True North Composites, LLC v. Trinity Industries, Inc.

OPINION

This is a contract case. Plaintiff True North Composites, LLC is a Delaware limited liability company now in a dissolution trust. It formerly had its principal place of business in New Castle, Delaware. True North was the licensee of certain patents and other intellectual property relating to a process for manufacturing composite materials known as SCRIMP. Defendant Trinity Industries, Inc. is a Delaware corporation with its principal place of business in Dallas, Texas. Among its various businesses, Trinity manufactures and sells railway cars.

True North’s complaint, filed November 12, 1999, contains federal patent and antitrust claims, together with state law claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and economic duress. The breach of contract and good faith and fair dealing claims arise from an agreement between True North and Trinity, known as the Carbodies Supply Agreement (CSA), to jointly manufacture composite railcars.

On December 16, 1999, Trinity filed its answer and asserted counterclaims for breach of contract, breach of warranty of good faith and fair dealing, and seeking a declaratory judgment of contractual rights.

Several of True North’s claims were addressed prior to trial. In an opinion dated July 5, 2000, the court found that economic duress was not a cognizable claim for damages under Delaware law. On the eve of *490 trial, the parties resolved True North’s patent claim and True North withdrew its antitrust claim. Though no federal claims remained in the case, the parties jointly requested the court to exercise jurisdiction over the remaining state law claims pursuant to 28 U.S.C. § 1367. 1 The court agreed.

On May 2, 2001, the parties began a nine day jury trial on the breach of contract and good faith and fair dealing claims. On May 14, 2001, the jury returned a verdict in favor of True North, finding Trinity had breached the CSA and its implied duty of good faith and fair dealing. The jury awarded damages to True North in the amount of $14,828,817.29.

Following trial, on May 29, 2001 True North moved for judgment on its remaining requests for declaratory relief. On May 30, 2001, Trinity renewed its motion, made during trial, for judgment as a matter of law. Trinity also moved for a new trial, to alter or amend the judgment, or both. Trinity’s motion for a new trial argues that the jury’s findings on liability and damages were against the great weight of the evidence and that the damages the jury awarded were excessive and unjust. Trinity contends a new trial is also required because the court erroneously admitted evidence of the business dealings of the parties prior to the CSA and then erroneously instructed the jury on parol evidence. Finally, Trinity also contends that the court gave erroneous instructions on the duty of good faith and fair dealing, consequential damages, and certain types of damages available under the CSA, including “Learning Curve Costs” and “Tooling and Equipment Costs.”

In Trinity’s motion for judgment as a matter of law and to amend the judgment, it argues True North is not entitled, as a matter of law, to several of the categories of damages awarded by the jury. It argues that the CSA is a contract for goods and therefore, under the Uniform Commercial Code, the jury cannot award damages for the reduction in True North’s business value or costs to close its New Castle facility. Trinity also submits that many of True North’s damages are too speculative for a jury to award, that True North cannot receive a separate recover for the breach of good faith and fair dealing, and that, as a matter of contract law, True North is not entitled to certain contractual damages for “Tooling and Equipment Costs” and “Learning Curve Costs.” Thus, even presuming the jury’s verdict was correct, Trinity argues that True North is not entitled to damages as a matter of law.

This is the court’s decision on the parties’ post-trial motions.

I. FACTUAL AND PROCEDURAL HISTORY

A. Background

True North began as a joint venture of E.I. DuPont de Nemours (“DuPont”) and Hardcore Composites, LLC (“Hardcore”) in 1994. The joint venture, known as Hardcore DuPont Composites, LLC (“HDC”), licensed from an intellectual property holding company, TPI Technolor gies, Inc., the right to use a patented manufacturing technique known as the Seemann Composite Resin Infusion Molding Process, or SCRIMP. SCRIMP is resin molding process that uses vacuum *491 bag technology to create composite materials.

On July 1, 1994, HDC and Trinity entered the Preferred Supplier Agreement, by which both parties agreed to co-develop products for the railroad industry using the SCRIMP process. Both HDC and Trinity wanted to create insulated and refrigerated railcars from composites because they believed such railcars would improve upon traditional steel railcars in many respects. Both companies believed composite railcars would weigh less per cubic foot, be easier to maintain, corrode less, limit air and water leakage, and possess better thermodynamic properties for freight than steel railcars. Pursuant to the Preferred Supplier Agreement, HDC manufactured two prototype insulated composite railcars that Trinity eventually sold. The two companies then manufactured approximately 50 composite refrigerated railcars, known as first generation, or Gen I, railcars. The Gen I railcars were manufactured using a unibody construction process, which both HDC and Trinity recognized following their manufacture to be commercially impracticable. The Gen I railcars were ultimately leased by Trinity to Union Pacific Railroad.

