Midwest Mobile Diagnostic Imaging v. Dynamics Corp., 4:96 CV 9.

• Citation: 965 F.Supp. 1003
• Decision Date: 28 May 1997
• Docket Number: No. 4:96 CV 9.,4:96 CV 9.
• Parties: MIDWEST MOBILE DIAGNOSTIC IMAGING, L.L.C., a Delaware Limited Liability Company, Plaintiff, v. DYNAMICS CORPORATION OF AMERICA, a New York corporation, d/b/a Ellis & Watts, Defendant.
• Court: U.S. District Court — Western District of Michigan

965 F.Supp. 1003

MIDWEST MOBILE DIAGNOSTIC IMAGING, L.L.C., a Delaware Limited Liability Company, Plaintiff, v. DYNAMICS CORPORATION OF AMERICA, a New York corporation, d/b/a Ellis & Watts, Defendant.

No. 4:96 CV 9.

United States District Court, W.D. Michigan.

May 28, 1997.

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David G. Crocker, Early, Lennon, Peters & Crocker, PC, Kalamazoo, MI, for Midwest Mobile Diagnostic Imaging, L.L.C.

Bruce A. Hoffman, Graydon, Head & Ritchey, Cincinnati, OH, Stephen M. Denenfeld, Lewis & Allen, Kalamazoo, MI, Harry J. Finke, IV, Graydon, Head & Ritchey, Cincinnati, OH, for Dynamics Corp. of America.

Lawrence J. Murphy, Howard & Howard, Lansing, MI, for VFM.

OPINION

ENSLEN, Chief Judge.

I. INTRODUCTION

Plaintiff Midwest Mobile Diagnostic Imagining, L.L.C. [hereinafter "MMDI"] brings this diversity action against defendant Ellis & Watts, d/b/a Dynamics Corporation of America [hereinafter "E&W"], seeking damages for 1) breach of a sales contract for the purchase of four mobile MRI units¹ and 2) misrepresentation. Defendant, the seller, counterclaims for damages, alleging that the buyer is in breach. Having considered the evidence submitted and the legal arguments of the parties made during a three-day bench trial, and having reviewed the exhibits submitted, the Court enters the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52(a). To the extent that any findings of fact also constitute conclusions of law or vice versa, they are so adopted.

II. THE RECORD

Plaintiff MMDI offered the following six witnesses: Gerald Turowski, Service Manager for MMDI; Azzam Kanaan, Executive Director of MMDI; Paul Koss, formerly Service Engineer for Philips Medical Systems [hereinafter "Philips"], presently Service Engineer for MMDI; Ilydio Polachini, Jr., Director of Imaging at MMDI; Robert Freudenberger, Director of Medical Sales at E&W Andrew Pike, President of E&W and John Getz, Director of Mobile Imaging at E&W. Defendant called three witnesses: Robert Freudenberger; Rick Goldsberry, Senior Projects Engineer at E&W and John Getz. The parties submitted 58 documentary exhibits jointly and defendant submitted the deposition testimony of Wim Cense, Director of Mobile Engineering at Philips, separately.

III. CONTENTIONS OF THE PARTIES

MMDI contends that, after its rightful rejection of a nonconforming trailer tendered by E&W on December 13, 1995, E&W repudiated the contract in its entirety. E&W's repudiation whether anticipatory or not, destroyed whatever right to cure E & W may have had and gave MMDI the right to cancel the contract, which it then did. Having rightfully canceled the contract, MMDI argues it is entitled to damages.

E&W counters that its tender on December 13, 1995 was both timely and in conformity with contract specifications. Consequently, MMDI's rejection was wrongful. E&W continues that, even if the trailer were not conforming, E&W had a right to cure pursuant to Uniform Commercial Code [hereinafter "UCC"] § 2-508,² and MMDI could not cancel the contract without first requesting adequate assurances from E&W in writing pursuant to UCC § 2-609. Since plaintiff did not satisfy § 2-609 and a reasonable time for performance had not expired, MMDI's cancellation of the contract on December 18, 1995 constituted anticipatory repudiation.

IV. FACTS

Plaintiff Midwest Mobile Diagnostic Imaging, L.L.C. ("MMDI") is a Delaware limited liability company, with offices in Kalamazoo, Michigan, engaged in the business of furnishing equipment and personnel for magnetic resonance imaging (MRI) scans to hospitals in southwestern Michigan. In 1995, MMDI had three mobile MRI units servicing area facilities.

Defendant Ellis & Watts ("E&W") is a New York corporation whose principal place of business is in Cincinnati, Ohio, which engineers, designs, and manufactures trailers for mobile medical uses, including mobile MRI systems.

Under Michigan regulations, the number of mobile MRI scanners which may be licensed is strictly limited. Consequently, companies wishing to provide this service must seek a Certificate of Need from the State. In 1995, the demand for these mobile MRI units exceeded that which MMDI could supply. MMDI, therefore, sought and received a Certificate of Need to begin operating a fourth mobile MRI unit.

