Opinion
CIVIL ACTION NO. 01-3942
February 25, 2004
MEMORANDUM
I. FINDINGS OF FACT
1. Plaintiff Flow International Corporation ("Flow International") is a corporation that, among other things, manufactures water-jet cutting machines. (N.T. Kent Eubank at 84, 11/19/03).
2. Defendant, Hydrojet Services, Inc. ("Hydrojet"), located at 141 South Seventh Street, Reading, Berks County, Pennsylvania, is a water jet job shop which performs milling and manufacturing of parts for customers. Hydrojet has been in business since 1988. (N.T. Michael Rado at 6-7)
3. Eleanor M. Rado is President of Hydrojet, Michael Rado is Vice President of Hydrojet, and Nelson H. Long, CPA is Secretary/Treasurer of Hydrojet. (N.T. Eleanor Rado at 22).
4. Hydrojet is in the business of precision cutting through the use of high pressure water jet technology. Hydrojet specializes in machining composite, aluminum, and metal parts for a variety of interests, including the aerospace industry. Hydrojet also manufactures parts for various military aircraft, such as the V-22 Osprey ("V-22"), the CH-47 Chinook, and the Blackhawk Helicopter. (N.T. Eleanor Rado at 23).
5. Boeing Helicopter, now known as Boeing Rotorcraft (hereinafter referred to as "Boeing"), located in Ridley Park, Pennsylvania, has been a customer of Hydrojet since approximately 1990. (N.T. Eleanor Rado at 34).
6. Hydrojet has done work on almost every aircraft manufactured at Boeing's Ridley Park facility since 1990. This work has included both complete manufacture of parts at Hydrojet's facility, and offload work, which means that Hydrojet would take parts from Boeing's facility, perform "one or two or three operations" and then send the parts back to Boeing's facility and Boeing would complete and finish the parts. (N.T. Eleanor Rado at 34).
7. Michael Rado testified at trial that there were several different types of "offload" with which Hydrojet had done business with Boeing. These were:
a) Emergent offload, where Boeing would ship the materials to Hydrojet with a manufacturing plan. Hydrojet would manufacture the part and send it back with an invoice for the cost of the part;
b) Regular offload, which would occur after a price was established for the part; and,
c) Permanent offload, which is a combined approach where emergent offload establishes the price, and then a contract is put together after the fact.
(N.T. Michael Rado at 30).
8. The three different types of offload have different types of associated paperwork/documentation. (N.T. Michael Rado at 31).
9. Since June of 1998, Hydrojet was performing work for Boeing on its V-22 Osprey aircraft project (hereinafter referred to as the "V-22"). Hydrojet, at that time, was making clips, angles, and brackets for the V-22. (N.T. Michael Rado at 28; and Eleanor Rado at 113).
10. Prior to Hydrojet's having a long-term commitment from Boeing for the V-22 clips, angles, and brackets, Hydrojet was performing this work in "off-load." Hydrojet had initially manufactured the parts on offload, and then received a five year contract for the work. This work has continued, and in spite of problems in the V-22 program, has never been disrupted in any way. (N.T. Eleanor Rado at 113-115).
11. Kenneth P. Blair ("Blair"), was Senior Manager of the Boeing Composites Center of Excellence ("CCOE") in 1999. In 1999, according to Blair, discussions began between Hydrojet and Boeing regarding composite trim work and composite panel manufacturing work for the V-22. (N.T., Deposition of Kenneth Blair, P. 13, Lines 3-11, excerpts read into record, N.T., 11/19/03, Page 12, Exhibits 50 and 50A).
12. Eleanor Rado testified that she and Michael Rado were "called down to a meeting at Boeing Philadelphia" regarding an offload operation from Boeing's facility to Hydrojet, as Boeing had done with other aircraft. (N.T. Eleanor Rado at 33-34; N.T. Michael Rado at 16-17).
13. At this meeting, which took place in early November of 1999, Boeing announced their intent to CCOE, which was where Boeing manufactured composite lay-ups and sent them out for trim, to offload the work to Hydrojet. (N.T. Eleanor Rado at 35).
