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Traffic Safety Devices, Inc. v. Safety Barriers

September 20, 2006


The opinion of the court was delivered by: Thomas A. Varlan United States District Judge



This civil action between plaintiff Traffic Safety Devices, Inc. ("Traffic Safety") and defendants Safety Barriers, Inc. ("Safety Barriers") and C. Reed Davis is before the Court following a four-day bench trial occurring between November 7 and 16, 2005. The parties waived their right to a jury trial [see Doc. 137]. Traffic Safety called five witnesses in support of its claims of breach of contract and fraud and in opposition to Safety Barriers' counterclaim: David Wasserstrom, the President of Traffic Safety; Ron Tourte and James Barillaro, former employees of Safety Barriers; and the testimony by deposition of Brian Brough and David Little, employees of Rotational Molding of Utah. Safety Barriers and Mr. Davis cross-examined these witnesses and called four witnesses in support of their defenses and counterclaim for breach of contract: Mark McKinney, Maxine O'Domirok, and Robert Patterson, all former employees of Safety Barriers; and defendant C. Reed Davis, Executive Vice President of Safety Barriers.

Following the trial, the parties filed proposed findings of fact and conclusions of law [Docs. 159, 160]. After consideration of all the evidence presented at trial [Docs. 148, 149, 150, 151]*fn1 and the parties' post-trial pleadings, the Court makes the following findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52(a).

I. Findings of Fact

A. The Parties

1. Plaintiff Traffic Safety Devices, Inc. is a Delaware corporation located in Elkins Park, Pennsylvania, that owns patents and molds for manufacturing polyethylene plastic highway barriers known as Roadguard barriers.*fn2 The Roadguard barriers are manufactured by Rotational Molding of Utah, located in Brigham City, Utah. David Wasserstrom is the president of Traffic Safety.

2. Mr. Wasserstrom is a lawyer with an advanced law degree in taxation. Mr. Wasserstrom was formerly licensed to practice law in the District of Columbia and the Commonwealth of Pennsylvania.

3. In approximately 1996, Mr. Wasserstrom pled guilty to two felony counts in the United States District Court for the Eastern District of Pennsylvania for conspiracy to commit wire fraud and evasion of currency reporting requirements which occurred in the course of his law practice. Mr. Wasserstrom was sentenced to fifteen (15) months imprisonment and served eleven (11) months at a federal prison camp in Schuylkill, Pennsylvania. As a result of this conviction, Mr. Wasserstrom is no longer a licensed attorney.

4. Defendant Safety Barriers, Inc. is a Tennessee corporation with its principal place of business in Knoxville, Tennessee. Karen Davis*fn3 is the President of Safety Barriers and her husband, defendant C. Reed Davis, is the Executive Vice-President of Safety Barriers.

5. Mr. Davis was the previous owner of C. Reed Davis Contractors. He also operates a business known as Specialty Crane & Equipment. In approximately 2001, Mr. Davis got into the barrier business and started Safety Barriers. He initially started selling Guardian brand barriers. He began looking for another supplier when Guardian moved their manufacturing to California. Mr. Davis sought to find a manufacturer geographically closer to Knoxville to cut down on the cost and time delay in transporting the barriers to his facility.

6. At some point in 2002, Mr. Davis contacted Mr. Wasserstrom and introduced himself. Mr. Davis indicated that he had started a business selling plastic traffic barriers and was looking for a new supplier located closer to Tennessee.

7. Mr. Davis invited Mr. Wasserstrom to visit the facility of Safety Barriers in Knoxville to explore the possibility of a business relationship whereby Safety Barriers would acquire barriers from Traffic Safety for resale. Mr. Wasserstrom came to Knoxville and inspected the Safety Barriers facility. Mr. Wasserstrom was impressed with Mr. Davis's idea of trucks that could haul a significant amount of barriers. Following his visit to Knoxville, Mr. Wasserstrom believed that Safety Barriers had the facility, personnel, and capabilities to be a distributor for Traffic Safety.

