Action Group, Inc. v. NanoStatics Corp.
2013 Ohio 5542
Ohio Ct. App.2013Background
- NanoStatics (buyer) contracted with Action Group (seller/developer) in 2010 for R&D and production of a novel monolithic plastic “head” and supporting components; Action Group sent a signed proposal letter setting hourly R&D rates and later production pricing.
- Action Group produced multiple iterations; NanoStatics rejected the final monolithic head as defective and claimed supporting components did not meet provided tolerances; some substandard components were accepted and modified for use.
- Action Group sued NanoStatics for unpaid invoices (~$96k); NanoStatics counterclaimed for breach of express and implied warranties (including alleged promise to follow Action Group’s ISO 9001:2008 processes) and contract breach.
- NanoStatics sought discovery about Action Group’s ISO certification; Action Group provided largely irrelevant materials, failed to produce its quality manual and ISO certificate, and gave evasive deposition answers; court ordered compelled discovery and later sanctioned Action Group for noncompliance, dismissing Action Group’s claims as a discovery sanction.
- The trial court later granted NanoStatics summary judgment on its UCC-based warranty claims and awarded damages and attorney fees; on appeal the appellate court affirmed dismissal as a sanction but reversed summary judgment for NanoStatics, finding insufficient evidence on warranty and ISO-based claims.
Issues
| Issue | Action Group (plaintiff) Argument | NanoStatics (defendant) Argument | Held |
|---|---|---|---|
| Whether dismissal of Action Group’s claims as a discovery sanction was proper | Dismissal was unjust because key custodian (president Denutte) was seriously ill and unable to produce documents | Action Group had other responsible employees and willfully failed to comply; produced irrelevant material and misrepresented production | Affirmed: dismissal was within trial court’s discretion; conduct showed willfulness/obstruction |
| Whether the UCC governs the parties’ hybrid contract | Transaction was primarily for services; UCC should not apply | Contract’s predominant purpose was sale/production of goods (the head and components); UCC applies | UCC applies: contract predominantly for goods (as a matter of law on undisputed facts) |
| Whether NanoStatics proved breach of implied warranties (merchantability; fitness for a particular purpose) as a matter of law on summary judgment | Argued that defective goods entitled it to summary judgment under UCC warranties | Said the head was unusable and thus breached implied warranties | Reversed: insufficient evidence—no proof of the goods’ ordinary purpose (merchantability) and no proof NanoStatics relied on Action Group’s skill (fitness) |
| Whether Action Group warranted compliance with ISO 9001:2008 (express or implied) | Denied making any express promise to follow ISO processes for these bespoke first-article goods | Argued that ISO certification and representations created express and implied warranties that Action Group would follow ISO procedures | Reversed: no evidence of an affirmation by seller forming basis of bargain nor evidence of an ISO-based implied warranty; buyer’s uncommunicated expectations insufficient |
Key Cases Cited
- Quonset Hut, Inc. v. Ford Motor Co., 80 Ohio St.3d 46 (1997) (court may dismiss for discovery violations; dismissal reviewed for abuse of discretion)
- Toney v. Berkemer, 6 Ohio St.3d 455 (1983) (dismissal requires willfulness, bad faith, or fault)
- Tokles & Son, Inc. v. Midwestern Indemn. Co., 65 Ohio St.3d 621 (1992) (standards for dismissal for discovery noncompliance)
- Hudson v. Petrosurance, Inc., 127 Ohio St.3d 54 (2010) (summary judgment standard articulated)
- Sinnott v. Aqua-Chem, Inc., 116 Ohio St.3d 158 (2007) (summary judgment standard reiterated)
- Mecanique C.N.C., Inc. v. Durr Environmental, Inc., 304 F.Supp.2d 971 (S.D. Ohio 2004) (predominant-purpose test discussion for hybrid goods/services contracts)