Demorato v. Carver Boat Corp.

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
12-19-2008
Demorato v. Carver Boat Corp
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-3686
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 07-3686
JOSEPH DEMORATO; JOSEPH DELGADO,
Appellants
v.
CARVER BOAT CORPORATION;
STATEN ISLAND BOAT SALES, INC.;
RICHARD CURRY
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 06-cv-00240)
District Judge: Honorable Joel A. Pisano
Submitted Under Third Circuit LAR 34.1(a)
December 2, 2008
Before: AMBRO, and GREENBERG, Circuit Judges,
and O’NEILL,* District Judge
(Opinion filed: December 19, 2008)
OPINION
*
Honorable Thomas N. O’Neill, Jr., Senior United States District Judge for the
Eastern District of Pennsylvania, sitting by designation
AMBRO, Circuit Judge
In July 2004, business partners Joseph Demorato and Joseph Delgado
(“Demorato/Delgado” or “the partners”) traded in the 1998 Carver Mariner they bought at
Staten Island Boat Sales (“SIBS”) and bought a 57-foot Carver 560 Voyager from the
same distributor for about $1 million. They told the sales representative that they wanted
a boat that was capable of transatlantic trips to Costa Rica. To conclude this negotiation,
Demorato/Delgado signed a two-page sale contract with SIBS that specifically disclaimed
by it any express warranty and any implied warranties of merchantability or fitness for a
particular purpose. At closing, Demorato/Delgado received a separate document
containing a warranty from the manufacturer, Carver, that made “repair or replacement”
the exclusive remedy for defects.
Before they took delivery of the boat, Demorato/Delgado asked Carver to make
repairs under its warranty (“punchlist defects”). SIBS made most of the repairs for
Carver over a period that Demorato/Delgado allege lasted 80 days. After they took
delivery of the boat, Demorato/Delgado employed an expert marine surveyor who
identified problems (“additional defects”), which may have included certain unresolved
punchlist defects. The most important of the additional defects was a vibration problem
(caused by bouncing of the sole in the forward cabins on top of the main hull stringers)
that if not fixed would result in structural damage and could affect the seaworthiness of
the boat. This problem had not been identified by Demorato/Delgado for resolution as
part of the punchlist defects. Carver offered to make repairs on the additional defects but
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refused to give assurances that the repairs would make the vessel safe.
Demorato/Delgado refused the repairs and sued SIBS, its representative, Richard Curry,
and Carver.
The District Court granted summary judgment in favor of the defendants and
Demorato/Delgado appeal. We affirm.
Jurisdiction and Standard of Review
28 U.S.C. § 1331 provided the District Court with jurisdiction over
Demorato/Delgado’s claim under the Magnuson-Moss Act, 15 U.S.C. § 2301 et seq. The
District Court had supplemental jurisdiction over their state law claims pursuant to 28
U.S.C. § 1367. Our appellate jurisdiction is pursuant to 28 U.S.C. § 1291.
We review the District Court’s grant of summary judgment de novo. Those
seeking summary judgment must show there are no genuine issues of material fact and
they are entitled to judgment as a matter of law. Pichler v. UNITE, 542 F.3d 380, 385–86
(3d Cir. 2008).
Conflicts of Laws
A district court applies the conflicts of laws rules of the state in which it sits. Chin
v. Chrysler LLC, 538 F.3d 272, 278 (3d Cir. 2008). Here that state is New Jersey, and the
District Court correctly decided that New York law governs. “If the place of negotiating
the contract and the place of performance are in the same state, the local law of this state
will usually be applied....” Keil v. National Westminster Bank, 710 A.2d 563, 569 (N.J.
Super. Ct. App. Div. 1998) (quoting Restatement (Second) of Conflicts of Laws (1971)).
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The parties negotiated and performed the sale in New York. Indeed, the only connections
of the transaction to New Jersey are that Delgado lives there and the boat was registered
and insured there.
