Court Opinion

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Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

2-14-2005

Brisbin v. Superior Valve Co
Precedential or Non-Precedential: Precedential

Docket No. 03-1793

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                                    PRECEDENTIAL

UNITED STATES COURT OF APPEALS
     FOR THE THIRD CIRCUIT

            No. 03-1793

          KIRK BRISBIN,
                 d/b/a
       Specialty Manufacturing

                  v.

   SUPERIOR VALVE COMPANY;
SHERWOOD; HARSCO CORPORATION;
TAYLOR-WHARTON GAS EQUIPMENT
           DIVISION

               Harsco Corporation, Sherwood;
               Taylor-Wharton Gas Equipment
               Division,

                       Appellants

            No. 03-1851

           KIRK BRISBIN,
    d/b/a Specialty Manufacturing,
                                      Appellant

                                 v.

           SUPERIOR VALVE COMPANY;
        SHERWOOD; HARSCO CORPORATION;
        TAYLOR-WHARTON GAS EQUIPMENT
                   DIVISION

       Appeal from the United States District Court
         for the Western District of Pennsylvania
           (D.C. Civil Action No. 99-cv-01902)
      Magistrate Judge: Honorable Francis X. Caiazza

                   Argued March 24, 2004

 Before: ROTH, AMBRO, and CHERTOFF, Circuit Judges

              (Opinion filed February 14, 2005)

Melissa H. Maxman, Esq.
Duane M orris
1650 Market Street
One Liberty Place, 37 th Floor
Philadelphia, PA 19103-7396

Samuel Goldblatt, Esq.
Nixon Peabody LLP

                                 2
1600 Main Place Tower
Buffalo, NY 14202

David H. Tennant, Esq. (Argued)
Nixon Peabody LLP
P.O. Box 31051
Clinton Square
Rochester, NY 14603

       Counsel for Appellants/Cross-Appellee

George E. McGrann, Esq. (Argued)
Sarah E. Diedrich, Esq.
Schnader, Harrison, Segal & Lewis
120 Fifth Avenue
Fifth Avenue Place, Suite 2700
Pittsburgh, PA 15222

       Counsel for Appellee/Cross-Appellant

                 OPINION OF THE COURT

AM BRO, Circuit Judge

       This dispute arises out of a long-term supply
relationship gone bad. The plaintiff is Kirk Brisbin, an
individual doing business as Specialty Manufacturing

                               3
(“Specialty”)1 . Superior Valve Company (“Superior”), one of
the named defendants, was acquired by defendant Harsco
Corporation in the fall of 1998. After a bench trial, judgment
ultimately was entered in favor of Specialty in the amount of
$746,675. On appeal, we review the Magistrate Judge’s
conclusions regarding adequate assurance and damage issues.
We affirm in part, reverse in part and remand for further
proceedings.

      I. Factual Background and Procedural History

       In 1997 Brisbin and Superior began negotiating long-
term supply contracts whereby Specialty would sell Superior
certain industrial goods. The result was two separate
contracts in May 1998.2 The first was for the sale of brass
valves (hereinafter referred to as the “1065 valves”). The
second contract was for the sale of two-inch, three-inch, four-
inch and five-inch brass shell castings (hereinafter referred to
generally as “shells”).

       1
        Thus this opinion refers to Brisbin and Specialty
interchangeably.
       2
         Specialty also alleges the existence of a third contract
for the production of an item referred to as in-line valves. As
this issue is unrelated to the other issues on appeal, the
underlying facts are discussed separately in Part III.C. below.

                               4
         The performance of both contracts was subject to
certain quality control standards. Before Specialty could
manufacture either the 1065 valves or any of the shells on a
full-time basis, it had to receive approval from Superior. The
initial step in the approval process was known as First Article
Inspection (“FAI”). Stated briefly, FAI would test whether
the material and dimensions of the item met requirements.
Upon FAI approval, Specialty would begin a trial-production
run of 100 pieces. Superior would then conduct tests to
evaluate the consistency of the pieces. Only after Superior’s
approval of the samples from the trial-production run could
Specialty begin full-time production.

        According to a memorandum written by Ed
Wingenroth, Superior’s Director of Quality Assurance,
Superior gave FAI approval to Specialty for the 3" shells on
January 25, 1999. Superior then ordered a 100-piece trial-
production run. Specialty completed the order in March. But
because the shells were manufactured in South Korea,3
Superior did not receive them until the beginning of June.
Brisbin testified that Wingenroth tested the trial-production
shells in April (in South Korea) prior to shipment. Superior,

       3
        Specialty is not a manufacturing company. Its primary
value consisted of Brisbin’s relationship with several South
Korean manufacturers. With Superior’s express permission,
Specialty subcontracted the actual production of the 1065 valves
and the shells.

                               5
however, conducted additional testing in late July. Several
Superior employees testified that this testing uncovered
problems with the bronze alloy with which the shells were
made.

        For the 1065 valves, Wingenroth gave FAI approval in
a letter written May 27, 1999. Superior claims that it never
authorized Wingenroth to give FAI approval because the
valve samples did not meet testing requirements. Yet
Superior asked Specialty to begin the 100-piece trial-
production run for the 1065 valves in early June.

