Coating Allegedly Ruined $40M Deal

TUESDAY, FEBRUARY 19, 2013


Shipping container manufacturer Sea Box Inc. has filed suit against the Valspar Corp., accusing the coating maker of supplying defective paint for a $40 million container coating project for the U.S. Air Force.

In a seven-count federal-court lawsuit filed Feb. 12 in New Jersey, Sea Box alleges that shortly after coating about 5,000 containers for the Air Force with Valspar's Aquaguard, the coating began blistering and peeling on the container exteriors.

Within two years, Sea Box contends, the interiors also showed defects.

The complaint seeks a jury trial for compensatory damages, equitable relief, punitive damages, counsel fees and costs. The action was filed with the U.S. District Court, District of New Jersey, Camden Vicinage. Sea Box is headquartered in East Riverton, NJ.

Minneapolis-based Valspar did not respond Monday (Feb. 18) to a request for comment on the litigation. The company is the world's sixth-largest paint and coating manufacturer.

Coating Contract

According to the complaint, Valspar had provided oil-based paint to Sea Box before 2008 for use on containers. In October 2008, Valspar recommended that Sea Box use Aquaguard, a waterborne coating.

Knowing that Sea Box intended to bid on a major contract with the U.S. Air Force to supply coated containers, Valspar supplied Sea Box with an Oct. 20, 2008, testing report by an independent lab "demonstrating that Aquaguard was very suitable for the purpose," the complaint says. (The lab is not a defendant in the complaint.)

After negotiating a price for the coating with Valspar, Sea Box entered into a $40 million contract with the U.S. Air Force to supply at least 5,000 containers coated with Aquaguard.

The coating was applied to the containers in Hong Kong by the installer, and the containers were then shipped to Holloman Air Force Base in New Mexico and four other countries outside the U.S.

Blistering and Peeling

In May 2009, the suit says, the Air Force notified Sea Box that the exterior roofs on some containers were blistering and peeling at the Holloman Air Force Base and demanded that containers from all five locations have their exterior roofs recoated. Sea Box contends that the repairs cost approximately $3 million.

Sea Box said it informed Valspar of the roof problems that it believed stemmed from the Aquaguard coating and sought compensation from the coating supplier.

Valspar claimed that the coating was not the problem, but rather the method used to apply it, the suit says.

New Coating & Agreement

Nevertheless, the suit says, Valspar agreed to provide up to 4,500 gallons of new, reformulated coating to repair the exterior roofs at no extra charge and to pay Sea Box $200,000 as part of a new manufacturing agreement.

That Aug. 4, 2010, agreement also required Sea Box to "release any claims pertaining to the exterior peeling" and to purchase all of its coatings from Valspar for a five-year period, with "quarterly rebates based upon the amount of coatings purchased."

"It now appears that Valspar was aware that the Aquaguard product was defective and that it would continue to fail, and fraudulently induced Sea Box to enter into the Manufacturing Agreement," the suit says.

At the time that Sea Box entered into that agreement with Valspar, the coating problems were limited to the exteriors of the containers, the suit says.

However, about two years later, in April 2012, the Air Force notified Sea Box for the first time that the containers' interior coating was also peeling and demanded that Sea Box recoat all of the interiors as well.

Valspar Aquaguard
Valspar

Valspar calls its waterborne, zinc-free Aquaguard container coating a "cost-effective, sustainable solution" that has been successfully used in many markets.

At that point, the suit says, Sea Box sought compensation from Valspar for the interior repair costs, "but Valspar denied that it was liable to Sea Box."

Sea Box now alleges that Valspar knew that Aquaguard was defective and would continue to fail and that the supplier fraudulently induced Sea Box to enter into the agreement.

Counts Allege Fraud, Negligence

The seven-count complaint alleges:

  • Breach of contract in supplying the Aquaguard coating, "which blistered when containers were stored outside";
  • Breach of implied warranty of merchantability in implying that Aquaguard "was merchantable, suitable for use and non-defective" when it was "defective and not merchantable";
  • Breach of implied warranty of fitness for a particular purpose, alleging that Valspar knew what the product would be used for and implied that the product was fit for that use;
  • Negligence in failing to exercise reasonable care in recommending and supplying the Aquaguard coating for the contract;
  • Violation of the New Jersey Consumer Fraud Act through "unconscionable commercial practices, deception, fraud, false pretenses, false promises and misrepresentations in connection with its promotion and sale of its Aquaguard product to Sea Box, resulting in an initial failure of the product very soon after its application";
  • Breach of contractual warranty, alleging that the Aug. 4, 2010, agreement was "induced by fraud" and thus not valid or, if valid, did not pertain to the interior coatings; and
  • Fraud in obtaining the August 2010 agreement when "Valspar was aware that the Aquaguard coating was defective, and that these defects caused the exterior peeling and would likely continue to cause problems."

Valspar's offer to replace the coating at no charge is evidence that the supplier knew the product was defective, the suit says.

About Aquaguard

On its website, Valspar Container describes  Aquaguard as a waterborne, zinc-free coating for shipping containers that "enables supply chains to be more sustainable."

Valspar says the coating reduces energy use and emissions during the container manufacturing process; reduces repairs during the life of the container; and eliminates the potential leaching of zinc and other heavy metals into local water supplies during container storage and transit.

Valspar says Aquaguard "outperforms standard solvent-based coatings in corrosion performance."

"On containers coated with Valspar Aquaguard, the onset of corrosion from container damage is reduced at least 60 percent compared to zinc-based coatings," based on 710-hour salt spray test results, the company says.

   

Tagged categories: Blistering; Coating failure; Coating Materials; Contracts; Laboratory testing; Lawsuits; Peeling; Protective Coatings; Steel; Valspar

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