Public Service Co. of Indiana, Inc. v. Bath Iron Works Corp.

• Decision Date: 28 October 1985
• Docket Number: Nos. 84-2319,84-2392,s. 84-2319
• Parties: 19 Fed. R. Evid. Serv. 235 PUBLIC SERVICE COMPANY OF INDIANA, INC., and Riley Stoker Corporation, Plaintiffs-Appellants, Cross-Appellees, v. BATH IRON WORKS CORPORATION, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 783

773 F.2d 783

19 Fed. R. Evid. Serv. 235

PUBLIC SERVICE COMPANY OF INDIANA, INC., and Riley Stoker

Corporation, Plaintiffs-Appellants, Cross-Appellees, v. BATH IRON WORKS CORPORATION, Defendant-Appellee, Cross-Appellant.

Nos. 84-2319, 84-2392.

United States Court of Appeals,

Seventh Circuit.

Argued Feb. 20, 1985.

Decided Sept. 9, 1985.

Rehearing Denied Oct. 28, 1985.

Duane D. Fitzgerald, Fitzgerald, Donovan & Conley, Mark L. Haley, Math, Me., for Bath Iron Works Corp.

Kenneth J. Gumbiner, Riley Stoker Corp., Worcester, Mass., Hugh E. Reynolds, Jr., Locke, Reynolds, Boyd & Weisell, Indianapolis, Ind., for Public Service Co. of Indiana, Inc. and Riley Stoker Corp.

Before CUDAHY and POSNER, Circuit Judges, and BROWN, Senior District Judge. ^*

CUDAHY, Circuit Judge.

This case concerns the August 1980 failure of a weld on a piece of equipment known as a "conical head," which was designed by Riley Stoker Corporation ("Riley"), fabricated by Bath Iron Works Corporation ("Bath") and purchased and installed by Public Service Company of Indiana, Inc. ("PSI"). Defendant Bath appeals a jury verdict against it and in favor of plaintiffs PSI and Riley, primarily on the basis that the trial court erroneously excluded evidence material to its defense. The parties also raise various claims of error relating to damages and prejudgment interest. We agree that Bath's proffered evidence was improperly excluded, and reverse.

I.

The conical head that is the subject of this suit is a component part of a coal pulverizing mill located at PSI's Gallagher Station in New Albany, Indiana. Each mill is a 13 foot cylinder, 9 feet in diameter, which is rotated by a shaft fitted into a hub at one end (the head) of the barrel. That head can be either conical or flat. As the cylinder rotates, steel balls crush the coal, which is then blown into the duct work attached to a boiler. PSI has twelve such mills at Gallagher Station. Six of those mills, connected with generating units 3 and 4, have been operating successfully since the late 1950's with conical heads, which were designed by Riley and fabricated by Riley's sister corporation, Riley Cornwells. The other six mills were originally built with flat heads. Because the mills built with flat heads had proven inferior to those with conical heads, PSI decided in 1978 to replace the flat heads with conical heads, and requested a price quotation from Riley. Riley located the plans that had been used in the 1950's to fabricate the conical heads (the "1950's plans") and sent these to Bath, which prepared a bid for the work. Riley then sent a quote to PSI, which ordered two conical heads from Riley, which Riley in turn ordered from Bath.

Bath subsequently said it could not fabricate the heads on the basis of the 1950's plans because those plans lacked sufficient detail. Riley then drafted new plans (the "1979 plans") based on the 1950's plans, and sent them to Bath. The 1979 plans included dimensional detail and instructional notes for Bath's use. Later, PSI ordered two more conical heads from Riley, which Riley in turn ordered from Bath.

After a delay of about six months, Bath completed manufacture of the first two conical heads in October 1979, and after inspection by Riley and PSI representatives, one of the heads ("head no. 1") was installed by PSI in its coal pulverizing mill 1B. That head failed in service in August 1980, as the result of a 360? circular crack through the plate of the cone at the toe of the weld connecting the cone to the hub of the head. That failure is the subject of PSI's claim against Bath. After the failure, both PSI and Riley hired experts to determine its cause, and in conjunction with that investigation the 1950's heads were examined. The experts apparently concluded that the cause of the failure was insufficient weld metal and improper finish of the weld at the cone-to-hub connection. At trial, Bath conceded that the size of the weld was smaller than the specifications on the 1979 plans required. The question whether the weld was improperly finished was disputed.

