by Jeffrey T. Donner, Esq.

August 28, 2026

A manufacturer pays nearly $1 million for two custom robotic systems that arrive late, allegedly scratch and damage its products, require months of reprogramming, and ultimately leave one robot with a bathtub stuck inside it. One might expect the resulting lawsuit to turn principally on whether the machines worked. In Hydro Systems, Inc. v. Factory Automation Systems, Inc., 771 F. Supp. 3d 1342 (N.D. Ga. 2025), however, one of the most consequential rulings concerned a few sentences in the parties’ contract allocating the risk of business losses.

The United States District Court for the Northern District of Georgia did not decide at summary judgment which company ultimately caused the automation project to fail. It held that genuine factual disputes precluded summary judgment on most of the competing breach claims. But the court did decide that the purchaser could not recover lost production, lost sales, wasted materials, increased labor costs, or the lost time and productivity of its employees. Those categories fell within a negotiated exclusion of incidental and consequential damages.

The case is an unusually useful study of several recurring commercial-litigation issues: whether Article 2 of the Uniform Commercial Code governs a contract combining equipment and services; the difference between direct and consequential damages; the enforceability of repair-or-replace warranties and consequential-damages waivers; acceptance and revocation of nonconforming goods; the buyer’s duty to cooperate; and the danger of leaving acceptance criteria and change orders unresolved while a complex project is underway.

A $1.16 Million Automation Project Goes Wrong

Hydro Systems manufactured bathtubs. In August 2021, it accepted a proposal from Factory Automation Systems, Inc. (FAS) to design and provide two robot cells—one for sanding and another for polishing—for a total price of $1.16 million. The proposal contemplated that the robots would process tubs more consistently and in less time than manual labor. FAS was to program twelve tub models, and the systems were expected to be ready for factory testing approximately 24 to 28 weeks after the order and down payment.

The agreement also placed material responsibilities on Hydro Systems. It was to provide three-dimensional models, use the process described in the proposal, and supply a dust-collection system. FAS further contended that the project depended on Hydro Systems furnishing sample tubs and associated fixtures for programming and testing. The proposal contemplated two testing stages: factory acceptance testing at FAS’s facility and site acceptance testing at Hydro Systems’ plant. Critically, however, the parties did not put final, objective acceptance criteria in the signed agreement. They stated that those criteria would be developed later during the engineering phase.

The project did not proceed as planned. According to the summary-judgment record, FAS delivered the polishing robot approximately 42 weeks after the order and the sanding robot approximately 45 weeks after the order. Hydro Systems had paid $928,000 of the $1.16 million price. It complained that the robots scratched tubs, worked more slowly than promised, required repeated reprogramming, and lacked certain specified components. During one pre-delivery demonstration, a polishing spindle fell off. In later operations, the sanding robot struck and broke a tub; parts were temporarily removed from the polishing robot for use in the sanding robot; and the sanding robot eventually became nonoperational with a tub stuck inside it.

Those facts sound devastating for FAS, but they were not the only facts in the record. FAS contended that Hydro Systems provided only some of the required sample tubs, changed the manufacturing sequence by applying gel coat before sanding rather than afterward, and failed to implement the specified dust collection. FAS maintained that those departures materially changed the task and caused or contributed to the performance problems. The parties also disputed whether factory testing had been completed or waived, whether certain components had been removed from the scope by agreement, and whether Hydro Systems ever provided workable final-acceptance criteria.

The court was therefore careful not to treat Hydro Systems’ allegations as established facts. That distinction matters. A summary-judgment court does not decide which witness is more believable or weigh competing technical explanations. It asks whether a reasonable jury could resolve a material dispute for either side.

The Contract Allocated the Risk Before the First Robot Arrived

Two provisions became central. First, the integration-services warranty was limited to repairing or replacing defective work, at FAS’s option. Second, the contract excluded incidental and consequential damages. The original proposal made that exclusion one-sided in FAS’s favor, but Hydro Systems negotiated a revision making it mutual.

