Travelers Property Casualty Co. of America et al v. Rapid Power Corporation et al
Filing
58
MEMORANDUM OPINION & ORDER denying 53 Motion for Reconsideration Telephone Conference set for 1/2/2014 at 3:30 PM before Senior Judge Thomas B. Russell. Signed by Senior Judge Thomas B. Russell on 12/19/2013. cc:counsel (KJA)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
PADUCAH DIVISION
CIVIL ACTION NO. 5:12-CV-00038-TBR
TRAVELER’S PROPERTY CASUALTY
COMPANY OF AMERICA, as subrogee of
SUPERIOR GRAPHITE COMPANY
Plaintiff
v.
RAPID POWER CORPORATION and
DYNAPOWER COMPANY
Defendants
MEMORANDUM OPINION AND ORDER
This matter is before the Court upon Plaintiff Travelers Property Casualty
Company of America’s, as subrogree of Superior Graphite Company, Motion for
Reconsideration of the Order at Docket No. 51 granting summary judgment to
Defendants Rapid Power Corporation and Dynapower Company. (Docket No. 53.)
Defendants have responded. (Docket No. 54.) Plaintiff has replied. (Docket No. 57.)
For the following reasons, the Court will DENY in part Plaintiff’s Motion for
Reconsideration as to the strict products liability and the express warranty claims.
As for the negligence claim, as noted below, it will be premised on Dynapower’s
performance of “start up assistance” under the service contract. The Court would like to
speak with the parties in a telephone conference concerning this issue and may require
further briefing. The Court ORDERS a telephone conference set for 01/02/14 at 3:30
Central Time. The Court will place the call. The Court also ORDERS the parties to
produce the full depositions of Morelli and Kezelian.
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BACKGROUND
A limited recitation of facts is helpful for understanding the issues involved in
this Motion for Reconsideration. These facts will be supplemented as appropriate in the
analysis below. The Defendants, Rapid Power Corporation and Dynapower Company
(referred to collectively as “Dynapower”),1 design and manufacture power generation
equipment for industrial clients. Subrogor Superior Graphite Company (“Superior”)
manufactures a variety of graphite-derived products.
Superior uses Dynapower’s
equipment to generate electricity for use in some of its industrial processes. During the
period relevant to this action, Subrogee Travelers Property Casualty Company of
American (“Travelers”) insured property located at Superior’s Hopkinsville, Kentucky
production facility.
This action arises from the manufacture and sale of a rectifier transformer by
Dynapower to Superior. Superior solicited Dynapower to build the rectifier transformer
at issue as a replacement for a substantially similar transformer previously built by
Dynapower for the Hopkinsville facility.
On February 18, 2008, Superior and
Dynapower entered into a written contract for the purchase of the transformer. This
contract contained the material provisions governing the agreement and the express
warranties discussed below. The transformer functioned without issue until February 1,
2011, when it was destroyed in a catastrophic failure.
According to Travelers, the transformer catastrophically failed because
Dynapower did not incorporate a device known as a “snubber” into the transformer’s
During the periods relevant to this action, Defendant Rapid Power Corporation was a wholly-owned
subsidiary of Defendant Dynapower Company. Like the parties in their briefs, the Court refers to the
Defendants collectively as “Dynapower.”
1
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design, or did not, at a minimum, recommend that Superior install a snubber external to
the transformer. In other words, Travelers claims that Dynapower had a duty to either
incorporate or recommend the installation of components that could have prevented the
transformer’s failure but negligently failed to do so.
Travelers insured property at the Hopkinsville facility and paid Superior the
proceeds of the policy that covered the transformer. Travelers, acting as subrogee to
Superior, sought to recover those proceeds from Dynapower.
Travelers pursued
recovery on a number of theories, including breach of contract, breach of express
warranty, negligence, and strict products liability. Dynapower moved for summary
judgment on all counts.
