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Budnick Converting, Inc v. Nebula Glass International

March 30, 2012

BUDNICK CONVERTING, INC., PLAINTIFF/COUNTER-DEFENDANT,
v.
NEBULA GLASS INTERNATIONAL, INC., D/B/A GLASSLAM, DEFENDANT/COUNTER-PLAINTIFF, NEBULA GLASS INTERNATIONAL, INC., D/B/A GLASSLAM, THIRD PARTY PLAINTIFF,
v.
TESA TAPE, INC., THIRD PARTY DEFENDANT.



The opinion of the court was delivered by: Herndon, Chief Judge:

ORDER

This case is sticky. Nebula Glass International, Inc., d/b/a/ Glasslam ("Glasslam") sought to create a new product -- the "Air-Tight" -- that required, among other things, a specialized double-sided tape that could withstand certain conditions. Accordingly, Glasslam considered several products and ultimately decided to look into a tape -- the 4965 -- provided by Budnick Coverting, Inc. ("Budnick") but manufactured by Tesa Tape, Inc. ("Tesa"). Glasslam tested the tape to ensure it was suitable for its application but then decided the tape, which had a red liner, needed a different liner with a different color and thickness. Accordingly, Glasslam worked with Budnick in finding a solution and ultimately decided upon a variation of the 4965 with the red liner (the "red tape") called the 4965 PV2 which had a white liner (the "white tape"). The white tape was represented to Glasslam as the same tape as the red tape with a different liner. As a result, Glasslam decided not to expend the resources to put the white tape through the same testing it had put the red tape through and ordered the tape from Budnick with plans to go into production. After the "Air-Tight" went into production, it was discovered that the white tape was not suitable for its intended use as it was failing Glasslam's customers' testing. As a result, Glasslam refused to pay for the white tape and this lawsuit involving Glasslam, Budnick, and Tesa ensued. Now before the Court are four motions for summary judgment, two by Budnick, two by Tesa, and Glasslam's appeal of magistrate judge decision. For the reasons that follow, Glasslam's appeal is denied, Budnick's motions for summary judgment are granted, and Tesa's motions for summary judgment are granted.

I. Background

Glasslam is a Florida company involved in the window glass industry as a supplier of component parts to other manufacturers. (Doc. 7). Glasslam is owned half by Steve Howes and half by Violet Howes. (Doc. 97-2, p. 2). During the time period relevant to this lawsuit, Mr. Howes was the CEO/president and Mrs. Howes was the vice president/secretary-treasurer of Glasslam. (Doc. 97-2, p. 3). In 2007, Glasslam was working to create the "Air-Tight," a spacer for separating two pieces of glass for insulated glass for windows. (Doc. 97-25, p. 2). The "Air-Tight" was composed of three main parts: 1) a rubber gasket; 2) a double-sided adhesive tape that would go on both sides of the gasket; and 3) a mylar or moisture barrier tape on top of the gasket. (Doc. 99-5, p. 5). At issue here, is the double-sided adhesive tape.

To help it find the right products for the "Air-Tight" Glasslam worked with Budnick, whom it had done business with for years. (Doc. 97-1, p. 23). Budnick, an Illinois company, is a converter of adhesive tape products. Tape converting is the die cutting, slitting, and spooling of tape materials to customer-specific sizes. (Deterding p. 9). Glasslam primarily dealt with Budnick employees Ronald Miaskiewicz and Tom Birch. Birch did sales and business development for Budnick and was the primary day-to-day contact with Glasslam. (Doc. 97-4, p. 3, 5). Miaskiewicz was responsible for the sales, marketing, and the application engineering function of Budnick. (Doc. 97-11, p. 12). Ultimately, Glasslam became interested in the 4965 or red tape manufactured by Tesa. Tesa manufactures various types of tape, including adhesive acrylic tapes, and sells its products to distributors such as Budnick. (Doc. 33). Glasslam never dealt directly with Tesa, but went through Budnick to get Tesa's products. (Doc. 97-1, p. 23).

