Saint-Gobain v. Wellons Inc.

• Decision Date: 07 March 2001
• Docket Number: SAINT-GOBAIN,No. 00-1928,CROSS-APPELLEE,N,CROSS-APPELLANT,00-1928
• Citation: 246 F.3d 64
• Parties: (1st Cir. 2001) INDUSTRIAL CERAMICS INC., PLAINTIFF, APPELLANT/v. WELLONS, INC., DEFENDANT, APPELLEE/o. 00-1929 Heard
• Court: U.S. Court of Appeals — First Circuit

Page 64

246 F.3d 64 (1st Cir. 2001)

SAINT-GOBAIN INDUSTRIAL CERAMICS INC., PLAINTIFF, APPELLANT/CROSS-APPELLEE v. WELLONS, INC., DEFENDANT, APPELLEE/CROSS-APPELLANT.

No. 00-1928, No. 00-1929

United States Court of Appeals For the First Circuit

Heard March 7, 2001

Decided April 26, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Nathaniel M. Gorton, U.S. District Judge] [Copyrighted Material Omitted] Kenneth I. Levin, with whom Paul G. Morrissey and Pepper Hamilton Llp, were on brief, for appellant.

James A. G. Hamilton, with whom Susan E. Stenger, Andrew F. Caplan, and Perkins, Smith & Cohen, Llp, were on brief, for appellee.

Before Lynch, Circuit Judge, Bownes, Senior Circuit Judge, and Lipez, Circuit Judge.

Lynch, Circuit Judge

Tighter environmental regulations at times force businesses to try new methods and technologies to meet more stringent requirements. In this case, one of those technologies failed -- ceramic tubes made by Saint-Gobain Industrial Ceramics Inc. The tubes were used by Wellons, Inc. in high temperature heat exchanges, part of a new system to dry wood chips. In the ensuing litigation, Wellons was awarded some but not all of what it sought. Saint-Gobain, in turn, objects to the amount of Wellons' prejudgment interest award. Consequently, we examine Massachusetts commercial law, particularly as to awards of prejudgment interest. We affirm the denial of Wellons' claim for relief under Mass. Gen. Laws ch. 93A and reverse and remand on the prejudgment interest award.

I.

On November 14, 1997, Saint-Gobain filed for declaratory relief that it was not liable under warranties it provided in the contract selling the tubes to Wellons. Saint-Gobain claimed that the breakage was not caused by a defect in the tubes and that, in any event, Wellons had failed to make a demand for repair or replacement as required by the warranty. Wellons filed a counterclaim for breach of warranty and revocation of acceptance, seeking as damages over $1.9 million, the full purchase price of the ceramic tubes.

At trial, the jury returned a verdict in favor of Wellons on its warranty claim, finding that the limited repair and replacement remedy agreed to by the parties in the contract failed to fulfill its essential purpose. The jury awarded Wellons $650,000 in damages, not the full purchase price. The jury also ruled against Wellons on its revocation of acceptance claim. The district court denied Wellons' claim that Saint-Gobain had violated Chapter 93A of the Massachusetts Consumer and Business Protection Act, Mass. Gen. Laws ch. 93A, §§§§ 2, 11. The district court also awarded Wellons prejudgment interest from December 31, 1995, the date by which the parties agreed delivery of all the tubes was complete.

Saint-Gobain appealed the district court's prejudgment interest award on the ground that such interest should be awarded from December 8, 1997, the date Wellons filed its claim, since the date of breach had not been found by the jury as required by statute. Wellons cross-appealed from the denial of its Chapter 93A claim.

II.

We describe the facts as found by the district court or as agreed to by the parties. Wellons is an Oregon-based company that designs and builds energy and drying systems for the forest products industry. In late 1992, in response to air emissions regulations, Wellons developed a new system for drying wood chips, which used high temperature air heaters, known as heat exchangers. Wellons contracted with Georgia-Pacific Corp. to build the energy and drying systems of two large prototype facilities that would manufacture a kind of building panel called oriented strand board. One facility was located in Mt. Hope, West Virginia, and the other in Brookneal, Virginia. Wellons agreed to supply heat exchangers as part of these systems.

Around April 1993, Mark Chenard, an engineer for Wellons, approached Kevin Coston, a senior applications engineer for Saint- Gobain, a ceramics manufacturer based in Worcester, Massachusetts. Chenard asked Coston about the use of ceramic tubes for the heat exchangers Wellons had agreed to design. Chenard told Coston and other Saint-Gobain engineers that the ceramic tubes would be exposed to combustion gases with an operating range of temperatures between 1600 degrees Fahrenheit at the inlet to 1430 degrees Fahrenheit at the exit of the tube bank. He also said that the system would have an abort device to prevent temperatures from exceeding 1800 degrees.

