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Painter Tool, Inc. v. Dunkirk Specialty Steel, LLC

United States District Court, W.D. Pennsylvania

July 13, 2017

PAINTER TOOL, INC., a Pennsylvania Corporation, Plaintiff,
v.
DUNKIRK SPECIALTY STEEL, LLC, a Delaware Limited Liability Company, and EARLE M. JORGENSEN COMPANY, a Delaware Corporation, Defendants. Re: ECF Nos. 19, 22

          OPINION

          MAUREEN P. KELLY, CHIEF UNITED STATES MAGISTRATE JUDGE

         Plaintiff Painter Tool, Inc. (“Plaintiff”) filed this civil lawsuit seeking to recover damages it alleges to have sustained from its use of steel manufactured by Defendant Dunkirk Specialty Steel, LLC (“Dunkirk”) and supplied by Defendant Earle M. Jorgensen Company (“EMJ”). Before the Court are two Motions to Dismiss: one filed by Dunkirk, ECF No. 19, and one filed by EMJ, ECF No. 22. For the reasons that follow, Dunkirk's Motion to Dismiss will be granted in part and denied in part and EMJ's Motion to Dismiss will be granted in part and denied in part.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Plaintiff originally filed its Complaint in the Court of Common Pleas of Westmoreland County. The case was removed to this Court on February 13, 2017. ECF No. 1. Dunkirk filed a Motion to Dismiss on February 18, 2017. ECF No. 4. This Court subsequently granted Plaintiff's Motion for Leave to File an Amended Complaint and denied Dunkirk's Motion to Dismiss as moot. ECF Nos. 13-14. On April 4, 2017, Plaintiff filed the operative Complaint.[1]ECF No. 17.

         In the Complaint, Plaintiff makes the following allegations. On August 8, 2013, Plaintiff was awarded a contract from the United States Navy for the construction of 400 steel valves (“the Navy contract”). Id. ¶ 6. Plaintiff was to be paid $2, 414, 000 under the Navy contract. Id. ¶ 7. The Navy contract specified that the stems for the valves had to be made to certain specifications, notably “SAE-AMS-QQ-S-763, Class 410, Condition T.” Id. ¶ 8. Plaintiff sent a purchase order to EMJ for “507 feet (min.) x .750” Dia. RD, (43 Bars 12' R/L), 410 SS, Heat Treated to Condition ‘T' per QQ-S-763B. 776 lbs” for a total price of $2, 366.80 (“the Purchase Order”). Id. ¶ 9. EMJ accepted the Purchase Order and, on September 18, 2013, EMJ shipped steel (“the Materials”) to Plaintiff, along with a Dunkirk's Material Certification (“the First Material Certification”) of the Materials. Id. ¶¶ 11-12. The First Material Certification met the specifications of both the Purchase Order and the Navy contract and in reliance thereupon, Plaintiff paid EMJ in full and began manufacturing the valves. Id. ¶¶ 14-15.

         In or about February and March of 2014, Plaintiff completed hardness testing of the finished valve stems and assembled the first 50 valves. Id. ¶ 17. On March 13, 2014, Plaintiff submitted its certifications for those 50 valves for review and approval by the Navy. Id. Plaintiff then completed the remaining valves for the Navy contract. Id.

         After receipt of the certifications for the first 50 valves, the Navy raised concerns pertaining to the steel from which the valve stems were made. Id. ¶ 18. The Navy requested that Plaintiff provide it with a revised material certification from Dunkirk. Id. Dunkirk issued “the Second Material Certification” on March 26, 2014, which was substantially identical to the First Material Certification. Id. ¶ 19.

         On April 29, 2014, Dunkirk issued “the Third Material Certification” and “the Fourth Material Certification.” Id. ¶ 20. These certifications represented that the Materials had a hardness level of 287 BHN/30 HRC, i.e., that the steel was harder than originally represented. Id. ¶ 21. In response to the change in representation of the hardness level of the Materials, the Navy requested that Plaintiff provide it with a complete history of the heat treatment performed on the Materials by Dunkirk. Id. ¶ 22. On November 10, 2014, Dunkirk issued “the Fifth Material Certification” in which Dunkirk represented that the Materials had been heat treated to Condition H rather that to Condition T as requested in the Purchase Order. Id. ¶ 24.

         The Navy conducted an audit of Plaintiff and its facility in December of 2014. On December 19, 2014, in response to the audit, Plaintiff sent two samples of the finished stems, manufactured with the Materials, to Westmoreland Mechanical Testing & Research, Inc. (“WMT&R”) for an independent hardness examination. Id. ¶ 26. WMT&R issued its report that same day, finding unacceptable hardness levels for the specifications of the Purchase Order. Id. ¶ 27.

         On January 6, 2015, the Navy issued a report as to its audit, finding that Dunkirk failed to provide steel that met the specifications of the Navy contract and the Purchase Order because the Materials had been heat treated to achieve Class 410, Condition H, not Class 410, Condition T. Id. ¶ 29. The report further concluded that the failure to meet these specifications had a direct impact on the ultimate product. Id.

         Due to the improper hardness level of the steel, the Navy rejected the stems/valves produced by Plaintiff on multiple occasions. Id. ¶ 31. Plaintiff incurred significant additional expenses in correcting the hardness level of the steel. Id. ¶ 32. In replacing the valves so that the Navy would accept them, Plaintiff incurred costs of over $275, 000. Id. ¶ 33.

