  United States Court of Appeals
             For the Eighth Circuit
         ___________________________

                 No. 13-3354
         ___________________________

IPSCO Tubulars, Inc., doing business as TMK IPSCO

        lllllllllllllllllllll Plaintiff - Appellee

                            v.

     Ajax TOCCO Magnathermic Corporation

       lllllllllllllllllllll Defendant - Appellant
          ___________________________

                 No. 13-3466
         ___________________________

IPSCO Tubulars, Inc., doing business as TMK IPSCO

        lllllllllllllllllllll Plaintiff - Appellant

                            v.

     Ajax TOCCO Magnathermic Corporation

       lllllllllllllllllllll Defendant - Appellee
                      ____________

    Appeals from United States District Court
  for the Eastern District of Arkansas - Jonesboro
                   ____________

           Submitted: December 9, 2014
              Filed: March 4, 2015
                 ____________
Before WOLLMAN, COLLOTON, and BENTON, Circuit Judges.
                       ____________

BENTON, Circuit Judge.

       IPSCO Tubulars, Inc. contracted for Ajax TOCCO Magnathermic Corp. to
provide equipment to heat-treat steel pipe. IPSCO sued for breach of contract, gross
negligence, and punitive damages. The district court found Ajax liable for breach of
contract, awarding $5,162,298.55 in damages to IPSCO. Ajax appeals. IPSCO cross-
appeals the dismissal of its gross negligence and punitive damages claims. Having
jurisdiction under 28 U.S.C. § 1291, this court reverses and remands the breach-of-
contract damages, and affirms in all other respects.

                                           I.

       IPSCO produces heat-treated steel pipe for use in the oil and gas industry. It
manufactures larger-diameter casing and smaller-diameter tubing at grades defined
by American Petroleum Institute (API) 5CT standards. In 2006, IPSCO took bids for
induction heating (“austenitizing”), quenching, and pre-tempering equipment for its
facility in Blytheville, Arkansas. IPSCO contracted for Ajax’s equipment despite
concern about the design of Ajax’s quench.

       IPSCO heat-treats electric resistance welded (ERW) casing and tubing formed
according to IPSCO’s chemical recipe. Ajax’s equipment alters the structural
properties of the pipe by heating it to a specified temperature range to form austenite;
cooling it to a specified range to form martensite (which has a high degree of strength
and hardness); and reheating it to a specified range (adding ductility without
compromising hardness). Exiting the Ajax equipment, the pipe is tempered,
straightened, and inspected with other equipment. The contract requires Ajax’s


                                          -2-
equipment to convey pipe at certain speeds; for example, smaller tubing at 96 feet per
minute (fpm). Ajax Quotation, “General Specifications.” See also Technical
Specifications § 6.2 (“[The equipment] shall be capable of operating continuously
to meet the throughput requirements . . . .”).

       After installation in July 2007, Ajax’s quench did not perform properly. When
IPSCO tried to process tubing at 96 fpm, the pipe had severe distortions, cracks, and
inconsistency in as-quenched hardness. Pipe sometimes distorted so badly it wrecked
in the quench and had to be removed manually. The pipe could not meet API
specifications. To produce tubing without distortion, cracks, or inconsistency, IPSCO
had to run the Ajax equipment at slower speeds, 35 to 50 fpm. Operating at reduced
capacity, IPSCO began producing pipe for sale on September 27, 2007.

      That fall, an Ajax expert began to troubleshoot. The quench was designed with
two barrels pointing in the direction of product flow, using water to rapidly cool the
pipe. Ajax’s expert identified several design flaws with the equipment and told
IPSCO that the flume, which drains water from the quench, was not designed
correctly by IPSCO’s contractor. Because of the small flume, IPSCO operated the
quench at reduced water flows and pressures. On Ajax’s advice, IPSCO modified the
flume by June 26, 2008, allowing operation at the recommended water flow.

