Babcock & Wilcox Co. v. Cormetech, Inc.

• Decision Date: 10 March 2016
• Docket Number: CASE NO. 5:14CV514
• Citation: 168 F.Supp.3d 1017
• Parties: Babcock & Wilcox Company, Plaintiff, v. Cormetech, Inc., Defendant.
• Court: U.S. District Court — Northern District of Ohio

168 F.Supp.3d 1017

Babcock & Wilcox Company, Plaintiff,

v.Cormetech, Inc., Defendant.

CASE NO. 5:14CV514

United States District Court, N.D. Ohio, Eastern Division.

Signed March 10, 2016

Christine M. Garritano, Roetzel & Andress, Cleveland, OH, Jessica A. Lopez, Ronald S. Kopp, Roetzel & Andress, Akron, OH, for Plaintiff.

Brendan M. Richard, Thomas P. Mannion, Lewis Brisbois Bisgaard & Smith, Cleveland, OH, for Defendant.

MEMORANDUM OPINION & ORDER

Kathleen B. Burke

, United States Magistrate Judge

In December 2005, Plaintiff Babcock & Wilcox Company (“B&W”) obtained a contract from Kansas City Power & Light Company (“KCP&L”) to design and construct a Selective Catalyst Reduction (“SCR”) system to control emissions from one of KCP&L's coal-burning power stations in La Cygne, Kansas. Complaint, Doc. 1, p. 3, ¶ 8. Thereafter, B&W issued a purchase order to Defendant Cormetech, Inc. (“Cormetech”) to obtain catalyst modules to be used in the SCR. Id. ¶¶ 7, 9-10. Cormetech guaranteed that the catalyst it supplied would not need to be replaced for 24,000 operating hours. However, the catalyst reached the end of its useful life well before the guaranteed number of hours. Id. , p. 4, ¶ 14. KCP&L made claims against B&W and B&W paid KCP&L $3.5 million pursuant to a settlement reached in mediation. Id. , ¶ 16. In this diversity action,¹ B&W seeks to recover the settlement amount from Cormetech, asserting two claims: breach of warranty and indemnification.²

Cormetech has filed a Motion for Summary Judgment (the “Motion”) pursuant to Fed. R. Civ. P. 56

arguing that B&W's claims are time-barred and that the claims also fail because B&W has no evidence of a defect in the catalyst. Doc. 98. B&W filed a brief in opposition (Doc. 114) and Cormetech filed a reply (Doc. 117).³

The Court GRANTS Cormetech's Motion. B&W's breach of warranty claim is time-barred and there is no genuine issue of material fact that would allow B&W to recover on its contractual indemnity claim. The contract's indemnity provision requires B&W to prove that its settlement loss was caused by a defect or an act or omission attributable to Cormetech. As more fully set forth below, B&W has pointed to no evidence of such a defect or act or omission and B&W's expert testified that no catalyst would have worked given the conditions that existed at the relevant time at KCP&L's LaCygne power station.

I. Background

B&W, a Delaware corporation having its principal place of business in Ohio, is in the business of designing, manufacturing, and constructing power generation facilities and emissions control equipment and services, including SCR systems, for power companies such as KCP&L. Doc. 1, pp. 1-3, ¶¶ 2, 6. Cormetech, a Delaware corporation with its principal place of business in North Carolina, manufactures catalysts for SCR systems. Id. , pp. 2-3, ¶ 2, 7.

In its Motion, Cormetech provides the following summary of the purpose and operation of an SCR:

An SCR is designed to reduce emission of nitrogen oxides (“NOx”), an undesirable component of the flue gas that results from burning coal in a power plant. When a power plant's turbine burns coal, it collects all the gases from the burning process and expels them through a large system of ductwork. The ductwork leads the flue gas into the SCR, which is roughly the size of a three story home. The “floors” of this home are [ ] comprised of honey-combed catalyst material. The flue gas enters the SCR from the top, and a mist of ammonia is added. As the gas-ammonia mix makes it way down through the “floors,” a chemical reaction occurs. The gas-ammonia mix passes over the surface of the catalyst and the resulting reaction produces nitrogen and water, reducing the output of NOx significantly. Under any circumstance, the catalyst has limited useful life and must be changed out at regular intervals.

Doc. 98-1, pp. 1-2. In his report, B&W's expert, Dr. Stephen Niksa (“Niksa”) agrees with this description of an SCR system (114-17, p. 4) and states, “Even under the best of circumstances, the active sites on SCR catalysts are slowly taken out of service by poisons and masking agents....Such processes are said to deactivate the catalyst....” Id. , p. 6. For that reason, SCRs are designed to facilitate the periodic replacement of catalyst modules. See Doc. 103-3, pp. 46-47 (Deposition of Mark Rohner, B&W's purchasing agent).

