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Northshore Steel, Inc v. Lakehead Constructors

March 14, 2011


The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer


In March 2006, Plaintiff Northshore Steel, Inc. ("Plaintiff" or "Northshore"), a fabricator of metal products, entered into a contract with Defendant Lakehead Constructors, Inc. ("Lakehead" or "Defendant"), a general contractor for industrial projects. Northshore agreed to provide Lakehead with steel trusses and other materials for a construction project in Michigan, and arranged for a third party, Reliable Galvanizing Company ("Reliable"), to galvanize and deliver the trusses to the construction site. When the materials were delivered, Lakehead employees found cracks in the welding of the trusses and, after repairs were made, Lakehead paid to have the repaired truss sections tested. Plaintiff claims Lakehead has breached the parties' agreement by deducting the cost of the load testing from the contract price. Lakehead contends the cost of the load testing was a reasonable expense it incurred due to Plaintiff's breach and has moved for summary judgment. For the reasons stated here, the motion is granted.


A. Contracts

In October 2005, Lakehead entered into a contract with Consumers Energy ("Consumers"), a utility company that provides electric and natural gas service to Michigan residents.*fn1 Lakehead agreed to serve as general contractor and provide materials for the construction of the J.H. Campbell Backup Fuel Handing System Upgrade (the "project"), at Consumers' J.H. Campbell Complex, a power plant near West Olive, Michigan (the "jobsite"). (Def.'s 56.1 ¶ 6.) The firm of Krech, Ojard & Associates ("KOA") served as the primary architect for the construction project; David Krech ("Krech") was the lead engineer. (Id. ¶¶ 6, 24.) In March 2006, Lakehead entered into a subcontract with Plaintiff under which Plaintiff agreed to furnish necessary materials for the fabrication, coating, finishing, and pre-assembly of several trusses and chutes that would be used to transport heavy loads of coal at the jobsite. (Id. ¶ 7.) The subcontract specifically required Plaintiff "to fabricate the different sections of the trusses, have each fabricated section galvanized, and deliver the galvanized sections to the [jobsite] for assembly."*fn2 (Id. ¶ 11.)

Some time after Plaintiff fabricated the truss sections in the spring or summer of 2006, David Larson, Plaintiff's plant manager, called Michael Eisner ("Eisner"), the president of Reliable Galvanizing Company, to determine whether Reliable could galvanize the truss sections. (Larson Dep. 18:4-21, Nov. 11, 2009.) Larson faxed Eisner a sketch of the truss section dimensions. (Def.'s 56.1¶ 12.) After reviewing the size of the trusses, Eisner warned Larson that the trusses "would warp in the [galvanization] process." (Eisner Dep. 11:1-7, 13:2-4.) Larson himself made a note of Eisner's warning, writing the words "will warp" beneath a sketch of the truss, but Northshore nevertheless chose to proceed with the galvanization process. (Larson Dep. 24:2-9, Nov. 11, 2009.)

B. Galvanization and Damaged Trusses

Soon after this conversation, Plaintiff shipped the pre-fabricated trusses to Reliable's plant in Chicago, Illinois. Upon their arrival at Reliable's facility, Dale Wolak, Reliable's plant manger, and other employees determined that the galvanizing the truss sections would require "double dipping."*fn3 The process of double dipping is not unusual; according to Wolak, double dipping is conducted at the Reliable plant everyday. (Wolak Dep. 14:8-10.) Eisner explained in his deposition, however, that the nature of this process can lead steel to warp because it requires one end of the truss to remain in the air while the other is dipped, which causes uneven heating. (Eisner Dep. 11:20-24.) After several truss section were dipped at the Reliable plant, Wolak heard a "tink sound, like a hammer on metal" and noticed "the welds were popping [and cracking] as they were cooling . . . ."*fn4 (Wolak Dep. 10:5-15.) Wolak reported the cracking to Michael Eisner, and Eisner directed Wolak to contact David Larson at Northshore to ask whether Reliable should continue the galvanization process on the remaining truss sections. (Wolak Dep. 11:18-22; Eisner Dep. 26:11-18.) Wolak claims he asked Larson for authorization about how to proceed and that Larson directed Reliable to continue galvanizing the remaining trusses. (Wolak Dep. 12:3-8.) Plaintiff denies that this conversation took place, however. According to Plaintiff, no one from Reliable contacted Larson until the entire galvanization project was complete, and Larson was never informed about the damaged condition of the trusses. (Larson Dep. 37:6-24, 38:2-20, Nov. 11, 2009.)