      Even after enlarging the flume, IPSCO had problems with severe distortion,
quench cracks, and inconsistency (when processing at 96 fpm). In August 2008,
IPSCO modified the quench itself by pointing the second barrel opposite the direction
of product flow and changing the angle of the spray holes. This permitted IPSCO to
produce pipe with minimal defects at a higher line speed, but still less than 96 fpm.
Although Ajax’s expert continued to work with IPSCO to improve line speeds, Ajax
never informed IPSCO of the suspected design flaws.




                                         -3-
       Still dissatisfied, IPSCO held a series of performance tests. Trials on casing
in October 2008 were successful. Trials on tubing throughout 2009 were not
successful due to distortion, cracks, and inconsistency at 96 fpm, even after IPSCO
used the quench as designed and performed all Ajax-requested maintenance. In 2011,
IPSCO further modified the quench without Ajax’s advice. The modified equipment
can process tubing at about 80 fpm with minimal defects.

         IPSCO sued Ajax in February 2010, alleging breach of contract and gross
negligence and seeking punitive damages. The district court granted judgment on
partial findings for Ajax on gross negligence and punitive damages. After a bench
trial, it found for IPSCO on the breach of contract claim, awarding $5,162,298.55 in
damages. Ajax appeals liability and the damages calculations. IPSCO cross-appeals
the dismissal of the gross negligence claim and punitive damages.

                                          II.

       Ajax contests the court’s interpretation of the contract, as well as the
determination of breach and causation. After a bench trial, this court reviews a
district court’s factual findings for clear error and its legal conclusions de novo.
Speer v. City of Wynne, Ark., 276 F.3d 980, 984-85 (8th Cir. 2002). See also Fed.
R. Civ. P. 52(a)(6) (“Findings of fact . . . must not be set aside unless clearly
erroneous . . . .”). A factual finding is clearly erroneous “only if it is not supported
by substantial evidence in the record, if the finding is based on an erroneous view of
the law, or if we are left with the definite and firm conviction that an error has been
made.” Tadlock v. Powell, 291 F.3d 541, 546 (8th Cir. 2002). “‘Where there are two
permissible views of the evidence, the factfinder’s choice between them cannot be
clearly erroneous.’” Lesch v. United States, 612 F.3d 975, 980 (8th Cir. 2010),
quoting Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574 (1985).




                                          -4-
                                          A.

       Ajax disputes the district court’s construction of the contract, asserting the
contract makes no guarantees on defects, including cracking and distortion. IPSCO
argues that the contract obligates Ajax to provide equipment capable of heat-treating
pipe to API 5CT specifications. The court held that “Ajax breached its contractual
obligations by failing to provide IPSCO with equipment that performed at the
contractual rates and specifications.” It found, “Ajax knew that IPSCO required
equipment that provided a uniform heating and cooling process” and “Ajax knew that
IPSCO’s intended purpose was to create higher grades of pipe, instilled with certain
qualities required for use in the oil and gas industry.”

       Arkansas law governs the interpretation of the contract. See Murray v.
Greenwich Ins. Co., 533 F.3d 644, 648 (8th Cir. 2008), citing Erie R.R. v. Tompkins,
304 U.S. 64, 78 (1938). A breach of contract requires a valid and enforceable
contract between the parties; an obligation on the part of the defendant; a breach of
that obligation; and damages resulting from the breach. Rabalaias v. Barnett, 683
S.W.2d 919, 921 (Ark. 1985). The construction of an unambiguous contract is a
question of law. GeoVera Specialty Ins. Co. v. Graham Rogers, Inc., 636 F.3d 445,
449 (8th Cir. 2011) (discussing Arkansas law). The court aims to “ascertain the
intention of the parties.” Id. (internal quotation marks omitted). “Under Arkansas
law, the language contained in the contract is the best evidence of the parties’
intention,” and this court interprets that language according to its plain and ordinary
meaning. Id. The court should give “reasonable and sensible effect to all clauses of
the contract, within the entire context of the agreement.” Taylor v. Hinkle, 200
S.W.3d 387, 396 (Ark. 2004).

      Applying these principles, the contract includes a guarantee by Ajax that its
equipment will consistently produce tubing at 96 fpm without significant distortion,
cracking, or inconsistency that prevent the pipe’s conversion to higher API grades.