14. According to Blair, after the merger of Boeing and McDonnell-Douglas, capital expenditures, such as for new, expensive, machinery, had been curtailed. The V-22 work could not, accordingly be done in-house at the Philadelphia facility, and the only other Boeing facility which could handle the work was in Seattle, Washington, which would have been prohibitively expensive. Accordingly, it would be more cost-effective to perform the work on an offload basis. (N.T., Deposition of Kenneth Blair, P. 13, Line 22 to P. 14, Line 12, excerpts read into record, N.T., 11/19/03, Page 12, Exhibits 50 and 50A; N.T., Eleanor Rado, P. 123-124).
15. Boeing, through Blair, contacted Michael and Eleanor Rado at Hydrojet, to ascertain Hydrojet's interest in the offload work, asking if Hydrojet was interested in "expanding your facility and doing some more additional work." The Rados, according to Blair, indicated that they were "very willing to do that." (N.T., Deposition of Kenneth Blair, P. 14, Lines 9-14, excerpts read into record, N.T., 11/19/03, Page 12, Exhibits 50 and 50A).
16. Subsequently, Blair met with the Rados to go over load projections and capacity issues. (N.T., Deposition of Kenneth Blair, P. 15, Lines 4-13, excerpts read into record, N.T., 11/19/03, Page 12, Exhibits 50 and 50A).
17. A meeting followed at Boeing between the Rados, Blair, George Dombalagian (Industrial Engineering Manager), the Material Manager for the facility, and the Manufacturing Technology Manager for the facility. At that meeting, Dombalagian presented the capacity and load analysis that he had performed for the Rados and asked if they were interested in the work. (N.T., Deposition of Kenneth Blair, P. 16, Lines 8-12, excerpts read into record, N.T., 11/19/03, Page 12, Exhibits 50 and 50A).
18. After the meeting, Hydrojet indicated that it wished to perform the work, but would need to purchase certain new equipment to perform the work. (N.T., Deposition of Kenneth Blair, P. 19, Lines 14-25, excerpts read into record, N.T., 11/19/03, Page 12, Exhibits 50 and 50A).
19. Michael Rado advised officials at Boeing that it wanted the work, but was not ready because Hydrojet would need a 8' x 12' router. (N.T. Michael Rado at 19-20).
20. Blair, who in addition to being the Senior Manager at Boeing CCOE was also the composite team leader during the time period in 1999 when the subject discussions with Hydrojet were taking place, testified that the corporate decision was made in 1999 that "Hydrojet would perform the trim function for our excess capacity" and that that was then communicated to Hydrojet. (N.T., Deposition of Kenneth Blair, P. 21, Line 8, and P. 24, Lines 9-16, excerpts read into record, N.T., 11/19/03, Page 12, Exhibits 50 and 50A).
21. Boeing advised Hydrojet that it (Hydrojet) should procure a router as fast as they could so that Hydrojet could start machining parts for Boeing. (N.T. Eleanor Rado at 36).
22. In November of 1999, after the subject discussions with Boeing, Hydrojet determined that in order to do the V-22 panel work, Hydrojet would have to acquire a high speed router. (N.T. Eleanor Rado at 33).
23. By letter dated December 16, 1999, which was marked as Defendant's Exhibit 4, Blair provided to Hydrojet a list of part numbers of components that Hydrojet would be given on offload to machine on a monthly basis for Boeing. (N.T. Eleanor Rado at 37-39, 51).
24. This letter stated, in relevant part:
The attached list of V-22 parts are now fabricated and trimmed in the CCOE (Composite Center of Excellence) at Boeing-Philadelphia. We would like to Off-load the trimming operations of these parts to your facility similar to our current contract your company that trims 757, 767 and 777 flat panels. Please provide a timetable with potential start dates and part turn-around times. In addition, identify your equipment capabilities, capacity concerns and the data required from Boeing for startup.
(Exhibit 4, N.T., Eleanor Rado).
25. The list included with Defendant's Exhibit 4 was termed by Boeing an "OVO" (Offload Vendor Operation). Under an OVO, Hydrojet would pick up the composite lay-up, bring it to its shop, trim and drill the part pursuant to an attached manufacturing plan, and take the part back to Boeing. In order to trim the part, an operator would place the part on the router bed, and pin the tool holes, and the router would cut on the required axes. (N.T. Eleanor Rado at 48-50).
