I. INTRODUCTION

In this case, Westcode, Inc. (“Westcode”) retained the services of Digitronics 

Inventioneering Corp. (“Sixnet”) to supply electronic monitoring devices for a rail car 

refurbishing project for the San Francisco Bay Area Rapid Transit Authority (“BART”). The 

products that were supplied did not conform to the contractual design specifications in that 

they contained components that were not rated to perform to the contractual temperature 

specifications. Accordingly, Sixnet was replaced. While pursuing this claim for damages 

for wrongful termination, Sixnet actually destroyed the design and production documents 

related to its use of non-compliant components. Notwithstanding the unrefuted evidence in 

the record regarding the component substitution, and the fact that all of the component 

substitution records had been destroyed, the Arbitrator not only permitted Sixnet to present 

its claims but put Westcode in the unwinnable position of having to prove the flaws in 

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Sixnet’s designs and/or production without the critical, incisive, design and production 

records. To make matters worse, the Arbitrator actually, based on nothing more than 

anecdotal testimony by interested witnesses, ruled that Sixnet did not breach the parties’ 

contracts and awarded Sixnet $1,075,911.60. Westcode submits this statement of 

undisputed facts in connection with its motion to vacate and/or modify that award. 

II. BACKGROUND

1. Westcode, is a Pennsylvania corporation with a facility located at 1372 

Enterprise Drive, West Chester, Pennsylvania, 19380. Westcode has been in the business 

of manufacturing, supplying, assembling, installing and/or renovating component systems 

for use in rail cars throughout the United States and abroad for over 30 years. Arbitrator’s 

Findings of Fact and Conclusions of Law, ¶ 3 (“AFF ¶ ___” or “ACL ¶ ___”) which is 

attached as part of the undisputed record as Exhibit “A”. 

2. Sixnet is a Delaware corporation with an office located at Northway 10 

Professional Park, P.O. Box 767, Clifton Park, N.Y. 12065. Sixnet is in the business of 

manufacturing industrial electronics for monitoring and control. The Arbitration hearing 

Transcripts, p. 39 (“TR/H/p.___”) which are attached as part of the undisputed record as 

Exhibit “B”. 

3. In or about March, 1995, Daimler Chrysler Rail Systems (North America), Inc. 

(“Adtranz”) entered into a contract with BART to refurbish and rehabilitate 200 of BART’s 

model “A” and “B” rail cars (“the BART project”). BART also had an option to have Adtranz 

refurbish and rehabilitate 239 rail cars after the first 200 rail cars were completed for a total 

of 439 rail cars. AFF ¶ 5. 

4. The BART project required, among other things, that the refurbished rail cars 

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have new heating, ventilation and air conditioning (“HVAC”) systems installed, new 

suspension/pneumatic systems installed, and the existing door operator systems 

overhauled. AFF ¶ 5. 

5. In or about January 1996, Adtranz tendered purchase order number 

TXS404067 to Westcode for the design and manufacture and installation of 439 car sets of 

HVAC systems which Westcode accepted in or about December, 1995. The purchase 

order incorporated certain terms and conditions referred to as The San Francisco Bay Area 

Rapid Transit District Rehabilitation of Transit Vehicles Agreement Between AEG 

Transportation Systems, Inc. and Westcode, Inc., Agreement No. TXS404067 (“the BART 

Agreement”). See, Defendant’s Exhibit 171

 which is attached as part of the undisputed 

record as Exhibit “C”. 

6. Subsequently, on or about February 1, 1996 and June 25, 1996, Adtranz 

submitted purchase orders to Westcode, respectively, for the design, manufacture and/or 

overhaul of the suspension systems and the door operator systems. Westcode ultimately 

accepted the above-mentioned purchase orders for the suspension project and the door 

overhaul project. Westcode was thus the supplier for the suspension system, the HVAC 

system and the door operator system. 

 1

 References to “Defendant’s Exhibit” or “Plaintiff’s Exhibit” refer to the exhibits 

as identified and accepted into evidence during the underlying Arbitration proceeding. 

7. The HVAC systems were to include a temperature control unit (“TCU”). The 

purpose of the TCU was to monitor and control the performance of the HVAC system. AFF 

¶ 7. 

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8. The door systems were required to include a door diagnostic unit (DDU”). 

The DDU was to monitor (but not control) the door operating system. Both the TCUs and 

DDUs required customized software as well as hardware. AFF ¶ 8. 

9. The TCU and DDU subassemblies consisted of numerous boards with 

various electronic componentry. A photograph of an unenclosed TCU, with components, is 

attached as part of the undisputed record as Exhibit “D”. A photograph of an individual 

board, with components, is attached as part of the undisputed record as Exhibit “E”. 

A. The Terms of the Contract Documents That Are, or Should Have Been, 

At Issue in This Case 

10. Sixnet was selected as Westcode’s sub-supplier for the DDUs and TCUs. On 

or about January 18, 1996, Westcode and Sixnet entered into an agreement titled 

Temperature Control Unit Supply Agreement (“TCU Supply Agreement”) and an agreement 

titled Door Diagnostic Unit Supply Agreement (“DDU Supply Agreement”). Plaintiff’s 

Exhibits 6 & 7 which are attached as part of the undisputed record as Exhibits “F” and “G”. 

