Alabama Specialty Products, Inc. v. Special Metals Corporation

Filing 40

MEMORANDUM OPINION. Signed by Judge Virginia Emerson Hopkins on 3/29/2016. (JLC)

FILED
2016 Mar-29 PM 02:50
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
EASTERN DIVISION
ALABAMA SPECIALTY
PRODUCTS, INC.,
Plaintiff,
v.
SPECIAL METALS
CORPORATION, acting through its
division, SPECIAL METALS
WELDING PRODUCTS
COMPANY,
Defendant.

)
)
)
)
)
) Case No.: 1:14-CV-2070-VEH
)
)
)
)
)
)
)
)

MEMORANDUM OPINION
A company specializing in the metallurgic arts, Alabama Specialty Products,
Inc., (“ASPI”) has sued Special Metal Corporation (“SMC”), and the issue in this case
is whether it was unlawful for SMC to “put the screws” to ASPI during contract
negotiations. Defendant SMC has moved for summary judgment, claiming there was
nothing wrong with striking a deal on terms extremely favorable to SMC, even
though ASPI was stuck between the hammer and the anvil. I agree with SMC; the
heat they applied was insufficient to melt down the iron bonds of the contract with
ASPI. The defendant’s motion for summary judgment will be GRANTED.

PROCEDURAL BACKGROUND
ASPI brought this action against defendant SMC on October 27, 2014. (Doc.
1). The complaint properly invoked this court’s diversity jurisdiction. See 28 U.S.C.
§ 1332. ASPI alleged that SMC had breached express and implied warranties and
defrauded ASPI. (Id.). SMC filed a motion for summary judgment under Rule 56 on
October 16, 2015. (Doc. 26). The court referred the parties to mediation on October
28, 2015, although the referral was amended on November 4, 2015 to order ASPI to
respond to the motion for summary judgment. (Docs. 29 and 32). ASPI filed its
response on November 16, 2015, and then the mediation began. (Doc. 35). On
January 15, 2016, the parties informed the court that the mediation had failed, see
doc. 36, and SMC filed its reply brief on January 29, 2016. (Doc. 38). The motion is
now under submission and ripe for decision.
FACTUAL BACKGROUND1
ASPI works in a highly specialized industry which uses lasers to clad metal
alloy to steel tubes that are used in industrial applications. (Doc. 28-1, No. 2). ASPI
has developed a “proprietary method” of utilizing lasers to clad the alloy to the steel
1

This factual background does not include facts that are irrelevant to the resolution of
this motion. I assemble the background by first crediting all undisputed facts. For disputed facts
that are resolved unambiguosly by the evidence, the version supported by the evidence gets
credit. If a fact is disputed, and the evidentiary support is ambiguous, ASPI’s version of the fact
is credited because it is the non-movant. Finally, a good bit of this recitation of facts is quoted
directly from the briefs; the parties have recited the facts succinctly.
2

tubes. ASPI’s method allows for a reduced thickness and superior product when
compared to a traditional welding process. The nature ASPI’s cladding process
requires changes based upon the different alloys that are used, meaning that the
process varies considerably from one alloy to another. (Id.).
On January 25, 2012, ASPI entered into a contract with Chicago Tube and Iron
(“CTI”) whereby ASPI would perform overlay work—applying alloy metal to
existing metal through welding—on stainless steel boiler tubes for CTI which would
then be sold to Southern Company. (Doc. 28-2). CTI/Southern Company specified
and required that the overlay be applied with Inconel 72M wire (“72M wire”)
manufactured by SMC. (Id.). ASPI is unaware of the process by which SMC was
selected to supply the 72M wire. (Doc. 28-1, No. 3).
In early 2012, ASPI issued a Purchase Order for 72M wire totaling
approximately 22,000 pounds and including only the specifications of 1) the type of
wire ASPI wanted to purchase; 2) the diameter of the wire; and 3) the spool size of
the wire. ASPI signed an Order Acknowledgment for this Purchase Order. (Doc. 28-3,
¶18). To fulfill ASPI’s purchase order, SMC drew the 72M wire from two separate
and different heats, WA0044FK (approximately 1,000 lbs.) and WA0048FK
(approximately 22,000 lbs.). (Id., ¶ 19). SMC delivered the approximately 22,000 lbs.
of 72M wire to ASPI. (Id., ¶21).
3

