P.H. Glatfelter Co. v. Voith, Inc.

• Decision Date: 25 February 1986
• Docket Number: No. 85-2037,85-2037
• Citation: 784 F.2d 770
• Parties: P.H. GLATFELTER COMPANY, Plaintiff-Appellant, v. VOITH, INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 770

784 F.2d 770

P.H. GLATFELTER COMPANY, Plaintiff-Appellant, v. VOITH, INCORPORATED, Defendant-Appellee.

No. 85-2037.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 6, 1986.

Decided Feb. 25, 1986.

Richard Z. Freeman, Jr., Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., for plaintiff-appellant.

Jon P. Christiansen, Foley & Lardner, Milwaukee, Wis., for defendant-appellee.

Before CUDAHY, FLAUM and EASTERBROOK, Circuit Judges.

CUDAHY, Circuit Judge.

Plaintiff, P.H. Glatfelter Co. ("Glatfelter"), appeals the district court's grant of summary judgment for the defendant, Voith, Inc. ("Voith"), on plaintiff's claim of fraudulent misrepresentation, 103 F.R.D. 106. We affirm the grant of summary judgment.

I.

The plaintiff manufacturers paper. In 1963 Glatfelter's predecessor, Bergstrom Paper Company ("Bergstrom"), contracted with Voith's predecessor, Valley Iron Works Corp. ("Valley"), to purchase a paper manufacturing machine. The contract provided that the twenty-four large pulleys on the machine were to be constructed from ductile iron, which is processed to be stronger than grey cast iron. Valley's original specifications for the machine had called for pulleys made of grey cast iron. When Bergstrom expressed concern about the strength of the pulleys, Valley's engineers suggested that ductile iron be used instead. Valley told Bergstrom that it was licensed to manufacture ductile iron, was familiar with its properties and had manufactured many paper machine parts from it. Bergstrom assumed that the pulleys would be manufactured by Valley. Valley, however, subcontracted with C.A. Lawton Co. ("Lawton"), for the manufacture of the pulleys without consulting Bergstrom. Lawton manufactured the pulleys and delivered them to Valley for installation on the paper machine.

The machine itself, including the pulleys, was installed at Bergstrom's mill in September 1964. Later that month Bergstrom's insurance carrier, Hartford Steam Boiler Inspection and Insurance Co. ("Hartford"), conducted a safety inspection of the machine. Hartford expressed concern about the safety of the pulleys because it was aware that pulleys on other paper machines had failed. Its report, issued in November 1964, questioned the suitability of the pulleys and recommended that the pulleys be disconnected during high speed tests of the machine's drive mechanism. Bergstrom would lose substantial paper production if it observed this precaution.

After receiving the insurance report Bergstrom's chief engineer, Orville Ross, telephoned George Reynolds, the engineer at Valley who had supervised the design of the machine. Ross informed Reynolds of Hartford's concerns and recommendation, and asked Valley to assure both Bergstrom and Hartford that the pulleys were constructed from ductile iron and were suitable for the intended use of the machine. Reynolds said that "Bergstrom and Hartford had nothing to worry about because the pulleys on Bergstrom's machine were actually constructed of ductile iron with a strength of 80,000 pounds." Ross Aff. at 5. Ross then requested that Valley put these assurances in writing.

Reynolds referred Bergstrom's request for written assurances to Howard Ainsworth, a staff engineer at Valley. Ainsworth contacted Lawton, and subsequently provided Reynolds with a letter from Frank Noble, a production manager at Lawton. The letter began: "Relative to the taper cone pulleys we furnished you for the Bergstrom Paper Mills, we herewith enclose tests from The Charles Kawin Company on our 60,000# tensile ductile type iron." The accompanying Kawin test results were dated October 8, 1963, and October 17, 1963. The pulleys at issue were not manufactured until the spring of 1964. Both Ainsworth and Reynolds knew that the pulleys for Bergstrom's machine had not even been ordered from Lawton by October 1963. Because both Ainsworth and Reynolds were aware of the dates of the test results, it is logical to assume that they knew that the test results did not reflect testing done on the actual pulleys at issue. The test results also revealed that the metal tested failed to satisfy the standards recognized in the foundry industry for the lowest grade of ductile iron.

In December 1964, Reynolds responded to Bergstrom's request for written assurances with a letter enclosing copies of the letter from Noble and the Kawin test results. Reynolds' letter read as follows:

Herewith enclosed are four (4) copies of a letter that we received from the C.A. Lawton Company dated December 1, in reply to your recent request for information concerning the construction of the above pulleys.

