Webco Industries, Inc. v. Thermatool Corp.

• Decision Date: 18 January 2002
• Docket Number: No. 99-5136.,No. 99-5148.,99-5136.,99-5148.
• Citation: 278 F.3d 1120
• Parties: WEBCO INDUSTRIES, INC., Sued as Webco Industries, Inc., Plaintiff-Appellant/Cross-Appellee, v. THERMATOOL CORP.; Alpha Industries Inc., Defendants-Appellees/Cross-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

278 F.3d 1120

WEBCO INDUSTRIES, INC., Sued as Webco Industries, Inc., Plaintiff-Appellant/Cross-Appellee, v. THERMATOOL CORP.; Alpha Industries Inc., Defendants-Appellees/Cross-Appellants.

No. 99-5136.

No. 99-5148.

United States Court of Appeals, Tenth Circuit.

January 18, 2002.

COPYRIGHT MATERIAL OMITTED

Frederick J. Hegenbart of Rosenstein, Fist & Ringold, Tulsa, OK, Mark Grossman of Grossman & Grossman, Ltd., Chicago, IL, with him on the briefs, for Plaintiff-Appellant/Cross-Appellee.

Joseph R. Farris, Jody R. Nathan with him on the briefs, of Feldman, Franden, Woodard & Farris, Tulsa, OK, for the Defendants-Appellees/Cross-Appellants.

Before SEYMOUR, Circuit Judge, McWILLIAMS, Senior Circuit Judge and BELOT^*, District Judge.

SEYMOUR, Circuit Judge.

Webco Industries, a manufacturer of custom tube, bought a machine for cutting tube from Thermatool Corporation and Alpha Industries (Thermatool), manufacturers of cutting, heating, and welding machines for the pipe and tube industry.¹ When the machine did not perform as anticipated, Webco brought this diversity action against Thermatool alleging, inter alia, breach of contract, breach of express and implied warranties under the Uniform Commercial Code (UCC), and breach of a performance guarantee.

In a pretrial order, the district court ruled that limiting language in Thermatool's order acknowledgment precluded Webco's contract and UCC claims and, alternatively, that these claims were barred by the applicable statute of limitations. The claim for breach of the performance guarantee was tried to a jury, which returned a verdict in favor of Webco for $1,115,500, an amount that exceeded the $735,000 purchase price of the machine by $380,500. In post-trial rulings, the district court denied Webco's request for prejudgment interest and for attorneys' fees.

Webco appeals, contending the court erred in ruling that the contract and UCC claims were barred, and in failing to award prejudgment interest and attorney's fees. Thermatool cross-appeals, asserting that it was entitled to judgment as a matter of law on Webco's claim to enforce the performance guarantee and, alternatively, that Webco's damages on that claim should have been limited to the purchase price of the machine. We affirm in part, reverse in part, and remand for further proceedings.

I BACKGROUND

The background facts set out here are relevant to Thermatool's argument on appeal that it was entitled to judgment as a matter of law on Webco's claim under the performance guarantee. See Part III.A., infra. Accordingly, we view the record in the light most favorable to the prevailing party and give that party the benefit of all reasonable inferences to be drawn from the evidence. See James v. Sears, Roebuck & Co., 21 F.3d 989, 992 (10th Cir. 1994).

Prior to the events giving rise to this lawsuit, Webco had purchased several pieces of equipment from Thermatool. In 1989, Webco was at full capacity and wanted a new mill to broaden its production line and customer base. Accordingly, the parties began discussions concerning the purchase and sale of an induction parting machine (IPM) to be put into operation in the new mill. The IPM cut tube by heating it and pulling it apart rather than by cutting it with a saw. Bill Obermark, who was vice president for technical services with Webco at the time, had seen an IPM at a plant in Germany and had been favorably impressed with its fast, clean and quiet operation. Although Thermatool had never built an IPM, its regional sales manager, Gary Doyon, told Mr. Obermark that Thermatool was interested and anxious to build the machine and that the Thermatool engineering department was "extremely confident in the machine's capabilities." Aplt.App. vol. III at 773.

Thermatool submitted a proposal to Webco to build an IPM. On July 10, 1989, in response to conversations with Webco personnel, Mr. Doyon sent a letter to Webco clarifying the performance guarantee it had made with respect to the IPM. The letter stated:

The specification parameters for performance will be set by [Webco] and accepted by Thermatool. After startup, if the cutoff system fails to meet these specifications, Thermatool will make every effort to rectify the problems or take back the cutoff and remit monies paid to Thermatool to that point.

