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Scholle IPN Packaging, Inc. v. Valfilm, LLC

United States District Court, N.D. Illinois, Eastern Division

August 5, 2019

SCHOLLE IPN PACKAGING, INC., and LIBERTY SURPLUS INSURANCE CORPORATION, as Subrogee of Scholle IPN Packaging, Inc., Plaintiff,
v.
VALFILM, LLC, Defendant.

          MEMORANDUM OPINION AND ORDER

          HONORABLE MARVIN E. ASPEN UNITED STATES DISTRICT JUDGE

         In February 2016, Plaintiff Scholle IPN Packaging, Inc. (“Scholle”) entered into an agreement with Defendant Valfilm, LLC (“Valfilm”) to purchase plastic film. (Pls.' Statement of Material Facts (“Pls.' Facts”) (Dkt. No. 21-1) ¶ 10; Answer (Dkt. No. 14) ¶ 10.) The film was used by Scholle to manufacture plastic bags that were sold to Coca-Cola Company (“Coke”) to hold soft drink syrup. (Pls.' Facts ¶¶ 8-10, 37.) The bags sold to Coke eventually began to leak. (Id. ¶¶ 37.) Scholle investigated the cause of the leaking and concluded that it was caused by out-of-specification film received from Valfilm. (Id. ¶¶ 37-42.) Scholle paid Coke $1.51 million to cover losses allegedly caused by the leaking bags. (Id. ¶ 52.) To recover this payment and other losses, Scholle and its insurer, Liberty Surplus Insurance Corporation (“Liberty”) (collectively “Plaintiffs”), sued Valfilm for breach of contract, breach of express warranty, breach of implied warranties of merchantability and fitness for a particular purpose, breach of indemnity, negligence, and strict liability.[1] (Compl. (Dkt. No. 1).) Presently before us is Plaintiffs' motion for summary judgment on all counts (Dkt. No. 21) and Valfilm's cross-motion for summary judgment that seeks to dismiss a large portion of Plaintiffs' claimed damages. (Dkt. No. 22.) For the reasons set forth below, we grant in part and deny in part Plaintiffs' and Valfilm's motions.

         BACKGROUND

         Scholle manufactures plastic packaging and sealing products including plastic bags, pouches, and spouts. (Pls.' Facts ¶ 8; Dep. of David Bellmore (“Bellmore Dep.”) (Dkt. No. 28-4) at 4).) Scholle also manufactures five-gallon plastic bags for Coke that it uses to package soft drink syrup. (Pls.' Facts ¶¶ 8-9.) The bags are constructed of four main components: an inner and outer layer (i.e., plies) of plastic film, a spout, and a “dip strip” that helps extract liquid from the bags. (Bellmore Dep. at 13.) In February 2016, Scholl contracted with Valfilm to purchase film for use as the inner ply component of bags for Coke. (Pls.' Facts ¶¶ 10-11; Purchase Order Agreement (“Contract”) (Dkt. 21-4) at 2-3; Answer ¶ 10; Bellmore Dep. at 13.)

         I. FILM SPECIFICATIONS AND TESTING

         The contract required Valfilm to manufacture the film to certain specifications. (Pls.' Facts ¶¶ 12-13; Raw Material Specifications (“Specs.”) (Dkt. No. 21-6).) One specification was that the film was not to be “corona treated.” (Pls.' Facts ¶ 13; Specs. At 2.) Corona treatment is a process that changes the surface properties of plastic films, making it easier to print text or images onto the film. (See Bellmore Dep. at 15.) Contrary to specifications, Valfilm corona treated one side of the film. (Pls.' Facts ¶¶ 19-22, 25-26; Def.'s Answer to Pls.' Req.'s for Ad. (“Def.'s Answer to Req.'s”) (Dkt. No. 21-5) ¶¶ 4-6.)

         The contract also included an “Inspection and Acceptance” provision. (Contract at 3, § 10.) That provision states:

Inspection and Acceptance. All goods ordered [under the contract] shall be subject to inspection and test by [Scholle] to the extent practicable at all times and places, including the place of manufacture and in any event prior to acceptance.

