Crown Parts and Machines, Inc. v. Euro Machine Tool Company, Inc. et al

Filing 46

ORDER denying 38 Motion for Partial Summary Judgment. Signed by Magistrate Judge Timothy J. Cavan on 9/9/2019. (HEG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
CROWN PARTS AND MACHINES,
INC., doing business as H-E Parts
International,

CV 17-102-BLG-TJC

ORDER
Plaintiff,
vs.
EURO MACHINE TOOL COMPANY
INC.; FRANK TURI,
Defendants.
____________________________
EURO MACHINE TOOL COMPANY
INC.,
Counterclaim
Plaintiff.
vs.
CROWN PARTS AND MACHINES,
INC., doing business as H-E Parts
International,
Counterclaim
Defendant.
Plaintiff Crown Parts and Machines, Inc., doing business as H-E Parts
International, (“H-E Parts”) brings this action against Euro Machine Tool
Company (“Euro Machine”) and Frank Turi (“Turi”) relating to H-E Parts’
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9/9/2019

purchase of a lathe from Defendants. H-E Parts alleges claims for breach of
contract, revocation, breach of covenant of good faith and fair dealing, breach of
implied warranties, fraud, and negligent misrepresentation.
Presently before the Court is H-E Parts’ Motion for Partial Summary
Judgment. (Doc. 38.) The motion is fully briefed and ripe for the Court’s review.
Having considered the parties’ submissions, the Court finds H-E Parts’
motion should be DENIED.
I.

FACTUAL BACKGROUND 1
H-E Parts is a Montana corporation in the business of supplying parts,

remanufactured components and equipment to global mining, heavy construction,
material processing and energy sectors. Euro Machine is an Illinois corporation
that sells machinery. Turi is the President of Euro Machine.
Prior to 2005, there was a company in Poland called Fabryka Urzadzen
Mechanicznych Poreba which manufactured lathes. H-E Parts previously owned a
Polish-manufactured Poreba lathe. In 2003, Euro Machine obtained a distribution
contract with Poreba. At that time, a company called Toolmex Corporation owned
the “Poreba” trademark. In 2004, however, Euro Machine purchased the Poreba

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The background facts set forth here are relevant to the Court’s determination of
the pending motions for summary judgment and are taken from the parties’
submissions and are undisputed except where indicated.
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trademark from Toolmex for approximately $50,000.00. Euro Machine registered
the “Poreba” mark with the United States Patent and Trademark Office. Euro
Machine contends it purchased the trademark so that it could legally sell lathes
using the Poreba name. Euro Machine has sold approximately 100 lathes and other
machinery under the Poreba mark since 2004.
In approximately 2005, the Poreba Polish factory ceased manufacturing the
types of lathes that H-E Parts utlized. The Polish factory has since gone out of
business. Turi indicated in his deposition that another company has started
building the large capacity machines that the Polish factory used to build.
In 2005, Euro Machine started private labeling the machines it sold with the
Poreba trademark. 2 Euro Machine does not manufacture lathes. Rather, according
to Turi, “we would buy machines from various companies, and since we owned the
trademark, we put our brand on it and we sold them as a Poreba machine because
that was the brand that we were selling.” Euro Machine purchased machines for
this purpose from three or four factories. The lathe Euro Machine sold to H-E
Parts was manufactured by ZMM, a Bulgarian manufacturer.
In late November 2015, H-E Parts agreed to purchase a lathe from Euro

