Hooksett Sewer Commission. Penta Corporation, I. Kruger, Inc. d/b/a Kruger, Inc., and Graves Engineering, Inc. No CV ORDER

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1 MERRIMACK, SS SUPERIOR COURT Hooksett Sewer Commission v. Penta Corporation, I. Kruger, Inc. d/b/a Kruger, Inc., and Graves Engineering, Inc. No CV ORDER The Plaintiff, Hooksett Sewer Commission ( Hooksett ), brought this action against the Defendants, Penta Corporation ( Penta ), I. Kruger, Incorporated d/b/a Kruger Incorporated ( Kruger ), and Graves Engineering, Incorporated, asserting various claims, including breach of contract, negligence, and breach of the implied warranty of fitness for a particular purpose. The action stems from the failure of Hooksett s wastewater treatment facility in March A number of motions are pending. For the reasons stated in this Order, Penta s Renewed Motion for Summary Judgment on Counts V and VI of Hooksett s Complaint is GRANTED; Hooksett s Motion to Compel is GRANTED IN PART; and Kruger s Motion to Limit Damages is DEFERRED.

2 I Penta has filed a renewed motion for summary judgment on Counts V and VI of Hooksett s Complaint. Count V alleges that Hooksett relied on Penta s subcontractor, Kruger, in selecting the Kruger system and that Penta thereby violated the implied warranty of fitness for a particular purpose. (Compl. 52.) Count VI alleges that Hooksett relied upon Penta s skill and knowledge and that Penta breached its own implied warranty of fitness for a particular purpose. (Compl. 52.) Penta previously moved for summary judgment on these claims, and the Court denied the Motion on August 12, 2015, finding genuine issues of material fact existed. (Order, August 12, 2015, at 10.) Penta has renewed its motion asserting that further discovery has established that there is no genuine issue of material fact. The Court has previously held that this transaction was covered by the Article 2 of the Uniform Commercial Code, RSA 382-A:2-101 et seq. RSA 382-A:2-315, entitled Implied Warranty: Fitness for Particular Purpose, provides: Where 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, there is unless excluded or modified... an implied warranty that the goods shall be fit for such purpose. The implied warranty of fitness for a particular purpose arises by operation of law because of the relationship between the parties, the nature of the transactions, and the surrounding circumstances. Elliott v. Lachance, 109 N.H. 481, (1969). Penta again asserts that it is entitled to judgment as a matter of law with respect to both Counts because the goods the wastewater treatment plant were provided according to - 2 -

3 plans and specifications furnished by Hooksett. Thus, according to Penta, Hooksett did not rely on the Defendant when it selected the Kruger IFAS system. Comment 5 of RSA 382-A:2-315 is instructive here: If the buyer himself is insisting on a particular brand he is not relying on the seller s skill and judgment and so no warranty results. But the mere fact that the article purchased has a particular patent or trade name is not sufficient to indicate nonreliance if the article has been recommended by the seller as adequate for the buyer s purposes. In its order of August 12, 2015, the Court held that Penta was not entitled to summary judgment because there were genuine issues of material fact as to whether Hooksett relied upon it: The Defendant argues that the final design, which was incorporated into the contract, mandates that the Defendant use the Kruger IFAS system; however, the language of the final design only states that [t]he design is based on [Kruger s] IFAS process. Approved equals will be accepted provided the equipment is at least of equal or better quality, function, and performance, and can meet the design requirements without requiring additional aeration tank volume. (Pl. s Ex. A 2.1 (A)) (emphasis added). The final design does not mandate that the Defendant use the Kruger IFAS system. In fact, the language of the final design indicates that acceptance of an approved equal would be mandatory, not permissive, so long as it satisfied the requirements of the final design. Therefore, as the Plaintiff has alleged, the Plaintiff relied on the Defendant s skill and experience in choosing the proper IFAS system. The comments to UCC 2-315, which relates to the implied warranty of fitness for a particular purpose, state specifically that [w]hether or not this warranty arises in any individual case is basically a question of fact to be determined by the circumstances of the contracting. Comment 1, RSA 382-A: (Order, August 12, 2015, at 10.) Penta s renewed Motion for Summary Judgement is based upon deposition testimony it obtained in discovery. Penta has established that at the time of contracting the parties believed that there were no alternatives to the Kruger system. Despite the fact that the contract contained language that would allow Penta to seek the substitution - 3 -

