GARR M. KING, District Judge.
Plaintiff Black and Veatch Construction, Inc. ("BVCI" or "plaintiff") brings a complaint for breach of contract and express warranty, and seeks indemnification, against defendant JH Kelly. JH Kelly, in turn, filed a third-party complaint against Mitsubishi seeking indemnity and contribution. Pending before the Court are JH Kelly's Motion for Partial Summary Judgment [46] against some of the claims brought by BVCI and for judgment on its own affirmative defenses and Mitsubishi's Motion for Summary Judgment against JH Kelly [50]. For the following reasons, I deny JH Kelly's motion and grant Mitsubishi's motion. JH Kelly's third-party complaint against Mitsubishi is dismissed with prejudice.
This dispute is about which of three contracting entities must pay for damage to a combustion turbine at a Portland General Electric ("PGE") power generating facility called the Port Westward power plant. Plaintiff entered into a contract with PGE to engineer, procure, and construct the power plant. Plaintiff subcontracted specified aspects of the work to defendant JH Kelly, including installing the combustion turbine and associated air inlet filter house and air inlet filter duct. Third-party defendant Mitsubishi manufactured the combustion turbine and the air inlet filter house and air inlet filter duct components.
Mitsubishi sold the combustion turbine generator and associated equipment to PGE pursuant to a Power Island Equipment Purchase Agreement ("PIEPA"). PGE thereafter assigned certain duties in the PIEPA to plaintiff. Pursuant to the PIEPA, Mitsubishi delivered the turbine to the Port Westward site. Under Section 24 of the PIEPA, the risk of loss for the combustion turbine passed to plaintiff upon delivery. Thangyah Decl. Ex. 1, at 15.
Pursuant to its obligations under the subcontract, JH Kelly erected the turbine, air inlet filter house and air inlet filter duct. JH Kelly asserts in its response to Mitsubishi's motion for summary judgment that, as part of its sales transaction, Mitsubishi manufactured, delivered and oversaw the installation of the sophisticated turbine. It had agents on-site throughout the installation and start-up process and advised JH Kelly and plaintiff about installation and start-up requirements. According to JH Kelly, the Mitsubishi agents also inspected the work performed by JH Kelly and plaintiff. JH Kelly certified it had completed all work related to the combustion turbine, air inlet filter house and air inlet filter duct. On January 11 and 12, 2007, Mitsubishi and JH Kelly employees entered portions of the air inlet filter house and air inlet filter duct to "check nuts that have been killed in filter house." Pre-trial Order, Agreed Facts ¶ 8. This means the employees "[e]ssentially secured [the nuts] so they wouldn't come off from vibration." Beasley Decl. in Supp. of JH Kelly's Resp. to Mitsubishi's Mot. for Summ. J. (hereinafter, "Beasley Decl. I") Ex. C, Gettinger Dep. 168:22-24, Nov. 30, 2010.
The combustion turbine works by sucking air from the filter house and inlet filter duct into the compressor section of the turbine (comprised of many rows of alternating rotating and stationary blades) where it is compressed and then released into the combustion section of the turbine. Thangyah Decl. ¶ 9. During a scheduled outage of the combustion turbine, on April 12, 2007, damage to the compressor blades in the combustion turbine was discovered. The turbine was disassembled to determine the cause of the damage. Foreign object damage to a number of compressor blades was discovered inside the combustion turbine. In May 2007, materials were found inside the air inlet filter house and air inlet filter duct, including a cutoff bolt with tack welded nut, a welding rod, and a half-moon-shaped cut metal plate, in addition to other foreign objects.
Plaintiff alleges JH Kelly failed to clean the inlet air housing and ductwork, in breach of its subcontract, which caused damage to the blades. JH Kelly does not admit that the damage to the turbine resulted from foreign objects entering the machine from outside the compressor. A JH Kelly employee has testified that foreign object debris was found in the machine upon Mitsubishi's delivery in April 2006. Beasly Decl. I Ex. E, Lee Dep. 16:22-17:12, Oct. 20, 2010.
It is undisputed that foreign objects caused the damage to the blades "the identification and source of which could not be determined." JH Kelly's Answer ¶14. Plaintiff and Mitsubishi negotiated a change order for the additional work needed to repair the foreign object damage. Mitsubishi repaired the turbine and testing resumed on May 25, 2007. Substantial completion, as defined by the agreement between plaintiff and PGE, was obtained on June 9, 2007.
Plaintiff paid PGE for the damage to the combustion turbine. Plaintiff now seeks from JH Kelly $1.5 million in costs to repair the damage to the combustion turbine and $2.1 million due to delays caused by the foreign object damage work.
