Opinion
Civil No. 01-1052-HA
March 23, 2003
George L. Kirklin, O. Meredith Wilson, Jr., Timothy R. Harmon, Lane Powell Spears Lubersky LLP, Portland, Oregon, for Plaintiff.
David H. Williams, Cosgrave Vergeer Kester LLP, Portland, Oregon, Richard J. Magid, Frank J. Mastro, Whiteford, Taylor Preston LLP, Baltimore, Maryland, for Defendants.
OPINION AND ORDER
Plaintiff in this action pursuant to 49 U.S.C. § 11706(d) has alleged a claim for damages arising from interstate rail shipments. The court heard oral argument on defendants' motion for summary judgment on January 21, 2003. For the reasons stated below, the defendants' motion (doc. #33) is granted.
BACKGROUND
Plaintiff Oregon Metallurgical Corporation manufactures titanium sponge and titanium products at its manufacturing facility in Albany, Oregon. Complaint ¶ 1. Manufacturing titanium sponge requires titanium tetrachloride ("TiCl4") as a raw material, which plaintiff purchased from Millennium Inorganic Chemicals Corp. ("MIC") in Ohio. Id. ¶ 6. On July 21, 1998, plaintiff entered into a written contract ("the contract") with defendant Burlington Northern Sante Fe Railroad ("BNSF") and Consolidated Rail Corp. (Conrail) to deliver by rail TiCl4 shipments from MIC in Ceico, Ohio, to Albany, Oregon, using plaintiff's fleet of 35 tank cars. Plaintiff's Answer to Defendants' First Set of Interrogatories at No. 9. Conrail hauled plaintiff's cars from Ohio to Chicago, and BNSF transported the cars the remainder of the way to Oregon. Contract at 3.
This was not the first contractual arrangement between the parties for movement of TiCl4, but was a renewal of a pre-existing contract for the same movement. Concise Stmt. of Facts ¶ 3. By an amendment to the contract effective June 1, 1999, defendant CSX Transportation Company ("CSXT") assumed Conrail's contractual responsibility. Id. ¶ 2.
Citation to the Concise Statement of Material Facts is to both defendants' statement and plaintiff's response. Defendants' reply is unintelligible, and the court disregards it entirely.
The 35 rail cars made a continuous circuit from Ohio to Oregon and back, loading and unloading TiCl4. The parties did not expressly discuss the level of service plaintiff expected, or how quickly plaintiff expected defendants to transport its rail cars around the circuit. Concise Stmt. of Facts ¶ 4. By reference, the contract adopted common carrier liability standards of 49 U.S.C. § 11706, which simply requires railroads to make delivery with "reasonable dispatch." Contract ¶ 11. Plaintiff contends, however, that a standard for service had developed on the basis of historical performance, confirmed by the schedules CSXT developed after it assumed Conrail's responsibilities, which state a 14-day service goal for plaintiff's rail traffic between Ohio and Oregon. Concise Stmt. of Facts ¶ 4.
In May 1999, just prior to CSXT assuming Conrail's obligations under the contract, plaintiff sought to increase its production runs of titanium sponge from one run every 12 hours to one every 10 hours, in order to supply its sister corporations with titanium sponge and to meet its own titanium sponge needs. Id. ¶ 8. This action would have increased plaintiff's TiCl4 demand to 9.7 million pounds and would have required an average of 6.5 rail car deliveries per week. Id. ¶¶ 9-10. Defendants failed to meet plaintiff's service needs. Plaintiff filed a written Notice of Claim with defendants on February 16, 2000, seeking damages due to alleged delays in the transportation of TiCl4 from Ohio to Oregon. Id. ¶ 12. Plaintiff claims damages for the period of June 1, 1999, to January 31, 2000. Id. ¶ 16. Precisely how plaintiff was harmed and what damages plaintiff incurred are discussed below.
STANDARDS
A party is entitled to summary judgment as a matter of law if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c); Bahn v. NME Hosp's, Inc., 929 F.2d 1404, 1409 (9th Cir. 1991).
