Campus Sweater & Sportswear v. MB Kahn Const.

Citation515 F. Supp. 64
Decision Date28 September 1979
Docket NumberCiv. A. No. 76-0292-5.
CourtU.S. District Court — District of South Carolina
PartiesCAMPUS SWEATER AND SPORTSWEAR COMPANY, Plaintiff, v. M. B. KAHN CONSTRUCTION COMPANY: Fort Roofing and Sheet Metal Works, Inc., and Celotex Corporation, Defendants.

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G. Thomas Cooper, Jr., West, Bendorf, Cooper & Bowen, Camden, S. C., Terrell Glenn, C. Alan Runyon, McNair, Glenn, Konduros, Corley, Singletary, Porter & Dibble, P. A., Columbia, S. C., for Campus Sweater and Sportswear Co.

Harry C. Wilson, Jr., Nash & Chappell, Sumter, S. C., Donald V. Richardson, Richardson, Plowden, Grier & Howser, Columbia, S. C., for Fort Roofing & Sheet Metal Works, Inc.

Robert W. Herlong, Barnes, Austin & Ellison, Charles E. Hill, Turner, Padget, Graham & Laney, Columbia, S. C., for M. B. Kahn Construction Co.

John Gregg McMaster, Tompkins, McMaster & Thomas, Columbia, S. C., James A. Eichelberger, John D. Jones, Greene, Buckley, DeRieux & Jones, Atlanta, Ga., for Celotex Corp.

ORDER

HEMPHILL, District Judge.

This court has before it for decision the motions of defendant Celotex Corporation ("Celotex") for judgment notwithstanding the verdict (n. o. v.) or, in the alternative, for an order for a new trial. The motions arise out of a "products liability" action brought by plaintiff which alleged, among other causes of action, fraud and gross negligence on the part of Celotex in marketing commercial roofing materials. After 12 days of testimony, a jury awarded Campus Sweater and Sportswear Company ("Campus") $208,000.00 in actual damages and $500,000.00 in punitive damages on the claims against Celotex. The jury also awarded defendant Fort Roofing ("Fort") $125,000.00 in punitive damages on Fort's cross claim against Celotex for fraud and gross negligence.1 Celotex claims the evidence does not support the verdict, that punitive damages should not have been awarded, and that a mistrial should have been declared. For the reasons which will appear at length in this opinion, the motions for judgment n. o. v. and a new trial are denied and the jury awards of punitive damages against Celotex are affirmed in toto. However, the award of compensatory (actual) damages to Campus must be reduced as hereinafter explained.

INTRODUCTION AND BACKGROUND

Plaintiff instituted this action in the United States District Court for the District of South Carolina on February 17, 1976.2 The original complaint alleged and the answers admitted the complete diversity of the parties under 28 U.S.C. § 1332(a).3 Although the parties have raised some issues which arise under the Constitution of the United States, jurisdiction will not lie under 28 U.S.C. § 13314 since no federal question appears on the face of the well-pleaded complaint in this action. Louisville & N. R. Co. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908); Gold Washing & Water Co. v. Keyes, 96 U.S. 199, 24 L.Ed. 656 (1877). It appears that Campus is an Ohio corporation with its principal office located in Cleveland, Ohio. Defendant M. B. Kahn Construction Co. ("Kahn") is a South Carolina corporation with its principal office in Columbia, South Carolina; defendant Fort is a South Carolina corporation, with its principal office in Sumter, South Carolina; while defendant Celotex is a Florida corporation doing business in the State of South Carolina.

Due to the number and complexity of the issues raised in these motions, it will be necessary to postpone a full discussion of the facts until such time as each issue is treated separately. However, the testimony will confirm that this action revolves around the development and sale of a Bond Ply roofing system, and a brief history of the context in which this action arose may be helpful as an introduction.