        Specialty could not complete this trial-production run.
According to Brisbin, his South Korean manufacturers were
unable to source six of the required component parts for the
1065 valves. In a June 21 letter, Brisbin formally requested
that Superior supply these component parts. Superior
previously had supplied a limited number of component parts,
enabling Specialty to manufacture samples and thus
facilitating the FAI approval process. Superior, however,
decided not to supply the components for the trial-production
run.4 Specialty apparently was not informed of this decision.

       Beginning in late June and continuing through July,

       4
        The apparent reason for this decision was that, because
Specialty was responsible for finding its own supplier for the
components, testing would have to be redone.

                               6
Brisbin was frustrated with what he perceived as Superior’s
dilatory tactics.

       Well, I had spent over two years now of my
       time, considerable expense to my family, my
       business, and I was just not getting any direction
       . . . . At that point management clearly was not
       supporting the programs. I was having trouble
       having correspondence returned . . . . As of
       June, I will say late June, there was just starting
       to become a total collapse of effort and support
       in showing good faith toward the programs.

The one person at Superior with whom Brisbin corresponded
was Joe Kilmer, the Director of Purchasing. But Brisbin
testified that, while Kilmer was helpful in the sense that he
actually returned calls, he did not facilitate Brisbin’s repeated
attempts to get feedback on the 1065 valves and 3" shells
projects.

        At the end of July, Brisbin spoke with Kenneth Miller
— Vice President and General Manager of a division of
Harsco Corporation — concerning the projects’ status. As a
result, Brisbin and various Superior employees held a
conference call on August 2. According to Brisbin, Superior
told him for the first time that the FAI approvals for both the
3" shells and the 1065 valves were either missing or did not
exist. He was also informed that Superior would require

                                7
additional testing.5 For the 1065 valves, a Superior engineer
allegedly informed Brisbin on the call that the project was a
low priority and would not receive any attention for several
weeks. Despite Brisbin’s repeated requests, Superior never
supplied Specialty with any of the test results for either the
1065 valves or the shells demonstrating product
nonconformance or the specific requirements Specialty would
have to meet in order to be reapproved.

      Brisbin memorialized his frustrations with Superior in
an August 5 fax to Miller. It contained the following
statements:

•      Additionally, I am now hearing my programs have not
       passed first article inspections, when I have signed
       documents from your Quality Control Manager at the
       time saying they are . . . .

•      I can not . . . continue to pour my money . . . into these
       programs, having never asked Superior Valve
       Company to pay one penny, if your employees are
       going to continue to deny, stall, fabricate, lose
       documents, lose samples, deny documents exist, issue

       5
          It is unclear whether the “additional testing” meant
retesting according to the previously established quality control
standards or implementing additional standards and tests. The
distinction, however, does not affect the resolution of this case.

                                8
      incorrect purchase orders, change requirements, etc.

•     I require these three invoices be paid to me, and that I
      receive this check of $112,868 in its entirety, before
      the close of business on Thursday, 19 August 1999, in
      my office in Texas.

•     I want very much for these programs to go forward, but
      I must have, after two years, your company come
      forward and finally illustrate its good faith and pay the
      tooling and molding costs in as much [sic] as they
      continue to find reason to stall these programs.

•     I would certainly expect . . . some sort of preliminary
      agreement be signed by me agreeing with the reason
      the payment is being made, and to show clearly what
      my obligations are for this payment.

       Brisbin received two responses to his August 5 fax. In
an August 11 letter, Superior formally rescinded the FAI
approvals given by Ed Wingenroth for the 3" shells and the
1065 valves. The letter informed Brisbin that “a review of
inspection documents shows that some required tests were not
performed, and some dimensions were in nonconformance to
[e]ngineering specifications.” In an August 12 fax, Miller
accused Brisbin of “attempting to establish a breach of
contract” and denied that Superior was obligated to make any
payments, but suggested that the parties arrange another
conference call.

                              9
      As a result, another conference call took place on
August 17. In a fax that same day, Brisbin wrote:

•     I am certainly interested in these programs and only
      wish they move forward as originally intended.

•     However, understand Specialty Manufacturing
      believes, and has overwhelming documentation to
      support, our belief, that our products have already been
      fully test[ed] and approved.

•     If additional testing and approvals are now required by
      Superior Valve Company — I understand. If this is the
      case, however, Specialty Manufacturing needs these
      new requirements in writing, and as soon as possible,
      and would expect Superior Valve Company to [bear]
      the additional costs incurred by Specialty
      Manufacturing in complying with these new
      conditions.

•     In view of the delays in moving forward . . .[,] I
      believe it is time for Superior Valve Company to now
      absorb these startup costs. As earlier stated to you, we
      request this immediately be discussed and agreed upon.
      I will discuss different options or arrangements than
      previously required, but this very importantly needs to
      be resolved, and soon.

Miller responded with a short fax to Brisbin disagreeing with

                              10
his characterization of the phone conversation.

       On September 1, Brisbin faxed to Miller a final attempt
to reconcile the situation. After summarizing the past
communications between the two companies, Brisbin stated:

       If Superior Valve . . . has any last minute ideas
       which would allow these programs to move
       forward, I would certainly listen, as I always
       have. Up to this point, however, I have not seen
       an expressed interest for these programs[’]
       forward movement by management . . . .

