Opinion
CASE NO. 8:20-cv-01921-JLS-DFM
2022-05-04
AO2, LLC v. RESPIRONICS, INC., et al.
George Agustin Gonzalez, Martin J. Mullen, James S. Brasher, Rowe Mullen LLP, San Diego, CA, for AO2, LLC. Michael W. Caspino, Forward Counsel LLP, Newport Beach, CA, for Respironics, Inc., Respironics Colorado, Inc., Philips Holding USA, Inc.
George Agustin Gonzalez, Martin J. Mullen, James S. Brasher, Rowe Mullen LLP, San Diego, CA, for AO2, LLC.
Michael W. Caspino, Forward Counsel LLP, Newport Beach, CA, for Respironics, Inc., Respironics Colorado, Inc., Philips Holding USA, Inc.
ORDER GRANTING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT
JOSEPHINE L. STATON, UNITED STATES DISTRICT JUDGE
Before the Court are Cross-Motions for Partial Summary Judgment filed by Defendants Philips Holding USA, Inc., Respironics Colorado, Inc., and Respironics, Inc. (collectively "Defendants") (Def's Mot., Doc. 39; Mem., 39-1) and Plaintiff AO2, LLC ("AO2") (Pl.’s Mot., Doc. 42; Mem., Doc. 43.) Both Parties have opposed and replied. (Pl.’s Opp., Doc. 60; Def's Opp., Doc. 54; Def's Reply, Doc. 61; Pl.’s Reply, Doc. 59.) The Court finds this matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78(b) ; C.D. Cal. R. 7-15. Accordingly, the hearing set for May 6, 2022 at 10:30 a.m ., is VACATED. Having considered the pleadings, the parties’ briefs, and for the reasons stated below, the Court now GRANTS Defendants’ Motion and DENIES Plaintiff's Motion for the reasons stated below.
I. BACKGROUND
AO2 and Respironics, Inc. executed and entered into a valid and enforceable contract for the provision of goods, including SimplyGo and SimplyGo Mini oxygen concentrators on June 16, 2017 (the "Agreement"). (Pl.’s Response to Def's Statement of Uncontroverted Facts ("Pl.’s RSUF"), Doc. 56, ¶ 1; Agreement, Ex. 1 to Compl., Doc. 1-1, at ECF 6; see also Joint Stipulation, Doc. 48 (Ex. 1 to Complaint admissible).)
The Agreement included a limitation of liability clause that reads:
The total liability, if any, of Philips Respironics for all damages, and based on all claims, whether arising from breach of contract, breach of warranty, negligence, indemnity, strict liability or other tort, or otherwise, or arising from a product, license software and/or services is limited to the price paid hereunder for the particular Product(s) on which such claim is based. This limitation of liability shall not apply to third party claims for
bodily injury or death caused by Philips Respironics’ negligence or proven product defect. This section will survive the termination of this Agreement.
(Pl.’s RSUF ¶ 3.) Section O of the Agreement also contained a choice of law provision that states that Pennsylvania law shall apply in any federal court lawsuit. (Id. ¶ 4.)
Pursuant to the Agreement, AO2 purchased and received SimplyGo and SimplyGo Mini oxygen concentrators sold by Respironics. (Id. ¶ 2.) The Parties dispute whether those products were defective; AO2 alleges that that the standard battery on every SimplyGo Mini oxygen concentrator was defective and the batteries did not hold a charge and were rapidly depleted. (Id. ¶ 2; Kardish Decl., Doc. 57-1, ¶ 14.) AO2 cites a long history of back-and-forth exchanges with Respironics regarding the performance of the batteries commencing in April 2019. (See Pl.’s RSUF, Pl.’s Uncontroverted Facts ¶¶ 21-58.)
On October 1, 2020, AO2 filed the present action asserting claims for: (1) fraud; (2) breach of contract; (3) breach of the duty of good faith and fair dealing; (4) intentional interference with a contract; (5) violation of California Business & Professions Code § 17200 ; and (6) common law unfair competition. (See Compl., Doc. 1.)
Defendants and AO2 now have filed cross-motions for summary judgment seeking the Court's answer to, essentially, one question: does the limitation of liability clause in the contract limit AO2's recovery under the Complaint to the amount AO2 paid Defendants for the products purchased. (See Def's Mem. at 4 ("Respironics seeks an order holding that the limitation of liability for damages limits Plaintiff's recovery under the Complaint to the amount paid by Plaintiff to Defendant for the products at issue."); Pl.’s Mem. at 2 ("By this motion, AO2 seeks a partial summary judgment that the limitation of damages provision in the Agreement is unenforceable because that provision fails of its essential purpose.").)