The Court’s Prior Holdings at Docket No. 51 Granting Defendants Summary Judgment
The Court previously held that negligence and strict products liability claims
arising from Dynapower’s alleged failure to incorporate or otherwise recommend the
use of “snubbers” was bared by the economic loss rule. 2 (Docket No. 51, Pg. 4.)
Plaintiff Travelers argued for the application of two exceptions to the economic loss
rule. As for the first exception, the Court held that the “other property” damages
exception to the economic loss rule is inapplicable where the other damage is de
minimis in comparison to the total damages—as in this case.
As for the second
exception, the Court held that Cargill—which permitted claims by a manufacturer
against a provider of services (frozen good warehousing)—was not applicable because
it involved contracts for services rather than goods. Cargill, Inc. v. Boag Cold Storage
Under the economic loss rule economic losses arising from the malfunction of a product must be
recovered, if at all, pursuant to contract law and not in tort. See Giddings & Lewis, Inc. v. Indus. Risk Insurers,
348 S.W.3d 729, 733, 738 (Ky. 2011).
2
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Warehouse, Inc., 71 F.3d 545 (6th Cir. 1995). Significantly, in finding the second
exception was not applicable in this case, the Court held that Dynapower’s services
were not separate from the sale of goods and were “merely part of the design,
manufacture, or sale of the transformer.” (Docket No. 51, Pg. 7.) This finding by the
Court is the one primarily challenged by Travelers’ Motion for Reconsideration.
Travelers also alleged breach of contract and express warranty. The Court found
there was no genuine dispute as to whether Dynapower breached the express warranty
in the written contract:
As discussed above, Travelers theorizes that the transformer at
issue failed because Dynapower should have but did not recognize
that the specific configuration of the electrical system at Superior’s
Hopkinsville plant required the installation of snubbers, which
would have prevented vacuum switches from damaging the
transformer. Although the express warranty guarantees that the
transformer will be “free from defects in design,” the Court finds
that Travelers’s arguments under the express warranty fail for two
reasons. First, the incorporation of a snubber is not covered by the
express warranty because it is a wholly separate device and was
not bargained for, specified, or included in the contract for the sale
of the transformer. Second, Travelers has not argued that a
snubber should be incorporated into or recommended for all of
Dynapower’s transformers. Instead, Travelers claims that a
snubber should have been incorporated into or recommended for
this transformer. No matter how it is pleaded, this argument is
akin to a claim for breach of the implied warranty of fitness for a
particular purpose. Travelers has merely attempted to repackage it
in terms of the express warranty. Such efforts fail because the
parties expressly waived all implied warranties under the contract.
(Docket No. 51, Pg. 10-11.)
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STANDARD
Although the Federal Rules of Civil Procedure do not provide expressly for
“motions for reconsideration,” courts generally construe such motions as motions to
alter or amend a judgment under Rule 59(e). 3 E.g., Moody v. Pepsi-Cola Metro.
Bottling Co., 915 F. 2d 201, 206 (6th Cir. 1990); Taylor v. Colo. State Univ., 2013 WL
1563233, at *8-9 (W.D. Ky. Apr. 12, 2013).
The Sixth Circuit has consistently held that a Rule 59 motion should not be used
either to reargue a case on the merits or to reargue issues already presented, see
Whitehead v. Bowen, 301 F. App’x. 484, 489 (6th Cir. 2008) (citing Sault Ste. Marie
Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 374 (6th Cir. 1998)), or otherwise to
“merely restyle or rehash the initial issues,” White v. Hitachi, Ltd., 2008 WL 782565, at
*1 (E.D. Tenn. Mar. 20, 2008) (internal quotation marks and citation omitted). “It is not
the function of a motion to reconsider arguments already considered and rejected by the
court.” Id. (citation omitted).
As another district court in this Circuit put it, “Where a party views the law in a
light contrary to that of this Court, its proper recourse is not by way of a motion for
reconsideration but appeal to the Sixth Circuit.” Hitachi Med. Sys. Am., Inc. v. Branch,
2010 WL 2836788, at *1 (N.D. Ohio July 20, 2010) (internal quotation marks and
citations omitted).
