Case Notes

MA Federal Court Holds Contractual Privity Required for Breach of Warranty Claims

In First Choice Armor & Equipment, Inc. v. Toyobo America, Inc., 2012 WL 834123 (D. Mass. Feb. 17, 2012), the plaintiff body armor manufacturer purchased from a third-party weaving company ballistic fabric, intended for use in bullet-proof vests, which the company had made from woven Zylon fabric manufactured by the defendants. Following two incidents in which police officers were killed or injured when bullets penetrated their Zylon body armor, the National Institute of Justice (NIJ) conducted a multi-year investigation and concluded that Zylon vests degrade at an unacceptable rate from exposure to light, heat and moisture. The NIJ revoked safety compliance certificates for such body armor and prohibited its future sale in the United States.

Thereafter, the plaintiff sued the Zylon manufacturers in the United States District Court for the District of Massachusetts asserting claims for fraud, breach of the implied warranty of merchantability (the Massachusetts near-equivalent of strict liability) and violation of Mass. Gen. L. ch. 93A (the Massachusetts unfair and deceptive practices statute). The plaintiff alleged that defendants manufactured, sold and promoted Zylon for ballistic protection applications despite knowing it would be rendered unsafe by gradual degradation, and sought recovery of the plaintiff's recall and replacement costs, legal costs for the NIJ investigation, lost profits and damaged reputation. The defendants moved for summary judgment, arguing that plaintiff's breach of warranty claims were barred by the absence of contractual privity between the parties, and plaintiff's fraud and ch. 93A claims were time-barred.

The court allowed the defendants' motion as to the breach of warranty claims, rejecting the plaintiff's argument that it need not establish privity of contract for those claims because the parties had a “significant business relationship.” While contractual privity is not required to support a ch. 93A claim if the parties have a “significant business relationship,” that rule is inapplicable to breach of warranty claims, which are governed by ' 2-318 of Massachusetts' version of the Uniform Commercial Code. Although the issue has not been resolved by the Massachusetts appellate courts, the court followed other federal district court decisions holding that, although
' 2-318 does not require contractual privity for consumers to assert tort-based warranty claims for personal injury or property damage, privity is required for commercial entities that assert contract-based warranty claims for economic injuries. “When a manufacturer sells a product to an intermediary, who subsequently resells it to a commercial retailer, and there is no privity of contract between the manufacturer and the commercial retailer, no implied warranty runs from the manufacturer to the commercial retailer.” The two agreements cited by the plaintiff ' a financial support agreement in furtherance of plaintiff's NIJ certification and a non-disclosure agreement concerning a version of Zylon that the defendants never marketed ' could not establish privity because neither contract was for the sale of the goods at issue.

As to the plaintiff's fraud and ch. 93A claims, the court asserted that the statute of limitations began to run on such claims when the plaintiff discovered, or reasonably should have discovered, defendant's fraud. As this presented a triable issue of fact, the court denied summary judgment on these claims. ' David R. Geiger, Foley Hoag, LLP

MA Federal Court Holds Contractual Privity Required for Breach of Warranty Claims

In First Choice Armor & Equipment, Inc. v. Toyobo America, Inc., 2012 WL 834123 (D. Mass. Feb. 17, 2012), the plaintiff body armor manufacturer purchased from a third-party weaving company ballistic fabric, intended for use in bullet-proof vests, which the company had made from woven Zylon fabric manufactured by the defendants. Following two incidents in which police officers were killed or injured when bullets penetrated their Zylon body armor, the National Institute of Justice (NIJ) conducted a multi-year investigation and concluded that Zylon vests degrade at an unacceptable rate from exposure to light, heat and moisture. The NIJ revoked safety compliance certificates for such body armor and prohibited its future sale in the United States.

Thereafter, the plaintiff sued the Zylon manufacturers in the United States District Court for the District of Massachusetts asserting claims for fraud, breach of the implied warranty of merchantability (the Massachusetts near-equivalent of strict liability) and violation of Mass. Gen. L. ch. 93A (the Massachusetts unfair and deceptive practices statute). The plaintiff alleged that defendants manufactured, sold and promoted Zylon for ballistic protection applications despite knowing it would be rendered unsafe by gradual degradation, and sought recovery of the plaintiff's recall and replacement costs, legal costs for the NIJ investigation, lost profits and damaged reputation. The defendants moved for summary judgment, arguing that plaintiff's breach of warranty claims were barred by the absence of contractual privity between the parties, and plaintiff's fraud and ch. 93A claims were time-barred.

The court allowed the defendants' motion as to the breach of warranty claims, rejecting the plaintiff's argument that it need not establish privity of contract for those claims because the parties had a “significant business relationship.” While contractual privity is not required to support a ch. 93A claim if the parties have a “significant business relationship,” that rule is inapplicable to breach of warranty claims, which are governed by ' 2-318 of Massachusetts' version of the Uniform Commercial Code. Although the issue has not been resolved by the Massachusetts appellate courts, the court followed other federal district court decisions holding that, although
' 2-318 does not require contractual privity for consumers to assert tort-based warranty claims for personal injury or property damage, privity is required for commercial entities that assert contract-based warranty claims for economic injuries. “When a manufacturer sells a product to an intermediary, who subsequently resells it to a commercial retailer, and there is no privity of contract between the manufacturer and the commercial retailer, no implied warranty runs from the manufacturer to the commercial retailer.” The two agreements cited by the plaintiff ' a financial support agreement in furtherance of plaintiff's NIJ certification and a non-disclosure agreement concerning a version of Zylon that the defendants never marketed ' could not establish privity because neither contract was for the sale of the goods at issue.

As to the plaintiff's fraud and ch. 93A claims, the court asserted that the statute of limitations began to run on such claims when the plaintiff discovered, or reasonably should have discovered, defendant's fraud. As this presented a triable issue of fact, the court denied summary judgment on these claims. ' David R. Geiger, Foley Hoag, LLP