In August of 2007, after Budnick sent Glasslam a quote containing its terms and conditions of sale, which was customary between the parties, Glasslam purchased twenty-four spools of the red tape for testing purposes. (Docs. 97-8, 97-9). Those terms and conditions, which will be set forth more specifically where applicable below, contained nine provisions governing: 1) "Prices"; 2) "Shipments"; 3) "Payments"; 4) "Cancellations, Returns, and Assignments"; 5) "Limited Warranty, Inspection and Claims"; 6) "Limits on Liability"; 7) "Force Majeure and Shortages"; 8) "Other Provisions"; and 9) "Exclusive Terms and Conditions." (Doc. 97-17, p. 2). Testing that summer consisted of Steve Howes independent testing or "SHIT" testing.*fn1 Mr. Howes is deemed an expert and owns several patents in the window and glass industry. (Doc. 104-3, p. 9). While Mr. Howes does not consider himself to be an expert with respect to adhesives used in the manufacture of insulated glass windows, he does consider himself to be "an expert in using the products and then testing the finished product to see whether or not it outgasses . . . and at what degree." (Doc. 104-3, p. 9-10). Outgassing is a well known problem in the glass industry (Doc. 104-3, p. 4). It can cause a window to fog and can affect the coating on the glass itself. (Doc. 95-1, p. 19-20). Howes testified that SHIT testing is more stringent than industry standard testing. (Doc. 97-1, p. 22). Generally, Glasslam did not use a product unless Mr. Howes approved it first through testing. (Doc. 97-1, p. 20). The adhesive of the Tesa 4965 or the red tape passed Mr. Howes' testing, but he did not like the red liner because of its color and weight and because it wrinkled. (Doc. 104-3, p. 18). Accordingly, Glasslam discussed with Budnick about finding a solution.

Budnick contacted Tesa and discovered that Tesa made the 4965 with a white liner. (Doc. 97-11, p. 18). On September 25, 2007, Miaskiewicz spoke with Mr. Howes regarding his concerns about the liner, including his concerns about emissions of volatiles or out-gassing. (Doc. 97-11, p. 43). On September 26, 2007, Miaskiewicz sent Mr. Howes an email stating in relevant part: tesa 4965 concerns about emission of volatiles. I am in touch with an Application Engineer and the VP of New Business Development at tesa regarding this subject. They provided me with a NASA test report that shows tesa 4965 performance vs other tesa tapes. I do not know if you will ever find a tape that has zero emissions. The report details that the collected volatile condensable materials measured for tesa 4965 was 0.02%, far less than any of their other products, and I would guess at worst in line with any other product that we could identify as a competitive option. The report is dated back to 1993 and I have asked tesa to provide a letter stating that the product does not emit volatiles and that the construction of tesa 4965 remains the same to this day as when this report was written. In all my years at tesa I know the product has remained unchanged and I am confident that they will report the same. I hope to have that letter Monday the latest. (Doc. 97-12, p. 1).*fn2 Attached to the email was an "analytical test report" dated October 25, 1993, which showed that the 4965 had a 0.02% collected volatile condensable materials ("CVCM"), which relates to the amount of outgassing. (Doc. 97-12, p. 2).

On September 27, 2007, Miaskiewicz sent Mr. Howes an email stating that he would have a letter from Tesa no later than tomorrow. He also noted that Tesa had asked him "to make sure the report [he] sent yesterday is not used for verification at the customer as it is outdated. They will explain the results in the letter." (Doc. 97-14).

On September 28, 2007, Miaskiewicz sent Mr. Howes an email attaching a letter from Tesa and stating:

Please see the attached letter from tesa. I hope this alleviates any concerns regarding the out gassing of volatiles.

