848 F.3d 754 (6th Cir. 2017), 16-3305, Babcock & Wilcox Co. v. Cormetech, Inc.

Docket Nº:16-3305
Citation:848 F.3d 754
Opinion Judge:McKEAGUE, Circuit Judge.
Party Name:THE BABCOCK & WILCOX COMPANY, Plaintiff-Appellant, v. CORMETECH, INC., Defendant-Appellee
Attorney:Ronald S. Kopp, ROETZEL & ANDRESS, LPA, Akron, Ohio, for Appellants. Bradley J. Barmen, LEWIS BRISBOIS BISGAARD & SMITH, LLP, Cleveland, Ohio, for Appellee. Ronald S. Kopp, Jessica A. Lopez, ROETZEL & ANDRESS, LPA, Akron, Ohio, for Appellants. Brendan M. Richard, LEWIS BRISBOIS BISGAARD & SMITH, ...
Judge Panel:Before: McKEAGUE, GRIFFIN, and KETHLEDGE, Circuit Judges. KETHLEDGE, Circuit Judge GRIFFIN, Circuit Judge,
Case Date:February 15, 2017
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
SUMMARY

In 2005, B&W entered into a contract to design and construct a Selective Catalyst Reduction (SCR) system to control emissions at KCP&L’s coal-burning Kansas power station. B&W purchased catalyst modules for the SCR from Cormetech, which guaranteed that the catalyst would perform under specified conditions for 24,000 operating hours before needing replacement. KCP&L began operating the SCR in... (see full summary)

 
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Page 754

848 F.3d 754 (6th Cir. 2017)

THE BABCOCK & WILCOX COMPANY, Plaintiff-Appellant,

v.

CORMETECH, INC., Defendant-Appellee

No. 16-3305

United States Court of Appeals, Sixth Circuit

February 15, 2017

Argued December 8, 2016.

Appeal from the United States District Court for the Northern District of Ohio at Akron. No. 5:14-cv-00514--Kathleen B. Burke, Magistrate Judge.

ARGUED:

Ronald S. Kopp, ROETZEL & ANDRESS, LPA, Akron, Ohio, for Appellants.

Bradley J. Barmen, LEWIS BRISBOIS BISGAARD & SMITH, LLP, Cleveland, Ohio, for Appellee.

ON BRIEF:

Ronald S. Kopp, Jessica A. Lopez, ROETZEL & ANDRESS, LPA, Akron, Ohio, for Appellants.

Brendan M. Richard, LEWIS BRISBOIS BISGAARD & SMITH, LLP, Cleveland, Ohio, for Appellee.

Before: McKEAGUE, GRIFFIN, and KETHLEDGE, Circuit Judges. McKEAGUE, J., delivered the opinion in which KETHLEDGE, J., joined in part and in the result, and GRIFFIN, J., joined in part. KETHLEDGE, J., delivered a separate opinion concurring in part and in the judgment. GRIFFIN, J., delivered a separate opinion concurring in part and dissenting in part.

OPINION

McKEAGUE, Circuit Judge.

After completion of discovery and dispositive motion briefing, the district court issued an opinion explaining why defendant was entitled to summary judgment on both of plaintiff's contract claims. As to the first claim, for breach of performance warranty in relation to the sale of a power plant emissions-control catalyst, the court sustained defendant seller's statute of limitations defense, holding that plaintiff filed its claim at least ten months after the limitations period had expired. As to the second claim, for enforcement of contractual indemnity, the court held there was insufficient evidence to support a reasonable jury finding that plaintiff's losses resulted from a " defect" in the catalyst or " omission" in defendant seller's performance. On appeal, plaintiff contends the court erred by failing to view the record in the light most favorable to the nonmovant. We agree. For the reasons explained below, we vacate the district court's ruling and remand for further proceedings.

I. BACKGROUND

Plaintiff Babcock & Wilcox Company (" B& W" ) is a Delaware corporation having its principal place of business in Ohio. B& W is in the business of designing, manufacturing, and constructing power generation facilities and emissions control equipment and services for power companies such as Kansas City Power & Light Company (" KCP& L" ). In December 2005, B& W entered into a contract to design and construct a Selective Catalyst Reduction (" SCR" ) system to control emissions at one of KCP& L's coal-burning power stations in La Cygne, Kansas. B& W issued a purchase order to defendant Cormetech, Inc. to obtain catalyst modules to be used in the SCR. Cormetech is a Delaware corporation with its principal place of business in North Carolina. Cormetech guaranteed that the catalyst it supplied would perform under the specified conditions for 24,000 operating hours before needing replacement.