Saint-Gobain initially recommended its silicon carbide product, CRYSTAR. Chenard told Coston that CRYSTAR was too expensive and would put Wellons over-budget. Chenard asked, instead, about a less expensive product. Coston, after investigation, told Chenard about a nitride-bonded silicon carbide product known as ADVANCER that was typically used in roll form in roller hearth kiln applications. He cautioned that ADVANCER had not been previously used for heat exchanger tubes and that ADVANCER was more porous than CRYSTAR, making ADVANCER more susceptible to oxidation. But Coston also suggested that refiring ADVANCER might result in improved resistance to oxidation. Ultimately, the heat exchanger design called for CRYSTAR tubes to be installed in the two rows of the heat exchangers where the highest temperatures were expected and for ADVANCER tubes to be installed in the remaining twenty- six rows. There were additional issues before the parties actually contracted for the purchase and sale of the tubes.

Because oxidation was a concern, that topic was discussed in July 1993 among Saint-Gobain, Wellons, and Georgia-Pacific representatives. Coston had provided Chenard with Saint-Gobain technical literature about oxidation of silicon carbide materials like CRYSTAR at temperature ranges between 1560 degrees Fahrenheit and 2010 degrees Fahrenheit, but not with any such literature about oxidation of nitride- bonded silicon carbide materials like ADVANCER or refired ADVANCER.

Saint-Gobain wanted to perform additional tests on the tube materials, and at the July 1993 meetings it was agreed that sample tubes would be inserted in the ductwork at an existing Georgia-Pacific plant in Skippers, Virginia. The energy system had been installed by Wellons but did not employ the same heat exchanger technology contemplated for the Mt. Hope and Brookneal facilities. Saint-Gobain was told that the conditions in the ducts at Skippers were equivalent to or more severe than what could be expected at the Mt. Hope and Brookneal facilities. The first stage of testing at Skippers was concluded in late 1993, and the tubes, after removal, showed no visible signs of deterioration (although Wellons asserts that they did show alkali metal deposits, i.e., sodium and potassium compounds).

Georgia-Pacific and Wellons also made their own investigation of the proposed use of ADVANCER in the system, hiring Dr. Charles E. Semler, a former university professor and past president of the American Ceramics Society. Dr. Semler's report dated February 18, 1994, indicated satisfaction with the tube material selections for the normal anticipated operating temperatures, but warned that the tubes could fail if exposed to temperatures above the normal expected range (1080-1300 degrees Fahrenheit air temperatures and 1430-1600 degrees Fahrenheit exhaust gas temperatures), especially as the temperatures approached 1800 degrees Fahrenheit, or if exposed to rapid decreases of temperature caused by exposure to ambient air while the tubes were still hot (also known as thermal shocking).

On March 10 and 21, 1994, Wellons issued purchase orders to Saint-Gobain for ceramic tubes to be installed in the Mt. Hope and Brookneal facilities. The purchase orders included warranties proposed by Saint-Gobain and specifically negotiated by the parties. Saint- Gobain warranted that the ceramic tubes would operate without failure for a period of one year from the date of Georgia-Pacific's acceptance of the tubes or eighteen months from the date of completed installation, whichever was sooner. The warranty provided that in the event of breach Saint-Gobain's sole obligation was to replace the tubes. However, the warranty also provided that Saint-Gobain would not be responsible for total or partial failure resulting from occurrences such as improper operation, operating conditions beyond those for which the plant was designed, acts of god, etc. Saint-Gobain also reserved the right to review operating data and/or employ the services of an expert third party to determine whether proper operating procedures were followed during the warranty period and to be given the opportunity to make any repairs or replacement it deemed reasonable and appropriate to meet the terms of the warranty.

The Mt. Hope facility began operation in July 1995 and the Brookneal facility in December 1995. At a meeting on February 29, 1996, Georgia-Pacific representatives informed Chenard and James Lashbrook, a Senior Applications Engineer for Saint-Gobain, that increasing incidents of breakage of ADVANCER tubes had occurred: broken pieces of the tubes, cracked and with holes, were showing up in the ash hoppers at both sites. In the Spring of 1996, the ceramic tubes began to fail in substantial numbers. By June of 1996, Saint-Gobain recognized that a tide of failures had occurred.

From March until early June 1996, Saint-Gobain employees visited the facilities, inspected the heat exchangers and failed tubes, interviewed Georgia-Pacific employees about operating conditions and any unusual occurrences, and took tube samples back to Worcester for analysis. Saint-Gobain's laboratories reported inconclusive results as to the causes of the failure of the tubes. Its marketing manager informed Chenard that Saint-Gobain still did not know what was causing the tubes to fail.

There was conflicting expert testimony as to the causes of failure. Wellons' expert witness opined that...