Despite the fact that the express wording of the Limited Warranty does not include nails,
defendant argues that the course of dealing between the parties demonstrates that they considered
nails to be covered by the warranty. This argument fails to hit nail on the head. First, the fact
that plaintiff had, in the past, taken advantage of defendant’s Limited Warranty by returning
defective “Hitachi Products” that plaintiff does not contest were covered by the warranty, does
not in any way establish that plaintiff somehow agreed that nails were also covered by the
warranty. Additionally, the fact that defendant replaced nails after it learned that its own nails
failed to perform with its own nail gun, does not establish that the parties were acting pursuant to
the Limited Warranty. Defendant’s actions are equally consistent with plaintiff’s claim of an
express warranty. Accordingly, the court concludes that the disclaimers in the Limited Warranty
do not as a matter of law bar plaintiff’s warranty and contract claims.* Defendant’s motion for
summary judgment on Counts I, II, I, and VIII is denied.

Next, defendant argues that plaintiff's tort claims for fraud and negligent and intentional
misrepresentation (Counts IV, V, and VI) are barred by Illinois’ version of the “Economic Loss
Rule.” See e.g., Moorman Mfg. Co. v. National Tank Co., 91 Ill.2d 69, 85, (1982). The
Economic Loss Rule, or Moorman Doctrine, provides that a plaintiff that has sustained no

personal injury or property damage has a claim for contract damages but cannot bring an action

°To support its argument that the Limited Warranty covers nails, defendant cites to the
deposition testimony of one of its employees, Joseph Leffler. When asked if the Limited
Warranty covered nails, Mr. Leffler originally testified, however, that “no, this warranty does not
cover fasteners.” When asked if defendant had a warranty for fasteners, he stated that he was not
sure but it had always been the policy to take the fasteners back. Mr. Leffler, pursuant to Fed. R.
Civ. P. 30(e), then changed his answers on an errata sheet to read just the opposite. In the
Seventh Circuit, however, “a change in substance which actually contradicts the transcript is
impermissible unless it can plausibly be represented as the correction of an error in transcription,
such as dropping ‘not.’” Thorn v. Sunstrand Aerospace Corp., 207 F.3d 383, 389 (7" Cir. 2000).

4


addressed to the market generally or otherwise implicates some consumer protection concerns.
Accordingly, defendant’s motion for summary judgment as to Count VII is granted.

Finally, in Count IX, plaintiff alleges a breach of duty of good faith and fair dealing.
Plaintiff admits that “Illinois does not recognize an independent cause of action for the breach of
the implied duty of good faith and fair dealing.” Accordingly, defendant’s motion for summary
judgment on Count IX is granted.

CONCLUSION

For the reasons set forth above, defendant’s motion is granted as to Counts V (negligent
misrepresentation), VII (CFA) and EX (breach of good faith and fair dealing), and denied in all
other respects.

ENTER: May 14, 2002
“ak (BRE
Robert W. Gettleman
United States District Judge



THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. IN NO EVENT SHALL HITACHI OR ITS AFFILIATES
BE LIABLE TO SUCH A PURCHASER OR ANY OTHER PERSON FOR SPECIAL
COLLATERAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
WITHOUT LIMITATION LOSS OF USE OR BUSINESS INTERRUPTION) IN
CONNECTION WITH OR ARISING OUT OF THE PURCHASE OR USE OF THE
HITACHI PRODUCT, WHETHER ARISING IN CONTRACT OR IN TORT, EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE SOLE AND
EXCLUSIVE LIABILITY OF HITACHI AND ITS AFFILIATES, AND THE SOLE
AND EXCLUSIVE REMEDY OF SUCH PURCHASER AND ANY OTHER PERSON,
SHALL BE THIS LIMITED WARRANTY. IN NO EVENT SHALL THE LIABILITY
OF HITACHI AND ITS AFFILIATES, REGARDLESS OF THE FORM OF ACTION,
EXCEED THE PURCHASE PRICE OF THE HITACHI PRODUCT.

Based on the disclaimers in the Limited Warranty, defendant argues that it has disclaimed
any express or implied warranty of merchantability or fitness for a particular purpose. In its
unnecessarily verbose and interminably long brief, plaintiff has raised a number of responses to
this argument, only one of which need be discussed. By its own terms, the warranty applies to
“Hitachi Products,” which the warranty has defined as an “Hitachi brand power tool or
pneumatic tool.” The complaint alleges that defendant expressly warranted that the Hitachi nails
were fit for use in the Hitachi nail guns. It is undisputed, however, that Hitachi brand nails did
not work in Hitachi nail guns, while the guns worked with competitor brand nails. Because nails
are not a “power tool or pneumatic tool” and thus not a “Hitachi product” as defined by the
Limited Warranty, the warranty disclaimers do not apply to plaintiff's warranty claims

concerning the nails.’