In early 1998, HDC and Trinity began negotiating an agreement to develop and build a second generation of composite railcars, known as Gen II, that used a panel construction process rather than the unibody construction. The two companies created a Joint Panelization Team of engineers from both companies to develop preliminary specifications for a Gen II railcar.

On May 18, 1998, an investment company called True North Partners purchased DuPont’s interest in HDC and changed its name to True North Composites, LLC (“True North”).

On December 22, 1998, True North and Trinity entered into an agreement to co-develop and produce the Gen II railcars. That agreement, known as the Carbodies Supply Agreement (“CSA”), is the subject of this suit. The CSA requires True North to produce composite carbodies, the box-like structures of railcars. Trinity would then separately manufacture steel undercarriages, with wheels and a platform, at a site adjacent to True North’s New Castle facility, and True North would mount its carbodies to the undercarriages to create completed railcars. Following assembly, Trinity was responsible for selling the railcars in the market.

The CSA provided for the parties to build 2,000 railcars in this fashion; although the CSA specified that Trinity’s “initial order” was only to be for 500 rail-cars. Appended to the CSA was a set of Preliminary Specifications created by the Joint Panelization Team. The Preliminary Specifications contained details for several different sizes and lengths of railcars. Of these, the CSA called for the initial order of 500 railcars to be 68-foot long Plate F railcars.

The CSA also set forth the price Trinity would pay for the carbody construction and mounting. There were set prices for the first 500 carbodies; $84,569 per car-body for the first 270 and $80,369 for the next 230. These prices were set by taking True North’s estimated costs of production and adding a 10% profit. True North’s prices for the next .1,500 carbodies was to be set based on this same formula, with an additional payment by Trinity of $3,647. The CSA also provided that if Trinity’s composite railcar sales showed a profit in excess of 13%, True North and Trinity would evenly divide those excess profits.

Because the Preliminary Specifications appended to the CSA were not finalized, the CSA provided for amendments to the specification by the parties. To the extent Trinity proposed modifications for its customers that would slow production or have *492 an adverse financial impact on True North, the two parties were required to negotiate amendments in good faith. True North’s proposed modifications were to be approved by Trinity, but such approval was not to be unreasonably withheld.

The CSA provided it was to be governed by Delaware law.

B. The Parties ’ Pleadings

True North alleges that Trinity breached the CSA and the covenant of good faith and fair dealing while the two co-developed the second generation composite railcars. According to True North, Trinity engaged in a pattern of practices prior to executing the CSA to weaken True North’s bargaining position; including requiring the replacement of HDC’s president, George Tunis, requiring True North to divest all businesses unrelated to railcar development, and requiring True North to seek additional capital. Following the execution of the CSA, the parties experienced a number of cost overruns in developing and producing the carbodies. Significant among those cost overruns was a dispute over the criteria for the carbodies’ secondary floor, a movable floor on which cargo rests and permits air to circulate between the carbody’s primary floor and the cargo. True North alleges that Trinity breached the CSA by demanding that it meet an unreasonable static load requirement for the secondary floor and refusing to adjust the purchase price to account for this change.

True North also alleges that Trinity breached the CSA on June 15, 1999 by informing True North that there was no commercial interest in the initial order of 500 68-foot railcars. According to True North, Trinity informed True North to mitigate damages by stopping development of the 68-foot railcar and beginning development of a 72-foot railcar. According to the complaint, on June 29, 1999 Trinity reversed course and informed True North to continue developing the 68-foot railcar. True North asserts that Trinity’s demand that it resume production of 68-foot railcars was conditioned on True North assuming the costs of certain modifications to the secondary floor.

Throughout the remainder of the summer of 1999, the parties could not agree on final specifications and which company would bear the costs of the secondary floor. Finally, in August 1999, True North closed its production facility for two weeks allegedly because of Trinity’s failure to negotiate in good faith on final specifications for the carbodies and its failure to provide assurances to True North that it could sell the 68-foot railcars. True North alleges that Trinity breached the CSA, including the warranty of good faith and fair dealing, by refusing to negotiate in good faith on the final specifications of the carbodies, refusing to purchase carbodies on the terms required by the CSA, and ordering True North to stop production of the 68-foot carbodies.

True North also sought damages from Trinity on these same facts with a claim of economic duress. In its July 5, 2000 order, the court noted that Delaware law does not recognize economic duress as a claim for damages, but only as an equitable claim for restitution or rescission. It therefore granted Trinity’s motion to dismiss that count of True North’s complaint.

