Sonfast Corp. v. York Intern. Corp., Civ. A. No. CV-93-0904.

• Decision Date: 21 September 1994
• Docket Number: Civ. A. No. CV-93-0904.
• Citation: 875 F. Supp. 1088
• Parties: SONFAST CORPORATION, Plaintiff, v. YORK INTERNATIONAL CORPORATION, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

875 F. Supp. 1088

SONFAST CORPORATION, Plaintiff, v. YORK INTERNATIONAL CORPORATION, Defendant.

Civ. A. No. CV-93-0904.

United States District Court, M.D. Pennsylvania.

September 21, 1994.

COPYRIGHT MATERIAL OMITTED

Steven M. Hovis, Timothy Paul Ruth, Stock and Leader, York, PA, for plaintiff Sonfast Corp.

John McN. Cramer, Reed, Smith, Shaw & McClay, Harrisburg, PA, for defendant York Intern. Corp.

MEMORANDUM

RAMBO, Chief Judge.

I. Introduction

Before the court is Defendant's motion for complete summary judgement in this action. Plaintiff's claims against Defendant are asserted in six separate counts. Counts I, III, and V assert breach of contract claims; Count II asserts claims for incidental and consequential damages; Count IV asserts a fraudulent misrepresentation claim; and, Count VI asserts a claim for punitive damages. Briefs have been filed and the motion is ripe for disposition.

II. Background

The facts stated herein are undisputed by the parties unless otherwise noted.

Sonfast Corporation ("Sonfast") is a supplier of commercial and industrial fasteners. York International Corporation ("York") is a manufacturer of cooling and air conditioning equipment. York utilizes an assortment of fasteners to assemble its products.

Through a letter prepared by Sonfast dated December 15, 1986, attached in Appendix D of Defendant's Brief, Sonfast and York entered into a "Fastener Purchasing Agreement" ("Agreement"). Under the Agreement Sonfast was to supply fasteners to the Central Environmental Systems ("CES") division of York, and York was to purchase all of its requirements for such fasteners from Sonfast. Sonfast was to supply CES plants located in Norman, Oklahoma; Elyria, Ohio; and Madisonville, Kentucky. The agreement covered a period ending December 31, 1991. An addendum dated October 14, 1988 extended the term of the Agreement through December 31, 1989; and an addendum dated January 1, 1990 extended the term of the agreement through December 31, 1993.

Under ¶ 14 of the Agreement, York retained the right to terminate¹ the Agreement should Sonfast's performance fall below certain acceptable standards. Paragraph 14 states: "CANCELLATION: This agreement is subject to cancellation in whole or in part should Sonfast's performance significantly fall below minimum acceptable levels with regard to pricing, delivery, quality or service." Nothing in the agreement expressly sets forth what an "acceptable level" means. Furthermore, the agreement is silent as to the appropriate procedure for termination and whether this procedure included notifying Sonfast of the decision to terminate.

During the third quarter of 1991, Terry L. Bowman, York's Director of Purchasing, became concerned that Sonfast's prices were excessive and their service below the acceptable standard set by the agreement. To gauge the current market price of the fasteners, Bowman sought price quotations for comparable fasteners from other manufacturers. According to Mr. Bowman's deposition, the quotations were lower than the current price being charged by Sonfast. York then notified Steven H. Yount, Sonfast's Vice President in charge of sales, that it intended to solicit bids for the supply of fasteners to the CES division, the order that Sonfast had the exclusive contract to fill through December 1993. York did not notify Sonfast that its performance under the agreement had fallen below acceptable standards thereby triggering the termination clause of the agreement. Sonfast was advised by York that the bidding would cover a larger range of fasteners than what was currently being provided by Sonfast under the agreement. Further, Sonfast was advised that if it would agree to give up its right to be the exclusive CES supplier until December 1993, Sonfast would be permitted to submit a bid for the new supply arrangement. If Sonfast chose not to submit a bid, it would remain the exclusive CES fastener supplier until December 1993, pursuant to the Agreement, but would relinquish the opportunity to continue to be a supplier after that date. Sonfast submitted a bid. The defense contends that Sonfast voluntarily relinquished its right to supply the CES division through December 1993, when it submitted the bid. Sonfast contends that did not voluntarily consent, but rather, entered the bidding process under economic duress.

