Nature of the Case
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Facts
P markets and sells merchandise directly to consumers through various media including direct response television programming and the internet. D is in the business of promoting, marketing, distributing and selling home comfort products, including portable air conditioners, heaters, air purifiers, fans and coolers under the trade names of 'Soleus,' 'SoleusAir' and variations thereof.' P eventually purchased 28,056 units of a SoleusAir 360-Degree Micathermic Heater with Three-Heat Settings. The Heaters were manufactured in China by Ningbo Bole Electric Appliance Co., Ltd. Id. P promoted and marketed the Heaters for sale to its customers beginning on December 31, 2007. P sold more than 19,100 Heaters to its retail customers between December 31, 2007 and March 11, 2008. On January 5, 2008, a customer contacted P claiming that the Heater he or she had purchased 'has a gas odor to it and [is] very hot to touch.' Another customer claimed that the 'Heater went up in sparks out of top.' Another customer reported a 'burning smell.' And on and on and on went the complaints. 'Of particular note were a number of customer complaints in which they indicated that they had seen flames in the unit and that the unit had melted around the control panel, that the plastic facing of the cover of the control panel was warped or melted.' D’s representatives were contacted and the problems were immediately investigated. After a Factory Evaluation, D determined that the product was not a fire hazard. P did not believe D. P engaged Intertek, an independent testing company to look at the Heaters. Intertek initially concluded that with respect to any burning or melting of plastic it 'seemed to occur from an overheating condition on conductors or terminal connectors,' and 'a possible cause would be increased amperage and resulting temperatures from a poor quality crimp connection.' Intertek sent P a finalized version of the report regarding the Heaters. It 'was not able to reproduce similar failures on any of the new samples provided.' Intertek noted that the overheating apparently originated near metal connectors that were 'crimped' to the end of affected wires and observed that poor quality crimp connections could be a cause of overheating. The report concluded that 'it is possible that the cause of the failures is quality of construction-related and thus an intermittent problem.' With the approval of the CPSC (Consumer Product Safety Commission), P recalled the units. CPSC approved P's proposed recall letter and notice, P-100, and on April 12, P notified its customers that it was conducting a voluntary recall of the Heater. P's outside counsel sent a letter to D on April 10. P estimated that 'its damages and costs in connection with the recall of the Heaters may exceed $2,500,000.' P sought adequate assurances of both D's intention and ability to indemnify and hold P harmless for damages and costs resulting from a recall of the Heaters. D stated only that it would honor its obligations 'with respect to third party claims.' Ultimately, it was determined there was a problem with the wiring in certain of the Heaters. The manufacturing defect was a latent defect because the crimping defect in the salmon-colored wires did not affect all of the Heaters manufactured for P. The defective crimp connection caused overheating and, in some cases, combustion within the Heaters' wiring compartments. P sued D. P sold the units for $68 per heater and anticipated earning a profit of $26 on each heater. P seeks a total of $1,838,855.59 in damages related to the Heaters. P seeks damages for the cost price of the Heaters in addition to lost profits, refunded outbound customer shipping costs, shipping costs for the return of Heater Cords to P refunded customer shipping costs for Heaters returned to P, return-to-vendor shipping costs returns center processing costs and other costs associated with the recall. The purchase order terms and conditions required D to refund P’s purchase price and shipping costs for defective merchandise. It also required D to indemnify P against losses, including consequential damages. P provided extensive evidence to support its claims.
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