26. According to Blair, the decision had been made by the date of the letter to give the work to Hydrojet, as Hydrojet was willing and qualified to perform the work. (N.T., Deposition of Kenneth Blair, P. 31, Line 13, to P. 32, Line 13, excerpts read into record, N.T., 11/19/03, Page 12, Exhibits 50 and 50A).
27. Blair left the part of the Boeing operation that dealt with the V-22 in January of 2000 (Dep. at 47) and retired a couple of months thereafter. (Dep. at 9).
28. Blair does not know what happened to the Boeing-Hydrojet relationship after he left. (Dep. at 49).
29. If Hydrojet did not get the off-load work related to the V-22, Blair would have absolutely no idea why. (Dep. at 49).
30. Hydrojet never received a purchase order from Boeing for off-loading of V-22 Osprey panels. (N.T. Michael Rado at 163-64).
31. Boeing never issued a purchase order to Hydrojet for the V-22 Osprey work above. (N.T. Eleanor Rado at 120).
32. Flow is a seller of high pressure water jet equipment, including routers. (N.T. Kent Eubank, Operations Manager for Flow International, Jeffersonville, IN at 15).
33. In 1999, Hydrojet decided to purchase a high-speed, five-axis router (the "router") from the Flow Robotics division of Flow International. (N.T. Eleanor Rado at 35-36).
34. Eleanor Rado dealt with Dick LeBlanc, Vice President of Sales for Flow) ("LeBlanc"); Phil Dommel, Territory Sales Representative for Flow ("Dommel"); and Mark Saberton, Chief Engineer at Flow Robotics ("Saberton"), regarding acquisition of a high speed router by Hydrojet. (N.T. Eleanor Rado at 39-41).
35. LeBlanc, Dommel, and Saberton made a visit to Hydrojet's facility in November or December of 1999. (N.T. Eleanor Rado at 41-42).
36. Eleanor Rado and others at Hydrojet explained to LeBlanc, Dommel, and Saberton that Hydrojet had a deadline to procure a router, and to have it installed and functional for the purpose of machining approximately seventy (70) part numbers for the V-22 for Boeing CCOE. (N.T. Eleanor Rado at 41).
37. Eleanor Rado told Dommel, LeBlanc, and Saberton that Boeing wanted Hydrojet "up and running" for the V-22 work by May of 2000. (N.T. Eleanor Rado at 44).
38. Kent Eubank, Operations Manager for Flow (Jeffersonville, IN) ("Eubank") was aware that the router was being purchased by Hydrojet for the purpose of trimming component parts for aircraft made by Boeing Helicopter. (N.T. Kent Eubank at 20-21).
39. Hydrojet and Flow Robotics exchanged documents describing the proposed specifications for the router and indicating that the price of the router would be $600,300.00. (N.T. Eleanor Rado at 52-54).
40. Hydrojet decided to seek financing for its purchase of the router from a financial services company known as Flow Financial Services ("Flow Financial"). (N.T. Eleanor Rado at 53-54).
41. Flow Financial is entirely independent from Flow International or Flow Robotics and simply uses the Flow name under a license to do so. (N.T. Darryl Schoen at 134, 11/17/03).
42. Although Hydrojet and Flow Robotics exchanged documents relating to the router's specifications in November and January 2000, Hydrojet did not provide sufficient information to Flow Financial to allow Flow Financial to approve Hydrojet's request for credit until February 2000. (N.T. Darryl Schoen at 141-42).
43. In January 2000, Flow Robotics sent to Hydrojet a gant chart that indicated that installation of the router would not be completed until at least July 2001. (N.T. Michael Rado at 159-161; DX 9)
44. Hydrojet and Flow Financial entered into a Lease dated February 11, 2000 (the "Lease"). (N.T. Eleanor Rado at 54; N.T. Darryl Schoen at 139; PX 6).
45. The Lease called for Hydrojet to make 60 consecutive payments of $12,736.63 to Flow Financial beginning with Hydrojet's acceptance of the router, with the first and last payments due at the time of signing, which payments defendants made at the signing of the Lease. (PX 6).
