United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
Virginia M. Kendall United States District Judge
Electric Transportation (“GET”) manufactures
locomotive engines and uses various washers in those engines.
In 2015–2016, GET retained Optimas OE Solutions, LLC
(“Optimas”) to source the washers from outside
vendors to use in its engines. When GET began manufacturing
the engines, the washers cracked, and upon inspection, GET
determined that the washers were not flat and were brittle.
As a result, GET dissembled the locomotive engines and
rebuilt them with different washers incurring approximately
$1.7 million in losses. GET made a demand to Optimas, the
supplier of the washers for the loss. Optimas was not the
manufacturer of the washers; but rather, the supplier.
Optimas had contracted with manufacturer Ace Stamping and
Machine Co. Inc. (“Ace”) to provide the washers
to Optimas’s customers. When GET complained about the
defective washers supplied to them, Optimas settled with GET
and the Plaintiff-Insurers reimbursed it for that settlement.
Plaintiffs now move for summary judgment against Ace, the
alleged manufacturer of the washers, alleging that Ace is
required to indemnify them for the settlement cost pursuant
to an agreement. While the purely legal issue of contract
interpretation as to the indemnification clause is decided in
favor of Plaintiffs, Plaintiffs’ Motion for Summary
Judgment is otherwise denied due to remaining disputes of
back to at least January 2015, GET retained
Optimas to source two types of washers used in the
manufacture of locomotive engines-washer types 41B537660P11
(“P11”) and 41B537660P16 (“P16”).
(Dkt 43 ¶ 7). Optimas sourced the washers from outside
manufacturers. Optimas had previously sourced the washers
from manufacturer Andre Armor. (Dkt. 54 ¶). But due to
financial difficulties Andre Armor was experiencing, Optimas
began sourcing P11 and P16 washers from Ace. (Dkt 43 ¶
10). From July 2015 through March 2016, Ace was
Optimas’s sole supplier of P11 and P16 washers.
(Id. ¶ 10; Dkt. 43-1 ¶ 15). Beginning in
August 2015, Optimas sent the P11 and P16 washers it had
received from Ace to GET and did so without any alteration to
the washers. (Dkt 43 ¶ 12).
included the following paragraphs in its Terms and Conditions
of Purchase, which it included with the purchase orders it
sent to Ace:
1. Any order placed or purchase order issued by Buyer (an
“Order”) for products and/or services described
therein (collectively, the “Products”) is subject
to this Agreement, together with any additional or different
terms mutually agreed to in writing by Buyer. Acceptance of
an Order by Seller will occur upon the happening of any of
the following: (i) receipt by Buyer from Seller of written
acceptance of an Order or written notice that Seller will
provide the Products. . . and (iii) any other conduct of
Seller which recognizes the existence of a contract
pertaining to the Products. . . .
9. Seller warrants that the Products will conform to the
specifications, drawings, samples or other description
furnished to Seller; will be of new manufacture and free from
defects in material and workmanship; will be free and clear
of all liens and encumbrances; and will comply with all other
warranties implied in fact or by law. Such warranties shall
run to Buyer and its customers and shall continue in full
force and effect and Seller shall not be relieved of such
warranties by Buyer’s inspection of or payment for the
Products. . . .
10. Seller will defend, indemnify and hold harmless Buyer,
its directors, affiliates, employees, and agents from and
against any and all claims alleging. . . (ii) property
damage, injuries or death to persons, or any other damage,
loss cost or expense (including judgments paid and
attorneys’ fees and expenses reasonably incurred)
arising out of the purchase, use or operation of any
Products. . . .
(Dkt. 43-2; Dkt. 43-3).
admits that it sent acknowledgments for these purchase orders
and that it did not object to the inclusion of the indemnity
clause in the terms and conditions. (Dkt. 43-4 at 14; Dkt. 49
¶¶ 26–27, 31–32, 36–37,
41–42, 46–47, 51–52, 56–57). Ace
argues, however, that with its shipments it included packing
slips containing a remedy limitation which modified the
agreement between the parties. (Dkt. 50 at 3). Those packing
slips stated that “Liability of Seller for goods found
to be defective or not in accordance with agreed
specifications, shall be limited to replacement of goods or
refund of the purchase price, as the Seller shall
select.” (Dkt. 49-7).
November 2015 and March 2016, GET discovered that washers
were cracking during the assembly of locomotive engines.
(Dkt. 43 ¶ 58; Dkt. 54 ¶ 17). GET attributed the
issues to Optimas, as Optimas was the supplier of washers at
the relevant facility. (Dkt. 43-12 at 28:6–14).
GET’s Senior Commodity Manager, Jonathan Merriott,
testified that an analysis indicated that the washers
supplied by Optimas had not been tempered properly and
therefore had not adequately hardened. (Id. at
34:5–36:11). As a result, the washers “became
more brittle and can crack when not flat.”
(Id. at 36:8–11). The washers were also
defective because they were not flat. (Id. at
48:19–22). GET determined that the defective washers
were attributable to Optimas, rather than another supplier,
Gexpro. (Id. at 109:15–23).
could not use or sell locomotives with the defective
components. (Id. at 31:5–17). As a result, on
May 3, 2016, GET sent a demand letter to Optimas detailing
the $1, 575, 485.70 in costs it had incurred due to the
defective P11 and P16 washers Optimas supplied. (Dkt. 43
¶ 68; Dkt. 43-16). On June 1, 2016, GET followed up with
a letter from its Chief Financial Officer – Supply
Chain confirming these costs. (Dkt. 43 ¶ 70).
11, 2016, Optimas sent a letter to Ace notifying it of
GET’s claim, stating that it expected “that Ace
will honor its agreement and warranty, and submit full
payment of these amounts immediately.” Optimas went on
to state that it was “in the process of gathering
further information regarding the exact amount of these
damages” and that it would forward additional
information when it became available. (Dkt. 43-19).
on June 24, 2016, Optimas paid a total of $1, 704, 003.84 to
settle with GET, of which $1, 575, 485.70 was due to the
defective P11 and P16 washers. (Dkt. 49 ¶ 74; Dkt. 53 at
11). Illinois National Insurance Company and Zurich American
Insurance Company each ...