Arris Group, Inc. v. CyberPower Systems (USA), Inc.
192 N.E.3d 86
Ill. App. Ct.2021Background
- Arris (successor to Motorola) and CyberPower USA entered a Corporate Supply Agreement (CSA) for battery backup units (BBUs); the CSA included a broad indemnity clause and a separate product-warranty clause (30 months or supplier standard warranty).
- BBUs supplied to Verizon (directly and via Tellabs) failed after Hurricane Sandy; Verizon traced failures to a BBU design defect.
- Arris settled Verizon’s third-party claim for $12.56 million (cash payments plus replacement-credit obligations) and demanded indemnity from CyberPower USA and parent CP Taiwan; both refused.
- The circuit court granted summary judgment to Arris, awarded $12.56 million in damages and $3.435 million in prejudgment interest, and found CP Taiwan liable; CyberPower defendants appealed.
- On review the appellate court affirmed liability and the monetary awards as to CyberPower USA, but reversed the grant of summary judgment as to CP Taiwan, finding factual issues about agency/ratchification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the CSA’s 30‑month warranty limits its broad indemnity obligation | Arris: Section 11.2 is a broad, standalone indemnity covering third‑party claims "arising from or connected with" Supplier acts or omissions and survives termination; warranty term does not limit it | CyberPower: Section 6.4’s 30‑month warranty (or standard warranty) narrows indemnity to warranty claims within that period | Held: Indemnity clause is unambiguous and broad; warranty limitation does not restrict section 11.2; CyberPower USA breached indemnity obligation |
| Whether Arris must prove the Verizon settlement was a "reasonable" loss before recovery | Arris: CSA requires reimbursement for "all losses, costs, and expenses" without a reasonableness qualifier | CyberPower: Indemnitee must show settlement and other losses were reasonable, especially where settlement might be inflated to protect customer relations | Held: Contract contains no "reasonable" qualifier; court may not add one; full settlement amount awarded |
| Whether prejudgment interest was improper because damages were unliquidated/speculative | Arris: Settlement instrument fixed the amounts (cash + $4.13M credit) and thus constituted a liquidated sum for Interest Act purposes | CyberPower: Replacement‑credit component made total amount speculative and not easily ascertainable; CyberPower was not consulted about the settlement | Held: Settlement terms permit computation with reasonable accuracy; amount was liquidated; prejudgment interest award affirmed |
| Whether CP Taiwan (parent) is bound under the CSA | Arris: CSA defines "Supplier" to include related entities; CP Taiwan was involved in negotiations and product matters, so actual authority/ratification exists | CyberPower: CP Taiwan was a separate corporation, unaware of the CSA, and CyberPower USA lacked authority to bind it; no apparent authority or ratification shown | Held: Issues of material fact exist about implied actual authority and possible ratification; summary judgment against CP Taiwan reversed and remanded |
Key Cases Cited
- Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill.2d 550 (2007) (standard of review for summary judgment)
- Goff v. Teachers’ Retirement System of the State of Illinois, 305 Ill. App.3d 190 (1999) ("arising from/in connection with" construed as broad language)
- Main Bank of Chicago v. Baker, 86 Ill.2d 188 (1981) (separate corporate entities and parent‑subsidiary distinctness)
- Forsythe v. Clark USA, Inc., 224 Ill.2d 274 (2007) (parent‑subsidiary relationship alone does not create liability)
- HK Systems, Inc. v. Eaton Corp., 553 F.3d 1086 (7th Cir. 2009) (limits on using indemnity clauses to insure against subsequent contractual risks)
- Lamp, Inc. v. International Fidelity Insurance Co., 143 Ill. App.3d 692 (1986) (indemnitee must prove reasonableness when contract expressly covers attorney fees)
- United States Fidelity & Guaranty Co. v. Klein Corp., 190 Ill. App.3d 250 (1989) (indemnity provisions construed like other contract terms)
- Santa’s Best Craft, L.L.C. v. Zurich American Insurance Co., 408 Ill. App.3d 173 (2010) (when damages are not easily calculated, they are unliquidated)
- Bank of Waukegan v. Epilepsy Foundation of America, 163 Ill. App.3d 901 (1987) (apparent authority elements)