Neville Chemical Company v. Union Carbide Corporation

• Decision Date: 06 February 1970
• Docket Number: No. 17885.,17885.
• Citation: 422 F.2d 1205
• Parties: NEVILLE CHEMICAL COMPANY v. UNION CARBIDE CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

422 F.2d 1205 (1970)

NEVILLE CHEMICAL COMPANY v. UNION CARBIDE CORPORATION, Appellant.

No. 17885.

United States Court of Appeals, Third Circuit.

Argued November 21, 1969.

Decided February 6, 1970.

Rehearing Denied March 27, 1970.

COPYRIGHT MATERIAL OMITTED

John G. Buchanan, Jr., Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Pittsburgh, Pa., (George L. Cass, Pittsburgh, Pa., on the brief), for appellant.

Paul A. Manion, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., (John C. Bane, Jr., Charles C. Cohen, George M. Weis, Weis & Weis, Pittsburgh, Pa., on the brief), for appellee.

Before HASTIE, Chief Judge, and VAN DUSEN and ADAMS, Circuit Judges.

OPINION OF THE COURT

ADAMS, Circuit Judge.

This is an appeal from a judgment of the District Court for the Western District of Pennsylvania, entered after a jury found that Union Carbide Company (Carbide) had been negligent and breached its warranties in the sale of a certain unsaturated oil to Neville Chemical Company (Neville).

Carbide is a leading producer of various chemical products. One of these products is a hydrocarbon oil, used for forming resins, originally referred to as "unsaturated oil" and later called "U-171". Unsaturated oil is produced from dripolene, a product of Carbide's "cracking" operations, in which natural gas and other materials are processed into ethylene and additional commodities.

Neville is in the business of manufacturing hydrocarbon resins from products which it purchases from petrochemical companies such as Carbide. Neville produces resins at plants located at Neville Island near Pittsburgh, Pennsylvania, and Anaheim, California. It sells its resins to customers throughout the United States and parts of Canada for use in the manufacture of such items as floor tile, shoe soles, rubber matting, pigments for printing ink, paper packaging products, paint and varnish.

Over a period of fifteen years prior to the events in question, Carbide sold Neville large quantities of unsaturated oil. Carbide was aware of the particular purposes for which Neville purchased this product and knew the end uses of the resins which Neville manufactured.

By 1959, Neville was dissatisfied with the yield and color qualities of Carbide's unsaturated oil. In order to "get more money for their product" and because of Neville's dissatisfaction, Carbide instituted a program to improve the quality of its unsaturated oil. Beginning in January, 1960, it submitted to Neville several samples of refined unsaturated oil which it developed in an effort to meet Neville's requirements. None of these samples was satisfactory. In February, 1961, Carbide delivered to Neville a sample of refined unsaturated oil which Carbide called "UO-171". Neville then ordered on a trial basis and received in October, 1961, a barge shipment of approximately 300,000 gallons of this material, then designated "U-171" by Carbide. The trial shipment produced a satisfactory resin and Neville, in 1961 and 1962, purchased ten more 300,000 gallon barge lots of U-171. In February, 1963, Carbide also commenced shipment of U-171 to Neville's Anaheim plant.

After negotiations in Pittsburgh, Carbide drafted a year-to-year contract, dated February 12, 1963, to be effective October 1, 1962, by which Neville agreed to purchase from Carbide its requirements of "Resin Intermediate, U-171", "estimated to be 1,500,000 gallons per year", at "17.5 cents per gallon". The agreement was signed by Neville in Pittsburgh and then transmitted to New York where it was signed by Carbide.

Although the contract does not define "Resin Intermediate, U-171", it specifies the required maximum or minimum limits on four of its physical properties, and states that "the material is a derivative of Dripolene a by-product from Ethylene production." The four properties itemized are "Polymerizable Content", "Resin Color", "Aniline Point", and "Resin Solubility". The contract contains Carbide's warranty "to deliver to Buyer material conforming to the specifications" and an "escape clause" in the event a "change in the character of Dripolene, for any reason whatsoever, render(s) it impossible * * * for Carbide to produce material conforming to the specification limits * * *". Paragraph 7, entitled "Claims", requires that notice of claims against Carbide be given "within fifteen (15) days after the receipt of such material"; provides that Neville "assumes all risk and liability for the results obtained by the use of any material * * * in manufacturing process * * * or in combination with other substances"; and provides that "No claim * * * shall be greater in amount than the purchase price of the material in respect of which such claim is made." Paragraph 9, states that the contract "contains all of the representations and agreements between the parties hereto and no warranties shall be implied."

