NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

 :

OKK USA CORPORATION, : CIVIL ACTION NO. 11-4167 (MLC)

 :

Plaintiff, : MEMORANDUM OPINION

 :

v. :

 :

GENERAL TOOL SPECIALTIES, INC.,:

 :

Defendant. :

 :

COOPER, District Judge

Plaintiff, OKK USA Corporation (“OKK”), brings this action

against Defendant, General Tool Specialties, Inc. (“General

Tool”), seeking damages resulting from an alleged breach of

contract for the sale of an OKK Vertical Machining Center Model

V9000 (“the Machine”). (Dkt. entry no. 1, Compl.) General Tool

denies liability, asserting, inter alia, that OKK “is barred from

recovery by reason of [its breach of] implied warranties” and

that the underlying contract is void, for lack of either

consideration or a meeting of the minds. (Answer at 3 (Fifth,

Thirteenth, and Fourteenth Separate Defenses).) General Tool 1

also seeks, inter alia, damages resulting from OKK’s alleged

breach of the implied warranties of merchantability and fitness

for a particular purpose. (Id. at 7-8.)

 Although the Answer and Counterclaim constitute one 1

pleading, General Tool assigned paragraph numbers 1-27 to the 

Answer and, again, to the Counterclaim. (See dkt. entry no. 5.) 

The Court will thus cite to the Answer and Counterclaim

separately.

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OKK now moves pursuant to Federal Rule of Civil Procedure

(“Rule”) 12(b)(6) to dismiss General Tool’s Counterclaims for

breach of the implied warranties of merchantability and fitness

for a particular purpose, asserting that the contract at issue,

the parties’ Sales Contract (“Sales Contract”) precludes such

claims. (Dkt. entry no. 8, Mot. Dismiss.) The Court will decide

the motion without oral argument pursuant to Local Civil Rule

78.1(b) and, for the reasons set forth below, will grant the

motion.

BACKGROUND

In July of 2010, OKK, a corporation with its principal place

of business in Illinois, and General Tool, a corporation with its

principal place of business in New Jersey, executed the Sales

Contract, whereby OKK agreed to sell and deliver the Machine to

General Tool. (Compl. at ¶¶ 1-2, 4; Answer at ¶¶ 1-2, 4;

Counterclaim at ¶ 3; see also Compl., Ex. A, Sales Contract.) In

exchange, General Tool agreed to give OKK two payments: (1) a

down payment of $6,000 by August 2, 2010; and (2) an additional

payment of $252,000 within 30 days of delivery of the Machine. 

(Compl. at ¶ 7; Counterclaim at ¶ 5; Sales Contract (“Note: Cust

[sic] 6000 down pymt [sic] to be received on 8/2/10”).) 

The Sales Contract is only one page long. It sets forth the

terms of the sale and delivery of the Machine, including the

relevant specifications of the Machine, the price to be paid for

2

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the Machine, the delivery terms, and the payment terms. (Sales

Contract.) Below such terms, in the same (or reasonably similar)

font and typeface, it states: 

This Sales Contract is subject to the terms and

conditions of sale set forth on the attached hereof. 

This Sales Contract must be signed by the Buyer in the

name of the firm or corporation, by a member of the

firm or officer of the corporation, authorized to act

on behalf of and to make binding, contractual

commitments for the firm or corporation.

(Id.) Below this statement, but immediately above the Buyer’s

signature line, it states: “Accepted: The Sales Contract

including the terms and conditions of sale contained hereof are

accepted.” (Id.) A representative of General Tool signed the

Sales Contract. (Id.; see also Compl. at ¶ 4; Counterclaim at ¶

3.)

The OKK USA Corporation Terms and Conditions of Sale, which

were attached to the Complaint and incorporated by reference in

the Counterclaim (see Counterclaim at ¶ 3), state that:

7. LIMITED WARRANTY.

(a) Seller warrants that the Products will be free 

from defects in material and workmanship for a period

of one (1) year from the earlier of either: (i) the

date the Product is originally installed at Purchaser’s

place of business; or (ii) the date that the Product is

first delivered to Purchaser and Seller attempts or is

available to install the Product at Purchaser’s

facility.

(b) THIS LIMITED WARRANTY OF SELLER IS IN LIEU OF ALL 

OTHER WARRANTIES, AND SELLER HEREBY EXCLUDES ALL OTHER

WARRANTIES, EXPRESS, IMPLIED STATUTORY OR OTHERWISE

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CREATED, WHICH ARE APPLICABLE TO THIS TRANSACTION,

INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS

FOR A PARTICULAR PURPOSE OR USE.

* * *

13. GOVERNING LAW, JURISDICTION AND VENUE. This

contract will be governed by and construed in all

respects by the internal laws and decisions, other than

any conflict of laws provision, of the State of

Illinois, including but not limited to all matters of

construction, validity, enforceability and performance.