B. The Witnesses

8. Ron Tourte was formerly employed by Mr. Davis in the Specialty Crane and Safety Barriers businesses from February or March 2002 until December 2003. Mr. Tourte performed general laborer work on equipment and trucks.

9. Mark McKinney is the nephew and former employee of Reed and Karen Davis. Mr. McKinney worked for Safety Barriers as a sales representative from June 2002 to September 2003.

10. Maxine O'Domirok was previously employed by Safety Barriers as a bookkeeper from February 2002 to late 2002. Prior to that, she worked for C. Reed Davis Contractors for approximately ten years.

11. Robert Patterson previously worked for Safety Barriers as a marketing consultant to develop a marketing plan for sales of the Roadguard barriers.

12. James Barillaro was previously employed by Mr. Davis's businesses, Specialty Crane and Safety Barriers, from April 2002 until December 27, 2002. Mr. Barillaro worked as a truck driver and performed mechanical and electrical work.

13. The record contains the deposition of Brian Brough, a general manager at Rotational Molding.

14. The record also contains the deposition of David Little, the President and CEO of Rotational Molding.

C. The Contract

15. After several discussions, on or about May 31, 2002, Traffic Safety and Safety Barriers entered into a Distributorship Agreement whereby Traffic Safety agreed to supply and Safety Barriers agreed to purchase a minimum of 3,000 Roadguard Standard Barrier products per year in exchange for the exclusive distributorship rights of Traffic Safety's products within a defined territory.*fn4 [Pl. Ex. 1.]

16. The contract identified the delivery point as the Rotational Molding facility in Brigham City, Utah. [Id. at 1.] The barriers were delivered to Safety Barriers F.O.B. point of origin such that Safety Barriers assumed ownership and responsibility for the barriers when they were loaded onto a truck at the Rotational Molding facility in Utah. Safety Barriers was also therefore responsible for the cost of transporting the barriers from Utah to Knoxville or other destinations.

17. Pursuant to the terms of the contract, Safety Barriers agreed to "use its best efforts to distribute the Products and to fully develop the market for the Products within the Territory."*fn5 [Id. at 2.] Safety Barriers further agreed not to distribute competing products within the territory.

18. Pursuant to the contract, the purchase price was $285 per barrier less a freight allowance of $10 per unit, for an effective price of $275 per barrier. The freight allowance only applied to the standard Roadguard barrier and did not apply to the corner units or other products.

19. The parties agreed that the "individual contracts for the sale of Products formed by Distributor's [Safety Barriers] submission of orders to Supplier [Traffic Safety] pursuant to the terms and conditions hereof shall automatically incorporate, to the extent applicable, the terms and conditions hereof, shall be subject only to those terms and conditions (together with all terms in orders which are contemplated by this Agreement) and shall not be subject to any conflicting or additional terms included in any documents exchanged in connection therewith." [Id. at 4.]

20. The parties further agreed that Safety Barriers would "examine the shipment to determine whether any item or items included in the shipment are defective. Within ten (10) days of receipt of the shipment [Safety Barriers] shall notify [Traffic Safety] in writing of any defects which [Safety Barriers] claims existed at the time of delivery." The parties agreed that, unless such notice was provided, Safety Barriers "shall be deemed to have accepted such Products and to have waived all claims for defects." [Id. at 5.]

21. Mr. Wasserstrom considered the inspection requirement mandatory.*fn6 Mr. Davis testified that this requirement was "just about impossible" to meet after taking into consideration the time for delivery and unloading. [Tr. at 681.] He further testified that he agreed to this provision because he thought he was going into business with reputable people and had something that would work for both parties.

22. The contract provided that payment was due 45 days after Safety Barriers's receipt of invoice from Traffic Safety. [Pl. Ex. 1 at 5.]

23. The contract term was for one year and was automatically renewable for one-year terms unless earlier terminated. [Id. at 5.]

