Kingston Pipe Industries, Inc. v. Champlain Sprinkler, Inc.

Kingston Pipe Industries, Inc. v. Champlain Sprinkler, Inc. (2003-271); 
177 Vt. 484; 857 A.2d 767

2004 VT 59

[Filed 15-Jun-2004]

                                 ENTRY ORDER

                                 2004 VT 59

                      SUPREME COURT DOCKET NO. 2003-271

                              MARCH TERM, 2004

  Kingston Pipe Industries, Inc.       }	APPEALED FROM:
                                       }
                                       }
       v.	                       }	Franklin Superior Court
                                       }	
  Champlain Sprinkler, Inc. and        }
  Bruce Pelkey	                       }
                                       }	DOCKET NO. S 292-02 Fc

                                                Trial Judge: Dennis R. Pearson

             In the above-entitled cause, the Clerk will enter:


       ¶  1.  Champlain Sprinkler, Inc., and company president Bruce Pelkey
  (together Champlain) appeal a summary judgment decision of the Franklin
  Superior Court granting Kingston Pipe Industries, Inc., (Kingston) damages
  in the amount of $14,093.28, attorney's fees, and court costs.  Champlain
  contends that summary judgment was improper because there is a genuine
  issue of material fact about whether Kingston was in breach of warranty for
  defects in its pipe and, if so, whether Champlain's costs to cure the
  defects should offset the damages.  We reverse.

       ¶  2.  In reviewing a summary judgment decision, we use "the same
  standard as the trial court, and affirm the granting of a motion for
  summary judgment if there are no genuine issues of material fact and the
  moving party is entitled to judgment as a matter of law."  Springfield
  Hydroelectric Co. v. Copp, 172 Vt. 311, 313, 779 A.2d 67, 70 (2001)
  (internal quotations and citation omitted); V.R.C.P. 56(c)(3). 
  Additionally, we regard all allegations made in opposition to the motion as
  true if supported by affidavit or other evidence, LaShay v. Dep't of Social
  & Rehabilitative Servs, 160 Vt.  60, 62, 625 A.2d 224, 225-26 (1993), and
  thus summarize the facts as advanced by appellant.  

       ¶  3.  Champlain installs fire protection sprinkler systems. 
  Kingston is a specialty pipe supplier that offers prefabricated,
  ready-to-install sprinkler systems. In the fall of 2000, Pelkey ordered
  custom pipe from Kingston to install in the Vermont Agency of
  Transportation's Colchester garage.  Champlain admits that it accepted but
  never paid for the pipe order.

       ¶  4.  On July 10, 2002, Kingston filed a complaint against
  Champlain and a motion for trustee process in Franklin Superior Court to
  collect payment for the pipe.  In its complaint, Kingston claimed, inter
  alia, that Champlain breached its contract with Kingston by refusing to pay
  for the pipe it received.  In its answer Champlain raised, as affirmative
  defenses, failure of consideration and that "[t]he materials were
  defective." 
   
       ¶  5.  The court (Judge Teachout) heard Kingston's motion for
  trustee process on August 22, 2002.  At the hearing, the court explained
  that "the purpose of the [trustee] hearing is to determine whether or not
  there is a reasonable likelihood of recovery" and asked Champlain whether
  there were "any defenses to the issuance of the trustee process." 
  Champlain's counsel responded that his client had "received defective
  products and the offset [of accommodating those defects] outweighs any
  monies that [Kingston] would be receiving."  

       ¶  6.  At the hearing, Pelkey testified regarding the pipe's defects
  and Champlain's costs to remedy those defects.  He testified that the
  general contractor at the Colchester job site notified him that the pipe
  was rejected by the State of Vermont because it was "full of rust inside
  and out."  Pelkey then notified Kingston Pipe.  However, Kingston had no
  replacement pipe available, nor could Pelkey find another supplier in time
  to complete the job.  So instead, Champlain attempted to fix the pipe by
  removing the rust.  After Champlain cleaned and installed the pipe, some of
  the pre-threaded joints began to leak.  Champlain ultimately had to
  re-install the pipe four times, and replace leaking joints by cutting off
  threaded fittings and installing welded pipe joints.  Pelkey also provided
  an itemized list showing that the total cost to fix the defects exceeded
  the purchase price of the pipe.  Based on the facts presented, the court
  held that Kingston did not have a reasonable likelihood of success on the
  merits and denied Kingston's motion for trustee process. 

