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Rock Creek Lumber Co., Inc. v. Valley Machine Works

July 21, 2010

ROCK CREEK LUMBER CO., INC., PLAINTIFF/COUNTERCLAIM DEFENDANT
v.
VALLEY MACHINE WORKS, LTD.; PHOENIX MANUFACTURING SERVICES, INC.; CONCEPT SYSTEMS, INC.; AND USNR CORP., DEFENDANTS/COUNTERCLAIM PLAINTIFFS
v.
GREG HATCHARD, THIRD-PARTY DEFENDANT



The opinion of the court was delivered by: Judge Sylvia H. Rambo

MEMORANDUM

Plaintiff Rock Creek Lumber Company, Inc. ("Rock Creek") brought this negligence and breach of contract action arising out of its purchase of a custom-built automated sawmill system called the Rock Creek Optimizer Linear Edger ("Linear Edger"), which was to be used to scan and edge hardwood lumber. The Linear Edger was purchased from Defendant Valley Machine Works, Ltd. ("Valley Machine"). Currently before the court are separate motions for summary judgment, (Docs. 78, 83), filed by Defendants Concept Systems, Inc., ("Concept"), and USNR Corp., ("USNR"), two companies that entered into subcontracts with Valley Machine to perform work on the Linear Edger. The motions have been fully briefed and are ripe for disposition. For the reasons that follow, the court will grant in part and deny in part Concept's and USNR's motions.

I. Background

A. Facts*fn1

Rock Creek is a sawmill that is owed and operated by Donald Twining with a principal place of business in Thompson, Pennsylvania. On October 2, 2006, Rock Creek entered into a written contract with Valley Machine for the purchase of the Linear Edger. (Doc. 78-2, Linear Edger Contract.) This contract was negotiated through Defendant Phoenix Manufacturing Services, Inc., ("Phoenix"), although the record is not clear as to the precise role that Phoenix played in the negotiations or the subsequent trouble-shooting.

The contract included the sale of mechanical components, a programmable logic controller ("PLC"), a human machine interface ("HMI"), a linear scanner, a computer optimization system, and startup and installation support by a mechanical technician and PLC programmer. (Id.) The contract specifically called for an output of edged lumber at a rate of twenty four pieces per minute based on an average piece length of eleven inches. (Id.) The total cost of the system was $640,000. (Id.) Separately, the contract called for an additional payment of $28,000 for on-site start-up and technical help. (Id.)

Valley Machine designed, manufactured and supplied all of the mechanical components for the Linear Edger, including the lug chain, conveyors, saw box and motor for the saw box.*fn2 (Def. USNR's Statement of Material Facts ("USNR's SMF") ¶ 4, Doc. 85.) However, the more specialized components of the Liner Edger were subcontracted. Specifically, Valley Machine subcontracted with USNR to provide the linear scanner and computer optimization equipment. (Id. ¶ 5.) Valley Machine subcontracted with Third-Party Defendant Greg Hatchard to provide the PLC hardware design and other hardware for the System. (Id. ¶ 6.) Finally, Valley Machine contracted with Concept to provide the software for the PLC and HMI systems, as well as the startup and training for the operation of the Linear Edger. (Def. Concept's Statement of Material Facts ("Concept's SMF") ¶ 9, Doc. 80.) This start-up subcontract was to be paid by Valley Machine to Concept from the $28,000 contracted for between Valley Machine and Rock Creek. (Id. ¶ 10.)

Thus, for the court's purposes, the Linear Edger contained three separate systems all of which were intended to work together: the mechanical system, which was designed and manufactured by Valley Machine; the optimization system, which was designed and supplied by USNR, and the controls or PLC system, which is the software that was written and installed by Concept. Each of these systems was designed to work together. Neither Concept nor USNR designed, selected, manufactured or supplied any of the hardware, including the PLC or HMI hardware. (USNR SMF ¶ 9; Concept SMF ¶ 17.)

