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HERSHEY ENTERTAINMENT & RESORTS CO. v. INTERACTIVE RIDES

December 07, 2005.

HERSHEY ENTERTAINMENT & RESORTS COMPANY, Plaintiff
v.
INTERACTIVE RIDES, INC., Defendant.



The opinion of the court was delivered by: CHRISTOPHER CONNER, District Judge

MEMORANDUM

Presently before the court are cross motions (Docs. 28, 30) for summary judgment on the claims of plaintiff/counterclaim defendant, Hershey Entertainment & Resorts Company ("Hershey"), and defendant/counterclaim plaintiff, Interactive Rides, Inc. ("IR"). Hershey seeks summary judgment on its anticipatory repudiation and fraudulent inducement to contract claims and on IR's breach of contract counterclaim. IR seeks summary judgment on Hershey's gross negligence and unjust enrichment claims and a declaratory judgment on the scope of damages available to Hershey under the contract. For the reasons that follow, the motions will be granted in part and denied in part.

I. Statement of Facts*fn1

  In late 2003, Hershey, an amusement park operator, and IR, an amusement ride contractor, embarked on discussions of a new roller coaster — the Frequent Faller Ride — at Hershey's amusement park, Hersheypark. (Doc. 32 ¶ 1; Doc. 32, Attach. 1.) Hershey was interested in the installation of a 150-foot Frequent Faller Ride ("Ride"), ready for operation by May 2005. Negotiations ensued and, in February 2004, Hershey requested from IR a timetable to ensure that the Ride would be operational by May 2005. (Doc. 32, Attach. 2.) IR initially advised Hershey that it required a finalized order for the Ride by April 1, 2004 in order to meet the May 2005 deadline (Doc. 32, Attach. 3), but subsequently agreed to extend the April 1, 2004 due date and communicated to Hershey a willingness to work within Hershey's schedule. (Doc. 32, Attachs. 4-5.)

  In March 2004, IR presented Hershey with a detailed proposal for the Ride, which included a total purchase price of $1,995,000. (Doc. 32 ¶ 6; Doc. 2, Ex. 1.) In response to Hershey's inquiries, IR advised Hershey that it would provide a ladder with the Ride for maintenance and evacuation. (Doc. 32, Attach. 7.) In the alternative, IR offered to provide a man-lift at an additional cost. (Doc. 32, Attach. 7.)

  On March 22, 2004, IR advised Hershey that it anticipated significant increases in the price of steel. (Doc. 2, Ex. 2.) Specifically, IR advised that "the price is expected to triple by late spring" and that "if [IR] can get a commitment from [Hershey] before May [2004, IR] can lock in steel pricing before it triples in cost to [IR]." (Doc. 2, Ex. 2.) And IR confirmed that any increase in the cost of steel would not affect its prior proposal for the Ride: We have not increased the price of the 150 foot coaster as we have given you a formal quotation and proposal on this ride, and we will stand by that price. We also will not request additional money for the ride or a change order to the project, due to increased steel costs. We will hold firm with our price and provide you the complete ride within the time frame we commit to in our final agreement.

 (Doc. 2, Ex. 2.)

  On April 23, 2004, Hershey and IR executed a written contract — Equipment Purchase Agreement ("Agreement") — by terms of which Hershey agreed to purchase the Ride for $1,995,000 . (Doc. 2, Ex. 3.) The contract set forth the following payment schedule:
10% ($199,500) Down payment May 17, 2004 Payment to kick off engineering phase and start ride process
10% ($199,500) Production payment August 1, 2004 Payment to be made upon completion of preliminary design
20% ($399,000) Production payment October 1, 2004 Payment to be made after final design is finished and for fabrication progress payment
30% ($598,500) "Local Operation Payment January 1, 2005 Payment to be made upon successful demonstration of the ride operation in Logan, UT.
20% ($399,000) Operation Payment May 1, 2005 Payment to be made after successful operation demonstration at Hersheypark.
  10% ($199,500) Operation Payment June 1, 2005 Payment to be made after 30 days of operation. (Doc. 2, Ex. 3 at 1 ¶ 1.) The contract provided that IR would not be responsible for any delays to the project schedule caused by Hershey, including any modifications to the Ride requested by Hershey. (Doc. 2, Ex. 3 at 2.)

  Under the contract, IR agreed to demonstrate the successful operation of the Ride in Hersheypark by May 1, 2005. (Doc. 32 ¶ 12; Doc. 2, Ex. 3 at 1 ¶ 1.) IR also agreed that the Ride would have seven vehicles, each with four seats. (Doc. 2, Ex. 3 at 2 ¶ 5.) And, regarding the emergency evacuation for the Ride, the Agreement provided that "IR will provide spiral stairs up to the top of the ride near the lift and catwalks to all block points to be used for evacuation." (Doc. 2, Ex. 3 at 4.)

