Hayek v. State

VERMONT SUPERIOR COURT CIVIL DIVISION
Washington Unit Case No. 247-7-20 Wncv
65 State Street
Montpelier VT 05602
802-828-2091
www.vermontjudiciary.org
Hayek Medical Devices (North vs. State of Vermont

ENTRY REGARDING MOTION
Title: Motion for Summary Judgment; Motion for Summary Judgment; Motion to
Clarify; Motion for Status Conference ; (Partial Motion for Summary Judgment on Liability); the
Record; to Simplify the Issues and Aid in the Disposition of the Case (Motion: 34; 36; 43; 44)
Filer: Neil F.X. Kelly; Neil F.X. Kelly; Kendall Alison Hoechst; Neil F.X. Kelly
Filed Date: April 11, 2025; May 30, 2025; October 16, 2025; December 12, 2025

The motion is GRANTED IN PART and DENIED IN PART.

The present dispute involves a question of suitability and timely rejection of goods
arising from the emergency purchase of medical equipment by the State of Vermont on behalf of
hospitals during the early and chaotic days of the COVID-19 pandemic. Specifically, it poses
the question of whether negative pressure ventilators were fit for the purpose of treating
individuals with COVID-derived respiratory conditions. It also concerns the implementation of
draconian penalty provisions added at the last minute to a contract.

Background Facts

In March of 2020, during the initial throes of the pandemic, decisionmakers in state
government and the healthcare industry anticipated that Vermont would experience a dramatic
surge in the need for ventilators, far outstripping existing inventory or what could be easily
imported from nearby resources. Plaintiff Hayek Medical Devices (North American) LTD., a
foreign business, advised the State that it could supply Vermont’s expected ventilator needs.
This solicitation led to a meeting between agents from Hayek and agents from the State
(including private medical professionals working with the State). The State initially sought to
purchase 1,000 ventilators, but Hayek could not supply that volume. Instead, following this

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meeting, the State ordered 25 ventilators, which was later raised to 50 when Hayek determined it
had additional, available supplies.

Shortly after this agreement, Hayek began fulfilling the order and shipping out
ventilators. On April 22, 2020, Dr. Mark Hamlin, then Medical Director of Respiratory Care
Services at the UVM Medical Center (and an advisor to the State regarding ventilator needs),
took the position that positive pressure ventilators were the “best care we could provide.” Since
the Hayek ventilators were negative pressure ventilators, he stated that “[u]nder no
circumstances would I approve use of one of these [Hayek negative pressure] devices over any
invasive ventilator.” Affidavit of Mark Hamlin at 5 (filed April 11, 2025). The State quickly
started taking steps to cancel the contract with Hayek and refused subsequent shipments. It has
never paid anything to Hayek, which promptly filed this suit in July 2020 claiming breach of
contract.

Pending Motions before the Court

The parties have filed cross-motions for summary judgment addressing the issue of
liability on Hayek’s breach of contract claim. The State, in its defense, claims that it has no
liability because the ventilators provided violated the warranty of fitness for a particular purpose
in that Hayek knew that the State needed them to treat COVID patients, and they were useless
for that purpose. The State also argues that Hayek breached the contract by supplying
nonconforming goods because the ventilators were useless for the intended purpose. In the
alternative, the State contends that the contract should be declared void due to either mutual
mistake, specifically the allegedly mistaken belief that the ventilators could be used to treat
COVID patients, or misrepresentation because of the representation that the ventilators could be
used to treat COVID patients.

Regardless of how these positions are framed, the State’s arguments all point to the same
fundamental question: whether Hayek’s ventilators could be used to treat an appreciable number

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of COVID patients or were, in the State’s parlance, “useless.” That is the essential question
presented as to liability.1

The extent of the damages, if the State has liability, is not currently before the court on
summary judgment, but the parties also have raised the question in their briefing of whether, as a
matter of law, the terms of the contract include an 85% penalty provision for “late” cancelations.

Finally, the State also has filed what it has styled a motion to clarify the record. During
summary judgment briefing, it became clear that the State was relying on expert opinion
testimony of Dr. Hamlin on the issue of whether Hayek’s ventilators can be used to treat COVID
patients. Otherwise, it relies almost exclusively on the testimony of Hayek’s own experts to
demonstrate a lack of fitness. Prior to this last filing, the State had never disclosed Dr. Hamlin as
an expert. Hayek argues that by the time this issue bubbled up, it was too late because the
deadline for disclosure in the scheduling order had elapsed. The State, on the other hand, takes
the position that there is no currently applicable deadline for its disclosure of experts. Based on
these arguments, the Court understands that the “clarification” sought by the State concerns the
proper interpretation of the existing scheduling order and its implications on the State’s
disclosure of experts.

