FOLEY, INCORPORATED v. VISION IMPACT CORP., et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2276-02T22276-02T2

FOLEY, INCORPORATED, A

New Jersey Corporation,

Plaintiff-Respondent/

Cross-Appellant,

v.

VISION IMPACT CORPORATION, and

ANTHONY ROSS,

Defendants-Appellants/

Cross-Respondents.

___________________________________________

 

Argued: October 25, 2004 - Decided:

Before Judges A. A. Rodr guez, Weissbard and Hoens.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-11417-98.

Jeffrey L. Reiner, argued the cause for appellants/cross-respondents (Mr. Reiner, on the brief).

David W. Field, argued the cause for respondent/cross-appellant (Lowenstein, Sandler, attorneys; Mr. Field, on the brief).

PER CURIAM

Defendants, Vision Impact Corporation and Anthony Ross (collectively "Vision"), appeal from a net judgment in their favor and against Foley, Inc. (Foley), in the amount of $232,559.40, plus prejudgment interest rendered following a bench trial. The judge awarded a judgment to Foley in the amount of $277,666.63, which was offset by a judgment in favor of Vision in the amount of $45,107.49. We exercise our original jurisdiction to modify the amount of damages. As modified, the judgment is affirmed.

I

Vision is an energy service company. It provides host facilities to clients in order to reduce energy consumption and costs. In 1995, the New Jersey Board of Public Utilities (BPU) authorized the state's electric utilities, including Public Service Electric and Gas Company (PSE&G), to adopt programs to conserve energy and to offer rebates to enterprises, such as Vision, whose energy saving contracts generated quantifiable reductions in the consumption of electricity. Therefore, in June 1995, Vision agreed with Captive Plastics (Captive), to do a full switch from an electrical-driven cooling system to a gas-driven one, at no cost to the latter.

Russell Spitz, Vision's Senior Vice-President, was its principal agent on this project. The main energy saving measure involved the removal of Captive's existing electric chillers and air conditioning units and replacing them with a 500-ton natural gas-fired chiller. This energy saving measure was expected to generate substantial PSE&G rebates over a fifteen-year period. The expected cost to Vision for this project was $857,000. It was anticipated that Vision would receive $1.5 million in PSE&G rebates and Captive would receive an even higher rebate.

PSE&G accepted the Captive/Vision project. Initially, Vision was to purchase a 340-ton gas-driven chiller system. However, Spitz concluded that such a purchase was cost prohibitive. Instead, Spitz purchased a York 500-ton natural gas chiller equipped with an electric engine, with the intention of removing the electric engine and replacing it with a gas engine. According to Spitz:

[T]he ways things are in the business world it was more economical for me to buy the entire chiller, including the electric motor, even though I am going to remove it immediately, than it was for [York's salesman] to sell me the chiller without the electrical motor because York was in business with Caterpillar already providing gas engine chillers.

Therefore, Spitz contacted Philip Kuhl, Foley's account manager, about "packaging" the chiller system for Vision. According to Spitz, the plan involved "marrying a York chiller and a Caterpillar [gas-driven] engine with a control system to put the two together." Foley proposed to furnish the Caterpillar engine and associated equipment and to provide engineering services, controls and assembly services to package this new chiller system. Foley also offered a one-year warranty. The packaging was to be performed by Foley's subcontractor, Enercon Engineering, Inc. (Enercon).

Vision accepted Foley's proposals to buy the equipment for a cost of $129,240.50. Captive's existing electrical chiller was scrapped. The new, gas-driven system was delivered in September 1996. On September 24, 1996, Foley's field service technician performed the start-up of the chiller, which was uneventful. According to Foley, the one-year warranty period commenced to run on that date. Vision disputes this.

At first, the chiller was used intermittently, due in part to the "free cooling period" of the winter months. Efforts to get the chiller working continuously began in earnest at the end of February 1997. The chiller system had to run continuously and reliably in order to pass the PSE&G post-implementation audit. This would trigger the PSE&G rebates for the 1997 summer season. However, in August 1997, the chiller failed the PSE&G post-implementation audit.

