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When a federal court jury heard the claims and counterclaims in Total Containment Inc. v. Dayco Products Inc., it found liability running in both directions and awarded $23 million to TCI and $3.7 million to Dayco. But in a reversal of fortune, U.S. District Judge Berle M. Schiller, of the Eastern District of Pennsylvania, slashed TCI’s award down to $1.3 million so that Dayco emerged the victor. Schiller found that the jury’s large award must have been based on “speculation or sympathy” and that the smaller figure accurately represents the maximum that could have been awarded on Oaks, Pa.-based TCI’s breach of pricing claim. Now the 3rd U.S. Circuit Court of Appeals has upheld Schiller’s 60-page decision with a four-page opinion that essentially says Schiller was right and his opinion was airtight. “We believe it wholly unnecessary to further opine, or offer additional explanations and reasons to those given by [Judge Schiller], why we will affirm,” 3rd Circuit Judge Richard L. Nygaard wrote, in a decision joined by Judges Dolores K. Sloviter and Maryanne Trump Barry. Nygaard’s opinion shows that some of the judges on the 3rd Circuit miss the days when the court could decide cases with a one-page judgment order. Nowadays, the court, due to a change in its operating procedures, writes at least a short opinion in every case. Although Nygaard followed the new internal rule, he focused his remarks on the fact that the court had nothing new to say. “The reasons why we write an opinion of the court are three-fold: to instruct the district court, to educate and inform the attorneys and parties, and to explain our decision. None of these reasons is presented here,” Nygaard wrote. “In this case, we have concluded that neither a full memorandum explanation nor a precedential opinion is indicated because of the very extensive and thorough opinion entered by Judge Schiller,” Nygaard stated. In his May 2001 opinion, Schiller not only slashed the $23 million verdict to TCI, but refused to grant a new trial on a breach of warranty claim in which TCI was seeking $56 million, saying the jury properly found that the claim was time-barred. Schiller also refused to disturb the jury’s award to Dayco of more than $3.7 million on its counterclaim. As a result, TCI now owes Dayco $2.39 million because its award of $1,325,808 will be subtracted from Dayco’s award of $3,715,170. The lawsuit focused on a contract in which TCI hired Dayco to design, manufacture and deliver pipe to be used in underground gasoline transportation and containment systems. After the pipe deteriorated and leaked at several gas stations sites, TCI sued Dayco on a breach of warranty theory. It also sued Dayco for unilaterally raising the price of the primary pipe. Dayco counterclaimed for TCI’s failure to pay for pipe that Dayco had already delivered and for failure to purchase TCI’s minimum requirements called for under the contract. Following a five-week trial, a jury found TCI’s breach of warranty claim barred by the statute of limitations. The jury then awarded $23 million to TCI for its breach of pricing claim and $3.7 million to Dayco on its counterclaim. In post-trial motions, TCI’s lawyers — Ralph G. Wellington and Margaret S. Woodruff of Schnader Harrison Segal & Lewis — urged Schiller to rule that the statute of limitations does not bar its breach of warranty claim and that Dayco had breached the warranty provision of the contract. In the alternative, TCI asked for a new trial on all issues, including the statute of limitations question. But Dayco’s lawyers — Edward V. Filardi, Frank E. Derby and Cynthia V. Fitzgerald of Skadden, Arps, Slate, Meagher & Flom in New York — urged Schiller to grant remittitur on the $23 million award to TCI, saying the evidence showed its maximum damages on the pricing claim were just a fraction of that amount. Schiller sided entirely with Dayco, finding there were no grounds for granting a new trial; that the jury properly rejected TCI’s warranty claims as time-barred; and that the verdict in favor of TCI on the pricing claim must be drastically reduced to avoid a “miscarriage of justice.” According to the suit, in the late 1980s, TCI developed a new system, dubbed Enviroflex, for the underground transportation and containment of gasoline from storage tanks to gasoline dispensing pumps at gasoline stations. Enviroflex consisted of a double pipe, with an outer pipe permanently installed so as to contain any leaks that may occur. A narrower “primary” pipe ran through the outer pipe and actually conducted the gasoline. The outer pipes were connected to sumps which were designed to collect and contain any leaks or excess gasoline flow. TCI contacted Dayco in October 1988 for assistance in designing the