The final count of True North’s complaint seeks a declaratory judgment, pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02, proclaiming that True North did not breach the CSA, stating that Trinity willfully or maliciously did so, granting True North the right of first refusal on any attempt by Trinity to manufacture insulated or refrigerated carbodies using composite plastics for the remaining duration of the CSA, and granting True *493 North the exclusive right to meet Trinity’s requirements for railcars using the SCRIMP process. Following the jury’s verdict declaring that Trinity breached the CSA, True North’s post-trial motion seeks the court’s approval of its remaining requests for declaratory judgment.

Trinity filed its answer and counterclaims on December 16, 1999. It denied True North’s allegation that it breached the CSA and asserted various affirmative defenses. Trinity also counterclaimed that it was True North which breached the CSA and its duty of good faith and fair dealing by failing to produce any carbod-ies. Furthermore, Trinity alleged that True North breached its implied obligations of good faith and fair dealing under the CSA by refusing to negotiate contract disputes in good faith, demanding Trinity bear costs it was not required to, and unilaterally terminating the CSA without right to do so. Trinity also filed a claim for a declaratory judgment from the court releasing it from the exclusivity provisions of the CSA.

C. True North’s Case in Chief

The court draws the following facts from the evidence presented to the jury during the May 2001 trial. To establish Trinity’s breach of the CSA, True North presented four witnesses, each of whom detailed the course of conduct between the parties. True North also presented the deposition testimony of other involved persons. Last, True North put on an expert witness who testified to the damages suffered by True North.

1. Alan Henderson

True North’s first witness was Alan Henderson, True North’s Director of Engineering for the Gen II carbody. Henderson explained that True North began as HDC, a joint venture between DuPont and Hardcore Composites. HDC was led by George Tunis, its CEO and founder. It developed composite products for a variety of uses, including bridges, marine fenders, and railcars.

Henderson explained the Preferred Supplier Agreement entered with Trinity and the course of dealing under that Agreement. He testified that under that Agreement, True North manufactured composite carbodies and Trinity built a steel underframe with wheels and a platform for the composite box to sit on. Using this division of labor, the two parties first built two prototype 68-foot insulated cars and sold them to Burlington Northern Santa Fe Railroad. They then manufactured fifty 72-foot mechanically refrigerated cars, known as Gen I cars, and sold them to Union Pacific.

Henderson testified at length regarding the manufacture of the composite carbody and its secondary floor. He explained that a secondary floor is a surface placed on the carbody’s primary floor to lift the cargo off the floor and improve air circulation underneath the freight being carried. Because airflow is unimportant for insulated railcars, the two prototype cars lacked a secondary floor. The Gen I railcars, however, were refrigerated, and therefore required a secondary floor to facilitate air flow. Because freight sits on the secondary floor and railways use forklifts to move cargo in and out of these railcars, both the “static” and “dynamic” load capabilities of the secondary floor are important components of the secondary floor specifications. For the Gen I railcar, the load bearing capabilities, both static and dynamic, of a secondary floor made from composites was studied, but the companies determined they could not manufacture a strong enough composite secondary floor. Thus, the Gen I cars were built with a traditional secondary floor, manufactured by Trinity, made of aluminum and wood. Trinity had requested, in the Gen I specification, a *494 secondary floor that could withstand 2,000 p.s.i., but even the aluminum and wood secondary floors eventually manufactured by Trinity did not meet that standard. On later cross-examination, Henderson admitted he was unaware why Trinity had originally requested a 2,000 p.s.i. secondary floor because he was not involved in the project at that time.

Henderson testified that the Gen I cars were a successful product, but True North and Trinity recognized that they were too expensive to build and commenced development of an entirely new carbody, known as Gen II, manufactured in separate panels. The Gen II development began in early 1998 with meetings of the Joint Pa-nelization Team. The Joint Panelization Team explored building a secondary floor of composite materials and worked from an assumption that the secondary floor needed to support 417 p.s.i., roughly the pressure caused by the footprint of a fully-loaded 60,000 pound forklift. The Team later switched to assuming a 50,000 pound forklift, requiring the secondary floor to support 348 p.s.i. Because the SCRIMP technology could not produce a composite to meet that pressure level, the Team evaluated having the floor built by an independent contractor, Creative Pultrusions, using pultrusion technology instead of SCRIMP. Henderson produced communications between the parties using the 417 p.s.i. as an assumption in setting forth secondary floor specifications for the contractor. According to Henderson, the parties never discussed a 2,000 p.s.i. secondary floor because it could not be done.

Both the Panelization Team and Creative Pultrusions estimated the secondary floor cost. The panelization team estimated $11,094 per secondary floor, but Creative Pultrusions produced a lower bid of $7,400 using the 348 p.s.i. specification in September 1998.

Henderson testified that the Gen II development program cost True North $400,000 a month, mostly in salaries for its manufacturing employees and its Engineering Group. Its work mostly completed, the Joint Panelization Team disbanded in May or early June of 1998. Though True North continued to work on the Gen II project, Trinity did not work with True North again until November 1998.