         Further, as a result of the audit and the defective steel, Plaintiff's business reputation and goodwill were damaged and it lost numerous Navy contracts that it would have received. Id. ¶ 34. In total, Plaintiff has suffered at least $1, 200, 000 in damages for lost profits, loss of business operations, loss of reputation and goodwill, loss of future contracts and other incidental and consequential damages. Id. ¶ 35.

         In its Complaint, Plaintiff alleges ten counts: (1) Count I against EMJ for breach of contract; (2) Count II against EMJ for breach of express warranty; (3) Count III against EMJ for breach of implied warranty of merchantability; (4) Count IV against EMJ for breach of implied warranty of fitness for a particular purpose; (5) Count V against EMJ for unjust enrichment; (6) Count VI against Dunkirk for promissory estoppel; (7) Count VII against Dunkirk for breach of express warranty; (8) Count VIII against Dunkirk for breach of implied warranty of merchantability; (9) Count IX against Dunkirk for breach of implied warranty of fitness for a particular purpose; and (10) Count X against Dunkirk for negligent misrepresentation. Id. at 7-15.

         On April 18, 2017, Dunkirk filed its instant Motion to Dismiss and Brief in Support. ECF Nos. 19-20. On May 15, 2017, Plaintiff filed its Brief in Opposition to Dunkirk's Motion to Dismiss. ECF No. 25. On May 25, 2017, Dunkirk filed a Reply Brief. ECF No 30.

         On April 25, 2017, EMJ filed its instant Motion to Dismiss and Brief in Support. ECF Nos. 22-23. On May 15, 2017, Plaintiff filed its Brief in Opposition to EMJ's Motion to Dismiss. ECF No. 26. On May 31, 2017, EMJ filed a Reply Brief. ECF No. 31.

         The Motions to Dismiss are now ripe for consideration.

         II. STANDARD OF REVIEW

         As the United States Supreme Court explained in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), a complaint may properly be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) if it does not allege “enough facts to state a claim to relief that is plausible on its face.” Id. at 570. In assessing the merits of a claim subject to a motion to dismiss, a court must accept all alleged facts as true and draw all inferences gleaned therefrom in the light most favorable to the non-moving party. Phillips v. County of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008) (citing Worldcom, Inc. v. Graphnet, Inc., 343 F.3d 651, 653 (3d Cir. 2003)). A pleading party need not establish the elements of a prima facie case at this stage; the party must only “put forth allegations that ‘raise a reasonable expectation that discovery will reveal evidence of the necessary element[s].'” Fowler v. UPMC Shadyside, 578 F.3d 203, 213 (3d Cir. 2009) (quoting Graff v. Subbiah Cardiology Associates, Ltd., 2008 WL 2312671 (W.D. Pa. June 4, 2008)).

         In its review, the Court may consider exhibits attached to the complaint, matters of public record and undisputedly authentic documents upon which the plaintiff's claims are based. Kriley v. IBM Corp., Civ. A. No. 16-1860, 2017 U.S. Dist. LEXIS 70978, at *5 (W.D. Pa. May 10, 2017)(citations omitted).

         III. DISCUSSION

         A. Motion to Dismiss filed by EMJ

         1. Count I: Breach of contract

         In Count I, Plaintiff alleges that EMJ breached its obligations under the terms of the Purchase Order by failing to ship conforming goods without any material defects. ECF No. 17 ¶ 40. Although Plaintiff's allegations under Count I do not identify the nature of the non-conformance or the specific material defect, in the preceding “Facts” section of the Complaint, and in its Brief in Opposition to EMJ's Motion to Dismiss, Plaintiff makes clear that the basis of Count I is that EMJ shipped steel bars that that been heat-treated to condition “H” and not condition “T.” ECF No. 17 at 1-7; ECF No. 26 at 9.

         EMJ asserts that it did not breach the Purchase Order in this manner because steel that is heat-treated to Condition “H” also meets the requirements of Condition “T.” ECF No. 23 at 8. At this stage of the case, the Court will not engage in fact-finding as to the meanings of steel specifications. Plaintiff's allegations of a material difference between the specification of the steel ordered and the Materials delivered are sufficient to establish a plausible claim for breach of contract.

         Accordingly, EMJ's Motion to Dismiss Count I will be denied.

         2. Count II: Breach of express warranty

         As it did in seeking to dismiss Count I, EMJ seeks to dismiss Count II on the basis that the steel EMJ sold to Plaintiff met or exceeded all of the express requirements of the Purchase Order. ECF No. 23 at 9-10. As the Court found in denying EMJ's Motion to Dismiss Count I, the Court finds that the determination as to whether the express requirements were met or exceeded by a different heat-treated condition is a question of fact not appropriate for resolution at this stage.

         Accordingly, EMJ's Motion to Dismiss Count II will be denied.

         3. Count III: Breach of implied warranty of merchantability

         In Count III, Plaintiff alleges that EMJ breached its implied warranty of merchantability in that the Materials “did not pass without objection in the trade under the description in the Purchase Order.” ECF No. 17 ¶ 51.

As the United States Court of Appeals for the Third Circuit recently explained:
Under Pennsylvania law, “a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.” 13 Pa. Cons. Stat. Ann. § 2314(a). The Pennsylvania Supreme Court has explained that [t]he concept of "merchantability" does not require that the goods be the best quality, or the best obtainable, but it does require that they have an inherent soundness which makes them suitable for the purpose for which they are designed, that they be free from significant defects, that they perform in the way that goods of ...

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