AMERICAN BUMPER & MFG CO V TRANSTECHNOLOGY CORP
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STATE OF MICHIGAN
COURT OF APPEALS
AMERICAN BUMPER & MANUFACTURING
COMPANY,
FOR PUBLICATION
July 26, 2002
9:00 a.m.
Plaintiff-Appellant,
v
TRANSTECHNOLOGY CORPORATION and
TRW, INC.,
Defendants-Appellees.
No. 229616
Ionia Circuit Court
LC No. 97-018491-CK
Updated Copy
September 27, 2002
Before: Jansen, P.J., and Smolenski and Wilder, JJ.
PER CURIAM.
Plaintiff appeals as of right from the trial court's order granting summary disposition in
favor of defendants under MCR 2.116(C)(10). We affirm.
In April 1989, plaintiff entered into an agreement with the Ford Motor Company to
manufacture the front bumpers for Ford F-series pickup trucks. According to plaintiff 's
complaint, at all times Ford controlled the material specifications, processes, checking
procedures, and finishes for the fasteners used in manufacturing the bumpers. Ford provided a
list of approved sub-suppliers to plaintiff, which included defendants. From the suppliers of
fasteners approved by Ford, plaintiff requested quotes for U-nuts that plaintiff would use to
fasten the bumpers to the Ford bumper assemblies. In November 1990, the Palnut Company
(first a division of defendant TRW, Inc., and later a division of defendant TransTechnology
Corporation) responded to plaintiff 's request by issuing a quotation for its U-nuts. In February
1991, plaintiff submitted a "blanket" purchase order, which allowed plaintiff to fill its need for
U-nuts over the course of its contract with Ford.
From 1991 to 1993, Palnut provided plaintiff with many U-nuts used in the bumper
assemblies for Ford's F-series pickup trucks. The U-nuts that were initially supplied to plaintiff
had a phosphate-based coating. In 1992, in response to Ford's requirements, Palnut changed the
coating on the U-nuts to a zinc organic-based coating called Dorroflake. Late in 1992, plaintiff
expressed concerns about Palnut's slow delivery performance. In response, a Palnut employee
suggested changing the fastener coating to Dacromet because that coating could be done in
house. Dacromet is a zinc water-based coating manufactured by Metal Coatings International.
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Palnut sent samples of the Dacromet-coated U-nuts to plaintiff and in April 1993, plaintiff
notified Palnut that the Dacromet-coated U-nuts were approved by its quality assurance
department. Ford also approved Dacromet as a coating and in August 1993, Ford required that
only Dacromet be used as a coating on the U-nuts and that Dorroflake was no longer an
approved coating.
In late November 1993, Ford received reports from its dealers that the U-nuts were
failing, causing the bumpers to become loose or fall off the trucks. Ford relayed this information
to plaintiff on November 28, 1993. Plaintiff then notified Palnut of the U-nut failure and on
December 6, 1993, plaintiff canceled its contract with Palnut. In February 1994, Ford initiated a
recall campaign to replace the defective U-nuts, an endeavor that cost Ford more than $9 million.
On February 25, 1994, Ford issued a report, purportedly identifying what it believed to be
the causes of the failure of the U-nuts. Ford believed that plaintiff and Palnut were at fault and
that plaintiff should bear the financial responsibility because it was the end item supplier.
Plaintiff and Palnut conducted independent investigations regarding why the U-nuts were failing.
Ultimately, it was found that the cause of the failure was stress corrosion cracking. The U-nuts,
which are made of high-strength steel, would crack or corrode when the zinc coating was
exposed to a salt water environment (such as when roads are salted in the winter) and when the
U-nuts are stressed (by inserting and tightening a bolt). One of the experts stated that it is "bad
engineering" to put zinc on high-strength steel and that this was the cause of the U-nut failure.
In June 1994, plaintiff presented its response to Ford's report. In the response, plaintiff
carefully dismissed each charge against it and Palnut and instead concluded that the root cause of
the failure of the U-nuts was associated with the change to Dacromet from Dorroflake. Plaintiff
clearly stated that the fault was with Ford and Metal Coatings International because Ford
directed Palnut and all the approved fastener suppliers to change to Dacromet, but neither Ford
nor Metal Coatings International had properly tested Dacromet when Ford directed this change.