The only response to this fax was a September 8 letter by
Irene Ratajczak, a “Senior Administrative Assistant” at
Superior, declaring its intention to refer “this matter over to
our legal department.”

       Brisbin subsequently filed suit in the Western District
of Pennsylvania seeking damages for breach of contract.
Specifically, he requested lost profits from the two written
contracts and the purported oral contract. With the consent of
the parties, the matter was assigned to a magistrate judge for
trial.

      After conducting a bench trial, the District Court’s
Chief Magistrate Judge entered judgment for Specialty in the
amount of $758,875 (subsequently reduced to $746,675). He

                               11
concluded that Specialty possessed reasonable grounds for
insecurity under § 2-609 of the Uniform Commercial Code
and made reasonable requests for adequate assurance. The
Magistrate Judge also held that Superior’s failure to provide
any assurance of future performance and its decision to
disengage from the relationship materially breached the
supply contracts.

         For damages, the Magistrate Judge awarded Specialty
its lost profits for the 1065 valves and shells contracts. He
calculated profits for the 1065 valves on the basis of (1) three
full years of production (2) at the original quantity estimate in
the contract (3) at the profit rate of $2.15 per valve. He based
profits for the shells contract on (1) five full years of
production (2) for each model (i.e., the 2" shells, the 3" shells,
et al.) (3) at the quantities and prices listed in the attachment
to the contract. Finally, the Magistrate Judge held that the
evidence was insufficient to award lost profit damages for the
in-line valves project, but awarded reliance damages instead.

       Shortly thereafter, Superior filed a Federal Rule of
Civil Procedure 52(b) motion to amend certain findings of
fact and the damages award. In February 2003 the M agistrate
Judge affirmed his findings and, with a small exception, the
damages award. Upon submission of Specialty’s calculations,
however, the Magistrate Judge denied Specialty’s request for
prejudgment interest.

                               12
       Both sides timely appealed. We have jurisdiction
under 28 U.S.C. § 1291.

                   II. Standard of Review

        We review findings of fact for clear error and exercise
plenary review over conclusions of law or the application of
legal precepts to the facts. In re Cellnet Data Sys., Inc., 327
F.3d 242, 244 (3d Cir. 2003). “A factual finding is clearly
erroneous when ‘the reviewing court on the entire evidence is
left with the definite and firm conviction that a mistake has
been committed.’” Id. (quoting United States v. United States
Gypsum Co., 333 U.S. 364, 395 (1948)). “If the district
court’s account of the evidence is plausible in light of the
record viewed in its entirety, the court of appeals may not
reverse it even though convinced that had it been sitting as the
trier of fact, it would have weighed the evidence differently.”
Anderson v. City of Bessemer, 470 U.S. 564, 573-74 (1985).

                         III. Analysis

       Superior attacks the Magistrate Judge’s conclusion that
Specialty’s grounds for insecurity and requests for adequate
assurance were reasonable. It also challenges his damages
calculation.

       Specialty raises two issues on cross-appeal. First, it
argues that lost profits, not just reliance damages, are

                               13
recoverable for the in-line valves project. Second, it claims it
is entitled to prejudgment interest on the damages awarded in
its favor.

       We address each argument in turn.

A. Insecurity and Adequate Assurance

       1. Applicable Legal Standards

        We have found no Pennsylvania cases discussing
whether a trial court’s conclusions on adequate assurance
under 13 Pa. Cons. Stat. § 2609 (U.C.C. § 2-609) are findings
of fact or conclusions of law. Courts and commentary
discussing § 2-609 have concluded that these issues are
generally questions of fact, but may sometimes be decided as
a matter of law. See U.C.C. § 2-609, cmts. 3, 4; BAII
Banking Corp. v. UPG, Inc., 985 F.2d 685, 702 (2d Cir. 1993)
(“It is generally a question of fact whether a buyer has
reasonable grounds for insecurity under § 2-609. There are
circumstances, however, where this issue may be resolved as
a matter of law.” (citations omitted)); AMF v. McDonald’s
Corp., 536 F.2d 1167, 1170 (7th Cir. 1976) (“Whether in a
specific case a buyer has reasonable grounds for insecurity is
a question of fact.”); Trust Co. for USL, Inc. v. Wien Air
Alaska, Inc., No. 96-15222, 1997 U.S. App. LEXIS 11958 at
*3 (9th Cir. May 20, 1997) (“The district court found that
‘while . . . what constitutes adequate grounds for insecurity is

                               14
often a factual question, conduct may be sufficiently extreme
as to be capable of decision as a matter of law.’ We agree.”)
Lance Int’l Ltd. v. Menominee Paper Co., No. 98-2229, 1999
U.S. Dist. LEXIS 10370 at *17 (E.D. Pa. July 9, 1999) (“[A]
question of fact is presented as to whether the request for
adequate assurances was proper and reasonable under the
circumstances.”); Personnel Data Sys. v. Grand Casinos, No.
97-4896, 1998 U.S. Dist. LEXIS 11587 at *17 (E.D. Pa. July
30, 1998) (“[A] demand for adequate assurances under the
UCC presents an issue of fact that cannot be decided on
summary judgment.”). For a court of appeals sitting in review
of a district court, the inquiry of whether conduct was so
egregious (or, conversely, so innocuous) as to allow a
conclusion on adequate assurance as a matter of law is
functionally the same as whether a district court’s finding of
fact was clearly erroneous. As the cases cited above suggest,
we may not overturn the Magistrate Judge’s conclusions
unless the evidence reasonably supports only one conclusion.