In October or November 1998, Trinity informed True North that the Gen II project should plan a 68-foot car, rather than the 72-foot car that had been in development. Henderson testified because the change caused significant problems for his design team, including changes to the car-body panels and tooling for the manufacturing process, all of True North’s engineers flew to Dallas to meet with Trinity’s representatives. For that meeting, Henderson wrote a memo on open design issues, including secondary floor development. In discussing the load bearing capabilities of the secondary floor, his memo discusses the 50,000 pound forklift standard, which requires a load bearing capability of 348 p.s.i. The memo never references a 2,000 p.s.i. standard.

Henderson testified that at the Dallas meeting Trinity reassured True North that there was a market for composite railcars. Steve Smith of Trinity also told Henderson, for the first time, that Trinity had filed patents or patent applications on some of the technology used in the composite railcar. Henderson testified on cross-examination that after this disclosure, he terminated further design meetings in Dallas to avoid intellectual property problems.

Henderson also testified at length about his role in creating the Preliminary Specifications for the Gen II carbody that were eventually included in the CSA. He explained that the Joint Panelization Team *495 worked from an older copy of the specification used for the Gen I carbody. While making changes to his copy of the Preliminary Specification, Henderson deleted the 2,000 p.s.i. secondary floor standard that had been abandoned in the Gen I project and substituted the 348 p.s.i. standard the Joint Panelization Team used. , While removing it elsewhere, however, Henderson admitted that he accidently failed to remove the 2,000 p.s.i. standard from the section detailing American Association of Railroads (AAR) requirements for flooring. His modifications to the Preliminary Specification were eventually memorialized as part of the Preliminary Specification in the CSA, although the 2,000 p.s.i. had never been contemplated as the load bearing requirement for the secondary floors and that the project’s cost estimates assumed a significantly smaller standard. On cross-examination, Henderson would later admit that several other True North employees had reviewed the Preliminary Specification and similarly not identified the 2,000 p.s.i. standard as an error.

Following the execution of the CSA, True North and Trinity began to work together again to develop the Gen II car. According to Henderson, the CSA’s provisions indicated that they would continue to work together to develop and improve the specification throughout the project. One of the open issues identified by Henderson for further discussion with Trinity, even after the CSA was signed, was the load requirements of the secondary floor.

Henderson testified during cross-examination that True North’s stress analysis expert, John Murphy, together with his counterpart at Trinity, Dilip Niak, studied dynamic flooring standards in December 1999 to evaluate the forces created by braking and turning fully-loaded forklifts. Niak’s notes of those tests showed that they used two different forklifts, a 50,000 forklift with a wheel base of 13 inches by 5 inches, and a 10,000 forklift with a wheel base of 7 inches by 1 inch. Those tests showed pressure levels, respectively, of 666.7 and 1,333.3 p.s.i. for horizontal braking loads and 347 and 714 p.s.i. caused by steering twist conditions. Niak sent a letter to True North on January 12, 1999 which referenced a Trinity “requirement” of 1,500 to 2,000 p.s.i., but recited a static load standard of 417 p.s.i. Both of these pressures were higher than the 348 p.s.i. standard for a 50,000 pound forklift with which True North had been working. Henderson admitted that in January 1999, John Murphy contacted various forklift truck manufacturers and wrote a letter to Trinity,- dated January 27, 1999, that included information he learned from the manufacturers. While reviewing a draft of that letter, Henderson deleted the section of the letter dealing with secondary floor standards. Henderson explained on cross-examination that he deleted that section of the letter, before sending it to Trinity, because the team of engineers working on the project had not reached conclusions on the subject.

On cross-examination, Henderson admitted that, based on the correspondence between Murphy and Niak, Trinity and True North were in general agreement in February 1999 that the secondary floor standards should meet a 714 p.s.i. standard. This was higher, however, than the 348 p.s.i. standard contemplated when estimates for the CSA were received and would require significantly more expense to meet.

Henderson testified that Trinity’s cooperation in the carbody development was slow throughout this period and that Trinity engineers would not come to True North’s facilities in New Castle, Delaware to resolve the open design issues. Trinity continued to revise various specifications for the carbody throughout July 1999, al *496 though the CSA required the first car to be delivered in August of that year.

Henderson testified that in June of 1999, Duncan Gillies of Trinity informed True North’s engineers that Trinity could not sell a 68-foot composite car and instructed True North to begin work on a 72-foot car. As a result, True North informed the tooling manufacturers to stop work. Henderson estimated the change to a longer railcar would require a couple of months to complete. During this period, Henderson received memoranda from Steve Smith of Trinity, who had began meeting with its customers, including Burlington Northern and Union Pacific, to evaluate what load bearing requirements were necessary for the secondary floor.

