Warranty Disputes on Renewable Energy Projects

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Warranty Disputes on Renewable Energy Projects

By Brian Waagner & Steve Neeley

 

Introduction

 

The availability of production tax credits has driven a dramatic increase in the development and installation of new renewable energy facilities over the last ten years. The economic viability of these facilities depends on the reliability of wind turbine blades, gearboxes, solar cells, and other newly-developed technology. Electricity simply cannot be generated and sold when the equipment used to generate it is not working. The business model used to finance these projects does not work if maintenance and repair costs significantly exceed original projections.

 

Enforcing product warranties granted by an original equipment manufacturer (OEM) is a critical element of managing a successful renewable energy project and maintaining its economic viability. As we discuss in this article, owners must be proactive in this regard, not only by understanding their warranties, but also in ensuring that they receive the full economic benefit that comes when OEMs honor them. Owners are not required to, and often should not, simply accept an OEM’s assertion that a particular component failure is the result of a force majeure event or otherwise not covered under warranty. Owners can and should take it upon themselves to gather data, critique the OEM’s analysis, and assert their right to warranty coverage when it is available.

 

This approach will sometimes lead to disputes with the OEM, but remaining passive may put the renewable energy owner at a significant disadvantage, especially with respect to a catastrophic equipment failure. This article gives an overview of the typical OEM warranties provided on renewable energy projects and addresses the issues that often arise in connection with arbitration and litigation that sometimes follow owner efforts to enforce them.

 

Owner Warranty Rights

 

Renewable energy owners have several sources of protection for problems that may affect their projects. In addition to general liability insurance, owners typically have property insurance policies to cover the cost of repairing or replacing equipment damaged in a storm or other force majeure event. Those policies also typically cover at least some of the lost revenue caused by the downtime that results when a component fails and the asset cannot generate and sell electricity.

 

But insurance policies often exclude coverage for design and manufacturing defects. As a result, an owner’s primary protection against such defects is the express warranties provided by the OEM in the initial supply or warranty agreement.Although the scope of those warranties varies among OEMs and with the negotiated terms of each agreement, there are several typical warranties that are widely used throughout the renewable energy industry.

 

The first common warranty type is a “general warranty.” Under a typical general warranty, an OEM represents that the equipment: (a) meets the technical specifications in the agreement; (b) is new at the time of delivery; and (c) does not have any defects in design or workmanship. It is a warranty about the condition of the equipment when delivered and it can be breached even if a component has not yet failed. The typical remedy for a breach of the general warranty is repair or replacement of the affected component.

 

A second common warranty type is a design or “design-life” warranty. It typically provides either:  (a) that the equipment was designed to operate for a certain number of years (e.g. for 20 years after the commissioning date); or (b) that the design meets an objective industry standard such as those published by the International Electrotechnical Commission (IEC). If components are failing or breaking early in their intended useful life, that may be an indication that the OEM is in breach of the warranty.The design warranty is not, by itself, a performance guarantee or a promise that the equipment will operate for a certain number of years. But it can give rise to a performance guarantee if the OEM has given some other indication that the equipment will last for a certain period of time.4

 

A third common warranty type is a “serial defect” warranty. It offers additional protection whenever multiple components are affected by the same defect. Typically, the warranty specifies a threshold number of components which operates as a trigger for additional remedies. When the threshold is reached, the OEM is required to perform a root cause analysis of the problem and propose a remedy. To invoke and enforce the warranty, owners should track the component defects that they experience, including those components that have already been repaired or replaced. Even if a failure was previously fixed under a different warranty, it may still count as a triggering event under the serial defect warranty.

 

These express warranties are usually in effect for two to five years from a project’s commercial operation date (i.e., the warranty period). All other warranties, including implied warranties and those imposed by the Uniform Commercial Code, are typically disclaimed by the OEM in the supply or warranty agreement.

