Transfomers - Not The Movie But A Successful Subrogation Recovery
July 20, 2007
The Firm successfully prosecuted a subrogation case handled by James M. Hoey and Paul Kerpan against a major electrical equipment supplier concerning a transformer failure in the Detroit, Michigan area.
The Defendants offered cost of defense to settle the case in an offer of judgment, at mediation, and during Michigan’s case evaluation hearing. However, after taking two of the defendants’ three expert depositions over three days, the case settled the next day for seven figures.
Several significant legal issues were litigated against three of defendants entities from U.S., Canada and Switzerland. The Defendants filed for summary judgment based upon several theories. Defendants claimed that under the economic loss doctrine the Plaintiffs were not entitled to pursue a negligence cause of action, but were limited to actions under contract and/or warranty. Although our negligence action was timely filed after the failure, the warranty, if it applied, had expired one year before the transformer failure. Therefore, under Defendants’ theories Plaintiff would have been barred from recovery under all theories.
In Michigan, where a Plaintiff seeks to recover an economic loss resulting from the commercial sale of “goods”, the exclusive remedy is provided by the UCC, and recovery cannot be had under negligence theories. Defendants maintained that the transformer was a “good” and, therefore, came under the UCC. The only damage was to the transformer itself. Because the transformer weighed 1.4 million pounds, was 30 feet in height, and rested on a six foot thick cement foundation, we argued that the transformer was not a “good”, but rather an “improvement to realty.” At the hearing, the Court ruled from the bench that it was a question of fact for the jury to determine whether the transformer was a “good” or an “improvement of realty”, allowing us to proceed under a negligence theory.
The second hurdle to overcome was that a purchase order from the original buyer had been issued to Defendant’s Canada entity. The purchase order referenced a standard warranty given in previous sales by another defendant entity, i.e. USA. However, because Canada did not have the capacity to build the transformer, a third defendant entity, located in Switzerland, agreed to build the transformer. The three Defendants argued that it was “obvious” that Canada issued the warranty for the transformer because the purchase order was directed to Canada and that purchase order referenced the warranty. If that warranty applied, it had expired one year prior to the failure.
We argued that Canada did not design, manufacture, install or receive the proceeds from the sale of the transformer. Because Canada did not in writing subcontract the work to Switzerland, did not in writing or by conduct accept the terms of the purchase order, did not build the transformer, and did not receive payment, then it could not be the contracting entity nor issue a warranty for a transformer for which it received no consideration. Because payment went to Switzerland, and because Switzerland itself did not issue a written warranty, we argued that there was no legally executed contract or warranty. Again, the Court found that it was a question of fact for the jury to determine who the parties to the contract were and whether a valid warranty had been issued.
After we presented experts who gave solid opinion testimony regarding how the transformer failed (design and manufacturing defects), and after the opinions of defendants’ experts were severely attacked in depositions, a successful settlement was reached. The Firm stands ready to prosecute your subrogation matters with the full resources of our creative and experienced subrogation practice group.
