Petroleo Brasileiro v. Nalco Chemical Co.

• Citation: 784 F. Supp. 160
• Decision Date: 10 February 1992
• Docket Number: Civ. A. No. 90-1092.
• Parties: PETROLEO BRASILEIRO, S.A., PETROBRAS, Plaintiff, v. NALCO CHEMICAL COMPANY, Defendant.
• Court: U.S. District Court — District of New Jersey

784 F. Supp. 160

PETROLEO BRASILEIRO, S.A., PETROBRAS, Plaintiff, v. NALCO CHEMICAL COMPANY, Defendant.

Civ. A. No. 90-1092.

United States District Court, D. New Jersey.

February 10, 1992.

COPYRIGHT MATERIAL OMITTED

Peter D. Aufrichtig, Aufrichtig Stein & Aufrichtig, P.C., New York City, for plaintiff.

Dennis LaFiura, Pitney, Hardin, Kipp & Szuch, Florham Park, N.J., for defendant.

OPINION

BROTMAN, District Judge:

Presently before the court is defendant Nalco Chemical Company's motion for summary judgment or, in the alternative, partial summary judgment dismissing any claim for market loss damages. After considering the submissions of the parties and the arguments of counsel, the court will grant defendant's motion for summary judgment.

I. FACTS AND PROCEDURE

On December 18, 1989, Internor Trade, Inc. ("Internor") purchased a cargo of approximately 334,000 barrels of high pour, no. 6 fuel oil ("the cargo") which was to be transported by the vessel M/T Mantinia from Bahia, Brazil to Stapleton Anchorage, New York Harbor for sale to Clarendon Marketing, Inc. ("Clarendon"). A survey of the cargo at loadport indicated that the cargo had a basic sediment and water content of 1.1%. The Mantinia arrived at New York Harbor on December 28, 1989. A survey of the cargo in New York Harbor indicated that the cargo had a basic sediment and water content of 4.0% to 4.5%. Clarendon rejected the cargo because its water content exceeded contract specifications. On or about December 31, 1989, Internor arranged to have 173,000 barrels of cargo having the highest basic sediment and water content stored in a tank leased from Clarendon at IMTT-Bayonne.

In January 1990, Internor sought bids to de-water the cargo from several tankage dehydration companies. One of the bidders was the defendant Nalco Chemical Company ("Nalco") which manufactures and markets demulsifiers to de-water petroleum hydrocarbons. Internor had dealt with Nalco twice before. The initial contact was for the treatment of a small quantity of high water content fuel. Internor did not seek a guarantee and the treatment turned out to be unsuccessful. The second experience involved Nalco's proposal to treat No. 6 fuel oil from Bahia, Brazil stored at IMTT-Bayonne. Nalco refused to give a guarantee and its proposal was refused in favor of treatment by S & D Oil Technics ("S & D") which provided a guarantee. For the transaction at issue in this litigation, S & D also submitted a written proposal to Internor on January 5, 1990. Its proposal included supplies and treatment supervision, "100% guaranteed results" at a price of $143,000.00.

Internor's contact with Nalco was initiated by Internor's Operations Manager, William Okerlund who spoke with Walter Wasylak, a Nalco Technical Representative sometime between December 30, 1989 and January 2, 1990. After Wasylak communicated his recommendation for a product, dosage and temperature to Okerlund, Okerlund asked Wasylak whether Nalco would guarantee the results of its treatment. Wasylak told Nalco that as a matter of company policy, Nalco did not give guarantees nor could he personally guarantee results but that it was his opinion that its treatment would be successful. On January 4, 1990, Wasylak reported the results of his analysis of the cargo to Okerlund in a written proposal and offered to provide Nalco 5547 Emulsion Breaker to Internor at a price of $1.61 per pound plus technical assistance during the treatment. The written proposal stated "further testing of the samples with various emulsion breaking chemicals indicated that Nalco 5547 emulsion breaker can reduce the water content of the fuel oil to 0.5%." The total price of Nalco's treatment program was $24,673.25, increased to $30,164.15 when the quantity of cargo to be treated was increased by approximately 59,000 barrels.

Based on the written proposals he had before him from Nalco and S & D, Mauricio Ferreira, Internor Deputy General Manager and Petroleum Department Manager, chose Nalco. Ferreira contends that his decision was based on "Nalco's lower price, its ability to start more quickly (S & D would have to ship its product from Europe" while the Nalco material was in New Jersey, the site of the cargo), "prior dealings with S & D and Nalco's guarantee as found in its written offer.... His review of the offer found a clear representation and warranty of successful results which Internor had required."

