Mattingly, Inc. v. Beatrice Foods Co.

Citation835 F.2d 1547
Decision Date24 December 1987
Docket Number83-2207,Nos. 83-2206,s. 83-2206
Parties5 UCC Rep.Serv.2d 1329 MATTINGLY, INC., a Kansas Corporation, and Mattingly Pools, Inc., a Kansas Corporation, Plaintiffs-Appellees/Cross Appellants, v. BEATRICE FOODS COMPANY, Defendant-Appellant/Cross-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Brian G. Grace, Wichita, Kan. (Susan K. McKee of Curfman, Harris, Stallings & Snow, Wichita, Kan., was also on the brief), for plaintiffs-appellees/cross-appellants.

George Leonard, Kansas City, Mo. (Russell S. Jones, Jr. of Shughart, Thompson & Kilroy, Kansas City, Mo., and Ronald Butler, Gerald G. Saltarelli of Butler, Rubin, Newcomer & Saltarelli, Chicago, Ill., were also on the brief), for defendant-appellant/cross-appellee.

Before HOLLOWAY, Chief Judge, MOORE, Circuit Judge, and THOMPSON, District Judge *.

HOLLOWAY, Chief Judge.

Plaintiffs Mattingly, Inc. and Mattingly Pools, Inc. brought this action against Beatrice Foods Company to recover damages arising from their use of a pool-coating product, initially called Marble Plastic and later called Marbalon. The district judge tried the case without a jury and entered judgment for the Mattinglys, finding that defendant Beatrice had committed fraud and had breached its express warranties, and awarding actual and punitive damages. Beatrice appeals and plaintiffs cross-appeal.

I THE TRIAL COURT'S FINDINGS AND CONCLUSIONS

Before turning to the appellate contentions we note the findings and conclusions stated in the trial court's unpublished (hereafter Mem.) opinion.

Mattingly, Inc. and Mattingly Pools, Inc. were closely-held Kansas corporations, founded by Charles Mattingly, Sr. in the Wichita, Kansas and Oklahoma City, Oklahoma areas respectively. They engaged in the construction and maintenance of swimming pools and the sale of swimming pool supplies. When he retired, Charles, Sr. turned the companies over to his eldest son, Charles, Jr. (Matt), who managed them with the help of his brothers, James and Givin.

The Mattingly companies experienced continuous growth in customers and sales volume from 1970 until 1977. At their peak, the companies employed a total of 80 persons and had about $ 2.5 million in annual sales. Mattingly, Inc. had at least 50 percent of the swimming pool construction and service market in the Wichita area and Mattingly Pools had 15 percent of the market in Oklahoma City.

Farboil Company, the manufacturer of Marble Plastic and Marblon, is one of 26 unincorporated "profit centers" within Beatrice's Chemical Division. In September 1972, George Gurkovic, a former Farboil employee, returned to Farboil and furnished it the original formula for Marble plastic. After conducting certain laboratory tests, Farboil decided to call the product Marble Plastic and to market it as a swimming pool coating. Farboil did not conduct any field tests on the product before marketing it.

In January 1974 Matt Mattingly first met Gurkovic, then Farboil's pool coating sales representative, at a pool contractors' convention in Anaheim, California. After hearing Gurkovic's sales talk, Matt ordered enough Marble Plastic to allow the Mattinglys to coat "a couple of pools" and observe the product's application and appearance. However, Farboil never filled the order and Matt had to place the order with Farboil again in February. Farboil had by this time replaced Gurkovic with a new sales representative for Marble Plastic, John Holman.

The first swimming pool the Mattinglys coated with Marble Plastic belonged to a Mr. Buchanan in Oklahoma City. After observing this pool and talking with his employees, Matt decided to use the Farboil pool coating system exclusively. However, approximately one month later, the Marble Plastic coating started peeling off the floor of the Buchanan swimming pool in large sheets. In July 1974 the Mattinglys solved this problem by following Farboil's suggestion, not included in the original instructions, to broom-finish the swimming pool floors to give them a better profile to which paint could adhere. Although this suggestion solved the initial adhesion problem, it required the Mattinglys to drain, clean and recoat the Buchanan pool and other pools without broom-finished floors.

Throughout 1974 the Mattinglys experienced staining and adhesion problems with the Marble Plastic coatings they applied to swimming pools. The coatings stained extensively. In addition, they blistered and came off in large pieces, especially on the steps and walls.