The parties have previously undertaken to mediate this case and have been able to resolve many issues, with the exception of the present claims. As relevant to JH Kelly's ninth affirmative defense regarding the jury trial waiver, and as part of settlement efforts, plaintiff and JH Kelly entered into a Settlement Agreement and Release dated August 9, 2007 which stated in part: "For purposes of this paragraph, the determination of JHK's FOD [foreign object damage] liability shall be by: (a) mutual agreement of JHK and BVCI; or (b) the dispute resolution clauses of the Contracts." Pl.'s Resp. to JH Kelly's Concise Statement of Material Facts (hereinafter, "Pl.'s CSMF") Ex. 3, at 2.
Summary judgment is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(a). The initial burden is on the moving party to point out the absence of any genuine issue of material fact. Once the initial burden is satisfied, the burden shifts to the opponent to demonstrate through the production of probative evidence that there remains an issue of fact to be tried.
Defendant JH Kelly seeks partial summary judgment on plaintiff's claim for indemnity, and on its own eighth affirmative defense (contractual limitation of damages) and its ninth affirmative defense (waiver of right to a jury trial).
Plaintiff demands that JH Kelly indemnify it for the cost of repairing the damage to the combustion turbine. It relies on the Indemnity provision in Section 00553.51 of the Subcontract between plaintiff and JH Kelly.
Section 00553.51 reads:
Beasly Decl. in Supp. of JH Kelly's Mot. for Partial Summ. J. (hereinafter, "Beasley Decl. II") Ex. 1, at 6.
JH Kelly seeks to avoid payment of the portion of the settlement plaintiff paid to PGE in the amount of $2.1 million for the delay attributable to repairing the damage to the turbine. It does not dispute that plaintiff may seek reimbursement for the cost to repair the damage to the "third party property" (the turbine), although it denies liability for those damages, but it does dispute that plaintiff may recover what it calls consequential damages. It seeks judgment on plaintiff's Second Claim for Relief for indemnification to the extent plaintiff seeks recovery of $2.1 million in "consequential" damages.
JH Kelly parses the language of the subcontract and argues the indemnity provision creates an indemnity obligation for only "physical damage to third party property."
I disagree with JH Kelly that delay damages are not recoverable under the language of the indemnity provision. The language imposes a duty on JH Kelly to indemnify plaintiff "FROM AND AGAINST . . . CLAIMS, SUITS AND CAUSES OF ACTION AND
JH Kelly alternatively relies on the specific exclusion of its liability for consequential damages. The relevant language is plain and unambiguous, reading:
Plaintiff argues the consequential damages provision applies only to damage claims between PGE and JH Kelly, and does not relate to plaintiff at all. Plaintiff also suggests that the damages paid by it to PGE may be considered consequential damages to PGE, but as between it and JH Kelly they are actual damages-damages that resulted directly from the failure of JH Kelly to perform its contractual obligations.
I read the Consequential Damages Clauses to preclude plaintiff from recovering delay damages from JH Kelly. The first clause characterizes the array of possible damages from PGE's perspective. It anticipates that plaintiff might be on the hook for costs associated with "loss of power or production, cost of purchased or replacement power or production, or claims of customers for loss of power or production;" these are the kind of damages only PGE could suffer and not a contractor like plaintiff. Consequently, the parties could not have intended for plaintiff to re-characterize the delay damages it paid to PGE as actual damages. Furthermore, in the second clause, PGE waived the right to obtain consequential damages from JH Kelly, and it is not a rational interpretation of this provision to read it as allowing plaintiff to seek from JH Kelly the very damages PGE could not recover.
In the end, however, I must deny JH Kelly's motion for partial summary judgment. Just after the Consequential Damages Clauses appears a provision that reads as follows: "Notwithstanding anything herein to the contrary, the waivers of Article 00553.53.1 and Article 00553.53.2 [the Consequential Damages Clauses] will not apply to: (a) damages of any third party for which Subcontractor has an indemnification obligation under this Subcontract. . . ."
JH Kelly's motion is denied as to this claim.
JH Kelly seeks judgment on its ninth affirmative defense in which it alleges that the parties waived any right to a jury trial in Section 00553.54.1 of the contract between plaintiff and JH Kelly.
The disagreement about whether plaintiff is entitled to a jury trial or not arises largely from language in an August 9, 2007 Settlement Agreement, in which reference is made to the Disputes provisions of the subcontract. The Settlement Agreement reads, in relevant part,
Pl.'s CSMF Ex. 3, at 2 (emphasis added). Paragraph 3.A. refers to the "Alleged Foreign Object Damage to the M501G combustion turbine discovered on or about April 13, 2007 ('FOD') that is still being investigated, including any claim under an insurance policy, for indemnity or for liquidated or actual damages with respect thereto."