The moving party carries the initial burden of proof. The party meets this burden by identifying portions of the record on file which demonstrate the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986). Once the initial burden is satisfied, the burden shifts to the opponent to demonstrate through the production of probative evidence that there remains an issue of fact to be tried. Id. The facts on which the opponent relies must be admissible at trial, although they need not be presented in admissible form for the purposes of opposing the summary judgment motion. Id.
The court must view the evidence in the light most favorable to the non-moving party. Bell v. Cameron Meadows Land Co., 669 F.2d 1278, 1284 (9th Cir. 1982). All reasonable doubt as to the existence of a genuine issue of fact should be resolved against the moving party. Hector v. Wiens, 533 F.2d 429, 432 (9th Cir. 1976). The inferences drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Valadingham v. Bojorquez, 866 F.2d 1135, 1137 (9th Cir. 1989). Where different ultimate inferences may be drawn, summary judgment is inappropriate. Sankovich v. Insurance Co. Of North America, 638 F.2d 136, 140 (9th Cir. 1981). Deference to the non-moving party does have some limit. The non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e) (emphasis added).
The "mere existence of a scintilla of evidence in support of the plaintiff's position would be insufficient." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Therefore, where "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 587 (1986).
ARGUMENTS
Defendants move for summary judgment on three grounds. First, defendants argue that the contract bars plaintiff from recovering special damages absent evidence that plaintiff notified defendants at the time of contracting of any such damages that would be incurred in the event of a breach. Second, defendants contend that plaintiff has suffered no legally cognizable damages because plaintiff's corporate structure was such that plaintiff transferred its titanium sponge to its sister corporations at cost. Although defendants' alleged breach may have required plaintiff to buy titanium sponge on the open market — rather than produce it at a lower cost — defendants argue that plaintiff suffered no damages because plaintiff was fully compensated for the increased cost at the time it transferred the titanium sponge to its sister corporations.
Third, defendants argue that the notice plaintiff provided of its claim was inadequate for damages incurred during the period of January 1 to January 31, 2000. The contract requires the shipper to give the carrier notice within nine months of any possible claims. Defendants believe plaintiff failed to meet this deadline and that plaintiff's complaint, which also fails to include this period, cannot be amended because the statute of limitations has run.
DISCUSSION 1. Whether Defendants had Notice of Plaintiff's Damages A. Classification of Plaintiff's Damages
Plaintiff's statutory claim, 49 U.S.C. § 11706 ("the Carmack Amendment"), incorporates common law rules for damages. Hector Martinez Co. v. Southern Pac. Transp. Co., 606 F.2d 106, 108 (5th Cir. 1979) (citing F. J. McCarty Co. v. Southern Pac. Co., 428 F.2d 690, 693 (9th Cir. 1970)). The court relies upon the common law as enunciated in the state of Texas because the parties specified that the contract is "governed and construed in accordance with the laws of the State of Texas. . . ." Contract ¶ 1; see also T. M. Long Co., Inc. v. Jarrett, 397 A.2d 735, 737 (N.J. Dist. Ct. 1979) (stating that the Carmack Amendment does not establish a new measure of damages but requires the law of the state where the breach occurred be applied).
In an action for breach of contract, the non-breaching party is generally entitled to all actual damages necessary to place that party in the same economic position he or she would have held absent a breach. Tacon Mechanical Contractors, Inc. v. Grant Sheet Metal, Inc., 889 S.W.2d 666, 670 (Tex.App. 1994). Actual damages are either general (direct) or special (consequential):
The term `general damages' is applied to loss, damage or injury which is conclusively presumed to have been foreseen or contemplated by the party as a consequence of his breach of contract or wrongful act, whereas, `special damage' signifies injurious consequences which are not deemed as a matter of law to have been foreseen, but which are shown to have been contemplated or anticipated by the parties.
Sterling Projects, Inc. v. Fields, 530 S.W.2d 602, 605 (Tex.App. 1975); see also Arthur Andersen Co. v. Perry Equipment Corp., 945 S.W.2d 812, 816 (Tex. 1997). Special damages result "naturally, but not necessarily" from a defendant's wrongful acts. Stuart v. Bayless, 964 S.W.2d 920, 921 (Tex. 1998).