Recoating the pools already coated with Marble Plastic also created problems. For example, the Buchanan pool, which the Mattinglys recoated, experienced blistering and peeling within one to two months after recoating, and an epoxy coating recommended by Holman failed because it was chemically incompatible with Marble Plastic. The Mattinglys had to sandblast pools recoated with epoxy to remove the coating, causing them considerable expense and their customers considerable noise, dust and inconvenience. Customers also complained of staining and peeling in the spring of 1975 when the Mattingly companies' service departments began taking the covers off pools they had coated with the Marble Plastic base coat in 1974. The Mattinglys initially recoated these pools with more Farboil products at their own expense.

Sylvan Pools, a nationally recognized pool construction and supply company that was also a Farboil customer, also complained that Marble Plastic stained too easily and could not be cleaned. In November 1974, therefore, Farboil began producing and selling a clear top coat and renamed its product Marbalon. Farboil chemists, on the basis of laboratory tests, believed the acrylic polymer in the top coat would hinder the staining of the white base coat and that the two coats were chemically compatible so the top coat would adhere to the base coat. Again, however, Farboil did not extensively field test the product.

Although the new Marbalon coating system was supposed to eliminate the staining problems created by the white base coat alone, it had new problems of its own. As soon as the Mattinglys began having problems with Marbalon, they again contacted Farboil, which advised them that the problems were the fault of their own paint crews and assured them it would shortly introduce a new stain-remover to handle the staining problem. These representations led the Mattinglys to continue using Marbalon. However, when Farboil introduced their new stain remover, the Mattinglys tried it and found it unsatisfactory.

By fall of 1975, the increasing amounts of time, personnel and money the Mattinglys found necessary to honor their product warranties because of problems with the coating interrupted regular customer service work and disrupted their business. Mem. at 15-16. Matt therefore approached Holman and asked for financial assistance from Farboil. In November 1975, Holman told Matt he would help the Mattinglys, that Farboil had developed a new spray application system for the top coat, and that Farboil's other customers were not In the Spring of 1976, when the Mattinglys' service crews again removed the covers from customers' pools, they found "massive" staining and peeling problems with pools coated or recoated in 1975. Service crews again had to devote a substantial amount of time to warranty work, with some pools initially coated in 1974 receiving their third coat of Farboil product. In addition, by the spring and summer of 1976, Sylvan Pools and another Farboil customer, Delray Pools of Southern Florida, had stopped using Marbalon. Sylvan had to borrow approximately $ 1 million to cover warranty costs, and Delray had to close down its pool construction operations because of problems with Marbalon.

having problems with the top coat or staining. In January 1976, after Matt delivered a letter to Farboil again asking for help, Holman told Matt he was leaving Farboil's employ, but he urged the Mattinglys to pursue their claims further with Beatrice. Edward Butch, Farboil's new National Swimming Pool Director and Holman's replacement, visited Matt in Wichita in February, 1976, and, shortly thereafter, Farboil gave the Mattinglys $ 3,500 in credit on bills Mattingly owed Farboil.

In July 1976 Matt went to Farboil's offices in Baltimore, Maryland, to discuss his complaints about Marbalon with Farboil. He met with Butch, who eventually agreed to give him a $ 4,000 credit. Before final approval of the credit, however, Butch left the office to confer with his superior, Hendrickson. Hendrickson was furious about the arrangement. He "stormed into Mr. [Butch's] office and essentially accused Mr. Mattingly of stealing from Farboil, in that plaintiffs were the only 'sons of bitches who got any kind of deal from us.' " 2 R. 578 During these negotiations, Butch also represented to the Mattinglys that they were the only customers having problems with the Farboil products.

In the Fall of 1976, Farboil sent the Mattinglys a free sample of about 25 gallons of a new tinted topcoat it had developed. Farboil's representative told the Mattinglys that the product could be painted over pools that were coated with Marbalon, although the technical data sheet for the tinted topcoat, issued in October 1976, advised that it could only be applied over a pool freshly coated with base coat. The Mattinglys were the only Farboil customers who purchased the new tinted topcoat.

The new topcoat was to be applied with a sprayer, but the painters the Mattinglys hired to do this work complained that it clogged their spray guns. In addition, the topcoat often developed stains and blisters. When crews began uncovering pools in the spring of 1977, they again faced a barrage of customer complaints. The new tinted topcoat did not solve the Mattinglys' warranty problems.

By early summer of 1977, the Mattinglys stopped using Farboil's products. By the end of 1977, Mattingly Pools in Oklahoma City virtually closed its...

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