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“Private labeling occurs when a retailer places its own label on a [product] that it
purchases from a manufacturer.” Quiksilver, Inc. v. Kymsta Corp., 466 F.3d 749,
754 n.3 (9th Cir. 2006).
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Machine. Euro Machine and H-E Parts memorialized their agreement in an
invoice dated November 30, 2015. The invoice described the lathe as “One New
Poreba 36” x 118” Hollow Spindle Lathe, Model: TR22-93/14/3M.” The cost of
the new Poreba was $129,500.00. As part of the purchase, H-E Parts traded-in its
1978 “Used Poreba” lathe for $30,000, thereby bringing the total purchase price to
$99,500.00. The invoice also provided that Euro Machine would “supply a
technician to level and power the Poreba 36” x 118” Hollow Spindle Lathe (1day).”
Approximately one week before the purchase, Eric Simmons, the Safety CoCoordinator for H-E Parts forwarded to Bill Brown, the President of H-E Parts, the
proposal from Euro Machine, with the following discussion:
We have bought the CNC Poreba from this company as a used piece
of equipment, I am not sure how many years ago. The Poreba Brand
was originally built in Poland, it has since been bought out by private
investors and been moved to Taiwan, where the brakes underwent a
complete redesign and the electronics were modernized to remove
some earlier failings of the Polish design. Practical Machinist had
high ratings of the machine when built in Poland and higher praise
since moving to Taiwan. Frank had problems getting some parts for
the machines we have, both of Polish manufacture, leading to some
frustration on Ed’s part. But with this being a new machine Ed is
comfortable with dealing with Euro Machine Tool.
Nevertheless, H-E Parts states it desired to purchase a Polish-made Poreba
lathe, due to the quality of the Poreba machine. H-E Parts contends it “believed
and understood it was purchasing a Poreba-made lathe when it entered into the
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contract with Euro Machine,” and that it “relied on the representations of Frank
Turi that the lathe H-E Parts was purchasing was in fact a Poreba-made lathe.” HE Parts further contends that if it had known “the lathe sold by Euro Machine and
Turi was not in fact made by Poreba, H-E Parts would not have purchased the
lathe.” H-E Parts states it did not care about the name on the machine, rather “it
cared about what company manufactured the lathe.”
Turi contends, however, that he did “not know whether [H-E Parts] desired
to buy a Polish-made lathe. It did not tell [him] it wanted to buy a Polish-made
lathe.” Turi further contends that he “did not represent to any person within [H-E
Parts] that [he] was selling them a lathe manufactured by Fabryka Urzadzen
Mechanicznych Poreba in Poland, nor did [he] tell them that the lathe they were
buying was manufactured in Poland.” Turi states he represented to H-E Parts that
he was selling it a “New Poreba 36” x 118” Hollow Spindle Lathe,” and contends
that is exactly what he delivered. Turi explains that the lathe was new when it was
sold to H-E Parts, and that Euro Machine’s ownership of the Poreba trademark
gave it the legal right to sell the lathe as a Poreba-branded lathe. Turi further states
that he personally inspected the lathe and concluded it was of sufficient quality to
be sold under the Poreba trademark.
H-E Parts received the lathe on February 16, 2016, but H-E Parts contends it
has been inoperable since it was installed due to poor quality and defective
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manufacturing. Specifically, H-E Parts states the lathe does not lubricate properly,
has too soft of clamping jaws on the chucks to properly hold parts during
machining, cuts with a taper, and kicks out of gear while operating. In April 2017,
H-E Parts removed the lathe from service due to safety and performance issues. HE Parts purchased a replacement “Mazak” lathe in August 2017 at a cost of
$93,500.00, plus and additional $3,000.00 and $1,591.82 for freight and technician
set up. H-E Parts states the lathe it purchased from Euro Machine remains under
tarp at its facility.
II.

LEGAL STANDARD
A court will grant summary judgment if the movant can show “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). Material facts are those which may affect
the outcome of the case. Anderson, 477 U.S. 242, 248 (1986). A dispute as to a
material fact is genuine if there is sufficient evidence for a reasonable fact-finder to
return a verdict for the nonmoving party. Id. When making this determination, the
Court must view all inferences drawn from the underlying facts in the light most
favorable to the nonmoving party. See Matsushita, 475 U.S. at 587.
The moving party has the initial burden to submit evidence demonstrating
the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). If the movant meets its initial responsibility, the burden shifts to
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the nonmoving party to establish a genuine issue of material fact exists.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
DISCUSSION
H-E Parts moves for summary judgment on its breach of contract, fraud and
negligent misrepresentation claims. H-E Parts asserts it specifically contracted to
purchase a Poreba-manufactured lathe from Euro Machine. H-E Parts argues Euro
Machine indisputably breached the contract when it delivered a Bulgarian-made
lathe instead. H-E Parts further argues Euro Machine and Turi engaged in fraud by
selling the Bulgarian-manufactured lathe with a Poreba label after representing
they were selling a Poreba-manufactured lathe. Alternatively, H-E Parts argues
Euro Machine and Turi negligently misrepresented the manufacturer of the lathe.
Euro Machine counters that summary judgment is not appropriate on the
breach of contract claim because material facts are in dispute. Euro Machine
contends H-E Parts’ allegations are contradicted by H-E Parts’ own internal
emails, and are directly disputed by Turi’s Affidavit, in which he states he never
promised to sell H-E Parts a Polish-manufactured lathe. Euro Machine and Turi
further argue the Court should enter summary judgment in their favor on the fraud
and negligent misrepresentation claims under Fed. R. Civ. P. 56(f)(1) because they
had the legal right to sell the lathe as a “Poreba” lathe, and because H-E Parts knew
it was not buying a Polish-made lathe.
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A.

