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Keiper LLC v. Intier Automotive Inc.

March 22, 2010

KEIPER LLC, PLAINTIFF,
v.
INTIER AUTOMOTIVE INC. D/B/A INNOVATECH SEATING SYSTEMS, DEFENDANT.



The opinion of the court was delivered by: Honorable Nancy G. Edmunds

OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [64]

This contract dispute comes before the Court on Defendant Intier Automotive Inc. ("Intier")'s motion for summary judgment. The Court has diversity jurisdiction over this matter. Plaintiff Keiper LLC, a Tier II manufacturer, brings this action against Defendant Intier, a Tier I manufacturer. Keiper alleges that Defendant breached their purchase contracts by failing to pay the full amount owed. Keiper also seeks a judgment declaring that it did not breach any of the warranties it owed Intier under their contracts. For the reasons stated below, Defendant's motion for summary judgment is GRANTED.

I. Facts

A. Parties' Relationship and Purchase Contracts

Defendant Intier is a Tier I automotive seating supplier to several OEMs, including Chrysler. In this capacity, Intier supplied completed seats to Chrysler for Chrysler's CS vehicle program, commonly known as the Chrysler Pacifica crossover vehicle. Intier, in turn, contracted with its Tier II supplier, Plaintiff Keiper, to supply front seat Recliner Systems ("Recliners")*fn1 for incorporation into the Chrysler Pacifica vehicle. These Recliners had power seat adjustments; they reclined or inclined by means of an electric motor. That motor was supplied to Keiper by its supplier, Valeo.

Intier and Chrysler provided Keiper with specific design requirements and performance specifications, and the product it supplied to Intier was tested and found to be in accordance with the specifications provided by both. (Compl. at ¶ 5; Pl.'s Ex. C, Brassat Aff. at ¶¶ 5-6.) Intier purchased the Recliners from Keiper, integrated them into its seat frame, added cushioning, cover and trim, and shipped the completed seats to Chrysler for incorporation into its Pacifica vehicles.

Intier issued Keiper a blanket purchase order, No. 001206, for the Recliners. The initial Purchase Order was issued on September 7, 2004, and revised on the following dates: February 15 and 16, 2005; April 1, 2005; April 24, 2006; May 3, 2006; and March 9, 2007. (Def.'s Ex. 1, Purchase Orders.) The first four Purchase Orders incorporate Intier's "1998 Terms and Conditions" (Def.'s Ex. 2); the remaining three incorporate Intier's "September 2005 Terms and Conditions." (Def.'s Ex. 3).

In the 1998 Terms and Conditions, express warranties regarding goods are provided in Paragraph 13:

Seller expressly warrants that all Goods and Services, including without limitation any special tools, dies, gigs, fixtures, patterns, machinery and equipment, obtained at Buyer's expenses for the performance of that Order and/or which are to be the property of Buyer, shall conform to all drawings, specifications, samples and other descriptions furnished, specified or adopted by Buyer, shall be merchantable, free from any defects in material and workmanship and free of all liens, claims and encumbrances whatsoever. If Seller knows, or has reason to know, the particular purpose for which Buyer intends to use the Goods or Services, Seller warrants that such Goods or Services shall be fit and sufficient for such particular purpose. Seller's warranties are available to, and for the benefit of, Buyer, Buyer's Affiliates and their respective successors, assigns and customers and users of products containing Goods or Services. These warranties shall be in addition to all other warranties available under applicable law. Seller shall indemnify and save Buyer, Buyer's Affiliates and their respective successors and assigns harmless from any breach of these warranties and, for greater certainty, no limitations on Buyer's remedies in Seller's documents, if any, shall operate to reduce this indemnification. Seller shall also indemnify Buyer from and against all liability or damages (including any lost profits, recall costs or other consequential damages) imposed upon Buyer resulting from acts or omissions of Seller in respect of Goods or Services. (Def.'s Ex. 2, ¶ 13 (emphasis added).) As highlighted above, the 1998 Terms and Conditions also provide that the Seller shall indemnify the Buyer from any breach of Seller's warranties.

