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UPU Industries, Inc. v. Total Petrochemicals & Refining USA, Inc.

United States District Court, D. Kansas

May 5, 2017

UPU INDUSTRIES, INC., Plaintiff,
v.
TOTAL PETROCHEMICALS & REFINING USA, INC., Defendant.

          MEMORANDUM AND ORDER

          JULIE A. ROBINSON UNITED STATES DISTRICT JUDGE

         Plaintiff UPU Industries, Inc. (“UPU”) brings this action against Defendant Total Petrochemicals & Refining USA, Inc. (“TPRI”), alleging breach of an implied warranty of fitness for a particular purpose with regards to two lots of polyethylene resin that TPRI delivered to UPU in February and March 2014. This matter comes before the Court on TPRI's Motion for Summary Judgment on Plaintiff's Claim (Doc. 60). The motion is fully briefed and the Court is prepared to rule. For the reasons explained more fully below, the Court denies TPRI's motion for summary judgment.

         I. SUMMARY JUDGMENT STANDARD

         Summary judgment is appropriate if the moving party demonstrates “that there is no genuine dispute as to any material fact” and that it is “entitled to judgment as a matter of law.”[1]In applying this standard, the Court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party.[2] “There is no genuine [dispute] of material fact unless the evidence, construed in the light most favorable to the non-moving party, is such that a reasonable jury could return a verdict for the non-moving party.”[3] A fact is “material” if, under the applicable substantive law, it is “essential to the proper disposition of the claim.”[4] A dispute of fact is “genuine” if “there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way.”[5]

         The moving party initially must show the absence of a genuine dispute of material fact and entitlement to judgment as a matter of law.[6] In attempting to meet this standard, a movant who does not bear the ultimate burden of persuasion at trial need not negate the nonmovant's claim; rather, the movant need simply point out to the court a lack of evidence for the nonmovant on an essential element of the nonmovant's claim.[7]

         Once the movant has met the initial burden of showing the absence of a genuine dispute of material fact, the burden shifts to the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.”[8] The nonmoving party may not simply rest upon its pleadings to satisfy its burden.[9] Rather, the nonmoving party must “set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant.”[10] In setting forward these specific facts, the nonmovant must identify the facts “by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.”[11]

         Finally, summary judgment is not a “disfavored procedural shortcut”; on the contrary, it is an important procedure “designed to secure the just, speedy and inexpensive determination of every action.”[12]

         II. UNCONTROVERTED FACTS

         The following material facts are uncontroverted, stipulated to for the purposes of summary judgment, or viewed in the light most favorable to UPU.

         TPRI produces a high density polyethylene resin (“HDPE”) identified as HDPE 7195. UPU produces bale netting using HDPE 7195 by “cutting the HDPE film into slit tape or slitting it into tapes.” At least some other manufacturers create bale netting by cutting HDPE film into slit tapes, but there are other processes for making bale netting.

         UPU Officers

         Todd Whitlock, the Production Superintendent for UPU, is responsible for the blown film extruders, which are the machines that cut the HDPE film into individual tapes. Plastic resin extruders like those run by UPU can be attached to various kinds of machines, such as mold machines, blow mold machines, and casting machines. UPU's extruders are attached to a blown film process. Every blown film line is different.

         Philip Orr, CEO and President of UPU, was in charge of purchasing HDPE resin for UPU at all times relevant to this matter. Mr. Orr has been in the “net wrap” business since the 1980s. Mr. Orr and his father were knowledgeable about running a net wrap manufacturing facility when they started UPU Limited in the United Kingdom based on their experience as importers, distributors, and resellers of net wrap in the agricultural field. Kevin Rodgers is the Plant Manager for UPU.

         Contracting for HDPE

         When Mr. Orr deals with resin suppliers, he explains generally what he is trying to achieve and then asks for recommendations as to what grade material they think will work. Mr. Orr states that he does this because the resin suppliers “don't provide a specification for me to even look at or make a half-guess.”[13] When purchasing HDPE, Mr. Orr tells resin suppliers that UPU uses blown film extrusion systems and Karl Mayer knitting machines to make bale netting, and the weight, extension, and elongation of UPU's material. Mr. Orr does not believe there is anything more that the suppliers need to know.

         UPU determined that TPRI was the only entity in the United States making the grade of HDPE that UPU could use. UPU searched other companies' data sheets and determined that their grades of HDPE did not have the necessary density and melt flow index-the two factors that UPU determined commonly indicate its “processability” and the relative weight of the end product. UPU purchased HDPE from TPRI beginning in 2005 and continuing through 2014.

         At least in 2012, TPRI selected lots of HDPE for UPU to use. At some point in time TPRI changed the name of the resin it supplied to UPU from 7194 to 7195. HDPE 7194 is a medical grade resin. HDPE 7195 is a textile grade resin that has several different applications. TPRI has an internal product specification for HDPE 7195, which specifies the gel count for that resin.

         TPRI provides a Data Sheet to buyers for its resins, including HDPE 7195. The Data Sheet for HDPE 7195 states that the product is an extrusion resin and sets forth the resin properties for HDPE 7195, including the Melt Flow Index, Density, and Melting Point. The Data Sheet also sets forth the Mechanical Properties, Characteristics, and Applications for HDPE 7195. According to TPRI's Data Sheet, the Applications for which HDPE 7195 are used are “Monofilament, Slit Tape, Woven and Knitted Fabrics and Specialty Films.” The Data Sheet also sets forth the Resin Properties and Mechanical Properties of the resin, including their “Typical Value, ” and advises that the data is “not to be used as a specification, maxima or minima” and “may deviate from molded and extruded specimens.” The Data Sheet does not contain any information regarding gel counts or unmelt counts.

