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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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NY DRILLING, INC.,
Plaintiff, MEMORANDUM & ORDER
20-CV-3111(EK)(RER)
-against-
TJM, INC. LLC a/k/a TJM DRILLING
EQUIPMENT & SUPPLY COMPANY a/k/a TJM
INC. DRILLING EQUIPMENT & SUPPLY
COMPANY a/k/a TJM DRILL TOOLS,
Defendant.
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ERIC KOMITEE, United States District Judge:
Plaintiff NY Drilling, Inc. purchased two âhydraulic
crawler drilling rigsâ from defendant TJM, Inc. pursuant to
written contracts of sale. Plaintiff does not say what use it
intended for the rigs, but does allege that they malfunctioned
multiple times and had to be taken out of service. Invoking the
Courtâs diversity jurisdiction, NY Drilling alleges that TJM
breached the implied warranties of merchantability and fitness
by its sale of defective rigs.
Defendant now moves to dismiss under Federal Rule of
Civil Procedure 12(b)(6), on the basis that the partiesâ written
contracts explicitly disclaim those warranties. For the reasons
set forth below, I GRANT Defendantâs motion to dismiss.
I. Background
A. Factual Background
The following factual allegations are taken from
Plaintiffâs second amended complaint (âSACâ) and are assumed to
be true for purposes of this Order. There are three primary
players in this story:
ïź HD Engineering manufactured the drills in question.
SAC ¶ 6, ECF No. 22.1 HDE is based in Hong Kong and is
not a party to this action.
ïź Defendant TJM, Inc. is located in Pennsylvania and is
the exclusive distributor of HDEâs drilling rigs in
the United States. Id. ¶¶ 2, 23.2 When HDE sold the
rigs at issue to TJM, the purchase agreements
accompanying the rigs contained a one-year âwarranty
agreementâ between HDE and TJM (that is, between
manufacturer and distributor). Id. ¶¶ 6, 32-33. NY
1 The complaint refers to this entity both as HD Engineering and also
âHong Kong Drill,â but primarily as the former. For consistency with the
partiesâ nomenclature, this order refers to the entity as HD Engineering (or
âHDEâ in short form).
2 The complaint refers to TJM as âTJM Inc. LLCâ without explaining the
significance of the two corporate designations. TJM uses both designations
in the relevant contracts.
Drilling is nowhere named or referred to in that
agreement.
ïź Plaintiff NY Drilling is a construction company based
in Queens. Id. ¶ 1. As relevant here, NY Drilling
purchased two drilling rigs from TJM in July and
November of 2018 â both times pursuant to written
contracts. HDE was not a party to either purchase
document.
NY Drilling bought the first drilling rig, Model
HD110-4T, from TJM in July of 2018. The purchase price was
$482,137. Id. ¶ 6. Wayne Fried, a representative of NY
Drilling, executed the purchase contract â titled âFinal Revised
& Updated Quotationâ â to effectuate this purchase. ECF No. 19-
1 at 2 (âJuly 2018 Contractâ). Immediately below Friedâs
signature block is a warranty disclaimer:
TJM INC MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, AND
AGREES THAT NO WARRANTY IS IMPLIED WITH RESPECT TO THE
CONDITION, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE. NO OTHER TERMS AND CONDITIONS SHALL SUPERSEDE
THIS PROPOSAL. BY ORDERING ANY ITEMS ON THIS PROPOSAL WITH
OR WITHOUT SIGNING THIS YOU AND YOUR COMPANY HEREBY
UNDERSTAND AND AGREE TO THE TERMS AND CONDITIONS STATED
HERE IN [SIC]. THIS PARAGRAPH MAY NOT BE MODIFIED,
AMENDED, DISCHARGED OR TERMINATED EXCEPT IN WRITING AND
SIGNED BY THE PARTIES HERETO.
Id. at 4. As discussed below, Plaintiff challenges the
enforceability of this disclaimer.
The HD110-4T rig malfunctioned shortly after delivery.