When operating, the mechanical components move the wood through the machine and make the cuts. The optimization components supplied by USNR were designed to scan the piece of wood and produce a three-dimensional image. (Dep. of Derek Daudrich at 44, Doc. 86-5 at 8 of 15.) The optimizer analyzes the image to determine the most efficient cut for each piece of wood and sends the data to the PLC through an ethernet cable. (Id. at 48, Doc. 86-5 at 9 of 14.) Lastly, Concept provided the software for the PLC system. This software is the language installed onto the PLC or HMI hardware for the operation of the system, and is designed to take the information provided by the optimization equipment and instruct the mechanical components of the Liner Edger how to move, positions the saws, and directs the machine to cut the wood. (Id. at 114, Doc. 86-5 at 11 of 14; Concept SMF ¶ 18.) Developing and installing programming languages, like those developed by Concept, typically requires special course work and training. (Concept SMF ¶ 21.)

The Linear Edger was installed and began operating in June 2007. Prior to and during the initial setup phases, representatives from Concept and USNR were at the Rock Creek sawmill to setup and program their respective components. USNR's employee Derek Daudrich was present at Rock Creek from May 21, 2007 through June 10, 2007, for the purpose of installing the optimizing equipment, testing communication between the optimizer and the PLC, and training the mill operators on the use of the optimizing equipment. (Report of D. Daudrich, Doc. 84-2 at 51 of 54.) Concept also had technicians at Rock Creek during this time. (See Aff. of Edwin Diehl ¶ 8, Doc. 78-5 at 3 of 75.)

From the beginning there were problems with the Linear Edger's performance. Specifically, it was never able to effectively edge twenty-four boards per minute as called for by the contract. When the USNR and Concept representatives left the Rock Creek mill in June 2007, the Linear Edger was operating at seven to eight boards per minute, which at the time was satisfactory to Rock Creek. (Dep. of Don Twining at 159, Doc. 84-2 at 37 of 54.) At some point, later in the summer of 2007, Rock Creek wanted to speed up the line to the twenty-four boards per minute called for in the contract. Representatives from both USNR and Concept came to the Rock Creek mill to attempt to make this happen, but they were not able to do so.

At his deposition, Don Twining testified that he learned that at least part of the problem with speeding up the line was a mechanical problem as opposed to an optimization or PLC problem. (See id. at 170, Doc. 84-2 at 39 of 54.) In fact, Twining specifically testified that he was not aware of any problems associated with either the USNR optimizer or the PLC in Rock Creek's failed effort to increase the the Linear Edger's output to twenty-four boards per minute:

Q: Were you aware of any PLC control issues, software issues, as opposed to hardware issues?

A: Not that I recollect.

Q: Were you aware of any scanner issues with the USNR scanner?

A: In reference to --

Q: Speeding up the line?

A: No. I'm not.

(Id. at 178:17-25, Doc. 84-2 at 41 of 54.) The Linear Edger never performed at the output rate contemplated by the contract.

Both Concept and USNR assert that they are owed money by Rock Creek. Concept asserts that it has not been paid for any of its work at Rock Creek beyond the scope of the original subcontract with Valley Machine, and that it is owed $33,784.02. (Concept SMF ¶ 13.) USNR asserts that is has never been paid for any of its work invoiced directly to Rock Creek and that it is owed $31,344.09. (USNR SMF ¶ 7.) For its part, Rock Creek admits to having been invoiced these amounts and has not paid them, but contends that there are genuine issues of material fact concerning whether these amounts are owed because they are either duplicative of amounts that the Defendants received from Valley Machine or should not have been billed because they encompassed work that was performed in furtherance of the installation and startup of the Linear Edger. (See Pl.'s Resp. in Opp'n to Def. USNR's SMF ¶ 7, Doc. 90; Pl.'s Resp. in Opp'n to Concept's SMF ¶ 13, Doc. 86.)

B. Procedural History

Rock Creek filed its Complaint on May 16, 2008. (Doc. 1.) The Complaint asserts claims against Valley Machine for breach of contract (Count I) and breach of warranty (Count II), claims against Phoenix for negligent misrepresentation (Count III), breach of contract (Count IV) and negligence (Count V), claims against Concept for negligence (Count VI), breach of contract ...


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