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Bruel and Kjaer v. the Village of Bensenville

April 26, 2012

BRUEL AND KJAER,
PLAINTIFF-APPELLANT,
v.
THE VILLAGE OF BENSENVILLE, DEFENDANT SUBURBAN O'HARE COMMISSION,
DEFENDANT- APPELLEE.



Appeal from the Circuit Court of Du Page County. No. 10-L-1371 Honorable John T. Elsner, Judge, Presiding.

The opinion of the court was delivered by: Justice Birkett

JUSTICE BIRKETT delivered the judgment of the court, with opinion. Justices McLaren and Hutchinson concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiff, Bruel & Kjaer, a supplier of noise-monitoring and radar equipment and systems, appeals the judgment of the circuit court of Du Page County dismissing its complaint against defendant, the Suburban O'Hare Commission, pursuant to section 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619 (West 2010)), on the ground that plaintiff's complaint was filed outside the four-year statute of limitations that applies to the sale of goods pursuant to a contract under the Uniform Commercial Code (UCC) (810 ILCS 5/2-725 (West 2010)). Plaintiff contends that the contract between the parties predominantly called for the provision of services instead of the sale of goods and was subject to the 10-year limitations period pursuant to section 13-206 of the Code (735 ILCS 5/13-206 (West 2010)). Alternatively, plaintiff contends that the unopposed affidavit of its employee, Imram Mohamed, an engineer who worked on the project, established that material factual issues existed and that they were sufficient to survive defendant's motion to dismiss. We affirm.

¶ 2 In February 1999, plaintiff entered into an agreement with defendant and the Village of Bensenville.*fn1 Plaintiff agreed to provide certain equipment and services to defendant in exchange for a single payment of $227,000. The agreement labeled plaintiff as the seller and defendant as the buyer in the transaction. As is pertinent here, plaintiff supplies noise-monitoring and radar equipment and systems. Under paragraph 2 of the agreement, plaintiff was to sell to defendant "the upgrade to the noise monitoring and radar systems, and annual servicing agreements with respect thereto." The exact items, services, and specifications were identified in Exhibit A to the agreement.

¶ 3 Plaintiff also agreed to "deliver, assemble, install, test and make fully operational such Equipment and System F.O.B. at the MCI Tower, Bensenville, Illinois, or other site designated" by defendant. Plaintiff further warranted, under paragraph 5 of the agreement, that "all Equipment and services furnished and/or delivered hereunder will be delivered, installed and operated in a workmanship like manner and that the design of the System is fit for the purposes therein purchased."

¶ 4 The agreement further provided that a "material inducement" for defendant to pay the purchase price was the specifications regarding the performance of the equipment and systems. The agreement devoted about 31/2 pages to providing the requirements for the performance of the equipment and systems. Under the agreement, plaintiff's equipment and systems were required to produce reliable and complete flight track data, to identify flight arrivals and departures, to identify aircraft flight information, to input data into the Federal Aviation Administration (FAA) Integrated Noise Model, to allow defendant to browse and analyze different geographic information, to correlate flight information to noise events, to provide consistent collection and reporting of the noise-monitoring data, and to ensure that the software was accessible by defendant.

¶ 5 The agreement specified the terms for defendant's acceptance of the equipment and systems, along with the timeline to make the single payment of $227,000. The agreement provided in paragraph 4:

"The Equipment and System shall be delivered and installed F.O.B. at the site identified in Section 2, with all freight and cartage to be paid by Seller [plaintiff]. [Defendant] shall provide the real property for the site location which Seller has advised and represented is suitable and appropriate for the System to function effectively and [defendant] shall provide all of the necessary utilities for the site. Upon final payment, Seller shall deliver to [defendant] a Bill of Sale for the Equipment and System and which shall vest in [defendant] good and marketable title to such Equipment and System free and clear of any and all liens and encumbrances."

¶ 6 The agreement also set forth a service component. In paragraph 2, an annual servicing agreement was referenced. Paragraph 3(j) provided that plaintiff would "provide all software adjustments necessary to insure" that the software for the systems would be accessible to all the member communities of defendant. Exhibit A to the agreement enumerated the work to be provided by plaintiff in upgrading the existing passive radar to Long-Range PASSUR, upgrading the software as necessary, and setting forth terms of additional free services to be offered to defendant as a "most favored customer" by plaintiff and its subcontractor, Megadata.