24. Either party could terminate the contract "upon written notice to the other party, if the other party materially breaches any term or condition of this Agreement and fails to cure that breach within thirty (30) days after receiving written notice of the breach." [Id. at 5-6.]

25. The contract also provides upon termination that "each party shall promptly pay the other party any unpaid amounts due as of the termination or expiration." [Id. at 6.]

26. The agreement further provides that if termination is due to Traffic Safety's breach, then Safety Barriers has the option to return all product in its inventory and Traffic Safety agrees to fully refund amounts paid for such product. [Id. at 6.]

27. The contract states that "[n]either party will be liable for damages of any kind as a result of exercising its right to terminate this Agreement according to its terms, and termination will not affect any other right or remedy at law or in equity of either party." [Id. at 6.]

28. Finally, the contract provides that it will be governed by and interpreted according to the laws of the Commonwealth of Pennsylvania. [Id.]

29. The parties presented much testimony about "A" barriers and "B" barriers. An "A" barrier is one that is water tested by the manufacturer and does not leak. A "B" barrier is one that is water tested by the manufacturer and leaks. The manufacturer then repairs the leak and the repaired barrier is sold as a "B" barrier at a reduced price. The contract does not mention or differentiate between "A" barriers and "B" barriers, although there was some testimony that the listed price for a standard Roadguard barrier ($285.00) is the price of an "A" barrier.

30. Traffic Safety warrants that all of its barriers will not leak. Traffic Safety also provides that any barrier that leaks, whether an "A" or a "B" barrier, can be returned for full credit.*fn7

31. Mr. Wasserstrom testified that the parties' contract only dealt with "A" barriers. Mr. Davis testified that he did not consider whether or not the "B" barriers would count toward the 3,000 barrier per year contract requirement. He stated that Safety Barriers had a year to purchase 3,000 barriers, and he was confident they could do it.

D. The Three Shipments

i. The First Shipment

32. On or about June 10, 2002, Safety Barriers placed the first order for Roadguard products. Safety Barriers ordered 65 natural or white barriers, and 65 orange barriers. [Def. Ex. 1.] However, Safety Barriers received 65 orange barriers, 49 natural barriers, 4 natural barrier corners, and 2 orange barrier corners. [Def. Ex. 2.]

33. On June 11, 2002, Traffic Safety invoiced Safety Barriers for the first order for a total amount of $32,100. Safety Barriers paid for the first shipment in full on or about July 15, 2002.

34. All of the invoices from Traffic Safety contain the following terms: (1) Interest of 1.5% per month (18% APR) will be added to past due accounts; (2) Merchandise remains the property of Traffic Safety Devices, Inc. until invoice is paid in full; (3) In the event that an attorney or legal action is needed to enforce collection of this invoice, reasonable attorney and/or legal fees shall be added to this invoice. [Pl. Exs. 3, 5, 7.] The back of the invoice contains a limited warranty and disclaimer.

35. The first shipment of barriers was picked up at Rotational Molding's facility in Utah by Safety Barriers employee Jim Barillaro in a Safety Barriers truck and transported to Safety Barriers' facility in Knoxville.

ii. The Second Shipment

36. On or about June 27, 2002, Safety Barriers placed a second order for barriers. Safety Barriers ordered 100 orange barriers to be delivered by common carrier directly to the Department of Military Procurement Division (hereinafter "National Guard") in Nashville, Tennessee. [Def. Ex. 5.]

37. Three Safety Barriers employees met the truck in Nashville to visually inspect the barriers and offload them. The National Guard would not allow Safety Barriers to water test the barriers. On June 27, 2002, Traffic Safety invoiced Safety Barriers for this order for a total amount of $27,500. [Pl. Ex. 5.] This invoice contains the same terms and the same limited warranty and disclaimer as the first invoice. Safety Barriers did not pay for this shipment.