       Turning to the merits, Pennsylvania’s Uniform
Commercial Code provides that when “reasonable grounds
for insecurity arise with respect to the performance of either
party the other may in writing demand adequate assurance of
due performance.” 13 Pa. Cons. Stat. § 2609(a). Failure to
provide such assurance within a “reasonable time not
exceeding 30 days” constitutes repudiation of the contract.
Id. § 2609(d).

                              15
        What constitutes “reasonable” grounds and “adequate”
assurance is to be defined by commercial, not legal, standards.
 Id. § 2609(b). Comment 3 to § 2-609 of the U.C.C. provides
that the grounds for insecurity “need not arise from or be
directly related to the contract in question,” and Comment 4
states that “repeated delinquencies must be viewed as
cumulative.” Further, Comment 4 indicates that what
constitutes adequate assurance will vary depending on the
circumstances and that the requested assurance need not be
due under the contract. “W hat constitutes ‘adequate
assurance’ is to be determined by factual conditions; [a party]
must exercise good faith and observe commercial standards;
his satisfaction must be based upon reason and must not be
arbitrary or capricious.” Cinicola v. Scharffenberger, 248
F.3d 110, 120 n.10 (3d Cir. 2001) (quoting Richmond Leasing
Co. v. Capital Bank, N.A., 762 F.2d 1303, 1309-10 (5th Cir.
1985)). 6

       2. Analysis

         On appeal, Superior challenges the Magistrate Judge’s
adequate assurance findings on three grounds: (1) Specialty
could not be insecure because any project delays were its own
fault, i.e., Specialty’s inability to source the six internal

       6
          Although Cinicola involved the interpretation of a
federal bankruptcy statute, 11 U.S.C. § 365(b), the language of
the statute borrows the concept of U.C.C. § 2-609.

                              16
components for the 1065 valves and the quality control
problems with both the 3" shells and the 1065 valves;
(2) Specialty’s request for payment of $112,868 was
unreasonable because no contractual right to this payment
existed; and (3) the Magistrate Judge erroneously interpreted
internal Superior documents and improperly relied on this
evidence in making his findings. The Magistrate Judge’s
findings, however, are fully supported by the factual record.

       As to Superior’s first challenge, we agree with the
Magistrate Judge that Specialty’s ability to manufacture the
1065 valves and shells in accordance with Superior’s quality
control standards is irrelevant. This inquiry pertains to the
damages calculation, but it has no bearing on whether, in
August 1999, Specialty had reasonable grounds to feel
insecure about Superior’s commitment to these projects.

        As detailed above, a variety of evidence supports the
Magistrate Judge’s decision that Specialty had reasonable
grounds to feel insecure. The 100-piece trial-production run
for the 3" shells had been delivered to Superior by the late
spring of 1999. Even assuming there were problems with the
brass alloy used to manufacture the shells, the additional
testing by Superior did not begin until a month and a half after
their arrival. As for to the 1065 valves, even assuming the
FAI approval was unwarranted, the record indicates (and
Superior does not dispute) that Wingenroth had authority to
give this approval. As such, Brisbin’s reliance on

                              17
Wingenroth’s authority was reasonable. Superior’s argument
also ignores that it asked Specialty to start the 100-piece trial-
production run with knowledge that testing had not been
completed. And while Superior may not have been obligated
to supply the six component parts for the valve, it should have
informed Specialty of its decision not to do so.

        By June 1999, over a year had gone by since the
contracts had been signed. Yet Specialty had not begun full-
time production on any item. The record also indicates that,
despite numerous attempts, Brisbin received little to no
feedback on the status of these projects for at least a month
and a half. When he finally received feedback during the
August 2 conference call, he was told for the first time that
Superior had either never given certain approvals or had lost
them and that it would require additional testing.7 From
Specialty’s perspective, Superior reversed its position on the
FAI approvals after two months of silence and without any
explanation as to why. (Brisbin’s repeated requests for the
test results demonstrating noncompliance and the proper
quality control protocols also went unanswered.) In this
context, reasonable grounds existed for Specialty to feel
insecure about Superior’s commitment to the projects.

       7
          It appears ironic that the August 2 conference call was
initiated largely in response to Brisbin’s repeated pleas for a
status update on the projects. Absent his plea, we wonder when
(or if) Superior would have informed Specialty of any problems.