II. LEGAL STANDARD
In deciding a motion for summary judgment, the Court must view the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in that party's favor. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment is proper "if the [moving party] shows that there is no genuine dispute as to any material fact and the [moving party] is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A factual dispute is "genuine" when there is sufficient evidence such that a reasonable trier of fact could resolve the issue in the non-moving party's favor, and a fact is "material" when it might affect the outcome of the suit under the governing law. Anderson , 477 U.S. at 248, 106 S.Ct. 2505. But "credibility determinations, the weighing of evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Acosta v. City of Costa Mesa , 718 F.3d 800, 828 (9th Cir. 2013) (quoting Reeves v. Sanderson Plumbing Prods., Inc. , 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) (internal quotation marks omitted)).
The role of the Court is not to resolve disputes of fact but to assess whether there are any factual disputes to be tried. The moving party bears the initial burden of demonstrating the absence of a genuine dispute of fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "Once the moving party carries its initial burden, the adverse party ‘may not rest upon the mere allegations or denials of the adverse party's pleading,’ but must provide affidavits or other sources of evidence that ‘set forth specific facts showing that there is a genuine issue for trial.’ " Devereaux v. Abbey , 263 F.3d 1070, 1076 (9th Cir. 2001) (quoting Fed. R. Civ. P. 56(e) ).
III. DISCUSSION
The first, and most important, matter for the Court to decide is whether the liability limitation clause of the Agreement is enforceable and limits AO2's ability to recover on its Complaint to the amount it paid for the goods under the contract. The Court holds that it is and it does.
Pennsylvania law does not disfavor limitation of liability provisions in a contract, and absent unconscionability, such provisions are binding on parties that fashioned the terms of their agreement. John B. Conomos, Inc. v. Sun Co., Inc. (R&M) , 831 A.2d 696, 704 (Pa. Super. 2003). Section 2719 of the Pennsylvania Commercial Code provides that an agreement "may limit or alter the measure of damages recoverable under this division, as by limiting the remedies of the buyer to return of the goods and repayment of the price or to repair and replacement of nonconforming goods." 13 Pa. C.S.A. § 2719(a)(1). It also provides for an exception: "[w]here circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title." Id. § 2719(b). The comment to Section 2719(b) also explains that "where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of its bargain, it must give way to the general remedy provisions of this Article." 13 Pa. C.S.A. § 2719(b), cmt. 1. "[S]ituations where an exclusive remedy will fail of its essential purpose are rare[.]" New York State Elec. & Gas Corp. v. Westinghouse Elec. Corp. , 387 Pa. Super. 537, 557, 564 A.2d 919 (1989). This section "has been called into action most often in cases ... when the exclusive remedy involves replacement or repair of defective parts, and the seller because of his negligence in repair or because the goods are beyond repair, is unable to put the goods in warranted condition." ( Id. (quoting White, J.J. & Summers, R.S., Uniform Commercial Code , at 469 (2d ed. 1980)).
This Court has diversity jurisdiction to hear this claim pursuant to 28 U.S.C. § 1332. (See Compl. ¶ 15.) Federal courts look to the law of the forum state in resolving choice of law issues. See Ticknor v. Choice Hotels, Intern. , Inc., 265 F.3d 931, 937 (9th Cir. 2001). California law favors the enforcement of contractual choice-of-law provisions. See Nedlloyd Lines B.V. v. Superior Ct. , 3 Cal.4th 459, 464-65, 11 Cal.Rptr.2d 330, 834 P.2d 1148 (1992). Here, the Parties do not dispute that the Agreement has an enforceable choice-of-law provision that applies Pennsylvania law. (See Def's Opp. at 5 n.2 ("The Contract contains a Pennsylvania choice of law provision and all parties analyze their respective issues under Pennsylvania law.").)
