Facts

In 2003, defendant Glasforms Inc. (Glasforms) purchased a sample of third-party defendant Taishan Fiberglass Inc.'s (Taishan) manufactured fiber textile roving through third-party defendant CTG International Inc.'s (CTG) sales representatives. After determining the sample performed poorly during in-house testing, Glasforms decided not to purchase the multi-resin compatible glass. Following another meeting with CTG's representatives, the president of Glasforms informed the company that it needed the glass fiber for producing high-voltage insulator core rods, specifically. CTG suggested that Taishan's epoxy-specific E-glass would work best. Glasforms then purchased a second sample, accompanied by a translated product data sheet that stated the product was specifically designed for "pultrusion applications in epoxy resin systems" including "high voltage insulating rods." This second sample product met in-house evaluation standards. Between May and October 2004, Glasforms purchased over 800,000 pounds of the E-Glass relying on Taishan's representations and Certificates of Analysis which stated the capabilities, compatibilities, and contents of the product.

Glasforms used the E-glass in producing its high-voltage insulator rods, and then sold these rods to customers, including plaintiff Dong Ah Tire & Rubber Co. Ltd. Glasforms reported that in October 2004, the radio frequency/microwave oven it used in manufacturing the rods began to display unusual, random, and alarming "back-glowing" and burning. When Glasforms began investigating the causes, manufacturing personnel found that the back-glowing and burning indicated conductive contamination coinciding with Taishan's fiberglass.

On Oct. 13, 2004, Glasforms informed Taishan and CTG of the glowing and burning issue, and that it suspected it was because of conductive contamination. Glasforms then said it sent samples of the partially manufactured rods with the burning effect to CTG for Taishan to analyze independently. In December 2004, without a response from Taishan as to the cause of the burning, Glasforms canceled its future fiberglass orders and stopped using the product in manufacturing, after experiencing the problem again in November and December.

On Jan. 11, 2005, a CTG representative visited Glasforms' plant in Birmingham, Alabama to investigate the problem. Glasforms again provided burned rods to CTG for Taishan to analyze. In January 2005, Taishan issued a 17-point investigation report which identified graphite from its rollers as a "primary" and "most likely" potential cause of contamination. In early March, CTG informed Glasforms of these findings. Glasforms then conducted a videotaped experiment duplicating the "back-glowing" effect during manufacturing by intentionally contaminating it with graphite.

In March 2005, according to Glasforms, it began to receive customer complaints about field failures in areas that used insulators containing CTG glass. In June and July 2005, Glasforms confirmed, using third-party testing, that graphite contamination was present in the fiberglass. Insulator failures continued, and in July CTG sent Glasforms the 17-point report. Glasforms was informed by a CTG representative that Taishan had encountered the same burning of packages of in-process glass in Taishan's own RF oven.

Glasforms stated that in September 2006, Taishan admitted that graphite from its manufacturing process was the source of contamination. Glasforms was assured by CTG'S CEO that Taishan had removed graphite rollers from its manufacturing process. Glasforms then sent CTG a Subcontractor Corrective Action Request ("SCAR"), pursuant to the International Organization for Standardization procedures.

According to Glasforms, CTG's CEO signed and certified CTG's and Taishan's response to the SCAR, which recognized field failure reports, admitted to graphite contamination, and certified that the graphite had been removed from Taishan's manufacturing process. Thereafter, Glasforms stated, CTG and Taishan denied the contamination and refused to acknowledge responsibility for any defects.

PLAINTIFF'S CONTENTIONS:
Dong Ah Tire & Rubber (Dong Ah) filed suit against Glasforms claiming damages of over $4 million due to the field failures of insulators sold to customers.

DEFENDANT'S CONTENTIONS:
Glasforms contended that Taishan and CTG sold it the E-glass knowing the product was latently defective and inadequate for its known and intended use, and which did not conform to Taishan's representations and certifications. In its cross-complaint, Glasforms alleged breach of contract for non-conforming goods, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, negligence, negligent misrepresentation, and indemnification.

CROSS-DEFENDANTS'

Settlement Discussions

According to Glasforms, a settlement was reached with E.B. Rebosio and it was awaiting settlements with two other customers.

Result

Glasforms settled with Dong Ah $1.2 million. With regard to Glasforms cross-complaint, the jury determined that CTG and Taishan were alter egos of each other and both liable for breach of contract, awarding Glasforms $5,525,738.

Other Information

FILING DATE: May 22, 2006.