The 72M wire supplied by SMC had inconsistencies that made it difficult to
laser clad the wire to the boiler tubes. (Doc. 35-1, ¶¶ 10; 20–21). The 72M wire
supplied by SMC to ASPI was inconsistent from spool to spool, even when the spools
came from the same heat number. ASPI notified SMC of the problems with the 72M
wire during the time frame when SMC was still supplying the wire to ASPI. (Id., ¶¶
11-12).
Because of these problems, ASPI returned the wire to SMC in September 2012.
(Id., ¶ 13; 28-3, ¶ 22). A majority of the wire returned by ASPI, more than 20,000
lbs., was wire drawn from Heat number WA0048FK. (Doc. 28-3, ¶ 23). SMC credited
or refunded the cost of the wire to ASPI. (Id., ¶ 24).
On April 10, 2013 (more than 6 months after the return of more than 20,000
lbs. of 72M wire), ASPI approached SMC and inquired about re-buying the wire it
had returned. (Id., ¶ 27). And on the same day, ASPI issued a Purchase Order for
22,000 lbs. of the 72M wire with the only specification being 1) the type of wire
APSI wanted to purchase, 2) the diameter of the wire; and 3) the spool size of the
wire and now specifying that the wire come from Heat number WA0048FK—the
exact same wire that was returned. (Id., ¶ 28). SMC delivered the remaining wire it
still had from Heat WA0048FK (some of the wire had been used for independent
testing and some was sold to Foster Wheeler) per the Order Acknowledgment. (Id.,
4

¶ 31). The 72M wire shipped to ASPI had not been altered or changed in any way
from the time it was return to SMC until the “re-purchase.” (Id., ¶ 32).
In consideration for the risk SMC would take by potentially having the same
wire returned twice, ASPI issued a release to SMC stating: “Alabama Specialty
Products, Inc. will not hold Special Metals Corporation liable for any indications
resulting from our laser cladding of Special Metals Inconel 72 M material.” (Id., ¶
29). ASPI only agreed to this condition because SMC refused to sell ASPI any further
72M wire until ASPI issued the release. (Doc. 35-1, ¶ 18). The language in the
release was requested by SMC. (Id.).
ASPI informed SMC that 72M wire was required for this job by CTI. At all
times relevant hereto, SMC was aware that ASPI could not get acceptable wire from
another manufacturer, because there is no alternative source for the wire. (Id., ¶ 19).
As a result of the discrepancies and inconsistencies in the 72M wire, the laser
cladding of the wire to the boiler tubes led to inconsistent results in the quality
testing. Specifically, CTI required dye penetrant testing on the boiler tubes. (Id., ¶
20). As a result of the inconsistent test results, CTI required ASPI to provide
additional testing, in the form of more expensive Eddy Current testing, and remedial
work on the tubes that did not satisfy the testing requirements. (Id., ¶ 21) The
additional testing and remedial work caused ASPI to incur substantial expense. (Id.,
5

¶ 22).
SUMMARY JUDGMENT STANDARD
Summary judgment should be granted if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law. FED. R. CIV. P. 56(a). The party seeking summary judgment bears the
initial burden to show the district court, by reference to materials on file, that there
are no genuine issues of material fact that should be decided at trial. Clark v. Coats
& Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). Once the moving party has
satisfied its responsibility, the burden shifts to the non-movant to show the existence
of a genuine issue of material fact. Id. If the nonmoving party fails to make a
sufficient showing on an essential element of her case with respect to which she has
the burden of proof, the moving party is entitled to summary judgment. Id. (quoting
Celotex Corp. v. Catrett, 477 U.S. 317 (1986)) (footnote omitted).
DISCUSSION
SMC has presented a legion of grounds for summary judgment, but all it takes
is one—its first argument. In particular, SMC points to the release executed with the
repurchase as evidence that the whole action is due to be dismissed. ASPI responds
that the release was the product of economic duress, suggesting that because SMC
knew that ASPI required 72M wire to complete the job with CTI, and SMC knew that
6

ASPI could only obtain the wire from SMC, the release is voidable. ASPI agrees that
it signed the release containing the quoted language, doc. 35 at 5, and they do not
dispute that it would have the effect SMC suggests. Since I conclude the release was
not the product of duress, the motion for summary judgment will be GRANTED.
I.

