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Spectro Alloys Corp. v. Fire Brick Eng'rs Co., Inc.

United States District Court, D. Minnesota

October 3, 2014

Spectro Alloys Corporation, Plaintiff and Counter-Defendant,
Fire Brick Engineers Co., Inc., Defendant and Counter-Claimant

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[Copyrighted Material Omitted]

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Jonathan M. Bye, Esq., Kelly G. Laudon, Esq., Meghan M. Elliot, Esq., Daniel James Schwartz, Esq., and Karla M. Vehrs, Esq., Lindquist & Vennum PLLP, Minneapolis, MN, on behalf of Plaintiff.

Joseph M. Windler, Esq., Thomas H. Boyd, Esq., and Matthew C. Robinson, Esq., Winthrop & Weinstine, P.A., Minneapolis, MN, on behalf of Defendant.

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On May 28, 2014, and again on August 26, 2014, the undersigned United States District Judge heard oral argument on Plaintiff Spectro Alloys Corporation's (" Spectro" ) and Defendant Fire Brick Engineers Co., Inc.'s (" FBE" ) cross-motions for summary judgment [Docket Nos. 59, 76]. For the reasons set forth below, FBE's motion for summary judgment is granted in part and denied in part. Spectro's motion for summary judgment is denied.


Spectro operates an aluminum smelting facility in Rosemount, Minnesota. The

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smelting plant includes two large furnaces, referred to as Furnace No. 1 and Furnace No. 3. The Furnaces melt scrap aluminum which is then processed into aluminum ingots which in turn are sold to aluminum manufacturers around the world. The Furnaces are freestanding steel structures lined with refractory materials. Refractory is a chemical and heat resistant material designed to withstand the corrosive, high temperature environment inside industrial furnaces. The refractory materials are necessary to contain the heat and the molten metal inside the Furnaces. Refractory materials are consumable and eventually need to be repaired or replaced, even under ideal operating conditions. See Joseph Windler Decl. [Docket No. 63] Exs. C, H, and P; see also Kelly Laudon Decl. [Docket No. 67] Exs. 47, 49.

FBE began providing refractory installation and repair services for Spectro in 2000. This lawsuit arises from three contracts for three projects--(1) an early 2010 contract to provide a replacement refractory lining in Furnace No. 3; (2) a late 2010 contract to provide patching to the refractory in Furnace No. 1; and (3) a 2012 contract to provide replacement refractory in Furnace No. 3. In the decade before this dispute, Spectro served as general contractor and provided all direction and supervision for the installation of the refractory lining in its furnaces. In these contracts, FBE's proposals did not include Spectro's role in the installation. Compare Laudon Decl. Ex. 6 with Ex. 9. The contracts include standard terms and conditions (T& Cs). Michael Skatter Decl. [Docket No. 62] Exs. A, E, and H. Paragraph 8 of the T& Cs warrants the competency of FBE's workmanship:

We guarantee that all work will be done in a competent manner and will be free from defects. We guarantee that all materials manufactured by Fire Brick Construction Division of Fire Brick Engineers Company will be free from defects and suitable for installation.

Id. The warranty continues:

It will be the responsibility of the purchaser to notify Fire Brick Construction Division of Fire Brick Engineers Company of any defects in workmanship or materials within six months after completion of the installation or the material purchase. Fire Brick Construction Division of Fire Brick Engineers Company will provide materials and/or labor to correct any deficiency. All corrections will be made on a prorated basis during a regular work week, at a time mutually agreeable to Fire Brick Construction Division of Fire Brick Engineers Company and the purchaser. Equipment and/or materials purchased by Fire Brick Construction Division of Fire Brick Engineers Company for this installation will carry the warranty extended to us by the manufacturer.

Id. Finally, the contracts specified what is not included under the warranty:

NOT INCLUDED UNDER WARRANTY - Normal wear and tear of materials and/or equipment, damage resulting from improper bake-out on the lining, damage resulting from explosions or abnormal service conditions, materials and/or equipment not manufactured by Fire Brick Construction Division of Fire Brick Engineers Company, damage resulting from failure of the rods, buckstays or other retaining devices not installed by Fire Brick Construction Division of Fire Brick Engineers Company OR ANY OTHER CONSEQUENTIAL DAMAGES.

Id. For all three projects, FBE purchased refractory material on Spectro's behalf, and then FBE mixed the materials on-site, applied the refractory material to the inside of the furnace, and " vibrated" and

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heated the refractory material to set up and test its strength.

A. Furnace No. 3

In 2010, Spectro's Furnace No. 3 experienced a failure when aluminum leaked from the furnace. In replacing Furnace No. 3, Spectro decided to increase its capacity for liquid metal from 230,000 lbs. to 300,000 lbs. HavTek Structural Consulting, Ltd. was hired to design, and O'Reilly Fabrication and Welding to construct the new Furnace No. 3. Windler Decl. Ex. C 95:21-96:24; 116:11-117:22. Spectro claims it relied on FBE to choose the refractory materials, and to design and install the refractory lining. FBE claims it did not provide any design or manufacturing services to Spectro, only installation services. It is undisputed that FBE purchased its pre-installation material from Xertech Specialties, LLC (" Xertech" ). Id. at 98:16-18, 137:23-25; Skatter Decl. Exs. A, B. FBE characterizes this purchase as " on behalf of Spectro" and claims Spectro unequivocally made the decision to use Xertech refractory materials. Spectro claims that it relied on FBE to choose appropriate materials for the installation. The installation of the new furnace lining was completed in July 2010.