Accordingly, the Sixth Circuit instructs that a motion for
reconsideration should only be granted on four grounds: “Under Rule 59, a court may
The Court notes that FRCP 59(e) requires that a “motion to alter or amend a judgment must be filed no
later than 28 days after the entry of judgment.” The Judgment as to Plaintiff was entered on May 3, 2013, at
Docket No. 51. Plaintiff ’s motion to reconsider was filed on May 13, 2013.
3
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alter or amend a judgment based on: ‘(1) a clear error of law; (2) newly discovered
evidence; (3) an intervening change in controlling law; or (4) a need to prevent manifest
injustice.’” Leisure Caviar, LLC v. U.S. Fish & Wildlife Serv., 616 F.3d 612, 615 (6th
Cir. 2010) (quoting Intera Corp. v. Henderson, 428 F.3d 605, 620 (6th Cir. 2005)).
Furthermore, because there is an interest in the finality of a decision, this Court and
other district courts have held that “[s]uch motions are extraordinary and sparingly
granted.” Marshall v. Johnson, 2007 WL 1175046, at *2 (W.D. Ky. Apr. 19, 2007)
(citing Plaskon Elec. Materials, Inc. v. Allied-Signal, Inc., 904 F. Supp. 644, 669 (N.D.
Ohio 1995)); accord Rottmund v. Cont’l Assurance Co., 813 F. Supp. 1104, 1107 (E.D.
Pa. 1992).
DISCUSSION
I.
The Court Previously Misconstrued the Factual Background Concerning
Defendants’ Service Visits
Travelers argues the Court has misconstrued the factual background concerning
Dynapower’s service visits. Specifically, Travelers takes issue with the Court holding
that Dynapower’s performance of services “were merely part of the design,
manufacture, or sale of the transformer.” (Docket No. 51, Pg. 7.) Travelers points out
that the original contract for sale of the transformer did not contain provisions for
services. Rather, Travelers alleges for each instance where employees of Dynapower
came to the Superior Graphite facility for an issue that did not involve warranty issues,
a separate agreement between the parties was entered into. (See Docket No. 49-4.)
These separate agreements allegedly contained separate terms and conditions and a
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separate payment that was not included in the original contract for the rectifier
transformer.
The Court finds that the documents at Docket No. 49-4 substantiates Travelers’
claims of separate agreements/transactions for these services and that they were not
included in or contemplated in the original contract entered into between the parties.4
As a result, the Court was incorrect to construe such services as “merely part of the
design, manufacture, or sale of the transformer.” (Docket No. 51, Pg. 7.)
These
services include “on site start up assistance,” (Docket No. 49-4, Pg. 16-18), and service
work for an unbalanced line current. (Docket No. 49-4, Page 18-19.) Accordingly, the
Court must determine what impact, if any, the Court’s misconstruction of the factual
background concerning Dynapower’s service visits had.
II.
Impact of the Court’s Misconstruction of Factual Background of
Defendants’ Service Visits
The Court’s prior holdings finding that the negligence and strict products
liability claims were barred by the economic loss rule were based on the finding that the
services Dynapower performed was pursuant to the original contract and “merely part
of the design, manufacture, or sale of the transformer.” Notwithstanding this change in
factual background, Dynapower argues the economic loss rule still applies.
The economic loss rule has evolved through the years as a principle whose
purpose is to preserve the valid distinctions between tort and contract claims. Louisville
Gas & Elec. Co. v. Cont'l Field Sys., Inc., 420 F. Supp. 2d 764, 768 (W.D. Ky. 2005).
Supporting the conclusion that these were separate transactions for services is the fact the original contract
for the sale of the transformer did not contain any service provisions, separate agreements for services
rendered have been produced, and Dynapower billed for the services provided.
4
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“The ‘economic loss rule’ prevents the commercial purchaser of a product from suing in
tort to recover for economic losses arising from the malfunction of the product itself,
recognizing that such damages must be recovered, if at all, pursuant to contract law.”
