Durr Mech. Constr., Inc. v. Pseg Fossil, LLC

• Decision Date: 29 January 2021
• Docket Number: Civ. No. 18-10675 (KM) (CLW)
• Citation: 516 F.Supp.3d 407
• Court: U.S. District Court — District of New Jersey
• Parties: DURR MECHANICAL CONSTRUCTION, INC., Plaintiff, v. PSEG FOSSIL, LLC, Defendant.

516 F.Supp.3d 407

DURR MECHANICAL CONSTRUCTION, INC., Plaintiff,

v.PSEG FOSSIL, LLC, Defendant.

Civ. No. 18-10675 (KM) (CLW)

United States District Court, D. New Jersey.

Signed January 29, 2021

Denis Serkin, Charles Francis Kenny, Jr., Peckar & Abramson, River Edge, NJ, for Plaintiff.

Peter J. Torcicollo, Samuel Isaac Portnoy, Joshua Simon Levy, Kate Elizabeth Janukowicz, Gibbons, PC, Newark, NJ, for Defendant.

KEVIN MCNULTY, U.S.D.J.:

PSEG Fossil, LLC, an energy company, hired Durr Mechanical Construction, Inc., a contractor, to construct a power plant. The project and their relationship went awry, so Durr sued PSEG, asserting contract, quasi-contract, and tort claims. PSEG moves to dismiss most of those claims. (DE 62.)¹ For the following reasons, PSEG's motion to dismiss is GRANTED IN PART and DENIED IN PART .

I. BACKGROUND

A. Facts

PSEG sought to build a power plant (the "Project"). (Am. Compl. ¶ 13.) Instead of providing drawings of the plant to potential contractors to estimate their bids for the Project, PSEG provided a Bill of Quantity ("BOQ") that "set out the type and amount of materials to be used to construct the Project." (Id. ¶ 19.) In effect, the BOQ "quantif[ied] the extent of the Project scope." (Id. ) Relying on the BOQ, Durr bid on portions of the project, which PSEG accepted, and began work. (Id. )

It became clear that "the BOQ wildly understated the critical elements of the Project." (Id. ) Although PSEG had drawings available at bidding time, PSEG chose to send bidders the inaccurate BOQ in order to receive lower quotes for a Project for which PSEG had not properly budgeted. (Id. ¶¶ 20–22.) Unbeknownst to Durr when it began work, the Project was already behind schedule and over-budget. (Id. ¶ 34.)

As the Project moved forward, PSEG asked Durr for a proposal to perform all mechanical work for the Project, instead of just the components it originally bid on. (Id. ¶ 28.) Durr did so, and since there were no drawings, "Durr proposed, and PSEG accepted, that Durr would be paid for work it performed on a cost reimbursable basis." (Id. ¶ 31.) "To establish an initial monetary value for Durr's work, subject to future adjustments based on the final design, Durr and PSEG negotiated and established a target price, i.e., a price goal assuming the final design matched the BOQ." (Id. ¶ 32.)

The Project continued, and new drawings kept arriving. (Id. ¶ 41.) These drawings "substantially revised the BOQ" and changed all types of specifications. (Id. ¶ 42.) Such changes caused Durr to spend more manpower and money. (Id. ¶ 43.) Nonetheless, PSEG assured Durr "that at the end of the Project there would be a ‘true-up’ between what was originally called for in the BOQ and what was required pursuant to the final version of the design." (Id. ¶ 40.)

At one point, however, PSEG purported to draw "a line in the sand." (Id. ¶ 45.) When Durr submitted its final bid documents, PSEG's Project director, Kevin Reimer, told Durr that it should not consider any documents after September 2016 for purpose of developing its price. (Id. ¶¶ 44–45.) So PSEG and Durr finalized a contract in November 2016 that limited the scope of work based on documents received as of September 2016. (Id. ¶ 47.) Nonetheless, the contract provided that PSEG had the right to change the scope of work. (DE 62-3 at 43–44.)²

Despite the "line in the sand," PSEG continued to authorize design changes and send drawings. (Id. ¶¶ 49, 54.) Indeed, it became clear that numerous aspects of the mechanical design had been incomplete, requiring costly, mid-Project changes. (Id. ¶ 61.) Further complicating the Project, PSEG failed to manage the other contractors or provide necessary, promised supplies. (Id. ¶¶ 63, 69, 73.) Not only that, PSEG had Durr perform additional work at another site. (Id. ¶¶ 81–82.)

All the while, Durr submitted progress payment applications to PSEG for the work it had performed, which PSEG failed to pay. (Id. ¶¶ 77–78) When the Project was finally completed, "PSEG began a concerted effort to avoid its payment obligations" entirely. (Id. ¶ 87.) PSEG hoped that Durr would "accept an amount less than it had earned for its work on the Project, or to abandon its claims." (Id. ¶ 101.) As part of this effort, PSEG informed Durr's surety that PSEG was considering declaring Durr to be in default—even though PSEG owed Durr money under the contract. (Id. ¶¶ 102–04.) As a result of actions like these, PSEG "has effectively destroyed Durr" and allegedly owes Durr tens of millions of dollars. (Id. ¶¶ 111, 114.)