Plaintiff first argues that the language in the Settlement Agreement on which JH Kelly relies refers to the limited issue of a $500,000 retention, not the full FOD claim. The flaw in this argument is that the two issues are intertwined; in order to evaluate what happens with the withheld retention, a determination must be made as to JH Kelly's responsibility for the foreign object damage. Paragraph six of the Settlement Agreement directs that "determination of Kelly's FOD liability shall be by" either agreement between the parties, or by "the dispute resolution clauses of the Contracts." Indeed, under plaintiff's construction of the paragraph, it is unclear what would remain for resolution by "the dispute resolution clauses" if the language is not read to mean JH Kelly's foreign object damage liability.
Plaintiff asserts that the Settlement Agreement specifically excludes the foreign object damage issue from the release. In the Agreement, the parties agreed to the following:
Pl.'s CSMF Ex. 3, at 1. I note, however, that the parties also "excluded" the following:
In short, the "dispute resolution clauses of the Contracts" is the language I must construe. Specifically, the question is which of the two provisions applies: the first dispute resolution provision, containing a jury trial waiver, or the second, which does not.
The first dispute resolution clause comes from the prime agreement between PGE and plaintiff. It requires that "[a]ny claim, dispute or controversy arising out of or relating to [the Prime Agreement] or the breach, validity or termination of [the Prime Agreement]" will be handled first by project management personnel and then elevated to senior management. Beasley Decl. II Ex. 1, at 8. If unsuccessful, the parties choose a mediator. If, after mediation, the dispute is not resolved, "each Party shall have the right to take whatever legal actions a Party may choose."
The second dispute resolution clause reads as follows:
JH Kelly suggests that the parties must have agreed to use the first dispute resolution provision because they used the plural term "Contracts" in the Settlement Agreement, which means the dispute resolution procedure contained in both the Prime Contract and the subcontract. "Contracts," however, is a defined term in the Settlement Agreement and refers to the two subcontracts JH Kelly entered with plaintiff. Each of the subcontracts contains identical dispute resolution clauses, which are summarized above.
Alternatively, according to JH Kelly, the parties' use of the term "dispute resolution clauses of the Contracts" is ambiguous. One could accept its interpretation (that the first dispute resolution provision was intended) or one could accept an interpretation that the parties intended to use the second dispute resolution provision, which permits a lawsuit in either state or federal court. JH Kelly suggests the latter interpretation would be redundant of the parties' remedies at the time; why would either party stipulate to "the dispute resolution clauses of the Contracts"—meaning the ability to file suit in state or federal court—when they had that remedy to begin with? Furthermore, the first dispute resolution clause is specifically labeled, "Dispute Resolution" whereas the second clause is not similarly labeled.
I agree with JH Kelly that the reference to "dispute resolution clauses of the Contracts" in the Settlement Agreement is ambiguous. For a contract or term to be ambiguous, "it must be susceptible to at least two plausible interpretations when examined in the context of the contract as a whole."
However, I cannot grant summary judgment to JH Kelly at this time as material issues of fact remain. The analytical framework applicable to contract interpretation under Oregon law allows the court to "examine extrinsic evidence of the contracting parties' intent" if it finds the contract to be ambiguous.
JH Kelly instead relies on the attorneys' actions after execution of the Settlement Agreement. In letter communications between counsel, after adoption of the Settlement Agreement, plaintiff's counsel made it clear that plaintiff consented to the "formal dispute resolution procedures" and did not dispute that the last step of those procedures was a bench trial. Beasley Decl. I Ex. 2, at 2. However, plaintiff's counsel testifies by affidavit that he "did not have authorization from BVCI to change or modify the terms of the settlement agreement or the subcontract relating to the dispute resolution process." Bash Decl. ¶ 4. It is possible plaintiff vested counsel with apparent authority to bind it, but JH Kelly has failed to submit evidence of any of plaintiff's actions that JH Kelly reasonably interpreted to mean plaintiff gave its counsel authority to bind it to the process set out in first dispute resolution clause. Cf.
Because material issues of fact remain, I deny JH Kelly's motion for partial summary judgment on its ninth affirmative defense.
JH Kelly also seeks judgment on its eighth affirmative defense in which it alleges plaintiff's damages are limited by the terms of the subcontract. Relying on the same argument set forth with respect to the jury trial waiver clause, JH Kelly asserts that the dispute resolution provision directs that each party "shall individually bear the costs associated with their own claims in such appeal." Beasley Decl. I Ex. 1, at 9, Sec. 00553.54.2. The material issues of fact I identified above with respect to the jury trial waiver also preclude JH Kelly's motion for partial summary judgment on its eighth affirmative defense.