I. Procedural standard

Summary judgment procedure is “an integral part of the . . . Rules as a whole, which are
designed ‘to secure the just, speedy and inexpensive determination of every action.”’
Morrisseau v. Fayette, 164 Vt. 358, 363 (1995) (quoting Celotex Corp. v. Catrett, 477 U.S. 317,
327 (1986)). Summary judgment is appropriate if the evidence in the record, referred to in the
statements required by Vt. R. Civ. P. 56(c), shows that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law. V.R.C.P. 56(a).
Summary judgment will be granted if, after adequate time for discovery, a party fails to make a
showing sufficient to establish an essential element of the case on which the party will bear the
burden of proof at trial. Gallipo v. City of Rutland, 163 Vt. 83, 86 (1994). The court derives the
undisputed facts from the parties’ statements of fact and the supporting documents. Boulton v.

1 This is also precisely the same question raised by Hayek’s arguments in its motion for partial summary judgment,

and is, in fact, the central question of liability in this case as all other essential elements of contract formation and
initial delivery were met.
3
CLD Consulting Engineers, Inc., 2003 VT 72, ¶ 29. A party opposing summary judgment may
not simply rely on allegations in the pleadings to establish a genuine issue of material fact.
Instead, it must come forward with deposition excerpts, affidavits, or other evidence to establish
such a dispute. Murray v. White, 155 Vt. 621, 628 (1991). Speculation is insufficient to
establish a dispute of material fact or to carry a burden on which a party seeks judgment. Palmer
v. Furlan, 2019 VT 42, ¶ 10, 210 Vt. 375.

II. Liability
The principal liability question is whether Hayek’s negative pressure ventilators could be
used successfully for at least some appreciable population of COVID patients or, in other words,
whether they were fit for that particular purpose. The parties agree that the contract, which is
between parties doing business in different signatory countries to the United Nations Convention
on Contracts for the International Sale of Goods, is subject to the Convention. U.S. Ratification
of 1980 United Nations Convention on Contracts for the International Sale of Goods: Official
English Text (Mar. 2, 1987), 52 Fed. Reg. 6262-02, 1987 WL 128849. The Convention
“provides an effective solution for this difficult problem [of uncertainty as to what law applies to
international contracts for the sale of goods] by providing uniform rules to govern the questions
that arise in the formation of international sales contracts, and the rights and obligations of the
buyer and seller in performance of the contracts.” Annotation, Construction and Application of
United Nations Convention on Contracts for the International Sale of Goods, 200 A.L.R. Fed.
541, § 2[a]. The Convention is similar in many respects to Article 2 of the Uniform Commercial
Code. See 9A V.S.A. §§ 2–101 to 2–725. “Caselaw interpreting analogous provisions of Article
2 of the [UCC] may . . . inform a court where the language of the relevant [Convention]
provisions tracks that of the UCC.” Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1028
(2d Cir. 1995).

Article 35 of the Convention provides, in relevant part:
(1) The seller must deliver goods which are of the quantity, quality and
description required by the contract and which are contained or packaged in the
manner required by the contract.

(2) Except where the parties have agreed otherwise, the goods do not conform
with the contract unless they:

. . .
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(b) are fit for any particular purpose expressly or impliedly made known to
the seller at the time of the conclusion of the contract, except where the
circumstances show that the buyer did not rely, or that it was unreasonable for
him to rely, on the seller’s skill and judgement;

Convention Art. 35. Section 2(b) is analogous to UCC § 2–315: “Where the seller at the time of
contracting has reason to know any particular purpose for which the goods are required and that
the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is
unless excluded or modified under the next section an implied warranty that the goods shall be fit
for such purpose.” 9A V.S.A. § 2–315.

“The essential elements of a warranty of fitness for a particular purpose are that the seller
be apprised of the intended use of the product and that the buyer rely upon the skill and
knowledge of the seller in the selection of the product.” Plaintiff’s Proof of a Prima Facie Case §
3:4; see also 1 White, Summers, & Hillman, Uniform Commercial Code § 10:36 (6th ed.). “The
warranty is breached if the product is in fact unsuitable for the use intended by the purchaser.”
Plaintiff’s Proof of a Prima Facie Case § 3:4. “The burden is upon the buyer to prove a breach of
warranty of fitness for a particular purpose by evidence that the goods were not in fact suitable
for the purpose stated by the buyer and that he or she relied upon the skill and knowledge of the
seller. The degree of particularity as to fitness for a stated purpose depends upon the nature of
the article and its general purpose.” Id. § 10:37; see also 1 White, Summers, & Hillman,
Uniform Commercial Code § 10:37 (6th ed.) (“In most cases, the buyer discloses the purpose in
the early negotiations, but the disclosure must be reasonably explicit if a seller would not
otherwise reasonably know of the purpose.”).