On July 7, 1999, Henderson participated by conference call in a meeting at the offices of True North Partners in Arizona. Henderson remembers that during that call Trinity asked True North to build the secondary floor of the carbody to a 2,000 p.s.i. standard. It was only at this time that Henderson realized he mistakenly had left a reference to the 2,000 p.s.i. standard in the specification appended to the CSA. Henderson described Trinity’s request as “crazy” and stated that True North could not meet that standard within its cost estimates for the project. Henderson testified he sent a draft proposal to resolve the secondary floor issue on July 16, 1999 to Steve Smith of Trinity. In response, he was told by another Trinity representative that “it’s not an engineering issue. The businesspeople have to answer.”

Henderson testified that True North continued to work on the Gen II project until the end of August 1999, when it shut down its operations. Its 60 New Castle employees were furloughed with pay for two weeks in an attempt to resolve the outstanding issues with Trinity, but were eventually released. True North’s assets were auctioned off in November 1999.

2. Michael Ahearn

True North’s next witness was Michael Ahearn, a partner in True North Partners. Ahearn testified that True North Partners was founded in 1996 by himself, Mike Pierce, and John Walton. The partnership attempts to identify and invest in companies with innovative products that could grow to be substantial, important companies. One of those companies was HDC, in which Walton had invested $3 million before True North Partners was formed. According to Ahearn, HDC was led by George Tunis, who was part-owner and founder of the company. DuPont owned 49% of HDC, and the remaining 51% was owned by Hardcore Composites LLC, a partnership of Tunis, Brock Vinton, and John Walton. After the formation of True North Partners, Walton transferred his $3 million investment in HDC to the partnership.

According to Ahearn, Tunis was interested in securing more funding for HDC and DuPont wanted to sell its investment in the company. To accomplish both, Tunis sought the interest of a carbon fiber company called Zoltek, which expressed interest in purchasing DuPont’s share of HDC. Ahearn and True North Partners, as a minority owner of HDC, worked with Tunis to put together a deal with Zoltek, but that transaction eventually failed. According to Ahearn, Trinity, after learning of the proposed transaction with Zoltek, sought and received an ex parte temporary restraining order from a Texas state court in Dallas to halt the Zoltek-HDC transaction. On cross-examination, he admitted that Zoltek did not oppose the temporary restraining order and actually requested it be extended three times to facilitate further negotiations. Moreover, it was HDC, and not Zoltek, that eventually terminated the parties’ negotiations when a series of *497 letters in May 1998 revealed that they remained apart on important issues.

Ahearn testified that Trinity decided to oppose the transaction because it disliked Tunis’s continued leadership of HDC. Ah-earn then had a discussion in May 1998 with Duncan Gilíes of Trinity in which Trinity indicated that it would use the courts to prevent the Zoltek transaction even if the result was that HDC ran out of funding without finding a new partner for DuPont’s share. According to Ahearn, Duncan Gilíes of Trinity repeatedly 'Suggested to him that True North Partners should take a controlling interest in HDC and replace Tunis. Ahearn admitted on cross that Tunis was disliked by not only Trinity, but also DuPont and Vinson. Gilíes also suggested that after True North Partners acquired HDC, it should sell off the companies other composites businesses to focus solely on railcar building, which he described as a market in the “tens of thousands.”

Ahearn testified that on May 18, 1998, True North Partners bought DuPont’s interest in HDC for $1.28 million. True North Partners removed Tunis from the board, renamed it True North Composites, LLC, and invested funds in the company, including $500,000 in June, $400,000 in July, and $800,000 in August. Ahearn testified that throughout the summer and fall of 1998, True North expected to sign a contract for the development of the Gen II cars with Trinity, but could not get Trinity to agree on specific commitments. By December 1998, the parties reached a basic agreement. According to Ahearn, True North could not afford to wait until all the details of the railcar’s specification were finalized because it was losing money. The CSA thus provided that the parties would further negotiate later changes to the specification made necessary by either Trinity’s customers or True North’s design team.

Ahearn testified that True North estimated its sunk costs in developing the Gen II railcar, described in the CSA as “Learning Curve Costs,” at $5 million, and thus structured the CSA so that True North could recoup those costs over the first 2,000 railcars. True North also factored in a 10% profit margin, which was enough to recoup further estimated investments in manufacturing of $4 million, over the first 500 cars. True North believed that the CSA assigned to it the risk of whether it could produce a finished railcar and recoup its investments, while Trinity bore the risk of selling the railcar to the market. While True North recognized the peril of entering an agreement without finished specifications, it believed that the CSA, if executed, permitted it to require a higher purchase price if Trinity required modifications imposing additional costs on True North.