                               18
       The record also supports the Magistrate Judge’s
finding that Specialty’s requests for adequate assurance of
Superior’s performance were reasonable. Admittedly, the
tone of Brisbin’s August 5 fax was strident and Specialty had
no right under the contract to recover the $112,868 Brisbin
demanded as one means of assuring Superior’s performance.8
But we analyze a request for adequate assurance in a practical
way, and such a request need not be tied to a contractual right.
See U.C.C. § 2-609, cmts. 3, 4. In light of Superior’s dilatory
behavior and its reversal of position, Specialty had good cause
to doubt Superior’s commitment to the projects. Further,
Specialty was in a vulnerable position because it could not
begin recouping startup costs until Superior had given all
approvals. As such, we conclude Specialty’s decision to ask
for assurance of Superior’s performance in this manner was
reasonable, notwithstanding the lack of a contractual right to
demand or receive the $112,868.9

       8
        The contract was structured so that startup costs were
incorporated into the unit price of the items.
       9
          Superior argues that Specialty was requesting payment
of the $112,868 without any corresponding price concession —
i.e., to be paid twice for tooling and machinery costs. Brisbin’s
statements in the August 5 fax — that he “certainly” expected
payment to be accompanied by an agreement detailing why “the
payment is being made” and what his “obligations are for this
payment” — indicate otherwise.

                               19
        Further, Brisbin’s August 17 fax indicates a
willingness to entertain alternative forms of assurance in lieu
of immediate payment of the $112,868. Even his September
1 letter demonstrates a continued interest in reaching an
amicable solution. Despite these entreaties, Superior neither
presented a single counterproposal nor gave any indication
that it was willing and able to perform its obligations under
the contract in good faith. Instead, Superior decided to cease
all communications and referred the matter to its legal
department.

        Lastly, we turn to Superior’s claim that the Magistrate
Judge erroneously interpreted and improperly relied on
internal Superior documents. The evidence in question was
generated by Superior employees in August 1999, after the
August 2 conference call. A handwritten note by Jon Carter,
a purchasing manager for Superior, at an August 4 meeting
states: “Create enough issues to eliminate the interest.”
Another handwritten note from this meeting, this time by Joe
Kilmer (Superior’s purchasing director), instructs:
“Disengage/Discontinue.” A third note, written by Kilmer on
August 5, advises that the agreements signed by Superior
were “not adequate” and needed “to be rewritten.” Finally, an
August 10 e-mail (this one by Bill Recktenwald, an employee
in Superior’s engineering department) states that, after
additional testing, the 1065 valves and shells projects may not
be “appealing . . . from a cost savings standpoint.”

                               20
       The Magistrate Judge relied on this evidence, in part,
in concluding that Superior’s severance of its relationship
with Specialty “did not comport to standards of good faith and
fair dealing.” On appeal, Superior raises two objections.
Concerning the Carter and Kilmer notes, Superior argues that
they are ambiguous and that the Magistrate Judge interpreted
them in a way contrary to both Carter and Kilmer’s testimony.
As for the documentary evidence, Superior claims that the
Magistrate Judge’s reliance on this evidence was improper
because Specialty had no knowledge of these items at the
time.

       First, the decision finding not credible the testimony of
Carter and Kilmer should be overruled only if clearly
erroneous. See Anderson, 470 U.S. at 574 (“Where there are
two permissible views of the evidence, the factfinder’s choice
between them cannot be clearly erroneous. This is so even
when the district court’s findings do not rest on credibility
determinations, but are based instead on physical or
documentary evidence or inferences from other facts.”
(internal citation omitted)); Scully v. US WATS, Inc., 238
F.3d 497, 506 (3d Cir. 2001) (stating that the “credibility of
witnesses is quintessentially the province of the trial court, not
the appellate court” (internal citation omitted)); Palazzo v.
Corio, 232 F.3d 38, 44 (2d Cir. 2000) (“The weighing of the
evidence is a matter for the trier of fact, not the court of
appeals, and the ‘clearly erroneous’ standard of review is a
deferential one. The mere presence of evidence to support an

                               21
inference contrary to that drawn by the trier of fact does not
mean that the factual findings were clearly erroneous.”). As
previously discussed, the evidence supports the conclusion
that Superior was engaging in dilatory behavior. Therefore,
the Magistrate Judge hardly erred in disregarding Carter and
Kilmer’s self-serving testimony and interpreting their
handwritten notes as evidence of Superior’s bad faith.

        Further, the M agistrate Judge did not improperly rely
on the documentary evidence to make adequate assurance
findings. As Superior suggests, a § 2-609 analysis must be
based on the facts and circumstances known at the time
adequate assurance is requested. If a party had no knowledge
of certain facts, it follows that the reason for insecurity (and
the decision to ask for adequate assurance) was not based on
those facts. But as previously discussed, Specialty’s grounds
for insecurity and requests for adequate assurance were
reasonable based upon the information it had at the time.
Such a conclusion does not depend on the documentary
evidence to which Superior objects, and the Magistrate Judge
did not rely on the evidence for this purpose. He merely cited
this evidence to support an entirely separate conclusion —
that Superior breached the contracts by failing to respond to
the requests for adequate assurance and by disengaging from
its relationship with Specialty.

                               22
B. Lost Profits for the 1065 Valves and Shells Contracts

       The Magistrate Judge awarded Specialty lost profits
for both the 1065 valves and shells contracts. Superior raises
a number of challenges to this award on appeal. We agree
that certain conclusions of the M agistrate Judge were in error,
and we remand in order to afford him the opportunity to make
additional findings based on the record made at the bench
trial.

