T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc.

Dempsey Pipe & Supply, Inc. (Dempsey) (plaintiff) entered into two contracts to purchase a total of 2690 short tons of steel pipe from T.Co. Metals, LLC (T.Co) (defendant) for the price of $780 per short ton. The contracts both: (1) contained an arbitration clause and (2) said that T.Co would not be responsible for consequential damages. T.Co fabricated the pipe in Chile and shipped the pipe to Philadelphia. When the pipe was delivered, Dempsey found that much of it was bent. Rather than rejecting the delivery, Dempsey straightened the pipe and resold it for $922 per short ton. Had the pipe been delivered to Dempsey in the condition warranted by T.Co, the resale price would have been $1000 per short ton. When T.Co invoiced Dempsey for the pipe, Dempsey did not pay T.Co in full. T.Co initiated an arbitration against Dempsey for the rest of the contract money. Dempsey counterclaimed T.Co for damages Dempsey had suffered due to the diminished or reduced value of the damaged pipe. Following Uniform Commercial Code (UCC) § 2-714(2), the arbitrator awarded Dempsey diminution-in-value damages of $420,357. T.Co petitioned the district court to have the arbitration award set aside. The district court denied T.Co’s petition. T.Co appealed, arguing that the contracts between the parties barred consequential damages. In response, Dempsey argued that consequential damages do not include the diminution-in-value damages in UCC § 2-714(2).