Eastman Chemical Co. v. Niro, Inc.

• Decision Date: 24 January 2000
• Docket Number: No. CIV. A. G-99-623.,CIV. A. G-99-623.
• Citation: 80 F.Supp.2d 712
• Parties: EASTMAN CHEMICAL CO. v. NIRO, INC.
• Court: U.S. District Court — Southern District of Texas

80 F.Supp.2d 712

EASTMAN CHEMICAL CO. v. NIRO, INC.

No. CIV. A. G-99-623.

United States District Court, S.D. Texas, Galveston Division.

January 24, 2000.

Brian L. Bunt, Bunt & Wright, Longview, TX, for Eastman Chemical Company, plaintiffs.

Finis E. Cowan, III, Mills, Shirley, Eckel & Bassett, Houston, TX, Jack C Brock, Mills Shirley et al., Galveston, TX, for Niro, Inc., defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

KENT, District Judge.

Eastman purchased a spray fluidizer dryer from Niro, intending to use the dryer in an attempt to increase its potassium sorbate production capability. Eastman alleges that the dryer failed to perform according to contract specifications, and has brought suit against Niro alleging breach of contract, breach of warranty, fraudulent inducement, fraud subsequent to the formation of contract, and negligent misrepresentation. Eastman seeks the customary damages, including consequential and incidental damages arising from Niro's alleged breach of contract and breach of warranty.

Now before the Court is Niro's Partial Motion to Dismiss, filed December 10, 1999. Niro argues that a) Eastman's negligent misrepresentation claim should be dismissed as untimely under the applicable two year statute of limitations, b) Eastman's fraud subsequent to the formation of contract claim should be dismissed pursuant to Texas' independent injury doctrine, and c) Eastman's claims for consequential and incidental damages for breach of contract and warranty are barred because Eastman waived the right to recover such damages in the contract governing the purchase of the sorbates dryer. For reasons more fully explained below, Eastman's negligent misrepresentation claims are DISMISSED WITH PREJUDICE; Niro's Motion to Dismiss the fraud subsequent to contract formation claims is DENIED; and Niro's Motion to Dismiss Eastman's claims for consequential and incidental damages arising from breach of contract and breach of warranty is GRANTED.

I. FACTUAL SUMMARY

Plaintiff Eastman is a producer of potassium sorbate, a food preservative. Seeking to increase its production capability in order to remain competitive in the international marketplace, in 1995 Eastman entered into negotiations with Defendant Niro concerning the design and construction of a spray fluidizer dryer. Niro was to design, build and install a dryer which conformed to Eastman's product output specifications.

During the spring and summer of 1995, Niro's engineers worked on the design of the dryer, ultimately producing a design proposal which was satisfactory to Eastman. A purchase order contract (the "Contract") was confirmed in October 1995, with the final purchase price of the dryer set at $1,847,300.

Niro began installing the dryer at Eastman's Chocolate Bayou plant in June 1996. Installation was considered complete by Niro in September of that year.

Eastman alleges that from the beginning the dryer failed to conform to the production capability requirements specified in the Contract. Niro repeatedly visited Eastman's facilities in an effort to get the dryer to operate at the desired output rate. Moreover, Niro allegedly represented to Eastman that if various modifications were made to the dryer, it would then be capable of performing at the requisite rate. Eastman made these modifications, at considerable expense, yet the dryer allegedly never did perform at the promised rate.

In May of 1997, Eastman ceased further attempts to modify the dryer. Niro's personnel stopped working on the machine and left the premises. On October 8, 1999 Eastman filed the present lawsuit, seeking damages for breach of contract, breach of warranty, fraudulent inducement, fraud subsequent to the formation of contract, and negligent misrepresentation.

II. ANALYTICAL STANDARD

Now before the Court is Niro's December 10, 1999 Motion to Dismiss, made pursuant to Fed. R. Civ. 12(b)(6). Niro targets only Eastman's claims for negligent misrepresentation, fraud subsequent to the formation of contract, and claims for incidental and consequential damages arising from the alleged breach of contract and breach of warranty. The Court will address these three claims in turn.

When considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court accepts as true all well-pleaded allegations in the complaint, and views them in a light most favorable to the plaintiff. See Malina v. Gonzales, 994 F.2d 1121, 1125 (5th Cir.1993). "However, conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir.1993).

