Court Opinion

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Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

10-8-2008

Aquatrol Corp v. Altoona City Auth
Precedential or Non-Precedential: Non-Precedential

Docket No. 07-3192

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                                                  NOT PRECEDENTIAL

         UNITED STATES COURT OF APPEALS
              FOR THE THIRD CIRCUIT
                   ____________

                        No. 07-3192
                       ____________

              AQUATROL CORPORATION,

                             Appellant,

                             v.

  ALTOONA CITY AUTHORITY; G.M. MCCROSSIN, INC.,

                             Appellees.

                       ____________

       On Appeal from the United States District Court
          for the Western District of Pennsylvania
                    (D.C. No. 03-cv-00252)
          District Judge: Honorable Kim R. Gibson
                        ____________

         Submitted Under Third Circuit LAR 34.1(a)
                     October 2, 2008

Before: FISHER, CHAGARES and HARDIMAN , Circuit Judges.

                  (Filed: October 8, 2008 )

                       ____________

                OPINION OF THE COURT
                     ____________
HARDIMAN, Circuit Judge.

       Aquatrol Corporation (Aquatrol) appeals an order of the District Court granting

Defendants’ Rule 50 motions on Aquatrol’s breach of contract and promissory estoppel

claims. The District Court had jurisdiction pursuant to 28 U.S.C. § 1332 and we have

appellate jurisdiction pursuant to 28 U.S.C. § 1291.1 We will affirm.

                                             I.

       Because we write for the parties, we recount only those facts essential to our

decision.

       In 1998, the Altoona City Authority (the Authority) contracted with G.M.

McCrossin (McCrossin) to manage the computer upgrade of the Horseshoe Curve Water

Treatment Facility Project (the Project). The scope of the work included updating the

software utilized by the Authority to make the computer systems at five water treatment

plants Y2K-compliant. The contract (Contract) specified that McCrossin hire Aquatrol to

complete the upgrade. Aquatrol had installed the previous software manufactured by

Wonderware.

       1
           Appellees Altoona City Authority and G.M. McCrossin contest our jurisdiction
because the contract at issue contains specific dispute resolution procedures that Aquatrol
did not invoke. Because Defendants first raised this argument after two and a half years
of litigation and a jury trial, we deem this argument waived. See Metro. Life Ins. Co. v.
Price, 501 F.3d 271, 278 (3d Cir. 2007) (the exhaustion requirement is not jurisdictional
and may be waived); see also Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925-
26 (3d Cir. 1992) (refusing to uphold an arbitration agreement because the defendants
“actively litigat[ed]” the case for eleven months before moving to arbitrate).

                                             2
       In March 1999, McCrossin executed a Purchase Agreement (Agreement) with

Aquatrol for the installation and configuration of Y2K-compliant software. The purchase

order incorporated specifications for the software upgrade and required that the work be

completed by September 1, 1999. The specifications were created by Gwin, Dobson &

Foreman, Inc. (GD&F), the Authority’s consulting engineers. McCrossin agreed to pay

Aquatrol $140,849.00 if the upgrade was completed satisfactorily. McCrossin also

reserved the right to cancel the order if it was not completed as specified.

       The software installation was not completed as specified. The first attempt by

Aquatrol to install updated software was not made until December 1999 – three months

after the initial project deadline. Moreover, neither GD&F nor the Authority was

satisfied with the update because, inter alia, the software was still not Y2K-compliant. In

order to prevent the loss of essential data, the water treatment plant computers needed to

be set to a date prior to 2000, but all post-1999 dates could only be entered manually. On

January 7, 2000, Aquatrol received a memo identifying the continuing failures in the

software upgrade. Aquatrol responded to GD&F that the problems were caused by the

Wonderware software that was used for the upgrade. On March 16, 2000, GD&F sent

Aquatrol a letter informing it that the Authority remained displeased with the software

upgrade and stated that payment would not be made until Aquatrol completed the upgrade

as specified.

                                              3
       Problems with the upgrade continued. On December 12, 2000, Aquatrol sent the

Authority a letter requesting that it agree to equipment upgrades to make the Wonderware

software work properly. Aquatrol informed the Authority that the upgrades would add

$53,000.00 to the price of the contract. The Authority responded that it would agree to

Aquatrol’s proposal but would not pay for the labor and expenses associated with the new

installations. Aquatrol rejected this counterproposal.

       On April 24, 2001, McCrossin sent Aquatrol a letter informing it that the Authority

issued a “deduct change” for the Aquatrol contract. Accordingly, McCrossin requested

that Aquatrol retrieve any equipment from the Project site. McCrossin sent Aquatrol a

final order cancelling the Agreement in its entirety on May 23, 2001.

