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AVL Powertrain Engineering, Inc. v. Fairbanks Morse Engine

United States District Court, W.D. Wisconsin

April 15, 2016

AVL POWERTRAIN ENGINEERING, INC., Plaintiff,
v.
FAIRBANKS MORSE ENGINE, a division of COLTEC INDUSTRIES, INC., Defendant.

OPINION AND ORDER

WILLIAM M. CONLEY, DISTRICT JUDGE.

In August 2008, plaintiff AVL Powertrain Engineering, Inc. (“AVL”) entered into a five-year renewable contract with defendant Fairbanks Morse Engine, a division of Coltec Industries, Inc. (“FME”), which called on FME to provide AVL with certain “setup, engineering and support services” for large engine testing at FME’s facilities in Beloit, Wisconsin. In 2014, AVL brought this lawsuit, alleging FME fraudulently induced it into the contract by misrepresenting that FME’s facilities were in compliance with environmental regulations, when instead the emissions stacks AVL was directed to use were not covered by the operative emissions permit. AVL also alleges that FME breached the contract and its implied duty of good faith by impeding and eventually foreclosing AVL’s use of FME’s facilities for testing.

Before the court is defendant’s motion for partial summary judgment seeking dismissal of AVL’s claims for rescission based on FME’s alleged misrepresentations, as well as AVL’s claims for consequential damages. (Dkt. #14.) The court will grant summary judgment to defendant on the rescission claims because plaintiff has failed to advance the necessary proof of a material misrepresentation sufficient for a reasonable jury to find fraud in the inducement. Even if had, AVL continued testing under the agreement despite FME’s noncompliance with the operative emissions permit, thereby affirming the parties’ contract even after learning of the alleged misrepresentation. Defendant is not, however, entitled to summary judgment on plaintiff’s claims for consequential damages because the contract provision governing consequential damages is ambiguous. Finally, for reasons stated below, the court will also deny plaintiff’s pending motion to strike one of defendant’s expert witness reports. (Dkt. #37.)

UNDISPUTED FACTS[1]

I. Background

Plaintiff AVL is a Michigan corporation with its principal place of business in Plymouth, Michigan. AVL conducts endurance and environmental emissions testing of large engines, such as those used for heavy construction equipment. Facilities capable of handling AVL’s needs for large engine testing must have a certain amount of space, fixtures, exhaust capability and appropriate environmental permits.

Defendant FME is a Pennsylvania corporation that maintains its principal place of business in Charlotte, North Carolina.[2] FME operates a complex in Beloit, Wisconsin, which had “engine test cells” capable of accommodating AVL’s large engine testing during the time period relevant to this lawsuit.

II. Air Permit

AVL and FME entered into a contract on August 28, 2008, which states in part that “for a term of five years and renewable thereafter”

FME shall provide to AVL test cell facilities, support services for test cell facilities, test cell operator labor, set up, engineering, testing services and such other services as are mutually agreed upon . . . and set forth and identified in purchase orders . . . submitted to FME by AVL.

(Complaint Ex. A (dkt. #1-1) at 1, 3 (hereinafter “Master Agreement”).) In the Master Agreement, FME expressly represented that it “is, and at all times has been, in material compliance with all applicable environmental laws and regulations.” (Id., Section 12.1, at 8.)

At the time the Master Agreement was signed, FME’s Beloit complex had various facilities capable of meeting AVL’s testing needs, including the Opposed Piston Building (“OP Building”). Throughout the life of the Master Agreement, FME’s Beloit facilities, including the OP Building, were governed by Air Pollution Control Operating Permit No. 154002970-P10 (the “Air Permit”).

The Air Permit was originally issued by the Wisconsin Department of Natural Resources (“WDNR”) on May 13, 2005. At all times relevant to this lawsuit, the OP building had nine emission stacks, but the Air Permit explained in a footnote that four of those stacks (the “Subject Stacks”) were not incorporated into emissions modeling for the Air Permit:

Four existing stacks (S20C, S21A, S21B and S21C) were not considered in the modeling because they are no longer being used, and are being removed from the facility. A new stack (S21F) was considered because it is part of the proposed modification. The limits are set at the maximum rates determined by the computer model to protect the ambient air quality standard for PM emissions. It was determined that no increments or ambient air quality standards will be violated at these emission rates.