 

Common Issues When Enforcing Warranty Rights

 

For the most part, owners are aware of their warranty rights and are comfortable enforcing them during the warranty period. When they identify a defect (usually because of a failure), they notify the OEM and are often content to accept the OEM’s recommendations for equipment upgrades and repair or replacement of damaged equipment. The equipment is quickly brought back online, and the owner is satisfied.

 

While there is simplicity in this approach, relying exclusively on OEM recommendations presents obvious risks, especially when the warranty period is expiring or when a serious problem is affecting a large number of components. An OEM’s desire to minimize its losses may make it less willing to conduct an objective root cause analysis or to offer a comprehensive solution to a widespread defect.

 

In these circumstances, the owner may be forced to initiate dispute resolution proceedings in order to enforce its rights under the OEM warranties. Although the specific facts underlying every warranty coverage dispute vary, most disputes present a number of common issues.

   

               A.        Choice of Forum

 

One of the first important issues that arises in OEM warranty disputes is determining who should resolve the claim. Like most complex commercial contracts, supply and warranty agreements outline specific dispute resolution forums and procedures that often avoid traditional court litigation. The typical options are to have the dispute resolved either by an “independent engineer” who has specialized knowledge of the OEM equipment, or through a commercial arbitration proceeding.

                                             

                        1.         Independent Engineer

 

Many supply or warranty agreements require that technical disputes, including disputes involving breaches of warranty, be resolved by an independent engineer who specializes in the OEM’s technology. The parties are usually required to mutually agree to a specific independent engineer shortly after signing the supply or warranty agreement, and must often choose an engineer from an international certification entity or engineering firm such as DNV GL.

 

The process for independent engineer resolution (an example of which is outlined in the sample provision below) is usually quite fast. One party submits an initial letter outlining the dispute, the other party responds within several days, and the independent engineer then makes a binding decision. No additional information is submitted unless the independent engineer requests it, and the decision is binding without regard to the dollar value of the dispute:

 

                                     

In the event of a dispute over . . . whether Turbine Supplier is in breach of any of its warranties . . . any of the Parties shall submit the dispute to the Independent Engineer for determination. The Independent Engineer shall determine disputes  . . . within thirty (30) days of such submission . . . . The decision of the Independent Engineer shall be final and binding on each of the Parties and may be enforced by the prevailing Party in any court of competent jurisdiction.5

Even in a case involving millions of dollars in damages, the independent engineer may be required to make a binding decision in a month or less on the basis of two brief letters—a claim letter describing the claim, and the OEM’s response.

 

Apart from being fast and cheap, this process has advantages. Independent engineers serve the same role as an arbitrator,6but their special knowledge of the OEM’s equipment gives them expertise that a typical commercial arbitrator does not have. They will almost certainly have a better understanding of the technical specifications and available performance data. They may also be able to offer creative solutions to difficult problems, instead of simply granting or denying a claim for money damages.

 

But the independent engineer approach also creates several unique problems. An agreement to select an independent engineer creates ambiguity as to who will serve in that role for a specific dispute. In the honeymoon period and rush of excitement that often follows execution of a new supply agreement, owners and OEMs can easily overlook a provision requiring that they mutually select an independent engineer within a few days of signing the agreement. If that deadline is missed, the parties may find themselves without an independent engineer. A court could find that the parties’ conduct waived the deadline,7 but such determinations are highly fact-dependent. Moreover, even if a court concludes that a procedural requirement has been waived, a preferred independent engineer may not be willing to serve without the agreement of both parties.

 

The speed of the independent engineer process also tends to give the OEM an inherent advantage. Owners may find it difficult to engage their own technical expert, collect evidence, and put together a credible presentation in the limited time available. A savvy owner can mitigate the impact of this advantage with advance preparation, but such preparation can be costly and time-consuming. It may also prove unnecessary if the OEM accepts responsibility without having to submit the dispute to the independent engineer.