¶ 7 In its complaint, plaintiff alleged that the software upgrades specified under the agreement included significant efforts devoted to developing new software programs and customizing existing software programs for defendant. Plaintiff alleged that the software it developed was designed to allow defendant to obtain the required information and was not an off-the-shelf product that defendant could have obtained. Additionally, plaintiff alleged that it provided site visits and engineering support during the installation and configuration of the equipment and systems. For example, as part of the services provided, plaintiff obtained FAA data and compared it to the flight tracks obtained from the systems. Plaintiff also assisted in setting up a case study to display the noise contours based on the systems' flight tracks. Plaintiff further provided defendant with technical assistance over the telephone between 1999 and 2007.

¶ 8 Plaintiff alleged that it provided the equipment and systems, which were accepted and used by defendant. In January 2002, plaintiff submitted a formal approval document and invoice for the $227,000 price specified in the agreement. Plaintiff alleged that defendant did not pay this first invoice, so it again invoiced defendant for the purchase price.

¶ 9 In June 2004, following repeated invoicing, defendant paid plaintiff $50,000 toward the purchase price set forth in the agreement. Thereafter, despite further invoices plaintiff sent to defendant, defendant did not pay any more money toward the purchase price. Plaintiff alleged further that defendant never sent a notice of rejection of any of the equipment or services and that defendant continued to use the equipment and systems, resulting in defendant's success in obtaining nuisance relief.

¶ 10 On November 12, 2010, plaintiff filed its complaint for breach of the agreement. Defendant filed a motion to dismiss under section 2-619 of the Code, arguing that plaintiff's complaint was untimely under the four-year statute of limitations in section 2-725 of the UCC. Plaintiff countered that the UCC statute of limitations was not applicable, because the contract was predominantly for the provision of services and not the sale of goods. Plaintiff argued that, instead, the 10-year statute of limitations governing written contracts set forth in section 13-206 of the Code applied to its action.

¶ 11 In support of its response, plaintiff included an affidavit by Imram Mohamed, a support engineer on the project. Mohamed outlined the time that was spent developing new software and upgrading existing software for the equipment and systems. Mohamed averred that, as a result of these efforts, the software "in no way constituted a pre-developed, stock product." Mohamed compiled a chart, which was attached to the affidavit, that purported to show the number of days spent developing the software and whether that development was for newly developed software or for customizing an existing application. The chart further indicated that the customization and development work was "typically done for each noise monitoring system" plaintiff installs. According to Mohamed's chart, plaintiff spent 52 days creating newly developed software, 37 days customizing software from an existing application for this project, and 72 days of combined work, consisting of "New/Customized application[s]," for a total of 161 days working on software for the project. Mohamed averred that, "[w]ithout the services to develop the software, and without the services to install and support the upgrade," defendant would not have been able to obtain the information it was seeking. Further, Mohamed somewhat redundantly averred that, "[w]ithout the software development services performed by [plaintiff], the actual hardware and other equipment delivered to [defendant] for the system upgrade would have been useless."

¶ 12 On April 28, 2011, the parties argued the motion to the trial court, focusing on whether the software could be considered a good. Plaintiff conceded that software may, in some circumstances, be a good, but argued that there was a sufficient factual controversy, underscored by Mohamed's affidavit, to preclude a judgment pursuant to section 2-619 of the Code.

¶ 13 On May 1, 2011, the trial court delivered a written order. The court held:

"The law in Illinois is clear and agreed upon by the parties. If a contract is predominantly for goods, then there is a four year limitation period. If a contract is predominantly for a service, then there is a ten year limitation period. This is known as the 'predominant purpose' test.

Initially, there must be a determination of whether the case should be decided on a motion to dismiss. Illinois courts frequently decide the 'predominant purpose' test on a motion to dismiss. [Citation.] The 'predominant purpose' test can be applied to this case at this stage of the proceeding.

[Plaintiff] is a supplier of radar systems. It sold the upgrade and annual service agreement to [defendant]. The Plaintiff had to do extensive development of 22 software applications that took 161 days to complete. [Citation.] The sale of software, whether off the shelf or customized, is the sale of a good not a service. [Citation.] The contract also called for the delivery and installation of the 'Equipment and Systems'. Since [plaintiff] was to provide 'marketable title to such Equipment and systems free and clear of any and all liens', then the 'Equipment and Systems' must be a good and not a service.

The contract calls for the delivery, assembly, installation and testing of the equipment. The contract provided that the monitors will be [calibrated] once annually. Each additional calibration shall be $2,500. [Plaintiff] agreed to provide a three year service agreement by [Megadata] free of charge.

The terms of the contract are not disputed. The hours spent developing the software are not contested. The predominate [sic] nature of the transaction as a whole is the sale of goods, 'Equipment and Systems'. The delivery, installation and services provided under ...


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