Gulf States Utilities Co. v. Imo Delaval, Inc., Civ. A. No. 90-1002.

• Decision Date: 30 July 1992
• Docket Number: Civ. A. No. 90-1002.
• Citation: 799 F. Supp. 619
• Parties: GULF STATES UTILITIES CO. v. IMO DELAVAL, INC.
• Court: U.S. District Court — Middle District of Louisiana

799 F. Supp. 619

GULF STATES UTILITIES CO. v. IMO DELAVAL, INC.

Civ. A. No. 90-1002.

United States District Court, M.D. Louisiana.

July 30, 1992.

Frederick R. Tulley and C. Michael Hart, Taylor, Porter, Brooks & Phillips, Baton Rouge, La., for plaintiff.

Curtis Boisfontaine and Sally Shushan, Sessions & Fishman, New Orleans, La., for defendant.

MEMORANDUM AND ORDER

SEAR, Chief Judge.

On October 17, 1990, Gulf States Utilities Company ("GSU") filed this action against IMO Industries, Inc. ("IMO")¹ for breach of contract, invoking this Court's diversity jurisdiction. In this contract, IMO agreed to provide GSU with two standby emergency diesel generator systems ("standby generator systems"). IMO moves for summary judgment on grounds that plaintiff filed its claim after the applicable prescriptive period had expired.

Facts

GSU owns and operates a nuclear power generating plant, which is subject to the regulations of the Nuclear Regulatory Commission ("NRC").² A nuclear power plant must have a safety system designed to shut down the plant in the event of an accident. A nuclear power generating plant must have an emergency power supply to cool the reactor, and operate other necessary devices, during such a shut down. To satisfy this need, nuclear power plants have standby generator systems, typically powered by diesel engines. Such systems must be capable of starting on demand and reliable during operation to prevent a nuclear accident. Because of their essential role in a nuclear plant's safety, standby generator systems must meet extensive, detailed specifications.³

The two basic components of a standby generator system are the diesel engine and the generator. The generator converts the diesel engine shaft power into electrical power.⁴

In designing its plant in 1974, GSU asked IMO to submit a proposal to furnish two standby diesel generator systems in accordance with Specification No. 244.700, prepared by GSU and setting forth the required design specifications for the standby generator system.⁵ IMO submitted a proposal.⁶ GSU accepted IMO's proposal by means of a purchase order, which incorporated by reference the provisions in the Specification.⁷ The parties later made several modifications to this contract.⁸ These documents evidence the contract between the parties.

IMO previously had provided three similar standby diesel generator systems to the Long Island Lighting Company for use at their Shoreham Nuclear Power Station ("Shoreham"). In August 1983, during testing, the crankshaft in one of the diesel engines failed. Thereafter, the NRC notified all utilities that owned IMO standby generator systems of the Shoreham crankshaft failure. In response, utilities with IMO standby generator systems formed an Owner's Group, to examine the design of the system and make the necessary modifications to satisfy the NRC. GSU alleges that it had to review the design of the system and engage in a quality revalidation process. Ultimately, GSU allegedly modified its system and de-rated the engines from 3500 kw, as called for in its Specifications, to 3130 kw. At this lower capacity, GSU obtained the necessary license from the NRC and commenced commercial operation on June 16, 1986.⁹ GSU seeks to recover the costs incurred in reviewing the design of the system and in the quality revalidation process, the costs incurred to modify the system to obtain approval from NRC, and for loss of standby power capacity. GSU seeks $8 million.¹⁰

Analysis

I. Contract of Sale v. Contract to Build

IMO moves for summary judgment dismissing GSU's claim as prescribed. IMO contends that, under Louisiana law, the contract is one for the sale of a thing, subject to a one year prescriptive period and that this period expired prior to the filing of this suit.¹¹ GSU opposes, contending that the contract is one to build, subject to a ten year prescriptive period.¹²

The Louisiana Civil Code divides conventional obligations into obligations to give (i.e., a sale) and obligations to do (i.e., a contract to build). Further, the Code defines each:

The contract of sale is an agreement by which one gives a thing for a price in current money, and the other gives the price in order to have the thing itself.¹³

To build a plot, or to work by the job, is to undertake a building or a work for a certain stipulated price. A person who undertakes to make a work, may agree, either to furnish his work and industry alone, or to furnish also the materials necessary for such work.¹⁴

To support its contention that the contract is one to build, GSU emphasizes that IMO was to "design and manufacture" the equipment to these specifications.¹⁵ GSU, however, misconstrues the contract.