 

The independent engineer also may not be completely “independent. ” International certification bodies and classification societies like DNV GL are often involved in the development and testing of the OEM’s prototypes. They are also regularly engaged as consultants during the course of projects by both OEMs and owners to give advice on a variety of issues. This prior work gives rise to potential conflicts of interest that should be fully disclosed, mitigated, and waived. 8 Even with a conflict waiver, an engineering firm whose fortunes are tied to the continued success of the OEM may find it difficult to find fault in the OEM’s equipment.

 

Mergers of engineering firms and other changes in the industry over time create additional questions. Parties to a supply agreement signed in 2010 might not have predicted the 2013 merger of Garrad Hassan, DNV, and GL. Ambiguity in the identification of an independent engineer might result in litigation, even when both parties believed that using the independent engineer approach was the best way to avoid it.

 

                        2.         Arbitration

 

The common alternative to an independent engineer is arbitration. Disputes that are not reserved to the independent engineer are frequently required to be resolved by arbitration, typically before the American Arbitration Association (AAA).

 

The main reasons for choosing arbitration over litigation in an OEM supply and warranty agreement are the same as for any complex commercial dispute. Unlike court proceedings, arbitration is confidential. It is possible to select an arbitrator with more subject matter expertise than a judge or jury. The grounds for challenging an arbitration award are strictly limited, which reduces the possibility that a decision will be tied up in appellate review.9

 

Arbitration also offers the promise of being faster, more efficient, less costly, and more predictable than litigation. Indeed, parties in the renewable energy industry often specify the parameters of the arbitration in order to promote these goals. We often see arbitration clauses that specify one or more of the following: (i) how the arbitrator will be selected; (ii) whether and how much discovery will be permitted; (iii) a whether there will be a hearing with live testimony; (iv) what remedies the arbitrator may award; and (v) when the arbitrator will issue a decision.

 

On the other hand, detailed arbitration clauses are not always effective. An ambiguous or overreaching arbitration clause often leads to expensive and time-consuming disputes about the arbitration process itself.

 

               B.        Statutes of Limitation

 

A second important issue that often arises in warranty coverage disputes is determining whether the claim is timely. Supply and warranty agreements are often governed by the laws of the state in which the project is located, and any warranty claims will be subject to that state’s statute of limitations. Although the length of the limitations periods varies according to state law, the considerations relevant to determining timeliness are the same.

 

In most cases, the key to determining the timeliness of a warranty claim is identifying when the claim accrued. An OEM’s general warranty is a “delivery” warranty, so claims for breach of the warranty typically accrue when the equipment is delivered to the project.10 The same is usually true for implied warranties that may be available under the UCC. If a project has been in operation for several years, owners may find that their claims for breach of a general warranty have already expired by the time a problem arises.

 

Repair warranties are “service” warranties that promise future performance (i. e. , the OEM promises to repair or replace the component if it fails in the future). Claims for breach of a service warranty do not accrue until the OEM refuses to repair or replace a non-conforming component.11 This may be true even if the warranty period has already expired when the repairs are requested.12

 

One factor that sometimes complicates the question of accrual is the application of the “discovery rule.” In states that recognize it, the discovery rule defers accrual until a plaintiff actually discovers (or should have discovered) a defect. If applicable, it may allow an owner to pursue a claim for a defect that could not reasonably have been discovered earlier, even if the original warranty has already expired.13 

 

               C.        Availability of Evidence

 

Collecting and presenting evidence of a defect can be another obstacle for owners. A wind farm owner facing a deadline to assert its warranty rights may find itself without a ready source of detailed performance statistics, historical weather data, or serial numbers of components affected by a defect. This is due in part to their reliance on OEMs and third-party contractors to provide operation and maintenance services, and in part to cost control measures implemented by the owners themselves. Collecting data on an on-going basis adds real costs. There may be no pressing need to incur those costs during the initial operational phases of the project because the OEM is on site making repairs and insurance is covering losses from force majeure events.

