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Kron-Cis Gmbh v. LS Industries, Inc.

United States District Court, D. Kansas

December 9, 2014

KRON-CIS GmbH, Plaintiff
v.
LS INDUSTRIES, INC., Defendants.

MEMORANDUM AND ORDER

SAM A. CROW, Senior District Judge.

The plaintiff aptly summarizes this case as a buyer's "breach of contract case [that] arises from the sale of an internal shot blaster system" ("System") manufactured by the defendant LS Industries, Inc. ("LS") and sold to Kron-CIS, GMBH, a German corporation, ("Kron"). (Dk. 150, p. 1). Among the asserted contractual breaches, Kron alleges LS failed "to deliver the internal shot blaster system in accordance with the schedule set forth in the contract and in accordance with the contract's specifications." (Dk. 150, pp. 1-2; Dk. 156, p. 1). Kron moves for partial summary judgment on its claims for breach of contract in failure to deliver the System by the date appearing in the written contract and for the remedy of revocation of acceptance based on allegations of the System's nonconformity having substantially impaired the System's value to Kron. (Dks. 149 and 150). LS also has filed a motion for partial summary judgment against Kron's claims for punitive damages, for fraud and misrepresentation, and for any damages. (Dks. 147 and 148).

Rule 56 authorizes a court to "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is material if it would affect the outcome of a claim or defense under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "[T]he dispute about a material fact is "genuine, ..., if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The essential inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether the evidence is so one sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, 477 U.S. at 251-52. The summary judgment movant bears the initial burden of pointing out those portions of the record that show it entitled to judgment as a matter of law. Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.1992), cert. denied, 506 U.S. 1013 (1992). If the movant meets that burden, the non-movant must come forward with specific facts based on admissible evidence from which a rational fact finder could find in the non-movant's favor. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998).

The court regards the following facts to be uncontroverted for purposes of these pending motions. In late July of 2010, LS and Kron executed Contract 07-084 for Kron's purchase of LS's I.D. Pipe Blaster System ("System") for delivery to Russia. Kron is a German corporation while Kronstadt Ltd. is a Russian corporation. They are sister companies without a parent company. Kron was set up because foreign company dealings with a European company are "easier and more convenient." (Dk. 148-2, p. 42).

While LSI's contract was with Kron, Kronstadt had an agreement to sale a LSI-built blaster system to Lukoil. This latter agreement is dated January 19, 2010, and it contains no purchase price, no description of the specific equipment and no specifications. Lukoil later paid Kronstadt for the System. Kronstadt as principal entered an agency agreement with Kron as its agent dated January 4, 2010, which included the following provision:

Under this Agreement, the Agent accepts obligation to execute legal or other actions under its own name but at expense of the Principal in order to purchase goods for the Principal (further "Actions") when the Principal makes such requests. Under this Agreement the Agent is responsible for each business deal that it makes with the third party, in spite of the presence of Principal's name in the deal, or if the Principal gets into business relationship with the third party in order to execute the deal.

(Dk. 156-12, p. 1). The defendant states it has received no translated documents showing that Kronstadt paid for and was assigned the system purchased by Kron. The plaintiff does not effectively controvert this statement.

The Kron/LSI Contract 07-084 required the System to be "available for delivery" F.O.B. in Wichita "no later than 14 weeks from date of advance payment, " and it did not permit partial shipment. (Dk. 150-4, p. 1). The contract specified a penalty for delay in making the System available for delivery. Id. at p. 2, ยง 4.7. In October of 2010, the parties added Addendum 1 to Contract 07-084 which extended the System's shipping date to December 15, 2010. This addendum was worked out through emails exchanged between the LS's sales manager, Tim Ens, and the import manager of Kronstadt Ltd., Miss Olga Chikova ("Chikova"), but the addendum was signed by others for LS and Kron. (Dks. 148-7; 150-4, pp. 9-10).[1] On December 13, 2010, the parties added a signed Addendum 2 which extended the shipping date to December 30, 2010.

On December 23, 2010, Tim Ens for LS emailed Chikova that the shipping date would need to be pushed back to January 21, 2011, due to vendor problems in providing a hydraulic unit. Chikova emailed back on December 28, 2010:

We understand that this is not your personal or your company's fault, but the situation is getting worse day by day. We were astonished by the dates you wrote to us last week, as that very morning we had assured LUKOIL that the blaster should be delivered two months later than agreed. As far as Russian Supply Contracts are very strict, and this week we have already delayed the delivery of your machine to the customer's facility, we have been consequently notified that we will be charged a penalty starting from this morning and till the date of delivery.
....
As far as the Contract is signed by our representative office in Germany, further correspondence related to Contract details and Penalties will be probably held by Kron-CIS GmbH, i.e. Leola Kilt (or Irina Sondermann) with me (or our Financial Manager) in copy. Anyway we need to receive from you some kind of Progress report' twice a week (eg. Mon & Wed) until the blaster is shipped on a vessel and once a week until the blaster reaches Saint-Petersburg for us to have precise information in time and to be able to inform the customer and avoid serious conflicts in case any problems arise.
....
Please confirm new dates according to your new delay....

(Dk. 155-14, p. 2). Ens's email reply addressed these questions and demands and established dates for testing, sending the testing video, date of packing, date of dispatch, and date of shipment from New York. (Dk. 148-17). Ens also emailed progress reports with photographs on January 3 and 6, but he received no responses to them. Ens telephoned and learned that a Russian holiday extended through January 11.

On January 13, 2011, Mr. Gluzman with Lukoil called LSI about the delay and asked for an email explaining the situation. Ens sent an email addressing the delay and the current timeline. (Dk. 155-17). In response to Chikova's email that requested sending a suggested written letter from LSI to Lukoil addressing the delay, LSI's President and General Manager, Linda Weir-Energen, sent a letter to Mr. Gluzman, Director of Material, Procurement, and Supply for Lukoil. (Dk. 155-18).

Assembly of the System was completed on January 13, 2011, and the testing was completed over the next three days. There is a question of material fact over whether the testing established that the System was capable of cleaning pipes at the rate specified in the contract. LSI made a video of the final run-off in testing and emailed a link to this video on January 16, 2011, with a request for immediate approval. (Dk. 148-12). On January 17, 2011, Chikova replied by email saying the customer had approved and requesting LSI to "continue with painting and packing." (Dk. 148-13). After the testing was completed, the System's lance was cut in two for shipment. On January 19 and 20, 2011, the System was loaded into three containers and shipped from LSI. Addendum 2 changed "delivery terms into CIF Saint-Petersburg, Russia (Incoterms 2000)." (Dk. 150-4, p. 10).

On January 14, 2011, Ens for LSI sent an email to confirm that a Spanish translator would be available for the technician being sent to Langepas, Russia, for the System's installation. LSI chose Rafael Villa Pezzat to be the technician, and Pezzat spoke only Spanish and could not speak or read English or Russian. Ens emailed Chikova on January 17, 2011, the following representation:

Rafael Villa Pezzat understands limited English but for him that is not a problem. He worked for LS installing machines in Israel, UAE, Kazakhstan and a similar machine in Poland in the past ten years. He has 45 years of experience in the ...

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