In late July, the âentire front of the machine collaps[ed].â
SAC ¶ 7. TJM delivered replacement parts and repaired the
machine. Id. That rig then âfailedâ again a few months later.
Id. ¶ 8. TJM then replaced the HD110-46 with another rig from
HDE â this time model âHD200A.â Id.3 The parties executed a
separate contract for the HD200A on November 28, 2018. ECF No.
19-1 at 8 (âNovember 2018 Contractâ). This document included
the same warranty disclaimer in the same location. Id. at 10.
The HD200A also malfunctioned on a number of
occasions, and TJM made at least two repairs. SAC ¶¶ 9-10. In
July 2019, NY Drilling notified TJM that âa section of the mast
was failing[,] which would cause a full structural failure.â
Id. ¶¶ 11-12. In response, TJM âpicked upâ the rig at the end
of August. Id. ¶ 12. TJM had not repaired or returned the
machine as of September 2021. Id. ¶ 19.
B. Procedural Background
Plaintiff brought this litigation in July 2020. It
has since amended its original complaint twice in response to
potential deficiencies identified by TJM and the Court. The
second amended complaint, filed September 24, 2021, alleges
3 It is not clear how much additional money, if any, NY Drilling
actually paid TJM for the new HD200A drill. The contract for that drill
lists a purchase price of $568,614, but says only âKey Bank Financingâ under
the payment terms. ECF 19-1 at 9.
(1) a breach of the implied warranty of merchantability (Count
One); (2) breach of the implied warranty of fitness (Count Two);
(3) that, as a result of TJMâs breach of the implied warranties,
TJM owes NY Drilling $93,000 in replacement and repair costs
(Count Three); and (4) breach of warranty agreement between TJM
and HDE (Count Four). SAC at 4-7. The fourth count alleges
that the warranty agreement between TJM and HDE extended to NY
Drilling as a third-party beneficiary, and that TJM breached
that warranty agreement by performing inadequate repairs. Id.
at 7, ¶¶ 30-36. Plaintiff seeks $369,155.00 in damages for this
breach â the money it finds itself out-of-pocket, plus the money
it has paid Defendant pursuant to the partiesâ financing terms.
Id. ¶ 37.
II. Legal Standard
In reviewing a Rule 12(b)(6) motion, a court must
accept all factual allegations in the complaint as true and draw
all reasonable inferences in the plaintiffâs favor. E.g., Lundy
v. Catholic Health Sys. of Long Island Inc., 711 F.3d 106, 113
(2d Cir. 2013). Only âa plausible claim for relief survives a
motion to dismiss.â LaFaro v. N.Y. Cardiothoracic Grp., PLLC,
570 F.3d 471, 476 (2d Cir. 2009). A claim is plausible âwhen
the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for
the misconduct alleged.â Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). Courts âare not bound to accept as true a legal
conclusion couched as a factual allegation.â Id.
III. Discussion
A. Breach of Implied Warranties
NY Drilling alleges, in its first cause of action,
that TJM breached the implied warranty of merchantability by
selling rigs that failed to âperform for the purpose for which
they were intended.â SAC ¶¶ 16-17. In its second cause of
action, NY Drilling alleges that TJM breached the implied
warranty of fitness because it âknew . . . the intended purpose
for which [NY Drilling] was to use the drilling rigsâ and made
ârepresentations . . . that these two drilling rigs were capable
of performing in accordance with [NY Drillingâs]
specifications.â Id. ¶ 22-23.
New Yorkâs Uniform Commercial Code dictates that every
contract carries implied warranties of merchantability (under
Section 2-314) and fitness (Section 2-315), unless those
warranties are âexcluded or modified.â The contracts for both
drilling rigs contain (identical) warranty disclaimers, as noted
above, but the parties dispute whether the disclaimers suffice
to exclude the implied warranties at issue.
Section 2-316 sets forth the standard for the
exclusion of implied warranties under the New York U.C.C. To
exclude an implied warranty of merchantability, a contractâs
disclaimer âmust mention merchantability and in case of a
writing must be conspicuous.â N.Y. U.C.C. Law § 2-316(2).