As True North Partners grew more confident in late 1998 that it would enter an agreement with Trinity, it purchased Tunis’s interest in the company for $8.6 million, leaving only True North Partners and Brock Vinton as owners of True North. True North also divested the other non-rail portions of the company. It sold its construction business to Harris Specialty Chemicals. On cross-examination, Ahearn admitted that True North later sued a company that acquired -Harris to protect certain intellectual property rights, in much the same way as Trinity had acted to stop the Zoltek-HDC transaction.

Ahearn testified the CSA was finally agreed to on December 22, 1998, and was executed by the parties at various times at the end of December 1998 and early January 1999. The prices for carbodies in the CSA were based on the cost estimates developed by the Joint Panelization Team. In addition to the cost to build the carbod-ies, the CSA added an additional payment *498 by Trinity to True North of $5.2 million to reimburse True North’s costs to develop the Gen II ear, described in the CSA as “Learning Curve Costs.” The Learning Curve Costs were to be spread equally over the first 2,000 railcars produced. The CSA also provided that Trinity would regularly reimburse True North for the “Tooling and Equipment Costs” it expended in preparing to manufacture the Gen II rail-car. Ahearn also testified that the un-reimbursed Learning Curve Costs and Tooling and Equipment Costs became immediately payable to True North, under Section 4.2 of the CSA, if True North properly terminated the CSA for Trinity’s breach. According to Ahearn, if the parties could not agree on a modification to the Preliminary Specification and, as a result, the carbodies were not produced, then Section 4.2 mandated that Trinity immediately pay True North all its Learning Curve Costs and Tooling and Equipment Costs.

Ahearn also discussed Section 10 of the CSA, which explains termination by either party. Section 10 requires notice of termination and a period for the other party to cure of either 45 or 90 days, depending on the type of breach. Ahearn noted that in the event True North properly terminated for Trinity’s breach, Trinity would have to pay the unreimbursed Learning Curve Costs and Tooling & Equipment Costs immediately.

Ahearn also testified that True North and Trinity worked together to solve most cost problems. For example, True North erred in its estimates of volume pricing from its vendors and it voluntarily assumed the resulting cost increase of $2,000 per carbody. True North and Trinity shared a cost increase caused by another Trinity design change, True North accepted an increase in material costs of $1,200 per carbody and Trinity paid for four to six hundred thousand dollars in extra tooling costs.

The parties could not resolve, however, the secondary flooring issues. Ahearn testified that he learned the secondary floor estimate was too low in March 1999, and afterwards began working with Duncan Gillis of Trinity to resolve the issue. Ah-earn admitted that True North refused to absorb the extra $5,000 per carbody cost of the enhanced secondary floor standard because it would eliminate True North’s profits.

Ahearn testified that on June 15, 1999, he participated in the teleconference in which Trinity announced that it wanted to move from a 68-foot railcar to a 72-foot railcar. While the 72-foot railcar had been contemplated when the parties began discussions about an agreement, it was a 68-foot railcar that had been specified for the first 500 deliverable under the CSA. According to Ahearn, at no time did Trinity share with True North, as requested, why it could not sell the 68-foot railcar or provide assurances it could sell a larger one. Ahearn testified that, following the teleconference, he authorized Alan Henderson to complete some unfinished design work on the 68-foot railcar, but otherwise instructed him to immediately cease developing the shorter car, including contacting vendors and stopping their operations.

Ahearn testified that, through his lawyer, he sent a letter to Trinity on June 22, 1999, stating that True North considered Trinity’s change a material breach of the CSA and that it wanted further assurances of the market for the 72-foot car before beginning that project. In response, Patrick Wallace of Trinity sent Ahearn a letter dated June 25th stating that Trinity did not order True North to stop work on the 68-foot car. Wallace’s letter also announced that Steve Smith of Trinity would *499 be coming to True North’s New Castle facility to work with True North on both the 68 and 72-foot railcars. A similar letter from Jesse Collins reiterated that Trinity never ordered True North to stop work on the 68-foot car, a position that Ahearn considered 180 degrees from the position taken by Trinity during the June 15th teleconference.

Ahearn testified that he arranged a meeting with Trinity on July 7, 1999 at True North Partners’ offices in Arizona to discuss the uncertainty attending the project. At that meeting, True North and Trinity representatives debated what had been said in the June 15th teleconference. They also discussed the secondary flooring issue, which Ahearn did not remember arising during the June 15th teleconference. Ahearn explained that Patrick Wallace of Trinity, who was new to the project, suggested that True North should bear the extra costs of building the secondary floor in exchange for Trinity bearing the increased tooling costs. Ahearn disagreed and the issue was considered one of several open areas for further consideration.

Ahearn testified that when the engineers on both sides met after the meeting, Trinity took the position, for the first time, that the secondary floor had to be built to a 2,000 p.s.i. standard, as recited in the Preliminary Specification, and True North had to bear the attendant cost. True North took the position that such a secondary floor was a modification to the parties’ agreement and as such Trinity must bear the costs.

