Whitlock Packaging v. Precision Diversified

• Decision Date: 11 August 1998
• Docket Number: No. CIV.A.97-3769 (HAA).,CIV.A.97-3769 (HAA).
• Citation: 59 F.Supp.2d 384
• Parties: WHITLOCK PACKAGING CORP., Plaintiff, v. PRECISION DIVERSIFIED SYSTEMS, INC., a/k/a/ PDS, Inc., Defendant. Precision Diversified Systems, Inc., a/k/a PDS, Inc., Third Party Plaintiff, v. Jerry D. Whitlock, Third Party Defendant.
• Court: U.S. District Court — District of New Jersey

59 F.Supp.2d 384

WHITLOCK PACKAGING CORP., Plaintiff, v. PRECISION DIVERSIFIED SYSTEMS, INC., a/k/a/ PDS, Inc., Defendant.

Precision Diversified Systems, Inc., a/k/a PDS, Inc., Third Party Plaintiff, v. Jerry D. Whitlock, Third Party Defendant.

No. CIV.A.97-3769 (HAA).

United States District Court, D. New Jersey.

August 11, 1998.

Order Denying Reconsideration; December 2, 1998.

COPYRIGHT MATERIAL OMITTED

James R. Gregory, Gregory & Reed, P.C., Parsippany, NJ, for Plaintiff and Third Party Defendant.

Samuel N. Reiken, Law Offices of Samuel Reiken, P.C., Parsippany, NJ, for Defendant and Third Party Plaintiff.

OPINION

CHESLER, United States Magistrate Judge.

I. INTRODUCTION

This matter comes before the Court on the motion of Defendant, Precision Diversified Systems, Inc. ("Defendant" or "PDS"), to confirm an arbitration award and for the entry of judgment or, in the alternative, for summary judgment and dismissal of Plaintiff's complaint, and on the cross-motion of Plaintiff, Whitlock Packaging Corp. ("Plaintiff" or "Whitlock"), to confirm the arbitration award (pleaded as a cross-motion for summary judgment on liability) and for the scheduling of a trial on damages. The parties consented to having the matter resolved by the undersigned, see 28 U.S.C. § 636(c), and an Order of Reference was entered by the Honorable Harold A. Ackerman, U.S.D.J., on April 23, 1998.¹ Oral argument was heard on June 22, 1998. For the reasons set forth below, Defendant's motion to confirm the arbitration award will be denied, Defendant's alternative motion for summary judgment will be granted so far as it deals with damages, Plaintiff's cross-motion to confirm the arbitration award will be granted, and Plaintiff's cross-motion for the scheduling of a trial on damages will be denied.

II. BACKGROUND

Plaintiff, Whitlock Packaging Corp. ("Plaintiff' or "Whitlock"), is the owner and operator of a large beverage blending and packaging plant located in Wharton, New Jersey. Defendant, Precision Diversified Systems, Inc. ("Defendant" or "PDS"), is the manufacturer of a piece of equipment known as beverage cooling tunnels ("Tunnel" or "Tunnels"). A Tunnel is an important link in the production line because it must quickly cool freshly filled cans containing hot beverages as the cans pass through the Tunnel on specially designed conveyor belts. See Alexander Dep. ¶. Once the cans are filled with hot beverages and cooled in the Tunnel, they continue down the production line where they are labeled and packaged for shipping. Id. at ¶ 3. Without proper cooling, the entire production line will be slowed or halted completely. Id. at ¶ 4.

In late 1995, Plaintiff and Defendant began discussions regarding Plaintiff's need for a Tunnel at their Wharton, New Jersey facility. Id. at ¶ 3. In late 1995 and early 1996, Defendant entered into two contracts with Plaintiff to manufacture two separate special pieces of equipment for Plaintiff known as airmist coolers. See Ware Aff. ¶ 2. Both orders were verbal but were subject to Defendant's standard purchase order terms and conditions that were submitted to Plaintiff. See Defendant's Statement of Undisputed Facts at ¶ 2 [hereinafter "Defendant's Statement"]. Plaintiff provided Defendant with pertinent specifications of performance that the cooling Tunnels had to meet or exceed. See Plaintiff's Statement of Undisputed Facts at ¶ 3 [hereinafter "Plaintiff's Statement"]. Defendant advised Plaintiff that it could design and manufacture a Tunnel that would meet or exceed the required specifications for a sixty foot Tunnel that could process forty-six ounce cans at the rate of 360 per minute. Id.

Defendant designed and constructed the Tunnel which was then installed at Plaintiff's facility in Wharton, New Jersey. See Ware Aff. at ¶ 2. Plaintiff paid for the first piece of equipment in full and left a balance of $90,000 due on the second piece of equipment. See Defendant's Statement at ¶ 3. After installation, the Tunnel was placed in operation and failed to perform according to the specifications because it could not cool the requisite amount of cans per minute. See Plaintiff's Statement at ¶ 5. Additionally, the Tunnel was continually out of service and required substantial repairs. Id. Some of the machine's failures included broken tail shafts, broken sprockets on the drive shaft and tail shaft, stoppage due to motor over-current, a high level of chain wear and damage, broken bearing mount, and a cracked structural member at the drive shaft. Id. The down time of the Tunnel allegedly caused a halt to Plaintiff's production process on numerous occasions. Id.