11. Westcode’s actual purchase order number P-40165 was issued for the TCUs 

on or about March 22, 1996. Similarly, Westcode’s purchase order number P-40616 was 

issued for the DDUs on or about the same date. Defendants Exhibits 40 which are 

attached as part of the undisputed record as Exhibits “H” and “I”. 

12. With the exception of technical requirements and specifications for the 

products, the two Supply Agreements are nearly identical. The provisions of the two 

agreements that are pertinent to this matter will be discussed in more detail below. 

13. Sixnet was also a Westcode sub-supplier on two other totally unrelated jobs. 

One job was for the South Eastern Pennsylvania Transportation Authority (“the SEPTA 

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project”). Adtranz, coincidentally, was the general contractor on the SEPTA project. The 

other job was a separate job for BART (“the BART C-2 car job”). E.g., TR/H/p. 58. Both 

jobs were for versions of the DDU. Neither job involved TCUs. 

14. The SEPTA purchase order, which is identical to the BART purchase orders 

as far as the terms and conditions on the backside are concerned, was issued to Sixnet, 

and accepted by Sixnet, prior to the issuance of the purchase orders in this case. 

TR/H/pp. 48, 258-259 & 265. 

i. The Contract “Flow Through” Provisions 

15. First and foremost, Article 2.10 of both the TCU Supply Agreement and the 

DDU Supply Agreement is what is generally known as a “flow through” provision in that it 

incorporated, by express reference, various prime contract documents, among others, and 

listed those documents in order of their priority to the contract. Specifically, Article 2.10 of 

the TCU Supply Agreement expressly incorporated Westcode specification W1185-ER011, and the entire BART contract document. 

16. Sharon Gutman from Sixnet signed the Supply Agreements on Sixnet’s 

behalf. 

17. Article 19 of the terms and conditions on the backside of the Westcode 

purchase orders (which expressly take precedence over the Supply Agreements) provides 

that Pennsylvania law applies to the entire order. Defendant’s Exhibit 40. 

ii. The Contract Temperature Specifications 

18. In keeping with the flow through of, and the order of precedence of, the 

various contract documents, the sources for the product specifications were numerous. 

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First, the purchase order, Article 1.b provided as follows (emphasis added): 

By acceptance of this order, seller agrees to be bound by, and 

to comply with, all of the terms and conditions of this order 

including any amendments thereto and all specifications and 

other documents referred to in this order... . 

19. Article 1.1 of the TCU Supply Agreement, as to the design of the TCU 

hardware, provided that the functionality of the TCU hardware would conform to 

Westcode’s specification from W1185-ER-011 Issue I and application documents. The 

TCU specification W1185-ER-011 (as well as the TCU Supply Agreements) incorporates 

the BART Conformed Contract Book and AEG Procurement Specification RTPS-BABA 

T6015, Rev B, 7 July 1995. The contract specifications provide that the temperature range 

of both the performance of the vehicle and its subsystems (including the DDU and TCU) 

was to be 20°F to 120°F. AEG Procurement Specification RTPS-BABA T6015, Rev B, 7 

July 1995, a copy of which is attached to the undisputed as Exhibit “J”; see also BART 

Conformed Contract Book No. 41-MF-110A, Article T1.10.D.1; and W1110-ER-024, Article 

I.B.1. (DDU), a copy of which is attached to the undisputed as Exhibit “K”. 

20. Sixnet admits that aforementioned temperature specifications were never 

modified. TR/H/pp. 243 & 245. 

iii. The Contractual Component Selection Criteria

21. Electronic componentry comes with manufacturer ratings or specifications 

which, among other things, guarantee that a component will perform under certain 

specified conditions such as temperature extremes. 

22. What is known generally as the “commercial rating” is 32°F to 158 ° F. 

TR/H/p. 612. 

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23. What is known generally as the “industrial rating” is -40°F to 185°F. TR/H/p. 

612. 

24. The fact that a component is guaranteed by the manufacturer to perform at 

one set of temperature extremes does not mean that it is not possible that it will perform 

under more severe conditions - it is not, however, guaranteed by the manufacturer to 

perform under those temperature extremes. TR/H/p. 620. 

25. Under some circumstances a component may be qualified for use at a 

temperature range beyond its manufacturer specifications by some sort of qualification 

testing. TR/H/p. 691. 

26. It is important to note at this point that the contracts in this case, however, 

prohibited the use of electrical components not properly rated, in the first instance, by the 

manufacturer, and prohibited sub-suppliers from using inferior componentry under the 

guise of qualification selection or screening. TR/H/p. 609. 

27. In other words, screening and qualification testing to qualify the use of 

substandard components was not permitted under the BART Conformed Contract. 

TR/H/p. 692. 