In December 2005, B&W entered into a contract with KCP&L for the design and construction of an SCR system at KCP&L's power station in La Cygne. Doc. 1, p. 3, ¶ 8. B&W thereafter provided design specifications to Cormetech for the catalyst modules to be used in the SCR system at the La Cygne plant and later contracted with Cormetech to purchase the catalyst. Id. , ¶ 9. On the basis of the parties' assumptions as to, inter alia, the type of fuel KCP&L would use at the power station, Cormetech made certain guarantees regarding the catalyst, including that the ammonia slip (aka “NH slip”)⁴ would not surpass 2 parts per million (“ppm”) and that the catalyst would last for 24,000 operating hours. See, e.g. , Doc. 114-4, p. 6 (B&W's Technical Specifications setting forth the ammonia slip level); Doc. 114-6, p. 3 (Cormetech's Performance Guarantee Language describing the catalyst life expectancy of 24,000 operating hours); Doc. 114-17, pp. 4-5 (Niksa's report).

Niksa's report provides the following information about the catalyst supplied by Cormetech for the LaCygne power station:

The catalyst was provided in the form of hundreds of modules, which are rectangular blocks with internal honeycomb walls that form numerous square channels along the length of each block. The modules are closely stacked into scaled layers that process all the flue gas that enters the SCR. The SCR at La Cygne has two identical SCRs installed side-by-side that each process about half of the flue gas stream.

Doc. 114-17, p. 4.

KCP&L began operating the SCR at the La Cygne plant in April 2007. Doc. 1, p. 4, ¶ 13. B&W conducted an Initial Performance Test in June 2007 at 1,200-1,500 hours of operation, which revealed that the ammonia slip was at a higher level than expected.⁵ Doc. 114-17, p. 7; Doc. 98-15, p. 3. In other words, more ammonia was being emitted from the SCR than expected, albeit still within the guaranteed limits. The catalyst was otherwise operating to reduce the emission of NOx as expected.⁶ Doc. 114, p. 7; Doc. 98-1, p. 4; Doc. 114-17, pp. 4-5, 7-8; Doc. 114-18, p. 5, ¶ 20.

B&W's expert report explains the significance of rising levels of ammonia slip:

As the NO reduction rate diminishes, the [ammonia] slip increases. This inverse proportionality explains why monitoring [ammonia] slip is widely regarded as the most reliable means to assess the extent of catalyst deactivation....

Doc. 114-17, p. 6.

On October 8, 2007, Cormetech reported to B&W the results of its analysis of catalyst samples extracted from the SCR at “approximately 3000 hours of field service.”⁷ Doc. 114-9, p. 2. Such testing provides even “more conclusive evidence” regarding the degree of catalyst deactivation than measuring ammonia slip, according to B&W's expert report. Doc. 114-17, p. 8. This testing showed that the catalyst had already reached 50% of its useful life. Id. , p. 9.

Slightly more than one year after the Initial Performance Test, on August 5, 2008, KCP&L reported to B&W that its testing showed that the catalyst was then at the end of its useful life and that the ammonia slip was well beyond the guaranteed level. Doc. 1, p. 4, ¶ 14; Doc. 114-12, p. 4. KCP&L's testing was conducted at 8,000 hours and, as noted above, the catalyst had been expected, and was guaranteed, to last 24,000 hours. Doc. 1, p. 4, ¶ 14; Doc. 114-12, p. 4.

Thereafter, B&W and Cormetech, per their contract, undertook a root cause evaluation to determine why the catalyst failed to meet its expected life term and ammonia slip guarantee. Doc. 98-2, p. 4. On February 7, 2009, B&W issued a report, the Root Cause Analysis (“RCA”), summarizing its findings and conclusions. Doc. 98-2. The RCA determined that there were seven factors that contributed to the early deactivation of the catalyst, none of which was attributable to Cormetech:

1. Fuels Burned

* * *

Conclusion: It is B&W's belief that burning fuels outside the specified range has led to increased catalyst deactivation.

2. Ash Loading—Isokinetic Test Results

* * *

Conclusion: It is B&W's belief that the catalyst is seeing higher ash loading than it was designed and specified for and thus has experienced increased catalyst deactivation.

3. Sonic Horn Operation

* * *

Conclusion: It is B&W's belief that the inoperable sonic horns as detailed in Appendix C and as noted above have allowed ash to accumulate on the catalyst and led to increased catalyst deactivation.

4. Tube Leaks

* * *

Conclusion: It is B&W's belief that severe tube leaks and continued unit operation with these tube leaks has led to conditions which negatively affect catalyst activity.

5. Operation Conditions

* * *

Conclusion: It is B&W's belief that KCP&L's continued operation of the SCR, without removal of the ash from the catalyst, caused increased catalyst deactivation.

6. Catalyst Cleaning Procedures

* * *

Conclusion: It is B&W's belief that KCP&L's continued operation of the SCR, without removal of the ash from the catalyst, caused increased catalyst deactivation.

7. Unit Operations

* * *

Conclusion: It is B&W's belief that poor combustion as evidence by higher than average LOI and the instances of carburization, led to increased ash loading to catalyst and perhaps increased the risk of phosphorous poisoning, and in turn led to increased catalyst deactivation.

Doc. 98-2, p. 6-10 (emphasis in original).⁸

Significantly, B&W's RCA found that Cormetech had properly sized the catalyst (id. , p. 10) and, in its overall conclusion, stated:

B&W feels confident that sufficient catalyst was supplied for this unit to meet all performance guarantees, if the unit had been operated as intended.

Id. , p. 11.

After KCP&L...