Ebasco Serv., Inc. v. PENN. P. & L. CO.

• Decision Date: 27 September 1978
• Docket Number: Civ. A. No. 72-1030.
• Citation: 460 F. Supp. 163
• Parties: EBASCO SERVICES, INCORPORATED v. PENNSYLVANIA POWER & LIGHT COMPANY v. GENERAL ELECTRIC COMPANY.
• Court: U.S. District Court — Eastern District of Pennsylvania

460 F. Supp. 163

EBASCO SERVICES, INCORPORATED v. PENNSYLVANIA POWER & LIGHT COMPANY v. GENERAL ELECTRIC COMPANY.

Civ. A. No. 72-1030.

United States District Court, E. D. Pennsylvania.

September 27, 1978.

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K. Robert Conrad, Jon A. Baughman, Nancy J. Gellman, Peter F. Marvin, Deborah S. Cohen, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for Pennsylvania Power & Light Co.

Henry T. Reath, Michael M. Baylson, Duane, Morris & Heckscher, Philadelphia, Pa., for General Electric Co.

OPINION

EDWARD R. BECKER, District Judge.

I. Preliminary Statement

This opinion memorializes our findings of fact and conclusions of law in the wake of a lengthy trial in which Pennsylvania Power & Light Company (PP&L) sought to establish that General Electric Company (GE) was liable to it for certain consequential damages, principally cost of replacement power, as the result of GE's role in the construction of a power plant.

PP&L is a public utility that furnishes electric power to large areas of eastern and central Pennsylvania. A large PP&L power plant complex is located at Brunner Island in the Susquehanna River, south of Harrisburg, Pennsylvania. In 1964, recognizing the need to augment its generating capacity to meet the area's growing electric power demands, PP&L determined to erect on Brunner Island an additional generating plant to be known as Brunner Island # 3 (Brunner # 3). On previous occasions PP&L had superintended the erection of its own power plants, letting various contracts and subcontracts for the several portions of the work. However, on this occasion PP&L engaged Ebasco Services, Inc. (Ebasco) to undertake complete responsibility for the construction of the plant on a so-called "turnkey" basis. Under this arrangement, Ebasco was to assume the responsibility for designing the plant, selecting appropriate equipment and contractors, supervising construction and testing, obtaining appropriate performance guarantees, and overseeing all aspects of the project until the plant became operational. At that time, the key would be turned over, as it were, to the owner, PP&L. The PP&L-Ebasco agreement, entered into in 1964, was formally executed on March 10, 1966. Under its terms, PP&L was to pay Ebasco a total of $54,300,000, payable in installments over the construction period, with a $3,640,000 retainage to be paid by PP&L only after it was satisfied that Ebasco had fulfilled the performance guarantees in the contract.

In March 1964, Ebasco, acting as the agent for PP&L, began obtaining subcontractors for the plant. The other parties to this action — GE, Foster Wheeler Corporation (Foster Wheeler), and Combustion Engineering Company (Combustion) — are firms that were engaged by Ebasco to furnish and install major components of the power plant. GE's principal contractual undertaking was to supply the steam turbine generator and boiler feed pump turbines, which together could fairly be described as the heart of the power plant. Combustion supplied the boilers necessary to create the steam that powers the turbines, and Foster Wheeler supplied the elaborate pumps that the power plant requires.

The power plant was ultimately completed in 1970. In 1972, seeking some $1 million in retention moneys that PP&L had refused to disburse plus an additional $1.6 million in expenses above the contract specification, which Ebasco claimed it had incurred at PP&L's request, Ebasco commenced this litigation. PP&L counterclaimed against Ebasco for damages allegedly resulting from delay, use of unauthorized bidders, breach of warranty, and negligence. PP&L, as third-party plaintiff, also joined GE, Foster Wheeler, and Combustion as third-party defendants on its counterclaim.

PP&L's counterclaim against GE seeks damages allegedly resulting from (1) furnishing defective equipment; (2) negligent design and installation supervision of the steam turbine generator and boiler feed pump turbines; (3) breach of implied warranties; and (4) tortious interference with certain of PP&L's contract rights. The total damages asserted by PP&L approximate $64 million. The largest single element of these damages is PP&L's claim against GE for the cost of purchasing replacement power from other power companies in the Pennsylvania-New Jersey-Maryland Interconnection (PJM), which became necessary when Brunner # 3 did not function as anticipated.¹

After discovery was substantially complete, GE, Combustion, and Foster Wheeler filed motions for partial summary judgment. We proceeded to argument first on GE's principal motion, which involved Ebasco purchase order NY-668001, relating to the steam turbine generator and boiler feed pump turbines. In that motion, GE asked us to declare that it was not liable on the contract to PP&L for (1) cost of replacement power or lost profits; (2) breach of an alleged implied warranty of fitness for an intended use; or (3) tortious interference with the contractual rights of PP&L. The issues with which the motion dealt evolved in large measure from the parties' differing views as to what documents or acts formed the contract between GE and Ebasco (the latter acting as agent for PP&L) and as to the terms of that contract.