PSE&G terminated the rebate program with respect to Captive's plant. Vision sued PSE&G to reinstate the program. This litigation eventually concluded with a settlement. PSE&G agreed to reinstate the program provided that the chiller system passed a new post-implementation audit. Vision agreed that it was not entitled to a rebate for 1997 to 1999.

However, the chiller could not be made to run continuously and reliably. It exhibited a wide range of problems. To fix these problems, Foley technicians were dispatched to the Captive facility a total of thirty times from February 25, 1997 through April 1998. These visits were in addition to those required by Foley's one-year warranty.

Between June 1996 and October 1997, Vision spent $211,115.80 for the rental of temporary chillers. In November 1998, the chiller engine suffered a catastrophic failure. It had to be removed, rebuilt, and reinstalled at a cost of $59,210.89. Foley technicians then performed a field modification and moved the compressor's clutch. This was followed in May 1999 by a catastrophic seizure of the compressor. The compressor was rebuilt. In the following months, the compressor experienced a second seizure. It was again rebuilt. Vision spent an additional $359,209.28 for the rental of temporary chillers between July 1997 and September 1999, and $279,436.00 for the installation of a permanent backup chiller.

The chiller passed the June 1999 post-implementation audit by PSE&G. However, it was still experiencing problems. More importantly, the chiller's emissions did not meet the Department of Environmental Protection (DEP) specifications. In August 1996, Vision had submitted, on behalf of Captive, a DEP permit application for the chiller engine. The DEP issued conditional permits, which set an emission rate for contaminants. The permit specified procedures for monitoring, recordkeeping, and reporting. It is undisputed that the chiller engine never met the DEP standard.

By November 1998, Foley filed suit against Vision, seeking cost of goods, services and a collection fee because Foley had not received payment in full on the invoices it had submitted to Vision. Vision answered and counter-claimed. The counterclaim alleges: (1) a breach of contract in that Foley failed to perform its services in a good and workmanlike manner and to provide Vision with the object of the parties' bargain (an operational, engine driven chiller); and (2) Foley failed to properly design the gas chiller system. Vision sought compensatory and consequential damages because:

PSE&G (with whom Vision had contracted to provide specified energy savings from the Captive Plastics fuel switch project);

(a) assessed Vision liquidated damages for failure to meet the In-Service Date; and

(b) thereafter terminated the project when it failed PSE&G's post-implementation audit, thereby cutting off a 15-year stream of energy savings payments that would have resulted if the project had not been terminated.

The parties settled Foley's claim for $45,107.49. Vision consented to judgment against it subject to its counterclaim, which alleged that Foley's warranty covered some of the work performed on the chiller system that was billed to Vision.

At the trial of the counterclaim, Lou Rugolo, a licensed professional mechanical engineer, testified as a fact and expert witness for Vision. He testified that there were, in fact, two systems, both a chiller with a compressor and a gas-fired engine. Each system had a separate control panel. Each control panel controlled the lubrication for that system. There was a clutch between the chiller and the engine. However, Foley technicians had removed the actuator thereby removing the ability to disengage the clutch. Prior to the removal, each system could lubricate independently. Once the clutch lost the ability to disengage, the compressor experienced lubrication problems during system shutdown.

Rugolo opined that the chiller was programmed to continue oil flow for approximately one to three minutes after the shutdown, but the engine was programmed to continue running for five minutes. Without the ability to disengage the clutch, the compressor shaft was forced to rotate as long as the engine was running. The result was that the compressor ran without lubrication for approximately two to four minutes each time there was a shutdown. This caused the compressor to seize.

Rugolo, who was involved in assessing the problem with the chiller after the second compressor failure in June 1999, was also asked to investigate the emissions control system and to bring the chiller into compliance with DEP requirements. Rugolo testified that the emissions had never passed the DEP standard and that the engine had never run at full load. Instead, the engine ran "long hours at low load." Rugolo estimated that, at best, the load was sixty to sixty-five percent of a full load. Rugolo explained that as one gets further away from full load, the emissions are less efficient. Operating an engine at low load causes "oil blow by." This negates the catalytic converter's ability to bring the emissions levels within compliance.