       1. Applicable Legal Standards

        Lost profits may be recovered under Pennsylvania law
if (1) “there is . . . evidence to establish the damages with
reasonable certainty,” (2) the damages “were the proximate
consequence of the wrong,” and (3) the damages “were
reasonably foreseeable.” Advent Sys. Ltd. v. Unisys Corp.,
925 F.2d 670, 680 (3d Cir. 1991) (citing Delahanty v. First
Pa. Bank, N.A., 464 A.2d 1243, 1258 (Pa. Super. Ct. 1983)).
“Proof of damages need not be mathematically precise, but
the evidence must establish the fact ‘with a fair degree of
probability.’” Id. at 680 (quoting Exton Drive-In, Inc. v.
Home Indemnity Co., 261 A.2d 319, 324 (Pa. 1969)). Lost
profits, however, “cannot be recovered where they are merely
speculative,” Delahanty, 464 A.2d at 1258, and Pennsylvania
courts are reluctant to award them when a business venture is

                               23
not established. Id. at 1258-59.10 A plaintiff bears the burden
of establishing lost profits. Id. at 1257.

       2. Duration of the Contracts and Length of Production

         To calculate lost profits, the Magistrate Judge
multiplied the estimated profit for each individual item for a
year of full-time production by the total length of the contract
(i.e., three years for the 1065 valves contract and five years
for the shells contract). But as of the date of Superior’s
breach (approximately fifteen months into the contracts),
Specialty had not begun full-time production on either the
1065 valves or any of the shells. Undeterred, the Magistrate
Judge concluded that, under Pennsylvania law, it would be
reasonable to extend the contracts beyond their expiration
dates to allow Specialty to receive its “full expectation
interest.” This decision to calculate damages on the basis of
three and five years of full-time production erred as a matter
of law.

       In support of the Magistrate Judge’s conclusion,

       10
         Typically courts are reluctant to award lost profits to
untested businesses because of the difficulty in estimating future
sales. Due to the quantity estimates and long-term nature of the
contracts in this case, that is not a problem. Yet Specialty faced
its own uncertainty — its subcontractors had no prior experience
manufacturing either the 1065 valves or the shells.

                               24
Specialty argues that, because development costs were
incorporated into unit prices and would be recouped over the
life of the contracts, they make economic sense only if they
continue for three and five years of production. Yet this is not
how they are written. The 1065 valves contract states that the
“agreement is effective for a term beginning May 28, 1998,
and ending May 27, 2001.” The shells contract contains
identical language, but expires on May 27, 2003. The
contracts neither provide for development time nor guarantee
a minimum period of full-time production. Sympathy aside, it
is axiomatic that a court may not rewrite the clear provisions
of a contract to make it more reasonable or to protect a party
against an unwelcome result. See Sultan Chemists, Inc. v.
EPA, 281 F.3d 73, 80 (3d Cir. 2002); State Farm Mut. Auto.
Ins. Co. v. Coviello, 233 F.3d 710, 717 (3d Cir. 2000)
(discussing Pennsylvania law); Selko v. Home Ins. Co., 139
F.3d 146, 151-52 (3d Cir. 1998) (same).

       Even more damaging to Brisbin is that at trial he had
the burden of producing evidence to establish the date full-
time production would have begun for each project in order to
recover lost profits for the valves and shells. Delahanty, 464
A.2d at 1258. This is obviously a difficult task inasmuch as
Brisbin had to peg a date from seemingly indeterminate facts.
We nonetheless remand to allow the Magistrate Judge the
opportunity to make findings on this issue. He must do so
solely based on the evidence presented at the bench trial, as
Brisbin does not get a chance to supplement the record (his

                              25
opportunity having come and gone by the trial’s end). In any
event, if the Magistrate Judge determines on remand that
Brisbin established the date full-time production would have
begun for each project, he may only recover lost profits for
the valves and shells from that date through May 27, 2001 and
May 27, 2003, respectively.

         3. Failure to Source Component Parts for the 1065
Valves

       Specialty did not establish that its subcontractor even
was capable of manufacturing the 1065 valves. Its contract
with Superior states, and Specialty does not dispute, that it
was required to supply “fully manufactured, assembled, and
tested” 1065 valves. The record also shows that Specialty’s
South Korean subcontractor never found a supplier for six of
the roughly thirty component parts.

        Specialty alleges that Superior agreed to supply these
components in the fall of 1998. But the only evidence of this
is a single statement made by Brisbin.11 Neither a written
contract nor other documentary evidence exists. Even

         11
        Brisbin testified on direct examination: “I believe there
was a couple [of components] . . . that [the South Korean
manufacturer was] not able to source at that time without a great
deal of costs and time. So Superior offered to supply
approximately five or six of the internal components.”

                               26
assuming Brisbin’s testimony is credited, such an agreement
would be unenforceable under the Statute of Frauds. See 13
Pa. Cons. Stat. § 2201 (requiring an agreement for the sale of
goods over $500 to be in writing). Thus we do not know
when, or even if, Specialty could have begun manufacturing
the 1065 valves. Again, this is an issue the Magistrate Judge
is best qualified to resolve on remand.

       4. Quality Control Problems with the 1065 Valves

        In awarding lost profits, the Magistrate Judge did not
consider whether the prototype 1065 valves supplied by
Specialty satisfied Superior’s quality control requirements.
This should have been determined. Whether the FAI approval
was improperly given, while irrelevant to the adequate
assurance inquiry, is relevant to damages. To recover lost
profits under Pennsylvania law, Specialty must establish to a
reasonable certainty when and if the valves would meet
specifications. Advent Sys., 925 F.2d at 680. Neither
Specialty nor its subcontractor had experience manufacturing
the valves, so we do not have a course of performance upon
which to rely. Therefore, Specialty had to present other
evidence of substantial compliance with the contract
requirements before lost profits could be recoverable.

