Polycon Industries, Inc. v. Hercules Inc.

• Decision Date: 04 June 1979
• Docket Number: No. 75-C-182,75-C-337 and 75-C-394.,75-C-182
• Citation: 471 F. Supp. 1316
• Parties: POLYCON INDUSTRIES, INC., Plaintiff, v. HERCULES INCORPORATED, Defendant (two cases). HERCULES INCORPORATED, Plaintiff, v. POLYCON INDUSTRIES, INC., Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

471 F. Supp. 1316

POLYCON INDUSTRIES, INC., Plaintiff, v. HERCULES INCORPORATED, Defendant (two cases).

HERCULES INCORPORATED, Plaintiff, v. POLYCON INDUSTRIES, INC., Defendant.

Nos. 75-C-182, 75-C-337 and 75-C-394.

United States District Court, E. D. Wisconsin.

June 4, 1979.

Foley & Lardner by Robert A. DuPuy, Maurice J. McSweeney, Milwaukee, Wis., for plaintiff.

Borgelt, Powell, Peterson & Frauen by Reuben W. Peterson, Jr., Edmund W. Powell, Milwaukee, Wis., for defendant.

DECISION and ORDER

MYRON L. GORDON, District Judge.

These actions, which were consolidated for trial, are before me for a decision on the merits. The record consists of the testimony, depositions and exhibits received in eight days of hearings, and the stipulated facts contained in the parties' pretrial report. I adopt such stipulated facts in their entirety, although I will make specific reference only to those portions which will help explain my resolution of the issues. This decision shall constitute my findings of fact and conclusions of law pursuant to Rule 52(a), Federal Rules of Civil Procedure.

I. BACKGROUND AND FACTUAL MATTERS

Baker Plastics, located in Williamston, Michigan, was a division of Haskon, Inc., a wholly-owned subsidiary of Hercules, Inc., a Delaware corporation, at all times relevant to these suits. Hercules and Baker Plastics will be referred to collectively as "Baker."

Polycon Industries, Inc. (Polycon), is a wholly-owned subsidiary of Crown Glass, Inc., an Illinois corporation.

I find that jurisdiction exists under 28 U.S.C. § 1332(a), there being diversity of citizenship between the parties and the requisite amount in controversy.

These actions concern three blowmolding machines manufactured by Baker and sold to Polycon. These machines are called the B-100, the TA and the TB. In general terms, the dispute pits Polycon's contention that the machines did not work properly against Baker's contention that Polycon's production problems stemmed from the fault of Polycon's own employees rather than the machines. Polycon seeks to recover the sums paid to Baker for the three machines, its "cost of cover" with other machines, and lost profits in sales that it would have made if the machines worked properly. Baker originally sought the balance due on the machines and certain other damages but, after the action commenced, the parties agreed, in the interests of mitigating both parties' damages, that the machines would be returned to Baker. As a result, Baker has now abandoned its claims for damages. (Posttrial brief of Hercules, Inc., p. 37).

The blowmolding machines in question produce plastic containers designed to hold liquid consumer products. Plastic is fed into the machines where it is melted to liquid, moved by "extruder heads" to a blow station, and blown into the shape of the desired containers. The containers are then conveyed to "downstream" stations where they are successively cooled, trimmed, labeled, and packed for shipment.

Baker assembled and tooled blowmolding machines, but most of the components of the machines were manufactured by others.

Sometime in early 1973, Robert Arvans of Polycon initiated discussions with Baker for the purchase of a B-100 machine for the purpose of producing high-density polyethylene 2 and 2½ gallon containers.

In 1973, 2 and 2½ gallon polyethylene containers were a new product, and Polycon sought to become an early entrant into the market, which grew significantly between 1973 and 1975. Contract negotiations and discussions about the machine's specifications ensued. The parties' agreement for the sale and purchase of the B-100 machine is embodied in three documents: Polycon's purchase order, a letter dated March 22, 1973, by Mr. Arvans on behalf of Polycon, and a letter dated May 26, 1973, by Richard Berger on behalf of Baker. The latter two letters amended the terms and specifications of the purchase order. Delivery of the B-100 was set for June 30, 1973. The agreement called for a 24 hour test run after which, if successful, Polycon would make a downpayment on the machine.