A. Fitness for a Particular Purpose in March 2020.

Fitness is the principal factual dispute in this case, but fitness must be gauged by the
particular purpose at issue. In that regard, what that purpose was is as important as what it was
not. As the undisputed facts demonstrate, Hayek, in light of the shortage of ventilators
anticipated due to COVID, reached out to the State indicating that it could supply ventilators. It
is undisputed that at a meeting on March 19, 2020, agents of Hayek met with designated agents
of the State to make the pitch that the State could successfully use Hayek’s ventilators on
COVID patients suffering from acute respiratory distress syndrome (ARDS). That generally
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stated purpose was what everyone at the time understood to be the particular purpose for the
ventilators.

B. Re-casting the Purpose

Many of the disputes in this case concerning fitness appear to be an effort to improperly
recast the State’s particular purpose. In that regard, it bears noting that while Hayek openly
concedes that it knew the State’s need was for ventilators that could treat COVID patients with
ARDS, there is no evidence whatsoever that the State ever informed Hayek, or that Hayek
should have known, that the more specific purpose the State had in mind was ARDS treatment
exclusively with positive pressure ventilation.2 In fact, this more specific condition did not
emerge until April of 2020 when Dr. Hamlin informed the State of his opinion and position.

C. Hayek’s Expert Testimony

Hayek’s position, which is supported by the testimony of its experts, is as follows.
Negative pressure ventilation, when it can be used successfully, is preferable to positive pressure
ventilation because it avoids the risk of harm that positive pressure ventilation presents. ARDS
can be caused by numerous diseases, among which COVID is but one. Hayek’s ventilators have
been used successfully to treat ARDS from non-COVID sources. There is nothing unique about
ARDS resulting from COVID sources. Therefore, negative pressure ventilation systems can be
used to treat ARDS from COVID. As to the differences between positive and negative pressure
systems, the differences do not constitute insurmountable issues, except in certain circumstances.
For example, one difference between negative pressure and positive pressure systems is whether
the machine provides supplemental oxygen. Hayek’s ventilators do not provide supplemental
oxygen on their own, but if the patient needs supplemental oxygen, it can be provided from a
separate source in conjunction with Hayek’s ventilator. Similarly, if any measurements need to
be monitored beyond the capabilities of Hayek’s ventilators, other devices can be used to do so
while continuing to use Hayek’s ventilators. It is only if intubation becomes necessary or
something else counsels in favor of the need for positive pressure ventilation, would the
differences become critical. In such cases, it would be appropriate to use a positive pressure

2 This would include treatment by a device that included its own supply when supplemental oxygen was needed,

treatment that could be used with intubation when necessary, etc.—all qualities of the positive pressure ventilators.
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ventilator or substitute one for a negative pressure ventilator. In other words, while it would be
reasonable to anticipate cases in which Hayek’s ventilators would be inappropriate, they are not
categorically inappropriate to treat ARDS cases. In fact, there is evidence that they have been
successfully employed to treat ARDS. Therefore, in March of 2020, there was no basis or
understanding to conclude that Hayek’s ventilators lacked fitness for the purpose of treating
COVID patients with ARDS. Only if the patient’s condition changed to a point requiring
intubation or positive pressure ventilation would the Hayek’s machines be inappropriate.

D. The State’s Response

In its motion and opposition, the State primarily uses the testimony of Hayek’s experts in
an effort to support the State’s argument that the ventilators were not fit for the purpose of
treating COVID-derived ARDS. This effort fails to create an issue of material fact principally
for two reasons.

First, the testimony of Hayek’s experts, fairly read and in context, is consistent with
Hayek’s larger position and the central issue for liability—that negative pressure ventilators are
appropriate to treat a significant number of COVID-derived ARDS cases. None of the experts or
their testimony support the proposition that Hayek’s ventilators cannot be used to treat COVID
patients with ARDS. And with one exception, the State neither contends nor demonstrates that
Hayek’s experts are not competent to testify as experts or that their opinions are manifestly
unreliable.3 The State does repeatedly dispute testimony of Gary Mefford, a registered
respiratory therapist, because he is not a physician and, ostensibly, only a physician could
understand the ventilator and its appropriate use. That naked objection is insufficient to
disregard Mr. Mefford’s testimony, which is premised on his familiarity and experience with the
use of Hayek’s ventilators. 29 V. Gold & C. Wright & A. Miller, Fed. Prac. & Proc. Evid. §
6264.1 (2d ed. 2025 update) (noting that Rule 702 allows for qualifications of witnesses on the
basis of knowledge, skill, and experience). The nature of Rule 702 is that different experts may
offer an opinion on an issue deriving from their specific area of expertise. V.R.E. 702. Whether

3 Other than the ultimate fact, that the ventilators can be used to treat COVID patients with ARDS, the State does not

assert that any representative of Hayek ever made any false statement about anything at the March 19 meeting or in
deposition testimony.
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Mr. Mefford’s testimony is in and of itself contested, however, his opinions are entirely
consistent with Hayek’s other experts.

