Highmark, Inc. v. Nw. Pipe Co.
| Decision Date | 01 March 2016 |
| Docket Number | CIV 10-5089 |
| Parties | HIGHMARK, INC., Plaintiff, v. NORTHWEST PIPE COMPANY, a Washington Corporation, Defendant and Third-Party Plaintiff, v. FERBER ENGINEERING COMPANY, LLC, a South Dakota Corporation; and RUSTNOT CORROSION CONTROL SERVICES, INC., an Idaho Corporation, Third-Party Defendants. |
| Court | U.S. District Court — District of South Dakota |
Plaintiff Highmark, Inc., a commercial general contractor, entered into a contract with the City of Rapid City to lay 20 inch steel pipe in the Jackson Springs Project with the bid being $3,715,385.25. Highmark was not bound to purchase the pipe from Defendant Northwest Pipe Company but chose to do so. The pipe was the subject of detailed specifications provided by the City. Among other specifications, the steel pipe was to be polyurethane coated with the coating adhesion tested to an average value of 2000 psi and a minimum value of 1750 psi. Highmark entered into a contract with Northwest Pipe Company to purchase the pipe. The price of the pipe was about $800,000.00.
Over 50% of the pipe did not meet specifications and only 5% of not meeting specifications was allowable. In addition to not meeting the pressure specifications, it appeared that the pipe's ability to meet specifications continued to deteriorate. The pipe coating, not the pipe itself, was the problem. RustNot and Ferber Engineering Company, Inc. were brought into the lawsuit by Northwest Pipe Company as Third-Party Defendants. Ferber Engineering was the City's engineer for the Jackson Springs Project. Ferber Engineering retained RustNot (Mr. Spickelmire) as a consultant. Dowl, LLC was a Third-Party Defendant that has since been dismissed from the lawsuit by Stipulation.
After work on the project was stopped due to non-conforming pipe, the pipe was ultimately stripped and recoated by Northwest with a coating product from another supplier. Once completed, the pipe then met specifications. The process of delay and repair took eight (8) months to complete. The contract specifications provided by the City required that remedial action had to be completed within sixty (60) days.
In 2012 Highmark sued the City of Rapid City in South Dakota State Court as a result of the project. That suit was settled with the City paying Highmark $257,000.00. Some portion of that settlement may be a part of what Highmark claims as damages here, but that has not been fully developed in this record. Given the ruling on Highmark damages limitations in the contract in this opinion, that inquiry is moot.
Highmark in its Amended Complaint pled four counts, breach of contract, breach of express warranty, breach of implied warranty of merchantability, and breach of implied warranty of fitness for a particular purpose. Highmark has moved for summary judgment as to liability.
There are no genuine disputed issues of material facts that prevent the Court from ruling on Plaintiff's Motion. Dr. Bell's opinions and deposition testimony on behalf of Northwest Pipe, taken as a whole, do not present disputed material facts. The facts show a breach of contract by Northwest Pipe even though the pipe was ultimately repaired but only after significant delay. The facts also show a breach of express warranty as that warranty was stated in the contract between Highmark andNorthwest Pipe. The goods were not "made in a workmanlike manner and in accordance with the specifications therefor supplied or agreed to by Contractor...." as stated in paragraph 10, the "Warranties" paragraph of the contract between Highmark and Northwest Pipe. That same paragraph 10 of the contract goes on to state:
Seller's sole obligation under the foregoing express warranties shall be to repair, replace or refund the purchase price of, at Seller's option, any article of goods, or part thereof, which shall be returned to Seller's plant at Contractor's cost and proved by Contractor to be other than as warranted. The remedy hereby provided shall be the exclusive and sole remedy of Contractor for breach of the foregoing express warranties.
Paragraph 10 then states in bold:
THE ABOVE EXPRESS WARRANTIES OF SELLER ARE THE SOLE WARRANTIES OF SELLER, AND ANY OTHER WARRANTIES, EXPRESSED, IMPLIED IN LAW OR IN FACT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE WHICH EXCEEDS THE FOREGOING EXPRESS WARRANTIES, ARE HEREBY DISCLAIMED BY SELLER.
