Saft Am. v. Precision Drawn Metals, Inc.
| Docket Number | 21-cv-35-jdp |
| Decision Date | 17 August 2022 |
| Parties | SAFT AMERICA, INC. Plaintiff, v. PRECISION DRAWN METALS, INC. and ACUITY, Defendants, |
| Court | U.S. District Court — Western District of Wisconsin |
For nearly 20 years, plaintiff Saft America, Inc. bought steel cans from defendant Precision Drawn Metals, Inc. for use in making batteries. The relationship went south in 2018 and 2019, when Saft reported to Precision that some of its steel cans were rusty, cracked, or leaking. Saft contends that Precision breached its contract by providing defective products and then failing to adequately remedy the harm caused by the defects. Saft seeks a full refund for all defective cans, along with the costs associated with scrapping materials, lost productivity, and switching suppliers. Acuity intervened in the case to obtain a declaration that the insurance policy it issued doesn't require it to defend or indemnify Precision.
Precision moves for summary judgment on Saft's claim, Dkt. 64, and Acuity moves for summary judgment on its request for declaratory relief, Dkt. 59.[1] The court will deny both motions. Precision's contentions that it didn't breach the contract and that Saft's remedy is limited to a refund disregard the plain language of the parties' agreement. As for Acuity's motion, the court concludes that Precision's insurance policy with Acuity covers at least one category of damages sought by Saft, which is all that's required to trigger the duty to defend. The court will reserve a ruling on indemnification until liability is resolved.
The following facts are undisputed, unless otherwise noted.
Saft manufactures batteries and battery cells. One of the components of the batteries is a steel can, which Saft obtains from a supplier. From the early 2000s until 2020 Saft obtained steel cans from Precision, which purchases flat metal from Thomas Steel Strip Corporation and then shapes the metal in accordance with the customer's specifications. Precision isn't involved in creating the specifications.
The part at issue in this case is called the LM17130 steel can which is based on a drawing that Saft provided to Precision. The drawing specified the material to be used, the finish required, the thickness of the material to be used, and the hardness of the metal, among other things.
In October 2018, Saft notified Precision that there was rust on the cans supplied by Precision. In response, Precision provided Saft with a credit for 40,000 rusted cans.
In January 2019, Saft notified Precision that cans were cracking and leaking after the batteries were assembled. Saft asked Precision to obtain information from Thomas Steel about the process it used and a potential root cause. Through the middle of 2019, new shipments that Saft received from Precision continued to include cracked and leaking cans. In April 2019, after asking a third party to investigate the cause of the cracking and leaking, Precision issued a report stating that “[n]o corrective action has been determined necessary” because there was “no evidence of [Precision] initiated defects and the subject can complied to the requirements of [Saft's] drawing.” Dkt. 67-2, at 8. Saft conducted its own internal testing, and it ruled out its processes as a contributing cause.
In May 2019, Precision representatives met with Thomas Steel representatives to further investigate the causes of the cracking and leaking. According to Thomas Steel, it informed Precision during this visit that Thomas Steel had switched its method of annealing (a heat-treatment process used to soften metal to make it more workable) from continuous coil annealing to continuous strip annealing. (The drawing that Saft provided Precision didn't specify which annealing process to use.) Precision says that it didn't become aware of the change until October 2019. Continuous coil annealing produces softer steel than continuous strip annealing. The change in Thomas Steel's annealing process coincided with the appearance of the rust, cracking, and leaking.
In October 2019, Saft informed Precision that the cans were no longer cracking and leaking. At that point, Thomas Steel had switched back to continuous coil annealing. Throughout 2019, Saft scrapped hundreds of thousands of LM17130 cans, as well as batteries and battery cells that incorporated the cans.
The court will discuss additional facts as they become relevant to the analysis.
Saft's sole claim is that Precision breached its contract with Saft by providing defective cans and then failing to provide a full remedy. Precision denies that it breached the contract, and it contends in the alternative that Precision's remedy is limited to a refund of any defective cans that Precision didn't replace. For the reasons explained below, the court rejects both contentions.
