Rexnord Industries, LLC v. Bigge Power Constructors

947 F. Supp. 2d 951, 80 U.C.C. Rep. Serv. 2d (West) 512, 2013 WL 1491874, 2013 U.S. Dist. LEXIS 52668
CourtDistrict Court, E.D. Wisconsin
DecidedApril 12, 2013
DocketCase No. 12-C-0261
StatusPublished
Cited by2 cases

This text of 947 F. Supp. 2d 951 (Rexnord Industries, LLC v. Bigge Power Constructors) is published on Counsel Stack Legal Research, covering District Court, E.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rexnord Industries, LLC v. Bigge Power Constructors, 947 F. Supp. 2d 951, 80 U.C.C. Rep. Serv. 2d (West) 512, 2013 WL 1491874, 2013 U.S. Dist. LEXIS 52668 (E.D. Wis. 2013).

Opinion

DECISION AND ORDER

LYNN ADELMAN, District Judge.

This is a breach of contract case involving two commercial entities, Rexnord Industries, LLC (“Rexnord”) and Bigge Power Constructors (“Bigge”). Bigge manufactures and sells cranes and similar equipment for use in heavy industry. In 2009, Bigge agreed to supply a company named Shaw Constructors, Inc. (“Shaw”) with two large derricks, which Shaw intended to use to construct nuclear power plants in Georgia and South Carolina. The derricks Shaw ordered are among the largest in the world. After Bigge and Shaw entered into the contract for the derricks, Bigge entered into a separate contract with Rexnord, which is in the foundry business, for the production of twenty-eight steel castings (components made by pouring liquid metal into molds) that Bigge intended to incorporate into the derricks. The contract consists of two purchase orders and a set of “commercial terms” printed on Bigge letterhead.

The purchase price for the castings was approximately $4.5 million. Rexnord manufactured and delivered the castings, and Bigge ultimately accepted them, incorporated them into the derricks, and received full payment from Shaw (less a holdback that is not relevant here). However, Bigge refuses to pay Rexnord the balance that remains due, which is approximately $1 million. Rexnord filed this suit in state court to recover that amount. Bigge removed the case to this court under the diversity jurisdiction, and in addition it filed a counterclaim alleging that Rexnord breached certain provisions of the commercial terms, causing it approximately $1.6 million in damages.

Rexnord’s alleged breaches can be divided into two categories. The first category encompasses breaches of the commercial terms relating to Rexnord’s promise to deliver the castings in accordance with a schedule incorporated into the contract. Bigge contends that Rexnord’s delay in delivering the castings caused it to incur additional expenses. Bigge generally describes these as “time-related expenses” associated with “personnel” and “equipment rental.” See Bostrom Declaration ¶ 81, ECF No. 28. Bigge also states that it had to pay additional compensation to one of its subcontractors, Schuff Steel, because Rexnord’s delay required Schuff to “reschedule and re-order its work.” Id.

The other category of breach involves Rexnord’s alleged failure to properly perform a “root cause analysis,” as required by the commercial terms. See Quilter Decl. Ex. 1, § 5.3, ECF No. 20. “Root [954]*954cause analysis” is not defined in the terms, but the parties agree that it is a detailed engineering analysis of the cause of a defect and the impact it would have on the product’s performance. See Rexnord Resp. to Bigge PFOF ¶ 34, EOF No. 36. Here, the parties agree that Rexnord’s duty to perform a root cause analysis was triggered when Rexnord discovered that three of the castings, which were the mast feet for the derricks, had developed internal cracks. Rexnord conducted a root cause analysis, but Bigge thought that Rexnord’s analysis was unsatisfactory. Bigge thus hired separate consultants to advise it on the condition of the mast feet and also devoted “significant internal resources (both management and engineering)” to solving the problem with the mast feet. Bostrom Decl. ¶ 69.

Rexnord and Bigge have each filed motions for partial summary judgment. Rex-nord has moved for summary judgment on Bigge’s counterclaim, contending that even if Rexnord had committed the alleged breaches, Bigge would not be entitled to recover anything because all of its alleged damages constitute incidental and consequential damages, which the parties have agreed to exclude pursuant to the following provision in the commercial terms: Neither party (including its subcontrac-

tors, agents, assignees and affiliates) shall be liable to the other for special, consequential or incidental damages of any kind, and regardless of whether such liability arises in contract, in tort, or by operation of law.

Quilter Decl. Ex. 1, § 17. Bigge has moved for summary judgment on the question of Rexnord’s liability for breach of contract. Bigge does not seek summary judgment as to the amount of damages it is entitled to recover in connection with Rexnord’s breaches, but it does seek summary judgment in its favor on the question of whether any damages flowing from the breach constitute nonrecoverable incidental and consequential damages. The parties agree that California law, including California’s version of the Uniform Commercial Code, applies to their dispute.

I begin with the question of whether summary judgment should be granted on Bigge’s counterclaim on the ground that all of Bigge’s claimed damages fall within the contract’s exclusion of incidental and consequential damages. Initially, I note that Bigge eventually “accepted” all the castings, and so the starting point for an analysis of the remedies available to Bigge is UCC § 2-714, which in California is codified as Cal. Com.Code § 2714. That provision provides that where the buyer has accepted goods “he or she may recover, as damages for any nonconformity of tender, the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner that is reasonable.” Id. § 2714(1). Comment 2 to 2-714 states that the “non-conformity” referred to in 2-714(1) includes “any failure of the seller to perform according to his obligations under the contract.” In the present case, Bigge alleges that Rexnord failed to perform two of its obligations under the contract—the obligation to deliver the castings in accordance with the schedule, and the obligation to perform a root cause analysis. Assuming that Bigge proves that Rexnord failed to perform these obligations, Bigge may recover “the loss resulting in the ordinary course of events from” each failure. Damages that flow in the ordinary course from the breach are usually referred to as “direct” or “general” damages. See James J. White & Robert S. Summers, Uniform, Commercial Code, Hornbook Series § 11-4a, p. 526 (6th ed. 2010) (“General or direct damages, then, flow ‘in the ordinary course’ from the seller’s breach, as specified in 2-714(1)”). These damages may be [955]*955contrasted with incidental and consequential damages, which are available under 2-714(3) unless they have been excluded, as they have been here.

In the present case, it is relatively easy to dispose of the argument that Bigge’s damages are incidental. The text of 2-715(1) enumerates a list of damages that a buyer may recover as incidental damages, but the actual definition of incidental damage appears in Comment 1 to 2-715. The comment states that the damages listed in the text “are merely illustrative of the typical kinds of incidental damage” and that incidental damages fall into one of three categories: (1) reasonable expenses incurred in connection with the handling of rightfully rejected goods; (2) reasonable expenses incurred in connection with the handling of goods whose acceptance may justifiably be revoked; and (3) reasonable expenses incurred in connection with effecting cover. See also White & Summers, supra, § 11-3, p. 522; 24 Richard A. Lord, Williston on Contracts § 66:56, p. 668 (4th ed. 2002). Bigge’s damages do not fall into any of these categories. Bigge did not reject the castings, revoke acceptance of the castings,’ or effect cover by purchasing substitute castings,

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947 F. Supp. 2d 951, 80 U.C.C. Rep. Serv. 2d (West) 512, 2013 WL 1491874, 2013 U.S. Dist. LEXIS 52668, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rexnord-industries-llc-v-bigge-power-constructors-wied-2013.