Moldex, Inc. v. Ogden Engineering Corp.

• Decision Date: 30 January 1987
• Docket Number: Civ. No. H-84-309 (PCD).
• Parties: MOLDEX, INC., Plaintiff, v. OGDEN ENGINEERING CORPORATION, Defendant and Counter-claimant, v. MOLDEX, INC., Counter-defendant.
• Court: U.S. District Court — District of Connecticut

652 F. Supp. 584

MOLDEX, INC., Plaintiff, v. OGDEN ENGINEERING CORPORATION, Defendant and Counter-claimant, v. MOLDEX, INC., Counter-defendant.

Civ. No. H-84-309 (PCD).

United States District Court, D. Connecticut.

January 30, 1987.

Gilbert Galer, Galer & Sensale, New Haven, Conn., for plaintiff Moldex.

John Scully, Lorinda S. Coon, Hartford, Conn., for Moldex on counterclaim.

Thomas Parker, Gross, Hyde & Williams, Kevin McCann, Hartford, Conn., Lester Murphy, East Chicago, Ill., for Ogden.

RULING ON MOTIONS FOR SUMMARY JUDGMENT

DORSEY, District Judge.

I. Facts and Procedural History

On July 7, 1982, plaintiff and defendant entered into a contract whereby plaintiff agreed to sell 5000 lbs. of oriented nylon (31,250 ft.) to defendant at a total price of $50,312.50. Between July 22, 1982, and July 18, 1983, 18,930 ft. ($30,478.30) of the original order was delivered. In August of 1983, defendant, on behalf of its purchaser, contacted plaintiff to inquire as to whether the nylon could be dyed without changing its properties. It was assured by plaintiff that such could be done. Subsequent to these alleged representations, defendant accepted the remaining balance of its order, 15,219 ft.¹ Defendant claims the goods did not conform to the representations and refused to pay the balance of the contract. It has paid $32,007.20 under the contract; $24,577.25 is claimed to be due and owing.

On November 19, 1984, defendant's purchaser of the nylon, Ogden Health Products ("OHP"), instituted an action in an Indiana state court claiming the goods were defective and seeking to recover damages for the resulting losses. Defendant attempted to "vouch-in" plaintiff, pursuant to the Uniform Commercial Code § 2-607, claiming that plaintiff was answerable over to the extent defendant was found liable for any damages.² The Indiana court found the goods defective and held that OHP had suffered $624,628.86 in damages for which defendant was liable and for which, in turn, plaintiff was answerable over. Ogden Health Prod. v. Ogden Engineering Corp., Civil No. C-84-198 (Newton Cir.Ct.Ind. Mar. 18, 1985) (Findings of Fact and Conclusions of Law), aff'd sub nom. on other grounds Moldex, Inc. v. Ogden Health Prod., 489 N.E.2d 130 (Ind.App. 4 Dist.1986).

Plaintiff instituted this action to recover the balance, plus interest, due and owing on the contract.³ Defendant has counter-claimed asserting that the goods were defective as not conforming to the express warranties (U.C.C. § 2-313), the implied warranty of merchantability (U.C.C. § 2-314), and the implied warranty of fitness for a particular purpose (U.C.C. § 2-315).⁴ Defendant further claims that plaintiff is liable to defendant for $624,628.16, the amount at which damages were assessed in the Indiana court.

The parties have filed cross-motions for summary judgment. Defendant argues that plaintiff is bound — via U.C.C. § 2-607, collateral estoppel, res judicata, and by principles of comity as embodied in the Full Faith and Credit Clause — to the findings and conclusions of the Indiana judgment and thus there remains no question of fact in this suit. Plaintiff argues that it cannot be held to have breached any warranties, since the representations claimed to have constituted the warranties occurred after the contract was created and, therefore, were not part of the bargain. Furthermore, it argues that the goods were not defective and were fit for their ordinary use. Accordingly, it claims there is no question of fact that defendant is in breach and demands the balance due and owing.

II. Summary Judgment

"Rule 56(c) mandates the entry of summary judgment, ... against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, ___ U.S. ___, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The purpose "is to isolate and dispose of factually unsupported claims or defenses." Id. 106 S.Ct. at 2553.

III. Vouching-In

Defendant claims that plaintiff is bound, by virtue of U.C.C. § 2-607(5)(a), to the following facts:

(1) The goods were defective as nonconforming and in violation of the warranties given to OHP. Ogden Health Prod., Civil No. C-84-198, Findings of Fact at Facts ¶¶ 7-8, 11-16, 19, 35-38, 42-43, 45-46, and Conclusions of Law at ¶¶ 3-7 (March 18, 1985).⁵

(2) The amount of loss sustained by OHP and the damage in issue here is $624,628.86, plus interest. Id., Facts at ¶¶ 46-47; Conclusions at ¶ 2.

(3) Plaintiff was properly vouched-in. Id., Facts at ¶¶ 48-50; Conclusions at ¶ 8.

(4) Plaintiff is answerable over for the losses incurred by defendant. Id., Conclusions at ¶ 9.

