6 F.3d 876 (2nd Cir. 1993), 768, Long Island Lighting Co. v. Imo Industries Inc.

Docket Nº768, 1467, Dockets 92-7773, 92-7893.
Citation6 F.3d 876
Party NameRICO Bus.Disp.Guide 8457, LONG ISLAND LIGHTING COMPANY, Plaintiff-Appellant-Cross-Appellee, v. IMO INDUSTRIES INC., Defendant-Appellee-Cross-Appellant, and Stone & Webster Engineering Corp., Defendant-Appellee.
Case DateSeptember 22, 1993
CourtUnited States Courts of Appeals, Court of Appeals for the Second Circuit

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6 F.3d 876 (2nd Cir. 1993)

RICO Bus.Disp.Guide 8457,

LONG ISLAND LIGHTING COMPANY, Plaintiff-Appellant-Cross-Appellee,


IMO INDUSTRIES INC., Defendant-Appellee-Cross-Appellant,


Stone & Webster Engineering Corp., Defendant-Appellee.

Nos. 768, 1467, Dockets 92-7773, 92-7893.

United States Court of Appeals, Second Circuit

September 22, 1993

Argued Jan. 7, 1993.

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[Copyrighted Material Omitted]

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Robert M. Rolfe, New York City (W. Taylor Reveley, III, Franklin H. Stone, Christopher M. Mason, Hunton & Williams, New York City, Robert J. Grey, General Counsel, Long Island Lighting Co., Hicksville, NY, of counsel), for plaintiff-appellant-cross-appellee.

Robert E. Smith, New York City (Joseph Zuckerman, David E. Ross, Richard F. Bernstein, Donna L. LaMagna, Rosenman & Colin, James W. Quinn, Weil, Gotshal & Manges, of counsel), for defendant-appellee-cross-appellant.

Laurence V. Senn, Jr., New York City (Judith A. Lockhart, Dennis M. Walsh, Mudge Rose Guthrie Alexander & Ferdon, of counsel), for appellee.

William J. Cowan, Gen. Counsel, Public Service Com'n of State of N.Y., Albany, NY (Diane T. Dean, Asst. Counsel, Public Service Com'n of State of N.Y., of counsel), for amicus curiae Public Service Com'n of the State of N.Y.

Before: PRATT, MAHONEY, and FRIEDMAN, [*] Circuit Judges.

MAHONEY, Circuit Judge:

Plaintiff-appellant-cross-appellee Long Island Lighting Co. ("LILCO") appeals from a final judgment entered July 22, 1992 in the United States District Court for the Southern District of New York, Richard Owen, Judge. After a bifurcated jury trial, defendant-appellee-cross-appellant Imo Industries Inc. 1 was held liable for $10,809,806 in damages and $7,569,530.71 in prejudgment interest stemming from a breach of its promise to repair defective diesel generators sold to LILCO. In three earlier opinions, seeLILCO v. Transamerica Delaval, Inc. ("LILCO I"), 646 F.Supp. 1442 (S.D.N.Y.), reargument and certification denied, holding clarified, 648 F.Supp. 988 (S.D.N.Y.1986) ("LILCO II"); LILCO v. Imo Delaval, Inc. ("LILCO III"), 668 F.Supp. 237 (S.D.N.Y.1987), the district court, Gerard L. Goettel, Judge, dismissed LILCO's other claims asserted in its original and amended complaints against Imo, and LILCO's complaint against defendant-appellee Stone & Webster Engineering Corp. ("SWEC").

LILCO appeals the district court's dismissal of its complaint against SWEC and the district court's dismissal of its claims against Imo, with the exception of its cause of action for Imo's breach of its repair obligation,

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as well as the district court's limitation of the damages that it could recover from Imo. See LILCO v. Imo Indus., ("LILCO VII"), No. 85 Civ. 6892 (RO) (S.D.N.Y. Mar. 30, 1992) (memorandum limiting damages). Imo cross-appeals, contending that the district court should have dismissed as untimely LILCO's claim that Imo breached its undertaking to repair the defective generators.

We affirm.


In 1965, LILCO initiated plans to construct a nuclear power plant at Shoreham, Long Island ("Shoreham" or the "Shoreham Plant"). The Nuclear Regulatory Commission ("NRC") required that the plant include a reliable, independent onsite power source capable of running the cooling and various other systems necessary to assure the safe shutdown of the reactor in case of emergency. Pursuant to a June 1, 1967 contract (as amended May 1, 1973, December 11, 1978, and March 13, 1984) with LILCO, SWEC was responsible for, inter alia, preparing performance specifications for the emergency generators and assuring that the generators were supplied in accordance with the specifications.