28. In particular, the BART Conformed Contract provided the following regarding 

the required performance specifications of the electronic components (emphasis added): 

2. Electrical, electronic and electromechanical parts 

selection: Selection for parts for contract hardware shall 

be made on basis of suitability for their applications, 

proven ability to comply with requirements of the 

Contract Documents and availability from at least two 

Suppliers. Additionally, like parts shall be 

interchangeable without selection or screening. 

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BART Conformed Contract, Article T.17.1.B.2. Defendant’s Exhibit 17. 

29. Not only was screening and qualification testing expressly prohibited, but 

Sixnet even admitted that the contract expressly required that components in the products 

be rated, in the first instance, on the basis of their respective manufacturer data sheets, to 

perform to the contract temperature specifications. See, the BART Contract, Article 

17.9.A.1.a; and TR/H/pp. 155 & 376 (Schoenberg); see also, TR/H/p. 609. 

30. In that regard, the contract provided as follows: 

17.9 ELECTRICAL MATERIALS

A. Electrical, Electronic, and Electromechanical Parts Requirements 

1. Specifications 

a. Each electrical, electronic and 

electromechanical part shall be 

selected and controlled on the 

basis of manufacturers data 

sheets, catalog cuts, or control 

drawings that identify the parts 

physical, environmental, and 

performance requirements as well 

as quality and reliability 

requirements, including 

inspections and tests for 

qualification and acceptance, and 

lot sampling where required. 

31. In Article 2.5 of the Supply Agreements, Sixnet expressly warranted that the 

product would be free from defects in both material and workmanship. Plaintiff’s Exhibits 6 

& 7. 

iv. The Contract Termination Provisions

32. The BART conformed contract contained detailed termination provisions. 

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Those provisions, by virtue of the flow through provision, are expressly incorporated by 

reference, into the TCU and DDU Supply Agreements. 

33. The contract contained a typical default termination provision which made 

both the failure to supply products according to schedule and the supply of products, 

improper quality, defaults under the contract. 

34. Just as important, however, was a termination-for-convenience clause which 

gave the buyer the right to terminate any or all of the subcontracts when it was determined 

by the buyer to be in the buyer’s best interest. The termination-for-convenience provision 

was as followed: 

P8.07 CONTRACT TERMINATION 

B. Termination for the Convenience of the District. The 

performance of the Work under the Contract may be 

terminated in whole or in part by the District upon written notice 

to the Supplier in accordance with this Article P8.07B, 

whenever the District determines that such termination is in its 

best interest. After receipt of said notice, the Supplier shall 

submit to the Project Director its termination claim, which claim 

shall be submitted in accordance with the claims provision of 

Article P9.05A, entitled “Potential Claims”, and the payment 

provisions in Article P9.05B, entitled “Final Payment and 

Claims”. 

BART Conformed Contract, Article P.8.07(B). Defendant’s Exhibit 17. 

35. Sixnet did not refute the fact that, by virtue of the “flow through” provision in 

the Supply Agreements, the aforementioned termination provisions were applicable to 

Sixnet as the sub-supplier. See, generally, Sixnet’s Reply to Westcode’ Proposed Findings 

of Fact and Conclusions of Law, pp. 6-7 which is attached to the undisputed record are 

Exhibit “L”. 

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B. Sixnet’s Faulty Performance

i. Sixnet’s Products Did Not Conform to the Contractual 

Temperature Specifications 

36. The TCUs, the DDUs suffered from critical component specification and 

functionality problems. 

37. As set forth above, among the pertinent contract specifications were the 

following: 

- To perform in temperature extremes of 20°F to 120°F; 

- To contain component parts that were guaranteed, without 

qualification screening or testing, to perform at the 

contractually specified temperature extremes. 

38. Nearly 25% of the TCUs supplied by Sixnet failed contract burn-in testing. 

Defendant’s Exhibit 93 which is attached as part of the undisputed record as Exhibit “M”. 

39. The high burn-in failure rate naturally led to a closer examination of the TCUs 

themselves. This examination revealed that Sixnet was using electronic component parts 

that were not properly rated by the manufacturers to perform at the required temperature 

extremes. In other words, the inspection revealed that Sixnet was using components with 

a commercial rating. 

40. The issue of the use of non-compliant components first surfaced in or around 

August, 1998 when Pierre Zuber was sent in by Adtranz to help determine the cause of the 

high burn-in failures. In his August 13, 1998 memorandum, Mr. Zuber noted the presence 

of non-conforming components in the TCUs and DDUs. Defendant’s Exhibit 26 which is 

attached as part of the undisputed record as Exhibit “N”. 

41. Mr. Zuber’s findings, of course, led to Westcode’s first written request, on 

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August 31, 1998, for back-up materials certifying Mr. Schoenberg’s previous representation 

that his component manufacturers all “guaranteed the temperature range on the 

components”. Defendant’s Exhibit 43 which is attached as part of the undisputed record as 

Exhibit “O”. 

42. Brandywine Management, an independent consulting firm, was then brought 

in to investigate the problem. In Brandywine’s September 23, 1998 Interim Hardware 

Engineering Report, Brandywine also noted that the TCUs and DDUs utilized components 

not rated by their respective manufacturers to perform within the required temperature 

ranges. Brandywine‘s suggestion was that Westcode should (1) identify the non-compliant 

components; and (2) produce manufacturing ratings for those components; or (3) replace 

these components. Plaintiff’s Exhibit 26 which is attached as part of the undisputed record 

as Exhibit “P”. 

