Green Const. Co. v. Kansas Power and Light Co., Civ. A. No. 87-2070-S.

• Decision Date: 05 March 1990
• Docket Number: Civ. A. No. 87-2070-S.
• Citation: 732 F. Supp. 1550
• Parties: GREEN CONSTRUCTION COMPANY, Plaintiff, Third-Party Plaintiff, v. KANSAS POWER AND LIGHT COMPANY, Defendant, v. SEABOARD SURETY COMPANY and Green Holdings, Inc., Counterclaim Defendants.
• Court: U.S. District Court — District of Kansas

732 F. Supp. 1550

GREEN CONSTRUCTION COMPANY, Plaintiff, Third-Party Plaintiff, v. KANSAS POWER AND LIGHT COMPANY, Defendant, v. SEABOARD SURETY COMPANY and Green Holdings, Inc., Counterclaim Defendants.

Civ. A. No. 87-2070-S.

United States District Court, D. Kansas.

March 5, 1990.

Dale R. Martin, Barokas & Martin, Seattle, Wash., and Patrick E. Hartigan, Hartigan & Yanda, P.C., Kansas City, Mo., for plaintiff, third-party plaintiff.

F.B.W. McCollum, Spencer, Fane, Britt & Browne, Kansas City, Mo., J. Nick Badgerow, Overland Park, Kan., and Camille Q. Bradford, Topeka, Kan., for defendant.

Bernard L. Balkin and Keith Witten, Sandler, Balkin, Hellman & Weinstein, Kansas City, Mo., for counterclaim defendants.

MEMORANDUM AND ORDER

SAFFELS, District Judge.

This matter is before the court on plaintiff's motion for reconsideration of this court's June 22, 1989, Memorandum and Order. Also before the court is plaintiff's motion for partial summary judgment on two of defendant's counterclaims, and counterclaim-defendant Seaboard Surety Company's motion for a protective order.

A. Plaintiff's Motion For Reconsideration.

On June 22, 1989, this court granted defendant's motion for partial summary judgment on plaintiff's claims for additional compensation in the amount of $1,991,992.84. Plaintiff asserted three theories of recovery: constructive change in the contract, breach of implied warranties, and misrepresentation. In the June 22, 1989, Memorandum and Order, the court stated that it would be receptive of a motion to reconsider summary judgment on plaintiff's misrepresentation claim if plaintiff could show evidence of defendant Kansas Power and Light (KPL)'s knowledge of the falsity or inaccuracy of the geotechnical reports it had provided to prospective bidders. The factual background of this case is fully set forth in our June 22, 1989, Memorandum and Order, which is reported at 717 F.Supp. 738 (D.Kan.1989).

First, plaintiff contends that the court was wrong in requiring plaintiff to present evidence which would show knowledge of the misrepresentation. Plaintiff argues that scienter is not an essential element of a misrepresentation claim. Since plaintiff is seeking damages at law, the court assumed plaintiff was asserting a claim for fraudulent misrepresentation. An essential element of fraudulent misrepresentation is that defendant knew the statements were untrue or recklessly made them with disregard of their truth or falsity. See Goff v. American Savings Association of Kansas, 1 Kan.App.2d 75, 78, 561 P.2d 897, 901 (1977).

In the present motion for reconsideration, plaintiff argues that it is asserting a claim of misrepresentation without fraud, sometimes called "innocent misrepresentation." Plaintiff argues that proof of defendant's knowledge or reckless disregard for the truth is not required.

The majority of courts addressing the issue of innocent misrepresentation, in the context of contract law, find that such a claim can be maintained only for equitable relief, such as recision or reformation of the contract, or may serve as a defense to a breach of contract action. See Rush v. Oppenheimer and Co., 650 F.Supp. 682, 683 (S.D.N.Y.1986) ("scienter is not necessary to make a contract induced by a misrepresentation voidable;" a misrepresentation constitutes grounds for revocation or recision.) (citing Restatement (Second) of Contracts, § 164 (1981)); Allen v. Weinberger, 546 F.Supp. 455, 458 (E.D. Mo.1982) ("When a contract has been procured by misrepresentation even if innocently and non-negligently made, the injured party may rescind the agreement."). Innocent misrepresentation, however, can not be the basis of an affirmative claim for money damages. See generally 17 CJS, Contracts, §§ 147, 152. This court believes Kansas courts would follow this well established pronouncement of the law if ever required to address this specific issue.¹

Based on the above stated law and the facts as established in the court's earlier memorandum and order, the court finds that plaintiff has presented sufficient evidence to assert a claim for equitable relief, such as recision or reformation or setoff. However, plaintiff's complaint seeks additional compensation, i.e., money damages. To recover such damages, plaintiff must show more than innocent misrepresentation and must meet the elements of fraud.²