AO2's primary contention is that the limitation of damages provision is unenforceable because this provision falls within the "fails of its essential purpose" exception under Section 2719 of Pennsylvania's Commercial Code. (See Pl.’s Mem. at 12.) AO2 has not disputed that the language of the provision is clear; instead, it contends that the "limitation of damages provision fails of its essential purpose because Respironics unquestionably failed to provide AO2 with the contracted for repair or replacement or refund remedy." (Id. at 15.) AO2 cites a long history of notifying Respironics of the battery defects in its products and Respironics's failure to repair those defects as proof that Respironics "completely failed to fulfill its contracted for obligation to repair or replace or refund regarding the undisputed defective units it delivered to AO2." (Id. at 17.) Alternatively, in its Opposition to Defendants’ Motion, AO2 argues that the limitation of damages provision is unconscionable and therefore unenforceable due to Respironics’ knowledge of the defect. (Pl.’s Opp. at 11-14.)
Here, the language of the Agreement clearly limits the liability for damages to the price paid for the products. The language explicitly states that: "The total liability ... for all damages, and based on all claims ... is limited to the price paid hereunder for the particular Product(s) on which such claim is based." (Pl.’s RSUF ¶ 3.) Moreover, that Respironics failed to repair or replace the allegedly defective goods or refund the cost of purchase does not demonstrate that the limitation of liability provision in the Agreement failed of its essential purchase. It may mean that Respironics failed to live up to the terms of the Agreement; this in turn may permit AO2 to seek remedies available at law pursuant to this action. The limitation on those remedies, itself, however, has not failed of its essential purpose, nor has it "deprive[d] [AO2] of the substantial value of its bargain." 13 Pa. C.S.A. § 2719(b). Indeed, if AO2 prevails, it will receive the limited remedy for which it bargained — a refund — and will be put in a position similar to that before it purchased the oxygen concentrators.
The cases cited by AO2 are either distinguishable or support Respironics’ position; in each case, the exclusive remedy involved the replacement or repair of defective parts, and the plaintiff alleged that the seller was unable to put the goods in the warranted condition. Indeed, in New York State Electric and Gas Corporation v. Westinghouse Electric Corporation , 387 Pa. Super. 537, 564 A.2d 919 (1989), the Court considered a contract in which the exclusive remedy was the repair or replacement of the goods at issue and concluded that the contractual remedy did not fail of its essential purpose because the repair "was completely and fully performed." Id. at 560, 564 A.2d 919. It therefore has no bearing on the case here, where the contract at issue also provides for a refund in the amount paid for the goods.
Caudill Seed and Warehouse Co., Inc. v. Prophet 21, Inc. , 123 F. Supp. 2d 826 (E.D. Pa. 2000) is no different. There, "[t]he exclusive remedy ... involved the repair or replacement of defective software, and plaintiff allege[d] that the software was never repaired or replaced[.]" Id. at 829. Thus, in Caudill , the plaintiff was deprived of the substantial benefit of the bargain because without repair or replacement, the plaintiff was left without remedy. Such is not the case here. As Defendants openly acknowledge, if there has been a breach, AO2 is still able to seek the amount paid for the defective products. (See Def's Mem. at 8 ("Defendant is only seeking an order that Plaintiff's claim for damages is limited to the amount paid for the products pursuant to the parties agreement in the contract. Defendants are not seeking to be relieved of all liability, only limiting liability/damages to the amount the parties agreed upon in the Contract.").) Thus, the terms of the Agreement do not create a situation, as in Caudill , in which the "silver bullet" of a limited repair or replace remedy "turns to dust" and leaves the buyer "completely at the mercy of the seller." Id. at 832-33.
The same goes for most of the other cases AO2 cites. See Strickler v. Peterbilt Motors Co. , 2005 WL 1266674, at *3-*4 (E.D. Pa. 2005) (remedy limited to repair or replacement of defective parts failed in essential purpose when defendant failed to provide effective repairs for over a year); Barrack v. Kolea , 438 Pa. Super. 11, 18-19, 651 A.2d 149 (1994) (remedy limited to repair or replacement of defective materials and workmanship failed in essential purpose when defendant exceeded reasonable time to cure); Earl Brace & Sons v. Ciba-Geigy Corp. , 708 F. Supp. 708, 710-11 (W.D. Pa. 1989) (holding that seller was free to disclaim liability for consequential damages); accord Image Prods., Inc. v. Accu-Sort Systems, Inc. , 2009 WL 10687699 at *2 (E.D. Pa. July 10, 2009) (remedy failed essential purpose when defendant was unable to fix the system, despite repeated attempts, when remedy limited to repair, replacement, or refund). As these cases are distinguishable, the Court declines to find that Section 2719 applies such that the limitation clause is unenforceable.