Breach of Contract

“The interpretation and construction of a contract is a question of law.”
Krajacich v. Great Falls Clinic, LLP, 276 P.3d 922, 926 (Mont. 2012). “A
contract must be so interpreted as to give effect to the mutual intention of the
parties as it existed at the time of contracting, so far as the same is ascertainable
and lawful.” Id. The mutual intention of the parties “is to be ascertained from the
writing if possible.” Mary J. Baker Rev. Trust v. Cenex Harvest States, Coop.,
Inc., 164 P.3d 851, 857 (Mont. 2007). “If the language of a contract is
unambiguous – i.e., reasonably susceptible to only one construction – the duty of
the court is to apply the language as written.” Id. If, however, the language is
ambiguous, “a factual determination must be made as to the parties’ intent in
entering into the contract.” Id.
“The existence of an ambiguity must be determined on an objective basis,
and an ambiguity exists only if the language is susceptible to at least two
reasonable but conflicting meanings.” Corporate Air, 190 P.3d at ¶ 31. (citing
Perf. Mach. Co., Inc. v. Yellowstone Mount. Club, 169 P.3d 394, ¶ 39 (Mont.
2007)). Evidence of the circumstances under which the contract was made may be
considered by the court “in determining, as a preliminary matter, whether the
contract contains an ambiguity.” Broadwater Dev., LLC v. Nelson, 219 P.3d 492,
501 (Mont. 2009). “Where there is an ambiguity, the fact-finder may rely on
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extrinsic evidence to determine the parties’ intent.” Corp. Air v. Edwards Jet Ctr.,
190 P.3d 1111, 1121 (Mont. 2008).
Under the parties’ agreement here, H-E Parts agreed to purchase “One New
Poreba 36” x 118” Hollow Spindle Lathe” for the price of $129,500.00, and to
trade in “One Used Poreba” for $30,000. In a sense, the language of the invoice is
unambiguous. H-E Parts traded in an “Old Poreba” for a “New Poreba.” But
discerning what the parties understood “Poreba” to mean is problematic from the
plain language of the invoice. There is nothing in the invoice that defines the term
“Poreba.”
On one hand, “Poreba” could mean a Poreba-manufactured lathe. H-E Parts
traded in a used Poreba-manufactured lathe. H-E Parts asserts it was under the
impression it was likewise purchasing a new Poreba-manufactured lathe. On the
other hand, “Poreba” could simply mean a Poreba-branded lathe. Euro Machine
holds a valid trademark for the name Poreba even though they do not manufacture
lathes. As such, Euro Machine believed it had the legal right to sell lathes under
the Poreba brand. Both interpretations of the term “Poreba” are reasonable given
the facts of this case. Accordingly, the Court finds the term “Poreba” is
ambiguous. Therefore, the Court cannot find as a matter of law that the parties’
contracted for the sale of a Poreba-manufactured lathe, and that Euro Machine

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breached the contract by delivering a Poreba-branded lathe that was manufactured
in Bulgaria.
Further, upon looking to the extrinsic evidence of the parties’ intent, there
are disputed issues of material fact. First, there are disputed issues regarding
whether H-E Parts was promised a Poreba-manufactured lathe. H-E Parts alleges it
wanted to purchase a Poreba-made lathe, and that it “believed and understood” it
was purchasing such a lathe when it entered into the contract with Euro Machine.
H-E Parts also contends it “relied on the representations of Frank Turi that the
lathe [it] was purchasing was in fact a Poreba-made lathe.” H-E Parts does not,
however, state with any specificity what actual promise or representation was
made by Turi.
In response, Turi avers that he did not know H-E Parts wanted to buy a
Polish-made lathe, and states H-E Parts did not tell him it wanted a Polish-made
lathe. Turi further states that he did not represent to anyone at H-E Parts that “I
was selling them a lathe manufactured by Fabryka Urzadzen Mechanicznych
Poreba in Poland, nor did I tell them that the lathe they were buying was
manufactured in Poland.” Second, H-E Parts’ internal email undermines its claim
that it thought it was purchasing a Polish-made lathe. The email illustrates that HE Parts knew the Poreba brand was no longer built in Poland, but was rather made
in Taiwan.
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Accordingly, the Court finds these factual disputes preclude summary
judgment on H-E Parts’ breach of contract claim.
B.

