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CLOSED CIRCUIT CORP. OF AMERICA v. JERROLD ELECS.

January 25, 1977

CLOSED CIRCUIT CORPORATION OF AMERICA
v.
JERROLD ELECTRONICS CORPORATION



The opinion of the court was delivered by: MCGLYNN

 McGLYNN, District Judge.

 This is a diversity action between Closed-Circuit Corporation of America ("Closed-Circuit"), a California corporation with its principal place of business in Illinois and Jerrold Electronics Corporation ("Jerrold"), a Delaware corporation licensed in Pennsylvania to manufacture Community Antenna Television (CATV) equipment and doing business in the Commonwealth relating to the construction and installation of Closed-Circuit television systems. Closed-Circuit seeks $1 million in compensatory damages and $5 million in punitive damages because defendant "wilfully, knowingly, maliciously, and fraudulently [sold] plaintiff faulty and defective electronics television equipment, which did not function as promised." *fn1"

 In response, Jerrold moved for dismissal of the second amended complaint *fn2" re-iterating its contention that this action, although labelled an action for fraud sounding in tort, is in essence an action for the breach of a contract for the sale of goods which is barred by the four year statute of limitations of the Uniform Commercial Code. (12A P.S. ยง 2-725). In the alternative, defendant contends that since plaintiff has released all rights it may have had with regard to the equipment sold to it and installed in California, that portion of the claim should be dismissed.

 I

 The parties began their association in December of 1965 when Closed-Circuit was awarded a franchise as the "exclusive Authorized Jerrold 2500 Megacycle Engineering Contractor for the Jerrold 2500 Megacycle school relay microwave." *fn3" Thereafter, Closed-Circuit participated in the retail distribution and installation of electronics equipment in a continent-wide network of franchised electronics firms representing Jerrold in the educational market. Closed-Circuit was defendant's primary distributor in California and Nevada for the installation of Instructional Television Fixed Service (ITFS) Systems.

 The ITFS systems offer educational programs, telecast at 2500 Megahertz (MHz) in a microwave band higher in frequency than VHF and UHF, which assures a closed circuit audience. *fn4" The intended market for distribution of Jerrold ITFS systems included schools, colleges and medical institutions where educational material could be transmitted to classroom laboratories, libraries and meeting halls with the benefit of immediate access to technical information enjoyed by students, physicians, nurses, engineers, and scientists.

 One such Jerrold ITFS system was installed in the Pasadena Unified School District, Pasadena, California by Closed-Circuit. It was the first four transmitter system in the world and, according to Closed-Circuit's account, it was in "daily operation and [was] regarded as one of the most complex installations of its kind in the country." *fn5"

 In 1969, Closed-Circuit succeeded in securing the contracts for the installation of the 2500 MHz ITFS system in the Clark County, Nevada school system (75 schools) and the Archdiocese of San Francisco school system. The San Francisco contract required the installation of sixteen transmitters, making it the largest educational television system of the time. Apparently, as a result of their combined success at Pasadena, Closed-Circuit elected to fulfill these subsequent contracts using Jerrold equipment. On or about April 10, 1969, plaintiff purchased the necessary closed circuit equipment from Jerrold upon Jerrold's assurances that the equipment was designed and would meet the contract specifications and Federal Communications Commission ("FCC") standards. *fn6" Installation of the equipment began on the San Francisco project in November, 1969, three months after work began on the Clark County, Las Vegas school system project. Unfortunately, neither system met with the success achieved at Pasadena. Numerous equipment failures delayed final acceptance at both sites. The presence of spurious radiation emissions from the transmitters in violation of FCC standards and a lack of power supply reliability due to continuous breakdowns in the field not only promoted dissatisfaction on the part of the school officials with the ITFS systems and with Closed-Circuit, but also eroded the relationship between Closed-Circuit and Jerrold no less as a result of the equipment failures than as a result of the lack of cooperation between the parties in attempting to deal with and to correct the malfunctions. *fn7"

 Closed-Circuit asserts that Jerrold's poor performance ultimately reflected upon Closed-Circuit's competence and, as a result, it lost business and its high reputation for service and excellence in the closed circuit television field was damaged. *fn8"

 Eventually, the San Francisco project was completed in November of 1970, and the Clark County, Nevada project in the fall of 1971. With respect to the final acceptance of the San Francisco project, on June 13, 1972 the Roman Catholic Welfare Corporation, representing the Archdiocese of San Francisco, Closed-Circuit and Jerrold executed mutual releases of all claims. Specifically, Closed-Circuit released Jerrold "with respect to any and all claims arising out of JERROLD's providing of labor or materials with respect to the contract, or any claim for damages which it might have against JERROLD in connection with the contract." *fn9"

 Nevertheless, on October 30, 1974, Closed-Circuit instituted an action against General Instrument Corporation, a parent corporation of Jerrold, in the United States District Court for the Northern District of Illinois. Closed-Circuit sought to recover from General Instrument compensation for its losses in business and reputation attributable to the failure of the Jerrold equipment in Las Vegas and San Francisco. In that action, the District Court granted General Instrument's motion for summary judgment on the grounds that the claims against General Instrument were for breach of contract, and thus were barred by the statute of limitations governing contract actions and, that General Instrument could not be ...


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