       Four months later, Aquatrol contacted the Authority with a new offer. Based on its

understanding of the Wonderware software settings, Aquatrol offered to complete the

Project for the original contract price of $140,849.00. The Authority rejected this offer

and eventually contracted with U.S. Filter Control Systems to complete the upgrade.

                                            II.

       Aquatrol brought a breach of contract claim against McCrossin and unjust

enrichment and promissory estoppel claims against the Authority. Following Aquatrol’s

case in chief, the District Court granted Defendants’ motions for judgment as a matter of

law pursuant to Rule 50 of the Federal Rules of Civil Procedure.

                                             4
       We exercise plenary review over a district court’s decision to grant a motion for

judgment as a matter of law pursuant to Rule 50(a) of the Federal Rules of Civil

Procedure. Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 88 (3d Cir.

2000). “[A] directed verdict is mandated where the facts and the law will reasonably

support only one conclusion.” Id. (quoting McDermott Int’l, Inc. v. Wilander, 498 U.S.
337, 356 (1991)). In our review, we “must draw all reasonable inferences in favor of the

nonmoving party.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150

(2000).

                                            III.

       Aquatrol first argues that the District Court erred in granting McCrossin judgment

as a matter of law on Aquatrol’s breach of contract claim. Aquatrol asserts that

McCrossin breached the Agreement when it failed to pay after Aquatrol performed the

software upgrade in conformity with all applicable specifications.

       Although Aquatrol admits that the Wonderware software was not working

properly at the time that the contract was cancelled in 2001,2 it asserts that the “problems

were due to bugs in the Wonderware software selected by GD&F.” Aquatrol claims that

       2
          The original deadline for completion of the Agreement was September 1, 1999.
Although McCrossin did not terminate the Agreement on September 2, 1999, it was
within its rights to terminate for nonperformance at that time. Nevertheless, McCrossin
gave Aquatrol an opportunity to complete performance. Despite this additional time,
Aquatrol failed to perform as specified in the Agreement and McCrossin was forced to
terminate the Agreement in May 2001 – 21 months after the deadline specified in the
Agreement.

                                              5
it satisfied its obligations under the Agreement because it “supplied and installed the

Wonderware software as specified in the purchase order (incorporating the

specification).” We disagree.

       Pennsylvania law states that a contractor or subcontractor, such as Aquatrol, is not

responsible for defects caused by problems in a design specification. See A.G. Cullen

Constr. Inc. v. State Sys. of Higher Ed., 898 A.2d 1145, 1156 (Pa. Commw. Ct. 2006);

Rhone Poulenc Rorer Pharms., Inc. v. Newman Glass Works, 112 F.3d 695 (3d Cir.

1997). See generally United States v. Spearin, 248 U.S. 132 (1918) (providing guidance

on the doctrine of implied warranty of design). Design specifications “describe in precise

detail the materials to be employed and the manner in which the work is to be performed.

The contractor has no discretion to deviate from the specifications, but is required to

follow them as one would a road map.” A.G. Cullen, 898 A.2d at 1156. In contrast,

performance specifications “set forth an objective or standard to be achieved, and the

successful bidder is expected to exercise his ingenuity in achieving that objective or

standard of performance, selecting the means and assuming a corresponding

responsibility for that selection.” Id. In addition, where a specification “identifies a

particular product or manufacturer by name, but permits substitution of ‘an approved

equal,’ such a specification is ‘performance’ in nature and, as a result, carries no implied

warranty.” Id.

                                              6
       The Agreement between McCrossin and Aquatrol, and the specifications

incorporated into that Agreement, demonstrate that the software upgrade was a

performance specification. Aquatrol was hired to ensure that the “existing treatment

plants which are utilizing Aquatrol Equipment shall be upgraded with required software

and programming to make systems fully year 2000 compliant.” Although the

specifications directed Aquatrol to “[p]rovide updated [W]onderware software for each

plant,” they also made clear that Aquatrol retained the discretion to substitute another

software product or a different version of Wonderware. The Standard General

Conditions, as incorporated into the Contract, stated:

       Whenever an item of material or equipment is specified or described in the
       Contract Documents by using the name of a proprietary item or the name of
       a particular Supplier, the specification or description is intended to establish
       the type, function and quality required. Unless the specification or
       description contains or is followed by words reading that no like, equivalent
       or ‘or-equal’ item or no substitution is permitted, other items of material or
       equipment or material or equipment of other Suppliers may be accepted by
       ENGINEER ...

