United States Court of Appeals,
Fifth Circuit.
No. 96-10073.
The BONNEAU CO. and Pennsylvania Optical Company,
Plaintiffs—Counter Defendants—Appellants,
v.
AG INDUSTRIES, INC., Defendant—Counter Claimant—Appellee.
June 27, 1997.
Appeal from the United States District Court for the Northern
District of Texas.
Before JOLLY, JONES and PARKER, Circuit Judges.
PER CURIAM:
The Appellants, The Bonneau Co. and Pennsylvania Optical
Company (hereafter collectively referred to as "Bonneau"), appeal
the district court's grant of summary judgment for AG Industries,
Inc. ("AGI"). AGI sought summary judgment on Bonneau's claim of
breach of warranty against infringement under Texas Business &
Commerce Code § 2.312(c), and on AGI's counterclaim of breach of
contract. Finding no error, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Bonneau is a manufacturer and distributor of non-prescription
reading glasses having varying frame designs which are sold from a
point-of-purchase display stand via a "hang-tag" system. The
hang-tag enables a prospective purchaser to observe, test, and
purchase a wide array of the reading glasses without interference
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from the hang-tag itself. The hang-tag is hung from a cantilever
support (two metal support arms) that projects outward from the
display stand on which the hang-tag is suspended. This was known
as the Bonneau "Slide-Hook" system.
AGI is a wholly-owned subsidiary of American Greetings
Corporation and manufactures custom point-of-purchase display
stands and other products. In December 1992, AGI and Bonneau
entered into a Supply Agreement whereby AGI agreed to manufacture
and sell display stands to Bonneau. AGI, at the direction of
Bonneau, manufactured the display stand, hang-tag, and cantilever
arms which comprise the Bonneau Slide-Hook display system.
Subsequently, Bonneau was named a defendant in several lawsuits
brought in federal court in California and Florida by Magnavision,
Inc. (formerly known as Al-Site) ("Magnavision") alleging patent
infringement. These infringement suits concerned the hang-tag
system used by Bonneau.
In December 1993, Bonneau filed suit against AGI in state
court, which was removed to the court below. Bonneau sued under
Texas Business & Commerce Code § 2.312(c) for breach of warranty,
alleging that AGI designed a retail display system for Bonneau and
that AGI must warrant that the goods delivered were free of any
rightful claim of infringement. Bonneau sought as damages the cost
of defending the infringement suits and attorneys' fees. AGI
asserted a counterclaim against Bonneau for breach of contract
arising from Bonneau's failure to make payment for the display
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stands, work-in-progress, and raw materials for which it
contracted. Thus, the crux of the dispute in this case arises from
the design of the Slide-Hook system.
AGI sought summary judgment on Bonneau's breach of warranty
claim and also on its breach of contract claim, which the district
court granted. The district court granted summary judgment on
Bonneau's breach of warranty claim on the grounds that the parties
"otherwise agreed" to a different warranty provision and that
Bonneau furnished the specification for the hang-tag display system
to AGI. Bonneau timely appealed to this Court. We now review the
lower court's decision.
DISCUSSION
This Court reviews the granting of summary judgment de novo,
applying the same legal standard used by the district court in the
first instance. Texas Medical Ass'n. v. Aetna Life Ins. Co., 80
F.3d 153, 156 (5th Cir.1996). Summary judgment is proper only
where "the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law." Celotex
Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91
L.Ed.2d 265 (1986) (quoting FED.R.CIV.P. 56(c)); Little v. Liquid
Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994).
It is well-established that this Court reviews de novo
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questions of law raised in summary judgment appeals. Eugene v.
Alief Indep. Sch. Dist., 65 F.3d 1299, 1303 (5th Cir.1995). More
specifically, we review a district court's determination of state
law de novo. Salve Regina College v. Russell, 499 U.S. 225, 231,
111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). Because we sit in
diversity, we must apply Texas law, mindful that in making an Erie1
guess, "[w]e are emphatically not permitted to do merely what we
think best; we must do that which we think the [Texas] Supreme
Court would deem best." Jackson v. Johns-Manville Sales Corp., 781
F.2d 394, 397 (5th Cir.1986).
Bonneau's complaint alleges a cause of action pursuant to
Texas Business & Commerce Code § 2.312(c). Section 2.312(c)
states:
Unless otherwise agreed a seller who is a merchant regularly
dealing in goods of the kind warrants that the goods shall be
delivered free of the rightful claim of any third person by
way of infringement or the like but a buyer who furnishes
specifications to the seller must hold the seller harmless
against any such claim which arises out of compliance with the
specifications.
