Polish American Machinery Corp. v. R.D. & D. Corp.
| Decision Date | 24 April 1985 |
| Docket Number | No. 84-3482,84-3482 |
| Citation | 760 F.2d 507 |
| Court | U.S. Court of Appeals — Third Circuit |
| Parties | POLISH AMERICAN MACHINERY CORPORATION, Appellant, v. R.D. & D. CORPORATION. |
John Chesney (argued), Stewart Dalzell, Peggy L. Snodgrass, Drinker, Biddle & Reath, Philadelphia, Pa., Harry K. Thomas, Knox, Graham, McLaughlin, Gornall & Sennett, Inc., Erie, Pa., for appellant.
Harry D. Martin (argued), Robert C. LeSuer, Elderkin, Martin, Kelly, Messina & Zamboldi, Erie, Pa., for appellee.
Before HUNTER and GARTH, Circuit Judges, and GERRY, * District Judge.
Plaintiff-appellant Polish American Machinery Corporation ("Polamco") appeals from an order granting summary judgment in favor of defendant-appellee R.D. & D. Corporation ("R.D. & D."), and denying partial summary judgment to Polamco. Federal jurisdiction is proper under 28 U.S.C. Sec. 1332 (1982), as the parties are of diverse citizenship and the amount in controversy exceeds $10,000. Because we find that the trial court erred in limiting Polamco's damage theories, we reverse and remand for proceedings consistent with this opinion.
This breach of contract action arises from several joint ventures between the parties that went awry. In 1978, Polamco and R.D. & D. agreed to purchase, modify, and sell heavy metal-working machinery to both foreign and domestic industrial customers. As part of this agreement, Polamco sold machinery and parts to R.D. & D. for further modification. For reasons unknown to the court, the joint venture failed, and R.D. & D. owed a balance to Polamco of approximately $795,000. Polamco brought suit on this debt in the United States District Court for the District of New Jersey, and R.D. & D. counterclaimed for amounts spent in reliance on the joint venture agreement. After negotiations, the parties reached a settlement agreement that fixed the past due amount owed to Polamco by R.D. & D. at $579,261.
The Settlement Agreement provided that in exchange for the dismissal of the pending New Jersey action and releases by both parties of all claims against each other, Polamco and R.D. & D. would enter into another joint venture to purchase, modify, and sell three heavy metal-working machines manufactured in Poland. Polamco agreed to supply the three machines, referred to as the THG 125 lathe ("the lathe"), an already-manufactured Rafamet KCH 320 vertical boring mill ("the first KCH 320"), and an unmanufactured Rafamet KCH 320 vertical boring mill ("the second KCH 320"), at a cost of $978,623. R.D. & D. agreed to supply additional components and to modify the three machines for sale to industrial customers. The agreement set the cost to R.D. & D. of performing its obligations under the contract equal to the compromised debt of $579,261 owed to Polamco.
The Settlement Agreement also provided that Polamco would receive all proceeds from the sales of the machines up to the total agreed costs of both parties, and that Polamco and R.D. & D. would split evenly any amounts realized over the total costs. The agreement also set minimum sales prices for the three machines so as to insure that the parties recouped their costs. In short, then, the parties' intent was that Polamco would receive repayment of R.D. & D.'s $579,261 debt through the sale of the three machines, rather than through litigation.
As did the parties' previous joint venture, however, this arrangement collapsed. Polamco alleges that R.D. & D. unlawfully repudiated its obligations under the agreement because of the imposition of martial law in Poland in December, 1981. At the time of this repudiation, Polamco had purchased the lathe and the first KCH 320, but R.D. & D. had not completed the required modifications on either of the machines. In August, 1982, Polamco cancelled its order for the Polish-made second KCH 320 because R.D. & D. refused to perform its obligations as to that machine, and because Polamco was incurring storage charges in Poland for its failure to accept timely delivery of the machine.
On January 22, 1982, Polamco filed suit against R.D. & D. in the United States District Court for the Western District of Illinois, seeking declaratory relief and specific performance of the Settlement Agreement. R.D. & D. counterclaimed, and successfully moved for a transfer of the case to the United States District Court for the Western District of Pennsylvania. Once there, Polamco amended its original complaint, requesting damages caused by R.D. & D.'s alleged repudiation and breach of the Settlement Agreement instead of equitable relief.
