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S.G. SUPPLY CO. v. GREENWOOD INTL.

April 11, 1991

S.G. SUPPLY COMPANY, Plaintiff,
v.
GREENWOOD INTERNATIONAL, INC., Defendant


Milton I. Shadur, United States District Judge.


The opinion of the court was delivered by: SHADUR

MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 As a result of damage from some leaking pipe allegedly sold by Greenwood International, Inc. ("Greenwood") to S.G. Supply Company ("SG"), SG has filed a two-count Complaint against Greenwood:

 
1. Count I alleges that Greenwood breached its express warranty that the pipe was of a certain type.
 
2. Count II alleges that Greenwood breached its implied warranty of merchantability, in that (a) the pipe was not fit for the ordinary purpose for which such pipe is sold and (b) the pipe did not conform with the promises and affirmations of fact made on the label.

 SG seeks the cost of the labor, material and equipment that were incurred in replacing the defective pipe.

 Greenwood has responded with a two-count counterclaim:

 
1. Count I essentially asserts an affirmative defense of contributory negligence, based on the theory that the failure of SG and contractor Economy Mechanical Industries, Inc. ("EMI") to inspect and test the pipe either caused or contributed to the damage. *fn1"
 
2. Count II alleges nonpayment by SG for a shipment of pipe that is unrelated to the other pipe at issue in this suit.

 Greenwood asks for money relief on those claims.

 SG has now moved for partial summary judgment on the issue of liability under its Counts I and II and for summary judgment on Greenwood's Count I. Greenwood has filed a cross-motion seeking summary judgment on both of SG's counts and on Greenwood's Count II. *fn2" For the reasons stated in this memorandum opinion and order, SG's motion is granted on its Count I and II and is granted in part and denied in part as to Greenwood's Count I. Greenwood's motion is of course denied on SG's Counts I and II, while its motion is granted as to its own Count II.

 Facts

 SG, an Illinois corporation with its principal place of business in Illinois, is a wholesale distributor of plumbing and piping supplies for construction and industry. Greenwood, an Oregon corporation with its principal place of business in Oregon, is an importer of pipe and related materials.

 In March 1987 Greenwood offered to sell and SG agreed to purchase 1,512 feet of 5-inch galvanized steel pipe (the "Pipe"). SG's purchase order requested "A53" pipe with a.258 wall thickness. Greenwood's confirmation stated that it would supply approximately 1,500 feet at a price of $ 444.50 per 100 feet of pipe, and that the Pipe would be "IMPORT A 120 SCH 40 GPE 5" X.258 X 21'" and "ASTM A 120." *fn3" Both SG and Greenwood agreed to those terms.

 "ASTM A 120 Schedule 40" (or "A 120") refers to standard specifications promulgated by the American Society for Testing and Materials ("ASTM") for black and hot-dipped zinc coated (galvanized) welded and seamless pipe. Those ASTM specifications provide that A 120 pipe is intended for ordinary uses in steam, water, gas and air lines. Moreover, the specifications provide that 5-inch galvanized A 120 pipe having a wall thickness of.258 inches should hold a test pressure of 1,200 pounds per square inch ("psi"). They also require the manufacturer to perform hydrostatic tests on each length of A 120 pipe to verify that it meets the specified test pressure of 1,200 psi:

 
7. Hydrostatic Test
 
7.1 Each length of pipe shall be tested by the manufacturer to the hydrostatic pressures prescribed in Tables 1, 2, 3 or 4. The maximum specified pressure shall not exceed the value given in these tables for the size and kind of pipe.
 
* * * *

 Finally, the specifications require all pipe represented by the manufacturer to be ASTM A 120 pipe to be labeled as such:

 
18.1 Each length of pipe shall be legibly marked by rolling, stamping, stenciling to show the name or brand of the manufacturer, the specification number, and the length. . . .

