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Steel Dynamics Columbus, LLC v. Altech Environment USA Corp.

United States District Court, N.D. Mississippi, Aberdeen Division

March 31, 2017

STEEL DYNAMICS COLUMBUS, LLC PLAINTIFF
v.
ALTECH ENVIRONMENT USA CORP. DEFENDANT

          MEMORANDUM OPINION

          DEBRA M. BROWN . UNITED STATES DISTRICT JUDGE

         In August 2010, Steel Dynamics Columbus, LLC (under its former name, Severstal Columbus, LLC), [1] contracted with Altech Environment USA Corp. to purchase two continuous emissions monitoring units (“CEMS”) for its steel plant in Columbus, Mississippi. The CEMS, installed at Steel's plant in 2011, were required by the Mississippi Department of Environmental Quality (“MDEQ”) under the Title V permit issued to Steel. After experiencing multiple operating issues with the CEMS over the course of three years, Steel commenced this action against Altech, alleging the CEMS were defective. Steel seeks to recover from Altech damages for (1) the cost of the CEMS; (2) the costs incurred in trying to make the CEMS work; (3) a fine imposed by MDEQ; and (4) attorney's fees.

         The Court held a three-day bench trial on Steel's claims for negligence, breach of contract, breach of warranties, and contractual indemnification. At the bench trial, after Steel's case in chief, the Court granted Altech's motion for a judgment on partial findings as to Steel's contractual indemnity claim only. After the presentation of all evidence at trial, the Court took under advisement Altech's renewed motion for a judgment on Steel's remaining claims. Upon consideration of the trial evidence and the applicable law, the Court issues this memorandum opinion as its ultimate findings of fact and conclusions of law.

         I

         Procedural History

         On June 30, 2014, Steel filed this action against Altech in the Circuit Court of Lowndes County, Mississippi. Doc. #2. On August 4, 2014, Altech removed the case to this Court based on 28 U.S.C. § 1332.[2] Doc. #1 at ¶ 5. On October 14, 2014, Steel filed an amended complaint, asserting claims for breach of contract, breach of implied warranties, breach of express warranty, negligence, and contractual indemnification.[3] Doc. #13 at ¶¶ 22-25, 36-39.

         On November 6, 2015, Altech filed a “Motion for Partial Summary Judgment on the Issue of Contractual Limitation of Remedies.” Doc. #49. Though denying liability, Altech limited its motion to “how … provisions [in the parties' purchase contract] limit recoverable damages.” Doc. #50 at 2. The Court denied Altech's motion without prejudice, concluding that ruling on only the issue of damages before a trial in which liability would be contested would be inefficient. Doc. #85 at 2 n.5, 3. The Court further stated that it preferred to consider the issue of damages in view of all facts to be presented at the bench trial[4] rather than just on the motion record. Id.

         The Court held a bench trial from June 20, 2016, to June 23, 2016. At the close of Steel's case in chief, Altech moved for a judgment on partial findings on all of Steel's claims, which the Court granted only as to Steel's contractual indemnity claim.[5] At the close of Altech's case, Steel declined to present a rebuttal case, and Altech re-urged its motion for judgment as to Steel's remaining claims. The Court took Altech's re-urged motion under advisement and ordered that the record be left open for seven days following trial. After the close of the record, Steel and Altech filed proposed findings of fact and conclusions of law on October 21, 2016. Doc. #96; Doc. #97.

         II

         Factual Findings

         Steel operates a steel plant in Columbus, Mississippi, that melts scrap metal in an electric arc furnace. Tr. at 45, 90, 93.[6] The process releases pollutants regulated by Title V of the Clean Air Act. Id. at 94.

         MDEQ issued Steel a Title V permit which, among other things, required Steel to install two CEMS. CEMS provide continuous data on the level of monitored pollutants in industrial emissions. Steel's Title V permit required the installation of the CEMS to monitor levels of four regulated pollutants-Nitrogen Oxides (NOx), Carbon Monoxide (CO), Volatile Organic Compounds (VOCs), and Sulfur Dioxide (SO2). Ex. P-1 at §§ 3.B.12-B.19.

