Titanium Metals Corp. v. Elkem Management, Inc.

191 F.R.D. 468, 1998 U.S. Dist. LEXIS 22786, 1998 WL 1469538
District Court, W.D. Pennsylvania·Decided November 5, 1998·No. No. Civ.A. 97-369·Published·Cited by 7 cases

Opinion

MEMORANDUM OPINION AND ORDER

D. BROOKS SMITH, District Judge.

Presently before the court are defendant’s motion for partial summary judgment dismissing plaintiffs indemnity claim, dkt. no. 26, and defendant’s motion to strike changes to deposition testimony, dkt. no. 28. I will deny both motions.

I.

To place these motions in context, I will restate my recitation of the facts from my memorandum opinion of September 30,1998, dkt. no. 37. Timet manufactures titanium alloys for the aerospace industry in discrete batches known as “heats.” One component of those alloys is chromium, which Elkem sells. Timet contracted with Elkem to provide chromium powder for Timet’s heats. Because Elkem’s plant produces that metal only in 2.5" pellets, it contracted with F.W. Winter & Co., Inc., to crush and screen the pellets into a powdered form acceptable to Timet. Unfortunately for all concerned, Winter screened the chromium powder on equipment it had previously used to screen tungsten carbide for another of its customers. Tungsten is considered a contaminant of titanium alloys.

Timet used the contaminated chromium in several heats and sold the resulting alloy to its customer, Wyman-Gordon Company, which in turn made forgings from it and sold them to its largest customer, General Electric, for use in military jet engines. When the mistake was discovered, the result was predictable: GE demanded compensation from Wyman-Gordon and was given $4.5 million, and Wyman-Gordon sought and received $2 million from Timet. Timet then filed the instant suit against Elkem, alleging breach of contract,- and breach of express warranty, breach of the implied warranties of merchantability and fitness. The complaint seeks recovery of the $2 million that Timet paid Wyman-Gordon, $465,824 for replacement of defective metal and $189,145 in testing, inspection and investigation costs it incurred in determining the source of the contamination.

On September 30, 1998, I granted partial summary judgment to defendant on the limited issue of direct recovery for the cost of replacing metal sold in 1992, but denied it in all other respects. Dkt. no. 37. I did not rule at that time on defendant’s remaining two motions, and will do so now.

[470] II.

The focus of defendant’s instant partial summary judgment motion is that, even when stated as an indemnity claim, plaintiffs recovery for the $2 million it paid to Wyman-Gordon is barred according to the usage of trade in the metals industry. Specifically, the contention is that Elkem cannot be liable to Timet in indemnity because, notwithstanding its payment in settlement, Timet was never liable to Wyman-Gordon. This is a “battle of the forms” question under section 2-207 of the UCC, with the point of contention being whether usage of trade or the Code’s own gap-fillers provide the appropriate rule.

Stated briefly, the reverse side of Wyman-Gordon’s purchase order provides that the seller, in this case Timet, agrees to indemnify Wyman-Gordon from all claims arising from the use of the product it supplied. Timet’s acknowledgment, on the other hand, provides that there shall be no liability for consequential damages, including those arising from the claims of third parties. Both forms also convey the party’s insistence upon its own terms and its objection to any conflicting terms of the other party. As the parties agree, under the “knock-out” rule expressed in UCC § 2-207(2), neither of the dueling terms became a part of the contract. Dkt. no. 27, at 8; dkt. no. 34, at 3; see Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1579 (10th Cir.1984); Westinghouse Elec. Corp. v. Nielsons, 647 F.Supp. 896, 900-01 (D.Colo. 1986).

Thus, the question becomes, what terms shall the parties be judicially held to have agreed to? Under the UCC’s “gap-filler” provision, § 2-207(3), when there is “[c]on-duct by both parties which recognizes the existence of a contract[,]” a contract exists and “consist[s] of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this title.” Elkem argues that, under UCC § 2-202(a), the agreement may be supplemented “by course of dealing or usage of trade....” Id. Timet, on the other hand, relies on explicit gap fillers found in sections 2-714 and 2-715, which allow consequential damages to be recovered “[i]n a proper ease____” UCC 2-714. It argues that trade usage is relevant only when interpreting an ambiguous writing, not when supplying a term the parties have omitted entirely. Neither party has cited any case authority explicitly holding that usage of trade either can or cannot be used as a gap-filler.

I conclude that usage of trade, if proven, is a valid gap-filler under UCC § 2-207(3). In Dresser Indus., Inc. v. Gradall Co., 965 F.2d 1442 (7th Cir.1992) (per curiam), the court dealt with a situation in which “the writings of the parties did not establish a contract, but their conduct did.” Id. at 1449. The district court held that, while defendant’s warranty did not expressly become part of the contract, it was incorporated into it as a supplemental term based upon its status as, inter alia, a usage of trade. Id. The Seventh Circuit affirmed, mentioning the Tenth Circuit’s view, expressed in dicta in Daitom, 741 F.2d at 1759, that a § 2-207(3) contract includes trade usage as well as other gap fillers. 965 F.2d at 1451. The court then opined that this holding was consistent with the positions of the leading UCC commentators. It concluded:

[A] court is not limited to the standardized gap-fillers of Article 2, but may utilize any terms arising under the entire U.C.C.... This is the most natural reading of the statute____ This is not to say that the gap-fillers are unimportant; in cases where the parties’ performance gives no understanding of a particular term, the gap-fillers will supply it. We simply hold that ... all of the U.C.C.’s provisions should be used in discerning the terms of a contract under § 2-207(3), including those provisions that allow us to examine the parties’ performance.

Id.; accord 1 James J. White & Robert S. Summers, Uniform Commercial Code §§ 3.3, at 119, 3.4, at 125 (4th ed.1995); John E. Murray, Jr., Murray on Contracts § 89, at 430 (3d ed.1990) (“trade usage ... may be seen as supplying terms in the agreement of the parties[,]” not merely as an aid to the interpretation of ambiguous contract language).

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Titanium Metals Corp. v. Elkem Management, Inc., 191 F.R.D. 468, 1998 U.S. Dist. LEXIS 22786, 1998 WL 1469538 (W.D. Pa. 1998).

191 F.R.D. 468 (Titanium Metals Corp. v. Elkem Management, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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