Thyssenkrupp Metallurgical Prods. GmbH v. Energy Coal, S.p.A., Index No. 653938/2014 (N.Y. Sup. Ct. N.Y. County Oct. 14, 2015) [click for opinion]

Plaintiff, Thyssenkrupp Metallurgical Products, GmbH (“Thyssenkrupp”), is a German company that trades raw materials.  Defendant, Energy Coal, S.p.A. (“Energy”), is an Italian company that mines and sells carbon products.  Pursuant to a contract dated April 14, 2008, Energy sold Thyssenkrupp 25,000 metric tons of petroleum coke (“petcoke”), which Thyssenkrupp intended to, and did, sell to a third party Singaporean company, Sinochem International (Overseas) Pte., under a separate contract.  The Energy-Thyssenkrupp contract contained Energy’s express warranty that the petcoke would meet certain physical and chemical specifications, and required Energy to nominate an independent company to test the petcoke and issue results that would be final and binding.  The contract contained choice of law and venue provisions that respectively selected New York law and a New York forum. 

The petcoke was loaded onto a ship in California on August 9-10, 2008, where the tester drew samples for analysis.  The vessel then left California to arrive in China on September 8, 2008, where Sinochem took delivery.  The petcoke samples were tested after the vessel left California.  In October 2008, Sinochem complained that the petcoke did not conform to specifications.  The specifications in both the Sinochem contract and Energy contract provided for an HGI (“Hardgrove Grindability Index”) of “36-46 typ.”—that is, a range that would enable the petcoke to be ground and processed.  The independent test established that the petcoke Thyssenkrupp purchased from Energy, and re-sold to Sinochem, had an HGI of 32, such that it would be very difficult, if not impossible, to crush for the end use that Sinochem envisioned for it: glass production. 

In June 2009, Sinochem sued Thyssenkrupp in China.  On July 6, 2009, Thyssenkrupp issued a “vouching-in notice” to Energy pursuant to a procedure set forth in UCC § 2-607, inviting Energy to defend Thyssenkrupp in the Chinese suit or be bound by the result.  Energy declined.  Thyssenkrupp then allegedly kept Energy informed about the Chinese suit until the suit reached a final judgment on June 30, 2014.  That final judgment was entered in favor of Sinochem, with the finding that Thyssenkrupp delivered a nonconforming product that caused $1.7 million in damages plus interest and costs to Sinochem. 

On December 23, 2014, Thyssenkrupp filed the instant action against Energy in the New York Supreme Court to recoup Sinochem’s damages, plus the additional fees Thyssenkrupp incurred in defense of the Chinese suit, for a total claim value of $2,605,736.  Thyssenkrupp’s 2014 complaint followed one that Thyssenkrupp filed against Energy in the New York Supreme Court on August 8, 2012 on the same grounds.  Through a stipulation on October 17, 2013, the parties agreed to dismiss that action without prejudice and toll the statute of limitations for Thyssenkrupp’s claims as of the 2012 filing date.  Thyssenkrupp’s renewed complaint, echoing its original one, asserted claims for contractual indemnity, breach of contract, breach of express and implied warranty and other claims that flowed from the petcoke’s failure to meet the HGI specifications in the Energy contract.  Energy moved to dismiss on the grounds that Thyssenkrupp’s claims were governed by the law of Thyssenkrupp’s home country, Germany, and time-barred under Germany’s three-year statute of limitations.

The New York Supreme Court denied the majority of Energy’s dismissal motion.  The court began its analysis by finding that the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) applied.  The court observed that the CISG “automatically” applies “when a transaction involves a sale of goods between parties whose places of business are in different countries and those countries are parties to the CISG.”  That is, because the CISG “is a self-executing treaty,” it is therefore binding unless the parties explicitly opt out of it.  The court then explained that “if parties do not want the CISG to govern their transaction, they must clearly and unequivocally say so in their contract”; a choice of law clause or choice of venue clause, as contained in the Thyssenkrupp-Energy contract, is “generally insufficient to opt-out of the CISG when the CISG has been incorporated into that jurisdiction’s laws.”  Because the CISG, as a treaty, “is incorporated into United States federal law,” and thereby New York law, it “preempts the domestic law that otherwise would govern the contract to the extent that the causes of action fall within the scope of the CISG.” 

After concluding that the CISG governed the Thyssenkrupp-Energy contract, the court noted that the CISG does not contain a statute of limitations.  In a pivot back to the original choice of law in the parties’ contract, the court held that “the question of when an action must be brought must be determined according to the law of the forum.”  Under the forum law of New York, if the claim accrues outside of New York and the plaintiff is a nonresident, the timeliness of the claim is measured by the statute of limitations “of the place where the claim arose, if shorter than New York’s.”  Over Thyssenkrupp’s objection that the claim accrued in California—where the petcoke was loaded and which had a four-year statute of limitations—the court found that Thyssenkrupp’s claims were “purely economic” and thus accrued in Germany, the place of Thyssenkrupp’s incorporation and its principal place of business.  As such, the court concluded that the German statute of limitations governed, particularly the three-year statute of limitations set out in Section 195 of the German Civil Code (“BGB”).  Under that section, the period starts running at the end of the year in which the claim arises.  That meant that Thyssenkrupp’s claim began running on December 31, 2008—after the petcoke was loaded in April of that year—and ran out on December 31, 2011. 

To address this issue, Thyssenkrupp submitted an expert report to contend that the BGB’s three-year statute of limitations was tolled such that its claims against Energy were timely.  The court considered Thyssenkrupp’s German law expert, along with the rebuttal German law expert proffered by Energy, and agreed with Thyssenkrupp.  The court cited BGB § 203, which provides that claims are tolled until “one party or the other refuses to continue the negotiations” “if negotiations between the obligor and the obligee are in progress with respect of the claim or the circumstances giving rise to the claim.”  The court then found that “parties’ communications constitute the type of exchange contemplated and encompassed by BGB § 203” and, more specifically, that the questions of “whether negotiations were substantial enough to toll the statute” was a question of fact that was premature to decide on a motion to dismiss.  According to Thyssenkrupp’s complaint: “only on October 31, 2014, when Energy rejected any liability and refused further negotiations, did communication clearly cease.”  The court thus concluded that the statute did not begin to run until February 1, 2015—“three months after the end of the” tolling as envisioned by BGB § 203—making Thyssenkrupp’s indemnification, breach of contract and warranty claims timely. 

Accordingly, the court largely denied Energy’s motion to dismiss on the basis that most of Thyssenkrupp’s claims against Energy were timely under the German statute of limitations.  The court did, however, dismiss Thyssenkrupp’s common law indemnification, contribution, and “breach of the vouching-in notice” claims for unrelated reasons.

Kyle Olson of the Chicago office contributed to this summary.