         A. Altech Proposal

         In May 2010, Steel, which had no experience with CEMS, solicited bids to purchase the CEMS required by MDEQ. Tr. at 96, 307-08. Altech, an Illinois provider of environmental monitoring systems, responded with a written proposal dated August 10, 2010. Ex. P-2.

         Altech's proposal specified that Altech would supply CEMS that would monitor the pollutants regulated under Steel's Title V permit. Id. at 28-30, 40.[7] The proposal included a “DAS” computer, which would be pre-loaded with software to operate CEMS and would be necessary to receive usable information from the CEMS.[8] Id. at 29. The concentration ranges within which the CEMS would measure the regulated pollutants were to be set “as required.” Id. at 28. As proposed, Altech represented that its CEMS would be “very well suited to monitoring emissions on arc furnaces.” Id. at 23.

         Under Altech's proposal, Altech would begin a “7-Day Drift Test” on the CEMS within five to seven days after “Equipment Startup” and, within a year after that, a more extensive “Relative Accuracy Test Audit” (“RATA”) required by Steel's Title V permit. Id. at 41, 45, 49; Tr. at 526. The proposal included a one year maintenance contract, which included quarterly maintenance, as well as support services for startup, RATA testing, and “regulatory approval.” Ex. P-2 at 29-30, 46.

         The proposal also specified installation and maintenance requirements to be met by Steel and Altech. Regarding installation, the CEMS were to be mounted on a wall in a temperature-controlled room provided by Steel. Id. at 26, 41. Regarding maintenance, the proposal specified quarterly, semi-annually, and yearly maintenance, with the first year of maintenance to be performed by Altech under a proposed quarterly maintenance contract. Id. at 45. Every quarter, the CEMS were to undergo a performance test known as a “Calibration Gas Audit” and preventative maintenance, including servicing filters in the probe assembly.[9] Every year, the CEMS were to undergo a RATA. Id.

         B. CEMS Purchase

         On August 17, 2010, Steel issued a purchase order to Altech in the amount of $447, 610.20 for two CEMS. Ex. P-3. The purchase order, which referred to Altech's proposal both by its identifying number and by specific numbered items, included a one year quarterly maintenance contract, a DAS computer with CEMLink5™ software from Contec, and a quality assurance plan for regulatory approval. Id.; Ex. P-2 at 28-30. When Steel ordered the two CEMS, “[Altech] understood that [Steel] intended to use the CEMS units to monitor emissions [from its steel plant] in compliance with the Title V Permit that MDEQ issued to [Steel].” Doc. #86 at § 9.a. (5), (6).

         The undated “Goods and Services: Terms and Conditions of Purchase” (“Terms”) include two sections relating to liability.[10] One section provides for an express warranty, and the other disclaims all implied warranties. Ex. P-4 at § 14. As relevant here, the Terms warrant that the CEMS “(i) shall be of good quality and free from defects, latent and patent, in design, materials and workmanship; [and] … shall be suitable and sufficient for their specified purpose.” Id. The Terms also state that “THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR AN INTENDED PURPOSE.” Id.

         The Terms include two sections pertaining to remedies. One limits Steel's recourse for breach of the express warranty to repair and/or replacement of the CEMS at Altech's option.[11] Id. The other contains two clauses limiting Steel's recoverable damages-one limits all damages (except for indemnity) to the CEMS purchase price, and the other precludes all incidental and consequential damages.[12] Id. at § 27.

         C. CEMS Operating History

         The first CEMS was installed between January 25 and January 27, 2011, with Altech supplying the DAS computer loaded with software. Ex. P-9 at 1; Tr. at 479, 551. In June 2011, Altech prepared specifically for Steel an operating manual setting forth maintenance requirements for CEMS. Tr. at 394; Ex. D-7 at 21253; Ex. P-2 at 21.