Captive's Corporate Plant Engineer had expressed these same concerns to Spitz in a February 1998 letter. The letter stated:

Because of the way the system is designed, the chiller has run, and will continue to run (during the fall and winter), at less than 35% load. At these low loads, how are we to maintain the exhaust temperatures needed to operate the catalyst properly and to prevent the NJDEP parameters from being exceeded?

This question went unanswered by Spitz.

Joseph Browning, a product manager for natural gas-fueled, engine driven chillers, also testified as a fact and expert witness for Vision. He opined that it was a design deficiency to either fail to disengage the compressor during the system shutdown or to modify the controls to provide lubrication to the compressor bearings during the system shutdown. Browning concluded that the compressor seizure resulted from the failure to install a low oil shutdown alarm. He considered this an additional design deficiency. Browning also opined that the engine was "inadequate" and "undersized to produce 500 tons of refrigeration." According to Browning, the failure to control the emissions was another design deficiency because Captive could not operate the chiller even if the other problems did not exist.

The judge heard the extensive testimony of Spitz. He explained how the energy savings system created for Captive was supposed to work. He blamed Foley and its subcontractor for the numerous failures of the engine. He asserted that Foley failed to provide engineering services in installing the equipment and failed to conduct proper repairs.

Todd Presson, an engineer with experience in managing technical projects, testified and described the problems Captive had with the machine. He stated that the chiller ran only intermittently during the summer because the company had several problems with the machine. He testified that machine broke down the first time because the "existing alarm low pressure switch" was insufficient to alert operators as to a lack of oil. The machine broke down because it was allowed to run without oil. The engine was rebuilt, but suffered a catastrophic break down in June 1999. The apparent cause of this breakdown was a missing clutch. The clutch would have allowed the compressor to be lubricated after the engine had been shut off. However, without the lubrication, the compressor seized.

After the engine was repaired, the company then focused on the emissions levels and made several modifications to bring the emissions into compliance with the DEP standards. However, the gas engine emissions never complied with the DEP standards. There were further engine overload problems which occurred before the permanent backup chillers were finally installed.

Alexander J. Hernandez is a licensed professional engineer who worked at NAZCA engineering (NAZCA), an engineering firm employed by Vision for the Captive project. He testified as to NAZCA's involvement with the project and the concern the firm had while it worked on the project, namely that Captive did not have an adequate cooling system in place to support the new machinery. Hernandez investigated the project site before the Foley engine and the York chiller were installed. When he investigated the existing cooling towers he thought that they had "reached their life span" and had insufficient cooling capacity to handle the new equipment that was going to be put in place. He further stated that when NAZCA installed the new equipment it was placed in a very small room and there were spacing and piping problems.

Foley presented the expert testimony of Robert Walters, a licensed professional engineer. He opined that the "[DEP] application preparer clearly anticipated the use of the engine at or near peak load." However, Walters determined that the engine was "being operated consistently and significantly below its intended load range." Although the engine received a DEP permit to operate at or near full load, in reality the engine was "operating so far below this level that the design emission rates cannot be achieved." Walters estimated that the load was thirty-five to fifty percent of full load.

II

The judge issued a written opinion on liability. He made the following findings:

The equipment sold by Foley was not in and of itself defective. Rather, the equipment was simply unsuitable for the tasks for which it was installed.

Expert testimony from both sides makes it clear that no one prepared an overall design plan or any type of drawings indicating the particular requirements for this project.

The 360-hp engine supplied by Foley was too powerful to run at full capacity and the running of the engine at a lower capacity did contribute to its continuous breakdowns.

The problems with the chiller system began immediately after the conversion of the engine and have persisted ever since.

During the first year after the aforementioned engine conversion, Vision did make several warranty claims involving the 360-hp engine provided by Foley.

The way the engine was utilized resulted in continuous problems with the engine clutch system; this caused the chiller system to shut down within one minute of the entire unit being shut off. During this time, the engine would continue to run for an additional three or more minutes.

After numerous breakdowns, Foley removed the clutch. This caused the compressor to continue to operate for a few minutes before the engine shutdown.

This running of the engine also allowed the compressor to continue turning without lubrication resulting in burnout.

The running of the engine at [20%] capacity caused higher, less efficient oil consumption and negatively affected the catalytic converter resulting in oil blow-by.