That negotiation later proved important. Under O.C.G.A. § 11-2-719(3), parties may limit or exclude consequential damages unless the provision is unconscionable. The statute further provides that a limitation involving commercial loss is not presumptively unconscionable. Relying in part on NEC Technologies, Inc. v. Nelson, 267 Ga. 390, 478 S.E.2d 769 (1996), the court found no basis to invalidate the exclusion. Hydro Systems had not meaningfully developed an unconscionability argument, and the record showed that it had specifically negotiated the clause and obtained reciprocity.

Mutuality is not an automatic requirement for every enforceable limitation of liability. But in this case it was powerful evidence that the provision resulted from commercial bargaining rather than surprise or oppression. A party that edits a provision, makes it mutual, and then signs the agreement will face a difficult task arguing later that the provision was hidden or procedurally unconscionable.

Commercial status is not an absolute safe harbor—Georgia courts may still invalidate a genuinely unconscionable limitation on the right record. See Mullis v. Speight Seed Farms, Inc., 234 Ga. App. 27, 505 S.E.2d 818 (1998). The negotiated record in Hydro Systems, however, was unusually strong for enforcement.

Why the UCC Applied to a Custom Engineering Project

The transaction combined tangible equipment with engineering, programming, installation, and startup services. That made it a hybrid transaction. The court concluded that the sale-of-goods component predominated. Of the $1.16 million price, only $33,200 was specifically allocated to installation, while the agreement’s central object was delivery of the two robot systems. The court therefore applied Georgia’s version of UCC Article 2.

Price allocation is important evidence, not a universal test. Another systems-integration contract could be classified differently if its language, performance obligations, or dispute centered on specialized services rather than delivered equipment.

That classification carried practical consequences. Under O.C.G.A. § 11-2-714(2), a buyer that accepts goods may recover as direct warranty damages the difference, at the time and place of acceptance, between the value of the goods as delivered and the value they would have had if they conformed to the warranty. Other UCC provisions address cover, market-price damages, rejection, revocation, and recovery of the purchase price. O.C.G.A. § 11-2-715, by contrast, separately defines incidental and consequential losses.

Georgia decisions have treated downstream lost profits and production losses of the kind asserted in Hydro Systems as consequential damages. See Sunstate Industries, Inc. v. VP Group, Inc., 298 Ga. App. 269, 679 S.E.2d 824 (2009). Georgia courts have also enforced repair limitations and consequential-loss exclusions in commercial equipment disputes, including Frick Forest Products, Inc. v. International Hardwoods, Inc., 161 Ga. App. 359, 288 S.E.2d 625 (1982), and A-Larms, Inc. v. Alarms Device Manufacturing Co., 165 Ga. App. 382, 300 S.E.2d 311 (1983).

Applying that framework, the Hydro Systems court classified the claimed lost production, lost sales, wasted materials, added labor, and lost employee time as incidental or consequential losses and enforced the parties’ exclusion.

This did not mean that Hydro Systems necessarily had no damages claim. FAS’s motion did not seek summary judgment against all direct remedies, and the court expressly left those issues for later proceedings. If a buyer proves breach, Article 2 may still permit value-difference damages, cover damages, restitution following effective revocation, or another direct remedy, depending on the facts. The ruling changed the measure and proof of damages; it did not adjudicate the entire case.

That distinction is essential. A consequential-damages waiver can eliminate the losses that make a failed-equipment case economically significant without eliminating every remedy. After such a ruling, the litigation often shifts from operational fallout—lost customers, downtime, payroll, and wasted production—to valuation: what were the goods worth as delivered, what would conforming goods have been worth, and what direct expenditures qualify under the contract and the UCC?

The “Failure of Essential Purpose” Argument Needed More Work

Section 11-2-719 contains an important protection for buyers. When an exclusive or limited remedy fails of its essential purpose, the buyer may pursue the remedies otherwise available under the UCC. A repair-or-replace remedy may fail, for example, when the seller refuses to repair a covered defect or cannot accomplish an effective repair within a reasonable time or reasonable number of attempts.

Hydro Systems invoked that doctrine, but the court found its presentation inadequate. Its argument was brief, and the authority it cited addressed when a repair warranty is breached rather than establishing on the summary-judgment record that the parties’ limited remedy had failed of its essential purpose. There was also a factual dispute over whether FAS’s further performance was prevented or excused by Hydro Systems’ own conduct.