                                         -5-
       The contract reflects that Ajax intended its equipment produce API-quality
pipe. The Ajax Quotation, written by Ajax and incorporated into the contract,
provides, “The equipment covered by this quotation has been developed to provide
an improved method of producing high strength oil country tubular products. The
process has been designed for API grades of casing and tubing” and, “The proper
selection of steel analysis, hardening temperature and tempering temperatures will
produce practically any grade of heat treated tubular product.” Ajax Quotation,
“General Description” (emphasis added). See also Technical Specifications § 2.1
(stating that equipment will produce “ERW[] tubing and casing which meet API
tolerances and standards in metallurgy and chemistry” (emphasis added)); § 3.2
(providing Ajax’s equipment “is designed to process tubular products . . . into tubular
products of higher strengths and higher grades”). The Ajax Quotation also refers to
specific API grades, stating that “The production of N-80 and higher strength casing
from low carbon chemistry of the J and K grades, requires a quenching system
operating near maximum efficiency. The proprietary Ajax TOCCO Magnethermic
quench, produces the results desired for your products.” Ajax Quotation, “Quench
Delivery Equipment.” See also Tr. 2399-400 (Ajax’s expert testifies that pipe
entering heat treatment has no API requirements, while pipe exiting heat treatment
does). If the contract were read to eliminate quality standards, the provisions about
API and API grades would be surplusage. See Phila. Indem. Ins. Co. v. Austin, 383
S.W.3d 815, 820 (Ark. 2011) (“A construction that neutralizes any provision of a
contract should never be adopted, if the contract can be construed to give effect to all
provisions.”).

       Additionally, the contract requires that the equipment provide controlled and
uniform temperatures. See Technical Specifications § 3.4 (“The Austenitizing Unit
will heat the full length of the product pipe uniformly to a temperature in the range
of 1650°F to 1750°F . . . .”); § 3.6 (“The Quench Unit will quickly cool the product
pipe from a maximum temperature of 1750°F (950°C) to a uniform temperature
sufficiently low as, but no greater than 300°F.”); § 3.13 (“The Tempering Unit will

                                          -6-
reheat the product pipe to a temperature controllable between 900°F (480°C) and
1300°F (705°C) . . . .”); § 4.13 (“The range of heating tolerance for each product pipe
shall not exceed +/- 5°C pipe-to-pipe and end-to-end.”). Experts from both Ajax and
IPSCO testified that non-uniform temperatures are a primary cause of quench cracks
and distortion.

       While the contract does not expressly mention “quench cracks,” “distortion,”
“bowed pipe,” “bent pipe,” or “end hooks,” the parties did not intend to contract for
equipment that heats pipe to a specified temperature, at a specified rate, without
regard to how distorted, cracked, or unusable it is—particularly when the contract
reflects Ajax’s representations that its equipment will produce pipe capable of being
converted to higher API grades. It is not necessary to imply a warranty of fitness or
to look at the parties’ course of performance to give “reasonable and sensible effect
to all clauses of the contract” here. See Taylor, 200 S.W.3d at 396. The most
reasonable reading of the contract as a whole obligates Ajax to provide equipment
that can uniformly heat-treat pipe, at 96 fpm, without causing distortion, cracks, or
inconsistency that prevent the pipe’s conversion to higher API grades.

                                           B.

      Ajax argues it did not breach the contract. It also asserts that it cannot breach
because (1) IPSCO did not rely on any quality guarantees when signing the contract,
and (2) IPSCO voided any guarantees by modifying the quench.

      In its findings of fact, the district court stated,

      Not only did the line fail to process tubing at the contract rate of 96 feet
      per minute, but attempts at running the line at higher speeds resulted in
      pipe distorting so badly that it would often become stuck in the quench,
      requiring IPSCO to shut down the line in order to manually cut out the
      distorted pipe. Pipe processed with the Ajax equipment also

                                           -7-
      experienced a high rate of defects, including quench cracks and
      inconsistent hardness measurements throughout a single piece of pipe.

