Aiken County v. BSP Div. of Envirotech Corp.
Decision Date | 27 February 1989 |
Docket Number | 87-1012,Nos. 87-1011,BAY-CON,s. 87-1011 |
Citation | 866 F.2d 661 |
Parties | AIKEN COUNTY; Aiken County Public Service Authority, Plaintiffs-Appellees, v. BSP DIVISION OF ENVIROTECH CORPORATION; Insurance Company of North America; Envirotech Corporation, Defendant & Third Party Plaintiff-Appellees, v.GENERAL, INC.; The Travelers Indemnity Company, Third Party Defendants-Appellants, and Davis & Floyd Engineering, Inc., Third Party Defendant. AIKEN COUNTY; Aiken County Public Service Authority, Plaintiffs-Appellees, v. BSP DIVISION OF ENVIROTECH CORPORATION; Insurance Company of North America; Envirotech Corporation, Defendant & Third Party Plaintiff-Appellant, v.GENERAL, INC.; The Travelers Indemnity Company; Davis & Floyd Engineering, Inc., Third Party Defendants-Appellees. |
Court | U.S. Court of Appeals — Fourth Circuit |
Patrick Alan Thompson (S. Gregory Joy, Smith, Currie & Hancock, Atlanta, Ga., on brief), Robert Jeffery Aamoth (Jack N. Goodman, Pierson, Ball & Dowd, Washington, D.C., on brief), for appellants.
Donald Asendorf Harper (T.S. Stern, Jr., Haynsworth, Marion, McKay & Guerard, Greenville, S.C., on brief), Charles Porter, Columbia, S.C. (C. Alan Runyan, Hampton, S.C., McNair Law Firm, P.A., Charleston, S.C., on brief), for appellees.
Before MURNAGHAN, SPROUSE and WILKINS, Circuit Judges.
In 1974, Aiken County, South Carolina, and Aiken County Public Service Authority (hereinafter "Aiken") employed Davis & Floyd, a South Carolina engineering company, to design a wastewater treatment plant to cleanse community and industrially polluted water discharged into the Horse Creek Valley section of the Savannah River. Aiken chose Bay-Con General, Inc., a non-South Carolina corporation, to be the general contractor for construction of the twenty million dollar project. Bay-Con awarded the BSP Division of Envirotech Corporation, also a non-South Carolina corporation, a subcontract to provide and to install the heat treatment system of the plant. Travelers Indemnity Company provided Bay-Con its surety bond, and Insurance Company of North America (hereinafter "INA") provided a bond for Envirotech.
In 1981, Aiken brought this diversity action demanding compensatory and punitive damages against Envirotech and its surety alleging breach of warranty, breach of contract, and fraud in supplying faulty equipment for the heat exchanger and other components of the heat treatment system. Envirotech counterclaimed against Aiken and impleaded Bay-Con, Travelers, and Davis & Floyd as third-party defendants. Bay-Con then filed a claim against Aiken. Aiken, in turn, amended its complaint to name Bay-Con and Travelers as direct defendants. Davis & Floyd and Bay-Con filed claims against each other and Envirotech. In addition, Aiken asserted a claim for indemnification against Davis & Floyd solely on Envirotech's claim.
After a court-approved delay, a fifty-two day bench trial began in January 1984, limited primarily to the issues of liability regarding the faulty heat exchanger system. 1 At the conclusion of the trial, the court, on November 24, 1986, awarded Aiken $2,865,500 in compensatory damages and $1,000,000 in punitive damages against Envirotech. Bay-Con was also held liable to Aiken for the compensatory damage award, 2 but the court held that Bay-Con was entitled to indemnification from Envirotech. Davis & Floyd, which had been impleaded by Envirotech and was a defendant of a cross-claim by Bay-Con was absolved of liability to those companies. Although not named as a defendant in Aiken's complaint, the district court sua sponte amended the complaint under the aegis of rule 15(b) of the Federal Rules of Civil Procedure to include Davis & Floyd as a principal defendant and absolved it of any liability to Aiken. Aiken County v. BSP Division of Envirotech Corp., 657 F.Supp. 1339 (D.S.C.1986). This action by the court generated one of the issues in this appeal, viz., whether diversity was impaired.
