Niagara Mohawk Power v. Stone & Webster Eng.

• Decision Date: 24 November 1989
• Docket Number: No. 88-CV-819.,88-CV-819.
• Citation: 725 F. Supp. 656
• Parties: NIAGARA MOHAWK POWER CORPORATION; Long Island Lighting Company; New York State Electric & Gas Corporation; Rochester Gas and Electric Corporation; and Central Hudson Gas & Electric Corporation, Plaintiffs, v. STONE & WEBSTER ENGINEERING CORPORATION, ITT Fluid Products Corporation, and ITT Fluid Technology Corporation, Defendants.
• Court: U.S. District Court — Northern District of New York

725 F. Supp. 656

NIAGARA MOHAWK POWER CORPORATION; Long Island Lighting Company; New York State Electric & Gas Corporation; Rochester Gas and Electric Corporation; and Central Hudson Gas & Electric Corporation, Plaintiffs, v. STONE & WEBSTER ENGINEERING CORPORATION, ITT Fluid Products Corporation, and ITT Fluid Technology Corporation, Defendants.

No. 88-CV-819.

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

November 24, 1989.

Hiscock & Barclay (Richard K. Hughes, of counsel), Syracuse, N.Y., Swidler & Berlin (John R. Ferguson, of counsel), Washington, D.C., for plaintiff Niagara Mohawk Power.

Kirkland & Ellis (James C. Munson, of counsel), Chicago, Ill., Hancock & Estabrook (Donald J. Kemple, of counsel), Syracuse, N.Y., for plaintiffs Long Island Lighting, New York State Elec. & Gas, Rochester Gas & Elec. and Cent. Hudson Gas & Elec.

Mudge Rose Guthrie Alexander & Ferdon (Harold G. Levison, of counsel), New York City, Costello Cooney & Fearon (Vincent O'Neil, of counsel), Syracuse, N.Y., for defendant Stone & Webster Engineering.

McNamee Lochner Titus & Williams (Scott A. Barbour, of counsel), Albany, N.Y., Hale & Dorr (James Quarles, III, of counsel), Washington, D.C., Pepper Hamilton & Scheetz, Philadelphia, Pa., for defendants ITT Fluid Products & ITT Fluid Technology.

MEMORANDUM-DECISION AND ORDER

McCURN, Chief Judge.

The five utilities who own, operate, and are tenants in common of the Nine Mile Point Two nuclear power plant in Scriba, New York, have brought suit against Stone & Webster Engineering Corporation ("SWEC"), ITT Fluid Products Corporation, and ITT Fluid Technology Corporation (collectively "ITT") to recover damages which allegedly resulted from defendants' faulty design and construction of the nuclear facility. In this diversity action the plaintiffs are asserting claims both in contract and tort. Currently before this court is a motion by the ITT defendants to dismiss the tort claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The central legal issue in this motion is whether, and to what extent, an independent cause of action sounding in tort exists under the laws of New York for the negligent or grossly negligent performance of contractual services.

As is well settled, when considering a motion to dismiss pursuant to Rule 12(b)(6), courts must construe the complaint's allegations in the light most favorable to the plaintiff and accept the well-pleaded factual allegations as true. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). A claim will be dismissed under Rule 12(b)(6) only if it appears beyond doubt that the plaintiff can prove no set of facts supporting his legal claim which entitle him to relief. See Dahlberg v. Becker, 748 F.2d 85, 88 (2nd Cir.1984), cert. denied, 470 U.S. 1084, 105 S.Ct. 1845, 85 L.Ed.2d 144 (1985).

I. Background

Taken as true, the complaint alleges the following: planning for the construction of the Nine Mile Point Two power plant ("NMP2") was initiated in 1971 when SWEC was hired by the plaintiffs as the architect/engineer and construction manager of the proposed nuclear facility. ITT Grinnell Corporation, whose successors in business are ITT Fluid Products Corporation and ITT Fluid Technology Corporation (complaint, para. 6) was awarded an initial contract for the field fabrication and erection of a large portion of piping at Nine Mile Point 2 in August of 1974. This first contract was signed in March of 1976 with work by ITT beginning that May. Complaint, para. 40. In all, three contracts were awarded to ITT. Complaint, para 19. According to the plaintiffs the contract required ITT:

to perform in a timely and cost-effective manner. ITT Grinnell expressly agreed to do all things necessary for the proper construction of the piping work at NMP2, in accordance with applicable specifications and drawings, and to perform in a thorough and workmanlike manner. It further agreed to furnish all labor and qualified supervisory personnel and to provide overall direction and management. It agreed to cooperate with the Niagara Mohawk Power Corporation, SWEC and the other contractors at the NMP2 site, to coordinate its work with other contractors and not to delay or hinder the progress of the work as a whole. These agreements were restated in a contract amendment effective December 21, 1981, along with the promise to work diligently in order to achieve the project schedule.