43. It was based on the Brandywine Report, that Westcode, by letter dated 

September 24, 1998, advised Sixnet: 

As you can see we are in a situation that we need to work 

through this problem, as all SIXNET product is now under 

scrutiny. Without the proper documentation (per the supply 

agreements) including the rating data on the components, we 

cannot confirm and defend the design of the production units 

on both the TCU and DDU on any of the product delivered to 

date. 

You recognize that we want you to build more units, however, 

as much as we need more units we will not pay for units that 

are no spec compliant and we will not accept more units that 

we cannot verify that the product is compliant. 

Plaintiff’s Exhibit 26 (emphasis added). 

44. The September 24th letter also confirmed an incriminating conversation that 

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Mr. Kelly had with a Sixnet engineer wherein the engineer advised Mr. Kelly that Sixnet had 

in fact supplied boards that deviated from approved designs. Id.

45. Having been told by Sixnet engineers that the boards had changed from the 

First Article, and having found through two separate, independent inspections, noncompliant components, Westcode, at the suggestion of Brandywine, asked to review the 

design data on the components. Plaintiff’s Exhibit 26. 

46. In his September 24, 1998 response, Sixnet’s President, Steve Schoenberg 

did not deny that Sixnet had been substituting components. Rather, Mr. Schoenberg’s 

response was that the substitution was not “intentional”. Plaintiff’s Exhibit 27 which is 

attached as part of the undisputed record as Exhibit “Q”. Mr. Schoenberg refused, 

however, for reasons he later described as“business”, to the produce records relating to 

the component ratings. 

47. Mr. Schoenberg’s response to Mr. Kelly’s September 24th request for the 

design documentation was summarized in writing by Dennis Page as follows (emphasis 

added): 

As to producing paperwork to show that all commercial grade 

components are in compliance with the temperature range 

required by our specifications, Mr. Schoenberg said he 

“declines to play”. He stated that to show that all components 

are within tolerance would require “a station wagon full of 

paper” and refused to comply. I informed him that we will 

have to produce such evidence for Adtranz. Steve then 

made a crude suggestion about where we should tell 

Adtranz to go. 

Defendant’s Exhibit 71 which is attached as part of the undisputed record as Exhibit “R”. 

48. One of Sixnet’s former engineers, Gary Lewis, admitted that the Sixnet TCUs 

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and DDUs incorporated components with manufacturer specifications that did not meet the 

contract specifications for temperature extremes. Gary Lewis Trial Deposition Transcript 

pp. 14-19 (“TR/Lewis/p. 16 ”), a copy of which is attached as part of the undisputed record 

as Exhibit “S”. Sixnet’s President, Steve Schoenberg, admitted the same. TR/H/278. 

49. Sixnet’s admissions aside, Westcode also found numerous commercially 

rated components in the design. E.g., TR/H/pp. 613-626. 

50. Adtranz was well aware of the fact that the component parts on Sixnet’s 

products were non-conforming. Adtranz, of course, held its supplier, Westcode, 

accountable. The unrefuted evidence in this case was that Adtranz, the prime contractor, 

would not, under any circumstances, issue a final acceptance for Sixnet’s TCUs or DDUs 

with the non-compliant commercial grade componentry. Trial Deposition of Kenneth 

Kelsey, the Adtranz Contract Administrator, pp. 14-15 (“ TR/Kelsey/pp.___”), a copy of 

which is attached as part of the undisputed record as Exhibit “T”. 

51. Westcode was not an end user of Sixnet’s defective products. In order to 

keep production moving, the products were obviously turned over to the customer, Adtranz. 

 TR/Kelsey/pp.13-14, 

52. Hence, because they were non-conforming, the products shipped to 

Westcode were only conditionally accepted (the condition being that they would be 

replaced) by Adtranz in order to keep the production moving. TR/Kelsey/p. 14. 

53. The DDUs share the same fundamental problems as experienced by the 

TCUs. The DDUs were failing the burn-in test at a high rate. The DDUs also contained 

substandard, non-compliant componentry. See, generally, TR/H/p.613. 

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ii. Sixnet Unilaterally Ceased Deliveries After 

Delivering Product that was Late and NonConforming

54. On July 30, 1998, Adtranz sent Westcode a notice of intent to terminate the 

Westcode/Adtranz purchase orders for default. Sixnet’s faulty performance was the 

primary cause for the action taken by Adtranz. Defendant’s Exhibit 25, which is attached 

as part of the undisputed record as Exhibit “U”; and TR/Kelsey/p. 12. 

55. Westcode immediately forwarded the Adtranz default letter to Sixnet and 

clearly and unequivocally put Sixnet on notice of the critical need to cooperate and the 

consequences if cooperation was not forthcoming. In particular Westcode advised Sixnet: 

Our objective, whether the demands are reasonable or not, 

has to be to comply with the demands of our customer 

[Adtranz]. When you are able to call me back I wish to find a 

way to accomplish this objective without totally disrupting your 

business, but also without jeopardizing mine. I wish to state 

that I have no desire to sever our relationship, but we must do 

what is necessary to protect Westcode’s business. 