(Decl. of Joseph Eves Ex. A (dkt. #17-1) at 18 n.22 [hereinafter “Air Permit”].)

The parties agree that Stephen Plewa, AVL’s Quality Manager and Environmental Health and Safety Manager (Dep. of Stephen Plewa (dkt. #20) at 12:15-22), reviewed the Air Permit before the parties entered into the Master Agreement. Plaintiff contends, however, that Plewa was not aware of the significance of the footnote regarding the subject stacks at the time AVL entered into the contract.

III. WDNR Warning

By June 2011, AVL had already begun using FME’s facilities for testing and had spent money building out “test stands” for that purpose. At least some of AVL’s testing around that time took place on test stands eight and ten, which were connected to three of the Subject Stacks (21A, 21B and 20C).

On or around June 15, 2011, a WDNR representative told FME that it should stop using the four Subject Stacks because they were not included in the Air Permit. In a letter dated June 20, 2011, FME ordered AVL to stop testing engines connected to the Subject Stacks until the permit could be revised to incorporate them. The letter explained that testing had to cease because “FME has determined that the [Subject] [S]tacks are not described in FME’s current Air Pollution Control Operation Permit, issued by the Wisconsin Department of Natural Resources (WDNR) on May 13, 2005[.]” (Decl. of Matthew L. Powell Ex. 8 (dkt. #25-9).)[3] Several days later, FME informed AVL that it could reroute engine test stands connected to Subject Stacks 21A, 21B and 20C to other stacks that were compliant with the Air Permit. Accordingly, AVL rerouted the test stands and continued testing, although doing so halved the number of test stands AVL could run simultaneously from four to two.

IV. Fuel Use Restrictions

In an email sent to AVL dated May 17, 2011, FME’s Vice President of Human Resources, John Bottorff, also estimated that the cumulative testing by AVL and FME in the OP Building would exceed FME’s permitted monthly fuel amount by July 2011, meaning that AVL would be unable to continue testing for the remainder of the year. (Decl. of Matthew L. Powell Ex. 10 (dkt. #25-11) at 1.) AVL was allowed to conduct tests in the OP Building until September 2011, when FME shut down further testing consistent with the fuel burn limitation. (Dep. of John Bottorff (dkt. #33) at 83:3-10.)

After AVL was prohibited from testing in the OP Building, FME allowed AVL to continue testing in its “Large Engine Building.” FME asserts that although the parties intended for the Master Agreement to only permit AVL to test in the OP Building, it permitted AVL to test in the Large Engine Building as an accommodation for the fuel burn limitation. On the other hand, AVL maintains that the terms of the Master Agreement permitted it to test in the Large Engine Building. Regardless, the parties agree that AVL spent additional money preparing the Large Engine Building for testing.

AVL asserts that this move was unnecessary because FME’s fuel burn estimate for the OP was “wildly inaccurate, ” based almost solely on the assumption that FME would itself need to use nearly all of the remaining fuel permitted after September 2011. (Pl.’s Resp. PFOF (dkt. #22) ¶ 27.) Contrary to this prediction, however, plaintiff asserts that FME “never came close” to the monthly fuel burn limit under the Air Permit between October 2011 and August 2013, when the initial five-year term contemplated by the Master Agreement expired. (Id.) Despite this, AVL further asserts that FME never responded to AVL’s requests to be notified if it actually used less fuel than anticipated. (Id.) Had it not been for FME’s inaccurate prediction and subsequent failure to notify AVL of the opportunity, AVL argues it could have remained testing in the OP Building in accordance with the fuel usage limitations until at least the end of its initial five-year commitment under the Master Agreement.

Even so, the parties agree that AVL stopped using FME’s facilities for testing altogether in October 2012, after FME required AVL to quit testing in the Large Engine Building. The parties also agree that AVL continued to use office space at FME’s Beloit facilities to which it was entitled under the Master Agreement until August 2013. Finally, it is undisputed that AVL never expressly informed FME that it wanted to rescind the Master Agreement after the interruption caused by the WDNR’s warning in June 2011.

OPINION

Summary judgment is appropriate if the moving party “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). In ruling on a motion for summary judgment, the court views all facts and draws all inferences in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). “Only disputes over facts that might affect ...


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