Rodrock v. Gumz, 4:11CV-00141-JHM, 2012 WL 1424501, at *2 (W.D. Ky. Apr. 24,
2012) (citing Giddings & Lewis, Inc. v. Industrial Risk Insurers, 348 S.W.3d 729, 733
(Ky. 2011)).
In other words, “the rule ‘prohibits purchasers of products from
recovering purely economic damages under most tort theories.” Id. (citations omitted).
East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 867
(1986), applied the economic loss rule to bar tort claims for damages caused by start-up
services which the contract for the sale of the product required. Plaintiff Travelers
would limit the rationale of East River to cases in which the contract for sale of the
product requires services of the product, while Dynapower argues East River did not
expressly restrict its rationale in that way and its reasoning should extend to instances
where there was a separate contract for start up services. However, subsequent cases
applying Kentucky law have made clear that the economic loss rule does not apply to a
service contract.5 See, e.g., Ronald A. Chisholm, Ltd. v. Am. Cold Storage, Inc., 3:09CV-00808-CRS, 2013 WL 2242648, at *11 (W.D. Ky. May 21, 2013) (summarizing
precedent and finding rule’s application is limited to claims arising from a product sold
Defendants argued that under Kentucky law a breach of a duty which arises from a contract between the
parties must be redressed under contract—a tort action will not lie, relying on Thorton v. Western & Southern
Financial Group Beneflex Plan, 797 F. Supp. 2d 796 (W.D. Ky. 2011). The Court agrees with Plaintiff that
Thorton is readily distinguishable because that portion of the opinion concerned whether the plaintiff owed a
fiduciary duty. Furthermore, subsequent cases have made clear that Kentucky’s economic loss rule does not
apply to service contracts—which would clearly be at odds with the broad interpretation Defendants argue
for.
The Court also agrees that Westlake Vinyls, Inc. v. Goodrich Corp., 518 F.Supp.2d 955 (W.D. Ky. 2007),
is readily distinguishable because that case addresses application of the economic loss rule in the context of a
fraud claim found to be intertwined with a breach of contract claim and has no bearing on this case involving
a service contract.
5
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in a commercial transaction); Rodrock v. Gumz, 4:11CV-00141-JHM, 2012 WL
1424501, at *4 (W.D. Ky. Apr. 24, 2012) (holding plaintiff’s claims were not barred by
the rule because the application of the rule is limited “to claims arising from a defective
product sold in a commercial transaction”); Lewis v. Ceralvo Holdings, LLC, 4:11-CV00055-JHM, 2012 WL 32607, at *2-*3 (W.D. Ky. Jan 6, 2012); Louisville Gas & Elec.
Co. v. Cont'l Field Sys., Inc., 420 F. Supp. 2d 764, 769 (W.D. Ky. 2005) (finding
Kentucky economic loss rule did not apply to the provision of services); Giddings &
Lewis, Inc. v. Industrial Risk Insurers, 348 S.W.3d 729, 733 (Ky. 2011) (limiting
holding to “claims arising from a defective product sold in a commercial transaction”).
Notwithstanding the above precedent, Dyanpower argues that the economic loss
rule applies to services to start up the product sold, relying on East River. However, in
East River the services were required under the contract for sale of the product. East
River, 476 U.S. at 859. In this case, the services—most notably services for “start up
assistance”—were not required under the contract for sale and were performed pursuant
to separate agreements. (Docket No. 49-4, Pg. 16.) While Dynapower appears to assert
different treatment depending on whether or not the service to “start up” a product is
done pursuant to the contract for sale or through a separate agreement results in
arbitrary distinction, the Court does not agree and in any event is guided by the above
precedent establishing that the economic loss rule does not apply to service contracts. 6
While Dynapower does not expressly state as much, implicitly they have argued for an exception to the
general rule that the economic loss rule does not apply to service contracts in the context of a service
contract to “start up” a product previously sold by the provider of the service. Admittedly, there may be
some logic to such an exception. However, there is no indication Kentucky courts would carve out such an
exception. Furthermore, federal court precedent and the limited guidance from Kentucky courts clearly
establish the economic loss rule does not apply to service contracts—with no indication the treatment would
be different merely because the services rendered is for “start up” of a product previously sold by the
6
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Accordingly, assisting in the start up of a product pursuant to contract for sale and
assisting in the start up of a product pursuant to a separate service agreement have
different treatments under the economic loss rule in Kentucky.7
The Court finds the economic loss rule does not apply to the separate service
contracts here. As a result, Travelers is permitted to make tort claims based on these
service contracts without being barred by the economic loss rule.