Because the Court holds that the limitation of damages provision does not fail of its essential purpose, it also rejects that the Agreement's disclaimer of consequential, lost profit, and other damages fails as well. (See Pl.’s Mem. at 19-21 (contending these provisions also fail solely because the exclusive or limited remedy clause of agreement failed its essential purpose).)
The Court also declines to find the damages limitation provision unconscionable. "Unconscionability is a defensive contractual remedy which serves to relieve a party from an unfair contract or from an unfair portion of a contract." Harris v. Green Tree Fin. Corp. , 183 F.3d 173, 181 (3d Cir. 1999) (quotations omitted). "The party challenging a contract provision as unconscionable generally bears the burden of proving unconscionability." Id. "In evaluating claims of unconscionability, courts generally recognize two categories, procedural, or ‘unfair surprise,’ unconscionability and substantive unconscionability." Id. "Procedural unconscionability pertains to the process by which an agreement is reached and the form of an agreement, including the use therein of fine print and convoluted or unclear language." Id. "Substantive unconscionability refers to contractual terms that are unreasonably or grossly favorable to one side and to which the disfavored party does not assent." Id. AO2 also argues that, in some circumstances, a party's failure to disclose known product defects in a commercial context can give rise to substantial disparity in bargaining power and may render contract terms unconscionable. (Pl.’s Opp. at 12-13 (citing Bieda v. CNH Indus. Am. LLC , 518 F. Supp. 3d 863, 870 (W.D. Pa. 2021) ; Carlson v. Gen. Motors Corp. , 883 F.2d 287, 296 (4th Cir. 1989) ; Osness v. Lasko Prods. , Inc. , 868 F. Supp. 2d 402, 411 (E.D. Pa. 2012).)
AO2 has failed to carry its burden to show either substantive or procedural unconscionability here. AO2 does not contest that the language of the provision is clear; this is not a circumstance in which fine print or convoluted, unclear language materially shifted a risk between the parties in a manner that would not typically be expected. See Harris , 183 F.3d at 181. That the division of risk here is typical is underscored by the fact Pennsylvania law explicitly allows for damages limitation provisions. See 13 Pa. C.S.A. § 2719. Moreover, this is not a case in which the contractual terms are grossly favorable to Defendants; indeed, the damages limitation provision, as written, permits AO2 to recover the cost of the defective products purchased. Nothing about this arrangement is grossly unfair.
Finally, AO2 has provided no evidence that Defendants were aware of any defects in the products in 2017 when the agreement was executed. All of AO2's evidence focuses on events that took place in August and September 2019, two years after the Parties negotiated the agreement. (See Agreement at ECF 6 (signed June 26, 2017); Pl.’s RSUF ¶¶ 21-58 (detailing back and forth between AO2 and Respironics regarding battery performance beginning April 17, 2019).) This stands in sharp contrast to AO's best case, Bieda v. CNH Industrial America LLC , 518 F. Supp. 3d 863, 870 (W.D. Pa. 2021) . There, the Court held that:
Moreover, AO2 fails to cite controlling case law that would require this Court to find unconscionability here. Bieda is a district court case currently on appeal. Moreover, in Osness v. Lasko Products , the district court merely "assum[ed] (without deciding) that such an allegation of knowledge is sufficient to state a claim of unconscionability," and still found that the plaintiff failed to sufficiently plead that the defendant knew of the alleged defect when it sold the product at issue. 868 F. Supp. 2d at 412.
Given the undisputed evidence that [defendant] knew its [product] was defective and not merchantable for its intended purpose in 2016, over two years prior to [plaintiff's] purchase of the [product] in 2018, and the absence of any remedy at law if the disclaimer at issue is given effect, the evidence permits a finding that the disclaimer, as applied to the subject transaction, is procedurally unconscionable as a matter of law.
Id. at 874. In contrast to Bieda , there is no evidence that Defendants were aware of the defect at the time the agreement was signed, let alone undisputed evidence. Moreover, while the contract at issue there provided for no remedy at law if the disclaimer at issue was given effect, here, the disclaimer provides for limited damages. Thus, the Court declines to find that the provision at issue is similarly unconscionable.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS Defendants’ Motion for Partial Summary Judgment and DENIES AO2's Motion for Partial Summary Judgment.