Ge Packaged Power v. Readiness Management Support

• Decision Date: 12 January 2007
• Docket Number: No. 1:05-CV-1517-WSD.,1:05-CV-1517-WSD.
• Citation: 510 F.Supp.2d 1124
• Parties: GE PACKAGED POWER, INC. and General Electric International, Inc., Plaintiffs, v. READINESS MANAGEMENT SUPPORT, L.C., Defendant.
• Court: U.S. District Court — Northern District of Georgia

510 F.Supp.2d 1124

GE PACKAGED POWER, INC. and General Electric International, Inc., Plaintiffs, v. READINESS MANAGEMENT SUPPORT, L.C., Defendant.

No. 1:05-CV-1517-WSD.

United States District Court, N.D. Georgia, Atlanta Division.

January 12, 2007.

COPYRIGHT MATERIAL OMITTED

Charles Scott Greene, Curtis J. Romig, Stephanie Everett Dyer, Powell Goldstein LLP, Atlanta, GA, for Plaintiffs.

A. Wayne Lalle, Jr., Venable, LLP, Vienna, VA, for Plaintiffs/Defendant.

David Richard Hendrick, Shane C. O'Connor, Hendrick Phillips Salzman & Flatt, Atlanta, GA, for Defendant.

OPINION AND ORDER

WILLIAM S. DUFFEY, JR., District Judge.

This matter is before the Court on Plaintiffs' Motion for Summary Judgment [45] and supporting briefs, Defendant's Opposition to Plaintiffs' Motion for Summary Judgment [72], Defendant's Statement of Material Facts [71], Defendant's Response to Plaintiffs Statement of Material Facts [70], and Plaintiffs' Reply Brief in Support of Their Motion for Summary Judgment [82].

I. BACKGROUND

A. Facts

Plaintiffs GE Packaged Power, Inc. and General Electric International (collectively "Plaintiffs" or "GE") and Defendant Readiness Management Support, L.C. ("Defendant" or "RMS") entered into a contract on November 30, 2003 (the "GE contract") in which GE agreed to supply two generators, each including a "refurbished RR Avon Model 1533 gas generator and GEC EAS 1 Power Turbine" with specified continuous duty, peak duty, and heat rate parameters (the "generators").¹ RMS intended to resell the generators to the United States Agency for International Development ("USAID") for use in Operation Enduring Freedom, the United States' reconstruction effort in Iraq. RMS had a separate resale contract for the generators with USAID.

The generators were located in Greece, where they were to some degree examined by RMS engineers on October 31, 2003.² RMS then authorized GE to release the generators to it, and shipped them to Iraq in December of 2003.

When the generators arrived in Iraq, the parties do not dispute that they were inspected fully by RMS. USAID personnel also inspected the generators. On at least December 18, 2003, December 31, 2003, January 1, 2004, and January 21, 2004, an RMS project manager in Iraq informed GE via email that USAID had deemed the generators unacceptable.³

Upon arrival of the generators in Iraq, RMS discovered that they did not contain EAS 1 power turbines, as specified in the contract, but rather contained AP 1 power turbines. GE contends that the difference between the two types of power turbine is not material, that RMS agreed to AP1 power turbines, and that the failure of the contract to specify AP1 power turbines was a scrivener's error. RMS contends, and has identified evidence in the record, that it contracted for EAS 1 power turbines, that it did not agree to accept AP1 power turbines as substitutes, and that the contract forbids substitutions without the buyer's authorization.

The condition of the generators after their arrival in Iraq is also a matter of dispute. GE contends that the generators were properly refurbished, met the contract specifications, and had 3,000-5,000 hours of operational time. RMS contends that the generators were not refurbished, were rusted through in places, had wires so old that the insulative covers were brittle, and contained parts covered with tape that crumbled when touched. RMS does not dispute, however, that on December 24, 2003, its project manager wrote that he thought the generators were technically sound.

The parties also dispute the nature of the communications between RMS and GE after the generators arrived in Iraq. Although RMS did not claim that GE had defaulted on the contract after the generators arrived in Iraq, it communicated a series of complaints and objections concerning the generators to GE beginning in December 2003. For example, on December 17, 2003, RMS emailed GE "[w]e're going to have to have a plan for getting these things into acceptable shape." On December 18, 2003, RMS emailed GE that "[v]isible leaks and rust have been present for a significant period of time," and that the generators' general condition was "old, deteriorated, and clearly not refurbished." On December 21, 2003, RMS emailed GE that the USAID thought the generators were "junk," and that the USAID did not intend to accept them. On December 31, 2003, RMS emailed GE that USAID deemed the generators unacceptable. RMS reiterated this communication on January 1, 2004.

