In re Repco Products
| Decision Date | 22 June 1989 |
| Docket Number | Adv. No. 84-0763S.,Bankruptcy No. 83-02074S |
| Parties | In re REPCO PRODUCTS CORPORATION, Debtor. REPCO PRODUCTS CORPORATION, Plaintiff, v. RELIANCE ELECTRIC COMPANY, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Stephen M. Felman, J. Craig Currie, Philadephia, Pa., Nathan B. Feinstein, Piper & Marbury, Baltimore, Md., Lawrence G. McMichael, Philadelphia, Pa., for debtor.
Joel Gusky, Philadelphia, Pa., for defendant.
This long-pending adversary proceeding is a breach of warranty suit brought by REPCO PRODUCTS CORPORATION (hereinafter "the Debtor"), a supplier of residential heating boiler units, against the Defendant, RELIANCE ELECTRIC COMPANY (hereinafter "the Defendant"), a division of which manufactured castings used in the units. The Debtor seeks damages of $479,839.13, plus interest, which allegedly arose when the Defendant's breaches of warranties proximately caused a substantial number of the boilers to crack and leak after installation. We conclude that the principal reason for the cracking was that the Defendant, innocently but erroneously, altered the plans for the boiler units by introducing a "step" on certain of the castings, and therefore did breach its warranties in the manufacturing process.
However, due to the failure of the Debtor, as well as the Defendant, to discover the error in manufacturing or to terminate the parties' relationship at any earlier stage despite the persistence of the leak problem, we believe that damages should be restricted to only those elements clearly established in the record. We shall allow to the Debtor only those elements of damages directly associated with replacing cracked boiler units, which total $208,555.52. However, we shall disallow all of the other elements claimed. These include sums which a purchaser of the Debtor's sales distribution, Vaillant Corporation (hereinafter "Vaillant"), offset in a settlement with the Debtor ($113,000), which the Debtor failed to show related directly to the Defendant's actions. It also includes amounts which Vaillant, succeeding to the Debtor in servicing its boilers, expended to replace cracked boilers ($56,438.29), as the Debtor has not sufficiently established that these costs were actually passed on to the Debtor. We also shall not allow a claim for costs of increased testing ($15,000), as this figure is not quantified in the record. In addition, we do not think that the Debtor has sufficiently shown the justification to impose a cost of a program to recall certain of the boilers ($86,845.32) against the Defendant. Finally, we will also allow the Defendant to set off the cost of its product which the Debtor accepted, but for which it failed to pay, amounting to $187,408.18. As we further conclude that no award of pre-judgment interest to either party is appropriate, the net award to the Debtor is reduced to $21,147.34.
On May 17, 1983, the Debtor filed the bankruptcy case underlying this proceeding under Chapter 11 of the Bankruptcy Code and thereafter operated its business as a debtor-in-possession. The Debtor's Plan of Reorganization, contemplating a ten (10%) percent dividend to unsecured creditors, was confirmed on May 14, 1984.
On January 6, 1984, the Columbiana Pump Division of the Defendant (referred to herein interchangeably with the Defendant as "the Defendant"), began the proceedings between the parties inter se in this court. It filed a proof of claim in the amount of $200,524.11, which allegedly represented the charges for all castings produced by the Defendant on behalf of the Debtor subsequent to June 4, 1982. On March 6, 1984, the Debtor filed an Objection to the Defendant's proof of claim, due to the warranty claims in issue here. That objection itself was never decided, having been continued generally on April 13, 1984, by our predecessor, the Honorable William A. King, Jr., possibly in contemplation of the filing of this adversary proceeding as a means to resolving the differences between the parties.
On July 19, 1984, the Debtor did file the complaint in the instant adversary proceeding. The Defendant responded, on October 15, 1984, by filing an Answer containing the substance of its proof of claim as a counterclaim to the Debtor's Complaint in this proceeding.
Judge King approved Stipulations generally extending the time for pleading and the trial date, and the matter had disappeared from the court's calendar by the time that we succeeded him on August 27, 1986. The parties, meanwhile, unknown to us, were engaging in a leisurely discovery process. On May 19, 1988, the Defendant filed a motion to compel discovery which, while withdrawn, brought this proceeding to our attention. We then sua sponte issued a Pre-trial Order on June 16, 1988, which, inter alia, set the trial date for August 23, 1988. As the result of a mutual request for a continuance by the parties, the trial date was rescheduled for September 13, 1988, with the warning that no further continuances would be granted.