 All the Pipe that SG ordered from Greenwood was shipped from its manufacturer Yieh Hsing Enterprise Co., Ltd. ("Yieh Hsing") in Taiwan via Camden, New Jersey to SG's warehouse in Calumet Park, Illinois, where it arrived in September 1987. Its Bill of Lading identified the Pipe as having been ordered by Greenwood and said it was "ASTM A 120/A 53A" pipe, "5" X.258" X 21'." All the pipe delivered to SG ("the YH Pipe") was stenciled:

 
Taiwan YH ASTM Import A 120 Sch 40 GPE 5" X.258" X 21'.

 "YH" refers to Yieh Hsing, which is also the same company as Yieh Mau Corporation ("Yieh Mau").

 Once the YH Pipe had been delivered to SG, Greenwood sent an invoice to SG ("Invoice") dated September 11, 1987, which identified it as "ASTM A 120/A 53A" and as "IMPORT A 120 SCH 40 GPE PIPE" and as "MADE IN TAIWAN" (P. Ex. 7). SG paid Greenwood in full for the YH Pipe on September 25, 1987.

 SG's purchasing agent George Mecklenburg ("Mecklenburg") (Mecklenburg Supp. Aff. para. 6) states that before the receipt of the YH Pipe from Greenwood, SG had never stocked any other 5-inch galvanized steel pipe made in Taiwan, and that except for the order from Greenwood SG has not purchased any YH or other Taiwanese 5-inch galvanized steel pipe from any supplier (Mecklenburg Aff. para. 4). As for EMI, the only Taiwanese 5-inch galvanized pipe that EMI had in its inventory at the time of the Building and to the present date was purchased from SG. *fn4"

 Between December 1987 and July 1988 SG sold 483 feet of the YH Pipe to EMI, a mechanical contractor. Of that, 336 feet were delivered to 900 N. Michigan, Chicago, Illinois for use in a 67-story building (the "Building"). EMI installed YH Pipe on the 9th and 29th floors of the Building for use as a conduit for hot water to a hotel on the 30th-46th floors. There was a heating unit on the 9th floor, from which the water was to be pumped up an elevator shaft to the 29th floor. In turn, the hot water was to be delivered from there to the floors above. As designed, the hot water system in which the pipe was to be used was expected to experience approximately 190-200 psi during operation. Under the Building's construction scheduling the 9th floor had been completed (insulation was installed, etc.) before the 29th floor.

 YH Pipe was used on the 9th and 29th floors of the building. And the pipe that leaked and had to be replaced was stenciled with the letters "YH" and the word "Taiwan" (Summers Dep. at 39, 83-84; P. Ex. 9).

 In August 1988, after installing the YH Pipe on the 9th and 29th floors of the Building, EMI began to fill the water line with cold water from the 29th floor. That filling of the pipes caused the standing pressure to be about 40 psi of pressure. Shortly thereafter a water leak was observed coming through a ceiling tile on the 9th floor. Upon closer examination, EMI discovered that the water was dripping from two small pieces of YH Pipe. Accordingly the system was drained down and the leaking pipe was replaced.

 In August 1988, following notification by EMI to SG of the leaking pipe, SG notified Greenwood that some YH Pipe sold to SG by Greenwood leaked and would have to be replaced. SG also notified Greenwood that it appeared that substantial remedial work would have to be done. In September and October SG sent correspondence to Greenwood's President Michael Summers ("Summers"), informing him that the YH Pipe was defective and needed to be replaced. On October 14, 1988 SG informed Greenwood that Greenwood may be in breach of its contract with SG. EMI then advised Greenwood and Yieh Mau that it was willing to have another contractor do the replacement work under certain conditions. Neither Greenwood nor Yieh Mau agreed to that offer. EMI also suggested that Greenwood have a representative present at the Building on a daily basis to monitor the replacement work. Greenwood chose not to do so.