On or about January 11, 1990, Nalco 5547 was injected into the tank at IMTT-Bayonne containing the cargo. Soon after the treatment, Internor tested some samples of the cargo and determined that the water content had not dropped significantly. Internor considered Nalco's treatment to have been unsuccessful. Rogerio Manso da Cost Reis ("Manso"), Internor's Manager of Physical Products, dealt with Nalco previously and was on vacation at the time of this transaction. When he returned in late January 1990, Manso questioned his Operations Department as to why Nalco was retained since he was aware that they previously refused to give any sort of guarantee. He was told that, in this case, Nalco did not give any kind of written guarantee but verbally mentioned a "round figure, kind of guarantee" that its product and treatment would work.

Internor was liquidated as a result of political events in Brazil sometime in 1990. During the process of its liquidation, Internor assigned its right, title and interest in the claims asserted against Nalco in this action to Petroleo Brasileiro, S.A. Petrobras ("Petrobras"), the Brazilian national oil company and the plaintiff in this action.

II. DISCUSSION

The standard for granting summary judgment is a stringent one. A court may grant summary judgment only when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Hersh v. Allen Prods. Co., 789 F.2d 230, 232 (3d Cir.1986); Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir.1983). In deciding whether there is a disputed issue of material fact the court must view all doubt in favor of the nonmoving party. Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n. 2 (3d Cir.1983), cert. denied, 465 U.S. 1091, 104 S.Ct. 2144, 79 L.Ed.2d 910 (1984); Smith v. Pittsburgh Gage & Supply Co., 464 F.2d 870, 874 (3d Cir.1972). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

Recent Supreme Court decisions mandate that "a motion for summary judgment must be granted unless the party opposing the motion can produce evidence which, when considered in light of that party's burden of proof at trial, could be the basis for a jury finding in that party's favor." J.E. Mamiye & Sons, Inc. v. Fidelity Bank, 813 F.2d 610, 618 (3d Cir. 1987) (Becker, J., concurring) (citing Anderson, 477 U.S. 242, 106 S.Ct. 2505, and Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Moreover, once the moving party has carried its burden of establishing the absence of a genuine issue of material fact, "its opponent must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Thus, if the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment. Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2510-11.

A. Uniform Commercial Code or General Contract Law?

In its motion for summary judgment, Nalco contends that its transaction with Internor is a mixed goods and services contract in which the predominant feature of the contract is the sale of goods. It contends that the sale of chemicals was the predominant feature of the contract and the Uniform Commercial Code ("UCC") as adopted in New Jersey applies. N.J.S.A. 12A:1-101 et seq. Petrobras contends that the contract was predominantly a service contract for the treatment of oil and that general contract law of the state of New Jersey applies.

The New Jersey Supreme Court has addressed the issue of whether UCC warranty principles apply to mixed goods and services contracts. Newmark v. Gimbel's, Inc., 54 N.J. 585, 258 A.2d 697 (1969). It held that a mixed goods and services contracts involving a transaction between a beauty parlor operator and a patron to be governed by UCC general warranty principles. Id. (injury to patron's hair resulting from product used to apply a permanent wave):

The transaction, in our judgment, is a hybrid partaking of incidents of a sale and a service. It is really partly the rendering of service, partly the supplying of goods for a consideration.... It was not the intention of the framers of the UCC to limit the birth of implied warranties to transactions which technically meet its definition of a sale.... It seems to us that the policy reasons for imposing warranty liability in the case of ordinary sales are equally applicable to a commercial transaction such as that existing in this case....

Id. at 593-595, 258 A.2d 697.

Because of the New Jersey Supreme Court's decision, it is irrelevant whether the hybrid transaction at issue is predominantly one for goods or one for services. No factual issue is presented which affects Nalco's right to summary judgment since either way, New Jersey courts apply UCC warranty principles.

B. Express Warranty

Petrobras contends that Nalco expressly warranted that its 5547 emulsion breaker would reduce the water content of the cargo. It maintains that Nalco's January 4, 1990 written proposal contained affirmations of fact that were relied upon by Ferreira in choosing Nalco and formed a basis of the bargain. Moreover,...