Nothing more happened between plaintiff and Palnut until plaintiff filed suit against
defendants in August 1997. In the meantime, in 1995, Ford and plaintiff entered into settlement
negotiations and an agreement was reached in May 1995. Plaintiff had initially paid $900,000 to
Ford as part of the recall campaign, and also agreed to a one-time price reduction of $2.2 million.
Palnut was not aware of or involved in the settlement negotiations.
Plaintiff 's amended complaint alleges breach of express warranty, breach of implied
warranties of fitness and merchantability, express indemnification, and implied indemnification.
Defendants moved for summary disposition, arguing that plaintiff failed to comply with the
notice provision of subsection 2-607(3)(a) of the Uniform Commercial Code, MCL
440.2607(3)(a), requiring a buyer to notify a seller of a breach of contract within a reasonable
time of discovering the breach, and that plaintiff was barred from any remedy. Defendants also
argued that the breach of express warranty and express indemnification claims should be
dismissed because the language in plaintiff 's purchase orders that supported those claims never
became part of the parties' contract. Finally, defendants argued that the implied indemnification
claim should be dismissed because defendants were not given notice of, or an opportunity to
participate in, the settlement negotiations between plaintiff and Ford. The trial court agreed and
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granted summary disposition under MCR 2.116(C)(10) in defendants' favor "for the reasons set
forth in the defendant[s'] brief and for the arguments made in court today."
The trial court's ruling on a motion for summary disposition under MCR 2.116(C)(10),
which tests the factual sufficiency of the complaint, is reviewed de novo. Maiden v Rozwood,
461 Mich 109, 118, 120; 597 NW2d 817 (1999). The court is to consider the pleadings,
affidavits, admissions, depositions, and other documentary evidence submitted by the parties in a
light most favorable to the party opposing the motion. Id. at 120. If the proffered evidence fails
to establish a genuine issue of material fact, the moving party is entitled to judgment as a matter
of law. Id.
This case involves application of the Uniform Commercial Code, MCL 440.1101 et seq.
Specifically, the trial court ruled that plaintiff had failed to give notice of breach of the contract
to Palnut and, therefore, was barred from any remedy. MCL 440.2607(3)(a) provides:
(3) Where a tender has been accepted
(a) the buyer must within a reasonable time after he discovers or should
have discovered any breach notify the seller of breach or be barred from any
remedy[.]
The burden of establishing a breach is on the buyer. MCL 440.2607(4). The parties disagree
regarding whether there is a "strict" or "lenient" standard in Michigan relative to the adequacy of
notice. Comment four to MCL 440.2607 states that the "content of the notification need merely
be sufficient to let the seller know that the transaction is still troublesome and must be watched."
This sentence has been used to justify a lenient standard. Comment four, however, further states
that "[t]he notification which saves the buyer's rights . . . need only be such as informs the seller
that the transaction is claimed to involve a breach, and thus opens the way for normal settlement
through negotiation." This sentence has been used to justify the strict standard.
Regardless of whether a strict or lenient standard is applied, we find that the notice was
not adequate in this case because the notice did not satisfy the policies underlying the UCC's
notice provision and plaintiff 's conduct did not satisfy the UCC's standard of commercial good
faith. See Aqualon Co v MAC Equipment, Inc, 149 F3d 262, 268-269 (CA 4, 1998); Northern
States Power Co v ITT Meyer Industries, 777 F2d 405, 408, n 3 (CA 8, 1985); Eastern Airlines,
Inc v McDonnell Douglas Corp, 532 F2d 957, 976 (CA 5, 1976). Here, the undisputed facts are
that Ford notified plaintiff in late November 1993 of the problems that Ford was experiencing
with the U-nuts. Immediately thereafter, plaintiff informed Palnut that Ford was experiencing
problems with the U-nuts. About one week later, plaintiff recommended, and Ford agreed, to
change the fastener supplier from Palnut to California Industrial Products. On December 6,
1993, plaintiff notified Palnut that it would no longer purchase U-nuts from Palnut. Ford,
plaintiff, and Palnut then began to investigate the problem to determine why the U-nuts were
failing. Ford's report was issued in February 1994. Ford assigned blame to plaintiff and Palnut,
but believed that plaintiff should be assigned financial responsibility because it was the end item
supplier. In June 1994, plaintiff responded to Ford's conclusions with its own report exonerating
itself and Palnut from responsibility for the failure of the U-nuts. Plaintiff 's report clearly
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assigned blame to Ford and Metal Coatings International. From March to May of 1995, Ford
and plaintiff entered into settlement negotiations where plaintiff agreed to a settlement of $3.1
million and future price reductions to Ford totaling about $8 million. Palnut was not involved in
any way in the settlement negotiations. It was not until August 1997 that plaintiff filed suit
against defendants.
