IPSCO Tubulars, Inc., doing business as TMK IPSCO, Plaintiff - Appellee
Ajax TOCCO Magnathermic Corporation, Defendant - Appellant; IPSCO Tubulars, Inc., doing business as TMK IPSCO, Plaintiff - Appellant
Ajax TOCCO Magnathermic Corporation, Defendant - Appellee
Submitted December 9, 2014
Appeals from United States District Court for the Eastern District of Arkansas - Jonesboro.
For IPSCO Tubulars, Inc., doing business as TMK IPSCO, Plaintiff - Appellee (13-3354): Stephen Butler, Kimberly Ellen Ramundo, THOMPSON & HINE, Cincinnati, OH; Diane M. Goderre, THOMPSON & HINE, Columbus, OH; John E. Tull, III, QUATTLEBAUM & GROOMS, Little Rock, AR.
For Ajax TOCCO Magnathermic Corporation, Defendant - Appellant (13-3354): Kevin A. Crass, FRIDAY & ELDREDGE, Little Rock, AR; Robert Paul Ducatman, Lucas Franklin, Christopher M. McLaughlin, Jeffrey Saks, JONES & DAY, Cleveland, OH.
For IPSCO Tubulars, Inc., doing business as TMK IPSCO, Plaintiff - Appellant (13-3466): Stephen Butler, Kimberly Ellen Ramundo, THOMPSON & HINE, Cincinnati, OH; Diane M. Goderre, THOMPSON & HINE, Columbus, OH; John E. Tull, III, QUATTLEBAUM & GROOMS,Little Rock, AR.
For Ajax TOCCO Magnathermic Corporation, Defendant - Appellee (13-3466): Kevin A. Crass, FRIDAY & ELDREDGE, Little Rock, AR; Robert Paul Ducatman, Lucas Franklin, Christopher M. McLaughlin, Jeffrey Saks, JONES & DAY, Cleveland, OH.
Before WOLLMAN, COLLOTON, and BENTON, Circuit Judges.
BENTON, Circuit Judge.
IPSCO Tubulars, Inc. contracted for Ajax TOCCO Magnathermic Corp. to provide equipment to heat-treat steel pipe. IPSCO sued for breach of contract, gross negligence, and punitive damages. The district court found Ajax liable for breach of contract, awarding $5,162,298.55 in damages to IPSCO. Ajax appeals. IPSCO cross-appeals the dismissal of its gross negligence and punitive damages claims. Having jurisdiction under 28 U.S.C. § 1291, this court reverses and remands the breach-of-contract damages, and affirms in all other respects.
IPSCO produces heat-treated steel pipe for use in the oil and gas industry. It manufactures larger-diameter casing and smaller-diameter tubing at grades defined by American Petroleum Institute (API) 5CT standards. In 2006, IPSCO took bids for induction heating (" austenitizing" ), quenching, and pre-tempering equipment for its facility in Blytheville, Arkansas. IPSCO contracted for Ajax's equipment despite concern about the design of Ajax's quench.
IPSCO heat-treats electric resistance welded (ERW) casing and tubing formed according to IPSCO's chemical recipe. Ajax's equipment alters the structural properties of the pipe by heating it to a specified temperature range to form austenite; cooling it to a specified range to form martensite (which has a high degree of strength and hardness); and reheating it to a specified range (adding ductility without compromising hardness). Exiting the Ajax equipment, the pipe is tempered, straightened, and inspected with other equipment. The contract requires Ajax's equipment to convey pipe at certain speeds; for example, smaller tubing at 96 feet per minute (fpm). Ajax Quotation, " General Specifications." See also Technical Specifications § 6.2 (" [The equipment] shall be capable of operating continuously to meet the throughput requirements . . . ." ).
After installation in July 2007, Ajax's quench did not perform properly. When IPSCO tried to process tubing at 96 fpm, the pipe had severe distortions, cracks, and inconsistency in as-quenched hardness. Pipe sometimes distorted so badly it wrecked in the quench and had to be removed manually. The pipe could not meet API specifications. To produce tubing without distortion, cracks, or inconsistency, IPSCO had to run the Ajax equipment at slower speeds, 35 to 50 fpm. Operating at reduced capacity, IPSCO began producing pipe for sale on September 27, 2007.
That fall, an Ajax expert began to troubleshoot. The quench was designed with two barrels pointing in the direction of product flow, using water to rapidly cool the pipe. Ajax's expert identified several design flaws with the equipment and told IPSCO that the flume, which drains water from the quench, was not designed correctly by IPSCO's contractor. Because of the small flume, IPSCO operated the quench at reduced water flows and pressures. On Ajax's advice, IPSCO modified the flume by June 26, 2008, allowing operation at the recommended water flow.
Even after enlarging the flume, IPSCO had problems with severe distortion, quench cracks, and inconsistency (when processing at 96 fpm). In August 2008, IPSCO modified the quench itself by pointing the second barrel opposite the direction of product flow and changing the angle of the spray holes. This permitted IPSCO to produce pipe with minimal defects at a higher line speed, but still less than 96 fpm. Although Ajax's expert continued to work with IPSCO to improve line speeds, Ajax never informed IPSCO of the suspected design flaws.
Still dissatisfied, IPSCO held a series of performance tests. Trials on casing in October 2008 were successful. Trials on tubing throughout 2009 were not successful due to distortion, cracks, and inconsistency at 96 fpm, even after IPSCO used the quench as designed and performed all Ajax-requested maintenance. In 2011, IPSCO further modified the quench without Ajax's advice. The modified equipment can process tubing at about 80 fpm with minimal defects.
IPSCO sued Ajax in February 2010, alleging breach of contract and gross negligence and seeking punitive damages. The district court granted judgment on partial findings for Ajax on gross negligence and punitive damages. After a bench trial, it found for IPSCO on the breach of contract claim, awarding $5,162,298.55 in damages. Ajax appeals liability and the damages ...