4 of an or equal product, Penta s engineer, Steve Sylven, testified at deposition that at the time of the contracting Hooksett believed that there was no other product other than the Kruger process that would meet its requirements for a new wastewater plant. (Penta s Mot. Summ. J. Ex. B, Sylven Dep. 187:3 189:22.) Hooksett s corporate designee, Bruce Kudrick, also conceded at deposition that Hooksett was not relying on Penta s expertise in selecting a system but was relying on Kruger, with which it was familiar: Q. Would I be correct in stating that you were not relying on Penta to tell you whether or not the IFAS system could meet these criteria? A. we were relying on the recommendations, and the judgment, and history of [Kruger] in the performance or capability or ability of their process to meet the design requirements. Q. And you wrote that concept into the spec itself, didn t you, on page 2, section 1.4 A? Specifically last sentence, second sentence? A. Yes. Q. So where it says the IFAS manufacturer/supplier shall have the sole responsibility for the performance of all components of the eye at IAS system with the performance and design criteria specified herein that means reliance was being placed not on Penta, but on [Kruger]? A. Yes. (Penta s Mot. Summ. J. Ex. A, Kudrick Dep. 281:10 282:3.) Hooksett s corporate designee also agreed that although the contract between it and Penta provided that Penta had the right to seek a substitution of an or equal product, it knew there was no such or equal product at that time. (Id.) The implied warranty of fitness for a particular purpose only applies if a seller knows or has reason to know of the particular purpose for which the goods are required and that the buyer is relying the seller and the seller s skill or judgment. Dalton v

5 Stanley Solar & Stove, Inc., 137 N. H. 467, 471 (1993). The deposition excerpts establish, and Hooksett does not dispute, that it did not rely upon any implied warranty of fitness for particular purpose by Penta. Rather, it argues that to the extent the court concludes that Hooksett did not sufficiently rely on Penta, the record is replete with evidence demonstrating that Hooksett relied on the judgment and expertise of Penta s subcontractor Kruger. (Hooksett s Obj. to Penta s Mot. Summ. J. 7.) There is no doubt that this is so. But the whole point of RSA 382-A:2-315 is that it creates an implied warranty of fitness for a particular purpose when the buyer relies on the seller s skill. The Comments to U.C.C emphasize this point: Under this section, the buyer need not bring home to the seller actual knowledge of the particular purpose for which the goods are intended or of his reliance on the seller s skill and judgment, if the circumstances are such that the seller has reason to realize the purpose intended for the reliance exists. The buyer, of course, must actually be relying on the seller. U.C.C cmt. 1 (emphasis added). Hooksett knew at the time it contracted with Penta that there was only one existing system that it thought would satisfy its needs and specifications. As a matter of law, no implied warranty of fitness for particular purpose arises when specifications are provided by the buyer. See generally Hendricks v. Comercio Ecole, 763 F. Supp. 505, 513 (D. Kan. 1991); Cumberland Farms Inc. v. Drehmann Paving & Flooring Co., 520 N.E. 1321, 1325 (Mass. App. 1988). Hooksett has provided no authority for the proposition - 5 -

6 that a seller may be vicariously liable for implied warranties made by a subcontractor. 1 While it may well have other viable claims against Penta, it cannot maintain a claim for breach of implied warranty for fitness for purpose. Penta s Renewed Motion for Summary Judgment on Counts V and VI must be GRANTED. II Hooksett has filed a Motion to Compel documents it seeks from Kruger relating to its communications with Dr. Ole Peterson, whom the parties describe as an expert in water treatment plants of this kind. Hooksett has filed Requests for Production seeking all communications between Dr. Peterson and Kruger: 12. Please produce all documents, correspondence and communications between Kruger and Ole Peterson regarding the IFAS system and/or the WWTF. 13. Please produce all documents, including but not limited to, reports, draft reports, notes, surveys, designs, illustrations, calculations, tests results, data, graphs, and tables that were prepared by Ole Peterson to evaluate the IFAS system. (Hooksett s Mot. Compel Ex. A.) According to Hooksett, Kruger first objected on the ground that the Peterson documents called for by the Requests for Production were not reasonably likely to lead to admissible evidence. (Hooksett s Mot. Compel 2.) However, Kruger eventually furnished a 54-page privilege log, asserting that the requested documents were privileged work product. (Hooksett s Mot. Compel 3.) After Hooksett demanded the 1 Although not cited by Hooksett, the Court has considered the effect of RSA 382-A:2-318, which provides in substance that lack of privity is not a defense in any action brought against the seller for breach of warranty, express or implied, even though the plaintiff did not purchase the goods from the defendant. But the obstacle faced by Hooksett is not privity, but reliance; there appears to be no authority in the UCC or in relevant case law that a seller can be vicariously liable on a theory of implied warranty for a particular purpose for product provided by a - 6 -

