## Facts

- Jim and Karen Pierce bought a new 42-foot fiberglass sailboat manufactured by Catalina Yachts, Inc.
- Catalina provided a written limited warranty promising to repair, or pay 100% of labor and materials to repair, below-the-waterline gel-coat blisters occurring within one year after the boat was placed in the water.
- The warranty expressly excluded consequential damages.
- About two years after purchase, the Pierces discovered gel-coat blisters on the hull and rudder during maintenance and notified Catalina.
- The Pierces submitted a repair estimate of $10,645 for removing and replacing gel coat below the waterline; Catalina rejected the estimate and insisted only minor patching was needed.
- After months of unsuccessful efforts to obtain the requested repairs, the Pierces sued seeking contract and tort damages and later added claims under state consumer-protection law and the Magnuson-Moss Warranty Act.
- Before trial, the superior court held the consequential-damages exclusion was not unconscionable and barred the Pierces from presenting consequential damages to the jury.
- The jury found Catalina breached the warranty, the Pierces gave timely notice, the Pierces could not reasonably avoid their damages, and Catalina acted in bad faith in failing to honor its warranty obligations; it awarded $12,445 as the reasonable cost of repair.

## Issues

1. Whether a manufacturer that acted in bad faith in breaching a limited repair warranty may enforce a contractual exclusion of consequential damages, particularly where the repair remedy arguably failed of its essential purpose.
2. Whether the trial court abused its discretion by limiting evidence and arguments supporting the Pierces’ consumer-protection (unfair trade practices) claim.

## Decision

- The Alaska Supreme Court reversed the dismissal of the Pierces’ consequential-damages claim.
- The court held that, because the jury found Catalina acted in bad faith in failing to honor its warranty obligations, Catalina could not conscionably enforce the warranty’s consequential-damages exclusion.
- The case was remanded for a trial limited to determining consequential damages.
- The court otherwise affirmed the existing verdict and most trial rulings, including key evidentiary limitations affecting the consumer-protection claim.

## Legal Principles

- Under the UCC, parties may limit remedies and exclude consequential damages, but a limited repair remedy is unenforceable if it fails of its essential purpose.
- Even when a limited remedy fails, a consequential-damages exclusion is enforceable only if conscionable.
- In a consumer warranty setting, a seller’s bad-faith breach of its repair obligation can make enforcement of a consequential-damages exclusion unconscionable.
- Where bad faith is established, the buyer may pursue consequential damages notwithstanding an express exclusion, with consequential damages to be determined at a separate trial if liability and direct repair costs have already been resolved.

## Conclusion

The court held that a manufacturer found to have acted in bad faith in refusing to honor a limited repair warranty may not enforce a contractual bar on consequential damages as a matter of conscionability, and it remanded for a trial to determine consequential damages while leaving the jury’s breach, notice, bad-faith findings, and repair-cost award intact.


Pierce v. Catalina Yachts, Inc., 2 P.3d 618 (Alaska 2000)