Niagara Mohawk Power v. Graver Tank & Mfg.

• Decision Date: 12 March 1979
• Docket Number: No. 78-CV-675,79-CV-46.,78-CV-675
• Citation: 470 F. Supp. 1308
• Parties: NIAGARA MOHAWK POWER CORPORATION, Plaintiff, v. GRAVER TANK & MANUFACTURING CO., and Aerojet-General Corporation, Defendants. GRAVER TANK & MANUFACTURING CO., division of Aerojet-General Corporation, Plaintiff, v. NIAGARA MOHAWK POWER CORPORATION, Stone & Webster, Incorporated, Stone & Webster Engineering Corporation, and Chicago Bridge & Iron Company, Defendants.
• Court: U.S. District Court — Northern District of New York

470 F. Supp. 1308

NIAGARA MOHAWK POWER CORPORATION, Plaintiff, v. GRAVER TANK & MANUFACTURING CO., and Aerojet-General Corporation, Defendants.

GRAVER TANK & MANUFACTURING CO., division of Aerojet-General Corporation, Plaintiff, v. NIAGARA MOHAWK POWER CORPORATION, Stone & Webster, Incorporated, Stone & Webster Engineering Corporation, and Chicago Bridge & Iron Company, Defendants.

Nos. 78-CV-675, 79-CV-46.

United States District Court, N. D. New York.

March 12, 1979.

COPYRIGHT MATERIAL OMITTED

LeBoeuf, Lamb, Leiby & MacRae, New York City, John H. Terry, Senior Vice President, Gen. Counsel and Secretary, Niagara Mohawk Power Corp., Syracuse, N. Y., for Niagara Mohawk Power Corp.; Jacob Friedlander, William G. Primps, Eric H. Moss, Howard S. Ockman, Karen Hutson, New York City, Thomas O'Neill, Syracuse, N. Y., of counsel.

Baskin & Sears, Syracuse, N. Y., O'Brien, Carey, McNamara, Scheuneman & Campbell, Ltd., Chicago, Ill., for Graver Tank & Manufacturing Co., division of Aerojet-General Corp.; Gary M. Axenfeld, Joseph Watt, Syracuse, N. Y., Tom Scheuneman, Barry T. McNamara, Peter B. Carey, William J. Campbell, Jr., Chicago, Ill., of counsel.

Mudge, Rose, Guthrie & Alexander, New York City, for Stone & Webster, Incorporated, Stone & Webster Engineering Corp.; Laurence V. Senn, New York City, of counsel.

Mackenzie, Smith, Lewis, Michell & Hughes, Syracuse, N. Y., Hopkins, Sutter, Mulroy, Davis & Cromartie, Chicago, Ill., for Chicago Bridge & Iron Co.; Jay W. Wason, Syracuse, N. Y., Mark Crane, Michael M. Conway, Chicago, Ill., of counsel.

MEMORANDUM-DECISION

MUNSON, District Judge.

Niagara Mohawk Power Corporation ("Niagara Mohawk") and Graver Tank & Manufacturing Co. ("Graver"), a division of Aerojet-General Corporation, entered into a contract on January 4, 1974, for the fabrication and erection by Graver of the reactor primary containment steel plate liner for the Nine Mile Point Unit 2, nuclear power plant, located near Scriba, New York. (Pl. Ex. 1).¹ This plant is owned by Niagara Mohawk and four other New York public utilities as cotenants. (Rhode, Tr. 347-48). Stone & Webster Engineering Corporation ("Stone & Webster") is the architect-engineer for the project, and serves as Niagara Mohawk's agent at the job site. (Pl. Ex. 1 at Article VII of Agreement of January 4, 1974; Manno, Tr. 100-01).

On December 29, 1978, Niagara Mohawk notified Graver that it was terminating, effective two days thereafter, the contract for fabrication and erection of the containment liner for the Nine Mile Point 2 power plant. (Pl. Ex. 9). On the same day, Niagara Mohawk signed a contract with Chicago Bridge & Iron Company ("CB&I") for the completion of the liner (Franklin, TRO-Tr. 141; Albertson, Dep. 125-26), and commenced an action in the Northern District of New York against Graver and Aerojet-General Corporation, seeking specific performance of the termination clause of the contract, the recovery of materials fabricated for the project, and the award of damages for faulty performance.

Graver filed an action against Niagara Mohawk, Stone & Webster, Stone & Webster's parent corporation, and CB&I in the Southern District of New York, seeking the entry of an Order enjoining the termination of the contract and directing specific performance of the provisions of the contract, other than the termination clause. This lawsuit was filed on November 20, 1978, more than a month before the notice of termination was actually given, but the Complaint was not served at that time. Upon receiving notice of termination, Graver filed an amended Complaint which was served shortly thereafter. This action was transferred to the United States District Court for the Northern District of New York by an Order of the Honorable Lloyd F. MacMahon, dated January 5, 1979.

Niagara Mohawk has moved for an Order of Seizure, and Niagara Mohawk and Graver have each moved for a preliminary injunction, seeking specific performance as demanded in their respective Complaints.² The parties have compiled an extensive record for the Court on the present motions. A hearing was held from January 16, 1979 to January 19, 1979 and from January 23, 1979 to January 26, 1979. Numerous exhibits, including a number of depositions, were received in evidence at that time.³

On January 29, 1979, the Court issued an Order, denying Graver's motion for a preliminary injunction and Niagara Mohawk's motion for an Order of Seizure, and granting Niagara Mohawk's motion for a preliminary injunction. This Memorandum-Decision is being issued in accordance with that Order.