. . .

(Sales Contract at ¶¶ 7, 13 (bold typeface and capitalization in

original).)

General Tool gave the $6,000 down payment to OKK on or about

August 2, 2010 and OKK delivered the Machine to General Tool on

or about August 6, 2010. (Compl. at ¶¶ 6-7; Answer at ¶ 6;

Counterclaim at ¶¶ 4-5.) The Machine was leveled soon

thereafter, and installation was completed on or about August 17,

2010. (Compl. at ¶ 6; Counterclaim at ¶ 6.) 

OKK filed the Complaint on July 20, 2011, asserting that

“General Tool has repeatedly failed and refused to pay to OKK the

purchase price balance of $252,000, despite the fact that General

Tool has been using and continued to use the OKK Machine on a

regular basis.” (Compl. at ¶ 8.) General Tool acknowledges that

it has not paid the purchase balance of $252,000. (Answer at 

¶ 8.) General Tool alleges, however, that the Machine was

improperly installed and otherwise defective. (Counterclaim at

4

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¶¶ 7-12.) General Tool further alleges that OKK was aware of the

issues and defects relating to the Machine, that OKK attempted to

cure such issues and defects, and that, through March of 2011,

the Machine continued “not to function within the tolerance and

specifications set forth in the contract, within the trade and as

anticipated by the parties to this action.” (See id. at ¶¶ 12-

13.) General Tool thus asserts that it is not liable for breach

of contract and, further, raises Counterclaims against OKK,

seeking, inter alia, damages for OKK’s alleged breach of the

implied warranties of merchantability and fitness for a

particular purpose. (Answer at ¶ 17; Counterclaim at ¶¶ 18-23.)

OKK moved to dismiss General Tool’s Counterclaims for breach

of the implied warranties of merchantability and fitness for a

particular purpose on September 23, 2011. General Tool failed to

respond.2

DISCUSSION

I. Rule 12(b)(6) Standard

A party may move to dismiss a counterclaim pursuant to Rule

12(b)(6) for “failure to state a claim upon which relief can be

granted.” Fed.R.Civ.P. 12(b)(6); see also RP Baking LLC v.

Bakery Drivers & Salesmen Local 194, No. 10-3819, 2011 WL

 Despite General Tool’s failure to file opposition papers, 2

the Court must analyze General Tool’s Counterclaims to determine

whether they state claims upon which relief can be granted. See

Stackhouse v. Mazurkiewicz, 951 F.2d 29, 30 (3d Cir. 1991).

5

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2912861, at *3-4 (D.N.J. July 18, 2011) (recognizing and granting

plaintiff’s Rule 12(b)(6) challenge to defendants’ counterclaim). 

In addressing a motion to dismiss a defendant’s counterclaim

under Rule 12(b)(6), the Court must accept all of the factual

allegations contained in the defendant’s answer and counterclaim

as true, construe the counterclaim in the light most favorable to

the defendant, and determine whether, under any reasonable

reading of the counterclaim, the defendant may be entitled to

relief. See Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937,

1949–50 (2009); Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233

(3d Cir. 2008). At this stage, a counterclaim “must contain

sufficient factual matter, accepted as true to ‘state a claim to

relief that is plausible on its face.’ A claim has facial

plausibility when [it contains] factual content that allows the

court to draw the reasonable inference that the [opposing party]

is liable for the misconduct alleged.” See Iqbal, 129 S.Ct. at

1949 (citation omitted). 

The Court, when considering a motion to dismiss filed

pursuant to Rule 12(b)(6), generally may not “consider matters

extraneous to the pleadings.” In re Burlington Coat Factory Sec.

Litig., 114 F.3d 1410, 1426 (3d Cir. 1997). The Court may,

however, consider certain documents without converting the motion

to dismiss into one for summary judgment. Angstadt v. Midd-West

Sch. Dist., 377 F.3d 338, 342 (3d Cir. 2004). Such documents

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include exhibits that are attached to the pleadings, and

documents that are integral to or explicitly relied upon in the

pleadings. Id.

II. Choice-of-Law

Because General Tool’s Counterclaims are based on state law,

and because the Court has jurisdiction over this matter pursuant

to 28 U.S.C. § 1332, the Court must, at the outset, consider

which State’s law applies. The Court recognizes that New

Jersey’s choice-of-law rules govern this determination, as a

federal court sitting in diversity must apply the forum state’s

choice-of-law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313

U.S. 487, 496 (1941). 

New Jersey generally gives effect to parties’ contractual

choice-of-law clauses, striking them only if they fail the “most

significant relationship” test. P.V. ex rel. T.V. v. Camp

Jaycee, 962 A.2d 453, 459-60 (2008). This analysis, which must

be performed on an issue-by-issue basis, is a two-step process. 