46. The Lease provided that, in the event Hydrojet did not make a required payment under the Lease, Hydrojet would be required to pay a five per cent administrative fee for that payment, contract interest at the rate of 18 per cent a year, and reasonable attorneys' fees and costs incurred by Flow Financial in seeking its contract remedies. (PX 6).
47. The Lease did not include a delivery date for the router, and it did not indicate that time was of the essence. (N.T. Eleanor Rado at 183; PX 6).
48. As previously stated, after signing the Lease, Hydrojet sent Flow Financial a check representing the first and last payments required by the Lease. (N.T. Eleanor Rado at 181).
49. Hydrojet made no further payments required under the Lease. (N.T. Eleanor Rado at 181).
50. On February 29, 2000, after receiving from Hydrojet the signed Lease, Flow Financial sent a purchase order to Flow Robotics (Flow International) to buy the router. (N.T. Darryl Schoen at 143-144; PX 7).
51. The February 29, 2000, Flow Financial purchase order did not indicate any date by which the router should be delivered, and it did not indicate that time was of the essence. (N.T. Eleanor Rado at 183; N.T. Darryl Schoen at 144; N.T. Kent Eubank at 86; PX 7).
52. Flow Financial and Flow Robotics (Flow International) did not agree on a date by which the router would have to be delivered and operational. (N.T. Kent Eubank at 86-87; PX 7).
53. Flow Robotics waited to begin construction of the router, a custom piece of equipment valued at more than $600,000 until it received assurances that Hydrojet had obtained financing. (N.T. Kent Eubank at 85). The court finds that this was reasonable since the equipment defendant ordered may not have had an application anywhere else.
54. While Flow Robotics attempted to deliver and install the router by an earlier date, it was hampered by software problems in the router's controller, a controller designed and manufactured by a third-party, Siemens Automation. (N.T. Kent Eubank at 88). Also long lead items were not purchased on time and a person working in the router was no longer at Flow. (N.T. Michael Rado at 41).
55. Saberton prepared a concept for the router, based upon representations by Michael Rado that the machine would be drilling and routing composite aircraft parts for the V-22 for Boeing. (N.T. Mark Saberton, P. 32, Lines 23-24; P. 34, Lines 7-9; excerpts read into record, N.T. 11/19/03, Page 13, Exhibits 45 and 45A).
56. When Flow International intends to be bound to a particular delivery date, it negotiates a time-of-the-essence clause. (N.T. Kent Eubank at 87).
57. The router was delivered to defendant on September 9, 2000. (DX 12 at E. Rado p. 88).
58. On April 8, 2000, a V-22 Osprey crashed during testing and 19 Marines died. (N.T. Michael Rado at 173).
59. The router was operational at defendant's place of business by the end of November, 2000. (N.T. Eleanor Rado at 176, 177). But there were still problems with it. (N.T. Eleanor Rado at 177).
60. After the router was installed and operational, Boeing continued to confer with Hydrojet about the possibility of Hydrojet's performing V-22 Osprey off-load work. (N.T. Eleanor Rado at 179; PX 37).
61. On December 11, 2000, another V-22 Osprey crashed during testing and four Marines died. (N.T. Michael Rado at 173).
62. In 2001, in response to the two crashes and other problems, a panel appointed by the Department of Defense recommended production of the V-22 Osprey be decreased to minimum sustainable levels. (PX 22).
63. After the December 2000 V-22 Osprey crash, Boeing did in fact decrease production of the Osprey. (N.T. Michael Rado at 174).
64. Sometime in 2000 or 2001, Boeing decided not to off-load the V-22 Osprey panel work to Hydrojet. (Undisputed).
65. There is no evidence that Boeing made its determination because of any delay in installation of the router.
66. On August 2, 2001, Flow Financial assigned its rights under the Lease to Flow International. (May 19, 2003, Opinion).
67. On August 3, 2001, Flow International filed suit against Hydrojet in this Court, seeking damages and a writ of seizure to retain the router. (Docket).
68. At the conclusion of a hearing on October 30, 2001, the Court granted Flow International's motion for a writ of seizure. (Docket).
69. Pursuant to the Court's instruction, Flow International obtained a bond to secure the seizure order. (Stipulation of Counsel dated November 14, 2003 ("Stipulation")).