Second, to the extent that the State points to Hayek’s experts’ testimony as insufficient to
demonstrate fitness (for any number of reasons), it misconstrues the burden of proof. As noted
above, the burden of proof as to fitness is on the State as buyer who asserts that the products
were properly refused, not on Hayek as seller. Plaintiff’s Proof of a Prima Facie Case § 3:4; see
also 9A V.S.A. § 2-315 (framing the claim of fitness for a particular purpose as a warranty claim
on which seller bears risk but buyer must prove); Vermont Food Industries, Inc. v. Ralston
Purina, Co., 514 F.2d 456, 458, 462 (2d Cir. 1975) (finding that buyer could meet its burden to
establish breach of warranty for fitness for a particular purpose through direct or indirect
evidence). Hayek did not have to come forward with evidence proving fitness. The State has
had the burden to come forward with evidence of a lack of fitness.4

E. Dr. Hamlin’s Expert Opinion

This burden of proof issue brings the importance of Dr. Hamlin’s testimony into sharp
relief. He is the sole expert offered by the State in this case. No doubt, his fact testimony as to
his role in the underlying events is available to show what happened. But for the State to rely on
his testimony to rebut Hayek’s experts on the utility of Hayek’s ventilators for COVID patients
with ARDS, he must be able to testify as an expert witness. If he can do so, and his testimony
sufficiently contests the competing testimony of Hayek’s experts, then this case would quickly
become the sort of “classic battle of the experts that should be played out for the finder of fact.”
State v. Burgess, 188 Vt. 235, 243–44 (2010).

The record shows, however, that the State failed to disclose Dr. Hamlin as an expert in a
timely manner. This is likely why he was never deposed, but due to this non-disclosure, he
cannot offer an expert opinion in this case. Follo v. Florindo, 2009 VT 11, ¶¶ 18–21. Moreover,
even if the court concluded to the contrary, his testimony, so far as it has been developed—there
is precisely one affidavit—would likely be insufficient to avoid summary judgment on liability
in any event.

4 This is because the provisions of warranty under the relevant commercial codes allocate the risk to sellers but

require buyers to assert either as a direct claim or an affirmative defense. See 9A V.S.A. § 2-303.
8
Expert disclosure requirements are set forth at Rule 26(b)(5). In 2019, that rule was
amended to make clear that, if sought with an appropriate interrogatory, “each person”
anticipated “at trial to present expert testimony under Vermont Rules of Evidence 702, 703, or
705, whether or not the witness may also testify from personal knowledge as to any fact in issue
in the case” must be disclosed. See Reporter’s Notes—2019 Amendment, V.R.C.P. 26
(emphasis added). There is no dispute that there has long been such an interrogatory in this case,
and that the State has had a duty to supplement interrogatory responses throughout. V.R.C.P.
26(e). Nevertheless, when the summary judgment motions were filed, the State had not
disclosed Dr. Hamlin as an expert, and he had not been deposed. It became clear during briefing
that the State was in fact relying on his expert testimony (an affidavit) to establish that Hayek’s
machines were unfit for the purpose of treating COVID-derived ARDS. This prompted Hayek to
object that he had never been disclosed as an expert, which in turn prompted the State to file its
motion to “clarify” Dr. Hamlin’s status vis-à-vis the scheduling order.

The most recent scheduling order in this case was stipulated to by the parties and then
approved by the court on October 16, 2024. That Order provided that “Defendant shall disclose
experts within one month after the State’s deposition of Plaintiff pursuant to Rule 30(b)(6).” The
Order further provided that the Rule 30(b)(6) depositions must be taken “within 45 days of the
Court’s decision on the [then anticipated] State’s Motion to Compel the Rule 30(b)(6) Notice and
30(b)(5) Deposition Duces Tecum.” The State filed that motion to compel on October 28, 2024,
and amended it on November 21. The court denied it on May 9, 2025. The May 9th decision
triggered the State’s obligation to conduct the 30(b)6) decision within 45 days and fixed the
State’s deadline to disclose experts at no later than a month after that. As Hayek calculates it, the
latest that deadline could have been conducted was on July 23, 2025. The State did not purport
to disclose Dr. Hamlin as an expert until October 16, 2025, the same date it filed its motion to
clarify. Even if the disclosure were adequate (which is reasonably contested), it is plainly long
out of time to be made.

