## Facts

- Tokyo Ohka Kogyo America, Inc. (TOK) purchased propylene glycol used in semiconductor chemical operations.
- Huntsman Propylene Oxide LLC (Huntsman) required TOK to complete a credit application as a condition of extending credit.
- The credit application incorporated Huntsman’s general terms and conditions of sale, including a limitation-of-liability provision that limited Huntsman’s liability to the purchase price of the propylene glycol and excluded consequential damages.
- TOK signed the credit application and then spent about two years testing Huntsman’s propylene glycol to determine whether it was suitable for TOK’s use.
- TOK determined Huntsman’s propylene glycol, as then manufactured, was satisfactory and began purchasing in higher volume.
- Huntsman later signed TOK’s procurement specification, which required Huntsman to notify TOK about any changes to Huntsman’s manufacturing process.
- Huntsman changed its manufacturing process without giving the contractually required notice.
- TOK alleged that the undisclosed process change caused a latent defect in the propylene glycol supplied to TOK.
- TOK alleged losses that included wasted chemicals and chemical disposal costs and sued Huntsman for breach of contract based on the failure to provide notice of the process change.
- The parties agreed to litigate the case in phases, with “Phase 1” limited to whether Huntsman’s limitation-of-liability clause applied to restrict TOK’s potential damages.

## Issues

1. Under UCC § 2-719, is Huntsman’s limitation-of-liability clause (capping damages at the purchase price and excluding consequential damages) enforceable to limit TOK’s damages for Huntsman’s alleged breach of its process-change notice obligation?

## Decision

- TOK’s motion for partial summary judgment was granted.
- Huntsman’s motion for partial summary judgment was denied.
- The court held that Huntsman’s limitation-of-liability clause was not enforceable under UCC § 2-719 on the Phase 1 record and therefore did not limit TOK’s potential damages in the lawsuit.
- The ruling addressed only whether the clause limited damages; it did not decide ultimate liability or the amount of damages.

## Legal Principles

- UCC § 2-719 allows contracting parties to limit or alter remedies, including limiting damages to the purchase price and excluding consequential damages.
- A limited remedy is not enforceable if, in the circumstances of performance and breach, it fails of its essential purpose (i.e., it leaves the buyer without a fair remedy for the type of harm caused by the breach at issue).
- A consequential-damages exclusion may be enforced in commercial contracts, but it remains subject to UCC limits, including the essential-purpose analysis when a remedy limitation operates in practice to deprive the buyer of a meaningful recovery.
- On cross-motions for summary judgment, the court evaluates each motion separately, viewing the evidence and reasonable inferences in favor of the nonmoving party on that motion, and may consider evidence offered by either side.

## Conclusion

The district court concluded that enforcing Huntsman’s purchase-price cap and consequential-damages exclusion would not provide TOK a meaningful remedy for the alleged breach that mattered to the parties’ relationship—Huntsman’s promise to give notice of manufacturing-process changes after TOK’s lengthy qualification testing. Because the claimed harm flowed from an undisclosed process change that allegedly produced latent defects and downstream losses beyond a simple refund, the limitation-of-liability clause failed of its essential purpose under UCC § 2-719 and therefore did not restrict TOK’s recoverable damages in the case.


Tokyo Ohka Kogyo America, Inc. v. Huntsman Propylene Oxide LLC, 35 F.Supp. 3d 1316 (2014)