(Id.) Scholle did not test the film it received to determine if it was corona treated. (Def.'s Statement of Additional facts (“Def.'s Add. Facts”) (Dkt. No. 28) ¶ 11; Bellmore Dep. at 62.) Scholle did, however, test the bags it ultimately manufactured for Coke to make sure they met Coke's specifications. (Def.'s Add. Facts ¶¶ 16-18; Bellmore Dep. at 7-9, 17-19.) These tests did not reveal any issues with the bags or their seals. (Bellmore Dep. at 18.)

         II. BAG LEAKAGE AND SCHOLLE'S INVESTIGATION

         After Scholle delivered numerous bags to Coke, it was notified that the bags were leaking soft drink syrup. (Pls.' Facts ¶ 37.) Scholle investigated and found that the leaking was caused by the corona treated film it received from Valfilm. (Pls.' Facts ¶¶ 39-42; Bellmore Dep. at 16; Global Materials Sci. Lab Report (“Lab Report”) (Dkt. No. 21-19) at 4.) Scholle's conclusion was based, in part, on testing seals manufactured with both corona and non-corona treated film. (Lab Report at 3-4; Bellmore Dep. at 22.) The tests revealed that seals made with corona treated film were significantly weaker than seals made with non-corona treated film and would eventually leak. (Lab Report at 3-4.)

         III. COKE'S AND SCHOLLE'S CLAIMED DAMAGES

         Coke eventually made a claim to Scholle for $1, 511, 522 for damages allegedly caused by the leaking bags. (Pls.' Facts ¶¶ 38, 52.) Scholle's insurer, Liberty, retained RGL Forensics (“RGL”) to verify the damages alleged by Coke. (Def.'s Statement of Facts (“Def.'s Facts”) (Dkt. No. 22-1) ¶ 10.) Robbye Mohn, a forensic accountant, from RGL investigated and analyzed Coke's claimed damages. (Id.; Mohn Damages Report (“Pls.' Damages Report” (Dkt. No. 36-4) at 8.) Mohn concluded that $503, 833 of Coke's claimed damages were not supported meaning they were not substantiated by reliable underlying documentation. (Pls.' Damages Report at 13, 21, 29.) Nonetheless, Scholle paid Coke the full amount it was claiming. (Pls.' Facts ¶ 52; see also (Dkt. No. 36-6) (copy of the check made out to Coke.) Mohn was later retained by Plaintiffs to serve as a damages expert. (Pls.' Damages Report at 10; Dep. of Robbye Mohn (“Mohn Dep.”) (Dkt. No. 28-6) at 2.)

         One category of Coke's claim that Mohn concluded was supported was damages for “finished product destroyed.” (Pls.' Damages Report at 22.) Finished product destroyed represents the alleged loss of syrup-filled bags packaged in cardboard boxes (“bag-in-box”). (Id. at 12, 22-23.) Mohn relied on two main pieces of evidence to verify these damages: a bill of materials (“BOM”) from Coke that lists the claimed cost of each bag-in-box component totaling $9.65, [2] and various invoices demonstrating that 68, 897 bag-in-boxes were destroyed. (Id. at 22-24; Mohn Dep. at 17-19; see also BOM at 94.) Based on this evidence, Mohn concluded that Coke's damages for finished product destroyed totaled $664, 856. (Damages Report at 22-24.) Valfilm retained its own damages expert, Joel Chenevey, who disagreed with Mohn and concluded that none of Coke's finished product destroyed damages were supported. (Dep. of Joel Chenevey (“Chenevey Dep.”) (Dkt. No. 36-7) at 3, 12-13.)

         Scholle also claims that it suffered $253, 832 in direct damages. (Pls.' Damages Report at 13.) Mohn opined that $237, 964 of this amount was supported (Id. at 17, 29) while Chenevey testified that $252, 183 was supported. (Chenevey Dep. at 11-12.)