We received the 4965 with the PET liner today. We will receive the other rolls soon enough. The results of the 4965 were extremely promising. We laminated the material to one of your gaskets and bent the extrusion to and beyond the 6" core size. The liner performed as well as the blue in our eyes and far better than the red tesa PP liner. Alex is working with production to spool the material that we have onto a core for you to run through the equipment. We assume you will need 2 spools to run through the equipment. (Doc. 97-14, p. 1). The attached letter was from Tesa to Budnick and stated as follows:

Pursuant to the question of outgassing and our tesa® 4965, please be advised that the test data on file with tesa tape inc. indicates a CVCM (Collected Volatile Condensable Materials) level of 0.02%. Tests were conducted in accordance with ASTM Standards E-595-77 and are derived in accordance with NASA Reference Publication 1124.

The tesa® 4965 test results generated the lowest CVCM levels amongst other products tested, and according to our experience, no known reported issues involving the outgassing of tesa® 4965 exist.

All information is provided in good faith, and as always, tesa recommends the user conducts additional testing to determine the suitability of the product under intended conditions. (Doc. 97-14, p. 2). On November 19, 2007, two spools of the 4965 PV2*fn3 or the white tape were sent to Glasslam as a sample. (Exhibit 15).

On November 30, 2007, Budnick sent Mr. and Mrs. Howes an email attaching a new quote with a price increase for the spools because the liner of the 4965 had changed, along with a copy of Budnick's terms and conditions. (Doc. 97-16). The quote was for 289 spools of the white tape with each spool to contain 30,000 linear feet of tape at a price of $502.677 each. Also, attached to the email was a "first article sample approval" form. (Doc. 97-16). That same day, Glasslam, via Mr. Howes, ordered 144 spools of the white tape. (Doc. 104, Ex. 10).

On December 3, 2007, Mr. Howes signed the "first article sample approval" form that was sent to him along with the quote and Budnick's terms and conditions, indicating that the sample of the white tape shipped to him on November 30, 2007, tested on a trial run that met his requirements and was suitable for his application. (Doc. 97-21). Mrs. Howes emailed Birch this form that same day, stating, "Please find this letter as confirmation that Steve has checked the samples of the new liner # 4965PV2 and it is acceptable. Steve has also received the new quotation as per attached and acknowledged the price increase per spool." Mr. Howes did not perform SHIT testing on the white tape to check for outgassing, but only tested the tape to see if it properly adhered to the rubber. (Doc. 104-3, p. 32). Glasslam and Budnick both believed that the 4965 and the 4965 PV2 were the same tape with the exception of a different liner. (Doc. 97-4, p. 12, Doc. 97-11, p. 48).

On January 10, 2008, Budnick and Glasslam executed an inventory agreement, which authorized Budnick to stock up to 566 spools on the floor and have 566 spools in the pipeline of the white tape (Doc. 97-22). An inventory agreement was entered into so that there would be no gap in providing tape to Glasslam. (Doc. 97-4, p. 14). On January 30, 2008, Glasslam ordered 3400 spools of the white tape. (Doc. 91-3). The purchase order indicated that it was ordered by Mrs. Howes and approved by Mr. Howes. It is also indicated that it was a "blanket order" for "6 months supply." The order was placed by Mrs. Howes over an email sent to Birch and copying Mr. Howes (Doc. 110-1, p. 1).

Fenestration & Glass Services ("Fenestration") is partially owned by Mr. and Mrs. Howes and manufactures the Air-Tight for Glasslam. (Doc. 97-25, p. 2). Fenestration began manufacturing the Air-Tight in late December 2008, but production was stopped in approximately late March or early April 2009 after customers started reporting that the Air-Tight was failing their independent tests. (Doc. 97-25, p. 3). Accordingly, Fenestration began testing the 4965 PV2 or white tape in April 2009 and the 4965 or red tape in May 2009 (Doc. 97-25, p. 10). According to Glasslam, the 4965/red tape passed all tests but the 4965 PV2/white tape failed all tests. (Doc. 97-25, p. 10). The testing revealed that white tape was causing outgassing.*fn4 In April 2009, Glasslam informed Budnick that it did not want anymore tape and did not believe it was responsible for paying for the tape it had received. (Doc. 97-11, p. 41).