The Express Warranty
Breaches of warranties on purchased goods in New York are governed by New
York’s Uniform Commercial Code. A sales contract may limit express warranties. N.Y.
U.C.C. § 2-316; see also N.Y. U.C.C. § 2-719 (permitting limitation of remedy to repair
or replacement). Furthermore, “terms … set forth in a writing intended by the parties as
a final expression of their agreement with respect to such terms as are included therein
may not be contradicted by evidence of any prior agreement.” N.Y. U.C.C. § 2-202.
The sales contract successfully limited any express warranty to that provided by
Carver. That contract stated in all-caps on the back of the one-page document that the
“dealer makes no warranties express or implied of, in and to any boat or item purchased
hereunder and no warranties of merchantability or fitness for a particular purpose are
intended. Warranty, if any, of any item purchased hereunder shall be solely the warranty
given by the manufacturer.” This language channels any warranty through the
manufacturer. The contract further stated that “this constitutes the entire agreement of the
parties and supersedes any and all prior agreements of the parties, whether oral or
written.” Accordingly, we consider irrelevant any evidence of statements by SIBS or
Curry regarding the fitness of the vessel for travel to Costa Rica. See Appellants’ Br. 12.
The terms of the Carver warranty are set out in the limited warranty agreement
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Carver provided to Demorato/Delgado, which limits their remedy to “repair or
replacement.” The UCC permits this limitation so long as the remedy does not “fail of its
essential purpose,” N.Y. U.C.C. § 2-719(b)(2), such as through the inability of the
warrantor to repair defects. “Courts generally have concluded that so long as the buyer
has the use of substantially defect-free goods, the limited remedy should be given effect.”
Chatlos Systems v. National Cash Register, 635 F.2d 1081, 1085 (3d Cir. 1980); see
Cayuga Harvester v. Allis-Chalmers, 465 N.Y.S.2d 606, 611 (N.Y. App. Div. 1983).
Whether a repair or replacement remedy fails of its essential purpose, permitting a
plaintiff to pursue other remedies, is typically a question of fact for the jury. Roneker v.
Kenworth Truck Company, 944 F. Supp. 179 (W.D.N.Y. 1996) (applying New York law);
LTV Energy Products v. Northern States Contracting (In re Chateaugay), 162 B.R. 949,
959 (Bankr. S.D.N.Y. 1994) (applying New York law). But there is no question of
material fact whether the essential purpose of the repair or replacement remedy is
frustrated in this case. Although there are many disputed issues in this case, the parties do
not dispute the following material matters. Carver completed most initial warranty
repairs. After their completion, Demorato/Delgado identified additional problems, all of
which their expert conceded are reparable. The warrantor (Carver) offered additional
repairs, including using the same repair method suggested by Demorato/Delgado’s expert
for resolving the vibration problem. But the partners refused to permit these repairs.
Because their expert conceded that repairs, if successful, would resolve all problems,
there is no issue of fact concerning whether the repair remedy would make the boat
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“substantially defect-free.” Demorato/Delgado cannot cause the repair remedy to fail by
refusing to avail themselves of Carver’s offer to make additional repairs.
Demorato/Delgado argue that the nature of the defects they encountered in the
boat, such as taking on water, caused them to lose faith in it, effectively making it
irreparable. See Appellants’ Br. 34–35. We know of no New York law recognizing this
theory in the N.Y. U.C.C. § 2-719 context, and in any case we would decline to apply it
where, as here, the parties agreed on the remedy for the major defect and repeated repair
attempts have not been made.