Defendant’s Exhibit 54 which is attached as part of the undisputed record as Exhibit “V”. 

56. By August 21, 1998, Westcode was taking concrete steps to begin to address 

the alleged defaults under the Adtranz contract caused by Sixnet. Particularly, Westcode 

took over the software portion of the DDU and TCU supply agreements. 

57. The takeover was accomplished by virtue of the August 21, 1998 Modification 

Agreements and Conditional Release entered into by Sixnet and Westcode. Plaintiff’s 

Exhibit 24, a copy of which is attached as part of the undisputed record as Exhibit “W”. 

58. While the software portions of the contracts were transferred to a new 

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vendor, as the Zuber report shows, problems with the components used on the hardware 

were surfacing. 

59. While Westcode desired that the hardware portions of Sixnet’s contracts be 

fulfilled by Sixnet, it had no choice in light of Sixnet’s performance but to explore 

replacement suppliers. See, generally, Defendant’s Exhibit 54 and Plaintiff’s Exhibit 26. 

60. Sixnet made Westcode’s decision to procure a substitute supplier for 

hardware easy when, in September, 1998, Sixnet unilaterally refused to ship any more 

products. Defendant’s Exhibit 38 which is attached as part of the undisputed record as 

Exhibit “X”. 

61. As previously mentioned, during the time periods relevant to the parties’ 

dispute in this case, Westcode and Sixnet were parties to contracts relating not only to the 

BART TCU and DDU projects, but they were also party to separate unrelated DDU supply 

contracts for another BART vehicle model and the SEPTA job. 

62. On September 11, 1998, Sixnet delivered 25 TCUs to Westcode. The 

invoice for those deliveries was for $74,346.27. See, Defendant’s Exhibit 39, which is 

attached as part of the undisputed record as Exhibit “Y”; and Defendant’s Exhibit 51 which 

is attached as part of the undisputed record as Exhibit “Z”. 

63. One week later, on September 18, 1998, after already breaching its delivery 

obligations and delivering non-conforming product, almost exclusively because of 

outstanding balances on the unrelated BART job and the SEPTA job, Sixnet advised 

Westcode that it was stopping production and it would make no further deliveries of any 

products, on any jobs, including TCUs and DDUs, until it was paid in full. Defendant’s 

Exhibit 38. 

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64. If one takes out boards that were delivered on September 11, 1998, all that 

was due and actually owing as of September 11, 1998 for TCUs was approximately 

$500.00. TR/H/pp. 323 & 515. 

C. Sixnet Was Replaced as the Hardware Supplier for TCUs 

and DDUs

65. Sixnet was paid in full for all of its Westcode accounts on October 31, 1998. 

TR/H/p. 322. By that time, however, Westcode had no choice but to find a substitute 

supplier for the hardware portions of the TCU and DDU supply contracts. 

66. No further product at that point was ever shipped by Sixnet for the BART “A” 

and “B” car jobs. TR/H/p. 202. The other two Westcode/Sixnet jobs continued. 

67. On October 13, 1998, Westcode retained PCI to complete the DDU and TCU 

hardware. TR/H/p. 732. 

68. Using the same specifications that were supplied to Sixnet, PCI was able to 

produce product for the BART A and B car job that conformed to contract specifications. 

TR/Kelsey/pp. 17-18. 

69. Eventually, all of the BART A and B car, and SEPTA, Sixnet products had to 

be scrapped and replaced. TR/Kelsey/p. 15; and Trial Deposition Transcript of John 

Scanlon, Adtranz’ Supervisor for the SEPTA job, pp. 18-19 (“TR/Scanlon/pp. ___”) which is 

attached as part of the undisputed record as Exhibit “AA”. 

D. Adtranz Eventually Removed TCUs and DDUs from 

Westcode’s Sub-Supply Agreements and then Terminated 

Westcode Altogether Because of Sixnet

70. On December 9, 1998 Adtranz notified Westcode that it was actually taking 

over the DDU/TCU hardware portions of its contract with Westcode. Adtranz actually took 

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over the hardware portions of the DDU and TCU supply agreements by letter agreement 

dated January 19, 1999. Defendant’s Exhibit 61 which is attached as part of the 

undisputed record as Exhibit “BB”. 

71. That January 19, 1999 Agreement completely ended any involvement 

Westcode had in the supply of DDUs and TCUs for the BART A and B car rehabilitation 

project. See, Defendant’s Exhibit 61; see also TR/Kelsey/p. 17. 

72. From October 1998 until April 1999, Sixnet had no communications with 

anyone from Westcode about delivering any more BART TCUs or DDUs. TR/H/p. 201. 

73. Sixnet’s performance created discord and strife between Adtranz and 

Westcode that turned out to be irreparable. See, Deposition of Harry Kolesar, p. 186 

(“TR/Kolesar/p. ___”) a copy of which is attached as part of the undisputed record as 

Exhibit “CC”. 