 On November 17, 1988 EMI conducted an air test of the YH Pipe on the 29th floor in the presence of YH representatives. That test revealed leaks in the YH Pipe on the 29th floor after 80 psi of air was put on the pipe. EMI then made a decision to replace the YH Pipe on the 29th floor. Greenwood's President Summers visited the site twice around the same time and later admitted that the defective pipe was YH Pipe and had failed to meet the warranteed specifications. *fn5" As a result of the leaking water pipes, EMI replaced all the YH Pipe on the 9th and 29th floors. EMI also repaired the damage from the leaks on the 9th and 29th floors. Because the current motions have focused on liability rather than damages, the magnitude and cost of those repairs and replacements is in dispute.

 SG's insurance carrier requested that the pipes be tested. On October 13, 1988 representatives of Taussig Associates, Inc. ("Taussig"), a metallurgical engineering firm, visited the Building to inspect and analyze the YH Pipe installed on the 9th and 29th floors. Samples of the YH Pipe were selected for further analysis and testing at Taussig's laboratory.

 Lyle Jacobs ("Jacobs"), President of Taussig and a metallurgical engineer, examined the YH Pipe and has been presented as an expert in his field. He also was responsible for overseeing various tests that were conducted on the YH Pipe at the laboratory, including a visual and macroscopic examination, chemical analysis, mechanical testing and metallographic examination. As a result of his firm's examination of the YH Pipe, Jacobs prepared Report No. 82895 dated November 9, 1988 (the "Taussig Report") (Jacobs Aff. Ex. C), which contained the following findings:

 
Based upon the preceding tests and examinations, it is our opinion that the five samples of 5" diameter seam welded, galvanized steel pipe which was to have been manufactured and furnished in accordance with ASTM A120 . . . and capable of withstanding internal pressures of at least 200 psi, exhibited evidence of leakage as the result of intermittent regions in the seam weld that had not been welded. These regions, which were visible externally in the pipe as a result of the visual presence of a "V" groove on the outer surface, had not been welded at all. These areas of lack of welding were open with a complete path through the pipe wall being present at the time of manufacture as evidenced by the presence of a galvanized coating on the separated surfaces that were to have been welded together.
 
* * * *
 
. . . [If the pipes had been tested in accordance with ASTM A120] they would have exhibited evidence of leakage at pressure values significantly below the 200 psi required for this particular service application. *fn6"

 Before the YH Pipe began to leak the defects were not visible to the naked eye. Its zinc coating filled the gaps created by the lack of welding, hiding them from visual inspection. All of the YH Pipe was similarly coated. Jacobs Dep. 34-49 and Jacobs Aff. 7 confirm that. SG's purchasing agent Mecklenburg also stated that he inspected the 5-inch pipe on the 9th and 29th floors and that he was unable to visually detect any defects in the pipe during his inspection (Mecklenburg Dep. 77). Summers also confirmed that the defects in the pipe were not visible (Summers Dep. 47, 100).

 Jacobs Aff. 8 states:

 
The YH Pipe could not be used in their intended application or for the ordinary purposes for which such pipe is used because the intermittent lack of welding in the seam welds caused them to leak. Leaks would occur in the areas of the pipe where the seam was not welded and at pressures below the intended pressure of 190-200 psi and far below ASTM A 120-84's requirements of 1200 psi. The weight of the water itself in the pipe, or approximately 70 psi, would cause the pipe to leak where the seam was not welded.

 Nothing in the record impairs the probative force of that opinion. *fn7"

 Beginning in November 1988 EMI began to bill SG for the cost of replacing the YH Pipe and for related repairs. It has retained the amount of the total bill -- $ 191,000 -- as an offset against money that it owed SG on the account between the companies. EMI's withholding of payments remains constant at $ 191,000, the alleged cost of damages due to the leaking pipes. SG in turn asks that Greenwood pay SG the same amount of $ 191,000 for damages due to the leaking pipes supplied by Greenwood. *fn8"

 In connection with Greenwood's Count II, which is unrelated to the other transaction at issue here, SG admits (P. Mem. 1) that on August 10, 1988 Greenwood shipped 2200 linear feet of six-inch import A120/A53GPE pipe with.280 walls in 21 foot lengths to SG. That pipe cost $ 13,715, and ...


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