N. Ala. Fabricating Co. v. Bedeschi Mid-West Conveyor Co.

NORTH ALABAMA FABRICATING COMPANY, INC., Plaintiff, v. BEDESCHI MID-WEST CONVEYOR COMPANY, LLC, et al., Defendants.

Case No. 16-2740-DDC-TJJ

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

May 14, 2018

MEMORANDUM AND ORDER

Plaintiff North Alabama Fabricating Company, Inc. brings this lawsuit, asserting breach of contract and fraud claims, against four defendants: (1) Bedeschi Mid-West Conveyor Company, LLC ("Bedeschi"); (2) Dearborn Mid-West Conveyor Company, Inc.; (3) Larry Harp; and (4) Braxton Jones. Defendant Bedeschi responded to plaintiff's Complaint by asserting a Counterclaim, alleging breach of contract and breach of warranty claims and seeking a declaratory judgment that it never breached the parties' contract.

This matter comes before the court on the parties' cross-motions for summary judgment. Defendants have filed a Joint Motion for Partial Summary Judgment (Doc. 82). Defendants' motion asks the court to grant summary judgment against two of plaintiff's three claims: (1) Count II's claim for fraud, promissory fraud, and misrepresentation; and (2) Count III's claim for fraudulent suppression.

Plaintiff also has filed a Motion for Partial Summary Judgment (Doc. 84). Plaintiff's motion asks the court to grant summary judgment against: (1) Bedeschi's counterclaims for breach of contract and breach of warranty; (2) Bedeschi's declaratory judgment claim; and (3) Bedeschi's affirmative defense asserting a setoff. Also, plaintiff asks the court to enter summary judgment in its favor on plaintiff's assertion that Bedeschi changed the "scope of work," thus entitling plaintiff to additional payment under the parties' contract.

After considering the parties' arguments, the court grants defendants' summary judgment motion in part and denies in it part. And the court denies plaintiff's summary judgment motion. The court explains why below.

I. Uncontroverted Facts

The following facts are either stipulated facts taken from the Pretrial Order (Doc. 79), or uncontroverted for purposes of the parties' summary judgment motions.

On July 9, 2014, Dearborn Mid-West Conveyor Company, Inc. ("Dearborn") entered into a contract with Essar Projects USA, LLC ("Essar"). Dearborn agreed to design, manufacture, and erect one or more "Iron Pellet" conveyor systems at iron and iron ore processing facilities owned or operated by Essar in Minnesota ("the Essar Project"). The contract provided that Dearborn could engage necessary or appropriate subcontractors to facilitate its performance under the contract, including one or more subcontractors responsible for manufacturing, fabricating, and delivering to Essar the parts, pieces, components, and materials used to construct the conveyor systems.

Dearborn then subcontracted its performance under the Essar Project contract to Bedeschi—a newly created company. Bedeschi engages in the design, integration, and installation of material handling systems including "conveyor systems." The principal consumers of conveyor systems are companies who: generate electrical power; mine, extract, refine, or process minerals, cement, pulp and paper; or transport goods and commodities by sea.Bedeschi does not manufacture conveyor systems. Instead, it engineers the desired equipment and subcontracts the manufacturing to outside steel fabricators.

Dearborn and Bedeschi entered into an asset purchase agreement. It provided that Dearborn would subcontract its obligations under its contract with Essar to Bedeschi. It also provided that Dearborn would remit to Bedeschi all amounts Essar paid Dearborn. Bedeschi never had a contract with Essar. Instead, as described, it served as Dearborn's subcontractor on the Essar Project.

Bedeschi Contracts with NAFCO

After assuming its subcontractor obligations on the Essar Project, Bedeschi entered into written contracts with plaintiff North Alabama Fabricating Company, Inc. ("NAFCO") for NAFCO to manufacture fabricated steel equipment and support structures for use in the Essar Project's construction. The Blanket Subcontract Agreement (Doc. 83-4) and Subcontract Purchase Order and accompanying Terms and Conditions (Doc. 83-5) is the contract between Bedeschi and NAFCO for the Essar Project. The court refers to these documents collectively as "the Contract". The parties entered the agreements in September 2015.

