Heidtman Steel Products, Inc. v. Compuware Corp.
| Decision Date | 04 April 2001 |
| Docket Number | No. 3:97CV7389.,3:97CV7389. |
| Citation | 168 F.Supp.2d 743 |
| Parties | HEIDTMAN STEEL PRODUCTS, INC., Plaintiff, v. COMPUWARE CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
Robert W. Bohmer, John M. Carey, Kimberly S. Kindalski, Watkins, Bates & Carey, Toledo, OH, Mark C. Schaffer, Emch, Schaffer, Schaub & Porcello Co., LPA, Toledo, OH, Clyde H. Wilson, Wilson, Johnson & Jaffer, Sarasota, FL, for Heidtman Steel Products, Inc.
George M. Head, Anthony J. Rusciano, Plunkett & Cooney, Bloomfield Hills, MI, Michael G. Sanderson, Shumaker, Loop & Kendrick, Toledo, OH, Joseph V. Walker, Plunkett & Cooney, Detroit, MI, for Compuware Corporation.
This case involves a dispute over the installation of a computer system by defendant Compuware Corporation ("Compuware") for plaintiff Heidtman Steel Products, Inc. ("Heidtman"). This Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367. Pending is Compuware's motion for summary judgment on Heidtman's rescission and fraud claims. (Doc. 168). For the following reasons, Compuware's motion for summary judgment is denied in part and granted in part.
Heidtman is a Toledo-based company in the business of purchasing flat rolled steel coils for processing and resale. In the early 1990s, Heidtman determined that its computer system needed replacement and launched an initiative called the "Plus Project," the goal of which was to install a new, modern computer system, based on an Oracle platform.
Heidtman enlisted the help of several software consultants, including Compuware, to work under the direction of Ernst & Young, an accounting firm that Heidtman anticipated would oversee the Plus Project. In connection with Compuware's hiring, Compuware and Heidtman entered into a contract titled the "Agreement for Technical Personnel Services" ("service agreement"). According to the service agreement, Compuware was to provide computer programming expertise, analysis, coding and related services. The service agreement also set forth the terms and conditions of Compuware's employment, including provisions controlling 1) termination, 2) compensation, 3) payment of bills and expenses, 4) assignment of work, 5) liability, 6) limitations on warranties and remedies, 7) modification, and 8) choice of law.
After the service agreement was executed, Ernst & Young pulled out of the Plus Project. As a consequence, Compuware's role changed. These changes were memorialized in a series of agreements, called phase agreements, drafted by Compuware at the outset of each phase of work. In total, four phase agreements were written; the third, however was not signed by Heidtman. The purpose of the phase agreements was to define the next segment of work to be performed by Compuware and to obtain Heidtman's consent before starting. Though the phase agreements contain detail about the tasks Compuware proposed to undertake and the key deliverables, they do not independently set forth any new terms and conditions.
In 1997, Heidtman and Compuware began to clash over the progress of the Plus Project. Heidtman was distressed that the launch of the new computer system had, in its view, been delayed, and that Compuware had exceeded the Plus Project's budget. Compuware allegedly was troubled because Heidtman had not paid approximately $2,824,875 of past due fees. Unable to resolve their differences, the parties' relationship ended in late April 1997.
On May 9, 1997, Heidtman filed this suit, alleging breach of contract and other state law claims. Subsequent to this filing, Heidtman retained Ernst & Young to audit the work done by Compuware. In its audit, Ernst & Young concluded that Compuware had so poorly managed the Plus Project that none of Compuware's work product was salvageable. Further, Ernst & Young informed Heidtman that it would have to design a new computer system from scratch, and that the money it had paid to Compuware had been a complete waste.
In late 1998, according to Heidtman, it commissioned an independent computer consulting firm, Stonebridge Technologies, to review Ernst & Young's findings. According to Heidtman, Stonebridge Technologies, at the conclusion of its investigations, likewise determined that Compuware was at fault for the Plus Projects' failure.