Governing Law
A party who seeks to be excused from a contract on the ground that he only

entered it under duress may do so by proving “(1) wrongful acts or threats; (2)
financial distress caused by the wrongful acts or threats; (3) the absence of any
reasonable alternative to the terms presented by the wrongdoer.” Wright Therapy
Equipment, LLC v. Blue Cross and Blue Shield of Ala., 991 So. 2d 701, 707 (Ala.
2008). “[A] question of duress is ordinarily a matter for the jury,” Newburn v. Dobbs
Mobile Bay, Inc., 657 So. 2d 849, 851 (Ala. 1995), but “this tenet does not mean that
a claim of economic duress can never be resolved on summary judgment.” Edwards
v. Kia Motors of America, Inc., 486 F.3d 1229, 1235 (11th Cir. 2007) (citing Wilson
v. S. Med. Ass’n., 547 So. 2d 510, 514 (Ala. 1989)).
The defense “applies only to special, unusual, or extraordinary situations in
which unjustified coercion is used to induce a contract, as where extortive measures
are employed, or improper or unjustified demands are made, under such
circumstances that the victim has little choice but to accede thereto.” Int’l Paper Co.
7

v. Whilden., 469 So. 2d 560, 563 (Ala. 1985) (quotations and citations omitted).
Further, “[i]t is never duress to do that which a party has a legal right to do,” Choksi
v. Shah, 8 So. 3d 288, 293–94 (Ala. 2008) (citation omitted), and “merely taking
advantage of another's financial difficulty is not duress.” Ponder v. Lincoln Nat. Sales
Corp., 612 So. 2d 1169, 1171 (Ala. 1992).
According to the Eleventh Circuit, the causation principle in the second
element requires that the wrongful act be performed “to induce [the party alleging
duress] to execute the [r]elease.” Edwards, 486 F.3d at 1236. The Alabama courts
could be a little clearer on the line between wrongfulness and causation, see, e.g.,
Newburn, 657 So. 2d at 852; Int’l. Paper, 469 So. 2d at 562–63, but Edwards appears
to be supported by the Alabama cases. See Newburn, 657 So. 2d at 852; Int’l. Paper,
469 So. 2d at 562–63. Additionally, the Eleventh Circuit’s formulation reflects a rule
with widespread acceptance. See 28 RICHARD A. LORD, WILLISTON ON CONTRACTS
§ 71:43, at 579–80 (3d ed. 2003) (“[T]he person alleging financial difficulty must
also allege that it was contributed to or caused by the one accused of coercion.”);
Cabot Corp. v. AVX Corp., 863 N.E.2d 503, 512 (Mass. 2007) (“Cabot did not create
the situation—it merely took advantage of it.”).
The Alabama courts are clear on one point, however, whether they call it
causation or wrongfulness: a party “commit[s] no wrongful act when, under the
8

prevailing market conditions at the time, it engage[s] in negotiations for better
[contract] terms.” Ponder, 612 So. 2d at 1171. That the economic hardship must be
the result of the wrongful act is logical; were it otherwise, distressed parties to
contracts could obtain carte blanche to void any agreement entered into under the
“duress” of a harsh market. See also 28 RICHARD A. LORD, WILLISTON

ON

CONTRACT S § 71:7, at 450 (“[H]ard bargaining . . . is desirable in our economic
system and should not be discouraged by the courts.” (punctuation omitted)).
II.

No “Wrongful Act” Has Been Shown
A threshold matter is which act, exactly, ASPI believes was wrongful. ASPI

complains in its brief that “SMC refused to supply any additional wire until ASPI
provided the release language,” doc. 35 at 5, and "SMC was aware that ASPI needed
the [72 M] wire in order to complete its contract. With that knowledge, and after
ASPI had raised complaints about the quality of the wire, SMC refused to provide any
more wire until the release was signed." (Id. at 6). There are two possible “wrongful”
acts: 1) SMC’s insistence on a release when it knew ASPI needed the wire, and had
raised complaints about the quality of the wire, before SMC would sell, or 2) SMC’s
refusal to sell on the previous terms. I will get to both, but because the first is a
specific instance of the second, I will address it first.
The result dictated by these facts is clear, but to see why, it is best to explain
9

why any reasonably prudent businessman would seek precisely the release SMC did.
The explanation will be by way of hypothetical: George Bluth has a contract with the
Balboa Yacht Club to build a fence around the club’s golf course, and Balboa
requires that Bluth obtain the fencing materials from Lucille Austero. Bluth buys the
materials from Austero, finds them not to be suitable for the project and returns them
to her. Some time passes, and Bluth finds himself stuck. He could breach by buying
the materials from another supplier, by not completing the fence, or by building the
fence with Austero’s inferior materials. So Bluth approaches Austero and asks to buy
back the precise fencing that he had previously returned, because Austero was the
only person from whom he could buy, and he had an impending deadline with
Balboa. He tells Austero these things.
Austero is a sophisticated businesswoman,2 and she knows that Bluth’s
complaints about the fencing probably have not evaporated. So there is more than a
shadow of a chance that if Bluth uses her materials when he has already complained
about their quality, Bluth will be embroiled in a dispute with Balboa, and there is
therefore a good chance, as Bluth’s supplier, she will be too. Of course, this is on top
of the risk that Bluth will return the fencing a second time.

