             United States Court of Appeals
                       For the First Circuit

No. 13-2240

  BAE SYSTEMS INFORMATION AND ELECTRONICS SYSTEMS INTEGRATION, INC.,

                        Plaintiff, Appellee,

                                 v.

                     SPACEKEY COMPONENTS, INC.,

                        Defendant, Appellant.



            APPEAL FROM THE UNITED STATES DISTRICT COURT
                  FOR THE DISTRICT OF NEW HAMPSHIRE

         [Hon. Landya B. McCafferty, U.S. Magistrate Judge]



                               Before

                Thompson and Kayatta, Circuit Judges,
                     and Casper,* District Judge.


     Jeffrey C. Spear, with whom Orr & Reno, P.A. was on brief, for
appellant.
     Daniel E. Will, with whom Jonathan M. Shirley and Devine,
Millimet & Branch, P.A. were on brief, for appellee.


                             May 9, 2014




     *
         Of the district of Massachusetts, sitting by designation.
            CASPER, District Judge. Appellee BAE Systems Information

and Electronics Systems Integration, Inc. ("BAE") alleges that

Appellant      SpaceKey     Components,         Inc.   ("SpaceKey")    wrongfully

withheld    payment       for    RH1280B        field-programmable    gate   array

("FPGA")s, which are semiconductor integrated circuits that perform

certain logic functions and which are often used in satellites and

other space equipment. The district court granted summary judgment

in favor of BAE.          For the reasons given below, after de novo

review, we affirm.

                            I.    Facts & Background

                                           A.

            BAE is a Delaware corporation with its corporate office

in   Nashua,    New   Hampshire.       BAE       manufactures   and   distributes

specialized products for use in the defense, security and aerospace

industries.     SpaceKey is a Virginia corporation with its principal

place of business in Virginia.

            In 2004, BAE entered into an agreement with SpaceKey (the

"Consultant Agreement") under which SpaceKey agreed to identify

buyers for BAE products in Connecticut, Maryland and Virginia. The

Consultant Agreement provides that it "shall be construed in

accordance with the laws of the State of New Hampshire."                       The

Consultant Agreement incorporated by reference BAE’s terms of sale

("TOS"), which BAE would update periodically over time.                        In

November 2006, BAE updated its TOS (the "11/06 TOS").                   Under the


                                       -2-
11/06 TOS, the parties agreed that SpaceKey’s only remedies for

breach    of     warranty   would    be    the   repair    or   replacement   of

nonconforming goods, or the refund of the purchase price at BAE's

option.

               In 2007, BAE acquired the rights to manufacture and sell

a particular FPGA known as the RH1280, which BAE designated RH1280B

to signify BAE's version of the product.              The flight versions of

the RH1280B were intended for use in space and, therefore, required

a certain degree of radiation resistance (measured in “rads”). BAE

warranted that “[t]he RH1280B offers a total dose radiation-

hardness in excess of 300K rads (Si), the standard for a majority

of applications . . . ." (the "300 krad specification").

               In August 2007, BAE provided new terms of sale (the "8/07

TOS").    The only relevant difference between the 11/06 TOS and the

8/07 TOS is that the available remedies for breach of warranty

under the 8/07 TOS included credit, repair and replacement.               Under

the 8/07 TOS, payment was not due until the earlier of thirty days

from the date of invoice or upon delivery.

               Operating under the terms of the Consultant Agreement,

SpaceKey found customers for RH1280B FPGAs in India and Russia to

whom SpaceKey communicated BAE's warranty.                Beginning in January

2008,    SpaceKey    submitted      purchase     orders   for   RH1280B   FPGAs,

including Purchase Order SKC12508(C), the order at issue in this

case.     By May 2009, BAE had informed SpaceKey that the RH1280Bs


                                          -3-
would not meet the 300 krad specification.           As BAE forewarned, the

RH1280Bs failed to meet the 300 krad specification; some of the

goods had a radiation resistance of 50 krad, while others had a

radiation resistance of 100 krad.           Nevertheless, SpaceKey accepted

delivery of the FPGAs, and although it asserts that it did so under

the assumption that BAE would later reduce the price, SpaceKey was

able to resell the goods to its customers.

