ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 77-4311)
Before Adams, Rosenn and Sloviter, Circuit Judges.
This is an appeal from a judgment of $426,724.90 awarded to Caisson Corporation ("Caisson") as damages after an eight-day jury trial. Caisson brought this diversity action against Ingersoll-Rand Company ("Ingersoll-Rand"), the manufacturer of a DHD-130 "Superdrill", seeking consequential damages because the drill failed to perform as represented by Ingersoll-Rand. Caisson purchased the drill from Portable Tool Sales and Service Company, Inc. ("Portable Tool"), Ingersoll-Rand's distributor in the Chicago area, which was not a defendant in the action. On appeal, Ingersoll-Rand claims there was insufficient evidence to support the jury's finding that there was an express oral contract between it and Caisson, that the trial court committed errors by excluding evidence of the terms of Ingersoll-Rand's agreement with Portable Tool and in restricting its cross-examination of an expert witness, and that the court erred in refusing to grant it a new trial because Caisson failed to supply certain documents relating to the damage claim in response to its discovery requests. The claims will be considered seriatim.
Caisson is a contractor specializing in the construction of caissons, which are concrete columns similar to piles, used as foundations for large buildings and other structures. Ingersoll-Rand manufactures, among other things, rock-drilling equipment. In the early 1970's, it began manufacture of a line of "Superdrills," capable of drilling holes of twenty-four inch diameter in hard rock (the DHD-124), developed for use on the Alaskan Pipeline construction project. Its success with that model led it to market the Superdrills in three sizes, twenty, twenty-four, and thirty inch diameters.
Caisson first became interested in the Superdrills when its vice-president, Richard Lowe, saw a model of the DHD-124 being exhibited by Ingersoll-Rand personnel at a Chicago trade show in December, 1974. After the show, Lowe received a letter from Philip Taylor, Marketing Manager of the Downhole Drill Products Division of Ingersoll-Rand, expressing the company's confidence in the drill and the interest of Ingersoll-Rand personnel in meeting with Caisson to discuss operation and maintenance of the equipment. Taylor stated in the letter that "until we establish one year of operating time on the DHD-124, there is and will be an element of risk borne by both Ingersoll-Rand and our customer." (emphasis added).
In February, 1976, Caisson purchased a DHD-124 to drill 24 inch post holes to support a mountain road in Weirton, West Virginia. Before submitting Caisson's bid on this project, Lowe had several meetings with Taylor, in which they discussed such matters as the kinds of rock that would be encountered on the job and the support equipment that would be used. After learning it was the successful bidder, Caisson placed an order for a DHD-124. On Ingersoll-Rand's instructions, the order was issued to Portable Tool, Ingersoll-Rand's distributor in Chicago. Caisson had no pre-purchase discussions with any Portable Tool personnel. Caisson began work on the Weirton project in March of 1976, and was satisfied with the operation of the DHD-124.
At approximately the same time, Caisson considered bidding on a project in Mineral, Virginia, which required drilling 30 inch holes in solid rock for caissons to support a foundation for a nuclear power station being built for Virginia Electric Power Company (VEPCO). Lowe again had a series of discussions with Taylor, this time concerning the 30 inch Superdrill, the DHD-130. An Ingersoll-Rand engineer was present at some of the discussions. Ingersoll-Rand was familiar with the rock conditions at the VEPCO site, and Taylor advised Lowe about the hardness and drillability of the rock. Lowe and Taylor discussed the capabilities of the DHD-130. Lowe testified that Taylor told him that the 30 inch Superdrill was capable of drilling the hardest rock and would do the job at VEPCO. Lowe also testified that Caisson would not have submitted a bid on the VEPCO job or bought the DHD-130 without these representations.
The Superdrills weigh approximately five tons each. The weight of the drill provides the force needed to drill the holes in heavy rock. Lowe was interested in the drilling rate (footage per hour) and the life expectancy of a bit for the DHD-130. The bit is the part of the drill coming into contact with the rock. Taylor supplied Lowe with information concerning the drilling rate and the life expectancy of a bit. The cost of a bit was approximately $32,000. The cost of the entire Superdrill was approximately $150,000.