Similarly, an exclusion of the implied warranty of fitness âmust
be by a writing and conspicuous.â Id. The statute defines
âconspicuousâ in a common-sense way: it means âso written,
displayed, or presented that a reasonable person against which
it is to operate ought to have noticed it.â N.Y. U.C.C. Law
§ 1-201(b)(10).4 âWhether a term is âconspicuousâ or not is a
decision for the court.â Id.
Here, the disclaimer appears, in each contract,
in a paragraph directly below the signature block for NY
Drilling. The disclaimer is set off from the signature
block, and other boilerplate terms in the contract, by a
few lines of blank space. Its text is in all capital
letters. It appears to be of the same size font as the
majority of the contract, except that certain shipment and
4 Section 1-210(b) used to contain specific examples of conspicuousness,
but the state legislature deleted them in 2014. The prior version stated: âA
printed heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is
conspicuous. Language in the body of a form is âconspicuousâ if it is in
larger or other contrasting type or color.â U.C.C. 1-210(b)(1) (in effect
through 2014). The deletion of these examples presumably reflects the
legislatureâs desire to avoid the implication that any specific type of
âconspicuousnessâ is required. Cf. INS v. CardozaâFonseca, 480 U.S. 421,
442â43 (1987) (âFew principles of statutory construction are more compelling
than the proposition that Congress does not intend sub silentio to enact
statutory language that it has earlier discarded in favor of other
language.â); see also 1A Sutherland Statutory Construction § 22:1 (7th ed.)
(omission of provision in amended statute âis treated as amendatory.
Generally, such an act indicates a legislative intention that the meaning of
the statute has been changed and raises a presumption that the legislature
intended to change the law.â).
payment terms are larger and in bold, as are certain
headings.5
One might reasonably question the conspicuousness
of a disclaimer appearing after the signature blocks in a
contract. By the time a contractâs reader gets to the
signature blocks, he should generally understand what he is
signing. Here, the disclaimers not only follow the
signature blocks, they are grouped with text that is
clearly not part of the contracts: for example, text
exhorting the reader to âLOOK @ OUR FACEBOOK PAGE!!â E.g.,
ECF No. 19-1 at 4. This fact weighs meaningfully against a
finding of conspicuousness.
Moreover, the contracts contain no language
preceding the signature blocks that directs the reader to
the disclaimers after them. This is in contrast to other
cases containing such a cross-reference. See, e.g.,
Martino v. MarineMax Ne., LLC, No. 17-CV-4708, 2018 WL
6199557, at *4 (E.D.N.Y. Nov. 28, 2018) (âImmediately above
the signature line, in all capital, bolded letters so as to
make it conspicuous, [was] the admonition to read the
5 The contracts attached to the amended complaint also appeared to be in
sightly faded font. Because Defendant argued that this was not a correct
representation of the documents, I ordered Defendant to produce, if possible,
clearer versions of the agreements. The contracts Defendant produced are
indeed in clear text. ECF No. 19-1.
reverse side for âimportant limitations of warranties.ââ);
see also Am. Dev. Grp., LLC v. Island Robots of Fla., No.
17-CV-3223, 2019 WL 5790265, at *3 (E.D.N.Y. Oct. 4, 2019),
report and recommendation adopted, 2019 WL 5788319
(E.D.N.Y. Nov. 6, 2019) (limited warranty was first stated
on page 2 of contract, and âa lengthy full-page warranty on
the last page, entitled, â. . . One-Year Warranty,â set[]
out more detailsâ).
