Toshiba Machine Co. v. SPM Flow Control, Inc., No. 2-03-156-CV (TX 6/2/2005)

• Decision Date: 02 June 2005
• Docket Number: No. 2-03-156-CV.,2-03-156-CV.
• Parties: TOSHIBA MACHINE CO., AMERICA, Appellant, v. SPM FLOW CONTROL, INC., Appellee.
• Court: Texas Supreme Court

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TOSHIBA MACHINE CO., AMERICA, Appellant, v. SPM FLOW CONTROL, INC., Appellee.

No. 2-03-156-CV.

Court of Appeals of Texas, Second District, Fort Worth.

Delivered: June 2, 2005.

Appeal from the 236th District Court of Tarrant County.

Panel A: CAYCE, C.J.; GARDNER and McCOY, JJ.

OPINION

ANNE GARDNER, Justice.

I. Introduction

This case arises from the sale of two large machine tools. Toshiba Machine Company of America ("Toshiba") appeals a $9.25 million judgment on a jury verdict in favor of S.P.M. Flow Control, Inc. ("SPM"). In twelve issues, Toshiba complains of legally insufficient evidence to support jury findings on various aspects of SPM's breach of contract claims, mutually exclusive and inconsistent theories of recovery, overlapping damage awards, and excessive attorney's fees. `In a single issue, SPM complains that the trial court used the wrong date to compute prejudgment interest. We affirm the judgment in all respects.

II. Factual and Procedural Background

SPM manufactures heavy-duty oilfield pumps. The pumps consist of two components: a "power end" and a "fluid end." SPM makes the fluid ends from blocks of solid steel weighing 3,000-4,000 pounds. The fluid ends have a complex internal shape machined through a process called "internal contouring."

In 1996, SPM began to shop for new machine tools to make fluid ends. The machines SPM used at the time dated from the 1960s and required 115 hours to make a single fluid end. SPM's primary goal in replacing the old machines was to reduce the time required to make a fluid end. SPM enlisted the help of Maruka, U.S.A., Inc., a machine tool distributor, to find suitable replacements. Maruka presented SPM with literature and quotes for several machine tools, including Toshiba's BMC 1000 Horizontal Machining Center ("BMC-1000").

SPM initially rejected Toshiba's quote because the BMC-1000 lacked the ability to perform internal contouring. Soon thereafter, however, Toshiba informed SPM that it had developed new software for the BMC-1000 that made internal contouring possible. Toshiba called the software, and the process it controlled, "orbit boring." Toshiba told SPM that Toshiba customers in Japan were already using the orbit-boring software on BMC-1000 machines.

Toshiba represented that orbit boring on the BMC-1000 could make fluid ends in much less time than SPM's existing tools. According to Toshiba, orbit boring allowed one cutting tool to do the work of many. The time saved by not having to change cutting tools would, said Toshiba, reduce the time needed to a make a fluid end, even though the cutting speed of the BMC-1000 was slower than that of SPM's existing equipment. SPM employees testified that Toshiba employees said, at various times before and after the sale, that orbit boring would allow SPM to make a fluid end in anywhere from fifteen to fifty hours.

A key issue at trial was what the term "orbit boring" meant. According to SPM's president, Dan Lowrance, Toshiba promoted orbit boring, also called "shake turning," as a new process that would bring new functionality to the BMC-1000. According to Toshiba's regional sales manager, Steve Oliphant, orbit boring on the BMC-1000 was simply a combination of older techniques called "Hale Interpolation" and "Archimedes Interpolation." Complicating the issue, Toshiba's parent company in Japan developed a new "concept" machine tool, the NX-76, to showcase what it touted as a "revolutionary" new process—a process also called "orbit boring." The parties hotly disputed whether shake turning on the BMC-1000 was the same process as orbit boring on the NX-76. SPM argued that Toshiba sold SPM orbit boring but delivered Hale and Archimedes Interpolation. Toshiba argued that orbit boring and shake turning were two names for the same process, regardless of which machine was involved.

In December 1997, SPM issued a purchase order for a BMC-1000 that Toshiba had available for immediate delivery. SPM's purchase order incorporated a proposal from Maruka in which Maruka listed "orbit machining" as a $20,000 option, and stipulated that Toshiba would provide a five-year warranty on "[o]rbit machining software, including support, updates and revisions as they become available." SPM also attached to the purchase order a list of terms captioned "Addendum `A'." Those terms included the following:

• Toshiba would machine a fluid end on a BMC-1000 from a raw forging that SPM had already shipped to Japan, and provide to SPM the data gathered during the machining process;

• Toshiba would provide a process cycle time, i.e., the time it should take to machine a fluid end on the BMC-1000;

• Toshiba would provide the technical support and training needed to make a fluid end on the BMC-1000; and

• SPM's acceptance of the BMC-1000 was conditioned on the successful production of a fluid end on the machine at SPM's factory.