'The complaint alleges that defendant’s nails and nail guns were “incompatible,” thus
implying that either the fastener or the tool — or both — were not of merchantable quality. The
evidence proffered by plaintiff demonstrates, however, that the guns performed properly, and that
it was defendant’s nails that caused the guns to jam. Accordingly, the court construes plaintiff's
claim to rest solely on the alleged defect in the nails.

3


in tort. Id.; Board of Education of the City of Chicago v. A, C & S, Inc., 131 Ill.2d 428, 440

(1989). “[W]here only the defective product is damaged, economic losses caused by qualitative
defects falling under the ambient of a purchaser’s disappointed expectations cannot be recovered
in [tort].” Moorman, 91 Ill.2d at 85. Economic damages include damages for inadequate value
of an allegedly defective product, cost to repair or replace the product, lost profits, and
diminution in value of a product because it is inferior in quality or fails to work for the general
purposes for which it was manufactured and sold. Id. at 82.

There are exceptions to the general rule, however, tort claims for economic damage are
allowed where: 1) the plaintiff sustains personal injury or property damage resulting from a
tortious event, i.e., a sudden or dangerous occurrence; 2) the plaintiff's damages are proximately
caused by a defendant’s intentional, false representation, i.e., fraud; or 3) plaintiff's damages are
caused by a negligent misrepresentation by a defendant in the business of supplying information
for the guidance of others in their business transactions. Id. at 89.

In the instant case, Counts IV and VI allege fraud and intentional misrepresentation.
Specifically, the counts allege that defendant represented that its nails were compatible with its
nail guns, knowing that to be false. These allegations fall squarely within the exception to the
Economic Loss Rule for fraud. Accordingly, defendant’s motion for summary judgment on

Counts IV and VI is denied.’

5In its reply brief, defendant argues that the fraud exception applies only if the alleged
fraud is “extraneous to the contract,” relying on decisions based on Michigan and Florida law. It
cites no Ilinois authority for this proposition, probably because it found none. The court’s
research revealed no such limitation on the fraud exception in Illinois. See Zimmerman v. North
Field R.E., Inc., 156 Ill. App.3d 154, 164 (1" Dist. 1987) (Fraud exception applied to
misrepresentation claim brought by real estate purchaser for intentional misrepresentation.)

5


Minute Order Form (06/97)

United States District Court, Northern District of Iinois

Name of Assigned Judge Sitting Judge if Other
or Magistrate Judge Robert W. Gettleman than Assigned Judge
CASE NUMBER 00 C 7395 DATE May 14, 2002
CASE Kingsford Fastener,Inc. v Hitachi Koki, USA, Ltd.
TITLE
[In the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
Q) a Filed motion of [ use listing in “Motion” box above.]
(2) im) Brief in support of motion due
(3) Qa Answer brief to motion due. . Reply to answer brief due
(4) a Ruling/Hearing on. set for at
(5) o Status hearing
(6) o Pretrial conference[held/continued to] [set for/re-set for] on set for at
(7) Oo Trial[set for/re-set for] on at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to at
(9) 1a) This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
CUFRCP4(m) (General Rule21 CIFRCP41(a)(1) OFRCP41(a)(2).

(0) of {Other docket entry]

Memorandum opinion and order entered. Accordingly,
defendant’s motion for summary judgment is granted in part, as to
Counts V,VII and IX, and denied in all other respects.

al) @ [For further detail see order attached to the original minute order.]
No notices required, advised in open court.
No notices required, umber of notices
X | Notices mailed by judge’s staff.
; MAY 1.5 2002
Notified counsel by telephone. date docketed

Docketing to mail notices,

Mail AO 450 form.

LEAs 13
Copy to judge/magistrate judge.
courtroom Coe a abs
GDS deputy’s
initials =
Date/time received in
central Clerk’s Office mailing deputy initials



we

Count V, however, alleging negligent misrepresentation, cannot survive. As plaintiff
admits, defendant is not in the business of providing information for the guidance of others in
their business transactions. Thus, the negligent misrepresentation exception to the Economic
Loss Rule does not apply. Defendant’s motion for summary judgment as to Count V is granted.

In Count VIL, plaintiff alleges that defendant’s actions violate the CFA. Defendant has
moved for summary judgment arguing that because plaintiff is not a consumer of defendant’s
products, plaintiff must, but cannot, allege a “consumer nexus.” A consumer nexus is
established when “the conduct involves trade practices directed to the market generally or
otherwise relates to consumer protection issues.” Athey Products Corp. v. Harris Bank Roselle,
89 F.3d 430, 436 (7" Cir. 1996).

