Mead Corp. v. Abb Power Generation, Inc.

• Decision Date: 11 February 2003
• Docket Number: No. 01-3574.,01-3574.
• Citation: 319 F.3d 790
• Parties: MEAD CORPORATION; Factory Mutual Insurance Company; National Union Fire Insurance Company of Pittsburgh, Plaintiffs-Appellants, v. ABB POWER GENERATION, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

319 F.3d 790

MEAD CORPORATION; Factory Mutual Insurance Company; National Union Fire Insurance Company of Pittsburgh, Plaintiffs-Appellants, v. ABB POWER GENERATION, INC., Defendant-Appellee.

No. 01-3574.

United States Court of Appeals, Sixth Circuit.

Argued: December 10, 2002.

Decided and Filed: February 11, 2003.

Daniel F. Edwards (briefed), Thompson & Hine, Columbus, OH, James W. Logan, Jr. (argued and briefed), Logan, Jolly & Smith, Anderson, SC, for Plaintiffs-Appellants.

Larry H. James (briefed), Christina L. Corl (argued and briefed), Crabbe, Brown & James, Columbus, OH, for Defendant-Appellee.

Before: BATCHELDER and MOORE, Circuit Judges; COLLIER, District Judge.^*

OPINION

MOORE, Circuit Judge.

Plaintiff-Appellant Mead Corporation ("Mead") appeals the district court's grant of summary judgment for Defendant-Appellee ABB Power Generation, Inc. ("ABB Power"). Pursuant to a contract with Mead, ABB Power performed work on Mead's turbine and warranted the materials and labor. After the warranty expired, the turbine failed. Plaintiffs-Appellants Factory Mutual Insurance Company ("Factory Mutual") and National Union Fire Insurance Company of Pittsburgh ("National Union") paid Mead for its losses. Mead, Factory Mutual, and National Union brought this action against ABB Power for breach of contract and for indemnity.

The district court construed both causes of action as claims for breach of warranty and granted summary judgment to ABB Power because the contractual warranty had expired. Plaintiffs appeal the summary judgment, arguing that they stated a cause of action for breach of contract and for indemnity, independent of the warranty provision of the contract. For the reasons set forth below, we REVERSE summary judgment for ABB Power on the breach of contract claim and remand this claim for further proceedings in the district court. We AFFIRM summary judgment for ABB Power as to the indemnity claim.

I. BACKGROUND

In January 1992, Mead and ABB Process Automation, Inc. ("ABB Process") entered a contract for ABB Process to perform work on the Number 12 Turbine at Mead's Chillicothe, Ohio plant. Mead drafted the contract, pursuant to which ABB Process would provide "all labor, materials; design, architectural, engineering and other services; tools; supplies; machinery; equipment; transportation; administration; supervision and all other items and services necessary for the proper execution and completion of the work." Joint Appendix ("J.A.") at 65. Mead also drafted, and ABB Process agreed to, "General Terms and Conditions" that would govern their contract and Mead's orders for the purchase of equipment in August 1993. J.A. at 96-115 ("Terms and Conditions").

ABB Power assumed the contractual obligations of ABB Process in December 1994. Mead and ABB Power entered a supplemental agreement on January 3, 1995, making several revisions to the Terms and Conditions. Article 5 of this agreement replaced the original Article 4 warranty provisions in their entirety. On January 16, 1995, the parties entered a second supplemental agreement, again replacing the Article 4 warranty provisions. The amended warranty provisions provide:

4.1 Equipment supplied by seller is warranted against defects in material and workmanship for twelve (12) months after installation or eighteen (18) months following delivery to TMC or into storage, whichever period shall expire first.

4.2 Services will be performed in a workmanlike manner and recommendations for corrective action made in connection with technical investigations or inspections or the like, will be based on seller's best judgment considering the facts then known. Such warranty shall extend for twelve (12) months from the date of completion of services.

4.3 Should any failure to conform with the applicable warranties appear during the specified periods seller shall correct such nonconformity, at its option and at its expense by repair, re-performance or replacement of the non-conforming work.... Repairs, re-performance or replacements pursuant to warranty shall not renew or extend the applicable warranty period, provided however, that any such repairs, re-performance or replacement of work shall be warranted for the time remaining of the original warranty or for one hundred and eighty (180) days, whichever is longer....

* * *

4.6 Except for seller's performance warranty stated below, the foregoing warranties are exclusive and in lieu of all other warranties of quality and performance and results, written, oral, or implied and except for seller's performance warranty stated below, all other warranties including any warranty of merchantability or fitness for a particular purpose are hereby disclaimed by seller and all equipment manufacturers.