TEX. BUS. & COM.CODE § 2.312(c) (1994).
At the outset, this Court's research discloses very little
case law regarding this specific section. As noted by Professors
White and Summers, "this section has not been heavily litigated" in
the courts. JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE §
1
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82
L.Ed. 1188 (1938).
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9-12, at 538 (4th ed.1995). Our main focus concerns the second
clause of § 2.312(c), the hold harmless provision, where the buyer
furnishes specifications to the seller. However, under the
particular facts of this case, we need not delve into a dissection
of § 2.312(c) in order to answer the questions before us.
We begin our review with the district court's grant of summary
judgment on Bonneau's breach of warranty claim on the grounds that
the parties "otherwise agreed" to a different warranty provision
than that stated in § 2.312(c). The district court relied on the
language in the price quotations submitted by AGI to Bonneau which
stated that "Purchaser assumes liability for patent and copyright
infringement when goods are made to Purchaser's specifications."
In addition, the court noted that the purchase orders sent by
Bonneau to AGI did not dispute or controvert the liability
provision in the price quotations. Thus, the district court held
that AGI's price quotations encompassing the patent liability
provision constituted an offer which was accepted by Bonneau's
purchase orders. Therefore, because the parties "otherwise agreed"
to a different patent liability provision, § 2.312(c) was
inapplicable to this cause of action. We disagree.
In the instant case, the limitation language contained in the
price quotations on which the district court relied does not
constitute an "otherwise" agreement that would alter the liability
provision of the statute. The limitation provision in the price
quotations track the second clause of § 2.312(c), i.e., "a buyer
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who furnishes specifications to the seller must hold the seller
harmless against any such claim...." We cannot ascertain any
distinction between the statute's limitation language and that of
the price quotations' that would rise to the level of the parties
having "otherwise agreed." Consequently, we concluded that the
mere recitation of the statute is insufficient to alter the
parties' relationship with respect to limitation of liability for
patent infringement. Although the North Carolina Court of Appeals
in MAS Corp. v. Thompson 62 N.C.App. 31, 302 S.E.2d 271, 275 (1983)
adopted a stricter view of "otherwise agreed" when it concluded
that "the statute only applies if nothing was said as to
liability," i.e., there was no other agreement, we do not believe
that the Texas Supreme Court would hold the statute requires such
a constricted reading. Therefore, under the facts of this
particular case, we hold that there is no "otherwise agreed"
language that changed the impact of the parties relationship under
the statute, and the district court erred in holding that the
parties "otherwise agreed."
We now turn our focus to the district court's grant of AGI's
alternative submission in its motion for summary judgment that
Bonneau supplied the design specification for the Slide-Hook
display system (which was the subject of Magnavision's patent
infringement suit) to AGI and, therefore, under § 2.312(c) Bonneau
must hold AGI harmless against the patent infringement actions.
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Bonneau asserts that it merely supplied a "sketch" of the
hang-tag to AGI, and that AGI designed and manufactured the Slide-
Hook display system according to AGI's own "engineer like"
specifications. Thus, Bonneau contends that it did not assume
liability for patent infringement either by agreement or under §
2.312(c). AGI counters that Bonneau, and not AGI, designed the
display system that was the subject of the patent infringement
suits and, therefore, there was no breach of warranty under §
2.312(c). We reject Bonneau's arguments.
We recognize that "specification" is not defined in § 2.312 or
in Article 2 of the Texas Business & Commerce Code. However, based
on our review of the record, we conclude that the hang-tag design
furnished by Bonneau to AGI constitutes a specification under §
2.312(c) which formed the basis for the infringement actions for
which Bonneau sought indemnification. The record discloses that
the hang-tag design (which was central to the display system) was
created by Alice Myer, Bonneau's advertising and display manager,
and other Bonneau executives in late January 1991. Myer's hang-tag
design delineates the use and shape of a "T-Hook" and two
cantilever support arms projecting from the display stand on which
the hang-tag is suspended. There is no dispute that Myer did not
receive any assistance from AGI in the design of the hang-tag.
Thus, Myer's hang-tag design was solely Bonneau's design. The
record also discloses that Myer's design of the hang-tag ultimately
became the Slide-Hook for Bonneau's display system. The hang-tag
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design specifications which Bonneau furnished to AGI were central
to the Slide-Hook display system. Accordingly, we concluded that
Myer's design contains sufficient specificity for a competent
manufacturer to construct the product, and thus, constitutes a
"specification" pursuant to § 2.312(c). Our conclusion is
supported by the fact that the specifications that Bonneau
furnished to AGI were the only means for AGI to manufacture the
Slide-Hook display system within the parameters set by Bonneau.