Toshiba accepted SPM's purchase order and down payment without commenting on Addendum A. Toshiba delivered the BMC-1000 to SPM's factory in March 1998. Significantly, Toshiba delivered the machine without the software needed to perform orbit boring.

In late April 1998, Toshiba sent a programmer, Takeshi Ohki, to install orbit boring software on the BMC-1000 at SPM's factory. Ohki testified that this was the first time he had attempted to combine Hale Interpolation and Archimedes Interpolation to create the orbit boring function on a BMC-1000. He was unable to make the software perform to SPM's requirements and returned to Japan.

Soon after Ohki left SPM, Toshiba's Steve Oliphant sent a memorandum to Tony Tani, Toshiba's assistant general manager, raising several issues related to the BMC-1000. Oliphant wrote:

SPM is a Beta site for this very unique [orbit boring] software.

Orbit Boring vs Hale Interpolation: There seems to be some confusion as to the definition and capabilities of these two programs. In the beginning we were told that the Orbit Boring option was available and process descriptions were supplied to the field. This was sold to SPM . . . . What further complicates this definition issue is that Mr. Oki [sic] told [Maruka] that Orbit and Hale were two different things and that the BMC1000 was not capable of Orbit.

On May 8, 1998, SPM complained that the BMC-1000 did not perform as expected and requested written confirmation that the machine could produce fluid ends. Toshiba replied that Ohki would return to Fort Worth later in May and again attempt to install the orbit boring software. Ohki returned to SPM on May 18, but still the BMC-1000 could not perform internal contouring. Around the same time, SPM offered to return the machine to Toshiba in exchange for a refund of its down payment if Toshiba had any concern about the BMC-1000's ability to perform. Toshiba promised that a software solution was imminent.

Meanwhile, SPM ordered a second machine tool from Toshiba in late July. This second tool, the BMC-800, was slightly smaller than the BMC-1000 but had the same purported functionality—including orbit boring. Toshiba advised SPM that it would not ship the BMC-800 until SPM paid the $742,500 balance due on the BMC-1000. On August 10, SPM paid the BMC-1000 balance.

Five days later, Toshiba sent SPM an "acceptance" of the BMC-800 purchase order. The acceptance stated that "there is no orbit boring software" and "there will never be any revisions or updates" to the software provided with the BMC-800. When SPM confronted Toshiba about these statements, Toshiba dismissed them as a miscommunication. Toshiba said it planned to showcase the orbit boring software along with the new NX-76 at a Chicago tool show in September. SPM would receive the software immediately after the show, promised Toshiba.

SPM sent a representative to the Chicago tool show. Toshiba did exhibit orbit boring on the new NX-76, but told SPM's representative that the NX-76 software would not be available for the BMC-1000 until January.

SPM and Toshiba continued to wrangle over the BMC performance issues, and especially the orbit boring software, for another year. As late as May 13, 1999, Toshiba's Oliphant sent a memorandum to SPM promising delivery of the orbit boring software within two months. SPM, Maruka, and Toshiba scheduled a meeting at SPM's factory for August 1999. At the meeting, Toshiba definitively announced that SPM would not receive the orbit boring software.

From June 1998, when the BMC-1000 became operational at SPM, until November 2001, SPM used the Toshiba machines extensively to help make fluid ends. Although the lack of orbit boring software made the Toshibas useless for internal contouring, they could be used for rough machining. Using the Toshiba machines for 15,000 hours in conjunction with 18,600 hours on other machines, SPM produced 344 fluid ends at the average rate of 100 hours per fluid end—down from 115 hours per fluid end before the Toshibas went online, but far longer than the fifteen to fifty hours predicted by Toshiba.

When Toshiba announced that SPM would not receive the orbit boring software, SPM began to shop for machines to replace the Toshibas. In May 2000, SPM purchased the first of two machine tools from Toshiba rival Goss Trevisan. The first Goss went online in July 2000. A second Goss went online in May 2001. In November 2001, SPM stopped using the Toshiba machines altogether. SPM offered testimony at trial that the Goss machines could produce a complete fluid end in thirty-four hours.

In February 2000, SPM sued Toshiba for fraud, negligent misrepresentation, breach of contract and breach of warranty.¹ Toshiba counterclaimed for the unpaid balance of the BMC-800.

The case was tried to a jury. SPM claimed three broad categories of damages: refund of the $898,200 SPM paid for the two Toshiba machines; $969,945 in incidental expenses for items such as pouring foundations for the Toshiba machines and time spent designing tools for the Toshiba machines; and $6,038,492 in...