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ADVANCED TUBULAR PRODUCTS v. SOLAR ATMOSPHERES

March 12, 2004.

ADVANCED TUBULAR PRODUCTS, INC., et al., Plaintiffs,
v.
SOLAR ATMOSPHERES, INC., Defendant



The opinion of the court was delivered by: BERLE M. SCHILLER, District Judge

MEMORANDUM AND ORDER

Plaintiff Advanced Tubular Products, Inc. ("ATP") brings this action alleging breach of contract and fraudulent misrepresentation against Defendant Solar Atmospheres, Inc. ("Solar").*fn1 Presently before the Court is Plaintiff ATP's motion for partial summary judgment and Defendant Solar's motion for summary judgment. For the reasons stated below, I deny Plaintiffs motion and grant Defendant's motion.

I. BACKGROUND

  Plaintiff ATP, a Kentucky corporation, was created when investors Richard Bitterman, Ralph Margulis, and Adam Clifton purchased a tube manufacturing business named MascoTech in 1999. (Bitterman Dep. at 14-17, 37-38.) Mr. Bitterman, President and Chief Executive Officer of ATP, ran the company along with the other investors. ATP was a "start-up" company struggling for sales. (Id. at 36-37, 57). Although the bulk of ATP's business was derived from the automotive industry, Page 2 the company also supplied its products to other miscellaneous industries. (Id.) In late 2000 or early 2001, ATP's management decided to expand by selling stainless steel tubing to the oil and gas industry. (Bitterman Dep. at 37-39.) In order to expand into this industry, ATP contacted several heat treaters, including Solar, regarding heat treatment of ATP's stainless steel tubing. (Id. at 51-54; Hill Dep. at 46-7.) Because Bitterman had been informed that Solar "seemed to be a decent heat treater [with] some experience in aerospace [indicating] that they might be able to handle a demanding heat treat application," he visited Solar's Souderton, Pennsylvania facility in early 2001 in order to confirm whether Solar could perform the work. (Bitterman Dep. at 54-55, 119-120.)

  At the meeting at Solar's Souderton facility, Bitterman met with Phil DeHennis, the Vice President of Operations at Solar, and discussed the demands of the particular heat treatment application needed for the job, which included the specification standard known as ASTM A789. (Bitterman Dep. at 82, 92, 121, 122, 155, 158.) In addition, Bitterman gave Robert Hill, Solar's Vice President of Heat Treating Operations at the Souderton facility, a description of this specification from an industry handbook. (Hill Dep. at 27.) Solar's representatives responded that "they were familiar with [ASTM A789] and they felt that they could handle it." (Bitterman Dep. at 124.)