The court briefly addresses two threshold issues: (1) choice of law; and (2) the agreement or agreements that govern Saft's claim. As for choice of law, Precision assumes that Wisconsin law is controlling; Saft cites case law from both Wisconsin and North Carolina, where Saft is located. But neither side conducts a choice-of-law analysis, and neither side identifies a conflict between Wisconsin and North Carolina. “When neither party raises a conflict of law issue in a diversity case, the applicable law is that of the state in which the federal court sits.” RLI Insurance Company v. Conseco, Inc., 543 F.3d 384, 390 (7th Cir. 2008). So the court will apply Wisconsin law. But basic contract principles are enough to resolve Precision's summary judgment motion, so choice of law is likely unimportant.
As for the governing contract, Precision points to a document titled “General Terms and Conditions of Purchase,” which was printed on the back of all the purchase orders at issue in this case. See Dkt. 2. The parties agree that those terms and conditions apply, but Saft says that a 2013 document called “Standard Terms and Conditions of Purchase” also applies. Dkt. 95-1.
In support of its argument that the dispute is governed solely by the terms and conditions on the back of the purchase order, Precision cites the following statement at the bottom of each purchase order: “This Purchase Order is subject to and shall be governed by the Terms and Conditions printed on the reverse hereof.” Dkt. 2. Precision also cites § 1.1 of the document, which states that the terms “apply to Orders and purchases of Supplies made by SAFT from the supplier.” Id. There is no reference in the purchase orders or any document accompanying the purchase orders to any other terms and conditions. Saft ignores the purchase order language in its brief, and it doesn't otherwise develop an argument in support of its view that the 2013 terms and conditions document should apply. So the court will apply the terms and conditions that accompanied the purchase orders.
Saft's primary contention is that Precision breached its contract by supplying steel cans that were rusty, cracked, or prone to leaking.[2] A claim for breach of contract has three elements: (1) an enforceable contract between the parties; (2) a breach of the contract; and (3) damages. Kaste v. Amery Reg'l Med. Ctr., Inc., 2016 WI.App. 75, ¶ 9, 371 Wis.2d 759, 886 N.W.2d 592. The parties agree that their purchase orders and order acknowledgements created enforceable contracts. But the parties dispute the second and third elements.
To show a breach, Saft relies on § 10.2 of the General Terms and Conditions of Purchase, which states that Precision “is responsible . . . for the manufacturing process” and “warrants that the Supplies . . . [a]re suited to be used for the tasks and in the manner intended” and “[c]ontain no apparent or hidden defects or malfunctions.” Dkt. 95-2, at 2. Saft also relies on the expert report of Shawn Sapp, a materials scientist and analytical chemist, who opines that the defects in the cans were “the result of improper annealing parameters.” Dkt. 103, at 43.
Precision neither denies that the rust and cracks are “apparent or hidden defects” within the meaning of § 10.2 nor contends that Sapp's opinion is inadmissible or insufficient to prove that the defects were caused by the manufacturing process. Instead, Precision's primary argument can be summarized as “it's not our fault.” Specifically, Precision says that Saft's drawings didn't specify which annealing process to use, Precision didn't know that Thomas Steel had changed the annealing process, Precision had no reason to believe that continuous strip annealing would cause defects in the cans, and the testing performed on the steel cans before litigation didn't reveal a “definitive root cause” of the defects.
All of Precision's arguments are misplaced because fault is not the issue. Saft is asserting a claim for breach of contract not negligence. So the important question is what Precision agreed to do. The language of the parties' agreement is clear: Precision provided a warranty that the steel cans it supplied would be free of defects caused by the manufacturing process. Precision isn't denying that the rust and cracks are defects, and it isn't challenging the sufficiency of Saft's evidence that the defects were caused by annealing, which is part of the manufacturing process. That's enough to support a breach-of-contract claim. It's simply irrelevant whether Precision's own conduct caused the defects or whether it was negligent in discovering the defects. What matters is that Precision promised Saft that it would provide steel cans without defects. And Precision points to no language in the contract that required Saft to “definitive[ly]” prove...
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