         IV. DAMAGES PROVISIONS IN THE CONTRACT

         Three contract provisions reference Valfilm's potential damages responsibilities. First, the contract includes an indemnity provision that states:

[Valfilm] agrees to indemnify and hold harmless [Scholle] from and against all losses, liabilities, claims or demands, including attorneys' fees and costs, for injuries to any person (including death) or damage to property, directly or indirectly arising out of [Valfilm's] performance hereunder, or its acts or omissions, regardless of when such losses occur and regardless of whether such articles or services have been accepted.

         (Contract at 3, § 12). The contract also includes a damages clause within the warranty provision.

         It states:

[Valfilm] agrees to save and keep [Scholle] and its customers free and harmless from any loss, damage, injury, or expense whatsoever in connection with this Purchase Order including, without limitation, all claims whether in warranty, negligence, product liability or otherwise, consequential and incidental damages, and attorneys' fees.

         (Id. § 9.) Finally, the specifications also include a damages provision:

If a change is made [to specifications] without Scholle approval, [Valfilm] agrees to reimburse Scholle for 100% of the resulting out-of specification film, as well as 100% of all empty and filled bags made with this out-of specification film, and 100% of all other quality issue expenses associated with it.

         (Specs. at 6.)

         STANDARD OF REVIEW

         Summary judgment is proper only when “there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). A genuine issue for trial exists when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). This standard places the initial burden on the moving party to identify “those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986) (internal quotations omitted). Once the moving party meets this burden of production, the nonmoving party “may not rest upon the mere allegations or denials of the adverse party's pleading” but rather “must set forth specific facts showing that there is a genuine issue [of material fact] for trial.” Fed.R.Civ.P. 56(e). In deciding whether summary judgment is appropriate, we must accept the nonmoving party's evidence as true, and draw all reasonable inferences in that party's favor. See Anderson, 477 U.S. at 255, 106 S.Ct. at 2513. “On cross-motions for summary judgment, the Court assesses whether each movant has satisfied the requirements of Rule 56.” Portalatin v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 125 F.Supp.3d 810, 813 (N.D. Ill. 2015). As with any summary judgment motion, we consider cross-motions for summary judgment “construing all facts, and drawing all reasonable inferences from those facts, in favor of the non-moving party.” Laskin v. Siegel, 728 F.3d 731, 734 (7th Cir. 2013) (citing Wis. Cent., Ltd. v. Shannon, 539 F.3d 751, 756 (7th Cir. 2008)).

         ANALYSIS

         Plaintiffs argue that summary judgment is appropriate because the undisputed facts show Valfilm breached the contract and express and implied warranties, was negligent, and manufactured an unreasonably dangerous product. (Pls.' Mem. of Law in Supp. of Mot. for Summ. J. (“Pls.' SJ Mem.”) (Dkt. No. 21-18).) Plaintiffs also argue that the undisputed facts demonstrate they are entitled to $1, 765, 354 in damages plus attorneys' fees. (Id. at 20-21.)Valfilm argues that Plaintiffs' motion should be denied because there are questions of fact regarding Scholle's performance under the contract and the amount of damages claimed by Plaintiffs. (Def.'s Resp. to Pls.' Mem. of Law in Supp. of Mot. for Summ. J. (“Def.'s Resp.”) (Dkt. No. 27) at 6-15.) Valfilm separately moves for summary judgment, arguing that $1, 171, 781 of Plaintiffs' claimed damages should be dismissed because they are unsubstantiated. (Def.'s Mem. of Law in Supp. of Mot. for Summ. J. (“Def.'s SJ Mem.”) (Dkt. No. 22-12) at 1, 9).) We first address Plaintiffs' claims regarding liability and then address the parties competing damages arguments.

         I. LIABILITY

         Plaintiffs argue that the undisputed facts demonstrate Valfilm is liable on all counts. (Pls.' SJ Mem.) Valfilm responds that summary judgment cannot be granted as to liability because questions of fact remain regarding Scholle's performance under the contract and damages.[3] (Def.'s SJ Mem.)

         A. Breach of ...


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