Advanced Flexible Circuits, Inc. v. GE Sensing & Inspection Techs. GmbH

• Decision Date: 20 March 2015
• Docket Number: No. 12–2007.,12–2007.
• Citation: 781 F.3d 510
• Parties: ADVANCED FLEXIBLE CIRCUITS, INC., Plaintiff, Appellant, v. GE SENSING & INSPECTION TECHNOLOGIES GMBH ; GE Sensing, Division of Caribe GE International of Puerto Rico, Inc., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

781 F.3d 510

ADVANCED FLEXIBLE CIRCUITS, INC., Plaintiff, Appellant

v.GE SENSING & INSPECTION TECHNOLOGIES GMBH ; GE Sensing, Division of Caribe GE International of Puerto Rico, Inc., Defendants, Appellees.

No. 12–2007.

United States Court of Appeals, First Circuit.

March 20, 2015.

Wilfredo A. Géigel, Sr., with whom Law Offices of Wilfredo A. Géigel, was on brief, for appellant.

Michael D. Fisse, with whom Daigle, Fisse & Kessenich, PLC, was on brief, for appellees.

Before LYNCH, Chief Judge, TORRUELLA and LIPEZ, Circuit Judges.

Opinion

TORRUELLA, Circuit Judge.

This case stems from the termination of precontractual negotiations between two corporations. Plaintiff–Appellant, Advanced Flexible Circuits (“AFC”), entered into negotiations with Defendants–Appellees, GE Sensing & Inspection Technologies GmbH and GE Sensing, Division of Caribe GE International of Puerto Rico, Inc. (collectively, “GE”), for AFC to manufacture and supply thermal filaments for GE to use in its production of cardiac catheters

. After about two years of negotiations between the parties, but prior to the execution of a contract, GE terminated negotiations with AFC. AFC subsequently filed suit against GE in the United States District Court for the District of Puerto Rico, alleging that GE was liable for precontractual damages under the Puerto Rico doctrine of culpa in contrahendo for arbitrarily and unjustifiably withdrawing from contractual negotiations with AFC.¹ Both parties filed cross-motions for summary judgment; the district court denied AFC's motion and granted GE's motion, thus dismissing AFC's claims against GE.

AFC now appeals that decision, arguing that the district court erred in finding that there was no genuine dispute as to any material facts regarding the culpa in contrahendo claim. AFC further contends that the district court abused its discretion in sanctioning AFC for its alleged failure to comply with the district court's “anti-ferret rule,” Local Rule 56, in its opposition to GE's motion for summary judgment. See D.P.R. Civ. R. 56.² GE responds by asserting that: (1) GE was justified in withdrawing from negotiations due to AFC's failure to produce satisfactory samples of the filaments; (2) AFC thus could not have had a reasonable expectation of finalizing a contract with GE; (3) in the alternative, AFC's alleged damages are not recoverable under culpa in contrahendo or are otherwise unsupported by the evidence; and (4) the district court properly applied its anti-ferret rules in sanctioning AFC for its failure to comply with Local Rule 56.

After reviewing the record and the parties' filings, we conclude that AFC has offered no competent evidence permitting a finding of liability on its culpa in contrahendo claim. The two parties engaged in precontractual negotiations, and after the initial sample units supplied by AFC failed multiple quality and performance tests, GE ultimately withdrew from negotiations. Other than speculative, conclusory allegations, AFC has offered no evidence that GE's termination of those negotiations was arbitrary, unjustified, or otherwise wrongful. Accordingly, we affirm the district court's grant of summary judgment in favor of Defendants–Appellees. Secondly, we conclude that the district court did not abuse its discretion in sanctioning AFC for failing to comply with the court's local rules.

I. Background

We begin with an overview of the factual background, drawn from the summary judgment record and viewed in the light most favorable to Plaintiff–Appellant AFC. See Tobin v. Fed. Express Corp., 775 F.3d 448, 449 (1st Cir.2014).

A. The Negotiations

GE is in the business of manufacturing and assembling various products, including component parts of medical catheter devices, which are assembled at a facility in Añasco, Puerto Rico (“Añasco Facility”), and then distributed to its customers. One of the pieces of a medical catheter component part assembled at the Añasco Facility is a “thermal filament” (otherwise known as a “heater filament”). GE purchases these heater filaments from suppliers before incorporating them into the assembled catheter components which it then, in turn, sells to its customers.