Stated another way, without the hang-tag specification Bonneau
furnished to AGI, Bonneau's Slide-Hook system would be nonexistent.
Therefore, we find Bonneau's argument that AGI designed and
manufactured the Slide-Hook according to AGI's own specifications
unsupported by evidence sufficient to raise a genuine issue of
material fact.
Furthermore, Myer admitted that she designed the hang-tag in
such a manner in order to avoid infringing Magnavision's patent.
Subsequently, Myer's hang-tag design was sent to AGI to implement
Bonneau's new Slide-Hook system. Myer's testimony further reflects
that the previous cantilever arm would not work with Myer's new
hang-tag design; thus, Myer designed two cantilever arms in order
to make Bonneau's new Slide-Hook design functional. Myer was also
responsible for executing the marketing strategy for Bonneau's new
Slide-Hook display system. These actions by Bonneau's personnel
support the conclusion that Bonneau created the design
specifications for the hang-tag Slide-Hook and furnished those
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specifications to AGI in order for AGI to create a custom hang-tag
display stand. Moreover, as Comment 3 to § 2.312(c) recognizes
"when the buyer orders goods to be assembled, prepared or
manufactured [based] on his own specifications ... liability will
run from buyer to seller." TEX. BUS. & COM.CODE § 2.312 cmt. 3
(1994). Because the statutory language is clear, judicial inquiry
into the statute's plain meaning is unnecessary. In re Greenway,
71 F.3d 1177, 1179 (5th Cir.1996). Thus, it would be erroneous for
this Court to conclude that Bonneau did not furnish the
specifications for the Slide-Hook because such a conclusion would
nullify the import of § 2.312(c), and allow buyers to avoid
liability by simply employing another party to build the specific
product and subsequently assert that because the other party
constructed the product, the buyer must always be indemnified. We
do not envision the Texas Supreme Court would so hold and,
likewise, we decline to do so.
Finally, we note that the Federal Circuit in interpreting the
Pennsylvania counterpart to § 2.312(c) of the Texas U.C.C.,
concluded that "[o]n its face [§ 2.312(c) ] shifts all costs,
including attorney fees, to the buyer who furnishes a seller with
specifications that leads to a "rightful claim' of infringement."
Cover v. Hydramatic Packing Co., Inc. 83 F.3d 1390, 1394
(Fed.Cir.1996). We agree with this reading of the statute. Thus,
because we have concluded that Bonneau furnished the specification
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to AGI for the Bonneau Slide-Hook display system, Bonneau's defense
costs associated with the patent infringement actions in California
and Florida must be borne by Bonneau. Therefore, we affirm the
district court's grant of summary judgment for AGI on this point.
Finally, we address Bonneau's appeal of the district court's
grant of summary judgment for AGI on its counterclaim for breach of
contract based upon an account stated under Rule 56(a). The
district court examined the Supply Agreement, Bonneau's purchase
orders, and the unpaid invoices and determined that AGI had
established a stated account and that it was up to Bonneau to rebut
the account. Bonneau failed to do so. Thus, the district court
concluded that because Bonneau failed to offer any basis why it
should not be responsible for the sums due and, more importantly,
because there was no breach of warranty by AGI, no genuine issue of
material fact existed on AGI's counterclaim and AGI was entitled to
summary judgment.
Bonneau asserts that there is no evidence of an admission by
it that the amounts represented by the invoices were due and owing
without any lawful claim or offset for breach of warranty against
infringement. This argument however obscures the real legal issue
before us. Further, Bonneau argues that if it is entitled to an
offset by prevailing on its warranty infringement claim, a genuine
issue of material fact exists as to the validity, accuracy, and
amount due and owing to AGI under the Supply Agreement. Thus, we
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find that Bonneau's offset claim is solely dependent on its claim
for breach of warranty against patent infringement.
As we have concluded above, there was no breach of the
warranty against infringement under § 2.312(c) by AGI. Therefore,
Bonneau's claim of offset must fail. Moreover, Bonneau has
presented no other argument to this Court which discloses error by
the district court, nor does the record before us disclose any
error. Accordingly, based on the record before this Court, we
conclude that no genuine issue of material fact exists and that the
district court's ruling on AGI's counterclaim must be affirmed.
CONCLUSION
Based on the foregoing discussion, we affirm the district
court's grant of summary judgment for AGI on Bonneau's breach of
warranty claim under Fed.R.Civ.P. 56(b) and on AGI's counter-claim
for breach of contract under Fed.R.Civ.P. 56(a).
AFFIRMED.
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