Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co.
| Decision Date | 27 July 2016 |
| Docket Number | No. 3:16-cv-00495-HZ,3:16-cv-00495-HZ |
| Parties | PORTLAND GENERAL ELECTRIC COMPANY, Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY and ZURICH AMERICAN INSURANCE COMPANY, Defendants. |
| Court | U.S. District Court — District of Oregon |
David Bledsoe
Joanna Perini-Abbott
Perkins Coie, LLP
1120 NW Couch Street, 10th Floor
Portland, OR 97209
Attorneys for Plaintiff
Jan Sokol
John Spencer Stewart
Mario Nicholas
Thomas Larkin
Stewart Sokol & Larkin, LLC
2300 SW First Avenue, Suite 200
Portland, OR 97201
Attorneys for Defendant
Plaintiff Portland General Electric ("PGE") brings this action against Defendants Liberty Mutual Insurance Company and Zurich American Insurance Company, (collectively, "Sureties"). PGE brings three claims: (1) breach of performance bond; (2) declaratory judgment; and (3) bad faith. Compl. 25-26, ECF 1. PGE alleges damages in excess of two hundred million dollars. Id. at 27.
The parties disagree about whether their dispute should be resolved in this Court or in arbitration. Sureties move to stay the case pending resolution of an arbitration proceeding currently pending before the International Chamber of Commerce ("ICC"). PGE opposes the Sureties' motion and, in addition, moves to preliminarily enjoin Sureties from pursuing ICC arbitration. Because the parties never agreed to arbitrate this dispute, the Court denies Sureties' motion for a stay and grants PGE's motion for a preliminary injunction.
On June 3, 2013, PGE and Contractor Abeinsa Companies1 ("Contractor") entered into a Turnkey Engineering, Procurement, & Construction Agreement ("EPC Contract") for Contractor to construct a power generation project (the "Carty Project"). Compl. ¶ 8. The EPC Contract provides that it "shall be governed by, and construed, interpreted and enforced in accordance with, the substantive law of the State of Oregon[.]" EPC Contract ¶ 40.18, ECF 30. It further states that the parties "irrevocably consent to the exclusive jurisdiction of any U.S. federal court with jurisdiction over Oregon." Id. The EPC Contract does not contain an arbitration provision.
In connection with the EPC Contract, PGE required Contractor to obtain a performance bond from Sureties, for the benefit of PGE, guaranteeing performance of the EPC Contract. Id. at ¶ 50. On June 4, 2013, Sureties executed and posted a Performance Bond on behalf of Contractor, as principal, and in favor of PGE, as owner/obligee. Performance Bond ("Bond"), ECF 30-1. The stated amount of the Bond was $145,611,779.60. Id.
The Bond states that Contractor and each Surety, jointly and severally, bind themselves to PGE for the performance of the EPC Contract. Id. at ¶ 1. "[I]f the Contractor performs the [EPC] Contract, the Surety and the Contractor shall have no obligation under this Bond . . . ." Id. at ¶ 2. On the other hand, Sureties' obligation under the Bond arises under the following conditions: PGE notifying Contractor and Sureties that PGE is considering declaring a Contractor default; PGE declaring a Contractor Default and formally terminating Contractor's right to complete the EPC Contract and notifying Sureties; and PGE agreeing to pay the Balance of the Contract Price if the work continues under Section 4.1, 4.2, or 4.3 of the Bond. Id. at ¶ 3.
The Bond provides that when PGE has satisfied the conditions stated above, Sureties must take one of several actions. Sureties may arrange for Contractor, with consent of PGE, to perform and complete the EPC Contract. Id. at ¶ 4.1. Sureties may undertake to perform and complete the EPC Contract through their agents or independent contractors, who must, in either case, be acceptable to PGE. Id. at ¶ 4.2. Sureties may, in continuous consultation with PGE, obtain bids or negotiated proposals from qualified contractors acceptable to PGE for a contract acceptable to PGE for performance and completion of the EPC Contract. Id. at ¶ 4.3. Sureties may waive their right to proceed and determine the amount for which they may be liable to PGE and, as soon as practicable after the amount is determined, tender payment therefor to PGE. Id. at¶ 4.4.1. Or, finally, Sureties may waive their right to proceed and deny liability in whole or in part and notify PGE citing reasons therefor. Id. at ¶ 4.4.2. If Sureties do not proceed as provided in the Bond with reasonable promptness, they "shall be deemed to be in default on this Bond seven (7) days after receipt of an additional written notice from [PGE] to the Suret[ies.]" Id. at ¶ 5.