The running of the engine at a reduced rate caused increased emissions that exceeded DEP standards.

The engine finally seized due to its inability to deliver the necessary amount of oil to its essential compartments. A "Murphy" switch was installed; however, it too failed to function properly by not indicating that the oil compartment was empty.

Electric chiller back-ups were employed in an attempt to allow Captive to continue operations while the system was being repaired.

It was poor judgment by Vision to discard the original electric chiller, which could have been used as a substitute in the event a problem occurred.

Vision, which held itself out to be an expert in installing this type of system, was responsible for the design of the system overall. Foley was simply a subcontractor that sold and installed the engine. In so doing, Foley followed Vision's instructions.

The design defects and insufficiencies of the failed gas-driven chiller are the responsibility of Vision.

Foley removed the clutch. This caused the two compressor seizures. Therefore, any breakdowns resulting from the removal of the clutch are the responsibility of Foley.

The judge asked the parties to brief the issue of damages. Following oral argument, the judge reserved decision. Subsequently, the judge filed an order of judgment without giving any reasons for the entry of judgment. Instead, the judge filled-in a dollar amount in the proposed order submitted by Vision's counsel. The judge awarded Vision $120,560.61 to cover "the cost to rebuild the engine, following the late 1998 catastrophic failure due to Foley's failure to install [a] low-oil shutoff alarm and for the cost to repair compressor, following [the] May and June 1999 catastrophic failures due to Foley's defective modification of [the] clutch." The judge also awarded Vision $150,000 to cover the cost of providing Captive with chilled water via rental of temporary chillers and $7,106.02 for miscellaneous repairs. The judge awarded no damages for: (a) Vision's claim for lost PSE&G rebates, costs associated with Vision's effort to get the engine to meet DEP emissions standards and fix control deficiencies; (b) unanticipated cost of providing Captive with permanent back-up chillers; (c) reimbursement for payment of Foley's invoices for chiller package repairs that should have been covered by Foley's design defects or breach of Foley's implied warranty of merchantability; and (d) a refund of the contract price. In addition, the judge awarded prejudgment interest to Vision.

III

Vision is not satisfied with this judgment and appeals, making the following contentions: (1) the judge failed to grasp the seminal, undisputed facts underlying Foley's liability; (2) Vision proved its entitlement to receive $1,656,660 in damages; and (3) Vision's obligation on Foley's collection complaint is $8,420.26.

IV

Generally, we must give deference to the trial court's factual findings and such findings should not be disturbed on appeal "when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). However, if findings are not supported by the record, we may "appraise the record as if we were deciding the matter at inception and make our own findings and conclusions." Pioneer Nat'l Title Ins. Co. v. Lucas, 155 N.J. Super. 332, 338 (App. Div.), aff'd o.b., 78 N.J. 320 (1978).

Here, the review of this matter has been made unnecessarily difficult by the complete lack of findings with respect to the quantification of the damages. The judge has retired since rendering the decision. Therefore, a remand for more specific findings is not feasible. However, we find support in the record for the judge's findings on liability, i.e., that Foley is liable only for the damages flowing from the removal of the clutch. From our thorough review of the record, we conclude that the judgment on liability is based on findings of fact that are adequately supported by evidence. R. 2:11-3(e)(1)(A). For that reason, we affirm the findings articulated in the judge's April 2, 2002 opinion.

In doing so, we reject Vision's contention that the judge failed to grasp the undisputed facts underlying Foley's liability. Vision argues that Enercon was Foley's subcontractor with respect to the "packaging" of the Caterpillar engine and the York chiller. That is true. However, contrary to Vision's allegation, the judge did not exonerate Foley from responsibility on the basis that Enercon was not its agent. The judge's decision was based on the following findings: (1) the equipment was unsuitable for the tasks for which it was installed; (2) Vision was responsible for the design of the system overall; (3) Foley simply sold and installed the equipment requested by Vision; and (4) the system's design defects and insufficiencies were Vision's responsibility. As stated already, these findings are supported by the proofs.

Vision also argues that Foley was liable for the failure of the chiller system to meet the engine exhaust emission levels set by the DEP. However, the expert evidence established that the failure to meet the DEP standard was not due to defective equipment, but to the fact that the chiller system was run at a less than full load.