Unlike a motion for summary judgment, a motion to dismiss should be granted only when it appears without a doubt that the plaintiff can prove no set of facts in support of his claims that would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Home Capital Collateral Inc. v. FDIC, 96 F.3d 760, 764 (5th Cir.1996); Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir.1994). The United States Court of Appeals for the Fifth Circuit has noted that dismissal for failure to state a claim is disfavored and will be appropriate only in rare circumstances. Mahone v. Addicks Util. Dist. Of Harris County, 836 F.2d 921, 926 (5th Cir.1988).

Finally, because Plaintiff attached a copy of the Contract to its Original Complaint, it is appropriate for the Court to consider the Contract when assessing Niro's Motion to Dismiss. See Fed. R.Civ.P. 10(c) ("A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes."); see also Neville v. American Republic Ins. Co., 912 F.2d 813, 814 n. 1 (5th Cir.1990); Sheppard v. Texas Dept. of Transp., 158 F.R.D. 592, 595 (E.D.Tex.1994).

III. NEGLIGENT MISREPRESENTATION

Because original subject matter jurisdiction over this action is founded on diversity of citizenship, the Court must apply Texas law, including Texas' choice of law provisions. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Perez v. Lockheed Corp., 81 F.3d 570, 576 (5th Cir. 1996).

Texas applies the "substantive relationship test" to determine which state's law will apply to a tort claim governed by state law in a diversity action. See Gutierrez v. Collins, 583 S.W.2d 312, 318 (Tex.1979)("Having considered all the theories, it is the holding of this court that in the future all conflicts cases sounding in tort will be governed by the "most significant relationship test" as enunciated in Sections 6 and 145 of the Restatement (Second) of Conflicts."); Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984) (following Gutierrez and applying most significant relationship test); Perez, 81 F.3d at 576-77 (recognizing decision in Gutierrez); LeBoeuf v. Planet Ins. Co., 913 F.Supp. 509, 511 n. 1 (S.D.Tex. 1996)(Kent, J.)("Under Texas law, the law of the state with the most significant relationship to the particular substantive issue in question governs its resolution.").

The substantive relationships in this case include the fact that Eastman's plant is located in Texas, that Niro's machinery was installed in a Texas plant, that the alleged misrepresentations giving rise to the claim occurred largely in Texas, and that Eastman would have felt the effects of any harm from Niro's alleged tort within Texas. The Court concludes that the substantive relationship test points to the application of Texas tort law.¹

Under Texas law, there is a two year statute of limitations for negligent misrepresentations. See Tex. Civ. Prac. & Rem.Code Ann. § 16.003 (Vernon 1999); see also Kansa Reinsurance Co., Ltd. v. Congressional Mortgage Corp., 20 F.3d 1362, 1371-72 (5th Cir.1994)(reaffirming prior conclusion of Fifth Circuit that Texas law provides a two year statute of limitations for claims of negligent misrepresentation); Sioux Ltd. Sec. Litig. v. Coopers & Lybrand, 914 F.2d 61, 63-64 (5th Cir. 1990). Consequently, this Court is bound to apply the two year statute of limitations to such claims. See Fluor Engineers & Constr. v. Southern Pac. Transp. Co., 753 F.2d 444, 448 (5th Cir.1985). Furthermore, the two year statute of limitation for claims of negligent misrepresentation is not tolled by application of the "discovery rule," as is the case for certain other torts. See Kansa, 20 F.3d at 1372 ("We similarly decline to apply the discovery rule to a negligent misrepresentation claim, finding that Texas courts classify such a cause of action as a negligent tort rather than a fraud action.").

According to Eastman, Niro made a variety of representations of material fact, including that Niro had experience in designing and building a spray fluidization sorbate drying device, that Niro could provide qualified personnel for start-up of the dryer, that the dryer could be made to conform to contractual output specifications, and so forth. Eastman contends that these representations were in fact false, and give rise to a claim for negligent misrepresentation.

However, in its Original Complaint, Eastman contends that these statements were made from January to March of 1995, along with some others in October of 1996. Thus under Texas' two year statue of limitations, the time period in which to bring a claim for the first set of statements expired between January and March 1997. The time limit for the second set of statements expired in October 1998. In light of the fact that Eastman did not bring suit until October 10, 1999, the Court concludes that, as a matter of law, Eastman may not maintain a cause of action for negligent misrepresentation. Eastman appears to have conceded this point in its January 10, 2000 Response to Defendant's Motion for Partial Dismissal. Consequently, Defendant's Motion to Dismiss is GRANTED with respect to...