The case law in New York State is relatively
quiet on the subject of whether a disclaimer must precede
the signature blocks to be conspicuous. The Defendant here
has identified only one New York case â decided by a
âJustice Courtâ in 1992 â addressing the issue.6 Courts in
other states, however, have frequently found disclaimers
appearing below a signature line to be conspicuous. See,
e.g., Vision Graphics, Inc. v. E.I. Du Pont de Nemours &
Co., 41 F. Supp. 2d 93, 99 (D. Mass. 1999) (conspicuous
disclaimer âappeared right below the partiesâ signature
lineâ); Fleming Farms v. Dixie Ag Supply, Inc., 631 So. 2d
922, 927 (Ala. 1994) (conspicuous disclaimer âappeared in
6 See Ireland v. J.L.âs Auto Sales, Inc., 156 Misc. 2d 845, 848 (Just.
Ct. of Town of Arcadia 1992). The Ireland contract directed the reader to
âsee other side for additional termsâ in capital letters and âlarge, dark
printâ appearing one inch below the plaintiffâs signature. Id. The âother
side,â in turn, included a disclaimer that the Justice Court found
conspicuous. Id. Though the decision is well-reasoned, its utility is
perhaps limited by the fact that Justice Courts hear only small claims and
the presiding Justices are not required to be lawyers.
the center of the form, immediately below the line for a
signature acknowledging receiptâ). These out-of-state
cases applied definitions of âconspicuousâ that are
substantially identical to the New York U.C.C.âs. See
Vision Graphics, 41 F. Supp. 2d at 98; Fleming Farms, 631
So. 2d at 926.
Here, in the end, the disclaimers at issue bear
characteristics that are sufficiently conspicuous to
overcome their suboptimal placement. The text is in all
capital letters and it clearly and explicitly disclaims the
warranties of fitness and merchantability. See Shema
Kolainu-Hear Our Voices v. ProviderSoft, LLC, 832 F. Supp.
2d 194, 200 (E.D.N.Y. 2010) (disclaimer conspicuous because
it â[wa]s in capital letters in a separate block paragraph
and specifically mention[ed] merchantability . . . [and]
fitnessâ); Maltz v. Union Carbide Chemicals & Plastics Co.,
992 F. Supp. 286, 304 (S.D.N.Y. 1998) (âThe warranty
disclaimer is in capital letters and specifies the
warranties that are being disclaimed.â). The disclaimer is
also set off in its own discrete paragraph, in a font and
type size that differs from the text surrounding it. Taken
together, these characteristics are sufficient in light of
the weight of persuasive (if not binding) authority above.
Indeed, courts have found less prominent
disclaimers to be conspicuous. In Ireland, for example,
the disclaimer was held to be conspicuous even though it
not only came after the signature blocks, but also appeared
on the reverse side of that last page â it was enough, in
that case, that a notation below the signature line
directed the reader to turn the page. Ireland, 156 Misc.
2d at 848; see also Natâl Mulch & Seed, Inc. v. Rexius
Forest By-Products Inc., 62 U.C.C. Rep. Serv. 2d 371 (S.D.
Ohio 2007) (disclaimer was conspicuous where language
âbeneath the signature line,â in capital letters and
partially bolded text, directed reader to warranty
exclusion on âthe reverse sideâ); Rudyâs Glass Constr. Co.
v. E.F. Johnson, Co., 404 So.2d 1087, 1089 (Fla. Dist. Ct.
App. 1981) (statement âimmediately below the signatureâ
referenced terms and conditions on the reverse side of the
document; that disclaimer was conspicuous where it was in
all capital letters and set forth in a separate paragraph
titled âDisclaimer of Warrantiesâ).
Viewed holistically, the disclaimer conspicuously
excluded the implied warranties of fitness and merchantability
from the contracts at issue. Thus, Counts One and Two, which
are predicated on those implied warranties, must be dismissed.
B. Agency
NY Drillingâs third claim is difficult to understand,
as it sounds more in the language of remedy than any particular
cause of action. See SAC ¶ 29 (âAs a result of the Defendantâs
breach of the Implied Warranties of Merchantability and Fitness,
Defendant should reimburse Plaintiff its out-of-pocket
expenses. . . .â). In its opposition to TJMâs motion to
dismiss, NY Drilling now argues that this count is actually a
âcommon law breach of contract claimâ grounded in the supposed
principal-agent relationship between the manufacturer (HDE) and
distributor (TJM). ECF No. 14 at 2. More specifically, NY
Drilling claims that because TJM is an âagentâ for HDE, it âis
charged with enforcing the manufacturerâs warrantyâ â the
warranty issued by HDE to TJM. Id. These allegations, however,
are nowhere to be found in the SAC. Count Three, as written,
merely claims a different set of damages for the same breaches
of the implied warranties in Counts One and Two. It is
therefore dismissed for the reasons set out above concerning
those counts.
