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LLC v. Travelers Property Casualty Co. of America

United States District Court, W.D. Kentucky, Paducah

November 5, 2018

DIPPIN' DOTS, LLC, PLAINTIFF
v.
TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA and CIMCO REFRIGERATION, INC., DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          Thomas B. Russell, Senior Judge

         This matter is before the Court on Defendant Cimco Refrigeration, Inc.'s (“CIMCO”) Motion for Summary Judgment. [R. 38.] Plaintiff Dippin' Dots responded and CIMCO replied. [R. 47; R. 48.] Fully briefed, this matter is ripe for adjudication. For the reasons stated herein, CIMCO's Motion for Summary Judgment, [R. 38], is GRANTED.

         BACKGROUND

         This case revolves around a contract between CIMCO Refrigeration, Inc. and Dippin' Dots, in which CIMCO agreed to “design, construct and install a carbon dioxide and ammonia-based refrigeration system at Dippin' Dots' plant in Paducah, Kentucky” (the “Contract”). [R. 38-2 at 1 (Russell Affidavit); See generally R. 38-3 (the Contract).][1] Dippin' Dots manufactures “beads of cryogenically frozen ice cream” that must be stored at temperatures below negative forty degrees Fahrenheit. [R. 26 at 2 (Amended Complaint).] CIMCO designed and installed a refrigeration system to cool the space where Dippin' Dots' products are stored. [Id.] The refrigeration system was installed at the Dippin' Dots plant in early 2014. [R. 38-2 at 2.]

         On December 21, 2015, Dippin' Dots filed suit against CIMCO and the manufacturer of a “plate and shell” heat exchanger, a specific part of the refrigeration system installed by CIMCO. [Id.] That claim asserted that the failure of the heat exchange system caused the refrigeration system to not function properly and become “contaminated.” [R. 38-5 at 2-3 (First Amended Complaint of Previous Suit).] As subrogee of Dippin' Dots, Travelers Property Casualty Company of America brought the following claims against CIMCO: (1) breach of contract, (2) breach of the implied warranties of merchantability and fitness for a particular purpose, (3) breach of express warranty, and (4) negligence. [Id. at 5-8.] On either November 4 or November 11, 2016, the parties mediated the case and reached a tentative agreement for settlement. [R. 38-1 at 3; R. 47 at 7 (Dippin' Dots Response).] The Settlement Agreement was executed in December of 2016, and the Court dismissed the case on December 6, 2016. [R. 47-3 (Order of Dismissal); R. 38-1 at 5; R. 47 at 8.]

         During this period of time, Dippin' Dots experienced yet another issue with its refrigeration system. At this point, further explanation of the refrigeration system and its importance to Dippin' Dots' business is necessary in order to fully understand the claim. This refrigeration system requires two compressors to function, one that operates on carbon dioxide and the other on ammonia. [Id. at 2.] As a precaution, CIMCO included an extra compressor of each type to ensure that if there was a problem with either compressor, the system could still operate on the back-up, or “redundant, ” compressor. [Id. at 2-3.] All four compressors are run by a computer called a programmable logic controller (“PLC”) that ultimately decides which two compressors are running at any given time. [Id.] Dippin' Dots states that CIMCO designed and installed the PLC, and that the PLC was programmed and tested by CIMCO at the time of installation. [Id.]

         On or around Saturday, November 5, 2016, a circuit breaker associated with one of the compressors was tripped and that compressor ceased operating. [Id.] Dippin' Dots explains that, although each compressor has its own circuit breaker, “the PLC did not alert the redundant compressor to begin running when this occurred, causing the refrigeration system not to function.” [Id.] According to Dippin' Dots' Vice President of Administration and Human Resources, Steve Heisner, this caused the temperature to rise in the refrigerated warehouse and the ultimate spoliation of approximately $750, 000.00 worth of product. [R. 16-1 at 2 (Heisner Declaration).] Heisner states that Dippin' Dots learned of this loss on Monday, November 7, 2016, and subsequently filed a claim for insurance coverage with its carrier, Travelers Property Casualty Company (“Travelers”). [Id. at 2-3.] Dippin' Dots allegedly has systems in place designed to alert personnel of rising temperatures, however, personnel were never alerted on the day of the incident. [R. 26 at 4.]