Section 2-607, U.C.C. provides:

Where the buyer is sued for breach of warranty or other obligation for which his seller is answerable over

(a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after reasonable receipt of the notice does come in and defend he is so bound.

This provision, although now codified,⁶ was previously a well established, common law concept. As early as 1931, Connecticut recognized that, "if a ... purchaser or any subsequent vendee is sued in an action ... and gives notice to his vendor of the pendency of the action and its nature and requests him to defend, the latter is conclusively bound by the judgment rendered in that action." Thomas v. Ferriss, 113 Conn. 539, 542, 155 A. 829, 830 (1931) (citations omitted). See also, H. Belkin, Sales Law — The "Vouching In" Provision of the Uniform Commercial Code, 36 Conn.Bar J. 288, 289 (1962) (discussing common law vouching system versus UCC system); Contractors Lumber & Supply Co. v. Champion Int'l Corp., 463 So.2d 1084, 1086 (Miss.1985) (U.C.C. § 2-607(5)(a) codifies common law procedure of vouching-in).

The effect of U.C.C. § 2-607(5)(a) is clear. Vouching-in binds the vouchee to facts determined in the prior proceeding provided they are common issues relevant to both determinations. Uniroyal, Inc. v. Chambers Gasket & Mfg. Co., 177 Ind.App. 508, 380 N.E.2d 571, 580 (2 Dist.1978); George E. Jensen Contractor, Inc. v. Quality Mill Works, Inc., 431 So.2d 1232, 1235 (Ala.1983); R. Anderson, Uniform Commercial Code, Vol. 4, §§ 2-607:66 —:75 (1983 & Supp.1986); R. Degnan & A. Barton, "Vouching to Qualified Warranty: Case Law and Commercial Code," 51 Cal.L. Rev. 471, 484 (1963). Compliance with the procedural requirements does not give rise to a right to obtain indemnity, but rather establishes a mechanism by which the findings determined in the first action are made binding in the second action. Uniroyal, 177 Ind.App. 508, 380 N.E.2d at 581-82; Black v. Don Schmid Motor, Inc., 232 Kan. 458, 657 P.2d 517, 529 (1983); George E. Jensen, 431 So.2d at 1235; U.I. Wire & Cable Co. v. Ascher Corp., 34 N.J. 121, 126, 167 A.2d 633, 636 (1961).

Nevertheless, a small exception has been carved from the general rule where the first action was not a good faith, adversarial proceeding. "The justification for allowing voucher is that it is senseless to try identical issues between the same parties twice, and therefore, any issues decided in the first trial, as well as findings of fact necessarily made, are binding on the parties in a second suit. If there is no trial, such findings would tend to be agreed upon without vigorous contest or the best effort of both litigants." CGM Valve Co., Inc. v. Gulfstream Steel Corp., 596 S.W.2d 161, 164 (Tex.Civ.App.1980) (emphasis added). A full dress, good faith, adversary proceeding has been defined as an "actual trial with a contest of the issues for actual determination of the facts by court or jury and of law by court rather than a resolving of those same issues by agreement of the parties under a prior settlement agreement." Stewart & Foulke, Inc. v. Robertshaw Controls Co., 397 F.2d 971, 973 (5th Cir.1968) (holding settlement agreement reached in previous action could not be relied on as a basis to later support an action for judgment against the vouchee). Accord Grummons v. Zollinger, 240 F.Supp. 63, 75-76 (N.D.Ind.1964), aff'd, 341 F.2d 464 (7th Cir.1965) (settlement); Gentry v. Wilmington Trust Co., 321 F.Supp. 1379, 1383 (D.Del.1970) (settlement); CGM Valve Co., 596 S.W.2d at 164 (settlement); Dodge Trucks, Inc. v. Wilson, 140 Ga.App. 743, 745-46, 231 S.E.2d 818, 820-21 (1976), aff'd 238 Ga. 636, 235 S.E.2d 142 (1977) (settlement); cf. Blommer Chocolate Co. v. Bongards Creameries, Inc., 635 F.Supp. 919 (N.D.Ill.1986), citing St. Joseph Light & Power Co. v. Zurich Ins. Co., 698 F.2d 1351, 1360 (8th Cir.1983) (admission); see generally R. Anderson, Uniform Commercial Code, § 2-607-75 at 165. In Grummons, the court held that the first action was little more than an attempt by the parties to arrange the record for judicial recognition so as to use such record as a basis for judgment in the second action. 240 F.Supp. at 76; see also Gentry, 321 F.Supp. at 1383. Such conduct "presents a serious risk of collusion" and undermines the purpose of § 2-607 to hold a seller liable only after a "conscientiously conducted defense" was performed on his behalf. Id.

Plaintiff has presented four pieces of evidence in support of its reliance on this exception:

(1) Ralph Ogden is 100% owner and president of Ogden Engineering Corp. and has an 85% ownership in OHP. (He and one other person are general partners owning 85% of the corporation. Ogden controls 70% of the partnership). Deposition of Ralph Ogden at 7 & 60.

(2) Defendant's counsel, Lester Murphy, represents defendant in this suit, despite the fact that he represented OHP in the Indiana proceeding.

(3) Discovery in the Indiana case on behalf of Ogden Engineering by its...