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M.E.M. Ventures, LLC v. The White Group, Inc.

United States District Court, N.D. Indiana

March 18, 2019

M.E.M. VENTURES, LLC, d/b/a ROUND GROVE FARM CENTER, Plaintiff,
v.
THE WHITE GROUP, INC., Defendant.

          OPINION AND ORDER

          THERESA L. SPRINGMANN UNITED STATES DISTRICT COURT.

         In this litigation, the Plaintiff, M.E.M. Ventures d/b/a Round Grove Farm Center, alleges that liquid fertilizer leaked out of two storage tanks located on its property, and that the cause of the leaks was a defect in liners that the Defendant, The White Group, had sold to the Plaintiff and installed several years earlier. This matter is before the Court on the Defendant's Motion for Summary Judgment [ECF No. 25], and all related briefing. The Defendant has also filed a Motion to Strike Evidence Submitted by Plaintiff in Response to Defendant's Motion for Summary Judgment [ECF No. 34].

         MOTION TO STRIKE

         The Defendant moves to strike two lines of testimony from the record, both of which were offered by the Plaintiff's owner and president, Patrick Murphy. The Defendant argues that the statements are inadmissible, or that they are entitled to no probative weight. Because the Court can distinguish which statements may properly be considered when deciding whether summary judgment is appropriate, the Court will not rule on the Defendant's Motion to Strike [ECF No. 34] as a separate motion. The Court has noted the Defendant's objections and will consider the objections to the extent they arise in the Court's summary judgment analysis.

         FACTUAL BACKGROUND

         In 2008, the Defendant sold the Plaintiff two liners that were to be installed inside large storage tanks that a third party, Skinner Tank, was constructing on the Plaintiff's property; a South Tank and a North Tank. The tanks would be used to store liquid fertilizer. The Defendant's owner and president, Steven White, handled the sale. He convinced Murphy to purchase liners treated with Elvaloy because they were superior to similar liners and had a longer warranty period. The total purchase price for both liners was over $100, 000 and included installation. The contracts provided for both an installation warranty and a ten-year, pro-rated materials warranty. The warranty specified that the Defendant “cannot be held responsible for damages to the liner from overfilling the tank or from the owner or any other third party entering the tank.” (ECF No. 27-1 at 37.)

         The Defendant ordered the liners from Specialty Plastics Fabricators and they were shipped directly to the Plaintiff's facility. The invoices described the product as Elvaloy. The Defendant's employee, Steve Hunter, acted as the foreman for installation. Based on his experience with both kinds of liners, Hunter believed that he was installing Elvaloy liners. They had the distinct physical properties, in term of coloring, odor, and feel, that he was accustomed to with Elvaloy liners. The South Tank liner installation was completed on August 14, 2008, and the North Tank liner installation was completed on September 10, 2008. Hunter vacuum tested each liner after installation to ensure that there were no leaks. The Plaintiff visually inspected the liners after they were installed and found there to be no problems. The Plaintiff began using the tanks to store liquid fertilizer.

         Almost five years later, in June 2013, one of the Plaintiff's neighbors informed the Plaintiff that the area around the South Tank had an ammonia smell, and advised that he check it out. The Plaintiff's personnel inspected the area and discovered that the ground was saturated. When they dug a trench, it quickly filled with liquid fertilizer. On July 2, 2013, an employee for the Plaintiff conducted an inventory. Although computer records showed that the Plaintiff should have had 410 tons of product in storage, the physical count revealed only 180 tons.

         The Plaintiff advised both the Defendant and Skinner Tank about the loss of product. Hunter responded on behalf of the Defendant. After cleaning out the tank, he pulled a vacuum and checked for leaks.[1] Finding no leaks, and noting that visible staining was present all the way to the top of the liner, on the white polypropylene strips that held the liner in place, and on the tank itself, he concluded that overfilling was the problem. There were no other tests conducted on the South Tank liner.