Plaintiff does not dispute that it is not a consumer of defendant’s products, but argues that
it can and has alleged a sufficient consumer nexus to sustain a claim under the CFA. It fails to
articulate that nexus, however, except to state that defendant’s conduct not only affected plaintiff,
but plaintiffs customers “and any other unfortunate purchasers of the defective fastening system
from Hitachi’s full-line distributors, not to mention the scores of home buyers who may have
been affected by the cost and delay in remedying the problems with the faulty fastening system.”

This amounts to the oft-given and just as often rejected argument that because consumers
are ultimately affected, the claim has a consumer nexus. A consumer nexus is not established,
however, simply because consumers are the ultimate users of the products at issue. Stepan Co. v.
Winter Panel Corp., 948 F. Supp. 802, 806-07 (N.D. Ill. 1996). In the instant case, the express
warranty that plaintiff alleges was breached was made to plaintiff directly, not to the public

generally. Plaintiff has failed to establish that defendant’s conduct invokes trade practices


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
KINGSFORD FASTENER, INC., )
)
Plaintiff, )
) No. 00C 7395

v. y

) Judge Robert W. Gettleman
HITACHI KOKI, U.S.A., LTD., )
)
Defendant. )

MEMORANDUM OPINION AND ORDER

Plaintiff Kingsford Fastener, Inc. has brought a nine count complaint against defendant
Hitachi Koki, U.S.A., Ltd. alleging: 1) breach of implied warranty of merchantability; 2) breach
of implied warranty of fitness for a particular purpose; 3) breach of express warranty of fitness
for a particular purpose; 4) fraud; 5) negligent misrepresentations; 6) intentional
misrepresentations; 7) violation of the Consumer Fraud and Deceptive Business Practices Act,
815 ILCS 505/1 et seq. (“CFA”); 8) breach of contract; and 9) breach of duty of good faith and
fair dealing. Defendant has moved for summary judgment on all counts. For the reasons set

forth below, the motion is granted in part and denied in part. POCKETED

Background MAY] 52002
All of plaintiff's claims arise out of its allegations that defendant induced plaintiff to
become a distributor of defendant’s products by offering plaintiff special prices on defendant's
new “Hitachi brand” nails to be used with “Hitachi brand” nail guns. The Hitachi nail did not
work with Hitachi nail guns (although all of Hitachi’s competitor’s nails did work), and plaintiff

alleges that defendant knew its nails would not work with its nail gun when it induced plaintiff to

enter into the distributorship agreement. Plaintiff, which has been selling competitor’s nails for

3.


use in defendant’s nail guns, alleges that as a result of the excessive failure of defendant’s nails
in defendant’s own nail gun, it lost a potential customer and revenue in excess of $400,000.
Discussion
Defendant first argues that all of plaintiff's warranty claims, both express and implied, as
well as its contract claims (Counts I, Il, III, and VIII), are barred as a matter of law by defendant’s
Limited Warranty. Defendant’s Limited Warranty, which is not provided in any of the purchase
orders or invoices, but rather is set out in defendant’s catalog, provides in pertinent part:

WARRANTY TO ORIGINAL PURCHASER
Hitachi Koki, U.S.A., Ltd. (“Hitachi”) gives the limited warranty to only the original end-
user purchaser of a Hitachi brand power tool or pneumatic tool (“Hitachi Product”).

ek OF

WARRANTY DISCLAIMERS

NO WARRANTY, ORAL OR WRITTEN, OTHER THAN THIS LIMITED
WARRANTY IS MADE WITH REGARD TO THE HITACHI PRODUCT. ANY
IMPLIED WARRANTIES OF HITACHI OR ITS AFFILIATES REGARDING THE
HITACHI PRODUCT, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, ARE LIMITED IN DURATION TO THE ABOVE ONE (1) YEAR
WARRANTY PERIOD (OR NINETY (90) DAYS FOR BATTERIES, O-RINGS AND
DRIVER BLADES), HITACHI SHALL NOT BE LIABLE FOR LOSS OF USE OF
ANY HITACHI PRODUCT OR OTHER INCIDENTAL OR CONSEQUENTIAL
COSTS, EXPENSES, OR A DAMAGES INCURRED BY THE PURCHASER OR ANY
OTHER PERSON, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.

ADDITIONAL WARRANTY DISCLAIMERS FOR ALL PURCHASERS EXCEPT
CONSUMERS

WHEN ANY HITACHI PRODUCT SHALL BE PURCHASED BY ANY PERSON
SUCH THAT THE HITACHI PRODUCT IS NOT A “CONSUMER GOOD” (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE ADOPTED IN THE STATE OF
PURCHASE OR IN OTHER APPLICABLE LAW), HITACHI EXPRESSLY
DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION