Aqualon Co. v. Mac Equipment, Inc.

• Decision Date: 08 July 1998
• Docket Number: No. 97-1693,97-1693
• Citation: 149 F.3d 262
• Parties: 36 UCC Rep.Serv.2d 99 AQUALON COMPANY, Plaintiff-Appellant, v. MAC EQUIPMENT, INCORPORATED, Defendant & Third Party Plaintiff-Appellee, and C.W. Nofsinger Company, Third Party Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 262

149 F.3d 262

36 UCC Rep.Serv.2d 99

AQUALON COMPANY, Plaintiff-Appellant, v. MAC EQUIPMENT, INCORPORATED, Defendant & Third Party Plaintiff-Appellee and C.W. Nofsinger Company, Third Party Defendant.

No. 97-1693.

United States Court of Appeals Fourth Circuit.

Argued March 5, 1998.

Decided July 8, 1998.

ARGUED: Brewster Stone Rawls, Brewster S. Rawls & Associates, P.C., Richmond, Virginia, for Appellant. Earle Duncan Getchell, Jr., McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia, for Appellee. ON BRIEF: John B. Nicholson, Brewster S. Rawls & Associates, P.C., Richmond, Virginia, for Appellant. David H. Worrell, Jr., J. William Boland, M. Christine Klein, McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia, for Appellee.

Before MURNAGHAN, Circuit Judge, KEELEY, District Judge for the Northern District of West Virginia, sitting by designation, and MOON, District Judge for the Western District of Virginia, sitting by designation.

Affirmed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge KEELEY and Judge MOON joined.

OPINION

MURNAGHAN, Circuit Judge:

Aqualon Company, a chemical manufacturer, asked MAC Equipment, Incorporated, to produce rotary valves, also called airlocks, for use in a pneumatic conveying system. The system was designed by C.W. Nofsinger Company to move a chemical, blended carboxymethyl cellulose. Before MAC was awarded a contract to produce the valves, it provided estimates of how much air its valves would leak. However, once the valves were actually constructed, they leaked much more than expected.

After almost a year of complaints and negotiations between Aqualon and MAC, it became apparent that the valves could not be made to leak any less. Aqualon modified its system design so that it would still be able to move the chemical despite the leakage. In the spring of 1993 Aqualon reissued a purchase order for the leaky valves; Aqualon accepted the valves in June; and Aqualon paid for them in full as of December 19, 1993. MAC did not conceal, and Aqualon knew, the valves' air leakage rate.

Three years thereafter Aqualon served MAC with a complaint for breach of contract and warranty. The district court granted summary judgment to MAC, holding that Aqualon had not given MAC notice within a reasonable time of its claim for breach. Aqualon appeals.

I.

We first address our jurisdiction to hear this case in federal court. Aqualon commenced the case in Virginia state court, but the parties being of diverse state citizenship and the required amount being at issue, MAC filed the necessary papers to remove it to federal district court. About an hour after doing so, MAC in state court filed a Notice of Removal and a Third Party Motion for Judgment against C.W. Nofsinger. Aqualon moved to remand the case back to state court but the district court denied Aqualon's motion and kept jurisdiction of the case.

Aqualon maintains that MAC's removal to federal court was improper and that the district court should have granted the motion to remand. Aqualon asserts that by filing a Third Party Motion for Judgment against C.W. Nofsinger in state court, MAC submitted to the jurisdiction of the state court and waived its right to remove to federal court.

The district court's decision that the defendant did not demonstrate an intent to waive its right to remove to federal court is a factual determination, to be reversed only if clearly erroneous. See Grubb v. Donegal Mut. Ins. Co., 935 F.2d 57, 59 (4th Cir.1991). In Grubb, we held that "although a defendant may yet waive its 30-day right to removal [under 28 U.S.C. § 1446(b), after federal jurisdiction becomes appropriate] by demonstrating a 'clear and unequivocal' intent to remain in state court, such a waiver should only be found in 'extreme situations,' " 935 F.2d at 59. MAC, by contrast, had clearly previously indicated its desire to seek the federal forum.

Aqualon cites, in support of a finding of waiver, two district court cases, Baldwin v. Perdue, Inc., 451 F.Supp. 373 (E.D.Va.1978), and Sood v. Advanced Computer Techniques Corp., 308 F.Supp. 239 (E.D.Va.1969). In both cases, the defendants moved to remove to federal court after they filed permissive substantive defenses in state court (a cross-claim in Baldwin and counterclaims in Sood ). The district courts found waiver in both cases and granted motions to remand. See Baldwin, 451 F.Supp. at 375-76; Sood, 308 F.Supp. at 242.

