National Polymer Products, Inc. v. Borg-Warner Corp.

• Decision Date: 14 September 1981
• Docket Number: No. 79-1256,BORG-WARNER,79-1256
• Citation: 660 F.2d 171
• Parties: NATIONAL POLYMER PRODUCTS, INC., Plaintiff-Appellant, v.CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 171

660 F.2d 171

NATIONAL POLYMER PRODUCTS, INC., Plaintiff-Appellant, v. BORG-WARNER CORPORATION, Defendant-Appellee.

No. 79-1256.

United States Court of Appeals Sixth Circuit.

Argued Dec. 9, 1980.

Decided Sept. 14, 1981.

Hal Gerber, James H. Mathis, Gerber, Bernstein, Gerber & Winestone, Tim Edwards, Memphis, Tenn., for plaintiff-appellant.

Newton P. Allen, Jon P. McCalla, S. Russell Headrick, Armstrong, Allen, Braden, Goodman, McBride & Prewitt, Memphis, Tenn., for defendant-appellee.

Before BOYCE F. MARTIN, Jr., Circuit Judge, and PHILLIPS and CELEBREZZE, Senior Circuit Judges.

CELEBREZZE, Senior Circuit Judge.

National Polymer Products, Inc. appeals from the entry of a judgment notwithstanding the verdict and the conditional grant of a new trial entered in favor of the defendant, Borg-Warner Corporation in this products liability case based on diversity jurisdiction. ¹ In its complaint, National Polymer charged Borg-Warner with misrepresentation, negligence and breaches of implied and express warranties in the manufacture and marketing of a plastic raw material known as a Cycopac 920. From June, 1974 to June, 1975, Polymer used Cycopac produced by Borg-Warner to manufacture plastic bottles by a blow-molding process. Polymer contended that the Cycopac was defective and failed to meet the Borg-Warner representations, causing Polymer to experience financial losses from which it could not recover.

After a trial of seven weeks duration, the case was submitted to a jury on 25 interrogatories. The jury answered all interrogatories in a manner favorable to Polymer and assessed damages in the sum of $985,000.00. Borg-Warner then filed a motion for a judgment notwithstanding the verdict, a new trial, or, in the alternative, a remittitur. The district court considered the motion for JNOV to present a "close question," but ultimately denied that motion. The court did, however, grant Borg-Warner's motion for a new trial after finding the jury's verdict to be against the clear weight of the evidence. Left without a final decision from which to appeal, National Polymer subsequently filed a motion under Rule 60 of the Federal Rules of Civil Procedure to "correct" the court's memorandum decision by entering a judgment NOV for the defendant or, in the alternative, a motion to recuse. The district court granted the motion for judgment notwithstanding the verdict and dismissed the case in favor of Borg-Warner. National Polymer now appeals that dismissal.

I.

In September, 1970, John C. Prince and Richard H. Rodenbaugh organized National Polymer Products, Inc., a Memphis based corporation, to manufacture plastic bottles. They financed the initial operation of the company with a $110,000.00 loan from the National Bank of Commerce in Memphis, Tennessee, guaranteed by the Small Business Administration (SBA). Polymer's initial production was for Humko Products, the country's largest user of clear plastic bottles for packaging edible oils. Together with three competing companies, Sewell Plastics, Delkay, and Imco Container Corp., National Polymer's two production lines supplied Humko with bottles made from polyvinylchloride (PVC). Increased business with Humko led Polymer to expand the Memphis plant to five production lines. In 1973, at Humko's request, National Polymer constructed a plant in Champaign, Illinois, to satisfy Humko's needs there.

In February, 1972, Polymer was unable to make its scheduled payment with the National Bank of Commerce and began negotiations for an additional loan and a revised payment schedule. As a result of those negotiations, the bank agreed to lend Polymer an additional $315,000.00, with repayments to begin in May, 1973. Later in 1973, Polymer's financial condition deteriorated as a result of the general economic recession, wage and price controls, and the soybean oil shortage which curtailed Humko's bottling operation. In June, 1973, Polymer defaulted in its regularly scheduled payments on its bank loan, and did not resume making payments until December, 1973. By that time, Polymer's financial documents reflected an interim loss and six consecutive months of negative cash flow.