 

An OEM is obviously the best source of data regarding the root cause of a defect in its own product, but there may be limits on the availability of this data. Outside of the dispute resolution process, the OEM seldom has an obligation to share data with an owner, and no OEM wants to share information that might bring broader warranty exposure. Supply and warranty agreements also typically provide that the OEM takes ownership of any failed components that are repaired under warranty, so those items are often quickly removed from the site and made inaccessible for independent forensic testing. Spoliation is a real concern. Owners should make sure to demand that their OEMs preserve all repaired or replaced components and records relating to the remedial measures.

 

Another useful source of evidence is data on similar component failures at other projects that use the same equipment. A wind farm that suffers failures with a particular make and model of wind turbine blade, for example, may seek to find data on the experience of other wind farms using the same blade. But such information typically is hard to come by outside of litigation. Conversations with other owners or with OEM customer service representatives can provide useful insights, but such information sharing is often incomplete and subject to confidentiality restrictions in the OEM’s supply or warranty agreements. Even in the context of litigation or arbitration, OEMs may seek to limit the availability or admissibility of evidence from other projects, but such arguments are not often successful.14

 

There are practical solutions to the question of how best to assess an owner’s entitlement to warranty coverage and how to prove it in the disputes process. In addition to taking steps to improve their own data collection and preservation efforts before a problem arises, owners should consider engaging a qualified independent consulting firm to assess whether particular defects are covered by warranties. The consulting firm can assist in negotiations that may lead to a settlement with the OEM. If a settlement is not possible, the consultant can offer expert testimony as an element of proof in a dispute resolution proceeding involving the owner’s warranty claim. In a warranty coverage dispute that is to be resolved by the independent engineer or in an accelerated arbitration proceeding, the period before the proceedings start may be the owner’s only real opportunity to develop facts and technical support needed to support its position.

 

               D.        Remedies

 

Obtaining the most appropriate remedy to resolve a defect is another common challenge in warranty disputes. Most supply or warranty agreements provide that the owner’s exclusive remedy when a defect is discovered is to have the defective component repaired or replaced at the OEM’s sole cost and expense, often to be performed by the OEM itself or under its direction. While this remedy is well-suited to individual component failures, it is less effective if a serious defect affects multiple components, many of which have not yet failed.

 

If an owner has identified a pervasive defect that it believes will cause its equipment to fail prematurely, it will understandably want a comprehensive solution for all of the affected components. But such solutions can be costly for an OEM. If the warranty period is close to expiring, the OEM may seek to “wait out the clock” and simply deny warranty coverage. It may argue that its only obligation is to repair or replace components if they fail during the warranty period. The OEM may also defend against the owner’s warranty claim by arguing that the costs of repairing or replacing components that have not yet failed are incidental or consequential damages, which are usually barred by the supply or warranty agreement.

 

Fortunately for owners, their remedies are not necessarily so limited. Exclusive remedy provisions can be disregarded if, under the circumstances, they would deprive a party of the substantial value of its bargain.15 This can occur if the OEM’s repair or replacement is unsuccessful in resolving the defect (regardless of good or bad faith), or if the OEM unreasonably delays in providing a repair or replacement.16  In these circumstances, the owner may be entitled to money damages, including both direct and consequential damages.17 Direct damages include the costs to repair or replace the defective components.18 Those costs can be estimated, but expert analysis as to the expected rate of future failures may be necessary.19

  

Although estimated costs can be appropriate, some arbitrators and independent engineers may be reluctant to award them because actual future repair costs are likely to differ. In those situations, a potential alternative is the imposition of an extended warranty. Theoretically, an extended warranty that requires the manufacturer to repair or replace a failed component would be fair to both the owner and the OEM. It offers a potential middle ground between conflicting expert testimony and avoids the all-or-nothing risk that an award of money damages carries with it. But this remedy is usually best achieved through a settlement agreement or through an agreement with the arbitrator as to the range of potential remedies. Without specific authorization by both parties, there is some uncertainty as to whether a court, an arbitrator, or an independent engineer has authority to impose an extended warranty in lieu of money damages.20

 

            E.        Relationship to Insurance Coverage

 

Warranty disputes also frequently implicate an owner’s insurance policies.  There is a wide range of available insurance coverage in the renewable energy industry. Policies employed by owners to address issues implicated by manufacturer warranties include general liability insurance, property insurance, and business interruption insurance. The cost of replacing a wind turbine blade that falls to the ground, for example, may be covered by the owner’s property insurance. The lost revenue resulting from the downtime needed to replace the blade may be covered by the owner’s business interruption insurance. Assuming that the owner has waived its right to have the insurance company seek recovery from the manufacturer through a subrogation claim, the case may be closed.