An actual
examination of the service contracts themselves and the surrounding facts are required
to determine if these tort claims are appropriate.
a. Tort Claim of Strict Products Liability
Travelers is unable to make a strict products liability claim on the basis of the
service contracts. Such a claim is inherently incompatible with the mere provision of
services. The only basis for such a claim would be through Dynapower’s manufacture
and sale of the transformer, which as previously discussed is barred by the economic
loss rule. Accordingly, the Court will DENY Plaintiff Travelers’ Motion to Reconsider
as to the strict products liability claim.
b. Tort Claim of Negligence
The Court notes that the negligence claim will be premised on Dynapower’s
performance of “start up assistance” under the service contract. The Court would like
provider of the service. The precedent establishing the economic loss rule does not apply to service contracts
has been much too broad and consistent to justify carving out such an exception.
7 The Court disagrees with Dynapower’s assertion that the “plaintiff essentially argues that Dynapower
instantly voided all of the specific warranty terms and limitations for which it had bargained merely by
submitting an invoice for start-up assistance.” (Docket No. 54, Pg. 2-3.) On the contrary, those limitations
remain in place. However, separate and additional duties were owed to Superior as a result of Dynapower’s
decision to enter into a service contract independent/separate from the original contract for sale.
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to speak with the parties in a telephone conference concerning this issue and may
require further briefing. The Court ORDERS a telephone conference set for 01/02/14
at 3:30 Central Time. The Court will place the call. The Court also ORDERS the
parties to produce the full depositions of Morelli and Kezelian.
III.
Travelers’ Argument that the Express Warranty Granted by Defendants
was Breached
Travelers has not addressed the bases under which the Court held that there was
no genuine dispute that Dynapower breached the express warranty for its transformer.
Instead, Travelers merely reasserts that “the fact that Defendants had specific
knowledge concerning the vacuum breakers and the potential for transients, yet did
absolutely nothing from a design standpoint to try to protect the transformers from those
transients, either internally or externally, represents a defect in the design of the
transformer and a breach of the 3 year express warranty granted Defendants.” (Docket
No. 53, Pg. 6.) However, as the Court previously stated, Plaintiff has not argued that a
snubber should be incorporated into or recommended for all of Defendants’
transformers and this argument is akin to a claim for beach of the implied warranty of
fitness for a particular purpose—which the parties expressly waived under the contract.
Accordingly, the Court will DENY Plaintiff’s Motion to Reconsider on this issue.
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CONCLUSION
For these reasons, and consistent with the Court’s conclusions above,
IT IS HEREBY ORDERED that Plaintiff’s Motion to Reconsider, (Docket No. 53), is
DENIED at this time. It is hereby ordered as follows:
(1)
IT IS HEREBY ORDERED that Plaintiff’s Motion to Reconsider is
DENIED in part as to the strict products liability and the express
warranty claims.
(2)
The Court notes that the negligence claim will be premised on
Dynapower’s performance of “start up assistance” under the service
contract. The Court would like to speak with the parties in a telephone
conference concerning this issue and may require further briefing. The
Court ORDERS a telephone conference set for 01/02/14 at 3:30
Central Time. The Court will place the call. The Court also
ORDERS the parties to produce the full depositions of Morelli and
Kezelian.
IT IS SO ORDERED.
Date:
cc:
December 19, 2013
Counsel
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