Georgia law draws an additional distinction that is easy to miss. Failure of an exclusive repair remedy under § 11-2-719(2) does not automatically invalidate a separate consequential-damages exclusion governed by § 11-2-719(3). In Hightower v. General Motors Corp., 175 Ga. App. 112, 332 S.E.2d 336 (1985), the Georgia Court of Appeals held that failure of the repair obligation did not simultaneously invalidate independent damage limitations; the consequential-damages exclusion still had to be tested for unconscionability.

Thus, even a better-developed failure-of-essential-purpose showing in Hydro Systems would not necessarily have restored the excluded operational losses, although it could have opened access to otherwise available direct UCC remedies.

The litigation lesson is straightforward. “Failure of essential purpose” is not a label that automatically nullifies a damages clause. The party relying on the doctrine should develop a concrete record: the defects reported, the dates and content of notice, every repair opportunity, what each repair accomplished, how long the process continued, whether the buyer complied with operating requirements, and why the agreed remedy no longer supplied the substantial value of the bargain.

The contract should also be analyzed to determine whether the repair remedy and the consequential-damages exclusion are independent provisions and what the governing jurisdiction does when one fails.

Why the Court Could Not Decide Breach as a Matter of Law

Hydro Systems separately sought summary judgment that FAS had breached by failing to deliver conforming goods and by breaching express warranties. Despite the dramatic evidence of delay and malfunction, the court denied that request. Hydro Systems had expressly set aside delay as a basis for its motion, leaving the court to address conformity, acceptance, cure, and warranty performance.

Those issues depended on disputed facts. FAS offered evidence that at least one robot performed its intended function and that Hydro Systems’ changed process, incomplete samples, and dust-control choices caused the remaining problems. Hydro Systems characterized FAS’s supporting affidavit as self-serving, but that did not permit the court to disregard it. Under United States v. Stein, 881 F.3d 853 (11th Cir. 2018), a declaration satisfying Rule 56 can create a genuine factual dispute even if it is self-interested and uncorroborated.

Nor did physical delivery of allegedly deficient machines end the UCC analysis. The court had to determine whether Hydro Systems effectively rejected the robots, accepted them, or accepted and later revoked. Revocation required substantial impairment and one of two predicates: acceptance of a known nonconformity on a reasonable assumption of cure that was not seasonably fulfilled, or acceptance without discovery when the difficulty of discovery or the seller’s assurances induced acceptance. Notice and timing also mattered.

Georgia courts ordinarily treat effective revocation, reasonable notice, and substantial impairment as factual questions, although uncontroverted facts can permit a decision as a matter of law. See Griffith v. Stovall Tire & Marine, Inc., 174 Ga. App. 137, 329 S.E.2d 234 (1985); Vah v. Platinum Marietta, Inc., 376 Ga. App. 5, 918 S.E.2d 100 (2025).

The buyer’s conduct complicated those questions. The summary-judgment record included evidence that Hydro Systems instructed FAS to ship the polishing robot even though only three of twelve tub models had been supplied for programming. It also included evidence that a Hydro Systems representative declined to attend a proposed factory test of the sanding robot and requested shipment instead. FAS then continued adjusting and reprogramming the systems at Hydro Systems’ plant for months.

None of those facts necessarily established legal acceptance or defeated revocation, but they prevented the court from adopting Hydro Systems’ preferred account as the only reasonable one.

Customer Cooperation Can Become a Causation and Excuse Defense

Complex equipment rarely operates in isolation. Its performance may depend on the customer’s inputs, facility, process sequence, raw materials, utilities, staffing, environmental controls, and data. The contract in Hydro Systems expressly assigned several of those dependencies to the buyer.

Georgia law recognizes that when one party’s cooperation is necessary for the other’s performance but is not seasonably provided, resulting delay may be excused under O.C.G.A. § 11-2-311(3)(a). A broader excuse for nonperformance under O.C.G.A. § 13-4-23 depends on causation; the other party’s conduct must actually prevent the promised performance, not merely make the project more difficult. See CRS Sirrine, Inc. v. Dravo Corp., 219 Ga. App. 301, 464 S.E.2d 897 (1995).