Kindly note their letter indicates the pulleys on your machine are constructed of ductile iron with a design tensile strength of 60,000 pounds. However, their metallurgical report shows the actual tensile is between 91,370 pounds and 97,360 pounds which means the material is considerably stronger than designed.

....

On this basis we wish to inform you that as a further matter of interest, all drive pulleys on your machine were dynamically balanced at 9000 FPM [feet per minute] in accordance with the contract specification before being shipped to you, and you may be assured they are suitably constructed to operate safely at all speeds you machine is designed to run at including a trip-out speed set 10% above the normal maximum operating speed.

We trust this dispells any qualms you may have concerning the quality of the materials used in your new machine, however, if you have further question, please advise.

Reynolds did not inform Bergstrom that the tests he mentioned could not have been performed on Bergstrom's pulleys. Nor did he inform Bergstrom that the test reports indicated that the metal had failed to meet industry standards.

Later in the month two Hartford representatives met with Reynolds concerning the safety of the pulleys. Reynolds followed up this meeting with a letter addressed to Hartford in January 1965. The letter stated that the pulleys were "actually made from ductile iron" and that they were "certified by the manufacturer to be safe for operating speeds up to and including 9,000 FPM."

In August 1980 one of the pulleys exploded while the machine was in operation, damaging the machine and the Glatfelter facility. Glatfelter was unable to manufacture paper at a normal rate while repairs were being performed and consequently suffered damages for out-of-pocket expenses and lost profits, allegedly in the amounts of $55,000 and $630,000 respectively. An investigation then revealed that the pulleys had been made of grey cast iron rather than ductile iron.

After plaintiff filed suit, Voith moved for partial summary judgment on Glatfelter's fraudulent misrepresentation claims. The motion requested that the court preclude the plaintiff from recovering damages for lost profits from Voith, in accordance with a damage limitation provision in the contract under which the machine had been manufactured. The contractual limitation provision would not apply if the defendant's conduct was intentional or reckless. The district court granted the motion, enforced the contractual damage limitation and thus precluded Glatfelter from recovering lost profits from Voith.

The case went to trial in September 1984. All claims were brought against Lawton and the three claims which were not precluded were brought against Voith: general negligence, negligent misrepresentation and strict liability for misrepresentation. During trial Glatfelter settled with Lawton. Plaintiff executed a Pierringer Release and Indemnification Agreement, see Pierringer v. Hoger, 21 Wis.2d 182, 124 N.W.2d 106 (1963), in return for $500,000. The jury was not informed of the settlement. The jury found both Lawton and Valley liable for negligent misrepresentations. Damages were determined to be $683,601; this represented $629,437 in lost profits and $54,164 in out-of-pocket damages. The jury apportioned the responsibility for Glatfelter's injury thirty percent to Voith and seventy percent to Lawton under Wisconsin's comparative negligence rules. The court entered judgment against Voith for $16,249.20, thirty percent of the out-of-pocket damages. This judgment did not include a portion of the lost profit damages because the partial summary judgment had the effect of relieving Voith of responsibility for lost profits.

Plaintiff appeals on two grounds. First, plaintiff argues that summary judgment was improperly granted on the fraudulent misrepresentation claims. Second, plaintiff argues that the district court erred in limiting its judgment to thirty percent of the out-of-pocket expenses.

II.

Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, admissions and affidavits "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Box v. A & P Tea Co., 772 F.2d 1372, 1375 (7th Cir.1985). We must view the record and any reasonable inferences drawn from it in the light most favorable to the nonmoving party. Id. We are "not required to evaluate every conceivable inference which can be drawn from evidentiary matter, but only reasonable ones." Matthews v. Allis-Chalmers, 769 F.2d 1215, 1218 (7th Cir.1985) (quoting Parker v. Federal National Mortgage Assoc., 741 F.2d 975, 980 (7th Cir.1984)) (emphasis in original).

The plaintiff is correct that "as a general principle, questions of motive and intent are particularly inappropriate for summary adjudication," Cedillo v. International Association of Bridge & Structural Iron Workers, Local Union No. 1, 603 F.2d 7, 11 (7th Cir.1979), and that "resolution by summary judgment of the issues raised by an allegation of fraud is often difficult or impossible." Federal Deposit Insurance Corporation v. Lauterbach, 626 F.2d 1327, 1334 (7th Cir.1980). The court in FDIC, however, went on to note that the issue...