Vision argues that there is no support for a finding that the equipment supplied by Foley was not defective. We note that there is no proof that the equipment was defective. The gist of the proofs is that the lack of engineering design in the "marrying" of two pieces of equipment, which were not designed to function together, caused the subsequent malfunctions.

V

Vision contends that it is entitled to $1,656,600 in damages. This figure includes damages which were expressly rejected by the liability determination. Specifically, the lost PSE&G rebates, the cost to rebuild the seized engine, the costs respecting the DEP emission work, the cost of temporary rental chillers and permanent back-up chillers, and a return of the purchase price of the equipment bought from Foley. We conclude that Vision is not entitled to damages for those items because Foley is not liable for them.

From our review of the record, pursuant to Pioneer, supra, 155 N.J. Super. at 338, we conclude that Vision is entitled to reimbursement for the cost of repair and replacement of the compressor following the May 1999 failure only. We are stymied in our review by the lack of explanation by the judge, particularly when there is no logical connection between the proofs and some of the awarded damages. The judge accepted as a true measure of damages for the compressor's failures Vision's exhibit 34 (attaching invoices from vendors totaling $89,865.40 for repairs following the May 1999 compressor failure) and Vision's exhibit 35 (attaching invoices from vendors totaling $60,280.31 regarding the June 1999 failure). These two figures add up to $150,145.71. However, the judge inexplicably awarded $120,560.61. This appears to be a computation error. Apparently, the judge added the total of Exhibit 34 and 35, and then subtracted the difference between these two amounts, as shown below:

Exhibit 34 $ 89,865.40 +

Exhibit 35 60,280.31

Total- $150,145.71

Minus Exhibit

35 less Exhibit

34. - 29,585.30

$ 120,560.41

There is no logical reason for this subtraction. The proofs establish that the correct amount of damages for the cost to repair the compressor following both failures is $150,145.71.

However, we also conclude that Foley is liable only for costs of repairs following the May 1999 failure. In summations, Foley argued that if it is responsible for the May 1999 compressor failure then it cannot also be held responsible for the subsequent June 1999 compressor failure because the vendors that repaired the compressor following the first seizure should have fixed it properly so as to avoid the second failure. The judge may have found some merit in that argument. At oral argument, the judge provided some insight into how he was going to award damages. The judge indicated that, "[t]he second compressor or failure, I don't think is attributable to Foley. I think that's attributable to the failure to repair after the first." Independent of the judge's comments, we accept Foley's position because it is supported by the evidence. Thus, the award of $120,560.01 for the compressor repairs is in error. The award should be $89,865.40, the cost to repair the compressor after the May 1999 compressor failure.

Vision was also awarded $150,000 as reimbursement for the costs of the temporary rental chillers. The evidence showed that $451,607.69 was paid for the temporary chillers from 1996 until the installation of a permanent backup chiller. Part of this period precedes the May 1999 compressor failure. Although the trial judge did not indicate how he arrived at that figure, the damage award appears to be one-third of the total cost of the temporary chiller rentals. This speculative award cannot be affirmed, particularly in the absence of the judge's reasons.

Our analysis is as follows. The compressor breakdown occurred in May 1999. Around that time, Vision was spending approximately $17,982.90 per month for rental chillers. The trial judge should have awarded Vision damages in the amount of $17,982.90, which was the cost to rent temporary chillers during the May 1999 compressor repair.

On appeal, Vision argues that it is entitled to reimbursement for the costs it expended to provide permanent backup chillers in the amount of $279,436. The judge awarded no damages. We agree. Vision asserts that it had no intention of installing permanent backup chillers as part of its contract with Captive, but that "[a]s a result of the disastrous performance of the gas-fired chiller package, Captive demanded that Vision install [them]." However, Vision offered no evidence to demonstrate that Foley should be responsible for the cost of the permanent backup chillers. Moreover, Foley established, through testimony, that Vision should not have scrapped Captive's existing electric chillers and that the permanent electric chillers that Vision had installed were not backups, but instead, "serve[d] as the primary source of chilling for the Captive facility." Thus, we conclude that Vision failed to meet its burden of proof to establish that it was entitled to damages for the cost of installing the permanent backup chillers. Cumberland County Improvement Authority v. GSP Recycling Co., 358 N.J. Super. 484, 503 (App. Div. 2003); accord Snyder v. I. Jay Realty, Inc., 53 N.J. Super. 336, 347 (App. Div. 1958).