We offer this comprehensive performance guarantee as a direct result of our confidence in the proposed system.

Id. at 785.

In August, Webco sent a purchase order for the IPM to Thermatool which stated that its acceptance was limited to the terms on the reverse side, and that any additional or different terms in the acceptance would be void unless Webco agreed to them. The reverse side of the purchase order stated that "Buyer [Webco] shall be entitled to all rights and remedies as set forth in the Oklahoma version of the Uniform Commercial Code." Id. at 790. After a meeting between Webco and Thermatool personnel, Thermatool sent Webco an invoice and an acknowledgment. The acknowledgment recognized that, pursuant to Webco's specifications, the machine could not mark tube with more than a 0.003 inch indentation, and further provided that Thermatool would provide startup assistance "for the purpose of inspecting the installation, performing in the field adjustments and instructing customer's personnel in the proper use of the equipment," id. at 812. The acknowledgment also stated that the terms and conditions on the back were the only ones applicable to the order. The back of the page stated that Thermatool's warranty did not cover "losses, costs, expenses, liabilities and damages ( ... and all other consequential damages)." Id. at 814.

Thermatool built the machine and sent it to Webco, who paid the purchase price in full. Because Webco was having problems with its financing for the new mill, the machine was placed in storage for four years after it was delivered to Webco while Webco worked out its financing and constructed the mill. Thermatool was aware of the situation and agreed to extend its performance guarantee through the storage period and the time the IPM was placed into service. When the mill was completed in 1994, Webco began preparations to remove the IPM from storage, assemble it, and prepare it for service.

It is undisputed that the machine could not be installed as configured by Thermatool. In its original configuration, IPM did not fit the space envelope provided for it, and parts would have hit one another during operation. This problem became apparent in early 1994 as Webco was preparing to install the IPM in the mill. Webco notified Thermatool of the situation in March 1994. In April, Thermatool representatives visited the plant to observe the problem first-hand and agreed that some modifications had to be made. Webco requested that Thermatool set up a schedule for the required modifications so that the installation could proceed and the mill could begin operation. When Thermatool did not provide the schedule or make the required modifications, Webco ultimately started making the modifications in early October, with input from Thermatool personnel. The IPM was placed into operation the last week of October and the first week of November 1994.

It is also undisputed that prior to delivery the IPM did not conform to Webco's specifications and that Thermatool was aware of this fact. Pre-delivery testing by Thermatool showed that the IPM consistently marked tube in excess of the 0.003 inch limit set by Webco. Specifically when the jaws that pulled the tube apart exerted sufficient force to part the tube, the teeth in the jaws left marks in the tube that exceeded the specification. Webco presented evidence at trial that it was unaware of the marking problem until after the machine began operation.

Although the IPM otherwise performed well after the mill became operational, the jaw teeth continued to mark the tube in excess of 0.003 inches. Webco presented testimony at trial from its founder and chairman of the board, Bill Weber, describing the problems created by the marks.² Mr. Weber testified that the marked pipe would be rejected by Webco's customers, that the company therefore could not sell it, and that it could not be cut due to length requirements. Webco was thus required to scrap it. Thermatool has never disputed the legitimacy of Webco's marking specification.

When the IPM began operation the first week of November 1994, Bill Obermark of Webco observed the marking problem. He pointed it out to Thermatool personnel assisting with the startup, and listed the jaw design as an item of discussion with Thermatool engineers. At the end of November, Mr. Obermark asked Thermatool for a progress report and was told that Thermatool's engineering department would work on developing a new jaw design and get back to him. See Aplt.App. vol. IV at 1007. Mr. Obermark testified at trial that he had heard nothing from Thermatool by the end of the year and that everything the IPM was making was scrap. He therefore felt that Webco had to design and manufacture its own jaws. Webco began to do so and sent a copy of the engineering to Thermatool for its reference and opinions. Webco also returned the Thermatool jaws to the company with a request that Webco receive a credit, which Thermatool did not honor. Thermatool personnel did not respond to Webco's alternative jaw design, and Webco continued to attempt to develop a design that did not mark the tube. Webco was ultimately able to use its jaws to produce a certain amount of tube that met the marking specification.

Thermatool engineers came to the mill in July 1995 to see the problem and determined that the markings were caused because the machine did not have the capacity to grip the tube with sufficient strength. In August 1995, Thermatool proposed a solution that required using a redesigned jaw that would grip the tube using a hydraulic pressure system rather than the cam system already in place. The design...