Caisson submitted a bid for the VEPCO project partly based on the information supplied by Taylor, and when Caisson was awarded the contract it purchased a DHD-130, issuing the order to Portable Tool, as instructed by Ingersoll-Rand. The invoice was an open invoice with no provision regarding any warranty and no limitation of liability.
The drill was sent to Caisson's yard in Northbrook, Illinois, was assembled there by an Ingersoll-Rand employee, and was sent to the VEPCO site. Ingersoll-Rand personnel were present when the equipment was set up and began operating there in July, 1976.
Caisson had difficulties with the drill from the beginning. First the pins which separated the drill bit from the rest of the drill broke repeatedly. When Ingersoll-Rand strengthened the pins, there was breakage of the shank, the part of the bit, considerably smaller in diameter than the bit face, which extends into the body of the drill. Dozens of pins and five or six shanks broke. Between July 9 and October 26, Ingersoll-Rand shipped replacement parts to Caisson with a retail value of almost $170,000, incurred shipping expenses of more than $5,000, and sent its personnel to the job site for 62 workdays. No invoices accompanied those shipments and services. Caisson dealt only with Ingersoll-Rand personnel concerning the breakdowns.
At this time, there were two other users of the DHD-130, and there was evidence that one of them also had problems with bit shank failure. Ingersoll-Rand decided to redesign the 30 inch bit by strengthening the shank. A report written later by Hughes, an Ingersoll-Rand engineer, to his superior indicated that "(t)he repeated shank-off failures of the initial design 30 inch diameter bits at the VEPCO site in Mineral, Virginia (Caisson Corp.) mandated a bit redesign."
On October 26, 1976 Caisson was left with no rock drilling equipment of its own because no bit shanks as originally designed were available, and the redesigned bits were not yet in production. Caisson encountered so much downtime (time lost on the job) that the VEPCO contractor threatened to remove Caisson from the job; to avoid this possibility, Caisson employed a competitor, New Jersey Drilling, but after several weeks, it too ran out of replacement parts for its equipment. Caisson rented other drilling equipment which was unsuccessful. From approximately November 18, when New Jersey Drilling left the site, to late December 1976, when Ingersoll-Rand provided Caisson with the redesigned bits which worked satisfactorily, Caisson had no effective rock drilling equipment.
In response to special interrogatories, the jury found that there was a contract between Ingersoll-Rand and Caisson Corporation, that Ingersoll-Rand made statements of fact about performance of the DHD-130 at the time it made the agreement with Caisson and the statements formed part of the basis of the bargain between the parties, that the drill did not conform to these statements of fact, that the original DHD-130 was not fit for the purposes for which such a product is used, that at the time of contracting Ingersoll-Rand knew of the particular purpose for which Caisson was purchasing the drill, that the drill was not fit for these particular purposes, and that the drill's lack of fitness for both its ordinary and Caisson's specific purposes was not the result of the manner in which Caisson used the drill.
Ingersoll-Rand claims that there was insufficient evidence of a contract between it and Caisson for the district court to have submitted the issue to the jury, and that it was entitled to a judgment notwithstanding the verdict. Ingersoll-Rand argues that the sale which was made from Portable Tool to Caisson cannot be transformed into a contract between it and Caisson. Both parties agree that Illinois law is applicable.
Caisson's theory was that it had an express oral contract with Ingersoll-Rand, a term of which was that if Caisson purchased the drill through a purchase order placed with Portable Tool, Ingersoll-Rand would stand behind the product. It contends this was supported by the fact that when, pursuant to that arrangement it did send its purchase order to Portable Tool, Portable Tool sent it an invoice which contained no limitation as to damages.
The jury's finding that there was an express contract between Caisson and Ingersoll-Rand is crucial to Caisson's recovery, because it is probably the only basis under Illinois law on which it could recover consequential damages for the economic loss it suffered on the VEPCO job as a result of failure of the drill to perform as represented.*fn1 The Appellate Court of Illinois has recently had occasion to enunciate Illinois' position on the issue which has divided the courts as to whether an action may be maintained against a manufacturer for recovery of "economic losses". In Alfred N. Koplin & Co. v. Chrysler Corp., 49 Ill.App.3d 194, 203-204, 7 Ill.Dec. ...