FAS relied on those principles to argue that Hydro Systems’ sample-tub, gel-coat, and dust-collection decisions caused the very defects for which it sought to hold FAS responsible.

For sellers, the practical lesson is to identify dependencies with precision rather than relying on a general “customer cooperation” sentence. The agreement should specify required samples and data, tolerances, environmental conditions, process assumptions, deadlines, and the consequences of deviation. For buyers, those terms should be reviewed as carefully as the seller’s performance promises. Once litigation begins, a vaguely documented process change can become both a causation defense and an argument that warranty performance was excused.

Acceptance Criteria Should Not Be Deferred Until Later

Perhaps the most avoidable problem in the case was the decision to agree that factory and site acceptance criteria would be developed during the project. The parties later disputed whether testing occurred, whether it was waived, whether the machines passed, and when the final payment milestones became due. FAS’s counterclaim alleged, among other things, that Hydro Systems failed to create reasonable final-acceptance criteria.

A complex-equipment agreement should define measurable acceptance tests before substantial performance begins. The contract should identify the products to be tested, production rate, cycle time, quality tolerances, permitted reject rate, required operating duration, number of consecutive successful runs, test conditions, responsibility for samples and consumables, procedure for documenting deficiencies, cure periods, retesting, and the legal effect of use in production.

If some criteria truly cannot be fixed at signing, the agreement should establish a deadline and a dispute-resolution mechanism for completing them—not merely promise future agreement.

Payment milestones should then be tied to those objective tests. Otherwise, the same disagreement that determines acceptance may also determine whether the buyer owes the remaining price, whether the seller may suspend work, and whether either party committed the first material breach.

The Written Change-Order Clause Defeated Quantum Meruit

FAS counterclaimed for breach of contract—based in part on the unpaid balance and alleged noncooperation—breach of the implied covenant of good faith and fair dealing, quantum meruit, and attorney’s fees. Most of the contract-related counterclaims survived because the same factual disputes prevented judgment for Hydro Systems. The good-faith theory remained dependent on an alleged breach of an express contractual obligation; Georgia law does not recognize it as a free-standing claim. The quantum-meruit claim did not survive.

The agreement already addressed extra work. It included a specified number of startup hours, established rates for additional time or mobilizations, and required written pricing and buyer approval for changes affecting hardware, engineering, design, or labor. Because the express contract governed the claimed extra services, the court entered summary judgment against FAS on quantum meruit. That result followed Georgia’s general rule that equitable recovery is unavailable when an enforceable contract governs the same rights and responsibilities. See Bollers v. Noir Enterprises, Inc., 297 Ga. App. 435, 677 S.E.2d 338 (2009).

The decision therefore cuts both ways. The written agreement protected FAS from consequential damages, but its written change-order machinery also prevented FAS from recasting covered extra work as an equitable claim. The ruling eliminated the equitable route; it did not necessarily eliminate any properly supported contractual claim for additional compensation under the proposal. A party cannot ordinarily invoke the contract when its limitations are favorable and bypass it when its compensation provisions are not.

Three Technical Cautions About the Decision

The opinion is a federal district court decision applying Georgia law, not a ruling of the Georgia Supreme Court or the Eleventh Circuit. It is persuasive and instructive, but it should not be treated as the final word on every UCC issue it discusses. It was also an interlocutory order, not a trial verdict.

The Federal Judicial Center’s official case data reports that the action was terminated as settled on January 15, 2026. The publicly available sources reviewed for this article do not disclose the settlement terms. The March 2025 order therefore remains the principal published legal analysis, but the surviving factual disputes were never resolved in a reported trial decision. See the Federal Judicial Center’s Integrated Database and civil-data codebook.

There is also a timing point in the court’s hybrid-transaction analysis. The opinion cited the current versions of O.C.G.A. §§ 11-2-102 and 11-2-106, which expressly address hybrid transactions and took effect July 1, 2024. The contract was formed in 2021, and Georgia’s statutory saving clause generally directs that pre-July 2024 transactions be enforced as though the 2024 modernization act had not taken effect. The opinion did not discuss that temporal issue.