On or about February 7, 1992, York requested bids from seven suppliers. The bidding process was to be governed by York's bid rules. Each supplier was given a copy of the bid rules in February when their bid was initially requested. The rules expressly provided that in addition to the bid itself, the proposal should also contain a proposed delivery plan. Additionally, separate "Incumbent Bidding Rules" set forth the rules which specifically applied only to Sonfast's bid. The incumbent bidding rules gave some preferences to the incumbent bidder, provided that the incumbent's delivery and services had been of acceptable quality over the previous year, and provided that their prices had remained competitive. Five of the seven suppliers submitted bids by the March 12, 1992 deadline. With the exception of Sonfast, each of the bids also included a delivery plan proposal. Sonfast and Tebco produced the two lowest bids. Sonfast's bid was marginally lower than Tebco's (25.3% below standard cost versus 25.9% below standard cost). However, York judged the Tebco bid to be superior, as Tebco had provided a formal inplant stocking plan while Sonfast had provided no comparable written plan. In his deposition, Mr. Bowman stated that Sonfast had provided oral assurances that it would make any changes necessary to retain the CES contract.

In a letter dated June 11, 1992, York informed Sonfast that it would continue to purchase fasteners from Sonfast to exhaust the inventory that Sonfast had already acquired to service the York account. The letter confirmed that York understood that this "phase-out" might not be completed until December 1992. A hand written notation at the bottom of the letter indicates that it was the intent of the parties to "zero" the existing inventory of "special" products by December 1992. The notation makes an express distinction between "special" and "standard" products. York continued to purchase fasteners from Sonfast through December 1992, at which time York determined that it had purchased all reasonable inventory existing on March 12, 1992.² Sonfast disputes the assertion that all reasonable inventory was purchased and contends that York did not proceed in good faith with respect to the "phase-out."

A second breach of contract claim also arises from the CES Agreement. This claim involves Sonfast's relationship with York's Madisonville plant, one of the plants supplied under the CES Agreement. In 1987 York elected to discontinue using Sonfast as a supplier for its Madisonville plant due to problems it encountered when using the fasteners in certain thin sheet metal applications. York contends that Sonfast was unable to provide a fastener that would work properly when used in the thin sheet metal applications. Sonfast disputes York's assertion. According to Plaintiff, in response to Defendant's complaint about the fastener, it developed plans for a new fastener that could be used for the thin sheet metal applications. Sonfast contends that York committed to a new supplier despite this plan. Additionally, Sonfast claims that York violated the exclusivity clause of the Agreement by ordering all # 15519 fasteners from another supplier, rather than just the quantities that would be used in thin sheet metal applications. The parties are in dispute as to whether the Madisonville plant used the # 15519 fasteners in applications other than the thin sheet metal applications. York contends that even if the fasteners were used in other applications, there is no language in the contract to support Sonfast's assertion regarding the need to split fastener orders.

Finally, also central to this dispute, is a second concurrent relationship between York and Sonfast. Through this relationship, Sonfast supplied fasteners to York's Applied Systems Division ("ASD") in York, Pennsylvania from approximately October 1987 through December 1992. There is a dispute as to whether this ongoing relationship was governed by any type of contract. Defendant contends that no contract ever existed and that it resisted Plaintiff's attempts to execute a written sales agreement. Plaintiff claims that a formal contract similar to the CES Agreement was executed by the parties. However, in his deposition Mr. Pappy admits that he has been unable to locate a copy of the alleged contract. Regardless of the existence of a formal contract, Plaintiff further asserts that the relationship was also governed by the "Incumbent Bidding Rules." In his deposition, Mr. Pappy contends that Richard J. Hoover, an executive at York, orally advised him that the relationship would be governed by the Incumbent Bidding Rules. Defendant asserts that such rules were never intended nor understood to be a binding contract, and that no binding contract exists.

In Count I of the complaint, Plaintiff claims that York breached the Agreement by awarding the CES fastener supply contract to Tebco. This claim is based on Sonfast's assertion that at no point during its relationship with York did its performance fall below acceptable standards. Thus, the award of the contract to Tebco breached the exclusivity clause of the Agreement and denied Sonfast the right to receive profits under the contract. Furthermore, Sonfast contends that it never freely consented to a modification of the original Agreement.

Count II of the complaint requests that the court award incidental and consequential damages for costs incurred by Sonfast because of the termination of the Agreement. First, Plaintiff requests incidental damages for the fasteners in inventory that York refused to purchase during the "phas...