Complaint, para. 41.

In numerous places in the complaint the plaintiffs allege that ITT agreed to meet, yet failed to achieve, the "professional standards of construction practice" or, in other words, that ITT breached its "contractual and professional obligations" to the plaintiff utilities. Complaint, paras. 7, 8, 9, 22, 126, 131 and 133. Plaintiffs assert that ITT's performance with respect to the piping work was deficient in the areas of "overall management, engineering, construction supervision and quality control." Complaint, para. 126. The complaint asserts that ITT negligently performed contractual services in the following manner:

127. ITT Grinnell and SWEC breached their respective obligations to manage and supervise the piping work by failing to implement a timely and accurate management system. Neither ITT Grinnell nor SWEC coordinated efficiently the construction process or provided timely and accurate engineering drawings and related information. ITT Grinnell and SWEC repeatedly failed to provide accurate estimates and assessments of engineering and construction status, progress, and cost for the piping work. 128. ITT Grinnell's and SWEC's breach of their respective obligations to plan the piping work at NMP2 caused fabrication and installation of piping to fall behind schedule. In planning the piping work, SWEC and ITT Grinnell misestimated the scope of work, and they agreed on "unit rates" (e.g., manhours per pipe support) which they knew or should have known were unrealistically low.

131. In breach of its contractual and professional obligations, ITT Grinnell failed to manage or supervise its manual workers adequately. Consequently, workers failed to follow drawings and specifications. They omitted or mislocated materials, such as floor drain piping, pipe sleeves and plates, and failed to perform welding properly. ITT Grinnell's failure adequately to supervise workers allowed chronic absenteeism, early departures, and loss of tools.

132. Both SWEC and ITT breached their duties to implement adequate QA/QC programs, and SWEC breached its obligation to assure that ITT Grinnell implemented an effective QA/QC program. These breaches increased project costs.

133. ITT Grinnell breached its obligation to establish an adequate quality control program, resulting in an NRC stop-work order on all ITT Grinnell safety-related work. After the stop-work order had been lifted, QA/QC remained below professional standards in key respects. In May of 1982, an NRC inspector discovered that ITT Grinnell had issued an unapproved welding procedure for safety related work. This failure led to extensive reevaluating by SWEC of ITT Grinnell's work, diverting engineering resources.

134. ITT Grinnell radiographers falsified a number of weld radiographs, at both their shop and the site. The investigation, retesting, and rework resulting from ITT Grinnell's falsification of weld radiographs extended for almost a year, interfering with piping progress. The NRC's 1983 Construction Appraisal Team Inspection identified further deficiencies in ITT Grinnell's welding and weld inspections. The retesting and rework required to correct these deficiencies further impeded piping progress.

While ITT is repeatedly charged with breaching its professional obligations, the only conduct which could be construed as fraudulent on the part of ITT is described in paragraph 134 of the complaint (i.e. that weld radiographs were falsified).

Plaintiffs assert that they incurred substantial damages due to ITT's breaches of its "contractual and professional obligations." Complaint, para. 9. And, that as a "direct result" of these breaches added costs were incurred by the utilities due to (1) the redesign and reconstruction of systems and components; (2) excess manhours; (3) additional overhead; (4) additional financing expenditures, and (5) delay. Complaint, para. 9 and 136. The cost of ITT's piping work under the principal contract, which was initially estimated at $40 million, exceeded over $300 million. Complaint, para. 21.

The complaint expressly states seven causes of action: four as against SWEC and three against ITT. Claims for breach of contract, negligence, and gross negligence have been asserted against both defendants. SWEC is also charged, in count three, with the tort of professional malpractice; no such cause of action is asserted against ITT.

The two tort claims which ITT seeks to have dismissed are stated in counts six (negligence) and seven (gross negligence). The operative language in the negligence claim is simply that "ITT Grinnell owed plaintiffs a duty to use ordinary care in performance of the piping work at NMP2. In the ways described above, ITT Grinnell's work fell below the standard of care exercised by piping contractors." Complaint, para. 155. In their claim for gross negligence plaintiffs assert that "ITT Grinnell's performance fell so far below the standard of care exercised by piping contractors, and evidenced such disregard for the rights of others, that it committed gross negligence in its work on NMP2." Complaint, para. 158.

II. Discussion

The parties correctly agree that New York law applies in this diversity action. See Widett v. U.S. Fidelity and Guar. Co., 815 F.2d 885, 886 (2nd Cir.1987). Where federal jurisdiction is based upon diversity of citizenship the law of the State's highest court is determinative. Erie v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); PSI Metals, Inc. v. Fireman's Ins. Co., 839 F.2d 42,...