International Product. Special. v. Schwing America

• Decision Date: 02 September 2009
• Docket Number: No. 07-3632.,07-3632.
• Parties: INTERNATIONAL PRODUCTION SPECIALISTS, INC., Plaintiff-Appellant, v. SCHWING AMERICA, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

580 F.3d 587

INTERNATIONAL PRODUCTION SPECIALISTS, INC., Plaintiff-Appellant, v. SCHWING AMERICA, INC., Defendant-Appellee.

No. 07-3632.

United States Court of Appeals, Seventh Circuit.

Argued September 5, 2008.

Decided September 2, 2009.

Michael P. Dunn, Attorney (argued), Milwaukee, WI, for Plaintiff-Appellant.

Jonathan P. Schmidt, Attorney (argued), Jeffrey F. Shaw, Attorney Briggs & Morgan, Minneapolis, MN, for Defendant-Appellee.

Before FLAUM, ROVNER and WILLIAMS, Circuit Judges.

ROVNER, Circuit Judge.

International Production Specialists, Inc. (IPS) entered into a contract with Schwing America, Inc. (Schwing) to make and install five silos to store and treat sludge at a wastewater treatment plant owned by the general contractor, North Shore Sanitary District (NSSD). Initially IPS's piece of the process was to take about eight months. After several years of delays — some attributable to NSSD, some to IPS, and some to events beyond anyone's control — nearly three-and-a-half years after the parties signed the initial purchase order, the project still had not been completed. On February 11, 2005, Schwing notified IPS that it was cancelling the contract for cause. IPS responded by suing for breach of contract and Schwing countersued. The district court ruled in favor of Schwing, awarding damages in the amount of $467,140.02. We affirm, but remand in part to correct a small error in the calculation of damages.

I.

This case comes to this court after a trial in the district court. The facts of this case, as determined by the trial court, are long and tedious, but necessary for a full understanding of the intricacies of the relationship between the parties.

Schwing and IPS were both subcontractors on a larger project to build a wastewater treatment facility. In 2001, NSSD hired Voest-Alpine Industries, Inc. (VA Tech) to work on the construction of its new wastewater treatment plant in Waukegan, Illinois, agreeing to pay it $6.6 million. VA Tech, in turn, entered into a $1.25 million subcontract with Schwing to supply and install two wet sludge silos, a dry granules silo (conical silos), two receiving bins, and other associated equipment for the NSSD facility. Pursuant to the terms of the contract with VA Tech, Schwing obtained a performance bond.

Schwing's operations manager, Nancy Predatsch, decided to find a local contractor to fabricate the silos. A web search turned up IPS, a Wisconsin manufacturer of construction equipment, including standard and custom built bulk material handling equipment. On August 20, 2001, IPS and Schwing executed a purchase order in which, for payment of $666,372, IPS agreed to manufacture and install at the NSSD Waukegan facility the five silos, incorporating the specifications and technical supplies from the VA Tech-Schwing contract.

By attachment, the parties set forth a delivery, installation, and payment schedule. (D. Exh. 1004 at p. 4)¹. According to the delivery schedule, IPS was to deliver all of the silos (the two receiving bins, the two wet storage, and the one dry storage) by December 28, 2001. The installation schedule was labeled "approximate" and noted the following dates:

Two (2) Sliding Frame Silos (Receiving Bin), Approximately February 1, 2002²

Two (2) Sliding Frame Silos (Wet Storage), Approximately February 15, 2002 One (1) Conical Silo (Dry Storage), Approximately April 15, 2002

Id. A note below the schedule states, "[a]ctual schedule will be dictated by progress on the plant construction contract. Installation activity will need to be coordinated with the site contractor." Id. The delivery schedule contains no such approximate language.

IPS's Executive Vice President, Jordan Kopac, Jr. managed IPS's work directly on site as IPS worked through the late summer and fall 2001. Schwing made progress payments to IPS totaling $595,692.

In November 2001, NSSD decided to suspend work on the project. Consequently, on November 30, 2001, Schwing sent IPS a facsimile directing IPS to cease on-site work, but to continue fabricating the two receiving bin silos at the shop, as scheduled. Schwing also informed IPS that it could continue to deliver materials to the site and unload them, but they should not be fabricated on site. Schwing estimated that the work stoppage would continue for ninety days and asked IPS to inform Schwing of any cost changes associated with the schedule change.