The ultimate classification likely remains the same because pre-amendment Georgia law already used a predominant-purpose test for mixed goods-and-services contracts. See J. Lee Gregory, Inc. v. Scandinavian House, L.P., 209 Ga. App. 285, 433 S.E.2d 687 (1993). Still, counsel addressing an older contract should apply the law governing when the transaction was formed rather than cite only the current statutory text.

One citation in the opinion also appears to be a simple typographical error. Footnote 16 refers to O.C.G.A. § 11-2-507 as the provision allowing cure of an improper tender; the cure provision is § 11-2-508. The mistake does not affect the court’s basic point that the UCC distinguishes delivery, rejection, acceptance, cure, and revocation.

Why the Case Matters to Florida Businesses

Although Hydro Systems applied Georgia law, Florida has enacted the same core UCC rule. Florida Statutes § 672.719 permits contractual limits on remedies and consequential damages, subject to failure of essential purpose and unconscionability. It likewise states that a limitation involving commercial loss is not presumptively unconscionable.

Florida decisions therefore convey a similar warning. In Cessna Aircraft Co. v. Avior Technologies, Inc., 990 So. 2d 532 (Fla. 3d DCA 2008), the Third District enforced a mutual, unequivocal, and reasonable limitation between sophisticated commercial parties and reduced the contract recovery to the amount permitted by the parties’ service orders.

In Typographical Service, Inc. v. Itek Corp., 721 F.2d 1317 (11th Cir. 1983), the Eleventh Circuit recognized under Florida law that a repair-or-replace remedy can fail of its essential purpose when conforming performance is not supplied within a reasonable time, but it enforced the contractual bar on consequential damages because the record did not establish such a failure.

The precise effect of a failed exclusive remedy on a separate consequential-damages exclusion can be jurisdiction- and contract-specific. Florida lawyers should analyze the text of both provisions, the evidence concerning repair efforts, and the governing cases rather than assume that the result in a Georgia federal decision automatically controls.

But the central commercial lesson readily crosses state lines: courts generally take negotiated risk-allocation language seriously.

Practical Lessons for Drafting and Litigating Equipment Contracts

First, define the promised performance objectively. Statements such as “more consistent” and “faster than manual labor” invite disputes unless the agreement supplies measurable baselines, tolerances, cycle times, and testing protocols.

Second, finalize acceptance criteria before shipment and tie payment to documented test results. If the buyer directs shipment before testing is complete, the agreement should state whether that direction constitutes a waiver, provisional acceptance, or merely a logistical accommodation.

Third, distinguish among warranties, exclusive remedies, liability caps, and exclusions of consequential damages. They perform different legal functions. Sellers commonly want each limitation to stand independently and to survive the failure of another remedy; buyers should negotiate meaningful direct remedies and carefully considered carveouts.

Fourth, identify anticipated loss categories by name. “Consequential damages” can generate expensive classification disputes. If downtime, rework labor, wasted material, substitute production, data restoration, damage to other property, or lost output is important to the deal, the contract should say whether that category is recoverable, excluded, capped, or subject to a separate service credit or liquidated remedy.

Fifth, use a disciplined written change-control process. Engineering projects evolve, but undocumented departures create disputes over scope, causation, price, and warranty responsibility. A change order should address not only added cost, but also schedule, test criteria, process assumptions, and the effect on existing warranties.

Finally, build the damages case early. A buyer facing a consequential-damages waiver should identify viable direct remedies and retain valuation expertise before summary judgment. A seller relying on the waiver should classify each claimed loss, connect it to the statutory and contractual language, and avoid assuming that the clause bars restitution, cover, value-difference damages, or every other UCC remedy.

The Bottom Line

Hydro Systems did not decide whether FAS ultimately breached the contract or whether Hydro Systems properly rejected, accepted, or revoked acceptance of the robots. It did something almost as important: it determined the economic boundaries of the dispute before trial.

The purchaser’s core liability and direct-damages theories remained unresolved and available for later adjudication, while the seller preserved most of its counterclaims based on the unpaid balance and alleged noncooperation. But the seller eliminated multiple categories of operational loss because the parties had negotiated a mutual consequential-damages exclusion. Meanwhile, the seller lost its quantum-meruit theory because the same contract already governed extra work.

That combination is the enduring lesson. In sophisticated commercial disputes, the facts determine who failed to perform, but the contract often determines what that failure is worth.