Mitsubishi moves for summary judgment against JH Kelly's indemnity and contribution claims as a matter of law, and alternatively it argues there is no evidence as to what caused the damage to the turbine.
JH Kelly alleges a common law indemnity claim against Mitsubishi. In a common law indemnity action, a plaintiff must prove that: (1) it discharged a legal obligation owed to a third party;
Mitsubishi initially read the third-party complaint to allege indemnity on the basis of tort. JH Kelly explained in its response brief that both JH Kelly and Mitsubishi owed a common duty to plaintiff arising out of contract. Mitsubishi agrees that common contractual duties to a third party can support a claim.
Based on the subcontract between plaintiff and JH Kelly, JH Kelly had a nonspecific contractual obligation to clean the inlet filter house; it argues that the PIEPA between Mitsubishi and PGE called for Mitsubishi also to inspect the inlet filter house and ductwork for debris prior to start-up. In support of its theory, JH Kelly relies on the definition of "Work" as defined in the PIEPA:
Beasly Decl. I Ex. A, at 3, PIEPA Sec. 2 (emphasis added). Additionally, according to JH Kelly, Section 3.7.21 requires Mitsubishi to provide technical and advisory support regarding start-up. That section requires Mitsubishi to:
Mitsubishi points out that JH Kelly has conceded it had a contract with plaintiff to clean the equipment; Mitsubishi was not a party to that contract. Under that contract, JH Kelly could have liability to plaintiff for the damage caused by the foreign objects, even if the source of those objects is unknown. In contrast, nothing in the PIEPA obligated Mitsubishi to inspect or otherwise take responsibility for or guaranty JH Kelly's work. Nothing in the "Work" definition included the obligation of Mitsubishi to inspect the post-delivery work of JH Kelly or anyone else. "Work" is limited to the provision of "associate ancillary technological advisory services" which is subject to Section 3.7.21. These "ancillary technological advisory services" and the requirement that Mitsubishi provide qualified personnel on the job site is not the same as a requirement that Mitsubishi inspect and certify JH Kelly's work. Mitsubishi underscores that its technical support was in fulfillment of its own guarantees, not in accordance with JH Kelly's subcontract. Indeed, pursuant to Section 24 of the PIEPA, the risk of loss passed to plaintiff once Mitsubishi delivered the equipment to the site. Plaintiff has never complained that Mitsubishi failed to meet its obligations under the PIEPA. In sum, JH Kelly has failed to identify any contractual duty Mitsubishi breached for which Mitsubishi could be responsible to plaintiff. Frankly, it is telling that neither PGE nor plaintiff are pursuing Mitsubishi for the cost of repairing the turbine.
JH Kelly does not argue that the language is ambiguous. As a result, its references to deposition testimony of plaintiff's employees and JH Kelly's employees as to Mitsubishi's activities on-site are irrelevant.
JH Kelly alternatively argues that Mitsubishi can be liable in tort to plaintiff, even though it has a contractual relationship, because Mitsubishi and plaintiff have a special relationship.
In sum, I grant Mitsubishi's motion for summary judgment against JH Kelly's indemnity claim. Since JH Kelly and Mitsubishi do not share a common contractual duty to plaintiff, JH Kelly's indemnity claim against Mitsubishi must be dismissed.
Mitsubishi expressed some confusion about the basis for JH Kelly's contribution claim. It argued that ORS 31.800 permits contribution, but requires that the party from whom contribution is sought be liable in tort. ORS 31.800(1) ("There is no right of contribution from a person who is not liable in tort to the claimant."). JH Kelly explained, however, that its claim is one for equitable contribution.
Mitsubishi next argues that the equitable contribution theory of recovery has been limited to the context of disputes between insurers, beginning with
Although not pervasive, Oregon does appear to recognize an equitable contribution theory of recovery.
Nevertheless, like indemnity, a claim for contribution depends on the existence of a shared, common liability. A claim for common law contribution must be premised on the existence of common liability, such as co-debtorship, common ownership of property, or common contractual obligations. 18
Although a common obligation can arise through separate instruments,
For the foregoing reasons, I deny JH Kelly's Motion for Partial Summary Judgment [46] and I grant Mitsubishi's Motion for Summary Judgment [50]. JH Kelly's third-party complaint against Mitsubishi is dismissed with prejudice.
IT IS SO ORDERED.