         When Hunter was on the Plaintiff's property inspecting the South Tank, he noticed that the manway gaskets on the North Tank had been improperly installed. The Plaintiff's employees had installed the gaskets in 2010 using parts they purchased from the Defendant. Hunter also observed that the bolt holes had significantly elongated and were torn in various areas. White was advised of the damage to the manway boot, but did not believe that the damage could be fixed, so Murphy contacted a different liner company, Agraliners, for the repair. Agraliners replaced the manway boot in November 2013. At that time, there was damage to the boot, but none to the tank liner.

         Nearly a year later, on September 29, 2014, the Plaintiff's personnel noticed the smell of ammonia around the North Tank when adding fertilizer. When Hunter visually inspected the tank, there was a foot or less of product in the tank. Hunter could not visibly see any tears in the lining. He noticed the same signs of overfilling on the North Tank that he had observed on the South Tank. Additionally, he noticed that the liner was pushed inward at the bottom, as if liquid fertilizer was behind it, trapped between the liner and the steel tank. When Hunter returned to the North Tank a second time, the liner had a visible tear in it.

         On September 16, 2015, the Donan Engineering Company conducted a study of the North Tank to determine the cause of the liner failure. Forensic Engineer Steven F. Richey opined that the liner had suffered a brittle fracture.

With the liner tented at the bottom corner, tensile forced were applied when liquid was added and released when the liquid was removed. The fluctuating load fatigued the fabric, and a crack developed in the fabric. The lack of reduction in thickness at the fracture line indicates that the material was not stretched; therefore, it was not overloaded. The crack propagated, causing the failure of the liner. The characteristics of the failure are consistent with a sudden brittle fracture. The cause of the brittle failure would require analysis from a laboratory specializing in this field of materials.

         (Richey Report, ECF No. 27-5 at 5.) The Report concluded that the liner “did not withstand the environment of the application.” (Id. at 6.)

         The Report also addressed whether the liner contained Elvaloy, which is a resin modifier used to enhance the properties of other resins. Dupont Elvaloy 742 is an ethylene/vinyl acetate/carbon monoxide copolymer. One such company that was known to use Elvaloy was Seaman Corporation. “Their product, XR-5, contains Elvaloy. It is unknown how it compares to the product used by the White Group.” (Id. at 4.) Richey concluded that the thickness and the weight of the Seaman product and of the Plaintiff's North Tank liner were similar, but that the tear strength of the Seaman product was greater. A laboratory analysis indicated that the material of the liner was “consistent with copolymers of ethylene vinyl acetate and vinyl chloride. The analysis is inconclusive whether the materials contain the terpolymer as those in the [Seaman] Elvaloy product. The material used as the liner is not 100 percent Elvaloy, but it possibly contains one of its components as an Elvaloy resin.” (Id. at 5.)

         ANALYSIS

         Indiana has adopted the Uniform Commercial Code (UCC), which is a unified set of statutes designed to harmonize state laws governing commercial transactions. Section 2 of the UCC applies to sales of goods, which are defined as “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale.” Ind. Code § 26-1-2-105. Indiana applies the “predominant thrust test” when determining whether a contract that involves a mix of both goods and services are subject to the UCC. “Under the predominant thrust test, the applicability of the UCC to a mixed transaction is determined by considering whether the transaction's ‘predominant factor, [its] thrust, [its] purpose, reasonably stated, is the rendition of service, with goods incidentally involved . . . or is a transaction of sale, with labor incidentally involved.'” Insul-Mark Midwest, Inc. v. Modern Materials, Inc., 612 N.E.2d 550, 553-54 (Ind. 1993) (alterations in original).

         Neither party disputes that the sale of the tank liners, with installation services included, was a sale of goods subject to Section 2 of the UCC. See, e.g., Baker v. Compton, 455 N.E.2d 382, 385 (Ind.Ct.App. 1983). The general obligations of the parties in a contract for sale of goods are for “the seller . . . to transfer and deliver and [for] the buyer . . . to accept and pay in accordance with the contract.” Ind. Code § 26-1-2-301. In the course of contracting, the seller can create an express warranty by:

(a) any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
(c) any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods ...

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