Vision sought reimbursement for the costs expended to attempt DEP emissions compliance and to correct the control deficiencies. Vision urged that it was entitled to $14,212.03 relying on Vision Exhibit 38. This exhibit included three invoices from K.C. Electro-Mechanical totaling $13,862 and a $350.03 invoice from Kele & Associates. These invoices were for labor and parts provided during September 1999. In summation, Foley asserted that the miscellaneous repairs had "nothing to do with the clutch failure." The judge could not recall any testimony about these repairs. The judge suggested that the parties compromise on the cost of these repairs rather than having the parties provide expert testimony on the matter. Although the judge did not award Vision any damages for the costs related to the emissions work and control deficiencies, he did award damages in the amount of $7,106.02 for "miscellaneous repairs." Coincidentally, this amount is half the amount that was requested by Vision for the miscellaneous repairs. Presumably the judge split the costs equally between the parties, but there is no support in the record for the trial judge's compromise of awarding half of the requested damages. Moreover, there is no factual support to link the costs that are documented in Vision Exhibit 38, to Foley's negligent removal of the clutch in May 1999. Therefore, the award for miscellaneous repairs is modified to zero.

VI

Vision contends that its obligation on Foley's collection complaint is $8,420.26. We note that Vision consented to the entry of a $45,107.90 judgment against it subject to its right to prove that some of the work billed by Foley was covered by the one-year warranty. From our review of the record, we find no evidence to establish that any portion of the Foley invoices involved services that were covered by the warranty. The proofs do show that Foley made several visits to the Captive site that were not billed because they were made during the warranty period.

VII

(A)

Foley cross-appeals contending that: (1) Vision's experts did not testify with the requisite degree of certainty for the judge to accept their opinions; (2) Vision failed to sustain its burden of proof on the damages awarded; (3) any damage claim for repairs to the Caterpillar engine after September 24, 1997 was barred by the expiration of the warranty; and (4) all of Vision's express and implied warranty claims and its extra-contractual claims were barred because the contract disclaims all warranties except a one-year warranty against defects in materials and workmanship.

On its cross-appeal, Foley contends that Rugolo, Vision's expert, did not testify with the requisite degree of certainty. We reject this argument. To support this argument, Foley quotes excerpts of Rugolo's testimony concerning DEP emissions. However, the judge assessed damages against Foley solely on the basis of Foley's removal of the clutch, which lead to the catastrophic chiller failure in May 1999.

(B)

Foley also contends that any damages claim for repairs to the Caterpillar engine after September 24, 1997 was barred by the expiration of the one-year warranty. Moreover, all of Vision's claims based on the express or implied warranties and all of the "extra-contractual" claims are barred because all warranties are disclaimed, except for the one-year warranty against defects in material and workmanship.

We disagree and reject this contention. The amount of damages awarded relates only to the compressor failure in May 1999. Those damages flow from Foley's field modification to the clutch. The protection of the one-year warranty does not extend to negligent subsequent repairs. N.J.S.A. 12A:2-316; N.J.S.A. 12A:3-319.

VIII

In conclusion, we hold that the November 22, 2002 judgment is modified as follows:

Cost to repair the compressor

following the May 1999 catastrophic

failure due to Foley's field

modification of clutch

(Vision Exhibit No. 34) $ 89,865.46

Cost of providing Captive

with temporary chillers

(Vision Exhibits 32 & 33) 17,982.90

Miscellaneous Repairs 0.00

Total $ 107,848.36

Less Vision's counterclaim

damages award 45,107.49

Net Judgment $ 62,740.87

In addition, Vision is entitled to prejudgment interest.

As modified, the judgment is affirmed.

 
Affirmed in part and reversed in part.

Anthony Ross is a defendant pursuant to his personal guarantee of Vision's indebtedness.

(continued)

(continued)

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A-2276-02T2

January 3, 2006