In April 1995, plaintiff commenced negotiations with defendant to purchase four mobile MRI trailers, each designed to house a state-of-the-art, ACS NT 1.5T MR scanner system, which plaintiff would purchase separately from Philips. During these initial negotiations, E&W became aware that MMDI had an immediate need for the first trailer because of the growing demand for its services.

As a consequence, the parties agreed that delivery of the first trailer would occur in September 1995 with the rest to follow in monthly installments. However, during final negotiations in Kalamazoo on August 10, 1995, the parties agreed to delete a clause in the written contract requiring that all four trailers be delivered in 1995. While no specific delivery dates were ultimately included in the written contract, E&W understood that early delivery of the first trailer was of great importance to MMDI. At the time of signing, the parties expected delivery of the trailers to occur in October, November, December, 1995 and January, 1996. The delivery dates were, however, contingent upon coordination with Philips and agreement of the parties.

In addition to the timing of the project, during negotiations the parties also made representations concerning the design of the trailer. On April 17, 1995, Robert Freudenberger of E&W, faxed a signed purchase agreement to Jerry Turowski of MMDI. Attached to the form contract were two drawings. One of the drawings depicted a three-dimensional illustration of the interior of a mobile MRI system trailer upon which was written: "Spacious, efficient layout with clean, aesthetically pleasing interior." (Exh. 2.) In addition, these drawings, and all others reviewed by MMDI both before and after contract signing, did not depict a bracing structure surrounding the scanner magnet.

On August 10, 1995, Mr. Turowski and Mr. Freudenberger executed a purchase agreement for four E&W trailers. (Exh. 9.) With the signing of the contract, MMDI paid E&W a deposit in the amount of $63,000. On August 11, 1995, Mr. Andrew Pike, President of E&W, countersigned the purchase agreement in Cincinnati, Ohio. Under the parties' agreement, E&W was to construct the four trailers in accordance with Philips' specifications. Once certified by Philips, the trailers could be delivered. (Exh. 9, ¶ 3.)

On September 7, 1995, plaintiff and defendant met in Kalamazoo to discuss the delivery schedule. On September 21, 1995, MMDI sent a letter indicating that, as a result of that meeting, MMDI expected delivery of the first trailer on November 6, 1995. The letter also noted the parties' understanding that the trailer would be "show" ready for MMDI's open house in Kalamazoo, Michigan, on November 3, 1995. E&W did not respond to this letter. During the course of construction, the parties discussed several alterations to the trailer and consequently, again renegotiated the delivery date for the first trailer. Ultimately, the parties agreed upon a December 1, 1995 delivery date. Under the expectation that the trailer would be delivered on that date, MMDI scheduled patients assuming the trailer would be ready for use beginning December 4, 1995.

On November 3, 1995, indicating that the trailer was cosmetically complete, E&W presented the trailer to MMDI to show at its open house in Kalamazoo, during which representatives of MMDI and many of its customers, inspected the trailer. At that time, the scanner magnet was free from any metal, bracing structures. The trailer was then returned to E&W for final adjustments and testing.

As of mid-November 1995, the first E&W trailer was fully fabricated and substantially all equipment was installed and ready for testing by Philips. In anticipation of the December 1 delivery date, E&W invoiced MMDI on November 10, 1995 for the full purchase price of the first trailer. (Exh. 20.) On November 16, 1995, E&W sent a follow-up letter requesting payment prior to shipment of the trailer on November 30 in accordance with the purchase agreement. (Exh. 9, 22.) MMDI paid $321,500 to E&W on November 17, 1995. (Exh. 20.)

On November 28, 1995, the first trailer failed to meet contract specifications in a test conducted by Philips. The test indicated that the trailer did not comply with Philips' specifications for magnetic shielding in the sidewalls of the trailer. This failure occurred despite the fact that, throughout the construction of the trailer, Philips had repeatedly noted the importance of the proper fabrication of this feature in its correspondence with E&W. (Exhs.13, 17, 19.)

When the parties discovered that the trailer had failed the test, they met to discuss potential solutions to the situation. At that time, E&W stated unequivocally that: 1) the trailer was defective; 2) the defect was entirely its fault and responsibility; and 3) it would cure the problem. E&W also indicated a willingness to reimburse MMDI for at least part of the expenses it might incur in renting another trailer to substitute for the one that E&W had not completed. As a result of the need for a cure, E&W failed to tender a conforming trailer on the December 1 delivery date and MMDI was forced to cancel appointments which had been scheduled with patients for December 4, 1995.

During the following two weeks, E&W designed a reinforcement structure to contend with the wall-flexing problem. The solution consisted of multiple, large, steel beams placed around the scanner magnet in a cage-like structure which prevented removal of the magnet's outer covers and dramatically changed its appearance. Such a bracing structure had never been used with...