General damages are measured by the difference in value between the performance as tendered and the performance as promised under the contract. Reynolds Metals Co. v. Westinghouse Elec. Corp., 758 F.2d 1073, 1079 (5th Cir. 1985). Plaintiff does not seek to recover the difference in value between defendants' rail services and rail services that would have delivered its freight cars with reasonable dispatch. Instead, plaintiff states that its damages are "compensation for lost production." Mem. in Opposition to Motion for Summary Judgment at 5. Plaintiff "lost" production of titanium sponge because it lacked TiCl4 as a raw material. This "lost production had value in excess of the cost to produce the product," and plaintiff seeks to recover that value. Id. Instead of manufacturing the sponge it needed for its own use and to supply its sister corporations, it was forced to purchase titanium sponge on the open market.
Plaintiff's damages are properly classified as special. The court cannot say that the breach of a contract to ship TiCl4 (a raw material) with reasonable dispatch will "necessarily" result in the shipper buying titanium sponge (a finished product) on the open market. See Stuart, 964 S.W.2d at 921.
Plaintiff could have shut down its plant or attempted to purchase TiCl4 from elsewhere. These scenarios, as well as the course of action taken by plaintiff, may all be natural consequences of defendants' alleged breach, but none is the necessary consequence.
B. Defendants' Knowledge of Plaintiff's Special Damages
In order to recover its special damages, plaintiff must prove defendants had knowledge or notice of the losses that may result from breach of the contract at the time of contract formation. See Evans v. Pacific Nat. Fire Ins. Co., 367 S.W.2d 85, 87 (Tex.App. 1963).
Special damages are not recoverable for breach of contract in the absence of a showing that defendant had notice of special conditions or circumstances rendering such damages probable as a result of the breach; however, it does not seem to be the law that the giving of express notice is required. Such notice may be implied from circumstances and a course of dealing between the parties whereby defendant becomes familiar with facts which would indicate that the contract was based upon or made with reference to conditions which rendered such special damages the natural and probable result of a breach.
Dale Truck Line v. R. M. Well Servicing Drilling Co., 286 S.W.2d 446, 448 (Tex.App. 1956); see also Hector Martinez, 606 F.2d at 109 n. 6. Whether such damages were in contemplation of the parties is a question of fact and depends upon the contract itself, as well as the facts and circumstances surrounding its execution. National Bank of Cleburne v. M.M. Pittman Roller Mill, 265 S.W. 1024, 1025 (Tex. Comm'n. App. 1924).
There is adequate evidence in the record that would entitle plaintiff to present the question to a jury of whether defendants had adequate notice or knowledge at the time of contracting that failure to deliver TiCl4 with reasonable dispatch would result in plaintiff's purchasing titanium sponge on the open market. Defendants point out that in neither the contract nor in negotiations to the contract did plaintiff make defendants aware of any specific circumstances that would give rise to special damages in the event that defendants delayed delivery of plaintiff's TiCl4. Concise Stmt. of Facts ¶ 6. This may be because plaintiff experienced no problems with its rail service prior to June 1999. Michl Dep. at 102.
Plaintiff has submitted evidence, however, that defendants were aware of plaintiff's need for TiCl4. Response to Concise Stmt. of Facts ¶ 6. Clinton Watkis, who negotiated the contract on behalf of defendant BNSF, stated that he had "an overall understanding that there are huge monetary implications when you shut a customer's plant down" for lack of a material necessary to the manufacturing process. Watkis Dep. at 85. The fact that defendants are experienced in the shipment of raw materials to industries such as plaintiff's is also significant. See L. E. Whitlock Truck Service, Inc. v. Regal Drilling Co., 333 F.2d 488, 492 (10th Cir. 1964), rev'd on other grounds, 890 F.2d 1112 (10th Cir. 1989); Stroh Brewery Co. v. Grand Trunk W. R.R. Co., 513 F. Supp. 827, 831-32 (D. Mich. 1981).
