Kraft Foods North America v. Banner Engineering
| Decision Date | 25 August 2006 |
| Docket Number | No. CIV.A. 305CV248.,CIV.A. 305CV248. |
| Citation | 446 F.Supp.2d 551 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | KRAFT FOODS NORTH AMERICA, INC., Plaintiff, v. BANNER ENGINEERING & SALES, INC., Defendant. |
James W. Barkley, Esquire, Morin & Barkley, Charlottesville, VA, Kathleen P. Loughhead, Esquire, Mark T. Mullen, Esquire, Cozen O'Connor, Philadelphia, PA, for Plaintiff.
Lynne J. Blane, Esquire, Harmon Claytor Corrigan & Wellman, Richmond, VA, for Defendant.
In this diversity action, Kraft Foods North America, Inc. ("Kraft") seeks damages from Banner Engineering & Sales, Inc. ("Banner"), asserting claims of negligence, breach of warranty, and breach of contract related to an impedance pipe heating system designed by Banner for Kraft's "Low Trans Oil Project." The case was tried to the Court sitting without a jury. Having reviewed the exhibits and heard the testimony of the witnesses, the Court makes the findings of fact and conclusions of law set forth below.
On July 11, 2003, the Food and Drug Administration ("FDA") issued a final rule requiring that nutrition labels declare the amount of trans fatty acids in conventional foods and dietary supplements, which went into effect on .January 1, 2006. See 21 C.F.R. § 101.9(c)(2)(ii); 68 Fed.Reg. 41434. Kraft is in the business of manufacturing and distributing food products, including various baked goods. Even before the FDA issued the final rule, Kraft decided that it wanted to be able to declare zero grams of trans fat on its product labels by the time the rule went into effect. To that end, Kraft began to adjust its recipes and to experiment with low trans fat oils. Within Kraft, this was commonly referred to as the "Low Trans Oil Project."
At some point in 2002, Kraft determined that it wanted to move beyond limited plant trials to a full plant trial. Kraft chose its facility in Richmond, Virginia, where it operates a large bakery and warehouse, as one of the first test bakeries. A full plant trial required the installation of a separate oil system that could be isolated from Kraft's regular oil system. This way Kraft could continue its normal production, and then run trials with the low trans fat oils on various product lines for certain periods. To accomplish this separate oil system, Kraft planned to install stainless steel tubing and other equipment at the Richmond facility to transport the low trans fat oils to various parts of the plant.
William Kinslow was Kraft's lead engineer for the Low Trans Oil Project, but Kraft also contracted with Foth & Van Dyke Associates Inc. ("Foth & Van Dyke") of Green Bay, Wisconsin as its outside engineering consultants for the Low Trans Oil Project. Foth & Van Dyke was responsible for the process piping engineering on the Low Trans Oil Project, and provided Kraft with both detailed engineering drawings and final installation drawings.
Low trans fat oil has to be maintained at a temperature of approximately 123 degrees Fahrenheit in order to prevent it from solidifying inside the pipes. An impedance heating system accomplishes this task by passing an electric current through the pipes. Banner designs and sells electric impedance pipe heating systems. Foth & Van Dyke contacted Banner of Saginaw, Michigan to solicit a budgetary cost for impedance heating on the piping for the Low Trans Oil Project.
Duane Hammond and Sheryl Pham, Foth & Van Dyke's lead engineers on the Low Trans Oil Project, made the initial contact with Banner in September 2002. On September 26, 2002, Pham sent an email to James Glidden at Banner, which described the vertical drops for the 2" and 2.5" stainless steel piping in Foth & Van Dyke's design, provided information about the necessary temperature for the low trans fat oils, and attached drawings of the piping. Glidden, a project manager at Banner, prepared a budget quote based on this information and sent it to Foth & Van Dyke on September 30, 2002. Banner quoted Kraft a price of $22,065, which included transformers, control panels, and insulated pipe joints kits for each of the circuits. Insulated (or dielectric) pipe joint kits convert mechanical pipe joints into insulated (or dielectric) pipe joints, which prevent electric current from passing through the joint. Insulated pipe joints are important components of impedance pipe heating systems because they define the boundaries of electrically isolated segments of piping. Banner included a number of materials with its quote, including a two-page letter that detailed the products it would supply, a 2002 rate sheet, terms and conditions, four drawings, and information on Tri-Clamps, Zephyrweld flanges, and Butt-Weld fittings.