74. Adtranz eventually terminated all three Westcode purchase orders in full on 

or about May 19, 1999. TR/Kelsey/p. 22. 

75. While there were a number of issues between Adtranz and Westcode 

regarding the HVAC units, the decision to terminate Westcode for all three of its purchase 

orders, including the suspension purchase order for which there were no Westcode 

performance issues at all, was motivated primarily by the problems created by Sixnet’s 

performance. TR/Kelsey/pp. 12 & 22. 

76. The termination resulted in litigation styled, Daimler Chrysler Rail Systems, 

Inc. v. Westcode, Inc., C.C.P. Allegheny County, G.D. No. 00-1552 and Daimler Chrysler 

Rail Systems, Inc. v. Westcode, Inc., U.S.D.C. E.D. Pa. No. 00-cv-4928. 

77. The above-mentioned Westcode/Adtranz litigation settled with $550,000.00 

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paid to Westcode and an exchange of releases. TR/H/p. 742. Sixnet, of course, refused 

several Westcode invitations to defend its performance and its products in the litigation 

with Adtranz. See, TR/H/p. 745. 

E. The Procedural Background of the Westcode/Sixnet Litigation 

78. Sixnet commenced the action styled, Digitronics Inventioneering Corp. v. 

Westcode, Inc., State of New York, Supreme Court - Appellate Division, Index No. 99-1395 

on June 14, 1999. 

79. By agreement of the parties, the claims were submitted to arbitration by ADR 

Options, Inc. A true and correct copy of the parties’ Arbitration Agreement and Stipulation 

is attached as part of the undisputed record as Exhibit “DD”. 

80. ADR Options, Inc. is located at Two Commerce Square, Suite 1100, 2001 

Market Street, Philadelphia, PA 19103. 

81. The Arbitration was conducted from December 2-4, 2002. 

82. After extensive post-hearing briefing which included, among other things, the 

submissions of detailed proposed findings of fact and conclusions of law, by Award issued 

July 15, 2003, in Philadelphia, Pennsylvania, the Arbitrator found in favor of Sixnet in the 

amount of $1,075,911.60 for lost profit and interest. A true and correct copy of the July 15, 

2003 Award is attached as part of the undisputed record as Exhibit “EE”; copies of 

Westcode’s post-hearing briefs are attached to the record as follows: December 31, 2002, 

January 7, 2003 and February 3, 2003 letter from Westcode’s counsel to Arbitrator Rutter 

of the undisputed record as Exhibits “FF”, “GG” and “HH”, respectively. Also attached is 

Westcode, Inc.’s Proposed Findings of Fact which is attached as part of the undisputed 

record as Exhibit “II”; Westcode, Inc.’s Proposed Conclusions of Law which is attached as 

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part of the undisputed record as Exhibit “JJ”; and Westcode, Inc.’s Consolidated Reply to 

Digitronics Inventioneering Corp.’s Proposed Conclusions of Law and Findings of Fact and 

Digitronics Inventioneering Corp.’s January 15, 2003 Letter which is attached as part of the 

undisputed record as Exhibit “KK”. 

F. The Unrefuted Evidence of Non-Conforming Components Produced at 

the Arbitration Hearing

83. All of the product manufactured by Sixnet and delivered to Westcode were 

ultimately delivered to and then scrapped by Adtranz. There were not, therefore, delivered 

items available for inspection in this litigation. See, TR/H/p. 2914 (Schoenberg). There 

were, however, a few remaining boards in Sixnet’s inventory. Consistent with Sixnet’s 

admissions, the review of remaining product disclosed unrefuted evidence at the hearing of 

the substitution of commercial grade components. 

84. First, Mr. Lewis testified that components were used on the products that 

were not rated by their respective manufacturers to perform within the contract temperature 

range of 20° F to 120° F. Mr. Lewis could not recall just how many components of that 

type were used on BART TCUs and DDUs or why they were used. TR/Lewis/pp. 14-19. 

85. Inspection of the remaining boards showed not only substandard component 

temperature ratings, but some components were from different manufacturers and, for that 

matter, some were even from different countries. See, TR/H/pp. 613-615. 

86. Inspection also revealed 11 out of 15 integrated circuits on one set TCU 

boards were commercial as opposed to industrial. See, TR/H/p. 614. 

87. By way of further example, inspection also revealed that out of 13 identical 

DDU boards, 7 U4 components were industrial and 6 were commercial). See, TR/H/p.616. 

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88. Sixnet’s decision to use at least commercially rated Motorola semiconductors, 

as opposed to the industrially rated Motorola semiconductors was based purely on the fact 

that the commercially rated component was cheaper. See, TR/H/pp. 380-382; see 

Defendant’s Exhibit 109 which is referenced as Exhibit “LL” as part of the undisputed 

record. 

89. Inspection also revealed that some of the components found in the only 

assembled TCU produced at the hearing by Sixnet did not match counterpart components 

found in identical unassembled boards that remained in Sixnet’s inventory. There was, 

therefore, not only a use of substandard commercial grade components, but there was also 

a variation among the different boards. TR/H/pp. 624-625. 