On February 15, 2000, I granted part of Compuware's first motion for summary judgment, ruling that 1) the phase agreements and service agreement must be read together as a single contract; 2) the contract contemplated the provision of services thereby precluding the application of the UCC; 3) Heidtman's negligence, professional malpractice, and breach of implied duty of good faith claims should be summarily dismissed; and 4) Heidtman's promissory estoppel claim was barred because a contract existed between the parties. (Doc. 131). I also held that genuine issues of fact existed as to 1) Heidtman's breach of contract claim based on Compuware's failure to deliver an operable computer system; 2) whether Heidtman accepted performance thereby precluding its claim for rescission or damages; and 3) Heidtman's conversion and replevin claims. (Id.). Further, I held that Michigan law applied to the action. (Id.).
On April 10, 2000, after additional briefing by the parties, I held that 1) the service agreement's limitation on remedies was valid and enforceable; and 2) Compuware validly excluded any warranties not set forth in the service and phase agreements. (Doc. 143).
Finally, I clarified in a subsequent order that 1) after holding the UCC did not apply, Heidtman was not restricted from pursuing a rescission claim under Michigan common law; and 2) the limitation clause for damages did not prohibit a rescission claim. (Doc. 166).
Summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which demonstrate the absence of a genuine issue of material fact. Id. at 323, 106 S.Ct. 2548. The burden then shifts to the nonmoving party who "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting Fed.R.Civ.P. 56(e)).
Once the burden of production shifts, the party opposing summary judgment cannot rest on its pleading or merely reassert its previous allegations. It is insufficient "simply [to] show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Rather, Rule 56(e) "requires the nonmoving party to go beyond the [unverified] pleadings" and present some type of evidentiary material in support of its position. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. Summary judgment shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).
Heidtman seeks rescission of the contract alleging that Compuware's installation of the computer system was a failure. (Doc. 144). Compuware moves for summary judgment alleging that: 1) Heidtman failed to perform its obligations under the contract, thus precluding its rescission action; and 2) Heidtman's delay in bringing the rescission claim amounts to a waiver. (Doc. 168).1
To warrant rescission of a contract, there must be a material breach affecting an essential part of the contract. Holtzlander v. Brownell, 182 Mich.App. 716, 721, 453 N.W.2d 295 (1990). Whether a breach is material is a question of fact. Werner Gommeringer v. Amway Corp., No. G85-832, 1988 U.S. Dist. LEXIS 17824, *6, (W.D.Mich.1988) (unpublished) (citing Pratt v. Van Rensselaer, 235 Mich. 633, 209 N.W. 807 (1926)).
A party is not entitled to rescind a contract if that party has not fulfilled its obligations under the contract. Miller v. Smith, 276 Mich. 372, 267 N.W. 862 (1936). Compuware alleges that Heidtman may not bring a rescission action because: 1) Heidtman refused to pay Compuware for the last eight months of work performed; 2) Jim Hill, Heidtman Project Director for Plus Project, failed to perform his full-time position of managing project and prevent "scope creep"2; and 3) Oracle employees hired by Heidtman did not perform their duties properly. I find that Heidtman has established genuine issues of material fact regarding its performance of the contract. Compuware's motion for summary judgment is, therefore, denied as to the rescission claim.
Both parties agree that, under the contract, Compuware was to be paid on a time and materials basis. Compuware created budgets and timelines for completion of the project and submitted them to Heidtman.
According to Compuware, Heidtman wrongfully refused to pay for the last eight months of work that Compuware performed. (Doc. 168 at Ex. I, J, and K). By entering into a time and materials contract, Compuware argues, Heidtman undertook the risk that the cost of the project would exceed the estimated budgets. Heidtman was still obligated to pay Compuware even if the amount was in excess of the budget. Compuware argues that Heidtman's refusal to pay prevents it from bringing its rescission claim.
Heidtman argues that it properly refused to pay Compuware because the amount billed was in excess of the agreed budget.3 According to Heidtman, it refused to pay after Compuware failed to provide a satisfactory...
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