In the Fall of 2010, Spectro claims it observed the east side of the Furnace's hot wall moving. Laudon Decl. Ex. 46 39:12-21. Spectro notified FBE, and FBE inspected the furnace the first week of January 2011. Id. Ex. 47 226:24-228:14. FBE investigated the problem, turning at times to the material manufacturer, Xertech, and its distributor for their input. Id. Exs. 16-17. Spectro shut down the furnace for a week in March 2011, to allow FBE to make repairs. Id. Ex. 17; Ex. 47 236:7-21. Spectro claims that the work performed in 2011 did not correct the problems and in January 2012, Spectro requested FBE return to inspect and repair the furnace. Id. Ex. 46 137:1-18; Ex. 47 241:12-242:5; Ex. 18.

Between March and May 2012, FBE and Spectro discussed how to make Furnace No. 3 operational. Id.; see also Exs. 19, 20, 64. In May 2012, Spectro hired FBE to tear out the Xertech refractory material that FBE had mixed and installed. The parties dispute who made the decision to use alternative refractory raw materials manufactured by Allied Mineral Products (" Allied" ). Prior to installation, on July 27, 2012, FBE invoiced Spectro $315,000 for the pre-purchase of some of the required Allied refractory. On September 19, 2012, FBE provided Spectro with a written proposal, totaling $940,650, to perform the repairs on Furnace No. 3. On September 27, 2012, FBE's proposal was signed by Spectro. Id. Exs. 22-23; 65.

FBE installed the Allied manufactured refractory materials in Furnace No. 3. On October 31, 2012, FBE issued an additional invoice to Spectro for $629,723. Skatter Decl. Ex. I. This represented the balance due for the labor and materials and, when added to the earlier invoice for $315,000, totals $944,723. Spectro has refused to pay this amount alleging that FBE's original installation caused the 2010 lining to fail prematurely and the expense of the repair should be offset against the warranty. Laudon Decl. Ex. 25; Ex. 46 200:2-200:23; Ex. 47 267:6-268:23. Spectro also claims FBE's installation of the 2012 Allied refractory materials did not go smoothly and the lining began failing immediately. In early December 2012, Spectro claims it observed the 2012 lining was cracking and separating, and requested all repairs be performed at no cost pursuant to the warranty provisions of the 2012 contract. Id. Ex. 47 269:18-25, 274:9-25; Ex. 27. At this point, Spectro claims FBE refused to honor the 2010 or 2012 warranty and therefore Spectro refused to pay for the

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balance of the 2012 contract. Spectro chose to hire third parties to do the warranty repair work.

B. Furnace No. 1 in 2010

In September 2010, Spectro hired FBE to perform repair work on Furnace No. 1's lining, including the replacement of one of the hot walls. The refractory material used to repair the lining was manufactured by Xertech, but FBE mixed and set it on-site. Spectro used Furnace No. 1 from October 2010 to January 2013, at which time it took Furnace No. 1 " offline" for business reasons. Windler Decl. Ex. C 249:20-250:12.

C. The Present Action

In December 2012, Spectro, FBE, and Xertech conferred about the 2010 and 2012 linings for Furnace No. 3 and the 2010 lining of Furnace No. 1. In a follow-up email, FBE denied that either the 2012 lining work on Furnace No. 3 or any work being requested on the 2010 lining of Furnace No. 1 should be considered warranty work.

Spectro filed the present action on February 6, 2013. Spectro claims that test results on the refractory material demonstrates that FBE's 2010 installation was responsible for the premature failure of both Furnace No. 1 and Furnace No. 3. Spectro alleges claims for breach of purchase orders (Counts 1, 5, 9), breach of express warranty (Counts 2, 6, 10), breach of implied warranty of fitness (Counts 3, 7, 11), and breach of implied warranty of merchantability (Counts 4, 8, 12). See Am. Compl. [Docket No. 28]. Spectro seeks damages for the replacement costs of Furnace No. 1 and No. 3, incurred in 2013, and the value of the lost production during the repairs and replacement. In addition, Spectro claims it is not liable for the $945,000 cost of the 2012 Furnace No. 3 lining contract because it was covered by its warranty.

FBE moves for summary judgment on all of Spectro's claims. FBE counterclaims, alleging breach of contract (Count 1), unjust enrichment (Count 2), promissory estoppel (Count 3), and quantum meruit (Count 6). See Countercl. [Docket No. 8]. Spectro moves for summary judgment on FBE's unjust enrichment, promissory estoppel, and quantum meruit claims.


A. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment shall be rendered if there exists no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. On a motion for summary judgment, the court views the evidence in the light most favorable to the nonmoving party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995). However, the nonmoving party may not " rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial." Krenik v. Cnty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995) (citations omitted). If evidence sufficient to permit a reasonable jury to return a verdict in favor of the nonmoving party has been presented, summary judgment is inappropriate. Id. However, " the mere existence of some alleged factual dispute between the parties is not sufficient by itself to deny summary judgment . . . . Instead, 'the dispute must be outcome determinative under prevailing law.'" Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992) (citations omitted).

B. Uniform Commercial Code and Hybrid Contracts

As adopted by Minnesota Statutes Sections 336.2-313 ...

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