A federal judge has awarded $1.7 million, plus attorney fees, to television shopping giant QVC after it had to recall thousands of faulty space heaters.
Soleus International violated the terms of the purchase order agreement that it had with QVC to procure nearly 30,000 of the electrical heaters from China, U.S. District Judge Thomas O’Neill of the Eastern District of Pennsylvania held in a 53-page decision he issued following a bench trial on breach-of-contract claims.
“QVC is entitled to recover the costs it incurred as a result of the sale by Soleus of defective heaters — including the costs to conduct the recall — because Soleus breached the warranties set forth in the purchase orders and because QVC was entitled to conduct a voluntary recall of the heaters,” O’Neill said in QVC v. MJC America d/b/a Soleus International.
QVC had sold nearly 20,000 of the portable electric heaters in the first couple of months of 2008 and quickly began getting reports from customers that they were bursting into flames, according to the findings of fact. QVC sold them for $67.86, at the lowest. It paid Soleus $36 per heater and paid about $5 to third parties for related costs — meaning it had a profit of about $26.50.
QVC sought $1.8 million from Soleus to cover its lost profits, the cost of the heaters, and the costs associated with the recall, which includes shipping from customers and return shipping to the vendor.
O’Neill awarded $1 million for cost-price damages, $443,000 for lost profit, $134,000 for outbound customer shipping costs, $21,000 for heater cord returns, $49,000 for customer shipping costs for returning heaters to QVC, $6,000 for return shipping to the vendor, $28,000 for the cost of running the returns center, $111,000 for the cost of the recall, and $158,000 for other merchandise-related damages.
The total award, of $2 million, was offset by a stipulated amount of $315,000 that includes any payment still due to Soleus from QVC.
So, absent attorney fees, which are yet to be calculated, and prejudgment interest, QVC was awarded $1.7 million.
According to the purchase orders agreed to by QVC and Soleus, all of the merchandise provided was required to be without defect, O’Neill said.
“To determine whether Soleus is in breach of the warranties set forth in Section 3 of the purchase orders, I must consider whether the evidence at trial supports a finding that certain heaters were defective,” he said. “I find that it does.”
O’Neill presided over a weeklong bench trial in January.
Before the trial, Soleus had argued that the heaters weren’t defective and that QVC violated the terms of the purchase order by unilaterally issuing a recall.
“A different story emerged at trial,” O’Neill said.
Soleus later conceded that all of the experts agreed that the overheating in the units was due to a manufacturing defect, according to the decision, but argued that, in order to prevail, QVC had to “determine the scope of the intermittent manufacturing defect.”
O’Neill disagreed, holding instead that Section 3 of the purchase order agreement required that QVC establish that only some of the heaters were defective in order to make a claim.
“By supplying heaters to QVC with defective crimp connections, Soleus broke its promise to QVC that all of the heaters would be free from all defects, including latent defects,” O’Neill said.
“QVC was not obligated to prove that all of the heaters were defective to prevail on its breach of warranty claims and its breach of warranty claims are not limited to those heaters with actual defects,” he said, holding that QVC was entitled to return all of the heaters, whether they are defective or not, to Soleus for a refund.
Siding again with QVC, O’Neill held that the television shopping network was within its rights to initiate a recall on the heaters after finding that they were defective.
Soleus, however, argued that QVC, in its investigation of the heaters, should have tried to isolate the defect to a particular batch instead of recalling all of them.
O’Neill disagreed, citing the Consumer Product Safety Act, which states that just one defective product that could cause substantial injury is enough to make a “substantial product hazard determination.”
“Clearly a serious injury might occur if a heater were to emit smoke or flames inside of a consumer’s residence,” O’Neill said.
Therefore, QVC was within its rights to start a “fast track” recall through the Consumer Product Safety Commission, O’Neill said.
“We are pleased with the result and believe the judge made the correct decision,” Amy Kline, a partner at Saul Ewing, said in a prepared statement. Saul Ewing, with a team that included Kline, Nathaniel Metz, and David Moffitt, represented QVC.
Craig Hillwig of Kohn Swift & Graf in Philadelphia represented Soleus and couldn’t immediately be reached for comment.
(Copies of the 53-page opinion in QVC v. MJC America d/b/a Soleus International, PICS No. 12-2022, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •