Middletown Concrete Products v. Black Clawson Co., Civ. A. No. 90-668 MMS.

• Decision Date: 28 August 1992
• Docket Number: Civ. A. No. 90-668 MMS.
• Citation: 802 F. Supp. 1135
• Parties: MIDDLETOWN CONCRETE PRODUCTS, INC., a Delaware corporation, Plaintiff, v. BLACK CLAWSON CO., an Ohio corporation, and Hydrotile Machinery Co., an Iowa corporation, Defendants.
• Court: U.S. District Court — District of Delaware

802 F. Supp. 1135

MIDDLETOWN CONCRETE PRODUCTS, INC., a Delaware corporation, Plaintiff, v. BLACK CLAWSON CO., an Ohio corporation, and Hydrotile Machinery Co., an Iowa corporation, Defendants.

Civ. A. No. 90-668 MMS.

United States District Court, D. Delaware.

August 28, 1992.

James S. Green and Mark E. Steiner of Duane, Morris & Heckscher, Wilmington, Del., for plaintiff.

Carl Schnee, and Joseph Grey of Prickett, Jones, Elliott, Kristol & Schnee, Wilmington, Del.; Robert Braunschweig and Richard C. Raymond, of Braunschweig Rachlis Fishman & Raymond, P.C., of counsel, for defendants.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

On October 11, 1990, Middletown Concrete Products, Inc. ("MCP") filed a complaint against Black Clawson Co. ("Black Clawson") and Hydrotile Machinery Company ("Hydrotile") over the sale of machinery for which the contract price exceeded $2,000,000. Before the Court now in this diversity action is MCP's motion for summary judgment on counts I and II and defendants' motion for summary judgment on all counts. The parties agree that the contract claims are governed by Iowa law and the tort claims are governed by Delaware law. This Court has jurisdiction under 28 U.S.C. § 1332.

For the reasons that follow, MCP's motion for summary judgment will be denied; Hydrotile's motion for summary judgment will also be denied.

I.

In 1988, Kenneth Kershaw ("Kershaw"), Joseph J. Corrado ("Corrado"), Stephen A. Cole ("Cole"), Frank Corrado, Leonard Iacono ("Iacono"), Arnold Boyer ("Boyer") and Verino Pettinaro, all of whom are Delaware contractors, formed and became shareholders in Middletown Concrete Products, Inc., a precast concrete manufacturing plant in Middletown Delaware. (App. to Pl.'s Opening Br. (Docket Item 26) hereinafter "Dkt." at A-189-90). Each of the founders is an experienced businessman. Boyer invested approximately $500,000 (App. to Def.'s Opening Br., Dkt. 29 at A-107), and subsequent investments by Kershaw and Corrado have brought their investments in MCP to approximately $1.3 million each. (Dkt. 29 at A-173-4; A-133-34). MCP's primary product was to be concrete pipe.

In March of 1989, MCP entered into a series of contracts (the "Contracts") with Hydrotile, a wholly owned division of Black Clawson, under which defendants agreed to sell to MCP a machinery system to manufacture concrete pipe (the "System"). The System consisted mainly of two parts: (1) the Multipak/Neptune machine (the "Neptune") and the Rekers Off-bearing System (the "Rekers"). On August 8, 1989, MCP entered into an additional contract with Hydrotile for the purchase of equipment for the production of elliptical concrete pipe.

Apparently, the parties' relationship began when David Mack ("Mack"), Hydrotile's regional sales manager, visited Corrado to discuss the generalities of the pipe manufacturing business as well as Hydrotile's products. (Pl.'s Opening Br., Dkt. 25 at 5; Dkt. 26 at A-200-202). In June, 1988, Darryl Haar ("Haar"), vice president and marketing manager for Hydrotile, and Mack visited Corrado again and showed VCR tapes of various pipe making machines as well as of the Rekers. (Dkt. 26 at A-131).

At one of the meetings in 1988, Mack gave Corrado a promotional brochure for the Neptune. Part of this brochure contained a list of rates at which the Neptune could produce various sizes of pipe. (Dkt. 26 at A-17; A-202-203).

During the summer of 1988, representatives of MCP and Hydrotile together visited various pipe manufacturing plants in the United States and Canada. (Dkt. 26 at A-65-66; A-80; A-175). MCP's representatives observed the operation of machinery produced by a variety of machinery manufacturers and had an opportunity to talk to the various pipe producers who were using this machinery. (Dkt. 26 at A-67; A-80-83; A-132). During one of these visits, MCP learned that in Florida a Saturn machine (Hydrotile's predecessor to the Neptune) had experienced difficulties in starting up. When asked about the Florida plant, Boyer testified in deposition: "In a nine-month period down there they had never got that thing up to producing anywhere near what they had expected." (Dkt. 29 at A-115).

During the July, 1988, tour, MCP viewed certain features of other Hydrotile equipment, some of which belonged to predecessors of the Neptune machine (Dkt. 29 at A-164-65; A-166), but the Neptune itself was not yet in production in any plant at that time. (Dkt. 29 at A-125; A-157). Consistent with its policy, Hydrotile did not conduct production testing for the Neptune. (Dkt. 29 at A-147-48).

At the time of the tour, MCP was considering purchasing concrete pipe manufacturing machinery from the Hawkeye Machinery Company ("Hawkeye") as well as from Hydrotile. (Dkt. 26 at A-83). MCP also considered equipment available from other suppliers. (Dkt. 26 at A-80-83; A-204).

In August of 1988, Hydrotile and MCP intensified negotiations for the purchase of a highly automated system. On August 11 and 12, 1988, Mack and Haar met with MCP to go over Hydrotile's quote for the System. (Dkt. 26 at A-83). Although experienced businessmen, none of the shareholders of MCP had ever purchased pipe making machinery before. (Dkt. 26 at A-73). Among other things, Haar and Mack discussed proposed plant layouts. (Dkt. 26 at A-133). The parties also discussed pipe quality, production rates, and changeover time. (Dkt. 26 at A-180-181).

During this meeting Corrado and other shareholders of MCP shared with Haar concerns they wanted satisfied before purchasing the System from Hydrotile. (Dkt. 26 at A-84-85). At the time of the meeting MCP was concerned about the Neptune's performance as Neptune had not developed a track record and as another company was experiencing problems with the Neptune's predecessor, the Saturn. (Dkt. 26 at A-84-85). Accordingly, MCP requested that Hydrotile guarantee production rates. (Dkt. 26 A-90-98). Indeed, MCP was "screaming" and "shouting" about the production guarantee's importance. (Dkt. 29 at A-123A). MCP also requested that Hydrotile accept different payment terms than those proposed by Hydrotile, and agree to buy back the System if it did not perform satisfactorily. (Dkt. 26 at A-84-87; A-134; A-213-14). After initially dismissing MCP's requests as "out of the question," Haar agreed to discuss the requests with his superiors. (Dkt. 26 at A-135-36).

On August 24, 1988, Haar returned to MCP with David Fell ("Fell"), corporate operations manager of Black Clawson. Corrado, Cole and Boyer attended this meeting on behalf of MCP. (Dkt. 26 at A-137). Haar and Fell told MCP that Hydrotile and Black Clawson would not agree to a buy back provision. (Dkt. 26 at A-216-17). MCP never successfully negotiated a buy back stipulation. (Dkt. 26 at A-74-75; A-94).

On August 24, 1988, Haar also told MCP that Hydrotile could not guarantee the production levels in the promotional brochure because actual production levels could depend on a number of factors. (Dkt. 26 at A-88-90; A-218-20). In response to this MCP told Haar to advise MCP of rates Hydrotile would guarantee. (Dkt. 26 at A-90-98; A-219). Specifically, Boyer told Haar and Fell that if they were unwilling to guarantee the rates in their promotion literature, they should pick a number they could live with. (Dkt. 26 at A-69-72; A-76-77). MCP never insisted that Hydrotile guarantee the rates reflected by its advertising. (Dkt. 26 at A-90-96; A-140).

During the August 24, 1988, meeting, Haar also stated that changeovers could be made in about an hour. (Dkt. 26 at A-139). Both Haar and Ronald Schriever, Hydrotile's National Sales Manager, made this representation on several occasions. (Dkt. 26 at A-8-10; A-26-27; A-153-55; A-224). Plaintiff urges that such representations were insupportable because Mack, during his deposition, testified that Hydrotile never attempted to change over any Neptune prior to marketing the machine. (Dkt. 26 at A-236). Also, plaintiffs note Hydrotile's theoretical production rates for the Neptune were calculated partially by extrapolating theoretical production rates of the Saturn. MCP actually experienced changeover times in excess of four to eight hours. (Dkt. 26 at A-236; A-46-48; A-149-52).

On August 30, 1988, Haar, Mack and William Mitchell¹ ("Mitchell") met with Corrado, Boyer and Iacono. (Dkt. 26 at A-34; A-143). The parties discussed production rates. Around the time of the meeting, Haar presented MCP with Hydrotile's definition of "Acceptable Performance" of the System. (Dkt. 26 A-2-7; A-90-97). The definition was in the form of a letter (the "Acceptable Performance Letter") authored by Mr. Haar in response to MCP's demand on August 24. (Dkt. 26 at A-2-7; A-222; A-242). The production rate listed was less than that contained in Hydrotile's literature.

At the time Haar prepared the Acceptable Performance Letter, no Neptune machine was operating, and the only other machine had been sold to American Concrete Products in Milwaukee. Haar prepared the letter based on prior meetings with a number of Hydrotile engineers and technicians, who developed estimates based on prior generations of Hydrotile machinery. (Dkt. 29 at A-151-54). Hydrotile did not share with MCP the underlying theoretical basis of its estimates.

At the August 30, 1988, meeting, MCP again requested that Hydrotile agree to a "buy-back" or some other type of production guaranty tied to the estimated rates set forth in the August 29 letter. Hydrotile again refused to agree to such a provision. MCP decided to postpone negotiations until it could visit American Concrete where the Neptune was installed and could be observed first-hand. (Dkt. 29 at A-158-61). Corrado and other representatives of MCP traveled to Milwaukee to observe the machine. (Dkt. 29 at A-191). Because the machine was not producing concrete at that time, the MCP representatives could only observe the Neptune "dry cycle" through its phases of operation. (Dkt. 29 at A-191; A-136-37).

In early...