The result might be different if Carver attempted to resolve issues proposed by
Demorato/Delgado’s expert but repeatedly failed in its efforts. See Chatlos, 635 F.2d at
1086 (holding that repair remedy failed of its essential purpose where repeated attempts
to repair defect failed); Roneker, 944 F. Supp. at 185 (failure of essential purpose was a
genuine issue of fact for trial where plaintiff refused further repairs but did so after
repeated repair attempts failed). But as noted, Carver resolved most of the problems that
it was permitted to attempt to fix. Moreover, it had no opportunity to attempt to fix
defects, such as the vibration problem, identified for the first time by
Demorato/Delgado’s expert. Although some of the additional defects may overlap with
punchlist defects Carver failed to repair the first time, the purpose of repairs cannot be
frustrated where the warrantor resolves most old defects and is denied a chance at
resolving newly discovered defects and remaining old ones.
The result might also be different if Demorato/Delgado alleged that Carver or
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SIBS knew in advance of the vibration issue or other defects with the particularity
provided by Demorato/Delgado’s expert but failed to resolve them. See Hadar v.
Concordia Yacht, 886 F. Supp. 1082, 1100 (S.D.N.Y. 1995) (applying Massachusetts
law). But the partners do not allege this. See Appellants’ Br. 19, 23, 25–26.
Courts will set aside a repair or replacement limit on remedies where the warrantor
fails to effect repairs within a “reasonable time,” regardless whether that failure was
willful or negligent. Cayuga Harvester, 465 N.Y.S.2d at 611–12. “A delay in supplying
the remedy can just as effectively deny the purchaser the product he expected as can the
total inability to repair.” Id (citing Chatlos, 635 F.2d at 1085). This can be true even
when the plaintiff has refused to submit the defective item for repair. See Roneker, 944 F.
Supp. at 185.
Yet any delay in repair of the partners’ boat did not frustrate the essential purpose
of the repair or replacement remedy. Courts recognizing that delay in itself can frustrate a
repair remedy have done so where business operations created urgency or where delay
was otherwise unreasonable. See, e.g., Chatlos, 635 F.2d at 1085–86 (stating that “time
was of substantial importance” because the product was programmed specifically for the
needs of a customer who needed it quickly); In re Chateaugay, 162 B.R. at 959 (stating
that problem was eventually repaired but “time may have been … essential” where, in a
bridge construction project, “endless delays in effecting repair or replacement may
become so costly that they deprive [a contractor] of the ‘substantial value of its
bargain’”). Here Demorato/Delgado have not alleged circumstances suggesting that full
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repair within 80 days was necessary to prevent them from losing the value of their
bargain. Their Carver 560 Voyager was a pleasure boat. An 80-day delay is not
unreasonable on these facts.1
Implied Warranties
There can be no breach of the implied warranty of merchantability by SIBS, Curry,
or Carver because that warranty was disclaimed in the sales contract in conspicuous
lettering and in terms that included the word “merchantability.” See N.Y. U.C.C. §
2-316. Any implied warranty of fitness for a particular purpose was similarly disclaimed.
See N.Y. U.C.C. § 2-315. Without these implied warranties in effect, whether Carver was
bound by them on a privity or agency theory is irrelevant. The District Court correctly
held that Demorato/Delgado have no federal cause of action for breach of implied
warranty under the Magnuson-Moss Act, 15 U.S.C. § 2301 et seq., because that Act
provides a remedy only for a breach of an implied warranty arising under state law and
SIBS successfully disclaimed those warranties.
Remaining Claims
As New York substantive law applies, violation of New Jersey’s Consumer Fraud
Act, N.J. Stat. Ann. § 56:8-2, does not apply. The partners have waived their false
advertising claim under N.Y. Gen. Bus. Law § 350-a because they raise it for the first
1
We decline to look to New York’s lemon law, N.Y. Gen. Bus. Law § 198-a, for
guidance, as urged by the partners, because they have not made any argument for why the
policy considerations underlying the New York State legislature’s decision to protect
consumers of cars by enacting that law apply to consumers of boats. They state only that
the law is “relevant.” See Appellants’ Br. 24.
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time on appeal. See Simmons v. City of Philadelphia, 947 F.2d 1042, 1065–66 (3d Cir.
1991).
****
For these reasons, we affirm the District Court’s grant of summary judgment in
favor of the defendants.
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