  On February 19, 2001, ATP sent three sample coils of tubing to Solar for testing as part of the "qualification process" to assure ATP that Solar could treat the tubing as required. (Bitterman Dep. at 62-65; Def s Resp. to Pl's Mot. for Partial Summ. J., Ex. A.) Solar heat-treated these sample coils on February 25 and 27, 2001 and sent them back to ATP for testing. (Def.'s Resp. to Pl's Mot. for Partial Summ. J., Ex. B, C.) In the interim, on February 20, 2001, Solar faxed a quotation for its services and then mailed the hard copy of the quotation with its Terms of Sale to Page 3 ATP.*fn2 (Way Dep. at 36-37.) The first faxed quotation sent to ATP included the hourly service charges and the following language: "This quotation is subject to Solar Atmospheres, Inc. Terms of Sale as presented on form SA-1 (01-00)." Additionally, the quote specified:
It is the customer's responsibility to notify Solar Atmospheres, Inc. in writing on your purchase order, if additional parcel or carrier insurance is required above the standard limit. Please reference our quote number on your purchase order. Quotation subject to Solar Atmospheres' limited liability statement. All freight shipments must be prepaid by customers.
(Def.'s Mot. for Summ. J., Ex. B (emphasis added).) The terms of sale on form SA-1 (01-00) that were mailed to ATP provided in pertinent part:
2. Quotations
Unless otherwise previously withdrawn, SELLER'S QUOTATION is open for acceptance within the period stated therein or when no period is stated, within 30 days from the date of SELLER'S QUOTATION. . . .
12. Limited Warranty — Limitation Of Liability And Remedies
12.1 SERVICE Provided For BUYER Owned Material
  IT IS RECOGNIZED THAT EVEN AFTER EMPLOYING ALL THE SCIENTIFIC METHODS KNOWN TO SELLER, HAZARDS STILL REMAIN IN PROVIDING PROCESS SERVICES. THEREFORE, SELLER'S LIABILITY SHALL NOT EXCEED TWICE THE AMOUNT OF SELLER'S CHARGES FOR SERVICES PERFORMED ON ANY MATERIAL (FIRST TO REIMBURSE FOR THE CHARGES AND SECOND TO COMPENSATE IN THE AMOUNT OF THE CHARGES), EXCEPT BY WRITTEN AGREEMENT SIGNED BY AN Page 4 OFFICER OF SELLER. BUYER, BY CONTRACTING FOR SERVICES, AGREES TO ACCEPT THE LIMITS OF LIABILITY AS EXPRESSED IN THIS STATEMENT TO THE EXCLUSION OF ANY AND ALL PROVISIONS REGARDING STATEMENTS OF LIABILITY ON THE BUYER'S OWN INVOICES, PURCHASE ORDERS AND / OR OTHER DOCUMENTS. IF BUYER DESIRES OTHER TERMS OF LIABILITY TO BE IN FORCE AND EFFECT, THE OTHER TERMS OF LIABILITY MUST BE AGREED TO IN WRITING AND SIGNED BY AN OFFICER OF SELLER. IN SUCH EVENT, A DIFFERENT CHARGE FOR SELLER'S SERVICES, REFLECTING THE HIGHER RISK TO SELLER, SHALL BE AGREED TO BY THE BUYER AND SELLER. NO CLAIMS WILL BE ALLOWED FOR SHRINKAGE, EXPANSION, DEFORMITY, RUPTURE AND / OR ANY OTHER PHYSICAL CHANGE OF THE MATERIAL RESULTING FROM SERVICES PROVIDED BY SELLER, EXCEPT BY PRIOR WRITTEN AGREEMENT. WHENEVER BUYER SUPPLIES MATERIAL TO SELLER WITH DETAILED INSTRUCTIONS SPECIFYING THE SERVICE PROCESS, SELLER'S RESPONSIBILITY SHALL END WITH THE CARRYING OUT OF THOSE INSTRUCTIONS. FAILURE BY THE BUYER TO SPECIFY PLAINLY AND CORRECTLY THE KIND OF MATERIAL TO BE PROCESSED (SERVICED), SHALL CAUSE AN EXTRA CHARGE TO BE MADE TO COVER ANY ADDITIONAL EXPENSES INCURRED AS A RESULT THEREOF, BUT SHALL NOT CHANGE THE LIMITATION OF LIABILITY STATED ABOVE.

  12.2 Warranty Liability Limitations

  EXCEPT FOR THE EXPRESS WARRANTY STATED ABOVE, SELLER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND DISCLAIMS ALL WARRANTIES FOR TRADE OR SAMPLES PREVIOUSLY SUPPLIED. THE STATED WARRANTY AND REMEDY PROVIDED ARE IN LIEU OF OTHER POSSIBLE LIABILITY AND DAMAGES AGAINST SELLER AND IN NO EVENT SHALL SELLER BE LIABLE FOR SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES RESULTING FROM THE BREACH OF THIS WARRANTY OR ANY OTHER PROVISION OF THESE TERMS AND CONDITIONS, THE QUOTATION, Page 5 THE PURCHASE ORDER AND / OR ANY AGREEMENT BETWEEN BUYER AND SELLER OR OTHERWISE ARISING OUT OF OR IN CONNECTION WITH THE SERVICES AND / OR GOODS OR THEIR SALE, DELIVERY, DISTRIBUTION, INSTALLATION, MAIN-TENANCE, OPERATION, SERVICE, PERFORMANCE OR USE, INCLUDING, WITHOUT LIMITATION, ANY LOSS OF USE, LOST REVENUES, LOST PROFITS, DAMAGE TO ASSOCIATED EQUIPMENT OR TO FACILITIES, LOST DATA, COSTS OF SUBSTITUTED GOODS, EQUIPMENT FACILITIES OR SERVICES, AND ANY SIMILAR OR DISSIMILAR LOSSES, COSTS OR DAMAGES, WHETHER BASED ON WARRANTY, CONTRACT, STRICT LIABILITY OR NEGLIGENCE. IN NO EVENT SHALL THE LIABILITY OF SELLER EXCEED TWO (2) TIMES THE CHARGES FOR PROVIDING SERVICES FOR BUYER OWNED MATERIAL, OR THE ACTUAL COST OF CORRECTING DEFECTS IN MANUFACTURED PRODUCTS, WHICHEVER IS LESS.