Nevertheless, on August 10, 1988, the Defendant filed a motion requesting a further continuance of the trial until December 12, 1988. This court, adhering to its original warning, denied the request. The trial was conducted on full days on September 13 and 14, 1988, and a short session of rebuttal testimony on September 16, 1988. At the conclusion of the trial, the parties were instructed to file proposed findings of fact, proposed conclusions of law, and briefs by specified dates, which contemplated complete submission of the proceeding to us by February 7, 1989. On December 8, 1988, the Plaintiff requested and was granted an extension of time to begin the submission process. All materials were in fact completed and filed by February 21, 1989.
Since this proceeding involved protracted and disputed testimony, we are obliged to prepare our decision, pursuant to Bankruptcy Rule (hereinafter "B.Rule") 7052 and Federal Rule of Civil Procedure (hereinafter "F.R.Civ.P.") 52(a), in the form of findings of fact and conclusions of law. Our conclusions of law appear as headnotes to subsequent discussions of each legal issue.
1. The Debtor is a Pennsylvania corporation which, since 1945, has manufactured residential heater boiler units, which were sold by it to principally plumbing supply wholesalers for resale to plumbing contractors.
2. The Defendant, through its foundry division, Columbiana Pump, is in the business of manufacturing and selling cast-iron castings, and has been doing so for customers in the boiler industry since 1953.
3. In 1979, an engineer then employed by the Debtor, Charles Gordbegli, contacted the Defendant for the purpose of engaging the Defendant to manufacture castings for the Debtor's boilers.
4. Prior to this time, the Debtor had been supplied with complete boiler units or "blocks" by two manufacturers, Pentex and Dunkirk Radiator (hereinafter "Dunkirk"). However, it had discontinued its relationship with Pentex, principally due to excessive (20 to 30 percent) cracking in units manufactured by Pentex, and it desired to have more than one supplier at any point in time to guard against production stoppage due to difficulties which a particular supplier might encounter in its own manufacturing processes.
5. By way of contrast to the supplying of complete blocks of castings utilized in its boilers by Pentex and Dunkirk, the Defendant supplied only individual parts of the block. These parts consisted of three types of castings, left-hand castings, intermediate castings, and right-hand castings. After the Debtor received the Defendant's castings, the Debtor itself would assemble a right-hand casting, a left-hand casting, and a number of intermediate castings varying between zero and five, depending on the boiler's size, into a block. The castings making up a block were held together with, inter alia, tie rods and bolts.
6. In order for the Defendant to begin production of the individual castings which it was to assemble, the Debtor supplied the Defendant with three blueprint drawings and a master pattern which were to be used to manufacture, respectively, the right, left, and intermediate sections. The drawings were created by an engineer employed by the Debtor, Larry Schmidt, who did not testify at trial.
7. Several months prior to entering into a formal agreement to manufacture the castings in accordance with the drawings, the Defendant sent the Debtor samples of the left, intermediate, and right sections which it had created from the blueprints.
8. On November 6, 1979, the samples sent to the Debtor by the Defendant were approved and the parties entered into an agreement for their mass production thereafter.
9. All assembled boilers were subject to testing pursuant to standards established by the American Gas Association (hereinafter "AGA") and the American Society of Mechanical Engineers Code (hereinafter "ASME"). The ASME Code governs, among other things, the chemical composition of the castings and various pounds per square inch of pressure levels which the castings must withstand.
10. Both the Debtor and the Defendant analyzed the metal used in the castings and in the finished blocks. The Debtor initially performed a visual inspection of the castings for any obvious holes or cracks and, after preparing those not obviously damaged for plumbing, filled them with water and pressurized them in checking for any leaks.
11. In 1981, the Debtor began experiencing what it believed were an inordinate number of instances where the Defendant's castings were cracking. Therefore, the Debtor instituted a second pressure test using air.
12. When the Defendant's agents observed the air-pressure testing in a visit to the Debtor's plant in October, 1981, they strongly disapproved of this test,...
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