AFC is a Minnesota corporation. During the negotiations between GE and AFC, AFC had one employee: Theresa Bailey, who served as AFC's president, secretary, and treasurer. In the summer of 2006, Manuel Hidalgo, a sales representative for an organization called “Yes America,” approached Maritza Cedó, the Material Leader for GE at the Añasco Facility. Hidalgo told Cedó that he was a sales agent for a company, AFC, that was capable of engineering and manufacturing the heater filament used in the catheter component assembled by GE at the Añasco Facility; Hidalgo proposed to Cedó that AFC could supply the heater filament for GE. Cedó told Hidalgo that GE currently purchased the heater filaments from another supplier, that GE had incomplete information about the filament, and that GE did not know how to manufacture the filament itself.

Hidalgo informed Cedó that AFC: (1) was experienced in manufacturing heater filaments; (2) had expertise in the engineering and manufacturing of heater filaments; and (3) was capable of determining, without further information, how the heater filament manufactured by GE's then-current supplier was engineered and constructed. Cedó explained to Hidalgo that AFC would have to submit samples of the heater filaments to GE for quality testing. Cedó further explained that the decision to purchase the filaments was contingent upon the samples passing GE's quality tests. If AFC's sample heater filaments passed the quality inspection and tests by GE, then AFC's filaments could be approved for supply. GE did not provide specific technical specifications, schematics, or engineering drawings to AFC, but rather gave AFC two physical samples of the heater filament it needed.

AFC and GE began negotiations on a “proposed contract” in January of 2007, and the negotiations continued for two years. AFC acknowledges that the negotiations from 2007 until March of 2009 “comprise[d] the technical period,” during which information was exchanged and tests were conducted, and that if either party withdrew during this period, there would be no repercussions.

In 2009, Ulrich Angeli, the Senior Manager and Global Commodity Leader for GE, became personally involved in negotiations with Bailey regarding AFC's proposed supply of the heater filaments. During the spring and summer of 2009, the two parties exchanged drafts of a purchase agreement. They negotiated via email regarding the terms of the agreement, including the duration of the contract, the applicable law that would govern the agreement, and the price per unit. Angeli informed Bailey that AFC would need to produce sample heater filaments that could pass the requisite quality tests before the final contract terms could be settled.

According to GE, AFC submitted a total of four groups of sample heater filaments during the two years of negotiation, and all of them failed quality testing “because they did not satisfy the specified dimensional, mechanical, or electrical parameters that were required before the heater filaments could be used in medical catheter devices.” AFC, for its part, maintains that the delays and test failures were not the result of AFC's shortcomings or improper manufacturing but rather “were due to improper, wrong and misguided information provided by GE.”

On June 25, 2009, before the testing of the fourth and final group of sample elements, AFC sent GE two signed copies of a negotiated purchase agreement between the two companies; GE never executed this contract. The fourth and final sample was rejected by GE in August 2009 due to problems with its dimensions, among other reasons. By September 2009, GE had withdrawn from the negotiations.

On September 21, 2009, after the negotiations between AFC and GE had been terminated by GE, Bailey sent an e-mail to Angeli with a final invoice of $183,232.00 for “the development costs and total hours spent by all the participants in the supply chain who contributed to the development and successful outcome of this project.” In the same e-mail, Bailey also mentioned that AFC thought the “project was near the production phase,” and that AFC had tried to get in contact with GE to find out “why the project was abruptly cancelled.” GE refused to pay, and AFC subsequently filed this lawsuit.

B. Procedural Background

On January 29, 2010, AFC filed suit against GE in the district court, claiming that GE had wrongfully withdrawn from contractual negotiations with AFC. On that basis, under the doctrine of culpa in contrahendo, AFC sought recovery of precontractual damages allegedly incurred by AFC during its attempts to manufacture the heater filaments to supply to GE.

After discovery, GE filed a motion for summary judgment to dismiss AFC's claim because AFC had failed to produce any evidence in support of its culpa in contrahendo claim. In the alternative, GE also moved for partial summary judgment to dismiss AFC's claims for the following damages “not recoverable under a culpa in contrahendo claim: (1) damages allegedly incurred by parties other than AFC; (2) ‘hourly’ charges of third parties and unsupported by evidence; and (3) incidental and consequential damages.” In response to GE, AFC filed its own motion for partial summary judgment; this motion was denied (without prejudice) because AFC failed to comply with the relevant rules, but the district court allowed AFC to file a renewed motion for partial summary judgment.

In ruling on these motions, the district court determined that AFC's counterstatement of material facts in opposition to GE's motion for summary judgment failed to comply with Local Rule 56 for two reasons. First, the district court stated that AFC had failed to properly controvert the statement of undisputed facts supporting GE's motion for summary judgment, because AFC's opposing statement “d[id]...