As the case proceeded to trial, Polamco advanced five separate damage theories: (1) rescission of the Settlement Agreement and reinstitution of Polamco's claim for $579,261 against R.D. & D.; (2) liquidated damages in the sum of $579,261 as the agreed upon value of R.D. & D.'s performance under the Settlement Agreement; (3) liquidated damages as measured by the minimum selling prices in the agreement for the three machines; (4) expectation damages as measured by the market value of the three machines; (5) and incidental damages in the nature of storage and cancellation costs incurred by Polamco because of the cancellation of the second KCH 320.
The trial commenced on June 23, 1983. On the second day, the trial court instructed Polamco's counsel that the only viable theory of damages, in the court's opinion, was for lost profits based on the market value of the machines. Further, the court ordered Polamco to submit an offer of proof on the market value theory, and to specify what evidence Polamco had of specific markets and specific customers for the machines. Polamco submitted an offer of proof, which the trial court found insufficient. The trial court then, over both parties' objections, ordered a mistrial, and gave Polamco the opportunity to amend its complaint as to the damage theories presented. R.D. & D. appealed the order granting the mistrial, but this court dismissed that appeal for lack of a final order. Polish American Machinery Corp. v. R.D. & D. Corp., No. 83-5504 (3d Cir. August 19, 1983).
Polamco then filed its Second Amended Complaint, which, despite the trial court's previous comments, repleaded each of the five damage theories. The trial court reiterated its concern over Polamco's ability to prove a market for the machines, and ordered each party to depose experts on the questions of the marketability and market value of the three machines. After the parties deposed the witnesses, R.D. & D. moved for summary judgment. The trial court, after reviewing the deposition transcripts, granted R.D. & D.'s summary judgment motion, holding that Polamco presented insufficient proof of the marketability of two of the three machines to create a jury question as to damages. As to the third machine, the second KCH 320, the court held that Polamco was not entitled to lost profit damages because it cancelled its order in anticipation of R.D. & D.'s breach of its obligations on that machine.
In effect, therefore, the trial court dismissed all of Polamco's damage theories for failure to state a claim, and never reached the issue of R.D. & D.'s liability for the alleged repudiation and breach of the Settlement Agreement. Polamco contends that each of its damage theories was viable, and that the court should have submitted each to the jury. Because a reversal as to any of the damage theories would necessitate a remand for further proceedings on the issue of liability, we will discuss each damage theory in turn.
As an initial matter, we note that the scope of our review on this appeal is plenary. The trial court dismissed four of the five damage theories as being legally inapplicable to this case, and dismissed the fifth theory, expectation damages based on market value, because Polamco offered insufficient evidence to create a jury question as to the marketability of the machines. See, e.g., Pullman-Standard v. Swint, 456 U.S. 273, 287 (1982). We also note that the parties stipulated in the Settlement Agreement that Pennsylvania law would control the interpretation and enforcement of the agreement.
Polamco's most straightforward damage theory seeks rescission of the Settlement Agreement and reinstitution of its previous claim against R.D. & D. for damages. However, R.D. & D. contends, and the trial court agreed, that the Settlement Agreement extinguished any prior claims Polamco may have had against R.D. & D., and that Polamco may only recover, if at all, on the Settlement Agreement. We disagree.
Under Pennsylvania law, an unperformed settlement agreement will bar reinstitution of a prior claim only if the mere promise to perform in the settlement agreement supplies the consideration for the release of the prior claim. If the consideration for the release of the prior claim is performance of the settlement agreement, however, only substantial performance of the obligor's duties under the agreement will extinguish the prior claim. See, e.g., Schwartzfager v. Pittsburgh, Harmony, Butler, and New Castle Railway Co., 238 Pa. 158, 164, 85 A. 1115 (1913); Hydro-Flex, Inc. v. Alter Bolt Co., Inc., 223 Pa.Super. 228, 296 A.2d 874, 878 (1972); Auslander v. Shore, 84 Pa.Super. 164, 166, 22 D. & C. 709 (1924). Although the parties' intent controls this issue, a presumption arises that substantial performance of a settlement agreement is necessary to extinguish a prior claim if the prior claim involves an undisputed duty. See Restatement (Second) of Contracts Sec. 281, comment e (1981); Westinghouse Elec. Supply Co. v. Fidelity and Deposit Co. of Maryland, 560 F.2d 1109, 1113 (3d Cir.1977).
In this case, the Settlement Agreement recites that "as a result of negotiations which followed the institution of the New Jersey suit, R.D. & D. and Polamco agreed that the past due amount owed to Polamco by R.D. & D. is $579,261.00." App....
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