2. Whether Plaintiff has Suffered Any Legally Cognizable Damages
Plaintiff did not make any substantial sales of Grade A titanium sponge to outside purchasers. Concise Stmt. of Facts ¶ 19. When plaintiff ramped up production in May 1999, it intended to use the increased amount of titanium sponge to meet its own requirements and the requirements of its sister corporations. Id. ¶ 17. Plaintiff alleges that it was damaged because defendants failed to deliver TiCl4 with reasonable dispatch, forcing plaintiff to purchase titanium sponge at a cost higher than its manufacturing costs. Even if this were true, however, defendants argue that plaintiff has suffered no damages because whenever plaintiff transferred titanium sponge to its sister corporations, its sister corporations paid all of the costs of production (or acquisition) of the titanium sponge.
A. The Titanium Sponge Transferred to Plaintiff's Sister Corporations
Plaintiff argues that its sister corporations' reimbursement of all of plaintiff's costs is irrelevant, citing cases rejecting a "pass-through" defense where plaintiffs passed on damages suffered to their customers. See e.g., Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968); Minnesota v. Philip Morris, Inc., 551 N.W.2d 490 (Minn. 1996); Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2001). In these cases, the effect a pass-through defense would have on the enforcement of public policy statutes, see e.g., Hanover Shoe, 392 U.S. at 494, or the burden a pass through defense would place on trial courts, see e.g., Hughes, 271 F.3d at 1072, were determinative. When these factors are absent, as they are in this case, the validity of the pass-through defense is recognized. Hanover Shoe, 392 U.S. at 494 ("We recognize that there might be situations — for instance, when an overcharged buyer has a pre-existing `cost-plus' contract, thus making it easy to prove that he has not been damaged — where the considerations requiring that the passing-on defense not be permitted in this case would not be present.") With regard to the titanium sponge plaintiff transferred to its sister corporations, plaintiff has suffered no damages, or looking at it another way, any damages it may have suffered were passed on to its sister corporations. Within the corporate structure, plaintiff's sister corporations were obligated to reimburse plaintiff all of plaintiff's costs of acquiring or producing titanium sponge. See Concise Stmt. of Facts ¶ 18 (plaintiff admitting this fact). Plaintiff asserts that "its lost production of more than 700,000 lbs. of titanium sponge had value in excess of the incremental cost to produce it." Memorandum in Opposition at 12. It did not, however, have any value to plaintiff. Plaintiff could have manufactured the sponge for less than it was forced to buy it, but that makes no difference to plaintiff. Plaintiff cites no authority for the proposition that the lost opportunity to manufacture titanium sponge is a harm in and of itself, absent some damaging consequence to plaintiff of that lost opportunity.
Plaintiff was fully compensated for the increased costs of acquisition of titanium sponge. Awarding plaintiff damages would be a windfall. The sister corporations or its parent corporation — not plaintiff — were harmed by defendants' alleged failure to deliver the TiCl4 with reasonable dispatch. See Hanover Shoe, 392 U.S. at 494 (implicitly recognizing that when an intermediary has "cost-plus" contracts with its buyers, it suffers no damages from its supplier's inflated prices).
Plaintiff does state that plaintiff functioned in its corporate family as a production department for titanium sponge, and "its performance was measured by the quality of its production, the timeliness of its production and the cost of its production." Scheel Affidavit at 2. This implies that plaintiff was harmed in some way within its corporate structure for being forced to purchase titanium sponge. At the summary judgment stage, a mere allegation in an affidavit is insufficient to meet plaintiff's burden of coming forth with specific facts showing how it was damaged by defendants' alleged breach. See Celotex, 477 U.S. at 322-24.
B. Titanium Sponge Used in Plaintiff's Manufacturing Processes
Plaintiff states that "not all sponge manufactured by [plaintiff] was transferred to its sister corporations. Some was used by [plaintiff] to manufacture titanium products." Plaintiff cites to Joseph Michl's deposition and, again, to the Scheel Affidavit. Plaintiff fails to come forth with specific facts, such as the amount of titanium sponge it used internally, to prevent the granting of defendants' motion for summary judgment. See id. (once the initial burden is satisfied, the burden shifts to the opponent to demonstrate through the production of probative evidence that there remains an issue of fact to be tried). Alleging that it used "some" titanium sponge for its manufacturing processes is insufficient.
CONCLUSION
The court need not address defendants' third argument for summary judgment as plaintiff has failed to show it suffered any damages. For the foregoing reasons, defendants' motion for summary judgment (doc. #33) is GRANTED.
IT IS SO ORDERED.