In December 1973, LILCO invited Imo to bid on the design, manufacture, and supply of three emergency diesel generators (the "Generators") for the Shoreham Plant. LILCO issued a purchase order on May 20, 1974 awarding Imo the contract to manufacture the Generators for a purchase price of $2,110,000. The purchase order incorporated by reference LILCO's invitation to bid, the specifications for the Generators, Imo's proposal, and numerous letters and telexes.

Imo warranted (until one year after Shoreham's initial operation) that the Generators would achieve their warranted performance in place, and agreed that if they did not, "to the extent that the deficiency or failure to achieve the warranted performance is attributable to equipment supplied by [Imo], [Imo] shall make such adjustments or modifications to enable the equipment to achieve the warranted performance." The contract also provided that "under no circumstances shall [Imo] be liable for special or consequential damages, including the loss of profit or use of any part or all of [LILCO's] facilities," and that Imo's liability "shall not in any case exceed the cost of correcting defects in the [Generators]."

During the manufacture of the Generators and prior to their delivery to LILCO, Imo allegedly learned that the solid steel crankshafts, whose main journals had a thirteen-inch diameter and whose eight crankpins had an eleven-inch diameter, could not withstand their anticipated torsional stresses and accordingly did not meet the contract specifications. Imo assertedly redesigned its generators, incorporating larger crankshafts, for sales to other parties, but did not alter the crankshafts on the Generators, and did not notify LILCO of the design error. LILCO further alleged that through 1983, Imo made continuing representations that the crankshafts which it supplied to LILCO were adequate to meet the specified standards.

LILCO accepted delivery of the three Generators in 1976 and 1977. The Generators were placed in storage upon delivery until the Shoreham Plant was ready for their installation and testing, which began in 1981. Both Imo and LILCO were aware that the Generators would be stored for a period of time prior to their installation. SeeLILCO I, 646 F.Supp. at 1445 n. 1.

Numerous problems with the Generators occurred when field testing was subsequently undertaken. LILCO and Imo worked together to address these difficulties, but Imo insisted that it had no contractual obligation to do so. As a result, LILCO paid Imo over one million dollars for replacement parts and services necessitated by the various failures that occurred throughout the two-year period immediately following initial installation.

The failures culminated on August 12, 1983, when one of the crankshafts snapped in half and severe cracks were discovered in the two remaining crankshafts. LILCO claims that at this juncture, it believed it could no longer reasonably rely on Imo to make the Generators operable. LILCO therefore hired various groups of outside consulting engineers, including SWEC engineers, assigned

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LILCO employees, and procured union craft labor to assist in repairing the Generators. Repair of the crankshafts required LILCO to disconnect the Generators from the electrical and piping connections; move them to another location where they were totally disassembled, inspected, tested, and reassembled; and return and reconnect them for additional performance tests. By the end of 1983, LILCO's outside consultants determined that the crankshafts had failed because they were inadequately sized, and that larger replacement crankshafts would resolve the problem.

In the midst of the repair effort, the NRC Staff became skeptical that Imo generators were adequate for nuclear plants because of widespread problems with Imo generators at a number of nuclear plants, including Shoreham, and announced that it would not license plants using Imo generators unless there was an assurance of the generators' reliability. SeeLILCO v. Imo Indus. ("LILCO IV"), No. 85 Civ. 6892 (RO), slip op. at 3-4, 1990 WL 64588 (S.D.N.Y. May 3, 1990). In response to these concerns, LILCO joined with owners of other affected nuclear plants to establish an owners' group to develop a comprehensive plan to establish the reliability of Imo generators (the "Owners' Group"). The NRC Staff approved the Owners' Group program in January 1984 and awaited its results.

By September 1983, only two issues remained before Shoreham could be licensed: (1) the certification of the Imo generators, and (2) emergency evacuation planning for the plant. See In re LILCO (Shoreham Nuclear Power Station, Unit 1), 18 N.R.C. 445, 623-24 & n. 71, 634 (1983). LILCO claims that it feared the lack of qualified emergency generators could independently delay Shoreham's commercial operation, which would result in delay costs of over one million dollars a day, and was concerned that the Imo generators might never be successfully repaired.

To address this situation, in September 1983 LILCO ordered three Colt emergency generators at a cost of thirteen million dollars whose delivery was expected in the spring of 1984. LILCO asserts that the Colt generators were chosen in part because they were able to fit into the housing designed for the Generators. In December 1983, however, based upon the reports of its outside engineers, LILCO determined that it was not likely to abandon the Generators, and it therefore decided to construct a new building to house the standby Colt generators. The ultimate cost for the Colt generators and housing was approximately $126 million. LILCO spent approximately another four million dollars in other efforts to expedite the issuance of a low power testing license despite the problems with the Generators.

The district court found that "LILCO had no immediate or imminent need for the Colts, ... [and] it ordered them as an 'insurance policy.' " LILCO IV, slip op. at 3. Furthermore, despite its ultimate decision not to replace the Generators, LILCO never exercised a cancellation clause contained in...

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