The purposes of the UCC's notice requirement are (1) to prevent surprise and allow the
seller the opportunity to make recommendations how to cure the nonconformance, (2) to allow
the seller the fair opportunity to investigate and prepare for litigation, (3) to open the way for
settlement of claims through negotiation, and (4) to protect the seller from stale claims and
provide certainty in contractual arrangements. Aqualon, supra at 269, citing 1 White &
Summers, Uniform Commercial Code (4th ed), ยง 11-10, pp 612-613. Here, rather than allowing
Palnut to attempt to cure the defect, plaintiff recommended purchasing the U-nuts from another
manufacturer and simply canceled the contract. Once the parties investigated the problem with
the U-nuts, plaintiff determined that Palnut was not at fault. Further, there was no overture of
negotiation or settlement between plaintiff and Palnut. Indeed, there is no evidence that plaintiff
ever considered Palnut to be in breach after the June 1994 report was presented to Ford.
Ultimately, plaintiff did not bring suit against defendants until more than 3 1/2 years after the
defect with the U-nuts was first discovered.
We find that plaintiff has not presented a genuine issue of material fact that would
preclude summary disposition for defendants. In this case, plaintiff did nothing more that
initially notify defendants that there was a problem with the U-nuts, and never notified
defendants that they were in breach. Some courts have made clear that it is not enough for the
buyer to only notify the seller that it is having difficulty with the goods. Aqualon, supra at 266267; K & M Joint Venture v Smith Int'l, Inc, 669 F2d 1106, 1113 (CA 6, 1982). Clearly,
plaintiff 's conduct after the problem with the U-nuts was discovered is completely contrary to a
finding that plaintiff considered defendants to be in breach because plaintiff 's own investigation
exonerated defendants from fault. Eastern Airlines, supra at 978 (even if adequate notice is
given at some point, subsequent actions by the buyer may negate its effect and the buyer's
conduct, taken as a whole, must constitute timely notification that the transaction is claimed to
involve a breach). The purposes of the notice requirement were not served in this case;
therefore, MCL 440.2607(3)(a) bars plaintiff from any remedy.
To the extent that plaintiff argues that the "any remedy" language applies only to any
remedy under the UCC and does not include its claims of express and implied indemnification,
we disagree. MCL 440.1201(34) broadly defines "remedy" as "any remedial right to which an
aggrieved party is entitled with or without resort to a tribunal." Further, MCL 440.2607(3)(a)
also clearly states that if notice of the breach is not given within a reasonable time, the buyer is
"barred from any remedy." It does not state "any remedy under the UCC" as plaintiff contends.
Here, the statute plainly and unambiguously states that notice must be given or the buyer is
barred from any remedy. Further, the indemnification claims here should be included as "any
remedy" where the indemnification claims are based on the underlying breach of warranty claims
for which the buyer also seeks a remedy.
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Accordingly, the trial court did not err in granting summary disposition in favor of
defendants under MCR 2.116(C)(10) because plaintiff failed to give adequate notice under MCL
440.2607(3)(a) for the alleged breach, thus barring plaintiff from pursuing any remedy.
Affirmed.
/s/ Kathleen Jansen
/s/ Michael R. Smolenski
/s/ Kurtis T. Wilder
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