We disposed of GE's motion by a lengthy opinion, Ebasco Services, Inc. v. Pennsylvania Power and Light Co., 402 F.Supp. 421 (E.D.Pa.1975) (Ebasco I), in which we denied partial summary judgment. Because Ebasco I formed the general charter for the trial that is adjudicated herein, we must summarize the salient features of that opinion as a precondition to clear and orderly presentation of our findings of fact and conclusions of law. Understanding of those salient features in turn requires a brief recitation of some of the background facts and of the issues raised in the partial summary judgment motion.

The inception of the steam turbine generator transaction was in a telephone conversation on July 15, 1964, between Charles Bonin of Ebasco and George Cox of GE. What transpired during that important telephone call is in dispute, and we make findings on the subject. See Part II.B. infra. However, it is undisputed that on that day, acting pursuant to Ebasco's request, GE issued by means of a letter to Ebasco quotations for the steam turbine generator and the boiler feed pump turbines. The letter stated, inter alia: "The above prices are based on our Standard Conditions of sale, price policy and price data as shown in GE Handbook 4710, dated May 25, 1964." Six days later Ebasco placed its purchase order NY-668001 for the generator and turbines and accompanied that order with a letter of intent reading, in part: "A formal contract will be issued at a later date containing the terms and conditions of, and in the format of, the usual type of contract issued by Ebasco."

The GE standard terms and conditions differed textually from those of the Ebasco standard contract in such areas as warranties and remedies available to Ebasco (and therefore to its principal, PP&L), and negotiations continued between Ebasco and GE on these issues until December 1967. At that time an agreement, included in Supplement 16 to the contract, was reached on language governing warranties and remedies.² Supplement 16 was executed by GE and Ebasco on December 7, 1967. Significantly, GE began construction of the generator even while the negotiations were proceeding. Indeed, when Supplement 16 was executed in late 1967, that unit was already nearing completion and delivery.

The main points at issue on the partial summary judgment motion were:

1. Is the language of limitation contained in Supplement 16 sufficient to insulate GE both from PP&L's claims for cost of replacement power and lost profits and also from claims predicated upon alleged breach of implied warranty?

2. Is there a genuine issue of material fact on the question whether PP&L obtained contractual rights pursuant to § 2-207 of the Uniform Commercial Code (U.C.C.) by virtue of the GE quotation of July 15, 1964, the Ebasco purchase order of July 21, 1964, and the events occurring thereafter but before December 7, 1967, the date Supplement 16 was executed?

3. If the foregoing question is answered affirmatively, the question then arises as to whether Ebasco had authority to impair PP&L's § 2-207 rights by executing Supplement 16; i. e., is there a genuine issue of material fact as to whether PP&L is even bound by Supplement 16?

4. Is there a genuine issue of material fact on the question whether GE, through the negotiations resulting in Supplement 16, tortiously interfered with the contractual and/or fiduciary relationship between PP&L and Ebasco, and, if there is such a genuine issue of material fact, is there also a genuine issue of material fact on the question of GE's privilege to interfere?

We concluded in Ebasco I that Supplement 16 clearly excluded claims for replacement power, lost profits, and breach of implied warranties. However, we found that there were genuine issues of material fact: (1) on the question whether PP&L obtained contract rights pursuant to U.C.C. § 2-207 by virtue of the GE quotation, the PP&L purchase order, and subsequent events; (2) on the question whether Ebasco possessed the authority to impair any such rights that may have existed — i. e., as to whether PP&L is bound by Supplement 16; and (3) on PP&L's tortious interference claim and on GE's defense of privilege thereto. The "bottom line" of the opinion, as it were, was that if Supplement 16 were valid, GE would have no liability for cost of replacement power. However, in the face of PP&L's claim that Supplement 16 was not binding, either because it was executed without authority or because it was improperly procured, we determined that a trial would be necessary to adjudicate its validity.

We have referred thus far only to issues of contract formation and construction, agency, and tortious interference. The issues subsumed within the...