Alternatively, plaintiff claims that it can assert a claim of fraudulent misrepresentation because it can show that defendant KPL had knowledge of the significant moisture content in the area used to construct the Auxiliary Make-Up Lake and failed to disclose this fact to the prospective bidders on the project. In our earlier memorandum and order, we invited reconsideration of our decision to grant summary judgment for defendant on plaintiff's misrepresentation claim if plaintiff could come forward with sufficient evidence to raise a question of fact regarding defendant's knowledge of the soil condition and its moisture content.³

In support of the present motion, plaintiff offers selected portions of deposition testimony. First, plaintiff presents the testimony of an expert, Verne Dow, who stated that the method of geotechnical testing conducted by defendant and the results which were furnished to bidders were inaccurate and misleading. Secondly, during the pendency of the summary judgment motion, plaintiff took the depositions of the individuals responsible for drilling the tests pits and boring holes and for recording the information. These depositions, arguably, could show that standard practices in this field for gathering and recording information on subsurface conditions were not followed. Most significantly, in support of the present motion, plaintiff offers the Affidavit of Kenneth D. Henry. Mr. Henry was employed by J.A. Tobin Construction Company, the contractor for the Make-Up Lake Dam and the bottom Ash Dam from 1977 through 1979. Mr. Henry states that prior to KPL's invitation of bids on the Auxiliary Make-Up Dam (the subject of the present suit), Tobin informed KPL of the inherently wet and unsuitable subsurface condition of borrow areas near those which were to be utilized by the successful bidder in the Auxiliary Make-Up Dam project. Finally, plaintiff presents other evidence that could possibly support the conclusion that KPL was aware of the subsurface conditions in the areas to be used in the Auxiliary Make-Up Dam project prior to the invitation of bids.

The court finds that the evidence offered by plaintiff in support of the present motion is sufficient to raise a question of fact about whether KPL had knowledge of the wet condition of the soil to be used in the Auxiliary Make-Up Dam project and whether KPL failed to disclose this fact to bidders. Therefore, the court will grant the motion for reconsideration and will allow plaintiff to proceed with its claim based on misrepresentation.

Next, plaintiff seeks reconsideration of the court's decision granting summary judgment in favor of defendant on plaintiff's claim based on the theories of breach of implied warranty and constructive change in the contract terms. In this motion, Green basically reasserts the same arguments previously presented to and addressed by the court in the June 22, 1989, Memorandum and Order. We reaffirm our findings and rulings in that memorandum and order regarding plaintiff's breach of warranty claim and claim based on constructive change. Thus, plaintiff's present motion with regard to those claims will be denied.

B. Plaintiff's Motion For Partial Summary Judgment.

Also before the court is plaintiff's motion for summary judgment filed on April 13, 1989. In that motion plaintiff argues that summary judgment should be granted against defendant on defendant's counterclaims based on strict liability and negligence. Plaintiff argues that these counterclaims cannot be asserted because defendant seeks only economic damages and such causes of action are not actionable to recover purely economic damages. Defendant has never responded to this motion. Therefore, the court will treat the motion as uncontested and will grant the motion. See D.Kan. Rule 206(g). Moreover, the court finds the merits of plaintiff's arguments provide further support for granting the motion. As this court has thoroughly set forth in our decision in Hinz v. Elanco, 1988 U.S. Dist. LEXIS 10433 (D.Kan.1988), a party may not seek purely economic damages under a strict liability or a negligence theory. See also Wight v. Agristor Leasing, 652 F.Supp. 1000, 1017 (D.Kan.1987) and Owens-Corning Fiberglas v. Sonic Development Corp., 546 F.Supp. 533, 541-42 (D.Kan.1982).

C. Green Holdings' Motion To Stay Discovery.

Also before the court is the motion of counterclaim-defendant Green Holdings, Inc. for an order staying all discovery in this case. This request was made so that Green Holdings' counsel could familiarize themselves with the record in the case. The court finds the motion is now moot, for Green Holdings sought a stay until January 31, 1990, a date which has past. Furthermore, the court does not feel any further delay is called for in this nearly three year old case. Accordingly, the court will deny Green Holdings' request for a stay.

D. Seaboard Surety Company's Motion For Protective Order.

Finally before the court is a motion for protective order filed by counterclaim-defendant Seaboard Surety Company (Seaboard). Seaboard seeks an order protecting it from further discovery contrary to the August 21, 1989, Pretrial Order, or in the alternative, an order limiting the scope of discovery directed to Seaboard. Paragraph 9 of the Pretrial Order states:

All discovery is complete except for the depositions of each party's expert witnesses and fact witnesses of Seaboard Surety Company. Discovery is to be completed by December 31, 1989.

On October 3, 1989, defendant-counterclaimant KPL served Seaboard with a second...