Enviroflex primary pipe. In 1990, TCI and Dayco formalized their relationship and entered into a contract. Under the contract, Dayco agreed to design and supply primary pipe and warranted the pipe “to be free from defects in material and workmanship when used under normal operating conditions and without misuse or abuse.” In exchange, TCI promised to purchase its primary pipe requirements from Dayco and from no other seller. The contract was renewed in 1993 and set a price of $3.75 per foot for the primary pipe. TCI sold more than 4,000 Enviroflex systems and installed them in gasoline stations around the world. Unfortunately, the material chosen by Dayco degrades when exposed to water, due to either hydrolysis (breakdown of molecules caused by water), an insidious microbial fungus, or a combination of the two. The precise cause of the degradation was hotly contested at trial. Dayco experts opined that exposing the primary pipe to water for a prolonged period could cause the pipe to degrade. Once the pipe had been degraded by water, the primary pipe cover was then susceptible to microbial attack. But TCI insisted that the microbes attacked the pipe even in the absence of standing water, such as when condensation and humidity are present. By 1993, Dayco had developed a polyether-based, water-resistant material for the pipe coating. But the new pipe was more expensive to manufacture. Dayco tried to pass on the increased cost to TCI — by raising the price to $5 per foot — but TCI refused. Ultimately, TCI paid $4.40 per foot, but would later claim that Dayco had breached its contract by raising the price. In July 1997, TCI terminated the contract and filed suit several months later, accusing Dayco of breaching the contract’s warranty and pricing provisions. But Dayco argued that the warranty claim was barred by the four-year statute of limitations and countersued TCI for non-payment for pipe it had already delivered as well as lost sales for TCI’s refusal to purchase more. After a five-week trial in October and November 2000 (Schiller’s first trial as a federal judge), four questions were posed to the jury. On Dayco’s statute of limitations defense, the jury was asked whether TCI “knew, or should have known, prior to September 25, 1993 that the polyester covered primary pipe was defective in material and workmanship when used under normal operating conditions without misuse or abuse.” The jury answered “yes.” On the breach of pricing claim, the jury awarded $23 million to TCI. And on the final question, the jury awarded more than $3.7 million to Dayco for its counterclaim. In post-trial motions, TCI argued that the jury should never have decided the statute of limitations issue and that its verdict on that point should be set aside. But Schiller said juries often decide issues related to statutes of limitations and that the jury’s finding against TCI on that point was grounded in good evidence. “TCI had a duty to use all reasonable diligence to unearth the facts and circumstances upon which its right of recovery is founded,” Schiller wrote. “Once the plaintiff possesses the salient facts concerning the occurrence of its injury and who or what caused it, the plaintiff has the ability to investigate and pursue its claim; the statute of limitations begins to run.” Whether and when a plaintiff should know of a defect “is frequently a question for a jury,” he wrote. The evidence, Schiller said, showed that by September 1993, TCI “knew two key facts: (1) that the cover material for the primary pipe was susceptible to degradation when exposed to water; and (2) that water would be present in the Enviroflex system.” As a result, Schiller found that the jury “could properly conclude, without committing a miscarriage of justice, that TCI waited too long to bring its claims after it should have learned of an alleged defect in the Dayco pipe.” But turning to Dayco’s motion for remittitur, Schiller found that the $23 million award to TCI had to be reduced. “The evidence presented at trial shows that TCI’s breach of pricing claim had a maximum principal value of $1,325,808,” he wrote. “To allow TCI anything greater would be unsupported by the proofs adduced at trial and a miscarriage of justice. Thus, I order TCI remit all but $1,325,808 of its recovery on the breach of pricing claim.” TCI insisted that its award should be upheld because its breach of pricing claim could also give rise to an award for lost profits. Schiller disagreed, saying “the breach of pricing claim cannot sustain a $23 million award for lost profits. Based on the evidence adduced at trial, the jury could not conclude, absent speculation or sympathy for TCI, that Dayco’s breach of the pricing provision proximately caused $23 million in damage.”

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