On June 20, 2025, the State did file a motion to extend times under the scheduling order
in an open-ended fashion. On September 3, 2025, the court denied the June 20 motion.
Specifically, the Court ruled:

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Shortly before the Court denied the State’s [October 28, 2024] motion to
compel, the State filed a motion for summary judgment (April 11, 2025), and
Hayek filed a cross-motion for summary judgment on May 30. The motions
address liability in general and, if there is potential liability, whether an 85%
penalty provision is part of the contract. Neither party has indicated that any
remaining discovery is necessary before a ruling on the pending summary
judgment motions. See Vt. R. Civ. P. 56(d). To the extent either does, such a
claim would need . . . to be asserted and adequately supported in regard to that
motion.

In these circumstances, the Court has determined to defer a ruling on the
motions to amend the scheduling order pending a decision on the cross-motions
for summary judgment. This case is over five . . . years old, and it has been
bogged down with discovery disputes for much of that time. The State’s
proposed amendment to the current scheduling order is open-ended and does not
create a firm timeline to resolve any remaining discovery issues. The Court’s
May 9 Order was not an invitation to open-ended discovery. It recognized the
importance of completing discovery fairly and gave Hayek a concrete period of
time—21 days—to supplement. It then ordered that if there were any remaining
issues, the parties must confer “promptly.” They evidently still have not done so
despite the ongoing controversy.

Further, the summary judgment motions may well change the scope of the
action dramatically. The potentially dispositive motions could result in a ruling
that eliminates the need for further discovery altogether or that, at least to some
extent, may inform or narrow the need for further discovery. The prudent course
is for the Court to defer ruling on the State’s motion pending a decision on the
cross-motions for summary judgment. The motion may be renewed or
supplemented, if appropriate, within 14 days of such a ruling.

Until then, the May 9 Order stands.

Opinion and Order at 3–4 (filed September 3, 2025) (emphasis added). It is reasonably clear that
the discovery that the State contended was incomplete addressed damages issues. It did not
expressly address the pending summary judgment motions. Moreover, the September 3d Order
did not extend the May 9th deadlines but expressly affirmed them. While the September 3d
Order keeps open the possibility that the court might permit some additional discovery following
a summary judgment decision, it did not, as the State now appears to contend, operate to relieve
the State of all discovery deadlines. That is not a fair or reasonable interpretation of the court’s
orders or this series of events.

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Nor is there any ascertainable reason why the State might have needed to await further
discovery to disclose Dr. Hamlin as an expert. There is no indication in the record whatsoever
that his expert testimony on the matter of fitness would be any different before or after summary
judgment than it would have been on the day this case was filed. The ostensibly remaining need
for discovery relates to damages, not fitness. The deadline to disclose experts in a scheduling
order defines the outer limit for doing so. The State could have disclosed Dr. Hamlin at any time
over the more than 5 years that this case has been pending. By choosing not to disclose Dr.
Hamlin, the State acted at its own peril.

In this respect, it is also important to distinguish between Dr. Hamlin’s role as a fact
witness and the role of an expert being assigned to his affidavit by the State. To the latter, the
State is seeking to use Dr. Hamlin as a general expert on the medical use of ventilators for
treating ARDS as well as the nature of COVID-derived ARDS and whether Hayek’s ventilators
were fit for this use. This is functionally broader and more expansive testimony than the limited
expert opinion Dr. Hamlin has offered and might offer to explain why he determined in 2020 that
only positive pressure ventilators could give the “best care we could provide” and why he came
to the conclusion that he would not recommend them. In other words, Dr. Hamlin might testify
about his April 22, 2020 letter and the reasons that he came to those conclusions at that time, but
he has not been disclosed as a witness to testify why either Hayek should have known in March
2020 that its products were not fit for the particular purpose of treating the newly emerging cases
of COVID-derived ARDS or the more general question of whether negative pressure ventilators
can ever be used to treat this particular ARDS condition, with or without augmented equipment.