38. Safety Barriers was charged $1,577.00 by a common carrier, J&S Cartage, Inc., to ship the barriers from Brigham City, Utah, to the National Guard facility in Nashville. [Def. Ex. 28.] Safety Barriers paid the J&S invoice on or about July 25, 2002. [Def. Ex. 29.]

iii. The Third Shipment

39. On or about July 8, 2002, Safety Barriers ordered 4 orange corners, 10 yellow barriers, 34 natural "B" barriers, and 84 orange "B" barriers. [Def. Ex. 7.] These barriers were to be shipped to Safety Barriers's facility in Knoxville.

40. On July 8, 2002, Traffic Safety invoiced Safety Barriers for the third shipment for a total amount of $30,770. [Pl. Ex. 7.] With respect to the "B" barriers on this order, the invoice contains the following notation: "These are 'B's' - Sold "AS IS", NO WARRANTY." [Id.] This invoice contains the same terms, limited warranty, and disclaimer as the previous two invoices. Safety Barriers did not pay for the third shipment.

41. Mr. Davis testified that the "B" barriers were ordered for a job in Florida which fell through before the barriers arrived in Knoxville.

42. It is undisputed that Traffic Safety did not receive notice of any defects within ten days of any of the three shipments.

E. Complaints About the Barriers

43. In approximately mid-July, after the second shipment of barriers had been delivered and unloaded, Safety Barriers was notified by Major Joe Hollister of the National Guard that some of the barriers began leaking after they were filled with water.

44. Mr. Davis immediately notified Mr. Wasserstrom about the leaking barriers. Mr. Wasserstrom reportedly told Mr. Davis to take care of the customer.

45. Mr. Wasserstrom testified that he understood that five of the one hundred barriers shipped to the National Guard were replaced. He also testified that he issued Safety Barriers a credit for all of the claimed defective barriers.

46. Mr. McKinney testified that approximately 5 to 10 barriers delivered to the National Guard leaked.

47. After Safety Barriers received the complaint about leaking barriers at the National Guard, Safety Barriers began testing all of the barriers in its stock. Specifically, employees of Safety Barriers unloaded barriers from the first shipment that were still on a truck at their facility and began testing them. They took 100 barriers from that shipment to Nashville and swapped them with the 100 barriers that were delivered to the National Guard. The National Guard barriers were then brought back to Knoxville for testing.

48. As a result of the complaints of leaking barriers, Safety Barriers replaced much of the shipment delivered to the National Guard with barriers that Safety Barriers had in inventory. Mr. Davis estimated that approximately 35 of the barriers originally delivered to the National Guard were good barriers, and these barriers were returned to Nashville.

49. After the problem with the National Guard shipment, Safety Barriers suspended its marketing and sales efforts of the Roadguard products.

50. On July 23, 2002, Safety Barriers sent a letter to Mr. Wasserstrom expressing "total disgust for the complete absence of quality control with regards to the Roadguard polyethylene barriers." [Pl. Ex. 8.] The letter notified Traffic Safety that four of the first six units filled at the National Guard facility leaked. The letter also advised that Safety Barriers began testing their "A" barriers and found that five of seven initially checked were leaking. The letter further states that "[w]e were warned about Rotational Molding of Utah by a competitor suggesting questionable quality and lack of quality control."*fn8 [Id.] The July 23, 2002 letter concludes:

Safety Barriers, Inc. in no way feels any obligation to incur any expense of retesting, loading, unloading and/or transporting these inferior products at two locations in middle Tennessee as well as stock units on our yard in Knoxville. Loss of revenue on present rentals is also in question. [Id.] Mr. Wasserstrom testified that he received this letter via facsimile on July 24, 2002.

51. On August 6, 2002, Mr. Wasserstrom sent a letter in response to Mr. Davis. [Pl. Ex. 9.] In that letter, Mr. Wasserstrom stated in part as follows:

ALL Roadguard Barriers are to be leak free when delivered to our customer! If some are defective, they will be replaced.

However, only alleged defective ones should be returned for an exchange. To analogize, it is like buying corn from a farmer on a regular basis; when you shuck a few and find them bad, you do not return the entire purchase of corn until the amount of bad ones is ...

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