Accordingly, the specifications clearly stated an objective — Y2K compliance — but left

the manner of accomplishing that objective to the discretion of Aquatrol. Aquatrol had

the freedom to either update the pre-existing Wonderware software however it saw fit, or

else choose a substitute software product of the same type, function, and quality. In sum,

because the Agreement included performance specifications, McCrossin cannot be held

                                              7
responsible under Pennsylvania law for providing Aquatrol with defective design

specifications.3

       Because Aquatrol failed to successfully update the Project’s software as required

by the Agreement, we conclude that the District Court did not err in granting McCrossin’s

motion for judgment as a matter of law on Aquatrol’s breach of contract claim.

                                            IV.

       Aquatrol next argues that the District Court erred in granting the Authority’s

motion for judgment as a matter of law on Aquatrol’s promissory estoppel claim.

       To recover under a claim for promissory estoppel, Aquatrol must prove that: (1)

the Authority made a promise that it should have reasonably expected would induce

action or forbearance on the part of Aquatrol; (2) Aquatrol took action or refrained from

taking action in reliance on the promise; and (3) injustice can be avoided only by

       3
         Even if the Spearin doctrine did apply, Aquatrol could not show a defect in the
specification requiring the use of Wonderware software. Aquatrol admitted that the
problems occurred because it needed to change two settings in the updated Wonderware
software. The Wonderware software, therefore, was suitable for the Project and the
specifications were free from defects. No liability, therefore, can be assigned to
McCrossin by virtue of a defect in design. See Dep’t of Transp. v. W. P. Dickerson &
Son, Inc., 400 A.2d 930, 362-64 (Pa. Commw. Ct. 1979). Moreover, Aquatrol was bound
by the express warranties against defective work contained in the Contract. Aquatrol
warranted and guaranteed that all work “will not be defective” and agreed to “pay all
claims, costs, losses, and damages caused by or resulting from such correction or removal
(including but not limited to all costs of repair or replacement of work of others).” Any
implied warranties of design “must yield to [the] express warranties against defective
materials.” Rhone Poulenc, 112 F.3d at 698.

                                             8
enforcing the promise. Sullivan v. Chartwell Inv. Partners, LP, 873 A.2d 710, 717-18

(Pa. Super. Ct. 2005).

       Aquatrol asserts that the Authority promised: if “you finish the job you’re going to

get paid.” Without deciding whether the Authority’s statements to Aquatrol constituted a

promise sufficient to support a claim for promissory estoppel, we hold that Aquatrol

cannot prevail on its promissory estoppel claim for work it did pursuant to a contract.

Calson v. Arnot-Ogden Mem’l Hosp., 918 F.2d 411, 416 (3d Cir. 1990). Indeed, any

action that Aquatrol took was already covered by its Agreement with McCrossin.

Aquatrol’s President, Jim McDermott, testified that he understood from the Authority that

if Aquatrol completed the job, it would get paid the original contract price. But when

asked if it was true that “[n]one of these so-called encouragements were to do anything

else other than complete the job that you had contracted to do,” McDermott responded,

“[t]hat’s correct.”

       In the event that Aquatrol alleges that it took action in reliance on promises made

by the Authority after Aquatrol’s Agreement with McCrossin terminated on May 23,

2001, we hold that Aquatrol acted on its own will. When a party acts on its own will and

not as a result of any representation made by another, a claim for promissory estoppel

must fail. Ravin, Inc. v. First City, Co., 692 A.2d 577, 581 (Pa. Super. Ct. 1997).

Aquatrol has done no more than show that McDermott was in contact with the Authority

between May and October of 2001. At trial, McDermott admitted: “I don’t have any

                                             9
dates and I didn’t make any notes on phone calls, they were just cordial phone calls that

were made — how are you doing, you know, when are you coming back, some time in the

June to the following September of ‘01 period.” McDermott later clarified that “there

may have been phone calls in between” March and October 2001, but he does not have

any evidence of these phone calls and cannot say that he talked to anybody in particular.

       Moreover, contrary to Aquatrol’s current assertion that it was relying on a promise

by the Authority to pay for any continuing work on the upgrade project, we note that

Aquatrol attempted to contract with the Authority to finally resolve the Wonderware

software problems on October 1, 2001. In that proposal, Aquatrol stated: “[w]e would

like to inquire if the Altoona Water Authority would like us to return and complete the

upgrade of your 5 Aquatrol systems. . . . In return we would receive compensation in the

original amount of $140,849.00.” This offer was rejected by the Authority. Accordingly,

while Aquatrol and the Authority may have been engaged in continuing discussions about

the Project, Aquatrol failed to identify any specific promise made by the Authority

sufficient to support a claim for promissory estoppel.

       For the foregoing reasons, we will affirm the judgment of the District Court.

                                            10