 (Terms of Sale, Form SA-1(01-00), Def.'s Mot. for Summ. J., Ex. C.) On February 26, 2001, Solar sent a revised quotation and the same Terms of Sale to ATP. (Def.'s Resp. to Pl.'s Mot. for Partial Summ. J., Ex. F.) ATP received the Terms of Sale at some point in February 2001, as Mr. Bitterman admitted that he saw "at least some of the terms and conditions." (Bitterman Dep. at 152.)

  Because the first three sample coils stuck together after being heat-treated, ATP sent two additional sample coils on February 28, which Solar treated and returned to ATP on March 5. (Def.'s Resp. to Pl's Mot. for Partial Summ. J., Ex. J, K; Hill Dep. at 71.) After performing several tests for "sigmaphase," also known as improper heat treatment, on the second set of sample coils, ATP was satisfied that Solar was capable of doing the work and shipped the last of the coil samples. Solar treated these coils and sent them back to ATP on March 13. (Bitterman Dep. at 64-5; Def.'s Resp. to Pl's Mot. for Partial Summ. J., Ex. L.) The qualification process ended on March 19, 2001, when ATP shipped 17 coils, omitting the "sample" description on the packing slip. (Def.'s Resp. to Pl.'s Mot. for Partial Summ. J., Ex. N.) Between March 19 and April 18, ATP sent several large lots of Page 6 coils that Solar processed and either returned to ATP or sent directly to ATP's orbital welder in Texas. (Id., Ex. J, K, N, O, P.)

  After these services were provided by Solar, ATP sold the heat-treated tubing to Tubeco, Inc., who in turn sold it to a contractor in Texas, where the tubes were eventually used in underground oil and gas wells to, among other things, break down rock with corrosive acid. (Bitterman Dep. at 80). Some time after the services were performed on the tubing, ATP was informed by the ultimate purchaser that the tubing was brittle and failed as a result of improper heat treatment or "sigmaphase." (Id. at 190-91.)

  As a result of this product failure, Plaintiff brought suit against Defendant alleging breach of oral contract and fraudulent misrepresentation arising out of the services provided by Defendant. Defendant filed a motion to dismiss asserting, inter alia, that the applicable contract between the parties included a limited liability clause that limited Plaintiffs' claims to an amount under $75,000.00, thereby divesting this Court of subject matter jurisdiction. On September 24, 2003, this Court denied the motion to dismiss without prejudice to Defendant raising these arguments again at summary judgment because factual issues required consideration outside the pleadings and further discovery was needed. Limited discovery regarding the formation of the contract was taken. Plaintiff now moves the Court for partial summary judgment on the contract claim, arguing that the limited liability provision is not part of the contract formed between the parties. Defendant also moves for summary judgment, asserting that: (1) the limited liability clause applies; (2) Plaintiffs fraud claim should be barred by the limited liability clause pursuant to Pennsylvania's gist of the action theory; and (3) as a result, the Court should dismiss this case for lack of subject matter jurisdiction. For the reasons set forth below, Defendant's motion is granted and Plaintiffs partial motion for summary judgment is Page 7 denied.

 II. SUMMARY JUDGMENT STANDARD

  Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. ClV. P. 56(c). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the initial burden of identifying those portions of the record that it believes illustrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where the non-moving party has the burden of proof on a particular issue at trial, the moving party meets its burden by "pointing out to the district court that there is an absence of evidence to support the non-moving party's case." Id. at 325. Once the moving party meets this burden, the non-moving party must offer admissible evidence that establishes a genuine issue of material fact that should proceed to trial. See id. at 324; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). In order to meet this burden, the opposing party must point to specific, affirmative evidence in the record and not simply rely on mere allegations, conclusory or ...


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