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Traveler's Property Casualty Co. v. Rapid Power Corp.

United States District Court, Sixth Circuit

December 20, 2013

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

THOMAS B. RUSSELL, District Judge.

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.

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 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 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. ...


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