Highmark pleads the validity of the contract in its Amended Complaint. Highmark now claims the contract was not validly entered into in that it does not have a signature by an authorized signer at Northwest Pipe. Northwest Pipe sent a Confirming Quotation on 12/11/2009 with the typed in signature of its sales representative. The typed signature was to be the Northwest Pipe salesman's authentication of the document. Northstream Investments, Inc. v. 1804 Country Store Co., 739 N.W.2d 44, 48-9 (S.D. 2007). This offer was accepted by Highmark with the signature of its President on 12/29/09. The contract was validly entered into and is binding upon the parties to the contract.
Highmark claims that the contract warranty remedy limitations are substantively and procedurally unconscionable. The contract provisions do strongly favor Northwest Pipe. However, Highmark had other suppliers it could have gone to for pipe. In addition, Highmark had the proposed contract for over two weeks and did not attempt to negotiate its terms and its President did not read the contract before signing the contract. If this was a consumer contract presented on a non-negotiable basis, it would be unconscionable. Here, the parties are two commercial entities. Northwest Pipe is a large and sophisticated corporation and Highmark is a much smaller corporation that is much more than a mom and pop operation. Northwest Pipe and Highmark both must be considered as sophisticated commercial entities even though Northwest Pipe is more sophisticated. Both ultimately are experienced commercial entities with significant albeit varying degrees of sophistication. When experienced and relatively sophisticated commercial entities are contracting, the contract should not normally be rewritten by a court unless there is procedural unconscionability. The contract provisions under these facts are not substantively unconscionable.
Procedural unconscionability must also be considered. The court in Golden Reward Min. Co. v. Jervis B. Webb Co., 772 F.Supp. 1118, 1124 (D.S.D. 1991), clearly considered procedural unconscionability even though those words were not used. The Golden Reward court made extensive reference to Johnson v. John Deere, 306 N. W.2d 231, 236 (S.D. 1981) which specifically recognizes and discusses procedural unconscionability. Here, no procedural unconscionability is present as Highmark had plenty of time to negotiate contract terms had it chosen to try to do so. In addition, Highmark could have gone to other pipe suppliers even though the pipe in question is custom made for the job as opposed to being an off the shelf item. Accordingly, summary judgment is granted in favor of Highmark on its breach of contract and breach of express warranty claims. The breach of implied warranty of merchantability and breach of implied warranty of fitness for a particular purpose claims are dismissed.
REMEDY
Now that breach of contract and breach of express warranty claims have been granted as a matter of law, what is the remedy?
Northwest Pipe made a Motion for Partial Summary Judgment which addresses remedy limitations, among other issues. Paragraph 11 of the contract provides:
EXCLUSION OF CONSEQUENTIAL AND INCIDENTAL DAMAGES: No claim of any kind, whether as to goods delivered or for non-delivery of goods, shallbe greater in amount than the purchase price of the goods in respect of which such damages are claimed, and failure to give notice of claim within the time limits stated in paragraphs 9 and 10 above and shall constitute a waiver by Contractor of all claims in respect of such goods. The remedy hereby provided shall be the exclusive and sole remedy of Contractor, except as otherwise provided herein. Any right of Contractor to consequential and incidental damages for the breach by Seller of any term contained in this sales order, including the warranties provided in paragraph 10 above, is excluded.
Highmark claims that the limitation of damages provision is unconscionable. SDCL § 57A-2-719(3) provides:
Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.
SDCL § 57A-2-302 provides that courts can decide the question of unconscionability in regard to a particular contract or clause. The applicable UCC comment to SDCL § 57A-2-302 provides in part:
The basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.... The principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power.
The reference in the comment to "under the circumstances existing at the time of the making of the contract...." are the same considerations previously discussed concerning procedural unconscionability. There was freedom to contract with another pipe provider so there was no oppression. There might have been surprise, but it was not unfair surprise as the contract terms were available for reading and negotiating for 2 weeks before signing. Once again, under these facts, there is no showing of procedural unconscionability.
There are, however, different terms of limitation to consider in determining whether these remedy...
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