Allmand Associates, Inc. v. Hercules Inc.

• Decision Date: 31 March 1997
• Docket Number: Civil Action No. 93-40524.,Civil Action No. 93-40529.
• Citation: 960 F.Supp. 1216
• Parties: ALLMAND ASSOCIATES, INC., Plaintiff, Counter-defendant, and Defendant, v. HERCULES INCORPORATED, Defendant, Counter-plaintiff, and Plaintiff.
• Court: U.S. District Court — Eastern District of Michigan

960 F.Supp. 1216

ALLMAND ASSOCIATES, INC., Plaintiff, Counter-defendant, and Defendant, v. HERCULES INCORPORATED, Defendant, Counter-plaintiff, and Plaintiff.

Civil Action No. 93-40524.

Civil Action No. 93-40529.

United States District Court, E.D. Michigan, Southern Division.

March 31, 1997.

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Mayer Morganroth, Morganroth & Morganroth, Southfield, MI, for plaintiff, counter-defendant, and defendant.

Jack O. Kalmink, Dirk H. Beckwith, Detroit, MI, for defendant, counter-plaintiff, and plaintiff.

OPINION AND ORDER GRANTING DEFENDANT'S MOTIONS FOR SUMMARY JUDGMENT

GADOLA, District Judge.

This case involves a commercial dispute between Allmand Associates, Inc., a Michigan corporation and Hercules Incorporated, a Delaware corporation. The dispute arises out of a relationship founded in 1989, which was abruptly severed in 1993. Presently before this court are three motions for summary judgment filed by defendant Hercules Incorporated. Upon conducting a thorough review of the record in addition to holding oral argument in this matter on January 29, 1997, this court will grant defendants' motions.

FACTS¹

Hercules Incorporated ("Hercules") is the owner, seller, developer and marketer of the METTON® process-a unique operation used to fabricate molded plastic products. The process involves placing two liquid reactants ("METTON® liquid molding resins") into a molder, where they amalgamate and form a molded product. In an effort to expand its business, Hercules approached Allmand Associates, Inc. ("Allmand"), a fabricator and marketer of molded products such as car and minivan fenders, snowmobile hoods, and automobile instrument panels, with the possibility of using METTON® technology. In particular, Hercules solicited Allmand because it wanted to introduce METTON® to the automotive industry.

In 1989 and 1990, numerous meetings between Allmand's and Hercules' representatives took place in order to familiarize Allmand with METTON® and to convince Allmand to sign a license. In fact, by the middle of 1990, Hercules' representatives were at Allmand on a constant basis in order to persuade them to enter into a contract with Hercules. At these meetings, various representations were made to Allmand by Hercules' personnel. For instance, Gladstone Trotman, Hercules' Marketing Development Manager, represented to Nicholas Bogdanos, General Manager at Allmand, that METTON® would enable Allmand to make high volume parts under low pressures and increase its customer base. He also characterized METTON® as an extremely versatile liquid resin that was tougher, lighter, more cost efficient and more flexible in design capability than other engineering compounds and that it had the potential of molding ribs and bosses with a Class A surface and no sinks or indentations. Statements were made by Trotman and Garland Lee, Hercules' Marketing Manager, that the cycle time for molding with Hercules' product would be 2.5 to 3.5 minutes, that secondary finishing was not required, that only minimal cleaning would be required and that the parts produced by METTON® would be easily paintable. Also, Hercules' employees told Allmand employees that METTON® would be compatible with Allmand's zinc alloy ("Kirksite") tools. Many of these oral representations were corroborated by sales brochures and cost models prepared by Hercules and given Allmand.

Eventually, on October 11, 1990, Hercules and Allmand entered into two agreements: (1) the Codevelopment Agreement and (2) the General Molder License Agreement ("GML Agreement"). The Codevelopment Agreement was a one-year contract, under which Hercules' was obligated to provide free of charge, a quantity of METTON® liquid molding resins (not to exceed 12,000 pounds) to be used by Allmand for the production of prototype plastic components. Pursuant to the Codevelopment Agreement, Hercules also promised to provide consulting services and other necessary design and technical assistance to Allmand, including accompanying Allmand on customer calls. The Codevelopment Agreement required Allmand to manufacture components with METTON® and carry out sufficient market research and testing of such components to determine the feasibility of using METTON® in its production process. The Codevelopment Agreement made clear that each party was responsible for the expenses it incurred in fulfilling its duties under the contract, and nothing in said agreement was to "be deemed to constitute the parties as partners, joint venturers, an association or any other type of joint entity."