C. Third-Party Beneficiary Status
Plaintiffâs fourth claim asserts that it is a third-
party beneficiary of the one-year warranty contract between HDE
and TJM, and that TJM breached that contract. Id. ¶¶ 30-37.
This claim fails for several reasons. First, NY Drilling has
not alleged sufficient facts to establish third-party
beneficiary status. Under New York law, a third party may
enforce rights under a contract only when âno one other than the
third party can recover if the promisor breaches the contract or
. . . the language of the contract otherwise clearly evidences
an intent to permit enforcement by the third party.â Fourth
Ocean Putnam Corp. v. Interstate Wrecking Co., 66 N.Y.2d 38, 45
(1985); see also Dormitory Auth. v. Samson Constr. Co., 30
N.Y.3d 704, 710 (2018).
Here, NY Drillingâs complaint does not allege that it
is the only party that could recover if HDE breached the
warranty, and the warranty contract evidences no intent to
permit performance by NY Drilling or any other third party. The
warranty expressly states that the contract is between HDE and
âthe Buyer,â which is defined as âany body corporate, firm,
individual or any agent thereof whom HD contracts with under the
Contract being mutually signedâ â i.e., TJM. See ECF No. 22 at
15 § 1. Moreover, NY Drilling acknowledges that the contract is
âby and between TJM and HD Engineering.â SAC ¶ 6. NY
Drillingâs complaint thus fails to satisfy the standard for
third-party beneficiary status.
Second, even if NY Drilling were a third-party
beneficiary, the counterparty to the warranty provision would be
HDE â not TJM. HDE (which is not a party here) is the only
party providing warranties under its agreement with TJM. See
e.g., ECF No. 22 at 16 § 6.1-2 (âHD guarantees . . .â); see also
Pl.âs Resp. to Ltr. Renewing Mot. to Dismiss, ECF No. 24 at 2.
Thus, even if NY Drilling had adequately alleged third-party
status to the agreement between HDE and TJM, it still would not
be in a position to enforce a warranty in this action, as
currently constituted.
Third, the warranty agreement contains a provision
mandating that the âConditions of Contract and related documents
. . . be governed and construed in accordance with the law of
Hong Kong.â ECF No. 22 at 17 § 8. NY Drilling offers no
explanation for why it would be a third-party beneficiary under
Hong Kong law or why Hong Kong law should not apply. In fact,
it fails entirely to address the issue of governing law.
Fourth, the warranty agreement provides for mandatory
arbitration in Hong Kong. See id. at 17 § 8. And âa non-
signatory third party beneficiary suing for breach of contract
is bound by an arbitration clause in the contract.â Carvant
Fin. LLC v. Autoguard Advantage Corp., 958 F. Supp. 2d 390, 396
(E.D.N.Y. 2013). NY Drilling offers no legal argument as to why
this Court should provide relief despite the arbitration clause.
Instead, it simply states that âit would be unreasonable to
expect the plaintiff to arbitrate a claim in Hong Kong.â See
Pl.âs Resp. to Ltr. Renewing Mot. to Dismiss, ECF No. 24 at 2.
Accordingly, Count Four of the second amended
complaint is dismissed as well.
V. Conclusion
For the forgoing reasons, the second amended complaint
is dismissed in its entirety. The Court respectfully directs
the Clerk of the Court to enter judgment and close this case.
SO ORDERED.
__/s/ Eric Komitee
ERIC KOMITEE
United States District Judge
Dated: November 30, 2021
Brooklyn, New York