The distinction can also be understood as one of time and scope. It is undisputed that
Hamlin did not offer, and the state did not incorporate, his opinion into the March 2020
negotiations and contract formation. Therefore, the opinion cannot be said to have formed or
affected the particular purpose or defined fitness at the time of formation. The State’s effort to
expand the scope of Hamlin’s opinion into a broader opinion that Hayek’s ventilators are
definitively unsuited for treating COVID-derived ARDS is an expansion of scope that runs
against the lack of disclosure under Rule 26(b)(5). It takes his April 2020 recommendation and
turns it into an expert opinion of unfitness. Dr. Hamlin may be qualified to offer such an
opinion, and he may have done additional research, review, and study to form this opinion, but
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the State’s failure to disclose this intent to use this opinion more broadly means that Hayek was
without notice of this critical shift and expansion in the scope of his testimony.

These distinctions are consistent with the critical procedural history of this case. The
State did not comply with an express deadline to disclose Dr. Hamlin as an expert under Rule
26(b)(5). Since he was not disclosed in a timely manner, he was never deposed. Now, at the
close of summary judgment briefing, the State seeks to alter its course, which the Court cannot,
under the Rules and in fairness to the parties, permit. Folio, 2009 VT 11, at ¶¶ 18–21. The court
finds that Dr. Hamlin, though he remains a fact witness at the center of the narrative of this case,
may not testify as an expert witness on this issue of whether the Hayek ventilators were fit for
the particular purpose sought in March 2020 or the larger question of fitness for treating ARDS
cases. This finding or clarification is not a sanction. It is simply the logical consequence of the
State’s failure to disclose Dr. Hamlin as an expert.

Because Dr. Hamlin cannot testify as an expert, the State has no effective way to confront
Hayek’s expert testimony as to fitness or to present any evidence of its own as to the lack of
fitness. Without being able to establish a breach of the warranty of fitness for a particular
purpose, the State cannot avoid liability on Hayek’s breach of contract claim. The other
formulations of the State’s argument (misrepresentation, mutual mistake, etc.) do not change this
outcome.

Although ultimately unnecessary to resolve, it is at least questionable whether Dr.
Hamlin’s affidavit on its own would have been sufficient to steer this case into a factual battle of
the experts. It is geared toward showing what the standard treatment protocol for COVID
patients was and how public health and medical consensus at the time was evolving to
incorporate positive pressure ventilators as the approved standard. While it may support the idea
that a negative pressure ventilator cannot be incorporated into such a treatment protocol as a one-
to-one substitute for a positive pressure ventilator, it does not address or rebut, except in a
conclusory fashion, the broader reasons offered by Hayek’s experts to the effect that its negative
pressure ventilators can be used along with other equipment to treat COVID patients with ARDS
and were under the broader standards of the contract, fit for the particular purpose.

III. The penalty provision

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The amount of damages Hayek may or may not be entitled to in this case is not presently
before the court. However, the parties have briefed a related issue: whether an 85% penalty
provision is part of their contract. The contract between the parties was never reduced to an
integrated writing. It was formed in the back and forth between agents of Hayek and the State on
email. See Convention on Contracts for the International Sale of Goods, Art. 11 (“A contract of
sale need not be concluded in or evidenced by a writing and is not subject to any other
requirement as to form.”). In one of those emails, Hayek asserted that any cancelation 24 hours
after placing an order would be subject to (an extraordinary) 85% penalty fee. The question is
whether that provision became a binding term of the contract.

The Convention addresses contract formation at Articles 14–24. Certain of those
provisions are of paramount importance in this case:

Article 14

(1) A proposal for concluding a contract addressed to one or more
specific persons constitutes an offer if it is sufficiently definite and indicates the
intention of the offeror to be bound in case of acceptance. A proposal is
sufficiently definite if it indicates the goods and expressly or implicitly fixes or
makes provision for determining the quantity and the price.

. . .

Article 18

(1) A statement made by or other conduct of the offeree indicating
assent to an offer is an acceptance. Silence or inactivity does not in itself amount
to acceptance.

. . .

Article 19

(1) A reply to an offer which purports to be an acceptance but contains
additions, limitations or other modifications is a rejection of the offer and
constitutes a counter-offer.

(2) However, a reply to an offer which purports to be an acceptance
but contains additional or different terms which do not materially alter the terms
of the offer constitutes an acceptance, unless the offeror, without undue delay,

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objects orally to the discrepancy or dispatches a notice to that effect. If he does
not so object, the terms of the contract are the terms of the offer

(3) Additional or different terms relating, among other things, to the
price, payment, quality and quantity of the goods, place and time of delivery,
extent of one party’s liability to the other or the settlement of disputes are
considered to alter the terms of the offer materially.

. . .

Article 23

A contract is concluded at the moment when an acceptance of an offer
becomes effective in accordance with the provisions of this Convention.

Article 29(1) further provides that “A contract may be modified or terminated by the mere
agreement of the parties.”

