Appeal from the United States District Court for the Southern District of Mississippi. D.C. DOCKET NUMBER CA J90-0226-B-N. Mag. Alfred G. Nicols
Before Smith, Duhe, and Wiener, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Eaton Corporation's ("Eaton") wholly-owned subsidiary, Consolidated Controls, manufactures digital weight indicators that convert analog electric signals from load cells into a numerical readout on a digital display. Numerous businesses employ digital weight indicators in applications requiring precise weight measurement.
Right Weigh Scale Company, Inc. ("Right Weigh"), sold and installed various types of scales and associated equipment, including scales for weighing trucks. Right Weigh agreed to become a distributor for Eaton digital weight indicators. Pursuant to that agreement, Right Weigh was required, each year, to purchase a minimum number of indicators for resale to its customers. Right Weigh served as an Eaton distributor for a number of years and typically purchased indicators for inventory to ensure ready access when a customer application required a specific part.
In 1987, Eaton introduced a new indicator, the UMC 600. Distributors could purchase two varieties of this indicator, shielded or unshielded, by specifying the proper alphanumeric code when ordering from a catalog or other ordering materials distributed by Eaton. Engineers typically employ shielded indicators in applications where the indicator is likely to encounter radio frequency interference (RFI). Where little or no RFI is present, an application may utilize an unshielded indicator.
Radio waves emitted from numerous electronic devices cause RFI, which can interfere with the accuracy of the digital readout supplied by the indicator. Two-way and CB radios generate significant RFI, and applications using an indicator near them require a shielded indicator.
Mississippi has adopted regulations, concerning the RFI susceptibility of digital weight indicators, contained in Handbook 44, published by the National Bureau of Standards. Eaton advertised that the UMC-600 complied with these regulations. Any indicator used in commercial weighing equipment must comply with the Handbook 44 regulations, even if the environment contains little or no RFI. As we interpret the regulations, a commercial application is one in which an article's weight must be determined for marketing a product or for computing charges for services rendered on the basis of weight. Unshielded indicators may be used for non-commercial applications, which account for 70-807 of Eaton's sales.
Handbook 44 regulations do not require an indicator to be shielded to be legal for trade; an unshielded indicator meets the requirements if it blanks the indication, provides an error message, or fails to transmit a reading as a correct measurement value in the presence of RFI. Eaton admits that the unshielded UMC-600 does not meet these requirements; in other words, unshielded UMC-600 indicators are not legal for trade.
Beginning in May 1987, pursuant to Right Weigh's purchase orders, Eaton shipped Right Weigh a number of unshielded UMC-600 indicators. Eaton did not know how Right Weigh intended to use the indicators. Right Weigh utilized a number of the indicators in applications where large amounts of RFI were present. Apparently, all of these applications required the indicators to be legal for trade.
Right Weigh also failed to test the scales at the time of installation to determine whether they operated properly in the presence of RFI, although handbook 44 requires such testing for all installations where radios are likely to be used. About three-fourths of Right Weigh's business involves truck scales, which normally must operate in high RFI environments.
Eaton's warranty policy limited the customer's remedy to repair and/or replacement of the defective product and specifically excluded time and mileage. A separate clause states that Eaton is not liable for any special or consequential damages of any kind.
In early 1989, Right Weigh notified Eaton that it was experiencing problems with RFI in some of the installations where Right Weigh used the UMC-600. After much communication between the two parties, Eaton decided to provide Right Weigh with 42 replacement units free of charge. As a goodwill gesture, Eaton also provided Right Weigh with a $6,000 credit to offset additional expenses. Right Weigh kept the unshielded UMC-600 indicators that remained functional for applications not requiring the scale to be legal for trade. In spite of Eaton's gestures, Right Weigh demanded an additional $62,700 in expenses and lost profits related to ...