Ajax does not dispute that pipe became so distorted it had to be cut out of the quench.
The record supports the court’s findings on quench cracks and distortion. Ajax
contests only the court’s finding on inconsistent hardness, arguing the pipe
consistently exceeded the minimum required martensite levels after quenching. But
IPSCO’s employee Daren Joyner—whom the district court found credible—testified
that hardness inconsistencies were frequent, not limited to one performance test.
Joyner also testified that inconsistency was worse with Ajax’s unmodified quench
design. The court’s findings are not clearly erroneous, and sufficiently support that
Ajax breached its obligation to provide non-defective pipe at the contractual rate.

       Ajax responds that it cannot breach this obligation because IPSCO was unsure
from the start that the equipment could perform. The Arkansas cases cited by Ajax
do not establish reliance as essential to a contractual warranty claim. See Ciba-Geigy
Corp. v. Alter, 834 S.W.2d 136, 146-48 (Ark. 1992) (noting reliance is relevant to
whether express warranty was created, and finding no warranty when farmer did not
read materials containing warranty before purchasing product), citing Currier v.
Spencer, 772 S.W.2d 309, 311 (Ark. 1989) (analyzing creation of express warranty).
IPSCO’s doubts before negotiating do not render ineffective the bargained-for
guarantees in the contract.

      Ajax also claims that IPSCO voided any guarantees when it modified the
quench in August 2008. Ajax points to General Conditions of Contract § 11.4, which
provides that if Ajax fails to promptly proceed with required remedial work IPSCO
can complete it. This section also provides “[Ajax] provides no warranty or guarantee
for work performed by or on behalf of [IPSCO] pursuant to this section 11.4.”
General Conditions § 11.4. The plain reading of this disclaimer is that Ajax does
not guarantee specific remedial work by IPSCO. Contrary to Ajax’s assertions,

                                         -8-
IPSCO did not implement its own quench system; it made non-permanent
modifications to Ajax’s design. Ajax is not being held liable for poor remedial work
by IPSCO (IPSCO’s modifications improved line speed and limited damages), but for
the failure of its equipment to process tubing without significant defects at 96 fpm.

                                           C.

       Ajax disputes causation on two bases. First, Ajax contends that there is
insufficient evidence that Ajax’s equipment, rather than other variables (for example,
the small flume, poor maintenance, or improper material chemistry), caused the
defects in the processed pipe.

       The record supports the district court’s finding that defects in the pipe were not
caused by any “failures to develop proper operating parameters and material
chemistry or to properly maintain the equipment.” IPSCO permitted Ajax to dictate
maintenance before the performance tests. As for material chemistry, an IPSCO
employee testified that outside processors did not experience similar defects in their
pipe. Significant distortion and quench cracks continued even after the flume’s
enlargement, indicating flume size was not the cause. Moreover, IPSCO’s technical
experts testified that Ajax’s equipment was likely the primary cause of the defects.
There was also testimony that Ajax’s quench failed to uniformly cool the pipe, and
non-uniformity is “perhaps the greatest contributor” to distortion and cracking. The
court properly credited this testimony. Ajax points to no evidence, besides reciting
other variables in heat treatment, to support its claim. The court did not err in finding
Ajax’s breach caused IPSCO’s damages.

      Second, Ajax argues that the district court improperly shifted the burden of
proof from IPSCO on causation, relying on the court’s statement that Ajax’s
testimony on this issue was “unconvincing.” However, the court stated that Ajax’s
testimony was “unconvincing when considered alongside the trial exhibits and other

                                          -9-
more credible testimony.” The court examined the full record, and did not shift the
burden of proof.

                                          III.

       Ajax raises a variety of challenges to the $5,162,298.55 damages award. The
court granted four types of damages: (1) $3,967,954.73 outside processing costs; (2)
$784,964.82 costs from selling downgraded pipe; (3) $306,379 modifying the Ajax
equipment; and, (4) $103,000 hiring outside consultants (which Ajax does not
appeal). The court noted, “The documents offered by IPSCO to prove its damages
have been reviewed and appear to accurately reflect the costs incurred by IPSCO
because it was unable to produce quality heat-treated pipe.” It reduced IPSCO’s
requested outside processing costs to account for the eight months IPSCO would have
needed to maximize productivity had the Ajax equipment worked immediately. On
the last three categories of damages, the court found, “Based on the trial testimony
and the documents submitted into evidence, these damages are credible and should
be awarded to IPSCO.” It made no additional findings.