On April 11, 2002, VA Tech inspected IPS's work on the silo parts. Representatives from VA Tech, NSSD, IPS, and Schwing attended the inspection. The next day, a Schwing representative sent out an e-mail identifying fifteen problems with the silos including improper painting and welding. (Pl.Exh.17). A VA Tech representative also prepared a memorandum noting manufacturing defects, including poor painting and improper welding. (Pl.Exh.18). At the time of the memorandum, 90% of the receiving bin silo manufacturing had been completed, as had 50% of the wet sludge silos and 40% of the dried granules silos. Of course, no installation had begun or was yet required. After the inspection, the project lay dormant for approximately two years — until about February 19, 2004, when VA Tech notified Schwing that NSSD had restarted the project at a new site in Zion, Illinois and that VA Tech expected Schwing to honor its contract. VA Tech did not increase its payment to Schwing.

Schwing, in turn, informed IPS that the project was restarting and that Schwing expected IPS to honor its contract. Schwing's project manager asked IPS to inform him of any additional expenses that IPS might incur as a result of the change of location.

IPS responded that a "deep silo fabrication lay-down area" — in layman's terms a work area — would be necessary at the Zion site and would be used to fabricate and store the wet sludge silos on site. It provided two field service quotations for a total of $210,500.

In spring 2004, representatives from Schwing, IPS, VA Tech, and NSSD met to view the project site, coordinate the silo construction site, discuss scheduling, and review potential lay down sites where IPS could work on the silos. Schwing asked IPS's vice president, Kopac, to identify IPS's lay-down area preference and to present Schwing with a proposal for reimbursement of the additional costs for relocating the project and transporting materials.

After the meeting, IPS's Kopac called Schwing's project manager, David Miller once, but did not identify his lay-down area preference. Miller left a number of unreturned messages for Kopac and eventually called IPS's president, Jordan Kopac, Sr., who informed Schwing that IPS would not be participating in the project because the new site was problematic. IPS maintains that had a suitable work area been provided, IPS would have been able to complete the project in three to four months. The new area, however, was a full-blown construction site and IPS believed that the lay down area and roadways were insufficient to complete the project.

Schwing solicited bids from other companies to complete IPS's work, but those bids were high compared to Schwing's contract with VA Tech, factoring in the payments Schwing already had made to IPS. Consequently, Schwing wrote to IPS on June 10, 2004, asking IPS to honor the contract and resume work, or, in the alternative, return all payments it received.

IPS responded that the agreement it had made was for the Waukegan site and not the Zion site, stating further,

IPS stands ready, willing and able to perform per its contract with Schwing. We are not willing, however, to modify the terms of our contract and commit to the performance at a new site that poses potential pitfalls and complexities that did not exist with respect to the Waukegan site. From a complexity of performance standpoint, the Zion site, being a full-blown construction project, is substantially more complex.

(Pl.Exh.4).

Notwithstanding IPS's position, Schwing and IPS continued to negotiate. On July 12, 2004, IPS sent a quote to Schwing indicating that for approximately $264,084, it could complete the project at the Zion site. The quote contained three general notes (only note one and two are relevant to this appeal).

GENERAL NOTE # 1

Additional costs from the original 2001 job quotation in Waukegan based on an August 2004 start date with the majority of the main & coned silo work expected to be completed by September 30th, 2004.

GENERAL NOTE 3:

IPS has requested and to-date has not received a Zion Project time lines [sic] from Schwing, NSSD or the General Contractor. Therefore IPS will not be responsible for any monetary penalties on this project caused by unrealistic milestones, delays caused by others or acts of God.

(D. Exh. 1012,1017).

On July 29, 2004, the project manager from Schwing e-mailed IPS's Kopac a proposed change order which included nine additional work items with a proposed additional payment. IPS increased the change order price to $143,630 and noted the outstanding purchase order balance of $99,946, for a total price of $243,576. Kopac quickly sent a return e-mail back to Schwing proposed revisions including that general notes 1-3 of the July 12 quotation be incorporated. IPS also requested a final paragraph that stated:

No other changes to this order apply at this time. Access to silo installation area infrastructure for eventual silo placement into the General Contractor[']s facilities or the use of the General Contractor[']s material handling equipment or requirements for the hiring of General Contractors labor personnel has not yet been established by Schwing America Project Manager and must be established. Additional charges may apply if accessibility is delayed or limited, and charges from the General Contractor or unforeseen issues arise.

The modifications requested by IPS were incorporated into the final change order which was executed on August 12, 2004. (D. Exh. 1017)

That same day, the new Schwing project manager sent...