 

But if there are multiple failures of the same component, the insurance carrier may increase its premiums to address failures beyond those that were expected, deny coverage for specific occurrences, or decline to renew a policy altogether. In extreme cases, the owner may be caught in the middle between a dispute between the OEM and the owner’s property insurance carrier. On one hand, the carrier denies responsibility for a component failure because it was caused by a defect in design or manufacture. On the other, the manufacturer denies responsibility for the defect and refuses to pay any of the repair or replacement costs.

 

Owners need not be left to fend for themselves in these situations and they need not run the risk of being left without any remedy. Insurers recognize that they benefit from the owner’s enforcement of its warranty rights and may be willing to cooperate with the owner in doing so. If an insurer is unwilling to cooperate, owners may use available legal options to ensure that a consistent result is achieved and that their contractual risk allocation system is preserved. A component failure that is the result of a design or manufacturing defect should be the responsibility of the designer or manufacturer. A failure that is actually the result of a force majeure event should be the responsibility of the insurer.

 

Conclusion

 

Cooperation between owners and OEMs is essential for a successful renewable energy project. Owners and OEMs cannot meet their respective business goals if equipment does not perform as expected. But the rapid development of technology and the need for reliability and cost control on these projects means that some disputes between owners and OEMs are inevitable. When equipment fails or defects limit its useful life, owners are right to demand that the OEM honor its warranty commitments. By the same token, OEMs are right to refuse claims for which they should not be held liable. When a negotiated resolution of such disputes is not possible, a decision by an arbitrator or an independent engineer can be an effective way to resolve them. Although arbitration proceedings offer many opportunities for missteps, owners and OEMs can both expect favorable results through careful preparation, observation of applicable deadlines, and presentation of persuasive evidence.

 


1 For an overview of the typical contract documents used in the development of renewable energy facilities, see Evelyn Lim & James Berger, “Guide to Renewable Energy Project Contracts,” Paper No. 12, Renewable Electric Energy Law, Development, and Investment (Rocky Mountain Mineral Law Foundation, Nov. 2013).

 

2 See, e.g., Hicks v. Kaufman & Broad Home Corp., 89 Cal. App. 4th 908 (Cal. Ct. App. 2001) (“[P]roof of breach of warranty does not require proof the product has malfunctioned but only that it contains an inherent defect which is substantially certain to result in malfunction during the useful life of the product.”); see also Everett v. TK-Taito, L.L.C., 178 S.W.3d 844, 856 (Tx. Ct. App. 2005) (plaintiff need only show that the “alleged defect will inevitably manifest itself in the ordinary use of the product and that the defect renders the product unfit for the ordinary purposes for which the product is used”).

 

3 See, e.g., Quality Air Servs., LLC v. Milwaukee Valve Co., Inc., 671 F. Supp. 2d 36 (D.D.C. 2009) (permitting breach of warranty claim for 13,320 defective valves installed in various buildings where plaintiff alleged that the valves had an estimated useful life of 35 to 55 years, and 16 valves had broken after less than five years of use); see also Westinghouse Elec. Corp. v. Carolina Power & Light Co., Nos. 89-826, 89-1383, 1990 WL 107428 (W.D. Pa. Jun. 7, 1990) (allowing breach of warranty claim for defective steam generators in nuclear power plant where plaintiff alleged that generators contained an “inherent defect” and “were not designed or manufactured to last for forty years as promised”).