            BAE     sent   SpaceKey   seven     invoices    arising   out    of

SpaceKey's purchase orders.        Although SpaceKey paid some invoices,

it   refused   to    pay   an   outstanding     balance    of   $1,800,000   as

compensation for accepting nonconforming goods and BAE's breach of

warranty.      After SpaceKey announced its intention to withhold

payment, BAE terminated the Consultant Agreement on December 10,

2009, effective January 31, 2010.

                                      B.

            BAE sued SpaceKey on August 20, 2010.           After BAE amended

its complaint, seeking multiple declaratory judgments and asserting

claims of an account stated, breach of contract, quantum meruit and

unjust enrichment, SpaceKey filed counterclaims on December 14,

2010, asserting claims of breach of contract, misrepresentation,

breach of warranty and a violation of the New Hampshire Consumer

Protection Act, N.H. Rev. Stat. Ann. 358-A:2.             Whereas BAE alleged

in part that SpaceKey was in breach for failing to pay for the

goods it had purchased, SpaceKey alleged, inter alia, that BAE


                                      -4-
improperly terminated the Consultant Agreement, misrepresented the

performance   characteristics     of   the   RH1280B   and    its   delivery

schedule   and   breached   its    express    warranty       regarding   the

performance characteristics of the RH1280B.

           On July 1, 2011, BAE moved for summary judgment on

SpaceKey's counterclaims for misrepresentation (Count III) and

breach of express warranty (Count IV), contending that SpaceKey

could not succeed on its counterclaims because it had not pursued

its limited remedies under the 11/06 TOS (i.e., return of the goods

for repair or replacement or for a refund of the purchase price).

Three weeks later, on July 22, 2011, BAE filed a second motion for

summary judgment, contending that it was entitled to judgment on

its breach of contract claim and claim for an account stated

because SpaceKey had withheld payment on the FPGAs and although it

was entitled to limited remedies for breach of warranty under the

11/06 TOS, by withholding payment, sought a remedy of either set-

off or recoupment, for which the parties had not contracted.1             On

October 24, 2011, the district court denied the first motion,

ruling that the remedy limitations did not preclude SpaceKey's

claims for nonconformity and alleged breach of warranty by BAE, and

the second motion in relevant part, concluding that if SpaceKey




     1
       As to the account stated claim, BAE asserted that SpaceKey
never disputed that it owed $1,851,757 for the goods BAE delivered
and was, therefore, entitled to judgment as a matter of law.

                                   -5-
prevailed on its breach of warranty counterclaim, it could provide

a legal excuse to defeat BAE's breach of contract claim.

             On October 17, 2011, BAE filed a third motion for summary

judgment on Counts I and II of its amended complaint and Counts I

and II of SpaceKey's counterclaims, asserting that its termination

of the Consultant Agreement was proper. The district court granted

this motion in part, concluding that BAE was entitled to summary

judgment on Counts I and II of its amended complaint and Count I of

SpaceKey's    counterclaims,   but    not   on   Count   II   of   SpaceKey's

counterclaims.

             In each of these three motions for summary judgment, BAE

asserted that the 11/06 TOS applied to its purchase orders.                In

SpaceKey's opposition to BAE's third motion for summary judgment,

SpaceKey disputed BAE's initial contention that the 11/06 TOS were

applicable, and asserted instead that the 8/07 TOS were applicable.

On October 5, 2012, BAE filed a motion for leave to file a fourth

motion for summary judgment.          In this motion, BAE acceded to

SpaceKey's assertion regarding the 8/07 TOS.             In addition, BAE

argued that because the 8/07 TOS required SpaceKey to avail itself

of the limited remedies for breach of warranty within sixty days,

SpaceKey's warranty claims were precluded.

