Kaiser Aluminum & Chemical Sales, Inc. v. PPG Industries, Inc.

• Citation: 42 F.3d 1147
• Decision Date: 21 March 1995
• Docket Number: No. 94-1071,94-1071
• Parties: 25 UCC Rep.Serv.2d 331 KAISER ALUMINUM & CHEMICAL SALES, INC., Plaintiff-Appellant, v. PPG INDUSTRIES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1147

42 F.3d 1147

25 UCC Rep.Serv.2d 331

KAISER ALUMINUM & CHEMICAL SALES, INC., Plaintiff-Appellant, v. PPG INDUSTRIES, INC., Defendant-Appellee.

No. 94-1071.

United States Court of Appeals Seventh Circuit.

Argued June 6, 1994.

Decided Dec. 23, 1994.

Rehearing and Suggestion for Rehearing

En Banc Denied March 21, 1995. ^*

Richard A. Huser, Locke, Reynolds, Boyd & Weisell, Indianapolis, IN, Richard M. Knoth (argued), Climaco, Climaco, Seminatore, Lefkowitz & Garofoli, Cleveland, OH, for plaintiff-appellant.

Nicholas C. Nizamoff, William C. Ahrbecker, White & Raub, Indianapolis, IN, James R. Miller (argued), Michael J. Sweeney, Dickie, McCamey & Chilcote, Pittsburgh, PA, for defendant-appellee.

Before CUDAHY, ALARCON, ^** and COFFEY, Circuit Judges.

ALARCON, Senior Circuit Judge.

Midwest Curtainwalls ("Midwest") sued Kaiser Aluminum ("Kaiser") for damages resulting from the delay in erecting a curtainwall facade due to Kaiser's untimely delivery of painted aluminum extrusions. Kaiser settled with Midwest for $500,000. Kaiser then brought this diversity action against PPG Industries ("PPG") seeking reimbursement for the settlement and attorneys' fees associated with the Midwest action. Kaiser alleged that the untimely performance of its contractual duties with Midwest was due to delays resulting from extra efforts it was forced to expend to remedy problems related to the defective paint provided to its subcontractor, Krestco, by PPG. Kaiser sued PPG under theories of implied breach of warranty (Count I), and common law indemnity (Count II). The district court, relying on Texas law, granted summary judgment for PPG on both counts. The district court ruled that Texas law did not allow Kaiser to recover the settlement amount and attorneys' fees from PPG. The court entered its final judgment on December 8, 1993. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291. We affirm because we conclude that settlement and fee expenses cannot be recovered as consequential damages under Texas law.

I. BACKGROUND

This action arose from a dispute relating to the construction of the Bank One office tower in Indianapolis, Indiana. Midwest entered into a contract to provide curtainwall panels for use on the exterior facade of the building. Kaiser agreed to provide approximately one million pounds of aluminum extrusion product to Midwest for use in fabricating the curtainwall panels.

The extrusions were to be coated with paint manufactured by PPG. Because Kaiser lacked the capacity to apply PPG's paint, it hired Krestco to paint the materials and ship them directly to Midwest. Although Kaiser representatives met with representatives from PPG to review and approve the paint, and later communicated regarding the paint problems which developed, Kaiser and PPG had no written contract. Krestco ordered and purchased the paint from PPG. Kaiser neither purchased nor came into possession of the paint.

By late July 1988, Krestco painted and shipped five truckloads of Kaiser's aluminum extrusions to Midwest. Shortly thereafter, Midwest contacted Kaiser to report that the paint on the extrusions was defective. Midwest complained that there was "trash" in the paint. It rejected a portion of the extrusions.

Due to the problems with the paint, Krestco informed Kaiser that it would no longer perform its contract with Kaiser. Kaiser replaced Krestco with a new subcontractor, Western Extrusions. Western Extrusions agreed to expedite the painting of the material. Kaiser rearranged its production schedule and re-extruded new material so that Midwest would be adequately supplied with extrusions with only a limited delay. As a result of the delay, erection of the curtainwall was not completed on schedule.

Midwest filed a diversity action against Kaiser in the United States District Court for the Northern District of Ohio for damages resulting from the delay. Kaiser notified PPG of the action, but did not join PPG as a third-party defendant. Kaiser settled the action filed by Midwest for $500,000.

Kaiser then brought this diversity action against PPG seeking "reimbursement of the principal amount paid by Kaiser in settlement of the Midwest Lawsuit, [and $250,000 in] costs incurred in defending the Midwest Lawsuit, including attorneys' ... fees." Kaiser alleged that its untimely performance with Midwest was directly attributable to PPG's defective paint. Kaiser sued under theories of implied breach of warranty (Count I), and common law indemnity (Count II).