       In a bench trial, the district court must “find the facts specially and state its
conclusions of law separately.” Fed. R. Civ. P. 52(a). Although the court need not
specifically decide every disputed fact, it must “set forth its reasoning with enough
clarity that the appellate court may understand the basis of the decision.” Lesch, 612
F.3d at 981. See also Duffie v. Deere & Co., 111 F.3d 70, 73 (8th Cir. 1997) (“If an
appellate court does not know what facts the trial court took into consideration in
drawing its conclusions, its findings become suspect.”). Factual findings “should be
clear, specific, and complete, without unrealistic and uninformative generality on the
one hand, and without an unnecessary and unhelpful recital of nonessential details of
evidence on the other.” Lesch, 612 F.3d at 981.




                                         -10-
       The court’s order here does not permit this court to “understand the basis of the
decision.” The court did not explain its rationale or make factual findings about
damages (except on the outside-processing-costs reduction), although it noted that
“certain factual determinations were necessary to determine the proper assessment of
damages.” There is insufficient information for this court to evaluate whether the
damages were properly granted. See Cody v. Hillard, 139 F.3d 1197, 1199-200 (8th
Cir. 1998) (noting court’s findings did not meet Rule 52 when they were “too cryptic”
to determine whether court applied required legal test, and whether it did so without
clear error or abuse of discretion).

       For example, Ajax claims several errors in the court’s determination of outside
processing costs. The court properly supported its decision to reduce outside
processing costs, referring to testimony it deemed credible and explaining why it
chose an eight-month reduction from the time of start-up. However, the court made
no finding whether outside processing costs should—or did—include costs for
processing casing and seamless (as opposed to ERW) pipe. The court made no
finding whether outside processing costs are consequential damages, although
General Conditions § 12.1 bars consequential damages. See Dickson v. Delhi Seed
Co., 760 S.W.2d 382, 389 (Ark. Ct. App. 1988) (noting whether damages are
consequential is question of fact); Williams v. Mueller, 13 F.3d 1214, 1216 (8th Cir.
1994) (remanding when district court failed to state grounds for its conclusion,
although noting conclusion was implicit in court’s decision). The court also made no
finding whether downstream equipment could process pipe at 96 fpm, and, if not,
whether IPSCO would create work-in-process pipe (impacting whether some outside
processing costs would be incurred regardless of Ajax’s slower equipment). The
parties point to differing testimony on these points, and it is the role of the factfinder
to determine whose testimony to credit. Without these findings, this court cannot
assess Ajax’s argument that these costs were improperly granted. Cody, 139 F.3d at
1200 (noting appellate court cannot make “findings of fact or exercise discretion in
the district court’s stead”).

                                          -11-
       The second category of damages, described by the court as “costs incurred as
a result of selling pipe downgraded as a result of the Ajax equipment at a reduced
price,” is also unclear. It might include revenue lost from selling downgraded pipe
at a reduced cost, or costs of shipping pipe or finding new buyers for the lower grade
of pipe. IPSCO describes this category as “revenue lost because IPSCO had to
downgrade pipe.” But the contract prohibits liability for “loss of revenue.” General
Conditions § 12.1. Ajax also argues that the eight-month refinement period applied
to outside processing costs should be applied to this category of damages, because
refinement is necessary to maximize productivity and to minimize defects causing
downgraded pipe. The court did not explain why it did not apply the refinement
period.

       The lack of findings here stands in contrast to the court’s reasoning on the
contract obligations, breach, and causation, which is sufficient under Rule 52. The
court made specific findings on the failures of the quenching equipment (on the
defects and the speed of the equipment), the remedial work done by Ajax and IPSCO,
the causes of defects in the pipe, and the expectations of the parties when entering the
contract. The court identified particular experts it relied upon and judged credible.
Besides the refinement-period reduction in outside processing costs, the court did not
provide similar explanation for its damages decision.