7 documents alleging that they were not privileged, Kruger took the position that it would not rely on Peterson s analysis or findings and has not identified him as an expert witness. Kruger concludes that under the circumstances, Peterson is no more than an undisclosed expert witness whose testimony was not anticipated, and therefore the information sought is not discoverable. (Hooksett s Mot. Compel 5.) Hooksett also asserts that it is entitled to the documents because they were promised by Kruger. (Hooksett s Mot. Compel 10.) Hooksett has appended to its motion a document captioned Hydraulic Test Protocol for Hooksett, New Hampshire Wastewater Treatment Plant, Hooksett, New Hampshire prepared by Kruger Inc., February 23, ( Test Protocol ) (Hooksett s Mot. Compel Ex. C.) Hooksett represented that in the wake of the failure of the plant, all parties met and attempted to work out a solution to the problem. In accordance with the parties agreement, Kruger was allowed access to the plant through Dr. Peterson and he conducted a detailed examination of the plant. The Test Protocol provides in relevant part: Reporting Upon completion of the Hydraulic Acceptance Test, Kruger shall prepare and submit a written report. The report shall be submitted to the engineer and owner and shall include pertinent details regarding the test as well as test results to demonstrate that the IFAS system complies with the specified hydraulic requirements. (Hooksett s Mot. Compel Ex. C.) Kruger did not dispute the offer of proof that Dr. Peterson spent a day at the plant, and even had lunch with Hooksett employees. It is obvious that this document was an explicit agreement to allow a potentially adverse party s expert to examine a property. Kruger has not provided a reasonable subcontractor absent some reliance by the buyer on the seller. Vicarious liability is inconsistent with the concept of reliance

8 response as to why it has not complied with what is plainly a contractual obligation. Regardless of whether Dr. Peterson is a consulting or non-testifying expert, he is a percipient witness; his examination of the plant was conducted by agreement, and even if there was a privilege which would bar Hooksett from obtaining information about his analysis of the plant, that privilege has been waived. Accordingly, the Court GRANTS the Motion to Compel to the extent that the Court orders that Kruger shall prepare and submit a written report of the inspection of the Hooksett plant on February 23, In addition, Kruger shall provide a copy of pertinent details regarding the test as well as test results to demonstrate that the IFAS system complies with the specified hydraulic requirements. (Hooksett s Mot. Compel Ex. C.) III Kruger has moved to limit damages to those pled in the Complaint and disclosed in discovery through interrogatory and corporate representative deposition. Kruger s notes that this case has been pending since 2013 and Hooksett has, through interrogatory and corporate representative depositions, testified that its damages consist of contract costs, the estimated cost of three types of enhancement to the Plant recommended by its consultant, the cost of a new facility, an upgraded trough, treble damages, and attorney s fees pursuant to the New Hampshire Consumer Protection Act, RSA 358-A. (Kruger s Mot. Limit Damages, at 4.) Kruger asserts that Hooksett s counsel has stated that it intends to seek damages for lost revenue. It alleges that because of the failure of the Wastewater Treatment Plant, Hooksett lost the potential ability to service new customers. At oral argument, - 8 -

9 counsel for Hooksett pointed out that while it currently has the capacity to meet demand, it is conceivable that in the future it could be unable to service new potential customers, resulting in a loss of revenue. Hooksett s basic position is that discovery is still ongoing, and as a result Kruger and Penta s preemptive motion to limit Hooksett s damages is premature and not yet ripe. (Hooksett s Obj. to Kruger s Mot. Limit Damages 3.) Hooksett argues as this case continues to drag out, it becomes more and more likely that Hooksett s damages will continue to increase and may indeed include lost profits. (Hooksett s Obj. to Kruger s Mot. Limit Damages 4.) Kruger asserts that it reasonably relied on Hooksett sworn representations in preparation for mediation. It also asserts that: Defense strategy also includes retention of appropriate experts, the deadline for which passed in October If Hooksett were permitted to continue altering its theories of recoverable damages despite the deadline for disclosure of its own expert witnesses are long past Kruger would have no ability to counter those new theories through expert testimony. (Kruger s Mot. Limit Damages, at 11.) Pursuant to Order dated May 12, 2015 this Court ordered that fact discovery would close on March 1, 2016 and each party may, if it wishes, provide a rebuttal expert report on or before April 1, (Order, May 12, 2015, at 2.) However, at oral argument it appeared that the parties had not completed all discovery, and by agreement were prepared to extend discovery, at least to some extent. Accordingly, the Court makes no order on the Motion to Limit Damages at the present time. Damages for lost profits have not been pled, and in order for Hooksett recover such damages, it would need to amend its Complaint and, presumably, obtain expert testimony to support its claim. While lost profits need not be proved with - 9 -

10 absolute certainty, a plaintiff must produce sufficient evidence that the lost profits are reasonably certain to result. Whitehouse v. Ryman, 122 N.H. 778, 780 (1982). Kruger indicates it would object to such an amendment. Such a claim would likely involve extensive discovery on the potential for loss of revenue and undoubtedly expert witness testimony on demographics and accounting or economics. In light of the fact that this case is a 2013 case, and such claims could have been pled as long ago, such amendment would not be favored. See generally Bel Air Assocs. v. N.H. Dep t of Health & Human Servs., 154 N.H. 228, 236 (2006) ( This Court allows liberal amendment of pleadings unless the changes surprise the opposite party, introduce an entirely new cause of action, or call for substantially different evidence. ); see also Clinical Lab Products Inc. v. Martina, 121 N.H. 989, 991 (1981). Accordingly, the Court will DEFER ruling on the Motion. The issue can be considered if Hooksett moves to amend its Complaint to allege such damages. SO ORDERED 4/13/16 s/richard B. McNamara DATE Richard B. McNamara, Presiding Justice RBM/