 

4 See, e.g., PPG Indus., Inc. v. JMB/Houston Centers Partners Ltd., 146 S.W.3d 79, 99 (Tex. 2004) (statement in advertising brochure indicating that windows installed in a commercial building were warranted to last for 20 years created an additional express warranty, even though the advertising brochure was not part of the underlying contract).

 

5 See Kumeyaay Wind LLC v. Gamesa Wind US LLC, Case No. 3:11-cv-02425-JM-BGS, (S.D. Cal. Oct. 18, 2011) (Complaint (ECF No. 1) ¶ 32 (underlining in original)).

 

6 Many state courts treat contractual dispute resolution provisions requiring an independent engineer similar to provisions requiring typical arbitration. See, e.g., Badgett Mine Stripping Corp. v. Penn. Turnpike Comm’n, 173 F. Supp. 425, 429-30 (C.D. Pa. 1959) (“It is settled in this state that the parties to a building or construction contract may legally provide therein that disputes arising out of the contract shall be submitted for decision to the architect or engineer, and that his conclusion or judgment shall be a final adjudication of the question submitted.”).

 

7 See, e.g., 212 Inv. Corp. v. Kaplan, No. 603029/04, 2007 WL 2363233, at *15 (N.Y. Sup. Ct. Jul. 18, 2007) (“The parties, by their conduct, are held to have waived later objection to the arbitrators’ adjudications of those issues by voluntarily submitting the issue to arbitrators, vigorously debating it before them, and then completely failing during the proceedings to challenge the arbitrators’ authority to decide the issue or otherwise preserving it for judicial resolution.”).

 

8 The independent engineer’s prior work as a consultant for the OEM does not automatically exclude the independent engineer. If it did, OEM’s could simply hire the most qualified engineers to serve as consultants and conflict them out of resolving disputes between the OEM and owners. Courts generally do not allow such gamesmanship. See, e.g., Trustmark Ins. Co. v. John Hancock Life Ins. Co., 631 F.3d 869, 874 (7th Cir. 2011) (stating that “a court ought not abet the other side’s strategy to eject its opponent’s choice” of arbitrator).

 

9 Under the Federal Arbitration Act, the grounds upon which an arbitration award may be challenged are limited to the following:  (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption on the part of the arbitrator; (3) the arbitrator was guilty of misconduct in refusing to postpone the hearing or hear evidence pertinent and material to the controversy, or engaged in other misbehavior that prejudiced the rights of any party; or (4) the arbitrator exceeded her authority or so imperfectly exercised it that a mutual, final, and definitive award upon the subject matter was not made. 9 U.S.C. § 10(a).

 

10 See, e.g., Tex. Bus. & Com. Code Ann. § 2.725(b); N.Y. U.C.C. Law § 2-725(2).

 

11 See, e.g., PPG Indus., 146 S.W.3d at 96; see also Brooks v U.S. Fire Ins., 832 F.2d 1358, 1375 and n.14 (5th Cir. 1987); Southwestern Bell Tel. Co. v. FDP Corp., 811 S.W.2d 572, 576 (Tex. 1991).

 

12 See, e.g., Austin Co. v. Vaughn Bldg. Corp., 643 S.W.2d 113, 115 (Tex. 1982) (cause of action for breach of repair warranty did not accrue until repairs were refused, even though request was not made until after warranty had expired).

 

13 See, e.g., Childs v. Hassecker, 974 S.W.2d 31, 40 (Tex. 1998).

 

14 Caselaw supports the availability of discovery and the admissibility of evidence as to the performance of the same product in other instances. See, e.g., Jackson v. Firestone Tire & Rubber Co., 788 F.2d 1070, 1082-83 (5th Cir. 1986) (affirming admissibility of similar accidents to show design defect); Week v. Remington Arms Co., 733 F.2d 1485, 1491 (11th Cir. 1984) (allowing discovery of defendant’s records as to similar failures); Arabian Agriculture Serv. Co. v. Chief Indus., Inc., 309 F.3d 479, 485 (8th Cir. 2002) (affirming admissibility of evidence regarding similar grain storage silo failures); HDSherer, LLC v. Natural Molecular Testing Corp., 292 F.R.D. 305, 308-9 (D.S.C. 2013) (allowing discovery of information pertaining to 18 customers of defendant); Scaturro v. Warren & Sweat Mfg. Co., 160 F.R.D. 44, 45-46 (M.D. Pa. 1995) (overruling ladder manufacturer’s objections to discovery regarding other accidents).