Paragraph 13 of the September 2005 Terms and Conditions provides similar warranties:

(a) Seller expressly warrants that the Goods and Services, including any special tools, dies, jigs, fixtures, patterns, machinery and equipment, that are obtained at Buyer's expense for the performance of this Order and/or are or become the property of Buyer . . . shall: (i) conform to all drawings, specifications, samples and other descriptions furnished, specified or adopted by Buyer; (ii) comply with all applicable laws, regulations, rules, codes and standards of the jurisdictions in which the Goods . . ., and the products containing the Goods . . ., are to be sold; (iii) be merchantable; (iv) be free from any defects in design, to the extent furnished by Seller or any of its subcontractors or suppliers, even if the design has been approved by Buyer; (v) be free from any defects in materials and workmanship; (vi) be fit, sufficient and suitable for the particular purpose for which Buyer intends to use the Goods . . . , including the specified performance in the component, system, subsystem and vehicle location and the environment in which they are or may reasonably be expected to perform. . . . For the purposes of clause (vi) above, Seller acknowledges that Seller knows the particular purpose for which Buyer intends to use the Goods. . . .

(Def.'s Ex. 3 at ¶ 13(a) (emphasis added).) Paragraph 13(b) further provides that the above-quoted "Seller's Warranties shall be in addition to all other warranties available under applicable law." (Id. at ¶ 13(b).) These Seller's Warranties also extend to Intier's OEM customer, Chrysler. (Id.)

Under these 2005 Terms and Conditions, Keiper-the Seller-also agreed to indemnify Intier-the Buyer-and Intier's OEM customer-Chrysler-for losses resulting from any breach of its Seller's Warranties:

(c) Seller shall indemnify and hold Buyer, its subsidiaries and affiliates, and their respective successors, assigns, representatives, employees and agents, and the OEM Customer harmless from and against all liabilities, claims, demands, losses, costs, damages and expenses of any nature or kind (including consequential and special damages, . . . recall or other customer field service action costs . . . arising from or as a result of: (i) any breach of the Seller's Warranties; and (ii) any other acts, omissions or negligence of Seller or of any of its subcontracts or suppliers in connection with Seller's performance of its obligations under this Order. No limitations on Buyer's rights or remedies in any of Seller's documents shall operate to reduce or exclude such indemnification. (Id. at ¶ 13(c) (emphasis added).) The 2005 Terms and Conditions further specify that these indemnification costs may be set off against amounts otherwise due and owing from the Buyer, Intier, to the Seller, Keiper:

In addition to any right of set-off or recoupment provided by law, all amounts due to Seller and its subsidiaries and affiliates shall be considered net of indebtedness or obligations of Seller and its subsidiaries and affiliates to Buyer and its subsidiaries and affiliates, and Buyer and its subsidiaries and affiliates may set-off against or recoup from any amounts due or to become due from Seller and its subsidiaries and affiliates to Buyer and its subsidiaries and affiliates however and whenever arising. Buyer may do so without notice to Seller or its subsidiaries or affiliates. If any obligations of Seller . . . to Buyer . . . are disputed, contingent or unliquidated, Buyer may defer payment of amounts due until such obligations are resolved. (Id. at ¶ 10.)

B. Warranty Returns and Debits

In April 2005, shortly after production began, Chrysler Pacifica owners began to experience a warranty problem with the front driver and passenger seats. Specifically, the motors in the power recliners stopped working; they lost the ability to incline or recline. (Def.'s Ex. 4, D. Brassat Dep. at 20; Ex. 5, Keiper "7-Step Corrective Action Plan Form" at ¶ 1.)

A June 23, 2006 "7-Step Corrective Action Plan Form," prepared by Keiper states that the "Date Root Cause Identified" was August 31, 2005. This "7-Step Corrective Action Plan" reported that 40 front seat recliner motors, identified as "Valeo 'level 10' motors," had been returned "under warranty with inoperative or 'binding' condition." (Id.) Keiper was able to duplicate the "reported malfunction," and discovered that "[m]ost motors showed deformation in one or two of the teeth of the yellow intermediate gear and in one or two of the teeth of the large output gear of the gearboxes of the motors. Some motors had loose metal intermediate gear axles." (Id. at ¶ 2.) It determined what caused the deformations: "The yellow intermediate gear tooth overriding the output gear teeth caused the deformations and is the failure mode." (Id.) The Keiper report goes on, under paragraph 3 titled "Root Cause," to conclude that "All motors operate after disassembly, freeing of any jammed gears, and re-assembly without replacing the gearbox cover, and without replacing gears. Thus the problem is in the gearbox." (Id. at ¶ 3.) The gears and gearboxes were parts contained in the Recliners supplied by Keiper to Intier.