Envirotech appeals, contending principally that the district court was without jurisdiction due to a lack of complete diversity, and that the court erred in finding it liable for breach of contract and warranty, in computing compensatory damages, in finding that it committed fraud, in computing punitive damages, and in awarding attorneys' fees to Bay-Con and Davis & Floyd. Envirotech further argues that the district court's judgment should be reversed because the judge was guilty of trial misconduct in communicating ex parte with opposing counsel and in accepting and using proposed findings submitted unilaterally by opposing counsel. We affirm all of the district court's judgment except its sua sponte amendment of the complaint in order to enable it to adjudicate liability between Aiken and Davis & Floyd, its computation of damages, and its award of attorneys' fees to Davis & Floyd.
Aiken initiated the environmental project involved in this litigation after indications that the Horse Creek Valley area of South Carolina faced a serious water pollution problem. Davis & Floyd, Aiken's consulting engineer, designed a wastewater treatment facility comprising several systems within one plant for removing waste from the effluent of the plant's four major customers. 3 It was projected that about one quarter of the waste would be domestic and three quarters industrial. The facility was designed to process twenty-two million gallons per day of effluent and was anticipated to be adequate to handle needs through the year 1995.
Aiken's dissatisfaction with the heat treatment component of the completed plant generated this lawsuit. An understanding of the malfunction in the heat treatment system that ultimately led the district court to award damages to compensate for its replacement, however, requires an understanding of the entire sewage treatment plant. We gain that understanding from the district court's description of the plant in its findings. The domestic and industrial effluent treated by the wastewater treatment plant enters the system through a bar screen with two-inch grids designed to catch large items of debris. It is then raised by large pumps and flows by gravity through the rest of the plant. It next passes through a smaller bar screen and grid chamber, which removes additional debris and sand, and from there goes to one of four primary clarifiers where the primary (thicker) sludge 4 is separated and pumped to holding tanks adjacent to the heat treatment facility. The remaining waste is aerated in one or more of the five large basins so that bacteria can break down the solids and make them more amenable to settling or floating. The aerated material is then pumped to one of four secondary clarifiers which separate the clean water and release it into the Savannah River. All of the sludge is then combined and pumped into the heat treatment unit through a grinder. In the heat treatment unit, the sludge flows through the inner pipe of the heat exchanger into a reactor where it is broken down and sterilized by heat and pressure. It is pumped back through the heat exchanger into decant tanks where it is further concentrated. From the decant tanks, the sludge is vacuum filtered to remove the water, which comprises more than ninety percent of the sludge. The process is designed to allow clean water to be discharged to the river and solid waste to be hauled to a landfill.
The purpose of treating the sludge with heat is to allow the sludge to be dewatered more easily and to sterilize it. The heating system principally is comprised of pipes and a heater (or reactor). The cold sludge is pumped from containers where it was collected to the heater (reactor). After it is sterilized and broken down, the hot sludge is pumped from the reactor through another pipe to the decant tanks. The design and the manufacture of this piping system, known as the heat exchange system, formed the basis for Aiken's action. The pipe through which the cold sludge is pumped to the reactor passes through the pipe through which the hot sludge is pumped from the reactor to the decant tanks. The cold sludge is thus immersed in hot flowing sludge and consequently heated before it enters the reactor. Conversely, of course, the flowing hot sludge has passing through it a pipe through which cold sludge is flowing and is consequently cooled. The inner pipe is approximately two and one-half inches in diameter, and the outer pipe is approximately four inches in diameter. The space between the two pipes (the annular space or the annulus) is five-eighths of an inch. The inner pipe is supported inside the outer pipe by small, curved metal spacers. Thus, the heat exchanger is simply a series of concentric tubes within tubes in which the sludge flows to and from the reactor. This heat exchanging process is useful because the sludge must be heated in the reactor, and the cost of supplying that heat is partially offset by using heat from the hot sludge leaving the reactor, which must be cooled anyway, to preheat the cold sludge going to the reactor. The sole purpose of the heat exchanger is to make the heating process more efficient and, therefore, more economical by transferring heat from the hot sludge to the cold sludge prior to the cold sludge entering the heating unit or reactor.
Envirotech's contract with Bay-Con called for it to design and to supply the thermal sludge conditioning system, including the heat treatment equipment and other related items, for $2,801,560. The heat treatment specifications required suppliers to demonstrate experience with the equipment or, in the alternative, to provide a performance bond to Aiken in lieu of experience. Envirotech accordingly obtained a bond from INA for $2,070,399 to guarantee the replacement of the heat treatment equipment in lieu of demonstrating its experience.
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