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FULLER CO. v. BROWN MINNEAPOLIS TANK & FABRICATING

September 30, 1987

Fuller Company, Plaintiff
v.
Brown Minneapolis Tank and Fabricating Company, Defendant



The opinion of the court was delivered by: TROUTMAN

 TROUTMAN, S.J.

 This action and a related action pending in the United States District Court for the District of Minnesota arise out of alleged mutual breaches of a contract executed by and between Fuller Company ("Fuller") and Brown Minneapolis Tank and Fabricating Company ("BMT").

 Fuller, on or about March 19, 1985, entered into a contract with Northern States Power Company ("NSP"), the Project Manager and owner of a major generating power station now being constructed in Minnesota. Pursuant to the NSP-Fuller contract, Fuller was required to design, manufacture and supply certain equipment for an "air quality control system" and a "solids handling system" to be erected and installed at the power station.

 Fuller and BMT, on or about May 16, 1985, executed a "purchase order contract", (Plaintiff's Complaint, Doc. # 1, Ex. "A"), under which BMT was required to manufacture and supply certain portions of the air quality control and solids handling systems Fuller had agreed to supply under the NSP-Fuller contract. *fn1" Three (3) supplements to the original purchase order contract were executed by Fuller and BMT. Each supplement was executed on the same form as the original purchase order contract. (See affidavit of Joseph L. Cairo, Doc. # 6, Ex. "D".)

 On October 29, 1986, BMT instituted suit against Fuller in the District Court for the Tenth Judicial District of Sherburne County, Minnesota. BMT in its Complaint seeks $ 193,730.00 in damages allegedly suffered by it as a result of: (1) increased manufacturing costs resulting from delays caused by Fuller in meeting its obligations under the agreement and (2) alterations by Fuller in the design and specifications of the equipment BMT had contracted to supply. (See Fuller's Motion For Summary Judgment, affidavit of Mark F. Brancato, Esq., Doc. # 5, Ex. "A".) On November 5, 1986, BMT filed a mechanic's lien against the power station owned by NSP in the amount of the damages it sought in the Minnesota action, i.e., $ 193,730.00. ( See Plaintiff's Complaint, Doc. # 1, Ex. "B".) On November 13, 1986, Fuller removed BMT's Minnesota state court action to the United States District Court for the District of Minnesota.

 On November 14, 1986, Fuller filed this action against BMT alleging that BMT had breached its contract by: (1) instituting the Minnesota action in violation of the forum selection clause contained in the Fuller-BMT contract and (2) filing the aforementioned mechanic's lien when it had waived its right of lien to secure payment for the work it performed. Fuller requests relief in the form of, inter alia : (1) a declaration pursuant to 28 U.S.C.A. § 2201 (West 1982) that BMT breached the forum selection clause and an order directing that the "mini-trial" which the parties have agreed upon be held within the confines of the Eastern District of Pennsylvania and (2) a declaration that BMT breached the contract by filing the mechanic's lien and an order directing BMT to remove the lien and forebear from filing any future liens against the power station in connection with the work performed pursuant to the Fuller-BMT contract.

 On November 18, 1986, BMT moved the District Court of Minnesota for a preliminary injunction restraining Fuller from proceeding with this action. The District Court, per the Hon. Diana E. Murphy, denied BMT's motion.

 Upon this tortured procedural history, both parties have now moved this Court for summary judgment.

 Originally, BMT requested that we stay this action or simply dismiss it on the ground that, because the claims asserted by Fuller in this action constitute "compulsory counterclaims" to BMT's Minnesota action, we should defer to the District Court of Minnesota in order to avoid multiplicious litigation since it first obtained jurisdiction over the issues raised by both actions. *fn2" See, e.g., Pumpelly v. Cook, 106 F.R.D. 238 (D.D.C. 1985); Minnetonka v. Sani-Fresh International, Inc., 103 F.R.D. 377 (D.Minn. 1984)(Murphy, J.); and Berkshire International Corp. v. Marquez, 69 F.R.D. 583 (E.D.Pa. 1976). BMT has abandoned this contention and expressed its willingness to have this Court resolve the issues regarding the forum selection clause and the waiver of lien clause. Likewise, Judge Murphy has also conveyed to us her willingness to defer to this Court as to these issues. Thus, we see no impediment to our disposing of the parties' cross-motions for summary judgment.

 A. Challenges Common to Both the Lien Clause and the Forum Selection Clause.

 BMT initially argues that, since Fuller fraudulently induced it into entering into the contract, it is entitled to rescission of the agreement, and thus, the Lien clause and the forum selection clause contained in the Fuller-BMT contract are inapplicable to its dispute with Fuller. BMT ignores the fact that when presented with the design changes made by Fuller, it did not cease performance and sue for damages, but rather, it continued to perform, and has, in fact, completed all work requested by Fuller. By electing to proceed with its performance, BMT waived whatever right it may have had to rescind the contract on the grounds that Fuller had fraudulently induced it into entering into the agreement. See, e.g., Restatement (Second) of Contracts § 85 comment b, illustration 2 (1981); see also, A. L. Williams Corp. v. Faircloth, 652 F. Supp. 51, 53 (N.D.Ga. 1986)("claim for rescission requires that a party act promptly upon discovery of the fraud"); Rouse Woodstock v. Surety Federal Savings & Loan Association, 630 F. Supp. 1004, 1009 (N.D.Ill. 1986)("movant must not merely allege a fraudulent transaction but fraud which goes to the selection of venue"); Daniel Hamm Drayage Co. v. Waldinger Corp., 508 F. Supp. 390, 395 (E.D.Mo. 1981)("where fraud in the inducement is established, the defrauded party may avoid the contract by timely election made promptly upon discovery of facts from which the right to avoid the contract arises"); and Westinghouse Electric Corp. v. Garrett Corp., 437 F. Supp. 1301, 1331 (D.Md. 1977)("defendant['s] challenge to the existence of a contract . . . comes too far down the road of performance . . . (the) proper action would have been to bring an action for rescission . . . By act of performance (defendant) lost its right to deny the existence of the contract.")

 In a similar vein, BMT argues that the design changes made by Fuller were so "radical" as to be beyond the scope of the parties' agreement, and therefore, the additional work performed by BMT is not governed by the terms of the contract. It is indeed true under the contract doctrine of "cardinal" changes that where a party to a contract alters the terms of the other party's performance to such an extent that the alterations could not have been within the realm of the parties contemplation as evidenced by the parties' written agreement, the other party may elect not to perform and hold the other party liable for breach of contract. See, e.g., Westinghouse Electric Corp. v. Garrett Corp., supra. However, as with a party's failure to seek rescission of a contract upon discovery of fraud in its inducement, a party cannot continue to perform under the contract and later be heard to say that the other party breached the agreement prior to the continued performance, and therefore, no contract existed. By electing to continue its performance, BMT remains bound by the terms of the contract. Its only remedy for Fuller's alleged breaches of the contract is a claim for monetary damages. *fn3" See, e.g., S. Leo Harmonay, Inc. v. Binks Manufacturing Company, 597 F. Supp. 1014 (S.D.N.Y. 1984); McAlpine v. AAMCO Automatic Transmissions, Inc., 461 F. Supp. 1232 (E.D.Mich. 1978)(applying Pennsylvania law); and Cities Service Helex, Inc. v. United States, 211 Ct. Cl. 222, 543 F.2d 1306 (1976). *fn4"

 BMT next challenges the efficacy of the forum selection and Lien clauses contained the Fuller-BMT contract with the argument that those provisions of the agreement were superseded by contradictory ...


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