Hammond used the information in Banner's preliminary quote to produce a Design Data Sheet for bidding purposes. Dated December 2, 2002, the Design Data Sheet contained specifications for the impedance pipe heating system for the Low Trans Oil Project. The Design Data Sheet described nearly 1600 linear feet of 2" and 2.5" sanitary tubing on four different circuits (Mixer Circuit, Spray Oil Mix Room Circuit, Oven Room Circuit, and Icing Circuit). In a section entitled "Vendor Requirements," the Design Data Sheet specified: "Vendor is to provide with quote recommended installation procedures, insulation, cable/wiring, and spare parts." Plaintiff's Trial Exhibit 9 (hereinafter "PTX ___"). Kraft and Foth & Van Dyke sent the Design Data Sheet to Banner on December 2, 2002, in an e-mail from Hammond to Glidden. In a follow up e-mail on December 3, 2002, Kinslow instructed Glidden to send Banner's quote by e-mail as an attached Word document.
The Design Data Sheet sent to Banner included several attachments, which was contemplated in the text of the Design Data Sheet. The December 2nd e-mail from Hammond to Glidden suggests that most of the attachments contemplated in the Design Data Sheet were in fact sent to Banner. The names of the attached files indicate that Banner received "Attachment D," which related to "Tagging, Shipping, and Quality Assurance Requirements," as well as "Attachment E," which related to "Data Submittal Requirements." Banner also received three drawings prepared by Foth & Van Dyke: 02K075-1.dwg, 02K075-2A.dwg, and 02K075-2B.dwg. See Defendant's Trial Exhibit 5 (hereinafter "DTX ___"). However, Hammond's e-mail does not indicate that Banner received "Attachment C," which the Design Data Sheet indicated would be included. Attachment C was supposed to be "Terms and Conditions—Per KFNA Purchasing P.O."
On December 9, 2002, Banner sent Kraft a two-page quote for the impedance pipe heating system, based on the specifications in the Design Data Sheet. Banner's bid set forth the material and equipment to be supplied by Banner for a price of $25,277, and attached a 2002 rate sheet, terms and conditions, six drawings, and it recommended the use of Tri-Clamps, Zephyrweld flanges, and Butt-Weld fittings. At Foth & Van Dyke's request, Banner submitted a revised bid on December 16 20022 that upgraded some of the electrical components, for a price of $26,397. The change in price was based on Nema 4 transformer cases for the Mixer Circuit and the Spray Oil Mix Room Circuit, which upgraded the transformers to the same protection level as the corresponding control panels. Otherwise, the revised quote was identical to the December 9th quote, and included all the same attachments. Kraft received Banner's quote in an e-mail from Hammond to Kinslow and Kevin Masterson on December 16, 2002.
The "Terms and Conditions of Sale" attached to Banner's quote stated in pertinent part:
3. All orders are subject to acceptance by the SELLER at its home office in Saginaw, Michigan USA. The liability of the SELLER is limited to the proposal and terms and conditions herein.
* * * * * *
10. All goods sold are warranted or guaranteed only to the extent of the express warranty of the MANUFACTURER. In no event shall the SELLER be liable for consequential damages.
Banner's quote included a total of 35 insulated pipe joint kits for the four circuits. Each insulated pipe joint kit would consist of one white nitrile full face dielectric gasket, one white nitrile ring type dielectric gasket, four bolt insulators, four stainless steel SAE washers, and four stainless steel bolts and nuts. Among the six drawings submitted with the quote, Banner included Banner Drawing No. 92-0602-1(P), which shows an exploded view of how an insulated pipe joint should be assembled.3 Dated June 2, 1992, Banner Drawing No. 92-0602-1(P) was not prepared specifically for Kraft's Low Trans Oil Project. Indeed, the drawing was not an engineered drawing for a specific application, but rather was a "design drawing" or "cut sheet," which was intended to give a general indication as to how an insulated pipe joint kit is integrated into a mechanical pipe joint to upgrade it to a dielectric pipe joint. In fact, the cut sheet contained information for tubes of several diameters, but not for the 2.5" tubing which comprised a substantial portion of the stainless steel tubing used in the Low Trans Oil Project.
The cut sheet included two notations. Next to a line leading to a depiction of a bolt insulator, the cut sheet stated: "BUSHING LENGTH: CUT TO SUIT." PTX 10. The term "bushing" refers to the bolt insulator. The bolt insulator did not come precut and had to be trimmed in the field in relation to the thickness of the flange. Then, next to a line leading to a depiction of a stainless steel hex nut, the cut sheet stated: "NOTE: MAXIMUM TORQUE 60 FT. LBS." Id. This second notation is at the heart of Kraft's claim for breach of contract.
On December 17, 2002, Phillip Brown of Kraft sent a purchase order for $26,397 to Banner's...
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