I.

Subject matter jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1332, and, therefore, state law must be applied to the substantive issues involved here. The parties agree that the applicable state law is that of New York.

Nevertheless, the standard for determining whether to grant a preliminary injunction has been regarded as a procedural matter, and, therefore, the federal standard is controlling. See American Brands, Inc. v. Playgirl, Inc., 498 F.2d 947 (2d Cir. 1974); Joneil Fifth Avenue Ltd. v. Ebeling & Reuss Co., 458 F.Supp. 1197 (S.D.N.Y. 1978); Ali v. Playgirl, Inc., 447 F.Supp. 723, 726 n. 6 (S.D.N.Y.1978); Factors Etc., Inc. v. Creative Card Co., 444 F.Supp. 279 (S.D. N.Y.1977).⁴

Sonesta International Hotels Corporation v. Wellington Associates, 483 F.2d 247, 250 (2d Cir. 1973) sets forth the standard for granting a preliminary injunction in this circuit:

a preliminary injunction should issue only upon a clear showing of either (1) probable success on the merits and possible irreparable injury, or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.

See also Selchow & Righter Co. v. McGraw-Hill Book Co., 580 F.2d 25, 27 (2d Cir. 1978); Jacobson & Co., Inc. v. Armstrong Cork Co., 548 F.2d 438, 441 n. 2 (2d Cir. 1977); Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d 851, 866 (2d Cir.), cert. denied, 419 U.S. 883, 95 S.Ct. 150, 42 L.Ed.2d 123 (1974); Checker Motors Corp. v. Chrysler Corp., 405 F.2d 319, 323 (2d Cir.), cert. denied, 394 U.S. 999, 89 S.Ct. 1595, 22 L.Ed.2d 777 (1969). A showing of possible irreparable injury must be made by the moving party as part of the balancing of hardships under the second prong of the Sonesta test. Selchow & Righter Co. v. McGraw-Hill Book Co., supra, 580 F.2d at 27, New York Association of Homes for Aging v. Toia, 559 F.2d 876, 880 (2d Cir. 1977).

II.

Article 22 of the contract between Niagara Mohawk and Graver sets forth the circumstances under which the agreement can be terminated. Subdivision A of this article deals with termination for cause while subdivision B is a convenience termination clause. Under Article 22A, Niagara Mohawk is allowed to terminate the agreement if Graver becomes insolvent or if Stone & Webster certifies that Graver is failing to perform the required work or is not prosecuting the work with promptness and diligence. On the other hand, under Article 22B, Niagara Mohawk has the right to terminate the contract "at any time for any reason" by giving Graver two days' prior written notice to such effect.⁵ In terminating the contract in the present case, Niagara Mohawk did so pursuant to Article 22B. (Franklin, TRO-Tr. 138; Rhode, Dep. 62-63).

A.

Graver argues that a convenience termination clause such as that contained in Article 22B can only be exercised in good faith. Niagara Mohawk disputes this contention, and argues that it has an unrestricted right to terminate the contract.

The Court is not aware of any New York cases which have considered the question of applying a requirement of good faith to the exercise of an unrestricted unilateral termination clause. Therefore, the Court must make its own determination as to what it thinks a state court would probably do if it were faced with the same case. Ricciuti v. Voltarc Tubes, Inc., 277 F.2d 809, 812 (2d Cir. 1960); Holdridge v. Heyer-Schulte Corp., 440 F.Supp. 1088, 1099 (N.D.N.Y. 1977).

However, while there are no New York precedents directly on point, there are a number of cases which are instructive. In A. S. Rampell, Inc. v. Hyster Co., 3 N.Y.2d 369, 165 N.Y.S.2d 475, 144 N.E.2d 371 (1957), the New York Court of Appeals considered whether a requirement of reasonable notice should be implied in a contract provision allowing either party to terminate the agreement "at any time." The contract in question was to be construed in accordance with the laws of Oregon, but the case does, nonetheless, appear to have some relevance in determining what a New York court would probably do if it had to decide the present case since the Court of Appeals in Rampell found no Oregon cases to be applicable and discussed what it regarded the general state of the law on this matter to be. The court concluded that a requirement of reasonable notice would not be read into the parties' written agreement, and stated that "where as here the parties have agreed to a termination clause, the clause has been enforced as written." 3 N.Y.2d at 382, 165 N.Y.S.2d at 486, 144 N.E.2d at 379. For this latter proposition, the court cited a number of cases, three of which held that an unrestricted termination clause was not subject to a requirement of good faith. Bushwick-Decatur Motors, Inc. v. Ford Motor Co., 116 F.2d 675 (2d Cir. 1940); Biever Motor Car Co. v. Chrysler Corp., 108 F.Supp. 948 (D.Conn.), aff'd, 199 F.2d 758 (2d Cir. 1952); Sharpe v. Great Lakes Steel Corp., 9 F.R.D. 691 (S.D.N.Y. 1950).⁶

Another case which is instructive is Noah v. L. Daitch & Co., 22 Misc.2d 649, 192 N.Y.S.2d 380 (S.Ct.N.Y.Co. 1959). That action was brought by the owners of a retail dairy and grocery store to enjoin their supplier of dairy products from terminating their distributorship agreement. The parties' agreement contained a unilateral termination...