At an impasse, True North prepared a memo, dated July 26, 1999, for Trinity detailing four options for moving forward with the CSA. Ahearn testified that the four options included: (1) producing the first 500 68-foot railcars with a composite secondary floor at a price of $82,000, an increase from the base price of $76,722 set forth in the CSA; (2) producing 500 68-foot railcars with wood secondary floors at a price of $78,000; (3) producing 500 68-foot railcars with no secondary floor at a price of $70,000; and (4) True North would transfer its operations to Trinity entirely, for which Trinity would pay True North the Tooling and Equipment Costs, the Learning Curve Costs, and a $6,000 per railcar royalty. In a letter dated July 29, 1999, Patrick Wallace of Trinity explicitly rejected the four options and stated that Trinity expected True North to fulfill its obligations under the CSA. The letter also stated that True North’s cessation of the 68-foot carbody production may be a breach of the CSA. Ahearn replied in a letter dated August 4, 1999 in which he summarized the parties’ positions. The letter states that True North questioned Trinity’s good faith over the period since the June 15th phone call. It also stated that the 2,000 p.s.i. standard was inadvertently included in the preliminary specification and that it had been removed elsewhere. Thus, True North believed that it and Trinity had agreed to a 714 p.s.i. standard and that its estimates had been developed with that understanding. Ah-earn’s letter also stated that True North would wind down its operations on August 15, 1999 and sell its New Castle real estate.

Ahearn testified that True North Partners invested substantially in True North during its ownership, including investments of $945,000 in September 1998, $900,000 in April 1999, $400,000 in July 1999, and $600,000 in August 1999. In August 1999, True North put its employees on paid leave and attempted to restart negotiations with Trinity. Ahearn testified that on August 15th, Patrick Wallace called him and suggested continuing the 72-foot railcar project and renegotiating all prices going forward. Due to the late hour and Trinity’s course of conduct, Ah-earn refused Wallace’s offer to negotiate *500 and the True North operations were closed.

3. Michael Pierce

True North’s next witness was Michael Pierce, another partner in True North Partners. Pierce recounted many of the events detailed in Ahearn’s earlier testimony about how True North Partners became involved with HDC, the failed HDC — Zoltek transaction, and True North Partners’ eventual acquisition of DuPont’s interest in HDC. He explained that True North Partners became involved with HDC because it believed the composite railcar program was viable. On cross-examination, he admitted sending a January 9, 1998 later in which he estimated that HDC would require $17 million in investment to break even over 1998-2000. That estimate, however, included the continuation of HDC businesses that were later sold. Pierce also admitted that, much like Trinity’s temporary restraining order on the Zoltek transaction, True North brought a suit to enjoin the acquisition of Harris Speciality Chemicals when True North believed its intellectual property rights were threatened.

Pierce testified about the efforts of the Joint Panelization Team to develop the Gen II railcar through most of the first half of 1998 and explained how urgently True North wanted to execute an agreement with Trinity to build the Gen II car so that it could recoup its increasing investment in the company. Pierce testified that after True North dismissed George Tunis, he received reports directly from the various managers of the company until he recruited Vince Poleo, an experienced manufacturing executive, to be the general manager.

Pierce testified that, as of June of 1999, True North’s plans on the Gen II project were proceeding smoothly and True North continued to work on various outstanding design issues with Trinity, including debates over costs and tooling. He testified that a couple of days before June 15, 1999, he and Ahearn received a call from Duncan Gillies of Trinity in which Gillies said Trinity could not sell any of the 68-foot railcars and suggested that the companies begin exploring production of a 72-foot railcar. A second conference call was conducted on June 15, 1999, which included Alan Henderson, Vince Poleo and Nick Matthews at True North’s New Castle facility, and Gillies, Jesse Collins, and Steve Smith from Trinity. At the time of that call, True North had already received much of the tooling for a 68-foot car and planned to receive more. On the call, Pierce restated to Trinity’s representatives the content of what Gillies had said earlier and confirmed that changing car lengths continued to be Trinity’s position. Peirce explained that he was absolutely sure Trinity told True North to stop production of the 68-foot railcar. He testified that True North relied on Trinity to test and develop the market for composite railcars because selling the railcars was a risk Trinity assumed in the CSA.

Pierce testified that Trinity representatives, including Steve Smith, Duncan Gillies, Patrick Wallace, and Jesse Collins, came to the True North Partners’ offices in Arizona for a meeting on July 7,1999, at which Trinity’s representatives denied ever telling True North to stop making the 68-foot railcars. Pierce stated that, at the end of that meeting, Trinity brought up the 2,000 p.s.i. standard for the secondary floors for the first time, although none of the outstanding design issues were resolved at that meeting.