  On May 14, 2004, Hershey and IR executed a written addendum ("Addendum") to the Agreement (Doc. 2, Ex. 4), containing a choice of law provision deferring to Pennsylvania law (Doc. 2, Ex. 4 § 15.1). The Addendum established the procedure for any material alterations to the Ride, including the requirement that a change order identify any applicable adjustments to the purchase price or delivery date. (Doc. 2, Ex. 4 §§ 3.1-3.2.) Further, it reiterated Hershey's reliance on the May 1, 2005 deadline for a fully operational Ride:
7.2 By executing this Addendum, [IR] acknowledges that [Hershey] intends to advertise the Ride as a major new attraction for the 2005 Park season, which Ride is to be fully operational for Opening Day of the Park's 2005 season, and [IR] further acknowledges that time is of the essence for performance of its obligations under the Agreement. [IR] shall complete the delivery of all of the Equipment on, or before, March 28, 2005, and shall provide the Equipment and services required by this Agreement on or before the dates prescribed by this Agreement. . . . (Doc. 2, Ex. 4 § 7.2.)*fn2
  The Addendum also contained several provisions regarding remedies and damages, (see Doc. 2, Ex. 4 §§ 7.1, 9.1, 16.9), including the following provision:
 
7.1 The failure of [IR] to perform any of its material obligations under this Addendum or the Agreement and/or to comply with the material covenants, conditions and provisions thereof, shall constitute a default by [IR]. In the event of such default, [Hershey] may give written notice thereof to [IR], identifying the default and directing [IR] to cure the default within fifteen (15) days or, if the default cannot practically be cured within that amount of time, then within a reasonable time. If [IR] fails to so cure said default, [Hershey] may commence an action for damages.
(Doc. 2, Ex. 4 ¶ 7.1.) The Addendum also provided for liquidated damages in the event that IR failed to meet the delivery date by seven days or more.*fn3 (Doc. 2, Ex. 4 § 7.2.) However, the Addendum did not change the purchase price, time and manner of payment, or shipping dates. (Doc. 2, Ex. 4 § 2.1.)

  Pursuant to the Agreement, Hershey paid IR the deposit of $199,500 in May 2004 and the first production payment of $199,500 in September 2004.*fn4 (Doc. 32 ¶ 20.) However, Hershey never made the second production payment of $399,000.*fn5 IR contends that, except for incorporating the man-lift which Hershey requested post-contract,*fn6 the design drawings were completed by October 1, 2004, obligating Hershey to remit the second production payment.*fn7 (Doc. 38, Ex. A ¶¶ 10-11, 13; Doc. 38, Ex. C.) According to IR's president, Edward Clay Slade ("Slade"), IR's engineers could not incorporate the man-lift into the designs because Hershey did not provide IR with the man-lift or technical drawings of the man-lift. (Doc. 38, Ex. A ¶ 13.) The record reflects that Hershey submitted a change order regarding the man-lift on November 9, 2004, in which it agreed to a $67,500 increase in the price of the Ride. (Doc. 38, Ex. C.)

  In early November 2004, IR received significantly higher price quotes from its steel vendors. (Doc. 38, Ex. A ¶ 14.) IR notified Hershey of these increases and, at Hershey's request, prepared a letter ("Proposal Letter #1") with proposals for resolving the cost overrun issue. (Doc. 2, Ex. 5; Doc. 38, Ex. A ¶¶ 15-16, 18.)

  One of the suggested resolutions was to increase the total cost of the project to $3,429,962, with IR covering $250,000 of the increase and Hershey covering the remaining $1,117,462.*fn8 (Doc. 2, Ex. 5 at 4.) A second proposal incorporated the use of international steel fabricators to reduce costs. (Doc. 2, Ex. 5 at 4.) Again, IR offered to cover $250,000 of any increase in cost and proposed that Hershey cover the rest.*fn9 In the letter summary, IR stated:
As we have said before, we are committed to the success of this coaster project. We hope you find either of these two proposals acceptable. However, for your information, we feel that [the first proposal] is the only option we have to finish this "Turbulence" coaster for next season at Hersheypark.
(Doc. 2, Ex. 5 at 4.) As for its explanation of the cost overrun issue, IR stated:
The original ride cost quotations that were used to price the ride we sold you in April, 2004 were based upon various ride component pricing proposals we received for the first time in August 2003, and re-issued for verification ...

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