KCP& L began operating the SCR at the La Cygne plant in April 2007. In June 2007, B& W conducted an initial performance test, after approximately 1200-1500 hours of operation. The results revealed that the rate of " ammonia slip" was higher than expected, meaning that more ammonia was being emitted from the SCR than expected, albeit still within the guaranteed limits. This finding indicated that the catalyst could be subject to accelerated deactivation. B& W advised Cormetech by letter dated August 21, 2007, just four months after commencement of operation, that initial performance test results gave " reason to believe that the catalyst will not reach the end of life guarantees." R. 114-13, Rohner Letter 8/21/07, Page ID 4864. B& W invited Cormetech to cooperate with B& W " to determine the reasons for this advanced deactivation." Id. Cormetech responded immediately, observed that higher levels of " ammonia slip" were " measured (and corrected)," and confirmed that its investigation of the possible cause was continuing. R. 114-8, Schirmer Letter 8/31/07, Page ID 4821.

Cormetech continued testing the catalyst and next communicated its preliminary findings to B& W in October 2007, after 3000 hours of operation. Cormetech's report indicated that the catalyst was continuing to operate " above the performance threshold, but below the design deactivation curve." R. 114-9, Cormetech Letter 10/8/07, Page ID 4825-27. The measured loss of catalytic potential reportedly correlated with elevated concentrations of calcium oxide and phosphorous pentoxide found on the surface of some catalyst elements. The letter recommended continued monitoring and testing of catalyst performance and requested additional operational data for analysis.

Cormetech continued to conduct interim testing, as documented in Cormetech's performance test report, showing the collection of catalyst element samples in September 2007, November 2007, and May 2008, as well as inspection of the SCR reactor in April 2008. In December 2007, Cormetech informed B& W that its November 2007 lab test results were inconclusive: elevated levels of calcium and phosphorous were still evident, but " the rate of accumulation appear[ed] to have slowed." R. 114-10, Cormetech Letter 12/17/07, Page ID 4829. Cormetech advised that further testing was indicated. Throughout this period, Cormetech never informed B& W " that any of the interim testing demonstrated that the catalyst was at the end of its catalytic life guarantees." R. 115-18, Chitwood Aff. at ¶ 23, Page ID 5117. Instead, Cormetech assured B& W that it remained confident that the operational life warranty could be met.

Only in August 2008 was it made clear to B& W that Cormetech's corrective efforts would fall short. According to Project Manager Chitwood, B& W received " preliminary notice" of the full performance guarantee testing results by email on or about September 3, 2008. Formal notice came later by letter on September 26, 2008. This letter from KCP& L advised in pertinent part " that the SCR does not meet the warranties and Performance Guarantees specified in the Contract." R. 114-12, Cheatum Letter 9/26/08, Page ID 4860. The letter further advised that it was B& W's obligation under the contract " to conduct a root cause evaluation and generate a corrective action plan with KCP& L and catalyst manufacturer to determine mutually agreeable repairs or modifications to achieve the Performance Guarantee." Id.

B& W and Cormetech then undertook a root cause evaluation to determine why the catalyst failed to meet its expected life term. On February 7, 2009, B& W issued its Root Cause Analysis, summarizing its findings and conclusions. The Root Cause Analysis identified seven factors that contributed to the early deactivation of the catalyst, none of which was attributable to Cormetech: (1) burning fuels outside the specified range; (2) subjecting the catalyst to higher than specified ash loads; (3) failing to activate sonic horns that would have prevented ash build-up; (4) presence of severe tube leaks during operation; (5) continued operation of the SCR without removal of accumulated ash, after a shutdown on August 4, 2007; (6) continued operation of the SCR without removal of accumulated ash, after an outage on August 31, 2007, until April 2008; and (7) poor combustion, which led to increased ash loading and possible phosphorous poisoning.

After KCP& L determined in 2008 that the catalyst was at the end of its useful life, it contracted directly with Cormetech to obtain a replacement catalyst. The replacement catalyst also failed before the end of its expected life. Ultimately, the problem that caused the early deactivation of both the original and replacement catalyst appears to have been remedied by replacement of the cyclone burners in the power station's furnace. KCP& L asserted a claim against B& W based on the unsatisfactory performance of the SCR, which resulted in a $3.5 million meditation settlement.

B& W commenced this action against Cormetech in federal court based on the parties' diversity of citizenship on August 3, 2012. The original complaint was dismissed without prejudice pursuant to the parties' tolling agreement while B& W pursued mediation with KCP& L. After those efforts resulted in the settlement, B& W reinstituted the action on March 6, 2014, within the agreed tolling period, claiming recovery of the settlement amount from Cormetech based on breach-of-warranty and contractual indemnity theories. The parties completed discovery, Cormetech moved for summary judgment, and the district court granted the motion, finding no triable fact issue on either of B& W's claims. The court held the breach-of-warranty claim was time-barred and the indemnification claim...

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