Baker was unable to complete its preparation of the B-100 until October, 1973, at which time a test run was unsuccessfully attempted. A second test run was completed on November 29 and 30, 1973, after which Mr. Arvans, on behalf of Polycon, acknowledged in writing that the required number of bottles had been produced in the 24-hour period as required by the agreement. However, the quality of the bottles was adversely affected by problems with color mixing, jams in the trimmer mechanism, and problems with the molds. Baker assured Polycon that the problems would be corrected, and Polycon agreed to accept the machine and its related equipment on condition that problems with the shear rings and the purge time for color change would be corrected. Baker then drew up a new quotation and sent it, together with a note and security agreement, to Polycon.

Baker was unable to correct the problems with the B-100, and it could not produce commercially acceptable bottles for several months thereafter, primarily because of problems with the machine's molds. On April 5, 1974, Polycon executed a note and security agreement providing for a downpayment on execution and monthly payments for 12 months. The B-100 was shipped on July 11, 1974, to Polycon's Milwaukee plant. It was understood by the parties that additional modifications would be accomplished after delivery.

In December, 1973, Baker and Polycon discussed the possibility of Polycon purchasing two additional blowmolding machines capable of producing a 1 gallon, "F" style high-density polyethylene Prestone antifreeze container for Polycon's customer, Union Carbide. On December 28, 1973, representatives of Polycon and Baker met and discussed the sale of the two additional machines. Clifford Baker, general manager of Baker, informed Polycon's representatives that the research and development were completed on a machine, the TB, to produce the Prestone container. He advised that Baker had 4 TB machines under fabrication in Japan and that 3 of the machines would be sold to Union Carbide. Union Carbide had plans to produce for itself a quantity of the same Prestone containers to be produced by Polycon. Mr. Baker stated that the remaining TB was available for sale to Polycon. He also suggested that a TA machine was available at Baker's plant and could be converted to produce the Prestone bottle.

Mr. Arvans inquired whether the TA machine had an adequate platen area to handle molds the size of the Prestone container. Mr. Baker responded that he felt the platen area was wide enough but that he would have to verify the matter after examining the machine again. After making this examination, Baker responded that the TA was capable of handling the larger molds, although the machine would be operating at its upper limits.

Mr. Blitstein, president of Crown Glass, asked at the December 28, 1973, meeting whether delivery of the TA and TB would suffer from the same delays which had been encountered with the B-100. He was assured by Mr. Baker that there would be no such delays. The Baker representatives were advised by Polycon's representatives that the timing of delivery of the machines was important because Polycon had a commitment to deliver Prestone containers to Union Carbide in accordance with a shipping schedule. Polycon had entered into an agreement with Union Carbide whereby Union Carbide agreed to purchase the entire output of the two machines, with delivery to commence in March, 1974.

On January 3, 1974, Baker forwarded to Polycon a quotation and offer of sale for the TA and the TB machines. On January 16, 1974, Polycon issued to Baker a purchase order for the TA and TB machines. Its terms required delivery of the TA on February 15, 1974, and the TB on March 15, 1974. Polycon also sent a letter of explanation proposing additional terms. Baker responded to the latter proposals with a letter dated February 4, 1974, amending some of the proposals in Polycon's letter. These documents constitute the basic agreement concerning the TA and TB machines.

Baker was unable to resolve certain problems with the machines and informed Polycon that shipment would be delayed. Polycon strongly objected to the delay and the consequent loss of some sales to Union Carbide, which had turned to another container supplier for containers that were supposed to have been supplied by Polycon. Baker responded that it was trying to correct the problems with the machines before shipment.

On April 16, 1974, the parties met with their attorneys and agreed that the machines would be shipped to Polycon and that Polycon would have the right to return the machines within 90 days and receive a refund of all monies paid if the machines did not meet performance requirements within 90 days of shipment. A security agreement and note were signed by the parties. The TA machine was shipped on April 16, 1974, and the TB machine was shipped on May 21, 1974.

From June to November, 1974, Baker employees remained at the Polycon plant on nearly a full time basis training Polycon's personnel, operating the machines, and repairing the machines and replacing parts.

The B-100 was not ready for operation until October 1, 1974, because certain parts were unavailable and other parts had been taken off the machine for use on the TA and TB machines. The B-100 machine was never placed into continuous production. Its problems were never corrected because the parties were devoting attention primarily to the problems of the TA and TB machines.

Although the TA and TB machines successfully produced 6,220,086 bottles which were sold to Union Carbide, the machines were plagued by mechanical failures on a daily basis, often stopping production for several hours or entire days. Baker formed a task force of its personnel in February 1974, to work on the three machines' problems, but the solutions they came up with...