       ¶  7.  Four months later, Kingston filed a motion for summary
  judgment arguing that Champlain could not avoid payment because it accepted
  the pipe, knowing it was rusty.  In support of the motion, Kingston
  submitted a portion of Pelkey's testimony from the trustee process hearing,
  but omitted the five pages of his testimony detailing Champlain's costs to
  cure defects in the pipe.  Champlain answered by citing to the Uniform
  Commercial Code, 9A V.S.A. § 2-714 (buyer's damages for breach caused by
  nonconformity of tender) and § 2-717 (deduction of buyer's damages from
  purchase price).  Champlain also submitted an affidavit from Pelkey
  swearing to the factual allegations contained in its response to summary
  judgment, but did not submit the missing five pages of Pelkey's testimony. 

       ¶  8.  The court (Judge Pearson) awarded summary judgment to
  Kingston, concluding that under Brown's Auto Salvage v.  Piche, 145 Vt.
  485, 491 A.2d 1041 (1985), Champlain accepted the rusty pipe when they
  installed it and, therefore, as a matter of law could not later complain
  about the rust or raise an offset defense.  Additionally, the court held
  that since the allegedly defective threading was not discovered until after
  installation, Champlain could only claim incidental or consequential
  damages, and then only as a counterclaim.  Having failed to mount such a
  compulsory counterclaim, see V.R.C.P. 13(a), the court refused to consider
  damages caused by the allegedly defective threading.  This appeal followed.  

       ¶  9.  The parties first dispute whether Champlain met its burden,
  as the nonmoving party under Rule 56(e), to submit credible documentary
  evidence or affidavits sufficient to rebut the evidence of the moving
  party.  See Boulton v. CLD Consulting Eng'rs, Inc., 2003 VT 72, ¶ 5, 14 Vt. 
  L. Wk. 238 (in summary judgment nonmoving party may not rest on allegations
  in pleadings, but must persuade court, based on evidence in record, that
  there is a triable issue of fact).  Clearly Pelkey's testimony from the
  trustee process hearing regarding defects in the pipe, and Champlain's cost
  to cure those defects, raises a genuine issue of material fact regarding
  damages incurred by Champlain.  Kingston Pipe argues that Champlain is
  precluded from using that testimony since it failed to re-submit the
  relevant portions in support of its answer to summary judgment.  
   
       ¶  10.  We long ago determined, however, that the date evidence is
  submitted to the court is "immaterial" for purposes of summary judgment. 
  Pierce v. Riggs, 149 Vt. 136, 138, 540 A.2d 655, 657 (1987).

    [W]hen entertaining a Rule 56 motion for summary judgment, the
    trial court is required to consider the entire setting of the
    case, including the affidavits, depositions, admissions, answers
    to interrogatories and similar materials on file to determine the
    existence of a genuine issue of material fact. . . . Therefore,
    the entire record is to be considered.

  Id.  As we decide summary judgment motions under the same standard as the
  trial court, the Court will consider the full evidentiary record, including
  all of Pelkey's testimony in the initial trustee process hearing. 