All of the truss sections were ultimately galvanized by Reliable and delivered directly to the jobsite in three separate shipments. (Def.'s 56 ¶ 20.) Once the first two shipments arrived on July 26, 2006, Dale Zifko, Lakehead's jobsite superintendent, and John Romain, Consumers' construction manager coordinator, inspected the trusses and noted several bent truss plates and cracked welds. (Zifko Dep. 31:2-18, 160:22-25; Romain Dep. 9:18-24.) Consumers determined that, due to time constraints, rather than ordering new fabricated steel, workers would repair the trusses at the jobsite. (Romain Dep. 21:9-25, 79:19-25, 80:1-13.) Scott Hautala, Lakehead's senior project manager, informed Dan Larson-Northshore's Vice President and David Larson's brother-that several of the truss sections had arrived "warped and distorted" with numerous "visibly cracked welds." (Hautala Aff. ¶ 8.) Hautala asked Larson to send a representative from Northshore "to Reliable's facility to ensure the quality of the third truckload prior to shipping." (Hautala Aff. ¶ 8.) Northshore acknowledges that Hautala made the request and admits that it nevertheless chose not to send a representative to Reliable. (Plaintiff's Response to Def.'s Local Rule 56.1 Statement of Undisputed Facts (hereinafter, "Pl.'s Resp.") ¶ 20.)

C. Load Testing

In order to determine the severity of the weld cracks, Lakehead hired Materials Testing Consultants ("MTC") to perform a "non-destructive inspection" of the trusses. (Def.'s 56 ¶ 25.) On July 27, 2006, Darrin Gehler, an MTC employee and certified weld inspector, performed magnetic particle testing on each welded section, and Lakehead employees began repairing the cracks revealed by the initial testing. (Def.'s 56 ¶ 26.) Once the repairs were complete, Gehler retested the welds and Lakehead employees covered the repaired welds with a "cold-galv compound."*fn5

(Def.'s 56 ¶ 26.) Gehler stated in his deposition that once the repairs were complete, the truss section welds appeared to comply with applicable industry standards.*fn6 (Gehler Dep. 105:6-9.) Still, given the number of cracks found, David Krech, the lead engineer for KOA, was not convinced that MTC had detected every defect and feared that there could be "latent, non-visible defects." (Krech Dep. 51:12-52:7.) Therefore, Krech determined that in order to discover any non-visible cracked welds and ensure that the truss sections did not collapse during installation, the trusses would need to undergo "load testing" to ensure their integrity. (Def.'s 56 ¶ 26; Hautala Aff. ¶ 16.) Load testing "consist[s] of placing large concrete blocks on the assembled trusses to measure the trusses' flexion, ensure the integrity of the repaired welds, and determine the presence of non-visible cracked welds." (Def.'s 56 ¶ 30.) Lakehead claims that prior to conducting the load test, Hautala informed Dan Larson about the procedure and gave Larson an opportunity to express his opinion. (Def.'s 56 ¶ 28.) Plaintiff admits that Larson received an e-mail from Hautala about the load testing, but claims "Northshore was never consulted by Lakehead as to whether or not load testing was even necessary." (Pl.'s Resp. ¶ 28.)

On July 28, 2006, the third shipment of trusses arrived at the jobsite. Like the earlier shipments, this third shipment included trusses with damaged sections. (Odermann Aff. ¶ 6.) In the days that followed, Lakehead's then-president, Donald Odermann, met with representatives from Northshore, Consumers, and KOA. The parties agreed that Lakehead would repair the majority of the damaged truss sections at the jobsite, and that Plaintiff would refabricate and arrange for the galvanization of the sections that were damaged beyond repair. (Odermann Aff.¶ 7.) At some point during their meeting, Odermann warned Dan Larson that "Lakehead would deduct the costs of repairing the damaged sections from the amount Lakehead had agreed to pay [Plaintiff] under the subcontract." (Id.) Plaintiff admits that it participated in the meeting with Odermann and other representatives about the repairs, and that it understood costs would be deducted from the price Lakehead would pay, but Plaintiff contends it understood the deducted "costs" to refer only to "the bent angles and correcting the cracked welds in the field," not to the load testing. (Pl.'s Resp. ¶ 22.)

Lakehead proceeded with the load testing in September 2006, and Krech determined that the truss sections were structurally sound. (Def.'s 56 ΒΆ 31.) Lakehead subsequently deducted the costs it incurred in "repairing the truss sections, including the MTC testing, stripping and rewelding, and load testing, from the amount it owed plaintiff under the subcontract," ...

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