All the U-171 sold to Neville was produced at and delivered from Carbide's Kanawha Valley facilities at Institute and South Charleston, West Virginia. Beginning January, 1963, dripolene from Carbide's Seadrift, Texas plant was imported into the Kanawha Valley by Carbide and, without Neville's knowledge, was used to produce U-171.

Without notice to Neville, but with notice to its own personnel,¹ Carbide in early June, 1963, changed its Seadrift, Texas ethylene process to permit ethyl acrylate, a chemical additive made from ethylene and used in the production of polyethylene, to be recycled into the ethylene stream, and thus into the dripolene. Prior to the change at Seadrift any ethyl acrylate was, from its first use in 1959, destroyed in the cracking furnaces before it could get into the ethylene stream. No ethyl acrylate of any significance could have survived the cracking furnace heat to which it was subjected before June, 1963. The earliest time at which ethyl acrylate could have reached any Neville plant as part of U-171 was early August, 1963.

In October, 1963, personnel at Neville's Anaheim plant began receiving serious complaints from the Flintkote Company branch in California. Flintkote used Neville's resin to make floor tile, and several of Flintkote's customers were complaining to it about an unusual, persistent and intolerable odor in the floor tile which had been manufactured from Neville's resin. Neville's President, Lee V. Dauler, immediately went to the West Coast to investigate. Thereafter, in November, 1963, he went to New York City and met with Carbide officials. Mr. Dauler advised Carbide of the Flintkote complaints and told Carbide he suspected a change had been made in U-171. A sample of the malodorous Flintkote tile was left with Carbide for analysis. Carbide did not advise Neville of the results of its analysis.

Although Neville claimed that the October, 1963, complaint was the first serious odor complaint, Neville described at least one floor-tile complaint from Flintkote before August, 1963, and conceded that before mid-July, 1963, Flintkote had asked for a "deskunking" of Neville's resin.² In January, 1964, personnel at the Neville Island plant began receiving numerous complaints from customers in Eastern United States and Canada who had purchased resin made from U-171 and used it in the manufacture of material for shoe soles, paper packaging products, rubber matting, pigments for printing inks, paints and varnishes. There were, however, customers of Neville who used resins made from U-171 during this same period and did not complain, including Armstrong Cork, which like Flintkote used Neville resin in manufacturing floor tile.

Neville stopped purchasing U-171 after December, 1963.

Investigation by Neville and its customers established that after the various end products made with resins containing U-171 were distributed, they developed an intolerable odor, which persisted for long, indeterminate periods of time. Efforts to mask or otherwise abate the odor proved fruitless.

During 1964, Mr. Dauler and D. W. Kelso, Vice President and Treasurer of Neville, wrote several letters to Carbide advising of the claims asserted and the litigation threatened against Neville. On July 17, 1964, Neville's counsel wrote to Carbide setting forth the number and gravity of the claims, listing each of the complaining customers, the dollar amount of each claim, and notifying Carbide of Neville's claim against it for full reimbursement of amounts paid in respect of such claims and related costs. In reply to these communications, Carbide denied any responsibility in the matter, refused to provide any information to Neville regarding the possible cause of the odor problem, and did not advise Neville of any change in its process of manufacturing U-171. Neville investigated and then settled its customers' complaints and claims.

Neville brought suit on July 20, 1965, under diversity jurisdiction, charging Carbide with negligence in allowing ethyl acrylate to enter the dripolene, and failing to notify Neville of the change, with breach of its express warranties, and with breach of the implied warranties of merchantability and fitness for a particular purpose. Neville sought to recover $696,534 it paid to settle claims asserted by customers which had purchased its resin; $128,075.40 in interest on this amount; $53,965 claimed from Neville by Liberty Mutual Insurance Company for money paid to Beebe Rubber Company, a customer of Neville; $281,063 it claimed was spent on technical research, settlement expenses, and disposition of defective materials; and $1,519,145 estimated loss of profits for a ten year period.

Carbide counterclaimed for the cost of merchandise which had been shipped to Neville and not paid for, and for the loss of profits sustained by it because Neville refused to accept the remaining U-171 which Neville had contracted to purchase.³

The case was tried in two stages before Judge Gerald J. Weber and a jury. In the first stage, all issues as to liability were submitted to the jury on special interrogatories. In...