2

For purposes of this hypothetical, she has changed her mind since saying “I love the
Bluths.” See ARRESTED DEVELOPMENT: QUEEN FOR A DAY (Fox television broadcast Jan 23,
2005).
10

Being rational, Austero would consider these risks in deciding whether to make
a deal. And nothing requires that Bluth and Austero make a deal, but if they did make
one, Austero would want to ensure that the consideration she receives mitigates the
risk of return and the risk of litigation. One way of accomplishing this would be to
require a release of liability over the fencing as a condition precedent to making a
deal.
I spun all that out to highlight something important—SMC’s insistence on the
release was perfectly reasonable as a matter of business logic, and that makes it very,
very, very hard to say that asking for the release was a “wrongful act.” I cannot say
it was “special, unusual, or extraordinary,” nor was it “extortive . . . improper, or
unjustified.” Int’l Paper, 469 So. 2d at 563. To the contrary, it would have been
comically naïve of SMC not to insist on such a release, where they knew ASPI was
under the gun from CTI, risking breach with CTI, and had previously claimed SMC’s
materials were unsuitable for the project.
As for the alternative “wrongful act,” the refusal to deal on previous terms,
SMC could have refused to deal at all with impunity. See Choksi, 8 So. 3d at 293–94
(it is never wrongful to exercise one’s legal rights); cf. Guillot v. Beltone Electronics
Corp. of Chicago, 540 So. 2d 648, 650 (Ala. 1988) (economic duress is not an
independent cause of action). Instead, SMC gave ASPI what it asked for, albeit for
11

heightened consideration in light of the risk in the situation, and “merely taking
advantage of another's financial difficulty is not duress.” Ponder, 612 So. 2d at 1171.
In a very similar case, a New York State court explained as well as anyone
could why this scenario is not one giving rise to duress—just substitute “wire” for
“hops:”
The plaintiff was under no duty or obligation to do
business with defendant and could have refused, arbitrarily,
to do business with it, or if it decided to do business with
defendant could name its own terms. Defendant could have
declined to accept them; it was under no obligation to
accept, other than its need to have the hops which it could
not obtain elsewhere. Driving a hard bargain in the
circumstances is not the type of duress which may be
availed of as a ground for avoiding entering into a contract
and liability thereunder.
Bethlehem Steel Corp. v. Solow, 405 N.Y.S.2d 80, 82 (N.Y. App. Div. 1978) (quoting
Hugo v. Lowei, v. Kips Bay Brewing Co., 63 N.Y.S.2d 289, 290 (N.Y. Sup. Ct.
1946)).
All of this is not to say that I believe it is impossible that price (or non-price
consideration) gouging could constitute a wrongful act, but the facts taken in the light
most favorable to ASPI do not even come close to price gouging, much less a
wrongful act. So I will reject ASPI’s suggestion that charging a higher price (or
requiring additional consideration), “alone,” creates a jury question on duress. (See

12

doc. 35 at 6). It is ASPI’s task to show there is a triable issue on wrongful behavior,
see Penick v. Most Worshipful Prince Hall Grand Lodge F & A M of Alabama, Inc.,
46 So. 3d 416, 432 (Ala. 2010), which would require—at a minimum—explaining
why facially reasonable behavior is wrongful by applying facts to law, rather than
reciting the elements of economic duress and offering an ipse dixit that the jury
should decide this question. “[T]he onus is on the parties to formulate arguments.”
Resolution Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir. 1995).
II.

Nor Did SMC’s Actions Cause ASPI’s Predicament
This second element is more succinctly disposed of. Because the wrongful act

must induce the party to accede to the release, and the pressure that induced ASPI to
acquiesce to the release to came from the contract with CTI that ASPI voluntarily
entered, the second element is not satisfied. Sometimes you have to spend money to
make money, but that does not mean you have been subjected to duress. I need not
reach the third element, the presence (or absence) of reasonable alternatives.
CONCLUSION
The duress defense voids contracts de facto lacking in mutual assent; it is not
a quixotic mechanism to force kind dealing in the face of supply shortages or business
acrimony. The motion for summary judgment will be GRANTED by separate order.

13

DONE and ORDERED this 29th day of March, 2016.

VIRGINIA EMERSON HOPKINS
United States District Judge

14