Before it signed the Contract, NAFCO never requested Bedeschi's financial statements or any other information about Bedeschi, its business, assets, organization, or affiliations. In declarations submitted on summary judgment, Larry Harp (Bedeschi's President and CEO) and Braxton Jones (a Dearborn project manager) attest that when the parties entered the Contract in September 2015, neither Mr. Harp, Mr. Jones, nor Bedeschi intended not to fulfill Bedeschi's obligations under the Contract. Also, neither Mr. Harp, Mr. Jones, nor Bedeschi knew any facts that would or could prevent Bedeschi from performing its obligations under the Contract. Mr. Harp and Mr. Jones further attest that when the parties entered the Contract, Bedeschi intendedto pay NAFCO for its performance under the Contract in the amounts and at the times the Contract required. Also, they knew no facts suggesting that Bedeschi would not or could not pay NAFCO as the Contract required. Mr. Harp and Mr. Jones attest that, when the parties inserted the schedule for NAFCO's performance under the contract, Bedeschi intended to keep, follow, and adhere to the schedule. Also, they knew no facts suggesting that Bedeschi would not keep the schedule or that it would need to disregard the schedule. And Mr. Harp and Mr. Jones attest that, when the parties entered the Contract, Bedeschi intended to engage a shipper who would provide trucks to NAFCO for loading and transporting fabricated steel to the Essar Project jobsite. Finally, Mr. Harp and Mr. Jones knew of no facts that would prevent Bedeschi from establishing a shipping method for the fabricated steel.

The Terms of the Blanket Subcontract Agreement

The parties' Blanket Subcontract Agreement ("Subcontract") provided that Bedeschi would issue one or more purchase orders to NAFCO. The purchase orders were deemed to include the terms and provisions of the Subcontract, to define the scope of NAFCO's work (including its start and completion dates), and to establish the compensation paid to NAFCO. The Subcontract required NAFCO to furnish all labor, management, supervision, engineering, materials, tools, equipment, construction utilities, supplies, samples, models, temporary structures, and facilities as well as hoisting, transportation, unloading, storage, hauling, and all other items necessary to perform the scope of work.

Article 4 of the Subcontract established the subcontract price. It provided that each purchase order issued by Bedeschi to NAFCO would specify the full and complete compensation for performing the work described in the purchase order. Article 4 also provided that Bedeschi isnot liable for any amount exceeding those amounts unless a written change order was issued under Article 17.

The Subcontract permitted Bedeschi to withhold all or part of any payment if Bedeschi deemed it necessary to enforce NAFCO's obligations or to protect Essar from loss. A withholding of payment could include a withholding resulting from NAFCO's performance of defective work under any purchase order.

The Subcontract required NAFCO to provide adequate protection, care, and maintenance for and to bear all risk of damage to, or loss of: all materials and equipment it furnished; all materials, supplies, and equipment it delivered to Bedeschi or Essar intended for incorporation or use in the performance of any work; and all work completed or in progress until the earlier of Bedeschi's written final acceptance or possession of the work by Bedeschi, Essar, or one of their other contractors. Also, the Subcontract required NAFCO to bear the expense of all overtime and additional labor necessary to meet the completion date established by any purchase order if caused by NAFCO's failure to perform according to the terms of the Subcontract.

The Subcontract provided that, in the event of a dispute between Bedeschi and NAFCO that also involved Essar in any way, the provisions of all contract documents, including the Bedeschi-Essar Project contract, were binding on NAFCO. Also, it required NAFCO to complete any portion or portions of any work within the time specified by the purchase order. And it required NAFCO to modify the order of performance as necessary to comply with Bedeschi or Essar's directives. NAFCO was entitled to extra compensation or an extension of time for completion, or both, only if it complied with the Subcontract's Article 17. Article 17(B) permitted NAFCO to seek changes to the agreement, including a price increase, but it required, among other things, that NAFCO submit the requested change in writing and Bedeschi approvethe change in writing. But Article 17(A) permitted Bedeschi to make "minor changes" in the work (ones not involving a material increase in cost) with no adjustments made to the subcontract price.

Also, the Subcontract required that, upon receiving written notice from Bedeschi, NAFCO would suspend shipment and delivery of material and stop any part or all of the work or operations performed under the contract for any periods of time Bedeschi designated in the notice. In such cases, NAFCO's reimbursement, if any, was limited to its actual costs and expenses without any overhead or anticipated profit for incomplete work.

The Subcontract provided Bedeschi the right, at any time, to terminate NAFCO's engagement under the Subcontract and any ensuing purchase orders by giving NAFCO written notice. The written notice became effective 10 days after NAFCO received it. After receiving written notice of termination, the Subcontract required NAFCO immediately to discontinue the work that Bedeschi had terminated and to stop placing orders for material,...