In the contract, IMO agreed to furnish various types of equipment that met certain, detailed specifications.¹⁶ Rather than designing or manufacturing this equipment from raw materials, IMO agreed to furnish pre-fabricated equipment, purchased from other vendors.¹⁷

Significantly, with regard to the diesel engines, the only equipment of which GSU complains, IMO offered its commercialgrade R-48 diesel engines from its stock.¹⁸ Indeed, IMO attached to its proposal a brochure describing its various engine models, including the "R-series."¹⁹ GSU accepted IMO's offer and IMO supplied to GSU two R-48 engines, part of its standard "R-series."²⁰ Accordingly, IMO did not create, design or manufacture the engines supplied specially for GSU. Rather, it sold GSU engines "off the shelf."

Finally, the contract provides for GSU, not IMO, to install or erect the system.²¹ Thus, the contract terms, and the affidavits of the GSU and IMO representatives,²² show that the contract is a contract of sale. Notably, the contract itself consistently refers to the parties as "Seller" and "Purchaser."²³

Although the contract required GSU to install the equipment, IMO offered to furnish the services of an engineer, at the request of GSU, to assist in erecting the system²⁴ and IMO engineers did provide such assistance.²⁵ Nonetheless, that IMO provided its services does not convert the contract from one of sale to a contract to build.

Where a contract contains both obligations to give (i.e., sell) and obligations to do (i.e., provide services), "the contract as a whole may be characterized by its predominate or fundamental obligation."²⁶ "Thus, the mere fact that an obligor may be involved in the installation of the equipment sold will not change the characterization of the obligation from that of a sales contract and therefore the rules governing a sale will control."²⁷

IMO's participation in the installation of the system consisted of making some of the necessary repairs and modifications to obtain NRC approval, and supervising the repairs and modifications performed by GSU personnel or engineers hired by GSU.²⁸ IMO rendered this assistance at the request of GSU and GSU maintained control of the installation throughout. Louisiana courts have characterized as sales, contracts where the sellers rendered even greater assistance than IMO in installing the purchased equipment.²⁹ Thus, the extent of IMO's involvement in the installation process does not change the predominate obligation of the contract from an obligation to give into an obligation to do. Accordingly, the contract entered between GSU and IMO is a contract of sale and governed by those legal rules applicable to sales.

II. Redhibition

Under Louisiana sales law, if the thing sold contains a vice or defect, the buyer has a claim in redhibition.³⁰ A redhibitory action must be commenced within one year from the date of the sale.³¹ If however the seller knew of the vice or defect and failed to declare it to the buyer, the buyer may commence the action at any time, provided one year has not elapsed since the discovery of the vice.³² A manufacturer of a product is presumed to know the vices of its product.³³ Because IMO manufactured the product claimed to be defective, the diesel engines, GSU must commence any claim for redhibitory defects within one year from its discovery of the defect.

GSU complains of defects in the standby generator system and of the loss of power capacity. The standby generator systems were placed in commercial operation at their de-rated capacity on June 16, 1986.³⁴ At this point in time, GSU clearly was fully aware of the defects and of the loss of power capacity because it had remedied the defects and had obtained its license from the NRC on the condition that it de-rate the capacity of the system. Thus, at the very latest, the prescriptive period for GSU's claim commenced on June 16, 1986. GSU did not file its suit against IMO until October 17, 1990, well after the prescriptive period had expired.

III. GSU's "Contractual" Claims

To avoid this result, GSU argues that its claim does not lie in redhibition, rather it claims IMO breached the contract. For example, GSU claims that IMO breached its express contractual warranties. In the contract, IMO warranted that the equipment would be free from defects in design, workmanship and material and would be suited for its intended purpose. IMO also warranted that the equipment would perform in accordance with the specifications.³⁵ GSU's breach of warranty claim however is likewise subject to the one year prescriptive period.

The general rule is that, under Louisiana law, damages caused by a breach of warranty in a sales contract are regarded as founded upon redhibition and subject to the rules and limitations in redhibition.³⁶ Nonetheless, when the product is not truly "defective," courts have applied the law of general obligations to breach of warranty claims in sales contracts.³⁷ Those courts reason that the buyer complains not of a defect, but rather that the seller provided the wrong product.

For instance, Peoples Water Service Co. v. Menge Pump and Machinery Co., Inc.,³⁸ on which GSU relies, provides a factually analogous situation. Aware that its well water was more acidic...