 

15 See In re Chateaugay Corp., 162 B.R. 949, 958 (Bnkr. S.D.N.Y. 1994) (“The underlying rationale [of an exclusive remedy provision] is that parties to a contract must accept that there be at least a fair quantum of remedy for breach of the obligations or duties outlined in the contract, and hence, where a fair and reasonable clause because of circumstances fails in its purpose or deprives either party of the substantial value of the bargain, it must give way to the general remedy provisions of Article 2 of the UCC.”) (citation and internal quotations marks omitted); see also Bray Intern., Inc. v. Computer Assoc. Intern., Inc., No. CIV H-02-0098, 2005 WL 3371875, at *3 (S.D. Tex. Dec. 12, 2005).

 

16 McDermott, Inc. v. Clyde Iron, 979 F.2d 1068, 1073 (5th Cir. 1992), rev’d on other grounds, 511 U.S. 202 (1994).

 

17 See Soo Line R.R. Co. v. Fruehauf Corp., 547 F.2d 1365, 1373 (8th Cir. 1977) (consequential damages recoverable under Minnesota law when exclusive remedy fails of its essential purpose); but see Parker-Smith v. Sto Corp., 43 U.C.C. Rep. Serv. 606 (Va. Cir. 1999) (“[E]ven if the limited warranty fails in its essential purpose, an exclusion of consequential damages is enforceable if not unconscionable.”).

 

18 See, e.g., Arabian Agriculture, 309 F.3d, at 486 (upholding $1.4 million jury verdict for costs to replace defective corn silos); Fiorito Bros. Inc. v. Fruehauf Corp., 747 F.2d 1309, 1311 (9th Cir. 1984) (permitting recovery of repair costs incurred by buyer of defective dump truck bodies because manufacturer’s denial of warranty coverage was arbitrary and unreasonable); Soo Line R.R. Co., 547 F.2d, at 1371 (allowing recovery of repair costs to remedy defective railroad hopper cars where manufacturer refused repairs).

 

19 See City of N.Y. v. Pullman Inc., 662 F.2d 910, 916 (2d Cir. 1981) (measurement of damages included the estimated cost of modifying the goods to operate as warranted); Curtis v. Murphy Elevator Co., 407 F. Supp. 940 (E.D. Tenn. 1976) (awarding estimated costs of repairing defective elevators established by fact witnesses’ testimony).

 

20 An arbitrator’s award must be within the scope of the parties’ agreement. AAA Rule R-47(a); see also Saquer v. Ghanem, No. 09-07-519 CV, 2008 WL 5263359, at *3 (Tex. App. Dec. 18, 2008) (arbitrator’s authority to fashion a remedy “draws its essence” from the agreement that the arbitrator is construing). There must be some logical connection between the relief that is awarded and the wording of the parties’ contract. Tres Tech. Corp. v. Carefusion Corp., No. 3:13-CV-4033-K, 2014 WL 2438374, at *7 (N.D. Tex. May 29, 2014).


* Brian Waagner is a partner and Steve Neeley is an associate in the Washington, D.C. offices of Husch Blackwell LLP. They regularly represent renewable energy owners in arbitration and litigation relating to the enforcement of OEM warranties. They can be contacted at brian.waagner@huschblackwell.com and steve.neeley@huschblackwell.com.

 
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Washington, DC 
Wednesday, June 1, 2016
Litigation (Civil, Business and Commercial), Energy and Natural Resources Law