70. In early 2002, Hydrojet obtained alternate financing for the router. (N.T. Eleanor Rado at 53).
71. Flow International agreed to accept direct payment for the router. (N.T. Eleanor Rado at 53).
72. In February 2002, Hydrojet sought to have Flow Robotics perform some repair work on the router. (N.T. Michael Rado at 168-70).
73. Flow Robotics provided a quotation to Hydrojet dated February 15, 2002, whereby Flow Robotics indicated that the cost for the repair work would be $72,000. (N.T. Michael Rado at 169; PX 29).
74. Hydrojet paid the $72,000 described in the February 15, 2002, invoice. (Undisputed).
75. The router which plaintiff was to provide was described as a "Flow High Speed Axis router, equipped with a mid-rail gantry, AC servomotor, linear scales, Trabon automatic lubrication, linear way systems, 23,000 RPM spindle, a Siemens Sinumerik 840D controller with a 32-bit microprocessor, and all other standard parts and accessories. (See signed Equipment Lease, DX 5).
76. The router was delivered with a 20,000 RPM spindle. (Undisputed).
77. Defendant has failed to produce evidence from which a lay fact finder inexperienced in machines of the nature of the router could determine whether the repair work set forth in Finding #72 was as a result of any defect in the router at the time it left plaintiffs control.
78. Moreover, no evidence was presented as to the difference in value between the router with the 20,000 RPM spindle and one with a 23,000 RPM spindle.
79. Unfortunately for defendant, the evidence in this case does not prove by a preponderance of the evidence any special circumstances to support damages arising from the router having a 20,000 RPM rather than a 23,000 RPM.
80. Even if the court did not make finding 65 but found plaintiff's delay resulted in the loss of V-22 composite trim work, the evidence offered by defendant to support its lost profits counterclaim is based on nothing more than the speculation of a witness who is obviously biased in favor of defendant and whose testimony is not credible.
II. CONCLUSIONS OF LAW
Defendant breached the Lease by failing to make payments when due. Defendant never rejected the router and thus it is deemed after a reasonable time to have accepted it. In this case, that date of acceptance is November 30, 2000. [At the end of November, Finding of Fact # 59, the router was operational].
The court will direct plaintiff to recalculate the amount it alleges is due based on the above date of acceptance: November 30, 2000, as well as prejudgment interest properly due on the attorney's fees, air travel and bond premium, the principal amounts of which the parties have agreed to by stipulation, if defendant were liable under the Lease, which it is.
In addition, while the issue of third party beneficiary is a close one, it need not be resolved for purposes of defendant's counterclaim for lost profits, which fails for various reasons. Time was not of the essence in any case in the contract between plaintiff and Flow Financial. It was delivered and installed within a reasonable time which was plaintiffs only obligation in that regard.
Secondly, Hydrojet failed to support its allegation that but for the delay, Boeing would have given it the off-load work on the V-22 Osprey program. Noticeably lacking from defendant's argument in this regard was anyone from Boeing other than Kenneth Blair whose testimony is too remote in time to reasonably lead to the inference that Boeing was going to award it the V-22 work particularly in light of other facts that developed after Blair left Boeing.
Thirdly, I essentially agree with plaintiff's argument with respect to defendant's witness on lost profits, which form the basis for Finding of Fact #80.
The only matter that has concerned the court as evidenced in the Notes of Testimony is that defendant did not get exactly what it bargained for in the spindle department. But simply stated, there is no evidence from which I can find that defendant has satisfied its burden of proof on its counterclaim that it is more likely than not that it suffered damages as a result of getting a 20,000 RPM spindle instead of a 23,000 RPM one. In fact, it is just as likely from the evidence or lack thereof that the spindle had to be replaced for reasons unrelated to RPM's or plaintiff's conduct. Thus, defendant ordered and paid for a new one.
An order follows.
ORDER
AND NOW, this 25th day of February, 2004, it is hereby ORDERED that judgment is entered in favor of plaintiff Flow International Corporation. In accordance with this memorandum, plaintiff will submit to the court within five (5) days its calculation of the amount due with interest calculated to March 10, 2004. Defendant will have five (5) days to respond to plaintiffs calculations.
Judgment is also awarded in favor of plaintiff on defendant's counterclaim.