A defendant may waive the right to remove by taking some such substantial defensive action in the state court before petitioning for removal. However, waiver by conduct does not exist when removal, as here, precedes any state court action. Federal jurisdiction attached as soon as MAC filed a Notice of Removal in Federal Court, an hour before MAC filed any pleadings in state court. See Berberian v. Gibney, 514 F.2d 790, 792 (1st Cir.1975); Burroughs v. Palumbo, 871 F.Supp. 870, 872 (E.D.Va.1994). It could not waive a right that it had already exercised.

Furthermore, even if remand would have been proper, once an improperly removed case has proceeded to final judgment in federal court that judgment should not be disturbed so long as the federal court had jurisdiction over the claim at the time it rendered its decision. In Caterpillar Inc. v. Lewis, 519 U.S. 61, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996), the Supreme Court held that "a district court's error in failing to remand a case improperly removed is not fatal to the ensuing adjudication if federal jurisdictional requirements are met at the time judgment is entered," id. 117 S.Ct. at 471. "To wipe out the adjudication post-judgment, and return to state court a case now satisfying all federal jurisdictional requirements, would impose an exorbitant cost on our dual court system, a cost incompatible with the fair and unprotracted administration of justice." Id. 117 S.Ct. at 477. The Fourth Circuit has recognized these "considerations of finality, efficiency, and economy," id. 117 S.Ct. at 476, as well:

Where a matter has proceeded to judgment on the merits and principles of federal jurisdiction and fairness to parties remain uncompromised, to disturb the judgment on the basis of a defect in the initial removal would be a waste of judicial resources. Although the interest in judicial economy is most pressing where an action has proceeded to trial, we feel that the same considerations are applicable to summary judgment.

Able v. Upjohn Co., 829 F.2d 1330, 1334 (4th Cir.1987) (citation omitted), overruled on other grounds, Caterpillar, Inc., 117 S.Ct. at 475 n. 11.

There is no dispute that diversity jurisdiction existed both at the time of removal and at the time summary judgment was granted for MAC. And Aqualon has not argued that it was prejudiced in some way by the federal forum. We conclude that the district court properly exercised jurisdiction over this case.

II.

As this appeal arises from a grant of summary judgment, we view the facts in the light most favorable to the non-moving party, deciding matters of law de novo. See Halperin v. Abacus Technology Corp., 128 F.3d 191, 196 (4th Cir.1997). Here the relevant facts are essentially agreed upon. Aqualon, after repeatedly stressing its right to reject nonconforming valves, reissued purchase orders for the valves knowing full well that they leaked more than MAC had estimated, accepted delivery and paid for the valves in full, all without notifying MAC that it found the transaction still troublesome. The first such notice Aqualon gave MAC that it intended to pursue a claim of breach was the complaint served on MAC three years after acceptance. The district court dismissed Aqualon's breach of contract and breach of warranty claims on the ground that such notice was not given within a reasonable time after acceptance, as section 2-607(3) of the Uniform Commercial Code requires. ¹ We are asked to review the application of the U.C.C. section 2-607(3) as a matter of law.

Section 2-607(3) provides:

(3) Where a tender has been accepted

(a) the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy....

U.C.C. § 2-607(3). The notice required by section 2-607(3) "need merely be sufficient to let the seller know that the transaction is still troublesome and must be watched." U.C.C. § 2-607, cmt. 4.

Aqualon makes four related arguments: 1) section 2-607(3) does not apply to the circumstance presented here; 2) Aqualon's pre-acceptance complaints that the valves leaked more than it had estimated constituted reasonable notice of the breach; 3) MAC's actual knowledge that the valves leaked more than MAC had estimated fulfilled the purposes of the U.C.C. notice requirement; and 4) Aqualon's serving MAC with a complaint three years after acceptance constituted notice within a reasonable time. We address each contention in turn.

A. U.C.C. Section 2-607(3)

Does Apply

By its terms, U.C.C. section 2-607(3) applies to this case because this is a situation "[w]here a tender [of goods, i.e., the valves] has been accepted." Section 2-607(3) bars a breach of contract claim by a buyer, such as Aqualon, who has accepted the seller's, such as MAC's, tender of goods unless Aqualon gave MAC notice of the alleged breach within a reasonable time.

Section 2-607(3) is based on section 49 of the Uniform Sales Act. See U.C.C. § 2-607, cmt. (Prior Uniform Statutory Provision). Professor Williston, the author of the Uniform Sales Act, has explained that section 49 ameliorated the harsh rule that acceptance of a tender of goods acted as a release by the buyer of any claim that the goods did not conform to the contract. See 5 Williston on Contracts § 714 (3d ed.1961). But the Uniform Sales Act did not go entirely to the other extreme by allowing the buyer to accept goods without objection and then assert claims for breach of contract at any time within the...