Id. at 460. The first step is to determine whether an actual

conflict of law exists, for if no conflict exists, the law of the

forum state applies. Id. Second, if a conflict does exist, the

Court must determine which state has the “most significant

relationship” to the claim by assessing the cause of action. See

Nikolin v. Samsung Elecs. Am., Inc., Civ. No. 10–1456, 2010 WL

4116997, at *3 (D.N.J. Oct. 18, 2010).

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Applying the factors necessary to determine choice-of-law in

a contract dispute, however, is a fact-intensive inquiry that can

be premature at this stage of the proceedings. See Harper v. LG

Elecs. USA, Inc., 595 F.Supp.2d 486, 491 (D.N.J. 2009)

(postponing choice-of-law analysis, for purposes of ruling upon

motion to dismiss claims arising from alleged breaches of express

and implied warranties, “until the parties present[ed] a factual

record full enough”). The Court finds that, as in Harper, the

factual record here is not yet “full enough” to make a choice-oflaw determination as to General Tool’s Counterclaims for breach

of implied warranties. 

The Court must, however, still determine whether General

Tool has succeeded in stating claims, such that those claims

survive the motion. To make this determination, the Court must

rely on some body of law. For the purpose of examining General

Tool’s Counterclaims under the Rule 12(b)(6) standard, the Court

will apply Illinois law because: (1) General Tool’s Counterclaims

arise out of the Sales Contract, which was referenced and relied

upon in the Counterclaims (Counterclaim at ¶ 3); (2) the Sales

Contract states that it shall be governed by Illinois law (Sales

Contract at ¶ 13); (3) OKK asserts that Illinois law controls

this action (dkt. entry no. 8, Plt. Br. at 3); and (4) General

Tool, by failing to respond to the motion, also failed to respond

to OKK’s assertion that Illinois law controls this action. See

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also Harper, 595 F.Supp.2d at 491 (examining claims, for purpose

of ruling upon Rule 12(b)(6) motion, under assumption that a

given state’s law controlled because choice-of-law analysis was

not yet proper).

III. Under Illinois Law, the Court Must Dismiss the Counterclaims 

When ruling upon the motion, the Court must, as noted above, 

construe the facts of record in the light most favorable to the

non-moving party. See Iqbal, 129 S.Ct. at 1949–50; Phillips, 515

F.3d at 233. After examining the record, and after construing

the facts in the light most favorable to General Tool, the Court

has determined that it must dismiss the Counterclaims at issue.

Section 316(2) of the Illinois Commercial Code (“Section

316(2)”) permits parties to a contract for the sale of goods to

exclude warranties which, under other circumstances, would be

implicit in their contract. Section 316(2), with respect to the

implied warranty of merchantability, states that “to exclude or

modify the implied warranty of merchantability or any part of

it[,] the language [of the exclusion] must mention

merchantability and in case of a writing must be conspicuous[.]” 

810 ILCS 5/2-316(2). Section 316(2) further states, with respect

to the implied warranty of fitness for a particular purpose or

use, that “to exclude or modify any implied warranty of

fitness[,] the exclusion must be by a writing and conspicuous. 

Language to exclude all implied warranties of fitness is

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sufficient if it states, for example, that ‘There are no

warranties which extend beyond the description on the face

hereof.’” Id. 

The Sales Contract here sets forth a limited seller warranty

in paragraph 7(a). Immediately thereafter, in paragraph 7(b),

the Sales Contract notes that the limited seller warranty “is in

lieu of all other warranties, express, implied statutory or

otherwise created, which are applicable to this transaction,

including any warranties of merchantability or fitness for a

particular use.” (Sales Contract at ¶ 7(b) (bold typeface and

capitalization omitted, emphasis added).) Because the paragraph

7(b) exclusion is in writing, explicitly mentions the warranty of

merchantability, and explicitly excludes all other implied

warranties, the Court determines that the Sales Contract facially

satisfies three of the four requirements for excluding the

implied warranties of merchantability and fitness for a

particular purpose. 

The Court must determine as a matter of law, however,

whether the purported exclusions were sufficiently conspicuous. 

Carpenter v. Mobile World, Inc., 551 N.E.2d 724, 728 (Ill.App.

1990). Section 201(10) of the Illinois Commercial Code (“Section

201(10)”) provides guidance. Under Section 201(10): 

“Conspicuous”, with reference to a term, means so

written, displayed, or presented that a reasonable

person against which it is to operate ought to have

noticed it. Whether a term is “conspicuous” or not is

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a decision for the court. Conspicuous terms include

the following: 

(A) a heading in capitals equal to or greater in

size than the surrounding text, or in contrasting

type, font, or color to the surrounding text of

the same or lesser size; and 

(B) language in the body of a record or display in

larger type than the surrounding text, or in

contrasting type, font, or color to the

surrounding text of the same size, or set off from

surrounding text of the same size by symbols or

other marks that call attention to the language.