             Although the district court initially denied BAE's motion

for leave, on January 11, 2013, on the eve of trial, it issued an

order to show cause why a proposed judgment in BAE's favor should


                                     -6-
not enter on BAE's breach of contract claim and on SpaceKey's

breach of warranty counterclaim. In this order, the district court

reasoned that the 8/07 TOS had limited SpaceKey's remedies for

breach of warranty to credit, repair or replacement exercised

within sixty days of delivery, and although neither repair or

replacement were feasible on the undisputed facts, the credit

remedy had not failed of its essential purpose under the New

Hampshire iteration of the Uniform Commercial Code ("UCC"), N.H.

Rev. Stat. Ann. 382-A:2-719.       After briefing, the district court

granted summary judgment in BAE's favor on April 22, 2013, and

denied SpaceKey's motion for reconsideration on July 19, 2013.

This appeal followed.

                             II.   Analysis

          We review the district court's grant of summary judgment

de novo, Ayala–Sepúlveda v. Municipality of San Germán, 671 F.3d

24, 30 (1st Cir. 2012), drawing all reasonable inferences in the

nonmovant's favor, Lockridge v. Univ. of Me. Sys., 597 F.3d 464,

468 (1st Cir. 2010). Summary judgment is appropriate when there is

no genuine issue of material fact, and the moving party is entitled

to judgment as a matter of law.          McArdle v. Town of Dracut, 732

F.3d 29, 32 (1st Cir. 2013) (internal quotation marks omitted).

                                   A.

          SpaceKey   first   contends      that   summary   judgment   was

inappropriate because there is a dispute over which TOS governed


                                   -7-
Purchase Order SKC12508(C). Although BAE asserts that the 8/07 TOS

apply, SpaceKey contends that the 11/06 TOS apply.     Both parties

represented to the district court that the 11/06 TOS governed the

purchase order until SpaceKey disputed BAE's contention that the

11/06 TOS applied, positing that "SKC12508 was subject to the

August 2007 TOS Revision," in its opposition to BAE's third motion

for summary judgment.   In its fourth motion for summary judgment,

BAE did not take issue with SpaceKey's assertion that the 8/07 TOS

applied.   In response to the district court's show cause order,

SpaceKey did not object to the district court's characterization of

which TOS applied.   That is, although SpaceKey enumerated a number

of factual disputes that precluded entry of judgment in BAE's favor

in its response to the show cause order, SpaceKey did not dispute

the district court's agreement with SpaceKey's position that the

8/07 TOS applied to the transaction at issue here, nor did it

dispute the same in its motion for reconsideration.    Accordingly,

there was never any genuine dispute of material fact over which TOS

applied to Purchase Order SKC12508(C).

           SpaceKey argues that BAE's representations throughout the

litigation that the 11/06 TOS applied to SKC12508(C) should bar

BAE's contrary position on appeal.    But SpaceKey does not dispute

that BAE revised the terms of sale in August 2007. Notwithstanding

SpaceKey's attempt to decline BAE's concession and attribute to it

a position it no longer holds, there is simply no dispute as to


                                -8-
which terms of sale governed the transaction.                      The 08/07 TOS

applied.

           Even if there were a colorable dispute over which terms

of sale governed Purchase Order SKC12508(C), SpaceKey would have

waived this argument on appeal.           "It is hornbook law that theories

not raised squarely in the district court cannot be surfaced for

the first time on appeal."        McCoy v. Mass. Inst. of Tech., 950 F.2d

13, 22 (1st Cir. 1991).         Although it is true that SpaceKey, like

BAE,   assumed    that   the    11/06     TOS   applied     to   Purchase   Order

SKC12508(C) until SpaceKey asserted the applicability of the 8/07

TOS during the litigation below, there is nothing in the record to

suggest that, once the later terms of sale were introduced,

SpaceKey ever asserted that the earlier TOS applied.                Accordingly,

it cannot even be said that SpaceKey "mention[ed] a possible

argument   in    the   most    skeletal    way,   leaving    the    court   to   do

counsel's work, create ossature for the argument, and put flesh on

its bones."      Harriman v. Hancock Cnty., 627 F.3d 22, 28 (1st Cir.

2010) (citation omitted) (internal quotation marks omitted).

                                        B.