The Bond provides for the following dispute resolution process:
Any proceeding, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction in the location in which the work or part of the work is located, and in any court(s) to which the Parties to the [EPC] Contract have agreed will have jurisdiction over disputes thereunder. Each of the Parties hereby accepts and consents to, generally and unconditionally, the jurisdiction of the aforesaid courts and appellate courts from any appeal thereof.
Id. at ¶ 9 (emphasis added). There is no agreement between PGE and Sureties to submit any proceeding to arbitration.
PGE also required Contractor to obtain a written guarantee from Abengoa, in favor of PGE, guaranteeing performance of the EPC Contract. On or about July 30, 2013, PGE and Abengoa entered into an agreement (the "Guaranty") under which Abengoa guaranteed PGE that if Contractor failed to perform its duties under the EPC Contract, then PGE could seek recourse against Abengoa according to the terms of the Guaranty. Sokol Decl., Ex. B (Guaranty), ECF 14-2.
The Guaranty between Abengoa and PGE states that if Contractor fails to perform under the EPC Agreement, Abengoa will "perform or cause to be performed such duty, obligation, warranty, guarantee or responsibility" within seven days of receiving PGE's "written notice of such failure and demand." Id. at 1.
The Guaranty also contains a dispute resolution provision, Article 10, which states that:
[I]n the event any dispute arises between the Parties in connection with this Guaranty, including without limitation disputes regarding the breach, termination or validity hereof and any claims by [PGE] that [Abengoa] has failed to comply with some or all of its obligations under this Guaranty (a "Dispute")" then either PGE or Abengoa may refer the dispute to final and binding arbitration in accordance with the procedures set forth in Section 10(b) of the Guaranty.
Id. ¶ 10(a). Section 10(b) provides that the arbitration shall be conducted in Portland, Oregon "pursuant to the Rules of Arbitration of the International Chamber of Commerce[.]" Id. ¶ 10(b). The arbitration will be administered by the ICC. Id. "The arbitrator(s) shall resolve all questions of state law by application of the substantive law of Oregon, except that interpretation and enforcement of this arbitration procedure shall be governed by the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.)[.]" Id.
On December 18, 2015, PGE sent Contractor a notice of contractor event of default and termination under the EPC Agreement. Compl. ¶ 117.The termination notice informed Contractor that it was in material default under various articles of the EPC Contract. Id. at ¶ 118. The same day, PGE sent a letter to Sureties, informing them that PGE had declared a contractor default and formally terminated Contractor's right to complete the EPC Contract. Id. at ¶ 117.
On March 9, 2016, Sureties sent PGE a letter stating their election to deny liability to PGE in whole, under Section 4.4.2 of the Performance Bond. Id. at ¶¶ 131-32. In response, PGE filed the present action against Sureties.
PGE has not asserted any claims against Abengoa. However, on December 31, 2015, Abengoa submitted a request for arbitration with the ICC. Gardiner Decl. Ex. 1, ECF 18-1. In the request for arbitration, Abengoa identifies itself as the Claimant and PGE as the Respondent. Id. at 2. Abengoa identifies Contractor as "Impleaded Parties." Id. On March 2, 2016, Abengoa fileda request for joinder of Sureties as "Impleaded/Joined Parties." Gardiner Decl. Ex. 2, ECF 18-2. Abengoa alleges that PGE wrongfully terminated the EPC Contract and, thus, Sureties were not liable to PGE under the Bond. Id.
PGE contends that Abengoa is not entitled to request arbitration at this point because PGE has not asserted any claim against Abengoa under the Guaranty. The Guaranty provides that, if for any reason Contractor fails to perform under the EPC Agreement, Abengoa will, "within seven (7) days of [Abengoa's] receipt of written notice of such failure and demand by [PGE], perform or cause to be performed such duty, obligation, warranty, guarantee of responsibility in accordance with the EPC Agreement . . . ." Guaranty ¶ 1(b). PGE has not provided any written notice of failure and demand to Abengoa.
For now, the arbitration is proceeding at the ICC. Gardiner Decl. Ex. 3, ECF 27-3. Two of the three necessary arbitrators have been selected; the third arbitrator (the President of the Tribunal) has not yet been selected. Id. Once the tribunal is constituted, the parties will be able to seek resolution as to whether the arbitration is properly brought by Abengoa. Gardiner Decl. ¶¶ 27-28.
Under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, written agreements to arbitrate disputes that arise out of transactions involving interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. If a court finds the issue involved in a federal action is referable to arbitration under a written arbitration agreement, the court shall, "on application of one of the parties, stay the trial of the action until such arbitration has been completed...
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