On January 6, 2004, RMS emailed GE that "it is not at all clear that the units have been refurbished," and inquired whether GE had "any success with locating acceptable replacement units?" That same day, GE emailed RMS that a meeting in Baghdad later that week would "address ... issues that are preventing acceptance of the packages." On January 9, 2004, RMS again inquired by email if acceptable replacement units had been found. On January 22, 2004, RMS reiterated its concern that the generators were "used," not "refurbished." In an internal email of January 26, 2004, the record shows that a GE employee considered whether an alternative buyer for the generators might be found.

Despite the communications above, the parties do not dispute that in December, 2003 and January, 2004, RMS and GE attempted to cooperate towards persuading USAID to accept the generators. GE communicated directly with USAID, and explained that the operational time on the generators should not be a concern because two of the four major components of the generators regularly run 100,000 hours between overhauls. GE offered to extend the warranty on the generators from 12 to 18 months. The parties agree this offer was reasonable, and that it should have — but did not — alleviate USAID's concerns. USAID formally rejected the generators on January 21, 2004. The parties agree that USAID had decided not to accept the generators by the time RMS sought GE's assistance to persuade USAID to accept the equipment.

After the generators were rejected by USAID, in April, 2004, GE and RMS entered into a remarketing agreement for the generators. GE, for at least one potential purchaser, introduced the buyer and prepared an offer on RMS's behalf, on RMS's letterhead, for RMS's signature. RMS made the pricing decisions for this offer, and specified that all sale proceeds would accrue directly to RMS. The sale was not consummated.

On July 31, 2004, RMS sent GE a letter informing it that RMS "has formally rejected" the generators "[b]ecause USAID rejected the equipment." The parties dispute whether this letter was the first notice of rejection. GE Contends that it was, while RMS contends that the email communications of December 2003 and January 2004 were sufficient to constitute notice of rejection.

During the summer of 2004, RMS moved the generators to leased storage space in the Taji military base northeast of Baghdad. RMS has not returned them to GE. In 2005, RMS attempted to sell the generators to the U.S. Army and the British Navy, but was unable to consummate either sale. RMS handled these negotiations without input or assistance from GE.

B. The Contract

The Contract calls for GE to provide "Refurbished Gas Turbine Generating Set Configurations." The Contract specifies that the generator's power turbine is to be a "Refurbished RR Avon Model 1533 gas generator and GEC EAS 1 Power Turbine ... rated at 12MW ISO for continuous duty and 9MW at 50 degrees C for base load rating. Peaking is at low at ISO and 11MW at 50 degrees C. The corresponding heat rate is 12,500 BTU/KwHr."

Section 5.B of the Contract obligates GE to provide for the "[r]emoval of damaged [power turbine] and installation of refurbished EAS 1...." The Bill of Materials attached to the contract' provides for a charge of $1,020,000.00 per generator for "exchange" for an "EAS1 power turbine," and $268,500.00 for "training" related to "exchange of EAS 1 power turbine." The total amount due, according to the Bill of Materials, was $8,886,600.00.

Section 11 of the contract provides that "All equipment supplied as a part of this [contract] is subject to final inspection and acceptance by USAID/OFDA prior to shipment. Seller to notify Jim Jackson ... no later than 5 days prior to the availability for inspection to arrange for coordination of final inspection at seller's facility."

In an addendum titled "General Conditions," section GC-7 reads:

Seller shall ensure that the Products comply with the standards of quality customary in the industry for used and/or re-furbished third party equipment Buyer's right to inspect, examine, and test the Products shall extend through the time of shipment and a reasonable time after arrival at the final destination. The Products shall not be deemed accepted until finally inspected and accepted by Buyer's representative at final destination. The making or failure to make an inspection, examination or test of, or payment for, or acceptance of the Products shall in no way relieve the Seller from its obligation to conform to all of the requirements of this Agreement and shall in no way impair Buyer's right to reject or revoke acceptance of nonconforming Products, or to avail itself of any other remedies to which Buyer may be entitled, notwithstanding Buyer's knowledge of the nonconformity, its substantiality, or the ease of its discovery. [need to delete or spell out acceptance process].

(Contract, GC-7) (brackets and bracketed material in original).

GC-15, title "Non-Waiver," reads:

Failure by either party to insist upon strict performance of any of the terms and conditions hereof, or failure or delay in exercising any rights ... or to properly notify the other party in the event of breach, or the acceptance of or payment for any Products hereunder, or review of design, shall not release the other party from any of the warranties or obligations of this Agreement and shall not be deemed a waiver of any right of a party to...