On June 5, 2009, Budnick filed suit against Glasslam in Illinois state court. This case was removed here by Glasslam based upon diversity on August 21, 2009. (Doc. 2). In its complaint, Budnick alleged a breach of contract claim against Glasslam for not paying for tape products provided by Budnick and for refusing to accept delivery or to pay for other remaining product and amounts in violation of the agreement entered into by the parties. Budnick also alleged that pursuant to the contract, Glasslam owed Budnick reasonable attorneys' fees and interest. Shortly after removing to this Court, on August 25, 2009, Glasslam filed a counterclaim against Budnick, alleging three counts: 1) breach of contract; 2) breach of express warranty; and 3) breach of implied warranty. (Doc. 7). On February 19, 2010, Glasslam brought Tesa into the case by filing a third party complaint against Tesa, alleging four counts: 1) negligence; 2) breach of implied warranty; 3) breach of contract for the benefit of a third party; and 4) negligent misrepresentation. (Doc. 33).

On April 5, 2010, Tesa filed a motion to dismiss Glasslam's negligence and negligent misrepresentation counts (Doc. 48), and on September 20, 2010, the Court entered an order denying that motion. (Doc. 67). On March 15, 2011, Glasslam filed a motion for leave to file a first amended counterclaim against Budnick (Doc. 77) and a motion for leave to file first amended third party complaint against Tesa (Doc.78), seeking to add an alternative theory of recovery based upon fraudulent misrepresentation(s) made by Budnick and Tesa. Both Budnick and Tesa opposed the motions for leave to amend and on April 4, 2011, Magistrate Judge Phillip M. Frazier denied Glasslam's request to amend its counts against Budnick and Tesa. (Doc. 87). Glasslam has appealed that decision (Doc. 88), and for the reasons stated below, the Court denies that appeal.

On June 23, 2011, several motions for summary judgment were filed. Budnick filed a motion for summary judgment as to its claim for breach of contract claim against Glasslam (Doc. 91) and a motion for summary judgment as to Glasslam's counter-claims against Budnick (Doc. 96). Tesa filed a motion for partial summary judgment on counts one (negligence) and four (negligent representation) of Glasslam's complaint (Doc. 94) and a motion for partial summary judgment on counts two (breach of implied warranty) and three (breach of contract for the benefit of a third party) of Glasslam's complaint (Doc. 98). Glasslam filed oppositions to all of the motions and replies were filed by Budnick and Tesa. For the reasons that follow, Glasslam's motions for summary judgment are granted as are Tesa's.

II. Standard of Review

In a diversity case, the Court applies state law to substantive issues. RLI Ins. Co. v. Conseco, Inc., 543 F.3d 384, 390 (7th Cir. 2008). Federal law governs procedure. Fednav Int'l Ltd. v. Cont'l Ins. Co., 624 F.3d 834, 838 (7th Cir. 2010). When neither party raises a conflict of law issue in a diversity case the applicable law is that of the state in which the federal court sits. Id. Thus, in this case, Illinois law applies. Under Illinois choice of law rules, however, litigants can stipulate to which substantive law applies to their case so long as the stipulation is reasonable. Rexford Rand Corp. v. Ancel, 58 F.3d 1215, 1219 n. 6 (7th Cir. 1995). To the extent that the Illinois Supreme Court has not yet spoken to any of the issues before the Court, the Court shall apply the law as it would predict the Illinois Supreme Court would if deciding the case. Mut. Serv. Cas. Ins. Co. v. Elizabeth State Bank, 265 F.3d 601, 612 (7th Cir. 2001).

Summary judgment is appropriate only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. PROC. 56(c). A genuine issue of material fact exists when the evidence is such that a reasonable jury could find for the non-movant. Buscaglia v. United States, 25 F.3d 530, 534 (7th Cir. 1994). The movant in a motion for summary judgment bears the burden of demonstrating the absence of a genuine issue of material fact by specific citation to the record; if the party succeeds in doing so, the burden shifts to the non-movant to set forth specific facts showing that there is a genuine issue of fact for trial. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). In considering motions for summary judgment, a court construes all facts and draws all inferences from the record in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