Plaintiff concluded that the Tunnel's failure was caused by the manner in which Defendant designed and constructed the equipment. Id. at ¶ 6. Defendant strongly disagreed with this conclusion and claimed that Plaintiff had misused the Tunnel by allowing or causing excessive calcium build-up in the Tunnel. Id. at ¶ 7. In order to facilitate a resolution to the controversy, the parties agreed to allow the independent engineering company of Luciano Packaging Technologies, Inc., of Somerville, New Jersey ("Luciano"), to act as a third party inspector and to review the cause of the Tunnel's failure. Id. at ¶ 8. Specifically, Howard R. Leary, Vice President of Applied Engineering at Luciano ("Leary"), was to determine if the cause of the Tunnel's failures was a result of design and structural integrity and quality of materials that Defendant used or a result of increasing friction on the machine due to Plaintiff's chemically induced scale buildup by water treatment biocide chemicals. Id.

Plaintiff and Defendant agreed that if Leary's determination of the cause of the failures is favorable to Defendant, Plaintiff would pay an additional $30,000 towards final settlement of the second Tunnel and would reimburse Defendant for the performance bond cost. Id. at ¶ 9. Plaintiff's president, and the third-party defendant in this case, Jerry Whitlock, personally guaranteed the payment of $30,000 in the event Leary's decision favored Defendant. Id. ¶ 10.

If Luciano upheld Plaintiff's position, however, Defendant would have to perform all necessary repairs on Tunnel One (estimated to be about $15,000) and Plaintiff would not be required to make any further payments towards the purchase of Tunnel Two (i.e., the $60,000 initial payment satisfied the entire purchase price for the Tunnel and Defendant would be required to bear the cost of the performance bond). Id. at ¶ 9. Defendant also agreed that its president, Gerald Ware, would personally go to Plaintiff's facility within ten days of Leary's report to schedule a date for the necessary repairs. Id. at ¶ 10. Additionally, Defendant agreed that the repairs would be completed within three days of the repair date. Id.

Leary issued his letter report on February 17, 1997, in which he concluded that the Tunnel "appear[ed] to be operating at its limits of strength and power" which allegedly was below the specification of running 360 forty-six ounce cans through per minute. Id. at ¶ 12. The report suggested reducing the load on the Tunnel by cutting down on the amount of product on the conveyor belt. Id. The report also suggested that "wear strips" be installed on the Tunnel in order to support the return run of the chain thereby reducing the chain's tension. Id. Furthermore, the report noted that scale build-up was evident for a time probably resulting in an increase in friction, but a change in the chemicals used had eliminated the buildup. Id. at ¶ 14. Leary noted, however, that the Tunnel's failure continued after the elimination of any scale build-up. Id.

After receipt of Leary's report, both parties thought the decision was in their favor and neither party executed the duties that they agreed to perform had the decision been adverse to their position. Defendant did not make any repairs to the Tunnel to allow it to operate within the specifications. Id. at ¶ 15. In order to continue the production of its product, Plaintiff had to make repairs and modifications to the Tunnel. Id. at ¶ 16. Plaintiff's modifications reduced the tension on the tail shaft of the Tunnel which in turn reduced the load on the Tunnel so that it would not continuously break down. Id. Once these modifications were completed, the Tunnel allegedly began cooling the amount of cans that Defendant initially specified that it would. Id.

Through their attorneys, the parties requested that Leary clarify his report so that a better determination could be made as to who was at fault. Id. at ¶ 18. Accordingly, Leary wrote a second letter to the parties on November 7, 1997. Id. Leary stated in this letter that the "beam bending" was the probable cause for the Tunnel's failures. Id. at ¶ 19. Leary stated, however, that he did not possess the data to properly explain how this happened, but that it had to be inherent in the design or construction of the Tunnel. Id. The letter did not discuss the calcium build-up claim made by Defendant and did not address whether this was the reason for the Tunnel's failure. Id.

Defendant's president telephoned Leary after receiving his November 7, 1997, letter. Id. at ¶ 20. Defendant discussed their theory of water/calcium build-up and alleged unauthorized repairs as possible causes for the Tunnel's failure. Id. In response to this call, Leary wrote Plaintiff's attorney a letter in which he stated that he was unable to comment on Defendant's suggested causes because they allegedly happened prior to his involvement. Id.

Defendant's president subsequently called Leary two more times and faxed him a letter on December 2, 1997. Id. at ¶ 21. Following these calls, Leary wrote another letter to Plaintiff's attorney on December 3, 1997. Id. Leary stated, in response to Defendant's inquiry into the calcium build-up issue, that he did not endorse that as a probable cause of the problematic beam deflection but that he could not...