810 ILCS 5/1-201(10). 

In Carpenter, the Illinois Appellate Court addressed a

similar case and discussed Illinois precedent:

[I]n Anderson v. Farmers Hybrid Companies [408 N.E.2d

1194 (Ill.App. 1980)], a purported disclaimer on the

back of an order confirmation slip for the sale of

unbred female pigs used for breeding purposes (gilts)

contained a disclaimer on its back in print larger than

the rest of the print on the back but in smaller print

than that on the front of the slip. In small print on

the front of the slip, a statement indicated the order

was subject to conditions on the back of the slip. 

Also noting that the nature of the slip was such that a

person might think nothing was on the back of the slip,

the appellate court held the purported disclaimer of

merchantability was invalid.

. . . In Bowers [Mfg. Co. v. Chicago Machine Tool

Co., 453 N.E.2d 61, 67 (Ill.App. 1983)], the warranty

provisions of a warranty card were on the back of the

card as was a disclaimer. The front of the card

contained a statement that warranty provisions were on

the back of the card. The disclaimer was held to be

conspicuous. The court noted a reasonable person would

likely have read the back. 

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Carpenter, 551 N.E.2d at 728-29 (emphasis added). The Illinois

Appellate Court thus placed emphasis upon the location of notice,

alerting the affected party of the disclaimer of warranties; the

size, i.e., the typeface of the disclaimer; and the nature of the

documents at issue, i.e., whether a reasonable person might think

to look at that portion of the documents. See id. 

The Illinois Appellate Court then applied these factors to

the facts of the pending case. Carpenter, the plaintiff, bought

a mobile home from Mobile World, Inc. (“Mobile”), one of the

defendants to the action, and brought suit seeking, inter alia,

compensatory damages from Mobile for the alleged breach of

implied warranties. Id. at 725. Mobile argued that it

effectively excluded any such implied warranties by including a

paragraph, in enlarged print on the back of its sales contract,

which stated: 

(9) Exclusion of warranties. I understand that the

implied warranties on merchantability and fitness for a

particular purpose and all other warranties express or

implied are excluded by you from this transaction and

shall not apply to the goods sold. I understand that

you make no warranties whatsoever regarding the unit or

any appliances or component contained therein, except

as may be required under applicable State law.

Id. at 728.

The Illinois Appellate Court, relying upon the abovediscussed precedent, reasoned that:

Plaintiff points out that here, as in Anderson, the

disclaimer was on the back, and here, as in Anderson,

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no statement on the front of the document stated a

disclaimer was made on the back of the document. 

Plaintiff maintains the precedent of Anderson requires

us to determine the disclaimer here was not

conspicuous. However, here the document of sale does

not appear to lack writing on its back, and above the

line on the front for signature by the buyer, in

enlarged print, as large as any on the front, is a

statement that buyer has read the back of the

agreement. . . . Here, [as in Bowers], a reasonable

buyer would have seen the certificate indicating he had

read the back of the document and, at least looked at

the back. If such a person had looked at the back he

would have seen the disclaimer, which was in bold face.

Id. at 729. Based upon its analysis, the Illinois Appellate

Court reversed the judgment entered in Carpenter’s favor on the

claims sounding in Mobile’s alleged breach of implied warranties. 

Id. at 729.

The Court finds that this case is similar to Carpenter and

finds the reasoning there espoused by the Illinois Appellate

Court persuasive. Here, the Sales Contract provided notice to

the reader, that the Sales Contract incorporated additional terms

that appeared “on the attached hereof.” It also prompted the

reader, immediately above the line for signature by the buyer, to

note that the buyer accepted “[t]he Sales Contract including the

terms and conditions of sale contained here[.]” These notices

appeared in the same print as all other terms and conditions

appearing in the Sales Contract.

The Court also finds that this case is dissimilar to

Anderson, as discussed in Carpenter, to the extent that the Sales

13

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Contract and attached “OKK USA Corporation Terms and Conditions

of Sale” do not appear, as the back of the slip in Anderson

appeared, to be the kind of documents that would lack text. A

reasonable person, holding these three sheets of paper, would

have expected and/or known that each of the three sheets

contained important information about the sale at issue. 

The Court finally notes that the exact term at issue, the

limitation and/or exclusion of warranties, appears in bold text

and in all capital letters. As such, if “a person,” such as the

representative of General Tool “had looked at the back he would

have seen the disclaimer, which was in bold face.” Id.

The Court has accordingly determined that the exclusion of

warranties was conspicuous and effective. 

CONCLUSION

The Court, for the reasons set forth above, will grant the

motion. The Court will issue an appropriate order and judgment.

 s/ Mary L. Cooper 

MARY L. COOPER

United States District Judge

Dated: October 27, 2011

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