Green Mountain Power Corp. v. General Elec. Corp., Civ. A. No. 79-112.

• Decision Date: 14 August 1980
• Docket Number: Civ. A. No. 79-112.
• Citation: 496 F. Supp. 169
• Parties: GREEN MOUNTAIN POWER CORPORATION v. GENERAL ELECTRIC CORPORATION.
• Court: U.S. District Court — District of Vermont

496 F. Supp. 169

GREEN MOUNTAIN POWER CORPORATION v. GENERAL ELECTRIC CORPORATION.

Civ. A. No. 79-112.

United States District Court, D. Vermont.

August 14, 1980.

Fred I. Parker, Susan F. Humphrey, Langrock, Sperry, Parker & Stahl, Middlebury, Vt., for plaintiff.

Clarke A. Gravel, Robert B. Hemley, Gravel, Shea & Wright, Ltd., Burlington, Vt., Richard W. Renehan, Hill & Barlow, Boston, Mass., for defendant.

MEMORANDUM AND ORDER

HOLDEN, Chief Judge.

Competing pretrial motions compose the important question of whether the plaintiff Green Mountain Power Corporation (GMP) may seek to recover for economic loss caused by the alleged negligent performance of a contractual undertaking by the defendant General Electric Corporation (GE) with the Vermont Yankee Nuclear Power Corporation (Vermont Yankee) during the summer of 1978. The diversity of citizenship between the parties and the jurisdictional amount are clearly demonstrated in the complaint; hence the substantive law of Vermont must be applied to the facts developed in the record. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

The Facts Alleged

It appears from the record that on April 7, 1978, GE and Vermont Yankee entered a written contract for work to be performed by GE on the Vermont Yankee Nuclear generating facility at Vernon, Vermont. The contract provided that GE would make certain modifications to the suppression chamber (the "torus") of the generating unit. GE undertook this work in 1978. According to the complaint, during the course of the work, GE negligently damaged the torus, causing the plant to shut down operations. The plant supplied no power to its customers from this source during the period of July 1 to August 14, 1978, as a result of the shutdown.

During the time period under consideration GMP owned twenty percent of the stock in Vermont Yankee. GMP was entitled to purchase twenty percent of the power produced at the Vermont Yankee facility. In 1978 GMP was represented on the board of directors of Vermont Yankee. As a result of the shutdown caused by GE, GMP was unable to purchase any power from the Vernon facility during the whole period of the shutdown. GMP was required to purchase more expensive power to supply the deficiency in its requirements as a consequence of the suspended operation of the Vernon plant.

GMP filed this action on May 29, 1979, asking for damages arising from GE's negligence in performing the work on the torus. GMP alleges no physical damages to its own property. The only damage complained of is the excess cost of the purchase of alternate replacement power.

By its answer of August 2, 1979, GE challenges the plaintiff's right to any recovery by asserting as its first affirmative defense the plaintiff's failure to state a claim upon which relief can be granted.

Plaintiff's Motion To Strike

Plaintiff promptly moved, pursuant to Rule 12(f), Fed.R.Civ.P., to strike defendant's first affirmative defense. The defense raises an important and unsettled question of Vermont law as to the sufficiency of the complaint. Courts are reluctant to determine disputed and substantial questions of law on a motion to strike, unless there is a showing of prejudicial harm to the plaintiff. Augustus v. Board of Public Instruction, 306 F.2d 862, 868 (5th Cir. 1962). Where the defense presents a purely legal question, a motion to strike is generally regarded as an inappropriate vehicle to resolve substantial questions of law until after discovery and a hearing on the merits. United States v. 416.81 Acres of Land, 514 F.2d 627, 630 (7th Cir. 1975) (opinion by Justice Clark, sitting by designation); see 5 C. Wright and A. Miller, Federal Practice and Procedure § 1381, at 800-01 (1969).

To sustain the plaintiff's motion to strike, the court must be convinced that there are no disputed questions of fact, that the questions of law are clear and settled, and that under no circumstances could the defense prevail. Smith, Kline & French Laboratories v. A. H. Robins Co., 61 F.R.D. 24, 33 (E.D.Pa.1973). The question of law presented here is unsettled and its application to the facts alleged has thus far been unresolved in Vermont. Furthermore, legal insufficiencies in the cause of action may develop at trial. Even if the motion to strike were to be granted at this stage, the defendant may raise the same motion for failure to state a claim at the trial, on the merits. Rule 12(h)(2), Fed.R.Civ.P. Moreover, much the same legal points are presented by the defendant's counter motions to dismiss and for summary judgment. The plaintiff's motion to strike will be denied.