         Travelers subsequently employed an engineer firm, SEA, Ltd., to investigate the loss. After an inconclusive report on January 12, 2017, [R. 47-5 at 3 (First SEA Report)], SEA concluded in a second report, dated February 13, 2017, that a squirrel on the power line caused Dippin' Dots to experience “a brief interruption in electrical service” of “no more than a few seconds” on November 5, 2016. [R. 47-6 at 2-3 (Second SEA Report).] Two days later, on February 15, 2017, Travelers sent Dippin' Dots a letter informing them that the “Spoilage Coverage Extension” limited Dippin' Dots' recovery to $100, 00.00 for its loss of product. [R. 16-6 at 1-2 (Travelers Letter).]

         On April 18, 2017, Dippin' Dots filed a complaint against Travelers for breach of contract and breach of the duty of good faith. [R. 1 at 4-5.]

         On July 18, 2017, an on-site investigation by engineers, retained by Dippin' Dots' counsel, led Dippin' Dots to believe that CIMCO “may be a cause of its loss.” [R. 47-7 at 1 (Avery Declaration); R. 47 at 9.] On November 1, 2017, Dippin' Dots filed the Amended Complaint, which added CIMCO as a defendant. [See generally R. 26.] Dippin' Dots brings four claims against CIMCO: (1) Breach of Contract, (2) Negligence, (3) Breach of Implied Warranties of Merchantability and Fitness for a Particular Purpose, and (4) Breach of Express Warranty. [Id. at 7-9.] Currently before the Court is CIMCO's Motion for Summary Judgment, in which it argues that all four claims should be dismissed. [See generally R. 38-1.]

         LEGAL STANDARD

         Summary judgment is appropriate when the record, viewed in the light most favorable to the nonmoving party, reveals “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). A genuine dispute of material fact exists where “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The Court “may not make credibility determinations nor weigh the evidence when determining whether an issue of fact remains for trial.” Laster v. City of Kalamazoo, 746 F.3d 714, 726 (6th Cir. 2014) (citing Logan v. Denny's, Inc., 259 F.3d 558, 566 (6th Cir. 2001); Ahlers v. Schebil, 188 F.3d 365, 369 (6th Cir. 1999)). “The ultimate question is ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'” Back v. Nestlé USA, Inc., 694 F.3d 571, 575 (6th Cir. 2012) (quoting Anderson, 477 U.S. at 251-52).

         As the party moving for summary judgment, the defendant must shoulder the burden of showing the absence of a genuine dispute of material fact as to at least one essential element of the plaintiff's claims. Fed.R.Civ.P. 56(c); see also Laster, 746 F.3d at 726 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). Assuming the defendant satisfies his or her burden of production, the plaintiff “must-by deposition, answers to interrogatories, affidavits, and admissions on file-show specific facts that reveal a genuine issue for trial.” Laster, 746 F.3d at 726 (citing Celotex Corp., 477 U.S. at 324).

         DISCUSSION

         CIMCO makes several arguments in support of its Motion for Summary Judgment, including: (1) all of Dippin' Dots' claims are barred by the terms of the Contract, (2) all of Dippin' Dots' claims are barred by the Settlement Agreement, (3) Dippin' Dots' claim of Breach of Implied Warranties of Merchantability and Fitness for a Particular Purpose fails as a matter of law, and (4) Dippin' Dots' claim of Breach of Express Warranty fails as a matter of law. [See generally R. 38-1.] The Court will address each argument in turn.

         As an initial matter, the Court must first address the substantive law to be applied in this case.

         I. Choice of Law

          “A federal court sitting in diversity applies the substantive law of the state in which it sits.” Hayes v. Equitable Energy Res. Co.,266 F.3d 560, 566 (6th Cir. 2001). This Court is located in Kentucky, where there is a strong preference for applying Kentucky law. “On at least two occasions, [the Sixth Circuit has] noted this provincial tendency in Kentucky choice-of-law rules.” Wallace Hardware Co. Inc. v. Abrams,223 F.3d 382, 391 (6th Cir. 2000) (citing Adam v. J.B. Hunt Transp., Inc.,130 F.3d 219, 230-31 (6th Cir. 1997). The Court need only conduct a choice-of-law analysis if a conflict exists between two states' laws. Asher ...


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