         The second CEMS was installed on July 22. Ex. P-9 at 13; Tr. at 496. Both of the installed CEMS included the same three basic components: (1) a probe assembly, which is an umbilical that feeds airflow sample into the analyzer, fitted at both ends with filters; (2) a flow monitor, which measures total airflow volume; and (3) an analyzer, described as the “heart” of the CEMS, which measures the concentrations of pollutants. Tr. at 392-93, 584; Ex. D-7 at 21259, 21263.

         1. 2011

         During installation of the first CEMS, there were problems relating to inaccurate configuration data provided by Steel but by mid-March, the analyzers had been “re-ranged” with updated data Steel provided. Ex. P-6 at 23684; Ex. P-9 at 1-2.[13] In two subsequent service visits over the next two months, Altech engineers addressed analyzer and computer issues, with an Altech engineer concluding as early as mid-April that service work remained “incomplete” because computer changes were required. Ex. P-9 at 3-4, 12.

         By mid-October, the analyzer in the second CEMS could not measure SO2 or NOx, the DAS computer was “not working, ” and all three temperature controllers in the first CEMS malfunctioned and had to be replaced. Id. at 14. Similar problems continued throughout 2011. Id. at 15-16; Ex. P-6 at 24162.

         2. 2012

         Throughout 2012, there were multiple service visits and persistent problems with the analyzers in both CEMS and their shared DAS computer. See, e.g., Ex. P-9 at 20, 56; Ex. P-7 at 24800, 24887, 24895. Both CEMS indicated “[thousands] of alarms daily.” Ex. P-7 at 24378. By the end of June, Steel bought a new computer and prepared to install a new version of software from Contec provided by Altech. Ex. D-31 at 2718-20.

         Altech conducted nine more service visits in 2012. Ex. P-9 at 20-84. Though the Altech engineers were able to calibrate the CEMS for most pollutants by the end of each visit, after the engineers left, problems would recur. By April, “[t]hings look[ed] ugly;” there were still “[m]ultiple calibration failures [and] [r]epeatability … [was] an issue.” Ex. P-7 at 24455.

         By late August, the first CEMS passed part of a 7-Day Drift Test. Id. at 24820. But, performance testing of the second CEMS remained “very unstable on all calibrations.” Id. According to one Altech engineer, to “truly fix” the problems with the second CEMS, software in the analyzer had to be downloaded from the on-site CEMS, transferred to a test unit at Altech, repaired, and then re-loaded back onto the on-site CEMS. Id. at 24825. There is no evidence this repair was ever performed. On August 21, 2012, a vice president for Steel e-mailed Mike Church, an Altech support manager, stating, “We still have critical issues …. Time is long past when these things should be working accurately and reliably.” Id. at 24818.

         3. 2013

         Into 2013, Steel employees and Altech engineers struggled to identify or correct continuing problems, including recurrent issues with analyzers, temperature controllers, and the computer. Computer problems came to a head in 2013 when, on January 10, Contec notified Altech that “[t]here are major problems with the databases for 2012 [and] 2011.” Ex. P-8 at 24992. After learning from Contec about the database problems, on January 30, Church e-mailed Steel that the DAS computer was corrupted. Tr. at 479-80; Ex. P-8 at 663. Mark Chamberlin, an Altech technical support manager, described the computer as “faulty” in a February 5 e-mail to Steel. Ex. P-8 at 25051, 25119.

         In late March, Altech purchased a replacement computer and shipped it to Steel. Id. at 10; Ex. P-14 at 4974-79.[14] The replacement computer and software, provided at no cost to Steel, suffered the same problems as the computer originally shipped. On June 12, Chamberlin reported that the new software was causing the CEMS analyzers to malfunction. Ex. P-8 at 25405. Toward the end of 2013, analyzers in both CEMS produced faulty data and a RATA still could not be scheduled, exceeding Altech's own revised deadline by almost a year. Tr. at 547-48; Ex. P-7 at 24904, 24915-16; Ex. P-8 at 25677. Altech e-mailed Steel on December 5, stating that the warranty on the first CEMS expired January 25, 2013, and the warranty on the second CEMS expired July 22, 2013. Ex. P-8 at 25751. Bryan Vogel, Steel's engineering lead for the CEMS project, e-mailed Church back the same day, copying Chamberlin: “We will have to discuss this as we still do not have a usable system.” Id.