It should be apparent, then, that a “contract arises when a sufficiently definite offer is
accepted without material change” and “after that date, unilateral material additions will not be
considered to be part of the agreement,” though the parties subsequently may “affirmatively
express their consent to new or different material terms, per Article 29.” 3 Litigation of
International Disputes in U.S. Courts § 12:13; see also id. § 12:22. The Convention “may be
described as employing a surplus-out rule. Under the surplus-out rule, one identifies that last
date on which a mirror-image agreement as to essential terms occurred. That is the contract.
The contract may be amended by such additional material terms as the parties intended to agree.
Gaps are filled predominantly by industry custom (or practice and usages if the parties already
have a relationship).” Id.; accord Chateau des Charmes Wines Ltd. v. Sabate USA Inc., 328 F.3d
528, 531 (9th Cir. 2003).

The following communications between the parties are sufficient to resolve the dispute
over the penalty provision. On March 18, 2020, Hayek (via Daniel Quigley) sent the Vermont
Governor’s Office an email indicating that it had ventilators available. That email was
forwarded on the same day to Mr. Christopher Herrick, Deputy Commissioner of the Vermont
Department of Public Safety (DPS). Mr. Herrick then contacted Mr. Quigley inquiring regarding
an interest in 1,000 ventilators. Mr. Quigley responded:

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With regards to your request for 1000 ventilators, I can allocate 50 ventilators
over the next few weeks for Vermont. We can work on an additional allocation
past the 50 in the very near future.

Do you want to proceed forward with a quote of 50 ventilators?

If so, our pricing team will send a quote soon. Please advise.

Still on March 18, Hayek (via Mary-Ellen Morrison) sent Mr. Herrick a quote for 50 ventilators
($1,499,950).

On March 19, DPS’s financial director, Richard Hallenbeck, drafted a purchase order for
50 ventilators conforming to the March 18 quote. He then learned that only 25 were available.
He modified the purchase order by hand to reflect 25 ventilators at the unit price conforming to
the quote and sent it to Hayek. Later, still on March 19, Hayek responded:

Thank you for your recent Purchase Order to Hayek Medical Devices (North
America) LTD.

As attached, please confirm the purchase order number. It currently reads at PO#
COVID19 -01. If this is not the correct PO#, please provide the correct PO#
below.

Our payment options are prepaid via a credit card or Net 14 via an invoice.

We ship via FedEx of UPS. We do not pre-pay and add shipping.

Please answer the following questions:

· What is the correct PO#?

· Payment Options: Prepay with a credit card, or Net 14 payment terms?

· Do you prefer FedEx of UPS shipping?
· FedEx Account#:
· UPS Account #:

Once we receive a reply confirming the above, we can continue processing your
purchase order.

Mr. Hallenbeck responded:

The correct PO# is COVID19-01
We prefer an invoice as our credit card single purchase limit is $2,500
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UPS Account number is 041530. Please ensure this is shipped to the address on
the PO as it differs from the address under the UPS account number for the
Vermont Department of Public Safety.
If you need anything else please let me know.

There were further communications between the parties about some collateral details as well as
shipping. All such details were worked out, and it was agreed that the shipping expense would
be added to the invoice. At 6:30 p.m. on March 19, Mr. Hallenbeck responded to Hayek:
“Thanks! When you know the cost of shipping please pass it along.” At this point in the
communications, no penalty provision had ever been mentioned.

Then, on March 20 at 2:15 p.m., Hayek sent an email to Mr. Hallenbeck that said:

Thank you for your purchase order, PO# COVID19-01. Your Hayek Medical
Devices order number is 10187. Please find attached.

Order #10187 is in process with an expected ship date of 23 March 2020. Our
logistic team will send shipping confirmation details once dispatched.

As a reminder, purchase orders may be cancelled by Customer no later than
twenty (24) hours after issuance, including weekends. If a Customer desires to
cancel an order later than twenty (24) hours after the issuance of such purchase
order, the Customer agrees to pay Hayek Medical Devices (North America) Ltd
eighty-five (85) percent of the purchase order value as penalty.

This was the first mention of a penalty provision, which also appeared in the attached order
confirmation notice.

At 9:20 p.m. on March 20, Mr. Quigley then indicated that the remaining 25 ventilators
could be supplied:

In speaking with our production team, I am able to allocate and fulfill the
remaining 25
ventilators from your purchase order. We anticipate a lead time of roughly 10–15
business days for the remaining 25 ventilators.

Would you like to proceed with the balance of your purchase order?

