v. Equitable Life Assur. Soc. of U.S., 634 N.E.2d 940, 943-44 (N.Y. 1994) (applying Walker standard in analyzing whether punitive damages are available for fraud claim arising from breach of contract claim). Nevertheless, an award of punitive damages rests in the jury's discretion. Walker, supra, at 499. In the instant case, the record contains evidence which a jury could find arises to the degree of moral turpitude and wanton dishonesty necessary to support a punitive damages claim.

Specifically, a reasonable jury could conclude that Latini falsely represented to Spaccio-Baran at the June 1995 Nashville trade show that LMC had designed the system on which Spangler manufactured the Sample lollipop to induce Day Spring to enter into the contract for a new lollipop manufacturing system, designed by LMC using new equipment sold by LMC and retooled LMC equipment Day Spring already owned, despite the fact that LMC had no experience with such system, that LMC knew before the equipment or system was delivered to Day Spring that it could not manufacture shrink-wrapped flat lollipops that either were similar to the Sample lollipop or in the capacity asserted, that LMC knew that Day Spring was undertaking a costly expansion of its manufacturing facility specifically to accommodate the new LMC manufacturing system in reliance on LMC's representations, and that the cost of such expansion would jeopardize Day Spring's continued viability if the new equipment or system did not operate as planned and cause the demise of Day Spring's theretofore successful business. Such a finding could support the second prong of a punitive damages claim.

Nevertheless, as to the fourth prong of the punitive damages claim test, it is settled in New York that punitive damages are available in tort actions arising out of a contractual relationship only where the conduct complained of "was part of a pattern of similar conduct directed at the public generally." Rocanova, supra, at 944. The standard for awarding punitive damages in such a claim is, accordingly, "a strict one" and "this extraordinary remedy will be available only in a limited number of instances." Rocanova, supra, at 944 (internal quotations omitted). The Second Circuit has recognized that the public harm requirement applies "whenever an action `has its genesis in the contractual relationship between the parties.'" Schonfeld v. Hilliard, 218 F.3d 164, 184 (2d Cir. 2000) (citing New York Univ., supra, at 767). In the instant case, Day Spring's fraudulent misrepresentation claim has its genesis in the contractual relationship between Day Spring and LMC, given that Day Spring alleges that LMC knowingly made false statements to induce Day Spring into contracting with LMC to update Day Spring's lollipop manufacturing system, and the parties do not argue otherwise.

Day Spring's reliance on Action S.A. v. Marc Rich Co., Inc., 951 F.2d 504 (2d cir. 1991), and Giblin v. Murphy, 532 N.E.2d 1282 (N.Y. 1988), cases predating Rocanova, supra, is misplaced. See also China Trust Bank v. Standard Chtd. Cank, PLC, 981 F.Supp. 282, 289 (S.D.N.Y. 1997) (relying on pre-Rocanova cases); Blank v. Baronowski, 959 F.Supp. 172, 179 (S.D.N.Y. 1997) (same); Cohen v. Davis, 926 F.Supp. 399, 405 (S.D.N.Y. 1996) (same); and United States v. Hooker Chemicals Plastics, Corp., 784 F.Supp. 67, 78 (W.D.N.Y. 1990) ( pre-Rocanova). Day Spring's reliance on other District Court cases within the Second Circuit is also misplaced insofar as such cases either were incorrectly decided by the lower court. See, e.g., TVT Records v. Island Def Jam Music Group, 262 F.Supp.2d 188, 193-97 (S.D.N.Y. 2003) (interpreting Rocanova's four part test as permitting a "narrow exception" in which defendants' conduct evinces a particularly high degree of bad faith obviated the need to show harm aimed at the public to support claim for punitive damages based on breach of contract);²⁶ Wright v. Carleton College, 2000 WL 1474408, at *3 (S.D.N.Y. Oct. 4, 2000) ("Under New York law, punitive damages are not available in actions for breach of contract unless either (1) the wrong is aimed at the public generally, or (2) there is an "extraordinary showing" of dishonesty or bad faith", and citing Career Initiatives Corp. v. Palmer, 893 F.Supp. 295, 296 (S.D.N.Y. 1995), which relies on pre-Rocanova cases); and Lovely Peoples Fashion v. Magna Fabrics, Inc., 1998 WL 422482 at *8 (S.D.N.Y. July 22, 1998) (commercial breach of contract claim where there was "no public interest involved"). Other cases are improperly relied upon by Day Spring, see, e.g., Rodgard Corp. v. Miner Enters., 914 F.Supp. 907, 929 (W.D.N.Y. 1995) (stating, contrary to Day Spring's assertion, that "[i]n cases alleging fraud closely related to claims for breach of contract, there must be morally culpable behavior amounting to fraud upon the public."), or did not reach the issue for some other reason, see, e.g., Orlando v. Novurania of Am. Inc., 162 F.Supp.2d 220, 226 (S.D.N.Y. 2001) (not reaching issue as plaintiff failed to establish second prong that defendant's conduct was sufficiently evil or reprehensible to support punitive damages claim). Nor should the court defer to cases decided by district courts which are inconsistent with cases decided by the Second Circuit. In re Pan American Corporation, 950 F.2d 839, 847 (2d Cir. 1991) (observing that district courts within the Second Circuit are bound to follow Second Circuit decisions, "even if other circuits may have different views.").

