Spirit AeroSystems, Inc. v. SPS Techs., LLC

• Decision Date: 27 November 2013
• Docket Number: Case No. 09-CV-1144-EFM-KGG
• Parties: SPIRIT AEROSYSTEMS, INC., Plaintiff, v. SPS TECHNOLOGIES, LLC and PRECISION CASTPARTS CORP., Defendants.
• Court: U.S. District Court — District of Kansas

SPIRIT AEROSYSTEMS, INC., Plaintiff,
v.
SPS TECHNOLOGIES, LLC and PRECISION CASTPARTS CORP., Defendants.

Case No. 09-CV-1144-EFM-KGG

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

Dated: November 27, 2013

MEMORANDUM AND ORDER

This case involves the sale of a half million nutplates—metal fasteners used to build Boeing airplanes—from Defendant SPS Technologies, LLC, to Plaintiff Spirit Aerosystems, Inc., in 2007 and 2008. The nutplates failed to conform to Boeing's specifications, and Spirit has filed suit alleging breach of contract and breach of express and implied warranties. Defendants filed a motion for partial summary judgment on two claims of breach of implied warranties. Defendants also filed a motion to strike a portion of a supplemental expert report. Spirit has filed a motion for partial summary judgment on six asserted defenses.

First, the Court grants Defendants' motion for partial summary judgment on Spirit's claim of breach of implied warranty of fitness for a particular purpose and denies summary judgment for Spirit's claim of breach of implied warranty of merchantability. Second, the Court grants Defendants' motion to strike a portion of Michael Stevenson's supplemental expert report because Spirit has failed to show that the late submission is justified or harmless. Finally, the Court grants Spirit's motion for partial summary judgment on three defenses and denies summary judgment on three defenses.

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I. Factual and Procedural Background¹

Spirit is an aerospace manufacturing company that manufactures and supplies aerostructures and related assemblies to its customers in the aerospace industry, including The Boeing Company, for final assembly and incorporation into aircraft. Spirit is a Delaware corporation with its principal place of business in Wichita, Kansas. SPS is a manufacturer of fasteners and fastener systems and assemblies for the aerospace industry and other applications. SPS is a limited liability company organized under the laws of Pennsylvania. SPS made the fasteners at its facilities in Santa Ana, California. Precision Castparts Corporation, the co-defendant, is the sole member of SPS. Precision Castparts is an Oregon corporation with its principal place of business in Oregon. In May 2006, Precision Castparts and SPS entered into a "Guarantee Agreement" to guarantee SPS' performance of its contracts and purchase orders related to Spirit.

Nutplates are metal fasteners that are used to assemble aerospace parts and assemblies. The nutplates consist of a nut and a basket, which also is referred to as a retainer. Boeing publishes specifications for nutplates that are to be installed in Boeing airplanes. The specifications are known as part standards. The nutplates at issue in this case are Boeing Part Standard BACN10JR3CFD. The part standard contains detailed specifications that govern, among other things, the size, material, heat treatment, finish, lubrication, and marking of the nutplates. The part standard also incorporates other documents that further outline the applicable specifications for the part. Only Boeing drafts a Boeing part standard, and only Boeing has the ability to revise a Boeing part standard. Boeing published Revision Y of the BACN10JR3CFD part standard November 21, 2006.

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Spirit's primary supplier of nutplates was Alcoa Fastening Systems, and Spirit issued orders to SPS when Alcoa could not meet demand. In December 2006, Alcoa requested that Boeing change Revision Y to allow lubrication on the baskets. In January 2007, Alcoa informed Boeing that it could not manufacture nutplates to Revision Y. Later in 2007, Alcoa informed Spirit that the Revision Y drawing was in error and declined to ship nutplates until Boeing changed Revision Y. The nutplates shipped by Alcoa and Republic Fastener Manufacturing Corp. during the relevant period were manufactured to superseded Revision W. Spirit noted the nonconforming condition, and deemed the nutplates manufactured to Revision W acceptable.