Mr. Hallenbeck responded the following day: “That sounds great. Could you please fulfil the
additional 25 units on our PO and include two adult size circuits? If you could include the
shipping in the invoice that would be ideal. Let me know if anything additional is needed to
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process the order.” Mr. Quigley responded: “Thank you for the confirmation of the additional 25
ventilators. We will require the original PO showing the qty of 50. The current PO is redlined to
show 25.” He later said, still on March 21, “Once in receipt of the updated order, we will give
the green light to production.” In response, Mr. Hallenbeck sent the original, unedited March 19
purchase order for 50 units, which again conformed to the March 18 quote from Hayek.

On March 22, Mr. Hallenbeck emailed Mr. Quigley asking him to “confirm you have
what you need to get the additional 25 units shipped.” Mr. Quigley responded: “Nothing else is
needed at this point. / The balance of PO has been received and sent for processing.”

The first ventilators began arriving in early April.

The only mention of a penalty provision between the parties was in the March 20 (2:15
p.m.) email from Hayek to the State. However, by March 19, the parties’ contract for the first 25
ventilators had been formed. “For a binding contract to be concluded, a valid offer in terms of
Article 14 must be made to the offeree and accepted by the offeree in accordance with the
provisions of Article 18.” 4 International Contract Manual § 97:9. Under Convention, Art.
14(1),

A proposal for concluding a contract addressed to one or more specific persons
constitutes an offer if it is sufficiently definite and indicates the intention of the
offeror to be bound in case of acceptance. A proposal is sufficiently definite if it
indicates the goods and expressly or implicitly fixes or makes provision for
determining the quantity and the price.

Article 18 provides: “A statement made by or other conduct of the offeree indicating assent to an
offer is an acceptance.” By March 19, the parties were in agreement on quantity and price, and
manifested assent to be bound. No material terms remained to be determined. That was the
contract. It did not include a penalty provision.

When Hayek attempted to add a penalty provision on March 20, the surplus-out rule
squarely prevented it because the State never assented to it. At most, the State was silent in
response. “Silence or inactivity does not in itself amount to acceptance.” Convention, Art.
18(1); see also Article 29(1) (“A contract may be modified or terminated by the mere agreement
of the parties.”). Hayek has come forward with no appreciable evidence of agreement by the

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State to the penalty provision. An extraordinary penalty provision totaling almost the entire
contract price surely required some manifestation of assent clearer than mere silence.

When the parties later modified the contract quantity from 25 to 50, there was no further
mention of the penalty provision by either side. The mere fact that the penalty provision
remained in the email string as the parties conversed in no way indicates that the State ever
assented to it. It merely indicates that a rejected term first proposed after the contract was
formed remained in an email string and remained unaddressed and unacknowledged.

To the extent that Hayek argues that its March 20 communication with the penalty
provision operated as a rejection of an offer without such a provision and a proposal for one with
a penalty provision, it was not. That argument is entirely foreclosed by the formation of the
contract the day earlier and the surplus-out rule. “Once a contract has been concluded, the
parties are bound by the terms of their agreement and cannot after the event be unilaterally
modified by one of the parties.” 4 International Contract Manual § 97:13.5

As such, the effective contract terms do not include the 85% penalty provision.

ORDER

For the foregoing reasons, the State’s motion to clarify is denied to the following effect:
Dr. Hamlin is not permitted to testify as an expert in this case. The parties’ cross-motions for
summary judgment are granted in part and denied in part to the following effect: the State’s
warranty of fitness for a particular purpose defense is Denied. Hayek’s motion for summary
judgment on liability is Granted in part. The State is liable for breaching the contract. As to
the penalty provisions, Hayek’s motion for summary judgment is Denied in Part, and the State’s
motion is Granted in Part as the evidence demonstrates that no agreement was reached on the
penalty provisions from the March 20th email, which came after initial contract formation.
Therefore, the 85% penalty provision terms do not apply as a matter of law.

5 While this analysis is dispositive to the issue of the 85% penalty provisions, Court notes that this conclusion is

consistent with the legal limitation on such provisions that the damage term must provide a reasonable liquidated
damage estimate and may not function as a penalty for a breach. Highgate Associates, Ltd. v. Merryfield, 157 Vt.
313, 316 (1991). This limitation, by extension, is also consistent Articles 61, 74, 75, 76, and 77 of the Convention,
which limit damages to sums equal to lost profit and other losses incurred as the consequence of a breach with the
limit that the non-breaching party must mitigate, and the breaching party is entitled to deduct the benefit from such
substitute transactions.
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The Court will set this matter for a status conference to address the remaining issue of
damages and whether the parties need additional discovery on these points.

Electronically signed on 1/3/2026 12:38 PM pursuant to V.R.E.F. 9(d)

__________________________________
Daniel Richardson
Superior Court Judge

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