Over plaintiffs' objection, the trial court admitted certain evidence on the issue of causation. In this connection, the investigation of the failure of the conical head installed in mill 1B included an analysis of the three other conical heads fabricated by Bath which had not yet been installed. Riley's expert, Teledyne, concluded that it would be possible to repair the three remaining heads by building up and smoothly blending the weld in accordance with Riley's design. Riley prepared a written rebuild procedure, approved by PSI, which specifically required that the weld should be finished by grinding. Bath repaired one of the heads ("head no. 2"), and PSI and Riley retained an outside firm to repair another one ("head no. 3"). Riley's claim against Bath is for the expenses it incurred in having head no. 3 repaired. Riley and PSI inspected and approved both rebuilt heads, and these were installed. Both rebuilt heads failed in service, although these failures apparently were not as severe as the first one had been, and the heads were still in operation at the time of trial. The fourth head was returned to Bath.

PSI brought claims against Bath in negligence and strict liability and sought various items of damages resulting from the failure of the first conical head. Riley's case against Bath was founded solely on breach of contract, and Bath counterclaimed against Riley to recover monies due for the other heads. Bath's affirmative defenses included incurred risk, contributory negligence, failure to mitigate damages, breach of contract, estoppel, waiver and inspection and acceptance. The action was bifurcated by the trial court and tried before a jury, which found in favor of PSI and Riley. After the damages phase of the trial, the jury awarded PSI $2,438,080.20 in damages and awarded damages to Riley in the amount of $70,225.09. The trial court awarded PSI $83,205.46 in prejudgment interest, but denied Riley prejudgment interest. Facts relating to the parties' contentions on damages and interest will be set forth later in this opinion where relevant.

II.

Stated simply, the plaintiffs' theory at trial was that Bath's failure to comply with the plans provided by Riley resulted in defects in the welds in the conical heads. Although PSI's claims sounded in tort, and Riley's in contract, both parties' essential contention was that Bath's deviation from the Riley plans was the sole cause of the failure of the heads. In particular, plaintiffs presented a great deal of evidence tending to show that Riley's 1979 plans required leg lengths and a type of blended finish which, if followed, would have produced a satisfactory product, but that Bath failed to follow those plans. Evidence was presented indicating that for various reasons Bath was under pressure to complete the project quickly and, as the result of that pressure, did not take necessary steps to complete the head correctly. As noted, Bath acknowledged that it had made the cone-to-hub weld too small, thus deviating from the 1979 plans. It claimed that the 1979 plans had only specified an "as-welded finish," rather than a blended finish, however, and that the as-welded finish was the actual cause of the failure. Bath urged this alternative theory of causation as a complete defense to both PSI's tort and Riley's contract claims.

In order to prove this theory, Bath intended to demonstrate the following propositions. First, Bath wanted to show that PSI's and Riley's objective in 1979 was to design and have manufactured conical heads that would be identical to the conical heads that Riley had designed for PSI in the 1950's, which had operated successfully since that time. Bath then wanted to present evidence about the 1950's design and the 1950's heads, to show that Riley's 1979 plans did not in fact duplicate the 1950's heads. Next, Bath intended to show that the heads that were rebuilt (one by Bath, and one by another manufacturer) to conform to the 1979 plans both failed at the same critical weld, despite the fact that once rebuilt they complied with the specifications in the 1979 plans, as well as the specifications of the rebuild procedure. Once again, Bath wanted to produce evidence about the 1950's heads in order to demonstrate the "design deficiencies" in the subsequent 1979 plans and rebuild procedure--i.e., that the later plans did not provide the correct specifications necessary to duplicate the 1950's heads.

Bath was allowed to demonstrate several of these propositions, but was foreclosed at various points from providing evidence about certain features of the 1950's heads, primarily because the trial court viewed this evidence as irrelevant. Without such evidence, Bath contends, the jury was left with the erroneous impression that the 1979 plans did (at least more or less) duplicate the 1950's plans, and so was bound to reject Bath's theory that the differences between the plans, rather than Bath's deviation from the 1979 plans, actually caused the heads to fail. Moreover, Bath argues that it was prejudiced by the trial court's failure to make it clear that evidence about the 1950's heads would not be admissible until midway through trial (even though it had allowed Bath to present its theories about this evidence during opening argument) thus unfairly foiling Bath's trial strategy. Finally, Bath contends that the trial court made many inconsistent rulings regarding the 1950's heads evidence, effectively allowing plaintiffs to present their version on the point but preventing Bath from contradicting it.

The next type of evidence that Bath contends was erroneously excluded concerned events that took place after the second and third heads had been rebuilt, and had failed in service. Following the second and third failures, Riley again conducted a field inspection of the 1950's heads. Based on measurements made during the field...