           Having resolved that the 8/07 TOS governs, the heart of

this dispute is whether the limited remedies for breach of warranty

outlined in the 8/07 TOS "fail[ed] of their essential purpose"

under UCC § 2-719(2).           The UCC, including as adopted by New

Hampshire, permits parties to commercial transactions to modify or


                                        -9-
limit the remedies available for breach of warranty.               Xerox Corp.

v. Hawkes, 475 A.2d 7, 11 (N.H. 1984) (citing N.H. Rev. Stat. Ann.

§ 382-A:2-719(1)).        However, where the remedy "fails of its

essential   purpose,"     the   aggrieved   party     may   seek    relief   "as

provided in this chapter," UCC § 2-719(2), meaning that if in any

case, the aggrieved party cannot as a practical matter avail itself

of the benefit of the enumerated remedy, "it is entitled to the

full array of remedies provided by the UCC."           Figgie Intern., Inc.

v. Destilería Serralés, Inc., 190 F.3d 252, 255 (4th Cir. 1999).2

Here, the 8/07 TOS limited SpaceKey's remedies for breach of BAE's

warranty    (that   the   FPGAs   would     conform    to   their    published

specifications) to "return . . . for credit, repair or replacement

at BAE SYSTEMS' sole option."       Yet it is undisputed that SpaceKey

preemptively withheld payment in response to BAE's alleged breach

of warranty.    That is, SpaceKey appeared to claim damages under

either UCC § 2-714 or § 2-717, remedies outside the 8/07 TOS.                The

parties dispute whether this remedy should be considered "set-off"

or "recoupment."      Whatever the appropriate terminology, it is



     2
        Although New Hampshire law applies to this matter, where
there was no New Hampshire case directly on point, we have looked
for guidance from interpretations of identical provisions of the
UCC in other jurisdictions.      Trans-Spec Truck Serv., Inc. v.
Caterpillar, Inc., 524 F.3d 315, 323 (1st Cir. 2008) (looking to
cases interpreting the UCC in other jurisdictions where the
Massachusetts Supreme Judicial Court had not addressed the proper
application of a particular code provision); see also Welsh v. TEX-
MACH, Inc., No. 08-11401-DPW, 2009 WL 2922955, at *5 n.5 (D. Mass.
Aug. 28, 2009).

                                    -10-
apparent that it was SpaceKey's intent to claim a remedy outside

the scope of the 8/07 TOS.      Accordingly, unless the enumerated

limited remedies in the 8/07 failed of their essential purpose,

SpaceKey was in breach.

            As the district court stated, "[p]lainly, the essential

purpose of a repair or replacement remedy is to put conforming

goods in the hands of the buyer.       A repair remedy fails of its

essential purpose . . . when 'the seller is unwilling or unable to

repair the defective goods within a reasonable period of time.'"

The parties assume, as the district court did, that both repair and

replacement were impracticable as BAE was not in a position to

provide SpaceKey with conforming goods. Our review thus focuses on

whether the "credit" remedy failed of its essential purpose.

            Our inquiry into whether a remedy has failed of its

essential purpose takes place in two steps: first we must identify

the essential purpose of the limited remedy, and second, we must

determine "whether the remedy in fact failed to accomplish such

purpose."   Cooley v. Big Horn Harvestore Sys., Inc., 813 P.2d 736,

744 (Colo. 1991) (citing Milgard Tempering, Inc. v. Selas Corp.,

902 F.2d 703 (9th Cir. 1990); Chatlos Sys., Inc. v. Nat'l Cash

Register Corp., 635 F.2d 1081 (3d Cir. 1980)).3      In determining


     3
       We note that other courts have employed somewhat different
approaches in determining whether a remedy fails of its essential
purpose. See Dowty Commc'ns Inc. v. Novatel Computer Sys. Corp.,
817 F. Supp. 581, 585-86 (D. Md. 1992) ("There are at least two
ways of determining whether a particular set of facts deems a

                                -11-
whether remedies fail of their essential purpose, courts also

consider whether the "circumstances of the transaction, including

the seller's breach, cause the [limitation] to be inconsistent with

the intent and reasonable commercial expectations of the parties."

Kearney & Trecker Corp. v. Master Engraving Co., Inc., 527 A.2d

429, 438 (N.J. 1987).