Prior to the date set for trial, PPG filed three motions in limine seeking to exclude evidence proffered by Kaiser relating to the amount and reasonableness of the settlement it paid to Midwest. PPG argued that this evidence should not be admitted at trial because, under Texas law, the settlement and fees were not recoverable as consequential damages. Kaiser did not file a brief in response, but submitted to the district court copies of pertinent Texas Business and Professions Code sections, as well as cases and other materials regarding the issue whether the settlement and fees were recoverable as consequential damages for a breach of implied warranty.

The district court granted PPG's motions, thus effectively precluding Kaiser from offering any evidence relating to the settlement and fee amounts. The court then vacated the date set at that time for trial "to allow Kaiser additional time to develop evidence, if any, regarding other consequential damages it may claim which were proximately caused by PPG's alleged breach." Kaiser, however, advised the court that it intended to limit its damages solely to the settlement and fees.

Ultimately, the district court granted summary judgment for PPG on both counts of Kaiser's complaint. The district court held that, under Texas law, the amount paid in settlement of an action and the costs of defense were not recoverable as consequential damages. Kaiser argues before this court that its "suit for breach of warranty and its claims for damages are clearly supported by Texas law and the Uniform Commercial Code ... [and that on] that basis, ... the recovery of settlement amounts and costs ... is clearly permitted."

II. ANALYSIS

We review de novo a district court's decision to grant summary judgment. Karazanos v. Navistar Int'l Transp. Corp., 948 F.2d 332, 335 (7th Cir.1991). In conducting this review, we draw all reasonable inferences in the light most favorable to the nonmoving party. Lohorn v. Michal, 913 F.2d 327, 331 (7th Cir.1990). Summary judgment is appropriate when there are no genuine issues as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

A. Count I: Implied Breach of Warranty

In Count I, Kaiser prayed for "reimbursement of the principal amount paid by Kaiser in settlement of the Midwest Lawsuit, [and $250,000 in] costs incurred in defending the Midwest Lawsuit, including attorneys' ... fees." Under Texas law, the procedure for obtaining such reimbursement is by "vouching in" the third party to the action at issue. Tex.Bus. & Comm.Code Sec. 2.607. ¹ The voucher method may not be invoked, however, when the underlying action was settled instead of fully litigated to judgment. CGM Valve Co. v. Gulfstream Steel Corp., 596 S.W.2d 161, 163 (Tex.App.1980).

Apparently recognizing this bar, Kaiser adopted a novel approach in an attempt to recover the amount of the settlement and its legal costs. Kaiser labeled the settlement and legal costs "consequential damages" and sought to recover under Texas Business and Commercial Code sections 2.714 and 2.715 for breach of warranty. Tex.Bus. & Comm.Code Secs. 2.714, 2.715. The district court rejected this attempt, stating that Texas authority did not support Kaiser's argument that it could recover such expenses as consequential damages. We agree.

The precise question presented has not been ruled upon by the Texas Supreme Court. Texas has, however, expressed a policy against allowing parties to recover, in a voucher proceeding, the amount paid in other actions because settlements do not result from "full dress, arm's length, good faith, adversary proceeding[s]." CGM Valve, 596 S.W.2d at 163 (internal quotation omitted). Rather, the settlement is likely to be "agreed upon without vigorous contest or the best effort of both litigants." Id. at 164. For this reason, in CGM Valve, the Court of Civil Appeals of Texas reversed the judgment in a common law indemnity action granting the plaintiff as damages the amount of its settlement from litigation with a third party. Id. The rationale employed by the court in CGM Valve applies to the issue before this court. We are persuaded that the Texas Supreme Court would not permit Kaiser to circumvent the rule announced in CGM Valve by recovering as consequential damages what it would not be able to recover through the voucher procedure.

Kaiser contends, however, that Texas' breach of warranty provisions are based upon the Uniform Commercial Code and should be interpreted in conformance with similarly worded statutory provisions in other jurisdictions and the purposes of the UCC. Kaiser cites several cases to support its position that the amount paid in settlement of an action and the attendant legal costs are recoverable under the Texas Business and Commercial Code. Kaiser's reliance on the cited authority is misplaced. Each case is readily distinguishable.

In two of the cases cited by Kaiser, Chemco Industrial Applicators Co. v. E.I. du Pont de Nemours & Co., 366 F.Supp. 278 (E.D.Mo.1973), and Safeway Stores, Inc. v. Schreiber Cheese Co., 326 F.Supp. 504 (W.D.Mo.1971), rev'd, 457 F.2d 962 (8th Cir.1972), the plaintiffs sought reimbursement for judgments obtained against them in prior litigation. Chemco, 366 F.Supp. at 281-83; Safeway, 326 F.Supp. at 509. Neither case involved a settlement. Thus, they are not relevant to the issue we must decide.

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