        The M agistrate Judge made no findings on the matter,
stating in a footnote: “It would be remiss for this court to fail
to consider Superior Shell’s responsibility to deliver a safe

                               27
product to market. In that respect, the need to conduct further
testing was not only reasonable but apparently necessary.”
For Specialty to recover lost profits for the 1065 valves, on
remand the Magistrate Judge must find that Speciality
introduced evidence establishing when (if ever) the valves
could have met Superior’s quality control requirements
(assuming Superior worked with Speciality in good faith).

       5. Annual Quantity Term for the 1065 Valves

        The Magistrate Judge also erred in calculating
damages for the 1065 valves based on an annual production
figure of 25,000 valves. The contract states that Superior
“agrees to purchase all of its requirements for Valves from
Specialty.” Exhibit A to the contract states the “Annual
Usage” is 25,000. Yet this figure is an estimate of expected
requirements, not a minimum takings obligation. Under
Pennsylvania law, the quantity term for a requirements
contract is the “actual . . . requirements as may occur in good
faith, except that no quantity unreasonably disproportionate to
any stated estimate . . . may be tendered or demanded.”
13 Pa. Cons. Stat. § 2306(a). “In a requirements contract,
‘[t]he seller assumes the risk of all good faith variations in the
buyer’s requirements, even to the extent of a determination to
discontinue the business.’” U&W Indus. Supply, Inc. v.
Martin Marietta Alumina, Inc., 34 F.3d 180, 188 (3d Cir.
1994) (citation omitted). But a “buyer purchasing less than its
forecasts may still be found in breach if it acted in bad faith.”

                               28
Reilly Foam Corp. v. Rubbermaid Corp., 206 F. Supp. 2d 643,
657 (E.D. Pa. 2002) (citing James J. White & Robert S.
Summers, Uniform Commercial Code § 3-9, at 141 (5th ed.
2000)).

       Once again, the M agistrate Judge awarded lost profits
without making the requisite findings. The uncontroverted
testimony at trial was that Superior revised the annual
estimate for 1065 valves downward from 25,000 to
8,000–10,000. While the Magistrate Judge concluded
Superior acted in bad faith in canceling the contracts, no such
finding was made regarding the downward estimate. Indeed,
neither the Magistrate Judge nor the parties have even
discussed the issue. This too should be addressed on remand.

       6. Profits Lost on the Shells Contract

        The Magistrate Judge erred in awarding lost profits for
all of the shells when only the 3" shells had received FAI
approval. The record indicates, and Specialty does not
dispute, that separate FAI approvals were required for 2", 3",
4" and 5" shells. Prior to August 1999 Specialty had
submitted no shell size for approval other than the 3" shells.
In fact, Specialty missed a self-imposed deadline to provide
sample 4" shells by late June 1999. Further, Brisbin testified
that he initially anticipated between one and two years to get
the subcontractors up to speed, receive necessary approvals
and begin full-time production for all four shell sizes. While

                              29
the Magistrate Judge found that samples for the other shell
sizes were being produced in August, there are no findings
(and perhaps little to nothing in the record to allow findings)
(1) when these samples would have been completed, (2) how
long FAI approval should have taken, (3) how long a trial-
production run and approval would have taken, and,
ultimately, (4) when Specialty could have begun full-time
production.

        In addition, it is unclear whether the shells satisfied
quality control requirements. As stated previously, Superior
employees testified that additional testing uncovered
problems with the brass alloy used for all shell sizes. Because
this problem was common to all the shells, Superior argues
that lost profits cannot be awarded. The Magistrate Judge
noted, however, that a different Superior employee testified
on cross-examination that the sample 3" shells actually passed
the required tests. The Magistrate Judge concluded:

       On the basis of this record the court cannot
       make a finding that the samples provided by
       Specialty did not meet the applicable standards
       and the quality requirements of Superior Valve.
       Parenthetically, the court need not and will not
       proceed onto a protracted analysis of that
       question because it found that Superior Valve
       had materially breached the contract . . . and
       because it failed to provide the Plaintiff with

                               30
       adequate assurance of performance.

       Analyzing the first sentence of this statement, we
conclude that the Magistrate Judge never made a factual
finding one way or the other. From the second sentence it
appears that the Magistrate Judge applied the incorrect legal
standard for awarding lost profits. Specialty must prove
damages to a reasonable certainty. Advent Sys., 925 F.2d at
680. As with the 1065 valves, because neither Specialty nor
its subcontractors had experience manufacturing the shells,
substantial compliance with the contract requirements cannot
be presumed through a course of performance. Specialty had
the burden of demonstrating that the prototype shells were
conforming and, if not, when any deficiencies could have
been rectified. On remand, the Magistrate Judge needs to
make (if possible) appropriate findings if, upon
reconsideration, lost profits are to be awarded.