       ¶  11.    The remaining issue is whether Champlain is precluded from
  claiming those damages as a defense to Kingston's collection action, either
  because Champlain accepted the pipe knowing of the rust non-conformity or
  because it failed to assert a compulsory counterclaim for thread defects
  discovered after acceptance.  This question is easily resolved under
  Brown's Auto Salvage.  In that case, the defendant ordered a car engine for
  her daughter's car.  Upon delivery and inspection the defendant decided the
  engine was not complete because it lacked external components.  She
  notified the seller, installed the engine in the car, and sent the seller a
  check for a hundred dollars less than the agreed upon price.  Brown's Auto
  Salvage, 145 Vt. at 486, 491 A.2d  at 1041.  The Court held that, pursuant
  to 9A V.S.A. § 2-607(1) (acceptance of goods), by installing the engine
  despite the non-conformity the defendant had accepted it and therefore owed
  the seller the contract price.  Id. at 487, 491 A.2d  at 1042.  Nonetheless,
  because the defendant had answered plaintiff's claim with an allegation
  that the engine was defective and not as represented, the Court also found
  that defendant's "allegation was sufficient to raise a [counter]claim
  alleging a breach by the plaintiff."  Id.  The Court further noted that if
  the defendant could prove the breach at trial then she was entitled to
  recovery under the provisions of 9A V.S.A. §§ 2-714 and 2-715.  Id. 
  Therefore, although it affirmed the summary judgment decision ordering
  defendant to pay the contract price for the engine, the Court also remanded
  for consideration of her counterclaim for damages caused by seller's
  breach.  Id. 
   
       ¶  12.  Here, defendants Pelkey and Champlain have consistently
  responded to Kingston's motions by alleging defect and non-conformity -
  both as to the rust and the threading issues - and a right to recover
  damages resulting from said defects pursuant to 9A V.S.A. §§  2-714
  (buyer's damages) and 2-715 (buyer's incidental and consequential damages). 
  Not only were these allegations sufficient to state a claim for breach of
  contract as in Brown's Auto Salvage, 145 Vt. at 487, 491 A.2d  at 1042, they
  were also pled as an affirmative defense in Champlain's answer to the
  original complaint.  Such a defense may be treated as a counterclaim.  See
  V.R.C.P. 8(c) ("When a party has mistakenly designated a defense as a
  counterclaim or a counterclaim as a defense, the court on terms, if justice
  so requires, shall treat the pleading as if there had been a proper
  designation.").  Furthermore, Champlain's cost to cure the alleged defects
  was the subject of substantial testimony and one of the primary legal
  issues debated during the hearing on trustee process.  See V.R.C.P. 15(b)
  ("When issues not raised by the pleadings are tried by express or implied
  consent of the parties, they shall be treated in all respects as if they
  had been raised in the pleadings.").  

       ¶  13.  Therefore, we conclude that Champlain gave adequate notice of
  its cause against Kingston. Champlain supported these claims with evidence
  in the form of Pelkey's testimony.  Because this evidence raises a genuine
  issue of material fact on these claims, the court erred by dismissing the
  case without addressing these claims.

       ¶  14.  Champlain also raises an issue not present in Brown's Auto
  Salvage; that it has the right to deduct damages resulting from Kingston's
  breach from the agreed upon contract price for the pipe.  See 9A V.S.A. §
  2-717 (authorizing buyer to hold payment and deduct for damages caused by
  seller's breach).  Champlain argued this as an affirmative defense from the
  start, and supported it with evidence in the form of Pelkey's testimony
  that he timely notified Kingston of the breach and his intent to deduct
  damages.  See id.  Thus, because Champlain raised a genuine issue of
  material fact pursuant to a valid claim under § 2-717, summary judgment
  awarding Kingston damages equal to the full purchase price of the pipe was
  improper. 

       ¶  15.  Finally, given our decisions above, the court's summary
  judgment award of damages, attorney fees, and court costs in favor of
  Kingston must be vacated.

       Reversed.
           

                                       BY THE COURT:


                                       _______________________________________
                                       Jeffrey L. Amestoy, Chief Justice

                                       _______________________________________
                                       Denise R. Johnson, Associate Justice

                                       _______________________________________
                                       Marilyn S. Skoglund, Associate Justice

                                       _______________________________________
                                       Paul L. Reiber, Associate Justice

                                       _______________________________________
                                       Frederic W. Allen, Chief Justice (Ret.), 
                                       Specially Assigned