Defendant's Motion For Summary Judgment

Defendant has moved, pursuant to Rule 56(b), Fed.R.Civ.P., for summary judgment. The motion properly falls under Rule 56 since the defendant has presented supporting affidavits outside the pleadings.

The defendant contends that the plaintiff's complaint does not state a cause of action under Vermont law. The defendant's argument is advanced on two grounds: first, Vermont law denies recovery for economic loss resulting from negligent interference with the plaintiff's contract rights with Vermont Yankee; second, an exculpatory clause in the repair contract between GE and Vermont Yankee (§ 45(b)) should apply to GMP.

The defendant contends that the plaintiff's recovery for its economic losses resulting from alleged negligence is precluded by the prevailing law of Vermont as stated in Baldwin v. State, 125 Vt. 317, 215 A.2d 492 (1965) and Nieberg v. Cohen, 88 Vt. 281, 92 A. 214 (1913). Both cases concerned efforts by married women to recover for wrongful interference with the plaintiff's marital relationship by wrongful acts of the defendants. Baldwin was for harm caused by negligent personal injury to the husband; Nieberg for the wife's loss of support and affection caused by the wrongful acts of the defendant in procuring her husband's conviction of a criminal offense. Recovery by the spouses for loss of their husband's consortium was denied in both actions.

After the present motions were argued and submitted, the Baldwin case was overruled by the Vermont Supreme Court. See Whitney v. Fisher, 417 A.2d 934 (Vt.Sup.Ct. 1980).¹ In Nieberg the Vermont court held that a wife may not recover for wrongful acts inflicted upon her husband unless the offending action was maliciously and intentionally done to harm the wife. Nieberg v. Cohen, supra, 88 Vt. at 289, 92 A. 214.

The doctrine upon which the defendant places reliance relates back to Winterbottom v. Wright, 10 M. & W. 109, 152 Eng.Rep. 402, 403 (1842) wherein the Court of Exchequer held that the breach of a contract to maintain a mail coach in repair conferred no right of action in a passenger in the vehicle who suffered harm in the vehicle's collapse. It was predicted that "outrageous consequences" would follow unless the operation of the contract was restricted to the parties to the agreement. The demands of privity have been constantly eroded, if not entirely abandoned. According to the law of Vermont, if there is a violation of duty to avoid harm, whether the obligation springs from the contract or concepts of tort, is not controlling. Once causation is established, want of privity will not relieve the legal obligation. O'Brien v. Comstock Foods, 125 Vt. 158, 162, 212 A.2d 69 (1965); MacPherson v. Buick Motor, 217 N.Y. 382, 111 N.E. 1050 (1916).

The present action lies in the area Professor Street designated as the confluence of contract and tort.

As was held in the leading case of Hadley v. Baxendale (9 Exch. 341 1854), the recovery in case of the breach of a contract is limited to such damages as may reasonably be supposed to have been in the contemplation of both parties at the time they made their contract, as the probable result of the breach of it. What can a reasonable man really foresee? that is the extent of liability in contract.

In the field of delict, liability is much more far-reaching. Here the rule is that the wrongdoer is liable for all the consequences which naturally follow from his wrongful act, provided only they be not too remote.

1 T. Street, Foundations of Legal Liability 88 (1906), citing Stevens v. Dudley, 56 Vt. 158, 166 (1883).

(B)reach of contract, wilful or not, is the breach of duties which the parties have fixed for themselves. . . . The duties broken by the commission of civil wrongs are fixed by law, and independent of the will of the parties.

F. Pollock, The Law of Torts 2 (13 Ed. 1929).

The defendant obviously predicted the danger of economic loss that would accrue to Vermont Yankee as a result of power outages during the performance of the repair contract. To guard against consequence, § 45(b) was included as a condition in GE's undertaking with Vermont Yankee:

In no event, whether on contract, warranty or tort (including negligence) or otherwise, shall contractor or its suppliers be liable for special, incidental, exemplary or consequential damages including, but not limited to, loss of profits or revenue, loss of use of the equipment or any associated equipment, cost of capital, cost of purchased power, cost of substitute equipment, facilities or services, down-time costs, or claims of customer or Owner for such damages ....

This limitation expressed the will of the parties. But, of course, the plaintiff GMP was not a privy to this undertaking, nor to the limitation imposed. Although GE protected itself against the foreseeable consequences specified in its undertaking with Vermont Yankee, the contractual protection does not reach the plaintiff who was not a party to the limiting condition. The defendant's duty under the repair contract was owed only to the specific persons named in the contract. Pollock, Law of Torts, supra at 2 and 3.

The defendant urges that the plaintiff is a third party beneficiary to the repair contract and, as such, is precluded from recovery by force of the provisions of § 45(b). On the...