C. The In-Line Valves Project

        On cross-appeal, Specialty argues that it is entitled to
lost profits based on the existence of an in-line valves
contract. The Magistrate Judge concluded that the parties
intended to enter into a contract, that the writing requirement
for the Statute of Frauds was satisfied, but that lost profits
were not recoverable because no agreement had been reached
as to price, quantity and duration. Accordingly, he awarded
Specialty only reliance damages.

                               31
        We first conclude that the Magistrate Judge’s finding
that Superior and Specialty intended to contract is clearly
erroneous. As a written contract was executed for both the
1065 valves and the shells projects, the parties’ course of
dealings indicates that contractual intent was formalized in a
written document. The record also indicates that the parties
were in the final stages of negotiating the in-line valves
contract, but that they had reached no firm agreement. In a
letter dated August 3, 1999, Brisbin wrote that the in-line
valves “program has not been officially granted [to] Specialty
Manufacturing and we do not have currently a long-term
contract agreement for this program.” Further, Brisbin
testified that, in June 1999, he began “requesting information”
on the status of the in-line valves project because he had been
told a long-term agreement “would be forthcoming.” He also
“repeatedly asked [Joe Kilmer] about getting my [in-line]
check valve contract, and he said, ‘They’re still evaluating
it.’” On cross-examination, Brisbin admitted that a draft
agreement had not yet been exchanged between the parties
and that the two sides were only working toward a final
contract.

        Even assuming Superior and Specialty intended to
agree, no contract was formed. A contract with open terms
will “not fail for indefiniteness if . . . there is a reasonably
certain basis for giving an appropriate remedy.” 13 Pa. Cons.
Stat. § 2204(c). The Magistrate Judge concluded, however,
that there was no “meeting of the minds” as to price, quantity

                               32
and contract duration. Thus, no contract was formed as a
matter of law. Yellow Run Coal Co. v. Alma-Elly-Yv Mines,
Ltd., 426 A.2d 1152, 1154 (Pa. Super. Ct. 1981) (stating that,
“[t]o be enforceable, a contract must . . . represent a meeting
of the parties’ minds on the essential terms of their
agreement”); see also Black’s Law Dictionary 224 (6th ed.
1991) (defining a contract as an “agreement between the
parties that gives each a legal duty to the other and also the
right to seek a remedy for the breach of those duties”).

        Specialty points to evidence in the record — including
price quotes, quantity estimates and duration ranges — to
argue that these essential terms are ascertainable. But as
discussed above, the evidence in the record establishes that
the parties were still negotiating a final agreement.
Accordingly, we agree with the Magistrate Judge’s finding
that no final agreement was reached as to price, quantity and
duration of a putative in-line valves contract. 12

       12
         The Magistrate Judge held in the alternative (that is,
assuming the lack of an in-line valves contract) that Specialty
could recover as reliance damages its development and start-up
expenses for the in-line valves project under a promissory
estoppel theory. See, e.g., GMH Assocs., Inc. v. Prudential
Realty Group, 752 A.2d 889, 904 (Pa. Super. Ct. 2000)
(recognizing reliance damages for promissory estoppel). The
record establishes, and Superior does not dispute, that Specialty
began development of and incurred expenses for the in-line

                               33
D. Prejudgment Interest

         Specialty also challenges the Magistrate Judge’s
decision to exclude prejudgment interest from the damages
award. The Pennsylvania Supreme Court has stated that “the
right to interest upon money owing upon contract is a legal
right . . . [which] begins at the time payment is withheld after
it has been the duty of the debtor to make such payment.”
Fernandez v. Levin, 548 A.2d 1191, 1193 (Pa. 1988)
(citations omitted); see also Somerset Cmty. Hosp. v. Mitchell
& Assocs., Inc., 685 A.2d 141, 148 (Pa. Super. Ct. 1996) (“It
is well established that in contract cases . . . prejudgment
interest is awardable as of right.”). Prejudgment interest “is a
right which arises upon breach or discontinuance of the
contract provided the damages are then ascertainable by
computation and even though a bona fide dispute exists as to
the amount of the indebtedness.” Palmgreen v. Palmer’s
Garage, Inc., 117 A.2d 721, 722-23 (Pa. 1955) (citations
omitted).

       Based on this standard, the Magistrate Judge declined
to award prejudgment interest, concluding there was
insufficient evidence to determine when the right to payment
accrued. Initially, we note the inconsistency in the Magistrate
Judge’s decision. If the record does not establish the date on

valves project in reliance on promises and requests made by
Superior.

                              34
which the right to payment would accrue (i.e., when full-time
production would have begun), how could he conclude that
Specialty had established lost profits to a reasonable
certainty?

       As set out above, the M agistrate Judge should award
lost profits on remand only if he makes findings as to when
production for the 1065 valves and the shells would have
begun. If those findings can be made, prejudgment interest
may be calculated based on prorated monthly production
figures (derived from findings as to annual production
amounts). But if no lost profits are awarded, Specialty would
be entitled to prejudgment interest only on its reliance
damages beginning on the date of contract repudiation. See
Fernandez, 548 A.2d at 1193 (concluding a party is entitled to
prejudgment interest from the date the right to payment
accrues).

                         * * * * *

       In this context, the decision of the M agistrate Judge is
affirmed in part and reversed in part, and this case is
remanded for further proceedings consistent with this opinion.

                              35