III. Analysis

A. Glasslam's Appeal of Magistrate Judge Decision

As mentioned above, Glasslam appeals the magistrate judge's denial of its motion for leave to amend its counterclaim against Budnick and its third party complaint against Tesa. In its motion for leave to amend, Glasslam sought to add a claim of fraudulent misrepresentation against Budnick and Tesa. In its appeal, Glasslam' sets forth in its argument that the magistrate followed an incorrect legal standard in denying its appeal. Specifically, Glasslam suggests that "delay in seeking leave to amend, standing alone, is insufficient to justify denial." Glasslam argues that the Seventh Circuit's decision in Dubicz v. Commonwealth, 377 F.3d 787, 792 (7th Cir. 2004), held that delay in seeking leave to amend is insufficient to justify denial and must be held with some other reason, typically prejudice to the non-moving party. Glasslam contends that neither Budnick nor Tesa argued that Glasslam's delay caused them any prejudice and that the magistrate judge failed to determine that Glasslam's delay would result in any prejudice. Thus, Glasslam derives that the order denying leave to amend is contrary to law.

The Court may modify or reverse a decision of a magistrate judge on a nondispositive issue upon a showing that the magistrate judge's decision is "clearly erroneous or contrary to law." FED. R. CIV. P. 71.1(a); SDIL-LR 73.1(a). A finding is clearly erroneous when "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364 395 (1948)); see also Weeks v. Samsung Heavy Indus. Co., 126 F.3d 926, 943 (7th Cir. 1997) ("The clear error standard means that the district court can overturn the magistrate judge's ruling only if the district court is left with the definite and firm conviction that a mistake has been made."). "When there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Anderson, 470 U.S. at 574 (citing United States v. Yellow Cab Co., 338 U.S. 338, 342 (1949)).

Rule 15 of the Federal Rules of Civil Procedure provides that when a party requests to amend its pleadings, a court "should freely give leave when justice so requires." FED. R. CIV. P. 15(a)(2). Nevertheless, "[i]t is well within the province of the district court to deny leave to amend if, among other things, there is undue delay or undue prejudice would result to the opposing party if the amendment were allowed." Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 759 (7th Cir. 2002). "[District] courts have broad discretion to deny leave to amend where there is undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies, undue prejudice to the defendants, or where the amendment would be futile." Johnson v. Cypress Hill, 641 F.3d 867, 871-72 (7th Cir. 2011) (quoting Hukic v. Aurora Loan Servs., 588 F.3d 420, 432 (7th Cir. 2009)). "And while delay on its own is usually not reason enough for a court to deny a motion to amend, [Dubicz, 377 F.3d at 792-93], the 'longer the delay, the greater the presumption against granting leave to amend.'" Johnson, 641 F.3d at 872 (quoting King v. Cooke, 26 F.3d 720, 723 (7th Cir. 1994)).

Here, the magistrate judge's decision to deny leave to amend was not clearly erroneous or contrary to law. While Glasslam is correct that delay on its own is not usually enough reason to deny a motion to amend, the magistrate judge did not base its decision solely on delay, but also based it on prejudice to Budnick and Tesa, stating, "[a]llowing [Glasslam] to add a new theory of liability at this stage would deprive Budnick and Tesa Tape of a fair opportunity to gather and exchange relevant information, file motions, and prepare for trial." Contrary to Glasslam's assertions, both Tesa and Budnick argued that they would be prejudiced if leave were granted (Doc., 83, p. 4, 84, p. 2-3), and it was not error for the magistrate to conclude that prejudice would result by changing the focus of and requiring more discovery. See Johnson, 641 F.3d at 872-73 ("Allowing Johnson to amend his complaint would mean additional discovery focused on whether misappropriation had occurred under Illinois state law. [Citation]. Thus, in addition to a lengthy delay, allowing Johnson to change the course of the litigation fours years into the case would be prejudicial to Cypris Hill."). Furthermore, the delay here was extreme and Glasslam has "not argued that its delay in seeking to leave to amend was not an undue delay," (Doc. 88, p. 12), leading to a greater presumption that the motion should be denied. See ...


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