G. Sixnet’s Destruction of Design and Production Records 

90. Sixnet, at all times, refused to produce any documentation regarding the 

manufacturers’ alleged certifications that components were properly rated. In fact, when 

Westcode representatives impressed upon Mr. Schoenberg that Westcode was required to 

produce specification documentation to Adtranz, as mentioned above, Mr. Schoenberg 

made a crude suggestion about where Adtranz could go. 

91. The claims and counterclaims in this case center around Sixnet’s 

performance under TCU and DDU Supply Agreements dated January 18, 1996. 

92. At the forefront of Sixnet’s performance, was the delivery of non-conforming 

products. Sixnet’s President, Steve Schoenberg, and one of its former engineers, Gary 

Lewis, both admitted during their depositions that the Sixnet TCUs and DDUs incorporated 

components with manufacturer specifications that did not meet the contract specifications 

for temperature extremes. TR/Schoenberg, Vol. II/p. 5; and TR/Lewis/pp. 14-19. A copy of 

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the Trial deposition transcripts of Steve Schoenberg are attached as part of the undisputed 

record as Exhibit “MM”. 

93. According to Sixnet engineer, Gary Lewis, the decision to use components in 

the TCUs and DDUs with substandard manufacturing specifications was based on, and 

allegedly supported by, qualification testing that (Mr. Schoenberg admitted was prohibited 

but that) allegedly occurred during the design phase of the product. Mr. Lewis contended 

that such testing proved the suitability of the substandard components to perform at the 

contract temperature range notwithstanding the manufacturer’s specifications. 

TR/Lewis/pp. 14-19. Neither Mr. Lewis nor Mr. Schoenberg could identify exactly what the 

testing consisted of or how many components had been pre-tested. TR/Lewis/pp. 14-19; 

TR/Schoenberg/pp. 5-6. 

94. At his deposition, Mr. Schoenberg stated that a document identified as an 

“issue listing” would identify the components that were used in the different batches of 

product shipped to Westcode. TR/Schoenberg/Vol. I/pp. 51-52. 

95. Mr. Schoenberg also testified that the testing that would have been done to 

allegedly qualify the substandard componentry would have been documented in design 

notes. TR/Schoenberg, Vol. II/ p. 9. 

96. By letters dated July 2, 2002 and September 3, 2002 from counsel for 

Westcode to counsel for Sixnet, the above-mentioned documents, as well as any other 

documents which could assist in identifying the components used in the products shipped 

as well as Sixnet’s alleged engineering analysis which allegedly supported the decision to 

use substandard components, be produced. True and correct copies of the July 2, 2002 

and September 3, 2002 letters are attached to the undisputed record as Exhibits “NN” and 

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“OO”, respectively. 

97. On or about August 12, 2002, Sixnet advised Westcode that all design, test 

and production records had been destroyed. See, generally, the August 12, 2002 letter 

from counsel for Sixnet which is attached as part of the undisputed record as Exhibit “PP”. 

98. The delivered products were gone. They were conditionally released to 

Westcode’s customer Adtranz despite substantial non-conformities so that the production 

line could keep moving. TR/Kelsey/pp. 13-14. The only proof of what components actually 

went into those products would have been the issue listing. 

99. Sixnet commenced this litigation by filing a complaint in the action styled, 

Digitronics Inventioneering Corp. v. Westcode, Inc., Supreme Court of New York, Saratoga 

County, Index No. 99-1395, on June 14, 1999 and therefore was obliged to preserve 

evidence relating to its performance under the contract. 

100. Further, litigation aside, Article T16.8.A of the BART Conformed Contract, 

again, which was incorporated into the Sixnet Supply Agreement, required sub-suppliers to 

maintain records required to provide evidence of the quality of its sub-systems. See, BART 

Contact, Article T16.8.A. 

101. Despite repeated contract requests for information certifying the quality of the 

components in Sixnet’s products, despite having a contractual obligation to maintain and 

provide such documentation, and despite itself having commenced this litigation knowing 

full-well that the quality of the components would be a major issue in the case, Sixnet 

destroyed the only documents which would provide incisive insight into how many 

components in each batch of products were sub-standard, which components in each 

batch of product were substandard and what testing was allegedly done to qualify those 

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substandard components for use and in the products. 

102. On November 1, 2002, Westcode filed a motion seeking relief because of 

Sixnet’s spoliation of critical design and manufacturing evidence. A true and correct copy 

of the November 1, 2002 Motion is attached as part of the undisputed record as Exhibit 

“QQ”. 

103. By Order dated November 27, 2002, the Arbitrator ruled that the motion was 

denied without prejudice pending proof that the spoliation of the design records harmed 

Westcode. A true and correct copy of the November 27, 2002 Order is attached as part of 

the undisputed record as Exhibit “RR”. 

104. As Sixnet had destroyed the design records and production records of the 

products that had been supplied and manufactured, the whole proceeding was corrupted 

and Westcode’s ability to present a case was severely prejudiced. 