J.A. at 124-25.

Although the contract states that these warranties are exclusive warranties, it also expressly states that Mead's rights and remedies under the contract "shall not be exclusive of, but shall be in addition to, any other rights or remedies available at law or in equity or granted in any other part of the Contract." J.A. at 93 (§ 37). The contract also requires the parties fully to comply with both the terms of the contract and "with all applicable Federal, state or local laws, codes, ordinances, rules, requirements, standards, regulations, orders...." J.A. at 77 (§ 13). Moreover, ABB Power was contractually obligated to "indemnify and hold Purchaser ... harmless from and against all expenses, costs, charges, damages, claims, suits, losses or liabilities (including attorneys fees) of every kind whatsoever to the extent caused by the negligence of Seller." J.A. at 107 (Terms & Conditions Art. 16).

ABB Power completed work on the Number 12 turbine in December 1995. After three months, a fan-blade failure occurred in the Number 12 turbine generator and caused a shutdown of the turbine. ABB Power undertook repairs pursuant to the contractual warranty and restored the turbine to service on March 12, 1996. The parties entered an agreement on May 21, 1996, "settl[ing] all of the outstanding matters and issues regarding the generator blade failure and subsequent damage to stator coils." J.A. at 48.

On March 6, 1996, Mead and ABB Power entered a written modification of the original contract. ABB Power agreed "to bring the turbine generator to the prefailure condition at their cost," and extended the initial warranty "for a period of one (1) year after completion [sic] of warranty repairs and start-up." J.A. at 122. The warranty would be according to the terms of the 1993 Terms and Conditions Article 4 warranty. Because the Number 12 turbine was restarted on March 12, 1996, the extended warranty would last until March 12, 1997.

The Number 12 turbine again failed on January 4, 1998, due to an improper pin fitting. The parties' attempts to settle failed, and Mead's insurance carriers, Factory Mutual and National Union, each paid Mead $550,212.00 to compensate for Mead's losses. Mead assigned its rights against ABB Power to the insurance companies.

Appellants filed their first amended complaint against ABB Power in state court on March 10, 2000, alleging breach of contract and seeking indemnity with respect to the 1998 fan-blade failure. Mead alleged that "the fan blade failure of January 4, 1998, was a direct and proximate result of ABB's breach of its cont[r]act with Mead" and that "ABB is in breach of said contract with Mead in that it has failed to indemnify Mead from all expenses, costs, charges, damages, and losses (including attorneys' fees) caused by the negligence of ABB." J.A. at 11, 14. According to Mead, ABB Power breached its contract in one or more of twenty alleged particulars, and was negligent in eighteen of the same twenty particulars. Mead ostensibly did not bring any cause of action under the warranty provisions of its contracts with ABB Power. ABB Power promptly removed the case to federal court.

On October 20, 2000, ABB Power filed a motion for summary judgment as to all issues. ABB Power argued that "[a]ny claimed damages from the 1998 fan blade failure are barred by the expressed terms of the Warranty provisions of the Contract, which were intended to be the exclusive remedy for such claims" and that the indemnity claims fail as a matter of law because "Plaintiffs have not been forced to indemnify any third-parties in relation to the fan blade failures outlined in the Amended Complaint, and because the claims brought under the `Indemnity' provision are actually claims falling under the `Warranty' provision of the Contract which are time barred." J.A. at 60-61.

On April 18, 2001, the district court granted ABB Power's motion for summary judgment as to all causes of action. Mead Corp. v. ABB Power Generation, Inc., 141 F.Supp.2d 914 (S.D.Ohio 2001). The district court concluded that the breach of contract and indemnity claims were "in substance" breach of warranty claims, and that the warranty had expired on March 12, 1997. Id. at 919, 920. Furthermore, the district court concluded that the indemnity provision did not apply to disputes between the parties themselves. Id. at 921. Appellants filed a timely notice of appeal.

II. ANALYSIS

Because this case falls within our diversity jurisdiction, we apply the same law, including choice of law rules, that would be applied in state courts in the forum state. Kipin Indus., Inc. v. Van Deilen Int'l, Inc., 182 F.3d 490, 493 (6th Cir.1999). Section 42 of the original contract between Mead and ABB Process states:

Except where the Property is located in a state other than Ohio and the laws of that other state referenced above under Section 13 or the laws with respect to mechanics liens, workers' compensation and other employer-employee relations matters and/or local taxation otherwise require, the Contract and the performance of all of the Work hereunder shall be governed by and construed in accordance with the laws of the State of Ohio.

J.A. at 93-94. T...