         On June 28, 2013, MDEQ issued Steel a Notice of Violation. Ex. P-12 (unnumbered at 12- 14). The Notice cited two violations of Steel's Title V Permit: (1) Steel reported the CEMS were installed but the CEMS could not function longer than twelve to seventy-two hours at a time and could not pass a RATA, and (2) Steel failed to report CEMS malfunctions. Id. After meeting with MDEQ, Steel retained a different CEMS vendor to conduct an ambient air test on the Altech CEMS. Tr. at 182-83, 343.

         For the ambient air test, the CEMS were removed from the airflow of the steel plant and placed outdoors for two to three weeks and were then observed for whether they could accurately detect pollutant concentrations in calibration gasses each morning. Id. at 592-93. Regarding NOx- a regulated pollutant with which both CEMS had often struggled-the systems “failed pretty badly.” Id. Though the CEMS worked for some pollutants, the analyzer component responsible for measuring NOx “failed about every way you could fail. The NOx wasn't working.” Id. at 593. Steel gave up on the Altech CEMS because it considered the results of the ambient air test to be a failure. Id. at 183, 343. Steel and MDEQ subsequently negotiated a fine of $135, 000, which Steel paid, with Steel agreeing to contract with a third party to conduct monthly emissions testing until Steel installed working CEMS. Id. at 193-94.

         III

         Liability

         Steel asserts three grounds for liability: (1) negligence, (2) breach of implied warranties, and (3) breach of contract.[15] The parties concede that Mississippi's Uniform Commercial Code (“U.C.C.”) applies to this case. Tr. at 368-69; Doc. #79 at 10; Doc. #97 at 20.

         A. Negligence

         The elements of negligence are: (1) duty, (2) breach, (3) factual and proximate cause, and (4) damage. Duckworth v. Warren, 10 So.3d 433, 439 (Miss. 2009). “[T]he breach of a contract (whether described as ‘negligent' or not) is not actionable in tort under an ordinary negligence theory unless breaching the contract also breached a duty of care recognized by tort law. There must be a duty of care ‘fixed by law and independent of the contract.'” Clausell v. Bourque, 158 So.3d 384, 391 (Miss. Ct. App. 2015) (en banc) (quoting Hazell Mach. Co. v. Shahan, 161 So.2d 618, 623 (1964)).

         Steel, citing Montgomery v. CitiMortgage, Inc., 955 F.Supp.2d 640, 649 (S.D.Miss. 2013), argues that “[a] contractual obligation satisfies the duty element of a negligence claim.” Doc. #78 at 12. To the contrary, as Montgomery recognizes, it is the failure to use reasonable care in the performance of a contract that breaches a duty in tort, not the mere failure to perform. Montgomery, 955 F.Supp.2d at 648 (citing Poppelreiter v. GMAC Mortg., LLC, No. 1:11cv8, 2011 WL 2690165, at *3 (N.D. Miss. July 11, 2011)) (“Under Mississippi law, ‘[a] contract creates a reasonable duty of care in fulfilling one's contractual obligations.'”); id. at 640 (“CitiMortgage was also required to employ due care in the processing of the Plaintiffs' request to lower their mortgage payments and in the resulting loan modification process undertaken by the parties.”). Put differently, the tort duty founded on contract is breached not by failing to perform the contract obligation at all but by causing damages due to carelessness in the performance of the contract. Steel has made no allegation in this regard. Accordingly, Steel's negligence claim must fail.[16] See, e.g., Clausell, 158 So.3d at 392 (“[E]ven if [defendant] had a contractual obligation …, [plaintiff] has failed to show that breaching that contract was a breach of a duty of care … under a negligence theory.”).

         B. Breach of Implied Warranties - Contractual Disclaimer

         Turning to Steel's claims for breach of implied warranties, Altech argues that ...


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