The "Root Cause" section of the Keiper Report observes that "[p]roduction motors fitted with output gears 0.3 mm larger than current production design survived more than twice the number of cycles of the special stall test than the current production design." (Id.) Thus, Keiper's investigation of the "root cause" revealed that when larger output gears were used, the motor performed better. In keeping with this "root cause" determination, the Keiper Report's section titled "Permanent Action" concludes that "The diameter of the output gear" should be "increased 0.3 mm from the 47.6 mm to 47.9 mm;" and it's section titled "Prevention" provides that "The new output gear design with increase of 0.3 mm to the gear tooth tip OD will improve the capability of the motor and thus reduce warranty occurrences." (Id. at ¶¶ 4 and 7.) There is no mention in these "root cause," "permanent action," or "prevention" sections about the seat back angle, the full forward stop position of the seat, or any "external" factor as a cause or potential cause of the Keiper Recliners' failures.

A December 14, 2006 "Issue Report" prepared by Intier provides the following information about this same warranty issue, identified as "CS Power Seat Back Recliner Motor Inoperative or Binding." (Pl.'s Ex. N at 1.) The problem was first discovered on July 19, 2005 as a result of warranty returns. (Id. at Step 1.) Intier noted that the part supplier, Keiper, "did not find violation of any existing specification or a deviation from normal manufacturing processes that would prompt containment." (Id. at Step 2.) Rather, "[t]his was a design refinement issue." (Id.) A "root cause" analysis was completed on December 12, 2006. Under "Root Cause Analysis, Issue Solver," it is reported that "Keiper found that the current revision 10 level motor design was within all specifications, but could be made more robust with design improvements." (Id. at Step 3.) Under "Root Cause Analysis Options, Issue Manager," in contrast, it is reported that "Root Cause Analysis verifies that the component or process is non-conforming to the specifications." (Id.) Permanent corrective actions were addressed. It was reported that Keiper had increased the diameter of the output gear in the Recliner motor, and the change "was effective at [Intier] with shipments on June 7, 2006." (Id. at Step 4.) It was further reported that "[t]he motor with the larger output diameter gear has successfully completed durability tests of 3 motors, comparing durability of the new design to the previous. . . ." (Id. at Step 5 (emphasis added).) The report concluded that "[t]he new output gear design with increase of 0.3 mm to the gear tooth tip OD will improve the capability of the motor and thus reduce warranty occurrences. (Id. at Step 6 (emphasis added).) Under a section titled "Lessons Learned," the following observation is made: "This motor design was used on multiple car lines without field issues and met all established specifications. The unique Pacifica seating environment contributes to a higher than desired mortality. DaimlerChrysler and the suppliers should jointly identify special vehicle environments that demand additional robustness." (Id. at Step 8.)

On March 5, 2008, after changes had been made to the Keiper Recliner motor, Chrysler's engineer and warranty executive, Gregg Pochmara, observed that "fault" questions remained:

At this point, I think there is agreement that the warranty failures were caused by an unexpected "hard stop" condition in the full up position.

However, the argument is now about who is "at fault" for the unexpected failures. Is Chrysler's "PF" to blame? Is Chrysler/Intier to blame for designing the recliner with the "up" stop only 4 degrees forward of design? Is Keiper at fault for not knowing about this design failure in their DFMEA and then giving direction on where to position the "up" stop? (Pl.'s Ex. M, 3/5/08 email re: CS Keiper Recliner.)

Based on the warranty returns, Chrysler has or will debit Intier approximately $900,000 as of December 4, 2009. The amount Chrysler will debit will increase because the warranty period has not yet run on all Pacificas with the subject Recliners. Defendant Intier has, in turn, debited Keiper approximately $860,000 as a set-off against current and future debits from Chrysler. (Def.'s Ex. 6, T. Lendzion Dep. at 45-46.) Keiper comes up with a much larger amount. It claims that Intier has deducted $115,722.85 from amounts Intier owes it for Recliners. Keiper also claims that Intier is withholding $843,915.37 owed to Keiper for Recliners as a "reserve" against future warranty claims. (Pl.'s Br. at 10, citing Pl.'s Exs. A and L.)

II. Summary Judgment Standard of Review

Summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). A moving party may meet that burden "by 'showing'-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). When the moving party has met its burden under rule 56(c), "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industries Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Ultimately a district court must determine whether the record as a whole presents ...


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