         Before UPU began using HDPE 7195, UPU reviewed the HDPE Data Sheet. The Data Sheet for HDPE 7195 either came with the boxes of HDPE when it was delivered for testing, or when it was purchased and delivered. When looking at a data sheet for a product, Mr. Orr “can understand it to the point of knowing it will fit [UPU's] finished product specs or not or if it even has a chance.” TPRI assumed that UPU needed resin to make bale-net wrap, that UPU's process was the same from one day to the next, that UPU was trying to eliminate variables so it could produce the same product each time, and that UPU wanted to receive the same product from TPRI to repeatedly produce the same product. Before sending products to customers, TPRI engaged in internal QC testing to ensure that the gel count in the material met certain internal product specifications, which TPRI did not disclose to UPU. As far back as 2008, TPRI told UPU that TPRI could not determine whether a lot of HDPE would or would not work for UPU until UPU actually ran the resin.

         Testing

         Before purchasing resin to use in UPU's manufacturing facility, UPU ran the product through its own testing process. UPU ran trials on the HDPE resin to ensure that UPU could use the resin to make its products. UPU conducts a melt-flow index test before accepting shipments of resin from TPRI to confirm that the shipment conforms to the melt-flow number reported by TPRI. UPU's melt-flow index test was a precautionary test to ensure that the polyethylene resin TPRI supplied was in fact polyethylene resin, and not some other kind of plastic resin. There is no relationship between melt-flow index and gel count, and UPU did not test whether the resin was capable of producing gel- or unmelt-free film.

         UPU spent about one week testing resin in its manufacturing facility before determining whether the resin would work in UPU's production process. Thereafter, the finished products were tested in the field. UPU received about 5 or 6 tons of HDPE from TPRI to test to see if it would work for UPU. In testing the HDPE and running it through UPU's machine, UPU was able to look at the parameters of the raw material and determine the tensile strength and elongation of the finished product.

         Issues with HDPE Resin

         UPU had production problems with gels in the film of the HDPE from 2008 through 2014. The big factor for UPU with a high gel-count problem is the run time, because gels stop UPU's manufacturing process. Gels stop the knitting machines. Gels cause the individual tapes of plastic film to break as they run through the knitting machine. Each time a tape breaks, the machine must stop for the operator to tie the broken ends of the tape back together and restart the machine.

         UPU cannot test for gels and does not know what a normal gel count for TPRI's resin would be. The data sheet for HDPE 7195 does not include information about gel count, but TPRI's internal specifications for some grades of HDPE do include a gel count specification. TPRI does not provide gel count information to customers like UPU.

         In 2012, TPRI advised UPU that two problem lots of HDPE 7194 sent to UPU were prime and met all of TPRI's QC requirements and that TPRI was unable to make any determination as to lots of HDPE 7194 that would perform well at UPU's facility and lots that would not. In 2012, TPRI also told UPU that there was nothing wrong with the lots of HDPE that TPRI supplied to UPU, even though TPRI cited “differences” it observed at UPU's factory in its reports. TPRI was never able to provide UPU with a conclusion as to why some lots of HDPE 7195 worked well for UPU in its processing system and other lots did not.

         In June 2014, TPRI sent employees to UPU's facility to troubleshoot the issues with HDPE 7195. During that trip, the TPRI employees had full control over UPU's extrusion process, suggesting changes to the process which UPU personnel implemented. With control over UPU's extrusion facility, the TPRI employees could not make the HDPE 7195 resin run. The TPRI employees called one of the lots of HDPE 7195 that it had identified and shipped to UPU “terrible, ” with “bad gels.”

         III. DISCUSSION

         UPU alleges that TPRI breached an implied warranty of fitness for a particular purpose with respect to two lots of HDPE 7195 that the parties contracted for and TPRI furnished to UPU in February and March 2014. An implied warranty of fitness for a particular purpose exists “[w]here the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods.”[14] Whether or not an implied warranty of fitness for a particular purpose arises in any individual case is a question of fact to be determined by the circumstances of the contracting.[15] TPRI argues for summary judgment in its favor because UPU has not presented evidence that would create a genuine dispute of fact as to whether an implied warranty of fitness for a particular purpose existed in relation to these two lots of HDPE 7195. Specifically, TPRI argues that UPU has failed to present any evidence that (1) it intended to use the HDPE 7195 for a particular-as opposed to ordinary-purpose; and (2) it relied on TPRI's skill and expertise in choosing among goods to meet that purpose. The Court addresses each argument in turn.

         A. Particular Purpose

         A defining characteristic of the implied warranty of fitness for a particular purpose is that the goods contracted for are used for a particular, rather than ordinary, purpose.[16] The warranty of fitness for a particular purpose is frequently confused with the implied warranty of merchantability, which covers fitness for ordinary purposes.[17] But “[t]he warranty of fitness for a particular purpose is narrower, more specific, and more precise.”[18] Thus, “[w]hen goods are acquired for the ordinary purposes for which such goods are generally used, no implied warranty of fitness for a particular purpose arises. A use for ordinary purposes falls within the ...


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