          BAE argues that, under these circumstances, the credit

remedy operated as a refund.   BAE points to the payment terms of

the 8/07 TOS, which provided that SpaceKey was not obligated to pay

until thirty days from the date of invoice or upon delivery and

posits that SpaceKey knew of the non-conformities of the RH1280Bs

prior to either operative date.   Accordingly, BAE argues, SpaceKey

could have invoked the credit remedy before it even paid, rendering

the credit, for all intents and purposes, a refund.    Indeed, the

district court devoted pages of its opinion to an explanation of

why the "refund" remedy did not fail of its essential purpose,



restricted contractual remedy to fail of its essential purpose.
The first is to assess the potential breaches envisioned by the
parties when they agreed to limit their remedies and then to
compare the actual breach to the parties’ initial expectations. If
the expectations and reality are materially the same, the remedial
limitation should be enforced. . . .      The second, more common
approach is to evaluate the compliance of the party in breach with
its limited remedial responsibilities. If the party violating the
agreement fails to compensate the innocent party in the limited
manner provided for by the contract, the remedy has failed of its
essential purpose"), aff'd sub nom., Cray Commc'ns, Inc. v. Novatel
Computer Sys., Inc., 33 F.3d 390 (4th Cir. 1994). Even so, were we
to apply these alternative formulations, we would not reach a
different conclusion.

                               -12-
rather than focusing exclusively on cases that discussed only

"credits." Ultimately, recognizing that under many circumstances,

credits will not operate as refunds, we need not reach the issue of

whether the credit remedy operated as a refund here.       For the

reasons that follow, we conclude that there are other bases to

affirm the district court's determination that the credit remedy

did not fail of its essential purpose.

          SpaceKey argues that the limited remedies did fail,

because the purpose of a credit remedy is not to give the aggrieved

party the value of the bargain, but rather to provide the buyer

with conforming goods (i.e., the "benefit of the bargain").     Its

principal support for this principle of law is Arias/Root Eng'g v.

Cincinnati Milacron Mktg. Co., 945 F.2d 408 (9th Cir. 1991)

(unpublished), which states that:

     The essential purpose of a refund remedy does not differ
     from the essential purpose of a remedy that provides for
     either refund or replacement. Both are intended to
     ensure that the buyer will receive a conforming product
     within a reasonable time, whether the seller repairs the
     nonconforming product, replaces it, or refunds the
     purchase price so that the buyer can obtain a conforming
     product elsewhere.


Id. at *4.   Arias/Root, a refund case, clearly does not apply to

this case, in which the contract provided no refund remedy for the

type of breach at issue.   Rather, the subject of our inquiry here

is a credit remedy, the purpose of which cannot have been to enable

the purchase of conforming goods elsewhere.   That the parties knew


                               -13-
that conforming goods did not even exist elsewhere makes acutely

clear the conclusion that they could not have shared an expectation

that the remedy would enable SpaceKey to procure such goods if BAE

could not supply them.    Rather, the parties' clear expectation, as

made manifest in their contract, was that SpaceKey could return the

goods within a limited period of time and claim a credit, or could

keep the goods and pay (i.e., receiving the value of the bargain).4

That those options did not provide for SpaceKey the full range of

remedies that might otherwise have been available is simply the

result of the fact that commercial parties retain the freedom to

limit by agreement their available remedies in the event of a

breach.   See   James    J.   White    and   Robert   S.   Summers,   Uniform

Commercial Code, § 13:1 (6th ed. 2010).

          SpaceKey argues that the limited remedies did fail because

it did not foresee that BAE would produce goods that were usable and

functional, albeit at a reduced level of radiation-hardness.              But

the TOS explicitly provided for limited remedies in the event that

BAE delivered non-conforming goods, and SpaceKey offers no reason

why the details of the FPGAs' nonconformance cause BAE's breach to



     4
         To the extent that SpaceKey argues that BAE should be
liable for consequential damages resulting from discounts SpaceKey
was forced to give its customers, the 8/07 TOS clearly and
conspicuously   waived   consequential    damages.      Waiver   of
consequential damages are considered valid unless unconscionable.
Hydraform Prods. Corp. v. Am. Steel & Aluminum Corp., 498 A.2d 339,
343 (N.H. 1985) (Souter, J.) (quoting N.H. Rev. Stat. Ann. 382-A:2-
719)(3)).

