Hydro Investors and Taft v. Trafalgar Power
| Citation | 227 F.3d 8 |
| Decision Date | 01 August 1999 |
| Docket Number | Docket Nos. 99-9198,STETSON-HARZA |
| Parties | (2nd Cir. 2000) HYDRO INVESTORS, INC., Plaintiff-Counter-Defendant-Appellant, LAWRENCE TAFT, Plaintiff-Counter-Defendant, v. TRAFALGAR POWER INC., MARINA DEVELOPMENT, INC., and ARTHUR STECKLER, Defendants-Counter-Claimants-Appellees. TRAFALGAR POWER INC., Plaintiff-Appellee-Cross-Appellant, v. NEAL DUNLEVY andCORP., Defendants-Appellants-Cross-Appellees. (L), 99-9202 (CON), 99-9204 (CON), 99-9206 (XAP) |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
DAVID RABINOWITZ, Moses & Singer LLP, 1301 Avenue of the Americas, New York, NY (Roger L. Waldman, Moses & Singer LLP, New York, NY, on the brief) for Plaintiff-Counter-Defendant-Appellant.
CAROLYN ELEFANT, Law Offices of Carolyn Elefant, Bethesda, MD for Defendant-Appellant-Cross-Appellee Neal Dunlevy.
JOHN GLOVER ROBERTS, JR. Hogan & Hartson L.L.P., Washington, DC (Catherine E. Stetson, Hogan & Hartson, Washington, DC; Richard E. Alexander, Harter, Secrest & Emery, Rochester, NY, on the brief) for Defendant-Appellant-Cross-Appellee Stetson-Harza Corp.
PAUL J. YESAWICH, III, Harris Beach & Wilcox, LLP, Rochester, NY (Laura W. Smalley, Rochester, NY, on the brief) for Defendants-Counter-Claimants-Appellees and Plaintiff-Appellee-Cross-Appellant.
Before: MINER and STRAUB, Circuit Judges, and TRAGER, District Judge.*
This case consists of consolidated actions by various individuals and entities involved in the development, construction, and/or operation of six hydroelectric plants located in upstate New York. The attempted development of these sites has resulted in financial disaster, extensive litigation before the district court, and the appeal before us.
Plaintiff-counter-defendant-appellant Hydro-Investors, Inc. ("HII") appeals from an order denying its post-trial motion for an accounting and the imposition of a constructive trust. Defendant-appellant-cross-appellee Neal Dunlevy ("Dunlevy") and defendant-appellant-cross-appellee Stetson-Harza ("Stetson-Harza") appeal from a judgment, following a jury verdict, imposing joint and several liability on them in the amount of $7.6 million dollars for damages stemming from their professional malpractice with regard to the hydroelectric plants at Ogdensburg and Forestport. Dunlevy and Stetson-Harza also appeal from the district court's denial of their post-trial motions for a new trial and/or for judgment as a matter of law.
Defendants-counter-claimants-appellees Trafalgar Power, Inc., Marina Development, Inc. ("Marina Development"), and Arthur Steckler ("Steckler") (collectively "TPI") cross-appeal from (1) a pre-trial order dismissing their negligent misrepresentation claim with respect to the Adams and Kayuta Lake sites; (2) orders entered at trial dismissing their professional malpractice claims with respect to Adams and Kayuta Lake; (3) orders entered at trial dismissing breach of contract claims with respect to the Adams, Kayuta Lake, Forestport, and Ogdensburg sites; and (4) a post-trial order dismissing their motion to amend the judgment to include an award of prejudgment interest.
For the reasons that follow, we affirm in part and vacate in part the judgment and orders of the district court and remand for additional proceedings consistent with this opinion.
Stetson-Harza is an engineering firm based in Utica, New York. At certain times pertinent to this appeal, Dunlevy, an engineer, worked at Stetson-Harza. Dunlevy also served as the principal and sole shareholder of HII. In the 1980s, Dunlevy met Steckler, a Canadian businessman who was the sole owner of Marina Development. Steckler also controlled TPI, a wholly owned subsidiary of Marina Development.