At some undisclosed point in time, but well before 1963, the Barrett Company, a long respected member of the roofing manufacturing community, in business since the 1850s, was purchased by Allied Chemical Company and thereafter became known as the Barrett Division of Allied Chemical Company. As such, it continued to manufacture roofing products. During 1963, Barrett began making certain tests5 to determine whether two plies of coated saturated felt material might be successfully employed as a built-up roof membrane instead of the then-traditional four-ply roof membrane.6

In 1963, coated felts had been used for many years as a "base sheet", i. e., the very first sheet applied in the construction of certain types of commonly used roofing membranes. Hence, there was nothing new or unique about the use of a coated felt as a part of a roofing system. What was to be new or unique, however, was the use of two of these coated sheets instead of the traditional four unsaturated felt sheets in installing the new system, as it was envisioned in 1963. In 1963, three test roofs were built7 whose significance is disputed. Celotex admits the primary purpose was to determine how well the system "plied", that is, how easily it could be applied to the roof.8 Campus and Fort contend these tests had nothing to do with the life expectancy of the roof,9 while Celotex contends that the roofs performed well insofar as the roofers were concerned.10 After approximately one year of such testing, the Barrett Division decided to market a roofing system to consist of two plies of coated sheets, which it would specify and offer to bond for a term of 20 years just as it had the four-ply system. The coated sheets employed in this new system, while essentially the same as the coated base sheets which had been marketed for years, were given the name "Bond Ply". The two-ply membrane to be specified, which consisted of two Bond Ply sheets, was known as the "Bond Ply System".

Inasmuch as the two-ply roofing system constituted a major deviation from roofing tradition, opinions were not unanimous, even within Barrett, as to the merits of the system. Upon assurance from the Research Department that the system was workable, Barrett decided to market the Bond Ply system as a 20-year roof. Yet, the head of research, Mr. Donegan, cautioned, "We have no service basis on which to recommend a construction as simple as this for a 20-year period".11 Barrett also knew at this time, that the tensile strength of the Bond Ply system was one-half as strong as a conventional roofing system.12 However, no standards as to felt strength existed at the time and the importance of felt strength was uncertain. In early 1963, when Barrett decided to market the system, one of Barrett's largest competitors, Johns-Manville, was rejecting a two-ply system as being unsound.13

After one year of testing the ease of application of the "Bond Ply System", Barrett decided to place the system on the market without determining if the Bond Ply roof would last 20 years. There was in existence at that time a device known as a "weatherometer" whose function was to test the weatherability of a roof, and thus its longevity, by "weathering" it in an exaggerated fashion to simulate extended periods of time.14 It is possible this device could have been used to test the Bond Ply life expectancy, although some witnesses were not sure of its applicability to commercial roofs. Either this test was not made or its results were unreported. Once on the market, Bond Ply became the most profitable roofing system in Barrett's line, and as a result, salesmen were awarded bonus points for selling this system in lieu of others.15

The two-ply system, which was included in the Barrett Roofing Manual of Specifications for 1964, was promoted as the functional equivalent of a four-ply uncoated saturated felt roof system. Barrett offered a 20-year bond upon such a roof16 built in accordance with its specifications. In advertisements and brochures,17 Barrett pointed out that such a roof would be more economical to install, that a roof constructed of coated felt sheets would be more weather-tight as the individual sheets were going on, that a coated sheet would withstand foot traffic better than a saturated felt sheet before the top flood coating was applied, and that a roofer would have a greater margin for error by using the two coated sheets.

As sales began to climb, complaints of roof problems also started coming into Celotex,18 which had purchased the Barrett Division of Allied Chemical in 1967. Mr. Rissmiller, a researcher, was assigned full time to investigate Bond Ply complaints. As early as 1965, Mr. Franklin had predicted that unless the problems of Bond Ply were solved, sales would slowly diminish to insignificance.19 Celotex knew of these problems and plaintiff and Fort theorized that Celotex attempted to solve the problems without letting its customers know of them20 in order to maintain its sales, profit and market advantages. Whether this was a case of isolated complaints arising from the use of thousands of roofs, or whether there were sufficient complaints that warnings should have issued, was a matter in dispute. At the same time that Celotex Barrett issued a brochure, received by Fort, implying that the performance of a Bond Ply system was as good as that of a four-ply system,21 Franklin was asking research to make a comparison of the two systems.

Meanwhile, Campus had been developing a manufacturing and distribution center in Chester, South Carolina, with the assistance of the Chester County Development Authority. In 1968, Campus decided to erect an addition to its warehouse facilities in Chester. Pursuant to an arrangement worked out for bookkeeping and tax reasons, the Chester County Development Authority was the actual signatory on the contract with the general contractor, Kahn.22 In actuality, it was the intention of Campus and the Development Authority that the building was to be built for Campus and in accordance with the specifications submitted by Campus. The contract was signed by...

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