B. Procedural History

Durr filed this action against PSEG. (DE 1.) The currently operative Amended Complaint asserts eight claims:

(1) breach of contract (Am. Compl. ¶¶ 113–15);

(2) violation of New Jersey Prompt Payment Act, N.J. Stat. Ann. § 2A:30A-1, et seq. (Am. Compl. ¶¶ 116–24);

(3) cardinal change (id. ¶¶ 125–28);

(4) quantum meruit and unjust enrichment (id. ¶¶ 129–32);

(5) breach of the covenant of good faith and fair dealing (id. ¶¶ 133–44);

(6) misrepresentation (id. ¶¶ 145–55);

(7) tortious interference with contract (id. ¶¶ 156–63); and

(8) tortious interference with prospective advantage (id. ¶¶ 164–68). PSEG moves to dismiss Counts 3 through 8. (Mot.)

II. STANDARD OF REVIEW

Federal Rule of Civil Procedure 8(a) does not require that a pleading contain detailed factual allegations. Still, the pleading must contain "more than labels and conclusions." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The allegations must raise a claimant's right to relief above a speculative level, so that a claim is "plausible on its face." Id. at 570, 127 S.Ct. 1955. That standard is met "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

Rule 12(b)(6) provides for the dismissal of a complaint if it fails to state a claim upon which relief can be granted. The moving party bears the burden of showing that no claim has been stated. See Animal Sci. Prods., Inc. v. China Minmetals Corp. , 654 F.3d 462, 469 n.9 (3d Cir. 2011). The facts in the complaint are accepted as true, and all reasonable inferences are drawn in favor of the plaintiff. N.J. Carpenters & Trs. Thereof v. Tishman Constr. Corp. of N.J. , 760 F.3d 297, 302 (3d Cir. 2014).

III. DISCUSSION

I apply the foregoing motion-to-dismiss standards to each claim. In sum, I hold that the claims of cardinal change (Count 3) and tortious interference with contract (Count 7) require dismissal, while the rest survive.

A. Cardinal Change Claim

Count 3 is a claim under the "cardinal change" doctrine. (Am. Compl. ¶¶ 125–28.) This doctrine, derived from federal government contracts law, holds that "when the government effects an alteration in the work so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for," then the government has effected a "cardinal change" and is in breach. Rumsfeld v. Freedom NY, Inc. , 329 F.3d 1320, 1332 (Fed. Cir. 2003) (citation omitted). The doctrine arose because government contracts often grant the government significant leeway to modify the contract. Its purpose is to place an equitable limit on the scope of modifications so that they cannot be too "drastic." Green Mgmt. Corp. v. United States , 42 Fed. Cl. 411, 429 (1998) ; Exec. Bus. Media, Inc. v. U.S. Dep't of Def. , 3 F.3d 759, 763 n.3 (4th Cir. 1993).

PSEG argues that this federal government-contracts doctrine is not cognizable under New Jersey law. (Mot. at 7–11.) I agree.

"[I]t is not the role of a federal court to expand state law in ways not foreshadowed by state precedent." City of Philadelphia v. Beretta U.S.A. Corp. , 277 F.3d 415, 421 (3d Cir. 2002). Neither the New Jersey Supreme Court nor the Appellate Division has precedentially recognized the doctrine, a circumstance which strongly weighs against this Court's recognizing it. See Crystallex Int'l Corp. v. Petroleos De Venezuela, S.A. , 879 F.3d 79, 84 (3d Cir. 2018) (when applying state law, federal courts look mostly to the state supreme court and then to intermediate courts). Durr acknowledges as much, but nevertheless argues that I should recognize the doctrine, for two reasons. (Opp. at 5.) Neither is persuasive.

First, Durr cites two non-precedential Appellate Division cases which, it says, support recognition of the doctrine for purposes of New Jersey contract law. (Id. at 5–7.) At the outset, because those decisions are not binding, they do not establish state law. King v. Order of United Commercial Travelers of Am. , 333 U.S. 153, 160–62, 68 S.Ct. 488, 92 L.Ed. 608 (1948) ; see Ryu v. Bank of Hope , Civ. No. 19-18998, 2021 WL 50255, at *5 n.7 (D.N.J. Jan. 6, 2021). But see In re Remicade (Direct Purchaser) Antitrust Litig. , 938 F.3d 515, 525–26 (3d Cir. 2019) (relying on unpublished Appellate Division cases, in the context of confirming a "strong intimation" from the New Jersey Supreme Court). I consider these two cases for their persuasive value, but I find that they cannot bear the weight Durr places on them.

In the first, St. Joseph's Hospital & Medical Center v. Muirfield Construction , the Appellate Division seemingly alluded to the cardinal change doctrine (though not by name). It did so in the course of holding that a clause precluding damages from "delays" did not bar recovery for certain major changes which "lay beyond the ‘scope’ of the contracts." No. A-6620-99T2, slip op. at 2–3, 93–94 (N.J. Super. Ct. App. Div. 2003) (per curiam) (copy provided at DE 67-3).³ The rationale, however, boiled down to a finding that the changes did not qualify as "delays" under the contract. This was not so much an application of the cardinal change doctrine, then, as it was an ordinary case of contract interpretation.

In the second case, Ponns & Thomas Co., Inc. v. State of New Jersey, ...