In 1984, Dunlevy suggested to Steckler that hydroelectric plants in upstate New York could be profitably developed. Dunlevy also suggested that Steckler provide the capital to develop the plants and that Dunlevy, via HII or Stetson-Harza, would contribute hydroelectric expertise. Steckler apparently believed these projects would be a good financial opportunity because oil prices were nearing an all-time high and Congress had passed legislation favoring alternative energy. As a result of their discussions, Dunlevy and Steckler decided to enter the hydroelectric power plant business together. Consequently, TPI eventually retained Stetson-Harza and HII to perform work associated with TPI's licensing and possible development of six hydroelectric plants in upstate New York: Herkimer, Cranberry Lake, Kayuta Lake, Adams, Forestport, and Ogdensburg.
On August 1, 1985, Steckler (via TPI) and Dunlevy (via HII) entered into an agreement that called for TPI to provide the capital while HII would identify the sites to be developed. The specific sites were not identified in the agreement. The agreement did contain attached schedules that conditioned HII's participation in each project on a number of factors, including construction within the budget and meeting the expected energy output. Despite the existence of this agreement, Dunlevy's activities for TPI were not limited to his work through HII. Indeed, the liability asserted against Dunlevy in this action stems from his role as chief engineer of the Water Resources Department at Stetson-Harza.
As part of TPI's effort to obtain financing for the projects, Steckler asked Stetson-Harza to prepare an analysis that could be used by potential lenders to evaluate whether to invest in the projects. That analysis, dated October 27, 1986, included an assessment of the energy to be generated by each project as well as the costs of construction.
By November 1986, TPI was fully committed to the project, having decided to develop six projects at an anticipated cost of approximately $23 million. Pursuant to this commitment, TPI had purchased multi-million dollar turbines for the Ogdensburg, Forestport, Adams, and Kayuta Lake sites. It also had located a lender that was willing to make an equity contribution of nearly $7.5 million dollars and had launched the Federal Energy Regulatory Commission ("FERC") licensing approval process.
The plants were constructed in 1987 and have proven to be financial disasters. At the time of this appeal, TPI has not received any profits from the plants. No equity has been returned to the investors and no cash distributions have taken place. Apparently, the losses are only likely to increase in the future as legislation favoring alternative power sources expires. The primary problems associated with the development of these plants are construction cost overruns and inadequate energy production.
As a result of claimed deficiencies arising out of the financial difficulties associated with these projects, HII asserted claims in 1989 for breach of contract against TPI, seeking specific performance, an accounting, and the imposition of a constructive trust. TPI in turn sued Stetson-Harza, Dunlevy, and HII alleging breach of contract, gross negligence, negligence and/or professional malpractice, gross misrepresentation, intentional misrepresentation, negligent misrepresentation, and fraud. Plaintiff-counter-defendant Lawrence Taft ("Taft") also sued TPI, seeking (1) specific enforcement of an alleged agreement providing that TPI transfer an ownership right in the Adams, Kayuta Lake, and Forestport sites back to Taft; (2) an accounting; (3) the imposition of a constructive trust; and (4) damages for TPI's and Steckler's alleged fraud. Taft's claims were later settled out of court. By pretrial order, the United States District Court for the Northern District of New York (Kahn, J.) granted summary judgment to Stetson-Harza, Dunlevy, and HII on the fraud, negligent misrepresentation, and gross negligence claims asserted by TPI. The rest of the case proceeded to a jury trial that consumed approximately 10 days in March and April 1999.
The evidence at trial, taken in the light most favorable to the prevailing party, revealed that although Dunlevy held himself and Stetson-Harza out as experts in hydroelectric engineering both had little experience with such projects. The evidence showed that Dunlevy's primary expertise was in computer applications and that Dunlevy acted primarily as a salesman; recent college graduates performed most of the engineering analysis. TPI's evidence also indicated that, even under the best conditions, the energy...
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