26 In TVT Records, supra, the court based its finding that a "narrow exception" existed to the conduct aim ed at the public requirement on two cases that preceded Rocanova, including Gordon v. Nationwide Mut. Ins. Co., 285 N.E.2d 849 (N.Y. 1972), and Walker, supra. The "narrow exception" is otherwise predicated on a strained reading of New York Univ., supra, and Rocanova, supra, both cases involving motions to dismiss for failure to state a claim, rather than motions for summary judgment, and in which the New York Court of Appeals did not reach the issue of whether the respective complaints sufficiently alleged public harm as the complaints failed to satisfy other prongs, including the first prong requiring a tort independent of the contract ( New York Univ., supra), and the first three prongs requiring that plaintiff demonstrate he was personally aggrieved by tortious conduct arising out of a contractual relationship with the defendant (Rocanova, supra). Similarly, in New York Marine General Ins. Co., supra, the Second Circuit upheld the District Court's dismissal of the plaintiff's punitive damages claim because the plaintiff alleged no facts regarding the fourth prong, i.e., conduct aim ed at the public. Had the Second Circuit perceived such "narrow exception" existed such that where the defendant's conduct evinces a particularly high degree of bad faith, the fourth prong's public harm requirement was obviated, the Second Circuit would have considered whether the defendant's alleged unlawful conduct established the requisite degree of bad faith. That the Second Circuit did not engage in such analysis establishes the Second Circuit did not find it necessary to determine whether the defendant's alleged unlawful conduct fell within any exception to the fourth prong. Significantly, no published case from any New York court applies such an exception.

Moreover, a plain reading of the record reveals nothing establishing that Defendants' actions, even if found for other reasons to be sufficiently grievous as to support a claim for punitive damages, were directed at the public, and Day Spring does not argue otherwise. Accordingly, Defendants' motion for summary judgment should be GRANTED insofar as Defendants seek to dismiss Day Spring's request for punitive damages.

CONCLUSION

Based on the foregoing, Defendants' motion, filed May 30, 2003, seeking partial summary judgment (Doc. No. 63), should be DENIED in part and GRANTED in part; Defendants motion filed October 27, 2003, to strike the affidavit of Kenneth W. Africano, Esq. (Doc. No. 87) is DENIED, and Defendants' motion to deem admitted portions of Defendants' Rule 56.1 statement and to strike portions of Plaintiff's Rule 56.1 statement (Doc. No. 88), is GRANTED in part and DENIED in part.

SO ORDERED, as to Defendants' motions to strike the affidavit of Kenneth W. Africano, Esq., and to strike portions of Plaintiff's Rule 56.1 Statement and to deem admitted portions of Defendants' Rule 56.1 statement,

Respectfully submitted, as to Defendants' motion for partial summary judgment,

Pursuant to 28 U.S.C. § 636(b)(1), it is hereby

ORDERED that this Report and Recommendation be filed with the Clerk of the Court.

ANY OBJECTIONS to this Report and Recommendation must be filed with the Clerk of the Court within ten (10) days of receipt of this Report and Recommendation in accordance with the above statute, Rules 72(b), 6(a) and 6(e) of the Federal Rules of Civil Procedure and Local Rule 72.3.

Failure to file objections within the specified time or to request an extension of such time waives the right to appeal the District Court's Order. Thomas v. Arn, 474 U.S. 140 (1985); Small v. Secretary of Health and Human Services, 892 F.2d 15 (2d Cir. 1989); Wesolek v. Canadair Limited, 838 F.2d 55 (2d Cir. 1988).

Let the Clerk send a copy of this Report and Recommendation to the attorneys for the Plaintiff and the Defendant.

SO ORDERED.