Pierce testified that he helped Ahearn draft the July 26th letter to Trinity detailing the four options for moving ahead with the 68-foot railcar. Under option one in that letter, in which the railcar would be *501 sold for $82,000, Pierce stated that True North’s profit margin would probably be 5%, or roughly half the 10% profit margin originally estimated.

Pierce explained that True North’s decision to close its New Castle facility was made after Trinity rejected all four options True North proffered and had stonewalled on continuing to work through design issues. Without a resolution in sight and with a cost of $400,000 a month for True North to pay its employees, Pierce and Ahearn decided to close the New Castle facility. On cross-examination, however, Pierce admitted that Trinity’s letter rejecting the four options included a request for a meeting and that True North denied that request. Pierce testified that on August 23, 1999, the day after the first railcar was to be delivered to Trinity, Trinity sent a letter to True North terminating the CSA. The letter did not mention allowing True North a cure period, as provided in the CSA.

Pierce also testified on cross-examination that if True North won its suit, some of the damages it recovered would be distributed to True North Partners, including himself, Michael Ahearn, and John Walton. Pierce also explained that some of the money would also be distributed to Brock Vinton, another owner of True North.

4. Vincent Poleo

True North’s next witness was Vincent Poleo, who joined True North to become general manger of the New Castle facility in July 1998, shortly after the Joint Paneli-zation Team agreed to move forward on Gen II. Poleo testified that after the CSA was signed, True North was unable to get Trinity engineers to come to New Castle to work with True North engineers on finalizing the design of the Gen II railcar. In a letter he wrote to Mell Thoman of Trinity on January 28, 1999, Poleo explained that almost a month had passed since the CSA was signed and True North had received no input from Trinity during that period. Among the items for further discussion that Poleo identified in his letter was the secondary floor, although Poleo mistakenly referred to it as the primary floor because the nomenclature for the various floors was unsettled at the time. On cross-examination, Poleo testified that True North’s senior stress analyst, John Murphy, and his counterpart at Trinity, Dilip Niak, met in January 1999 and discussed static and dynamic load requirements in the range of 350 to 714 p.s.i. He also stated that lower standards would decrease the cost to build the secondary floor. Poleo also testified that, despite Trinity’s delay, True North was still capable of producing the first 68-foot railcars by the August due date as of June 15, 19991

Poleo testified that, as the work on the Gen II railcar progressed, mistakes in the initial estimates were revealed, including the volume pricing error and cost overruns on tooling. Poleo stated that he met with Trinity representatives in early April 1999 and the parties assigned responsibility for the errors. Trinity agreed to assume the increased tooling costs and True North absorbed the costs for the volume misesti-mation, which he admitted was True North’s mistake, and some other design costs. The cost overrun for the secondary floor was about $5,000 to $6,000 per railcar and Poleo testified that True North refused to assume this increased cost. He stated that Trinity and True North worked together in the spring and early summer of 1999 to find ways to save costs on the secondary floor. During the period the companies worked together, Trinity never committed to a specific load requirement for the secondary floor until July 1999, when, for the first time, it demanded the secondary floor meet 2,000 p.s.i.

*502 According to Poleo, Trinity agreed to bear any increased tooling costs because it was required to pay for those costs under the CSA and it would own the tooling once the CSA was completed. Until True North closed its operations, it paid $1.77 million for tooling to various vendors, of which Trinity reimbursed True North about $1.36 million.

Poleo also testified about the Learning Curve Costs incurred by True North, which were mostly its labor costs, for which Trinity was to reimburse True North in regular per railcar payments over the life of the CSA. He explained that True North tried to minimize these costs by finding temporary employment for its experienced manufacturing laborers while the companies continued to design the Gen II railcar. Poleo estimated that True North’s Learning Curve Costs were expected to be $5.18 million, but because True North discontinued its operations early, it had only spent $2.8 million, including interest, at that point. True North introduced quarterly summaries it prepared for Trinity detailing these costs.

Poleo also testified that he participated in the June 15, 1999 teleconference with Trinity, but entered the call late because of an earlier meeting. He heard Trinity inform True North to shift to 72-foot rail-cars and to stop work on the 68-foot rail-cars. Poleo estimated the switch would take 4 to 6 months, a delay caused largely by tooling changes, and require at least an additional $1.6 million in Learning Curve Costs. The next day, True North employees informed its tooling vendors to stop work. On cross-examination, Poleo stated he was aware that Trinity sent letters to True North, in the aftermath of the teleconference, stating that it wanted to receive the 68-foot railcar. He testified that after receiving this instruction, True North resumed design and tooling work on the 68-foot railcar.

Poleo further testified that he attended the July 7,1999 meeting in A