Fraud and/or Negligent Misrepresentation

“Fraud is either actual or constructive.” Mont. Code Ann. § 28-2-404. For
actual fraud, Montana common law requires nine elements for a prima facie claim:
(1) a representation; (2) falsity of representation; (3) materiality of
that representation; (4) speaker’s knowledge of falsity of
representation or ignorance of its truth; (5) the speaker’s intent that it
should be relied on; (6) the hearer is ignorant of the falsity of the
representation; (7) the hearer relies on the representation; (8) the
hearer has a right to rely on the representation; and, (9) consequent
and proximate injury was caused by reliance on the representation.
First Nat’l Bank in Havre v. Nelson, 741 P.2d 420, 421 (Mont. 1987). “Once a
prima facie case is established, ‘[a]ctual fraud is always a question of fact.’”
Morrow v. Bank of America, N.A., 324 P.3d 1167, 1183 (Mont. 2014) (citing Mont.
Code Ann. § 28-2-404).
“[C]onstructive fraud is a breach of duty which, without fraudulent intent,
creates an advantage for the breaching party by misleading another person to that
person’s prejudice.” Morrow, 324 P.3d at 1183 (citing Mont. Code Ann. § 28-2406). “[A]n indispensable element of constructive fraud is a breach of duty to
disclose material facts.” Mends v. Dykstra, 637 P.2d 502, 506 (Mont. 1981).
For negligent misrepresentation under Montana law, the plaintiff must
establish:
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a) the defendant made a representation as to a past or existing material
fact; b) the representation must have been untrue; c) regardless of its
actual belief, the defendant must have made the representations
without any reasonable ground for believing it to be true; d) the
representation must have been made with the intent to induce the
plaintiff to rely on it; e) the plaintiff must have been unaware of the
falsity of the representation; it must have acted in reliance upon the
truth of the representation and it must have been justified in relying
upon the representation; [and] f) the plaintiff, as a result of its
reliance, must sustain damage.
Morrow, 324 P.3d at 1180. “To succeed with a claim for negligent
misrepresentation, a party need not demonstrate an intent on the part of a defendant
to misrepresent, but must merely show ‘a failure to use reasonable care or
competence in obtaining or communicating ... information.’” Jackson v. State, 956
P.2d 35, 43 (Mont. 1998) (citing Barrett v. Holland & Hart, 845 P.2d 714, 717
(Mont. 1992).
As discussed with regard to the breach of contract claim, a factual dispute
exists as to whether Euro Machine or Turi made a false representation to H-E Parts
regarding the manufacturer of the lathe. H-E Parts submitted an affidavit from
Shane Pence, its North American Strategic Projects Manager, stating H-E Parts
purchased the lathe based on Turi’s representations that the lathe was a Porebamanufactured machine. Turi submitted a counter affidavit stating he never
promised or represented that the lathe was made by the Poreba company in Poland.
Further, even assuming Euro Machine or Turi made a false representation,
H-E Parts’ internal emails raise a question of fact about whether H-E Parts knew
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the representation was false. As such, the Court finds a reasonable jury could
return a verdict in favor of either party on the fraud and/or negligent
misrepresentation claims. Accordingly, H-E Parts’ request for summary judgment
on the fraud and negligent misrepresentation claims is denied.
Likewise, the Court finds Euro Machine and Turi are not entitled to
summary judgment on the fraud and negligent misrepresentation claims.
Defendants assert they had the legal right to sell the lathe under the Poreba brand
because Euro Machine owns the “Poreba” trademark. Regardless of the validity of
the trademark, however, Defendants are not necessarily shielded from liability if
they misrepresented the source of the lathe. Durbin v. Ross, 916 P.2d 758, 762
(Mont. 1996) (noting that “[w]ithholding relevant facts concerning purchased
property can be a fraudulent act. Furthermore, where a vendor by his conduct or
words creates a false impression concerning a matter of vital importance to the
purchaser, full disclosure of relevant facts may be required.”). Because there are
disputed issues of fact regarding Defendants’ representations regarding the lathe,
Euro Machine and Turi’s request for summary judgment is denied.
III.

CONCLUSION
For the foregoing reasons, IT IS HEREBY ORDERED that:
1.

H-E Parts’ Motion for Partial Summary Judgment (Doc. 38) is

DENIED;
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2.

Defendants’ request for partial summary judgment pursuant to Rule

56(f)(1) is DENIED.
IT IS ORDERED.
DATED this 9th day of September, 2019.
_______________________________
TIMOTHY J. CAVAN
United States Magistrate Judge

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