In February 2007, Spirit issued a purchase order to SPS for 360,000 nutplates under the BACN10JR3CFD part standard. The purchase orders required that all parts ordered must be to the latest specifications. The part standard in effect at the time was Revision Y. The purchase order incorporated Spirit's general provisions as part of the contract between the parties. One of the provisions stated, "No inspection, test, delay or failure to inspect or test or failure to discover any defect or other nonconformance shall relieve Seller of any obligations under this Purchase Document or impair any rights or remedies of Buyer."²

In October 2007, Spirit ordered 240,000 more nutplates. In July 2008, Spirit ordered an additional 480,000 nutplates from SPS. From August 2007 to August 2008, SPS shipped 536,186 nutplates to Spirit and designated them as BACN10JR3CFD nutplates. During this time, a Spirit receiving inspector selected SPS BACN10JR3CFD nutplates for four product audits. The inspections did not include testing for cadmium on the nutplates. The SPS nutplates passed the four product audits performed by Spirit.

Boeing expected the nutplates to include cadmium plating and to function in a way that provided corrosion protection. After receiving Spirit's purchase order, SPS manufacturing

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engineers interpreted Revision Y to require removal of molybdenum disulfide solid film lubricant and cadmium from the basket of the nutplates. None of the 536,186 BACN10JR3CFD nutplates that SPS shipped to Spirit from August 2007 to August 2008 had cadmium plating on the basket. In July 2008, Spirit's laboratory discovered that cadmium plating was missing.

Spirit reported that it returned approximately 174,000 unused nutplates to SPS. Boeing estimated that approximately 340,000 of the nutplates already had been incorporated in airplanes that had been delivered to customers. Boeing offered extended warranties on 54 affected airplanes that had been delivered. Boeing told its customers that the nutplates did not present a safety issue. Boeing performed testing to determine whether the lack of cadmium would result in accelerated or more severe corrosion. In 2010, Boeing determined that no action beyond routine maintenance was necessary for the nutplates installed in delivered airplanes.

Boeing removed approximately 20,000 nutplates that had been installed in airplanes that had not yet been delivered to customers. On these airplanes, Boeing decided to remove and replace all nutplates in easy-to-access areas without regard to corrosion risk. Decisions to remove nutplates in difficult-to-access areas were assessed individually. Boeing removed and replaced 95 percent to 98 percent of the nonconforming nutplates that had been installed on fuselages that were still within Boeing's control.

In May 2009, Spirit filed this lawsuit against SPS Technologies and Precision Castparts. Against SPS, Spirit has alleged counts of breach of contract, breach of express warranty, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, and indemnity. The sixth count is for guarantee and indemnity against Precision Castparts. Spirit is seeking damages of approximately $18.5 million.

There are three motions before the Court. First, Defendants have filed a motion for partial summary judgment on two counts of Spirit's complaint related to the breach of an implied

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warranty. Also before the Court is Defendants' Motion to Strike Portion of Supplemental Expert Report of Michael Stevenson and to Exclude Related Testimony at Trial. Third, Spirit has filed a motion for partial summary judgment on six of Defendants' asserted defenses.

II. Legal Standard

Summary judgment is appropriate if the moving party demonstrates that there is no genuine issue as to any material fact, and the movant is entitled to judgment as a matter of law.³ In applying this standard, the court considers the evidence and all reasonable inferences in the light most favorable to the nonmoving party.⁴ A fact is "material" when it is essential to the claim, and issues of fact are "genuine" if the proffered evidence permits a reasonable jury to decide the issue in either party's favor.⁵ The movant bears the initial burden of proof, and must show the lack of evidence on an essential element of the claim.⁶ If the movant carries this initial burden, the nonmovant that bears the burden of persuasion at trial may not simply rest upon its pleadings; the burden shifts to the nonmovant to go beyond the pleadings and "set forth specific facts" that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant.⁷ These facts must be clearly identified through affidavits, deposition transcripts, or incorporated exhibits.⁸ Finally, summary judgment is not a "disfavored

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procedural shortcut," but is instead an important procedure "designed to secure the just, speedy and inexpensive determination of every action."⁹

In a diversity case, a federal court "applies federal procedural law and the substantive law that would be applied by the forum state."¹⁰ Under Kansas choice-of law rules, the contract law of the state where the contract was entered into controls.¹¹ Here, both parties agree that Kansas is the place of contracting and that Kansas contract law governs.

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