Early in 1974, published scientific reports identified vinyl chloride monomer, an ingredient in PVC, as a potential carcinogen. Humko became concerned with the potential health threat and although PVC was not removed from the FDA approved list for packaging food products, began looking for a substitute material. At the same time in 1974, Polymer's financial condition had continued to deteriorate and on February 11, 1974, the bank requested the Small Business Administration to defer principal payments by Polymer from July, 1973 to June, 1974. A deferral (moratorium) of principal payments until April 1, 1974 was granted. Polymer was also assisted by its ability to sell its excess PVC resin and PVC it had purchased from other sources to a company in Mexico at a profit during the energy crisis caused by the oil embargo of 1973-1974. Although Polymer's year-end reports for 1973 and 1974, prepared by Polymer's accountant, Vance, showed a profit, Borg-Warner's expert financial witness, Weaver, testified that Polymer actually incurred a loss in both years. ²

When Humko commenced its search to find a replacement material, its attention focused on Cycopac, a high-nitrile polymer manufactured exclusively by Borg-Warner. Polymer was aware of this search and on March 7, 1974, Rodenbaugh contacted the marketing manager for Borg-Warner's packaging resins division to request that Borg-Warner personnel visit Polymer's plant in Memphis. On March 14, 1974, Rodenbaugh ordered 1,000 pounds of Cycopac from Borg-Warner and scheduled a meeting for March 18 at Borg-Warner's Chemical Division headquarters in Parksburg, West Virginia to learn what he could about Cycopac. At the March 18 meeting, Rodenbaugh was told that the processing characteristics of Cycopac were similar to those of PVC. Rodenbaugh also received a Borg-Warner technical report and a technical data sheet that represented that Cycopac had excellent impact strength (resistance to breakage); that it had glass-like gloss and clarity; and that it complied with the U.S. Food, Drug & Cosmetic Act. The information also indicated that processing Cycopac required drying the material from 4 to 6 hours at 180 degrees because it was hygroscopic, i. e., attracted moisture from the atmosphere. That same day Rodenbaugh spoke by telephone with the manager of Polymer's Memphis plant while the 1,000 pound sample of Cycopac was being run through the molds. ³ On that test run, Polymer encountered substantial bubbles in the finished bottles which were also prone to fracture easily.

On March 21, 1974, Borg-Warner executives met in Memphis, Tennessee with executives of Humko regarding the possible use of Cycopac by Humko in packaging vegetable oil. The principal topics of discussion were Cycopac's FDA status and the availability of sufficient quantities of the material to satisfy Humko's needs. Humko officials indicated that their bottle application would require three and one-half million pounds of material annually, notwithstanding an earlier statement by Rodenbaugh that Polymer would require six to seven million pounds over the next year.

Borg-Warner had developed Cycopac specifically for food packaging applications and as such needed to comply with the Food, Drug & Cosmetic Act. Although the FDA had never passed on Cycopac's qualification for food packaging, Borg-Warner had two reasons for asserting that it complied with the Act. First, test data showed that Cycopac had low migration (it would not become a part of the food). Alternatively, Borg-Warner contended that Cycopac fell within the "prior sanction" category provided by the FDA for material in use prior to 1954. While Cycopac itself was a new formulation, Borg-Warner's position was that, as a member of the ABS family of Polymer's, Cycopac fell within the ABS category that had FDA approval and therefore enjoyed a prior sanction. ⁴

Humko had reservations about Borg-Warner's position. The Board Chairman of Humko, Sam Cooper, telephoned Billy Goodrich, the head of the Shortening Institute and a former FDA General Counsel, regarding Borg-Warner's opinion about Cycopac's FDA status. Goodrich advised Cooper that the prior sanction position with respect to Cycopac was untenable. In a subsequent call, Goodrich again rejected the Borg-Warner opinion, stating that he had contacted an official at the Food and Drug Administration and had been told that a prior sanction for ABS would not apply for bottles. In light of Goodrich's advisory opinion on the status of Cycopac, the Borg-Warner executives left the meeting believing that Humko would not proceed with Cycopac.

After leaving Humko, the Borg-Warner officials proceeded to Polymer's office where they informed Prince and Rodenbaugh that Humko would probably not proceed with Cycopac because of the FDA issue. Rodenbaugh disagreed with the assessment of the situation. In his view, Humko had no alternative to Cycopac except to use glass, for which the cost and time delay would be prohibitive. Confident that Humko would proceed with Cycopac, Prince and Rodenbaugh proceeded to demonstrate the impact problem encountered in the sample run of March 20 by dropping some of the bottles filled with water; all of the bottles broke when they hit the pavement. Borg-Warner personnel advised Rodenbaugh that he would have to go through a "learning curve" in order to learn how to process Cycopac for good impact resilience. After this discussion, the Borg-Warner personnel were given a tour of National Polymer's Memphis plant. Rodenbaugh testified that the tour lasted one hour, during which the Borg-Warner executives examined the machinery, dryers, molds and material handling equipment. Borg-Warner personnel, on the other hand, stated at trial that the tour was at most a cursory overview, lasting 15...