105. As to, for example, the design and testing phase of the product, which is a 

phase that the Arbitrator placed great emphasis on in his Opinion, the case turned into a 

rank swearing contest by Sixnet’s representatives. Sixnet’s representatives argued, 

without any documentation to support their argument, or any incisive documentation or 

other evidence available to Westcode to probe the argument, that the substandard 

components utilized in the few remaining subassemblies and pieces of subassemblies that 

were available at the time of the arbitration, were actually contained in design copies of the 

products. While there was physical evidence which undermined the credibility of that 

contention, Westcode was substantially prejudiced by not having the design records or the 

production records available. 

106. Without the design documents, the futility into which the Arbitrator permitted 

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the proceeding to turn, can best be exemplified in an exchange between Westcode’s 

counsel and Mr. Schoenberg during an examination of some of the remaining physical 

product during the hearing. The examination centered around the fact that two identical 

boards contained similarly placed components made by different manufacturers, with 

different temperature ratings. TR/H/p. 345. When counsel for Westcode asked Mr. 

Schoenberg to identify whether the components made by different manufacturers were 

both contract compliant, he stated that they “most certainly” are. TR/H/p. 346. Since, 

obviously, the temperature certification documents had been “destroyed”, counsel for 

Westcode asked Mr. Schoenberg how he could make such a statement with such 

certainty. The explanation was: 

I know they are interchangeable because they are both 

qualified parts or they wouldn’t be on those boards. 

The same circular logic applied when Mr. Schoenberg was presented with three boards 

with identical component parts manufactured by three different manufacturers from three 

different countries. TR/H/p. 348. 

107. Westcode renewed its motion for spoliation sanctions on December 31, 2002 

at the conclusion of the arbitration. That motion was never decided. See, the December 

31, 2002 letter brief from counsel for Westcode to Arbitrator Rutter which is attached as 

part of the undisputed record at Exhibit “FF”. 

108. The design phase of the product is a circumstance on which the Arbitrator 

placed heavy reliance in determining that the subassemblies were contract compliant. 

109. The circumstantial evidence irrefutably proves that the contention that the 

substandard components were approved for use in the design of the product is false. In 

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fact, as a matter of law, the design phase of the product, in light of the clear contract 

language, is legally meaningless. Nevertheless, the Arbitrator placed great emphasis on 

that phase of the product and to the extent the Arbitrator’s position had any merit, the 

design and production documents, which would have shown temperature ratings of the 

components that were used, and whether they complied with the contract specifications, 

were critical. 

110. The Arbitrator ruled that Westcode’s claim that Sixnet’s products were noncompliant was false because the product had obtained a First Article approval and the 

products were tested. The only evidence the Arbitrator could have relied on was the 

anecdotal testimony by Mr. Schoenberg to the effect that the components were compliant 

otherwise Sixnet would not have used them. If Westcode was going to be put to the task 

of challenging such a circular argument, it had no footing absent Sixnet’s design and 

production documents. Westcode, however, should never have found itself in a position of 

having to disprove the Sixnet’s design without the design documents. Accordingly, the 

Arbitrator should never have permitted Sixnet’s case to proceed or, in the alternative, 

Sixnet’ claims should have been dismissed or denied at the conclusion of the hearing when 

the extent of Westcode’s prejudice became manifestly clear. 

III. SUMMARY OF THE ARBITRATOR’S DECISION

111. The Arbitrator found that Sixnet was not in breach of any of its contractual 

obligations. ACL, ¶ 7. In so doing, the Arbitrator either did not address Westcode’s 

express warranty defenses or the Arbitrator must have ruled that the product supplied by 

Sixnet was somehow contract compliant. The contractual specifications with which the 

Arbitrator would have had to have concluded the product complied were never identified. 

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112. The Arbitrator then awarded Sixnet “contract compensatory (Hadley v. 

Baxendale) damages” in the amount of $1,075,911.60. ACL, ¶¶ 8 & 9. The amount of the 

award includes interest from July 15, 2001 in the amount of $164,122.11. Id.

113. The Arbitrator did not anywhere in the Award address the effect of the 

termination-for-convenience provision which was incorporated into the parties’ Agreement. 

114. As mentioned above, the Arbitrator never decided Westcode’s renewed 

motion for spoliation. In fact, not only was Sixnet not sanctioned as a result of the its 

destruction of the design and production records but, indeed, the inferences deducible from 

the lack of such documentation most definitely went to the spoliator - Sixnet. 

IV. CONCLUSION

 For the reasons set forth more fully in the accompanying memorandum of law, 

Westcode, Inc. respectfully requests that the Arbitrator’s July 15, 2003 Award be vacated 

and/or modified. 

Respectfully submitted, 

PHILLIPS & CAMPBELL, P.C.

____________________________________ 

Patrick C. Campbell, Jr. 

ID No. 53350 

314 N. Middletown Road 

Lima, PA 19037 

610/548-710 

Attorneys for Westcode, Inc. 

Dated: September 5, 2003 

G:\WESTCODE\adv. SIXNET\LP\westcode.undisputed.fact.wpd 

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