       Because this court’s review is “hindered” without additional explanation from
the district court, the case is remanded. See King v. United States, 553 F.3d 1156,
1162 (8th Cir. 2009) (noting district court is in better position to find material fact).
On remand, the court “need not specifically decide each and every disputed fact.” Id.
at 1161. But it must enter findings of fact and conclusions of law that enable this
court to review its decision.




                                          -12-
                                         IV.

       IPSCO claimed Ajax was grossly negligent for using faulty “rules of thumb”
to design its equipment and for concealing identified design flaws from IPSCO. The
district court granted judgment on partial findings to Ajax. See Fed. R. Civ. P. 52(c).
Following a Rule 52(c) judgment, this court reviews factual findings for clear error
and conclusions of law de novo. Clark v. Runyon, 218 F.3d 915, 918 (8th Cir. 2000).

       For a negligence claim, IPSCO must prove duty, breach, and causation.
Branscumb v. Freeman, 200 S.W.3d 411, 416 (Ark. 2004). Gross negligence is “the
failure to use even slight care.” Spence v. Vaught, 367 S.W.2d 238, 240 (Ark. 1963).
See also Doe v. Baum, 72 S.W.3d 476, 487 (Ark. 2002) (defining gross negligence
as “intentional failure to perform a manifest duty in reckless disregard of the
consequences as affecting the life or property of another” (citing Black’s Law
Dictionary 1033 (6th ed. 1990))).

      IPSCO asserts that Ajax relied upon rules of thumb typically used to make
equipment capable of processing tubing at 32 fpm. IPSCO claims that Ajax did no
analysis to determine whether equipment made with the rules of thumb could process
tubing at 96 fpm, even after an Ajax engineer determined the rules of thumb were
flawed. IPSCO also argues that Ajax concealed the quench design flaws identified
by Ajax’s expert in August 2008.

       Dismissing these claims, the district court found, “Ajax employees continued
to come to the plant and try over and over and over to repair the equipment.” The
court highlighted that an IPSCO employee said Ajax was trying to fix the equipment.
Discussing punitive damages in the same ruling, the court stated, “If I got the
impression that Ajax went into this case not caring and just really trying to get over
on you, then that would be a different story. But I don’t get that impression.” It
found that Ajax “really wanted to and they were trying” to fix the equipment. It also

                                         -13-
found that Ajax’s silence on the design flaws was not unusual business practice or
proof of “misrepresentations.”

       IPSCO does not argue that the court’s findings are clearly erroneous. These
findings sufficiently establish that Ajax did not act intentionally, with reckless
disregard, or without slight care for IPSCO. IPSCO cites to several out-of-circuit
opinions that found gross negligence based on a failure to conduct due diligence in
investigating and verifying data. Even if one Ajax employee questioned the rules of
thumb, that does not establish that the rules were faulty or that Ajax had a duty to
perform extensive engineering analyses to confirm its design parameters. And while
IPSCO disputes the district court’s reference to “misrepresentations,” it acknowledges
that concealment is a form of misrepresentation. The court expressly found any
concealment by Ajax was not improper. IPSCO had the burden of demonstrating
gross negligence, and the court’s findings that Ajax sincerely and consistently
attempted to fix IPSCO’s equipment support the dismissal of this claim.

       Because IPSCO asserts punitive damages only on the gross negligence claim
(not the breach of contract claim), the punitive damages claim must also be dismissed.
See Ark. Code Ann. § 16-55-206 (noting to recover punitive damages, plaintiff must
demonstrate compensatory damages as well as aggravating factor). See also In re
Aircraft Accident at Little Rock, Ark., 351 F.3d 874, 877 (8th Cir. 2003) (finding
under Arkansas law that punitive damages require more than gross negligence).

                                    *******

       The judgment is affirmed in part and reversed in part. The case is remanded
for proceedings consistent with this opinion.
                      ______________________________




                                        -14-