                                      -14-
fall       outside    that    agreement.      Moreover,     to    the   extent   that

SpaceKey's argument relies on an assertion that its choice about

whether to keep the FPGAs was made more difficult by the fact that

they were not entirely unsuited to the purpose for which they were

intended, we fail to see why SpaceKey should stand in a stronger

position than the one in which it would have found itself had the

delivered items been less useful.5

               Moreover, we note that this is not a case where SpaceKey

was without options.            SpaceKey could have returned the items and

sought a credit, as the TOS prescribed.              Had SpaceKey complied with

the contractually-mandated procedure for obtaining a remedy, a court

evaluating a later dispute would likely have found itself in a

position      to     consider   whether     that   remedy   had    been   devoid   of

practical utility. Alternatively, of course, SpaceKey was entitled

to pursue precisely the course it in fact pursued: keeping the items

and selling them.            But having charted the latter course, SpaceKey

stands on weak ground when it asks us simply to assume that the

option of returning the FPGAs was futile.               This is so particularly

where the contract as a whole makes clear that the parties never

intended that BAE would become liable to SpaceKey for consequential

damages flowing from any breach.



       5
        Any difficulties resulting as to a delay in delivery also
did not cause the remedies to fail of their essential purpose,
where SpaceKey accepted the goods and was able to sell them to
their customers regardless of any delay.

                                           -15-
           Here, having failed to invoke any of the limited remedies,

SpaceKey gave BAE no opportunity to make good on same.           In general,

an aggrieved buyer must provide the seller with a reasonable

opportunity to carry out the limited remedy before the buyer can

successfully argue failure of essential purpose.         White and Summers

§ 13:20 (citing Trinity Indus. Inc. v. McKinnon Bridge, Co., 77

S.W.3d 159, 170 (Tenn. Ct. App. 2001); Bishop Logging Co. v. John

Deere Indus. Equip. Co., 455 S.E.2d 183, 191 (S.C. Ct. App. 1995))

(further citations omitted).            Such a rule is consistent with

purposes of the UCC, which aims to defer to the parties' contractual

procedural limitations. See UCC § 1-102(3) (providing that UCC "may

be varied by agreement"); id. § 1-103(a)(2) (noting that "underlying

purposes   and   polices"   of   UCC    include   "continued   expansion   of

commercial practices through . . . agreement of the parties"); see

also Von Gohren v. Pac. Nat'l Bank, 505 P.2d 467, 474 (Wash. 1973)

(noting    UCC   policy     of   avoiding     "expensive       and   delaying

litigation").6    SpaceKey argues that it cannot have forfeited its

right to argue that the remedy failed of its essential purpose

because "the law does not require a useless act."              McGranahan v.

Standard Const. Co., 131 A.2d 631, 632 (N.H. 1957).            That is, it is

SpaceKey's position that invocation of the credit remedy would have


     6
        SpaceKey also raised the issue of whether the district
court erred in concluding that SpaceKey's status as a reseller
precluded its ability to recover warranty damages.   As we have
determined that the credit remedy did not fail of its essential
purpose, we need not reach this issue.

                                       -16-
been futile.      However, as discussed above, the very attributes that

SpaceKey suggests would have made the act useless are attributes

that were necessarily within the contemplation of the parties when

they entered into the governing agreement.            At that time, as at all

times relevant to this case, BAE was the only supplier of RH1280B

FPGAs.     When SpaceKey assented to the TOS, it could not have

expected that the credit remedy--as distinct from replacement and

from repair--would be a mechanism for obtaining conforming goods.

SpaceKey's    protestation    that    a   credit    request   would   not    have

resulted     in   the   delivery     of   such     goods   cannot,    in    these

circumstances, render such a request futile.

                             III.     Conclusion

             For the foregoing reasons, we AFFIRM the district court's

decision granting summary judgment in BAE's favor.




                                      -17-