The second contract entered into on October 11, 1990 was the GML Agreement. Basically, this contract gave Allmand a nonexclusive license to use METTON® technology and patent rights and also obligated Allmand to purchase its entire requirement of METTON® liquid reactants from Hercules. As consideration, Allmand was to pay an initial royalty fee of $50,000, in addition to 7.5¢ per pound of METTON® liquid resin purchased. Under the GML Agreement, Hercules promised to do several things such as: (1) disclose manufacturing information, (2) furnish normal technical assistance of the type usually associated with the sale of polymer products, and (3) provide services of personnel skilled in polymerization of METTON® liquid molding resins to assist Allmand during the design, procurement and start-up of a facility for manufacturing molded articles using METTON®.

On January 24 and July 31, 1991, Allmand entered into LMR Equipment Sales Agreements for the purchase of equipment to be used in the molding of METTON®. The LMR Agreements provided that Allmand was to use the equipment "solely for the purpose of molding production or prototype parts using Hercules' liquid molding resins." The contracts also granted Hercules a security interest in the equipment.²

In 1991, Hercules began shipping METTON® liquid molding resin to Allmand. With each order Hercules received, Hercules would mail an "Order/Acknowledgment Form" to Allmand. The Form indicated that "acknowledgment of your [Allmand's] order [was] expressly made conditional on your [Allmand's] assent to the terms and conditions stated above and on the reverse side hereof, and we [Hercules] agree to furnish the material upon these terms and conditions only." The term most relevant to the instant dispute, which appeared on the reverse side of the Order/Acknowledgment Form read as follows:

Seller warrants that the materials sold hereunder shall be of Seller's standard quality, but Buyer assumes all risk and liability whatsoever resulting from the possession, use or disposition of such materials, whether used singly or in combination with other substances. Liability of Seller to Buyer, if any hereunder, for breach of contract, negligence, or otherwise, shall in no event exceed in amount the purchase price of the materials sold with respect to which any damages are claimed. Within thirty (30) days after any shipment reaches its destination (but in no event later than ninety (90) days after shipment leaves Seller's plant) the materials shall be examined and tested, and promptly thereafter and before the materials are used, Seller's shall be notified in writing or by cable in case the materials are found defective or short in any respect. Failure to so notify the Seller shall constitute a waiver of all claims with respect to the materials, and in any event the use of the materials shall be deemed to mean that the Seller has satisfactorily performed. SELLERS WARRANTY OF STANDARD QUALITY IS EXPRESSLY IN LIEU OF ANY OTHER WARRANTIES. EXPRESS OR IMPLIED. INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, SELLER NEITHER ASSUMES NOR AUTHORIZES ANY PERSON TO ASSUME FOR IT ANY OTHER LIABILITY IN CONNECTION WITH THE SALE OR USE OF THE MATERIALS SOLD HEREUNDER, AND THERE ARE NO AGREEMENTS OR WARRANTIES, EITHER ORAL OR WRITTEN, COLLATERAL TO OR AFFECTING THIS AGREEMENT.

In utilizing the METTON® to make plastic parts, Allmand experienced problems. Specifically, the METTON® liquids attacked Allmand's zinc alloy tools, caused unacceptable air bubbles, warpage and pinholes in parts, required secondary finishing, required a cycle time of two to three times longer than represented by Hercules, and demanded excessive cleaning. Hercules representatives consistently attempted to resolve these problems. The difficulties encountered mirrored troubles suffered in 1987-1988 by a prior Hercules' licensee, PPD Hercules ("PPD"), located in Quebec, Canada.

One of the most significant troubles Allmand experienced while molding with METTON® liquid resins was the emission of noxious vapors and odors. These pungent smells annoyed the neighboring community, and in fact, the Wayne County Department of Health issued Allmand nine to ten citations as a result of the emissions. To subdue the odor and contain the vapors, Allmand purchased an Airex thermal oxidizer unit ("RETOX 2000") from Hercules pursuant to a third LMR Sales Equipment Agreement on February 13, 1992. Significant labor had to be undertaken by Allmand, including building a new room at Allmand's facility, to install the unit.

In 1992, after receiving numerous customer complaints and losing the business of Polaris, Bombadier, Mark III and Blue Bird, Allmand commenced negotiations with Hercules' competitor, B.F. Goodrich. In 1993, it decided to switch to Goodrich's product, TELENE and sever its ties with Hercules. On September 23, 1993, Allmand sent Hercules a letter indicating that it was terminating the GML Agreement.

Four days after sending the letter, Allmand filed a complaint against Hercules in the United States District Court for the Eastern District of Michigan. The case was assigned to this court. The complaint alleges four counts: breach of express warranty (Count I); fraud and misrepresentation (Count II); breach of contract (Count III) and breach of implied warranty of fitness for the...