United States v. Pall Corporation
Decision Date | 30 November 1973 |
Docket Number | No. 73-C-45.,73-C-45. |
Parties | UNITED STATES of America, Plaintiff, v. PALL CORPORATION and LFE, Inc., Defendants. |
Court | U.S. District Court — Eastern District of New York |
Robert A. Morse, U. S. Atty., Brooklyn, N. Y. by Thomas A. Illmensee, Asst. U. S. Atty., and Roger C. Wesley, Atty., Civ. Div., U. S. Dept. of Justice, of counsel, for plaintiff.
Gilinsky, Stillman & Mishkin, New York City, for defendant Pall Corp. by Armand Gilinsky, Paul Mishkin, James A. Goldstein, New York City, of counsel.
This action for breach of contract is before the court on the motion of defendant Pall Corporation, before answer, to dismiss the complaint as barred on its face by the statute of limitations.
The complaint was filed on January 9, 1973. It recites that four pumps were purchased in 1965 by Consolidation Coal Company from Integral Motor Pump Corporation, a subsidiary of Pall, for use in the construction and operation of a coal-to-liquid fuel pilot plant. The specifications which preceded the purchase order and were made known to Integral called for the pumps to be designed to handle a hydrogenated coal extract under pressure of 5,000 psig at 875° F. Consolidation was operating under a cost-plus-fixed-fee contract with the Office of Coal Research of the United States Department of Interior. The complaint states that Integral was informed of the fact that all equipment including these pumps would become the property of the United States.
The purchase order was issued by Consolidation in Pennsylvania, requiring delivery to the pilot plant in West Virginia. The pumps were manufactured in Connecticut and shipped directly to West Virginia.
The pumps were delivered between November 30, 1965 and March 7, 1966. They failed repeatedly, necessitating substantial expense for repairs and redesign and causing considerable plant downtime.
The complaint asserts that Integral knew that the pumps did not meet the specifications, but misled Consolidation and the United States and hindered them from discovering the inadequate specifications of the pumps until December 12, 1968.
The named defendants are sued here because Integral was dissolved on July 29, 1966 and its assets and liabilities were transferred to Pall, which in turn sold certain assets on October 31, 1967 to Laboratory for Electronics, Inc. (sued herein as LFE, Inc.).
The government reimbursed Consolidation for the cost of the pumps and all other sums claimed in the complaint and received an assignment of the claim of Consolidation on October 1, 1972.
The second count of the complaint charges that LFE undertook repair of the pumps knowing that they could not meet the required specifications.
The original cost of the pumps was $34,700. The complaint asks damages of about $659,000 from Pall, and $10,000 from LFE.
After a series of extensions, Pall Corporation moved to dismiss the complaint under F.R.Civ.P. 12(b)(6) on the ground that the complaint shows that the right of action did not accrue within four years before the commencement of the action. The time for LFE to answer or move has been extended until after the determination of Pall's motion.
The United States filed a written opposition to the motion, reciting (1) that the claims had been assigned to the United States less than four years after the discovery of the alleged misrepresentation, and (2) that the United States had contractual claims of its own, governed by a separate federal six-year statute of limitations. An affidavit of William F. Schula, an engineer employed by Continental Oil Company, the parent of Consolidation, was attached to the government's opposition. Mr. Schula stated that he was at the pilot plant from October 1967 to February 1971 and that he first learned on December 12, 1968 from an engineer then working for a division of LFE, that the pumps had been designed for water service at only 2,500 pounds per square inch at 650° F. and that it was very doubtful they could ever meet the specifications of 5,000 pound per square inch and 850 (sic) degrees Fahrenheit.
Pall asserts in documents attached to its supplemental memorandum, that four pumps were shipped to Integral by Consolidation on August 25, 30, and 31 and September 7, 1967 to be "reworked . . . in accordance with verbal discussions."
The Uniform Commercial Code fixed a four-year statute of limitations, subject to tolling, on actions for breach of contract of sale of goods. The pertinent provisions of Section 2-725 are as follows:
The identical provisions are contained in the Connecticut, New York, Pennsylvania, and West Virginia versions of the Uniform Commercial Code.
A specific federal statute of limitations for actions by the United States fixes a six-year period for contract actions and three years for torts, subject to exclusion of periods when the basic facts were not known to the United States. 28 U.S.C. §§ 2415, 2416. The following are the pertinent provisions:
If the four-year statute of limitations was tolled by concealment of facts and the cause of action was in contract, the claim was timely assigned to the United States in October of 1972 and the six-year statute applicable to actions by the government had not run when the action was commenced. The United States also asserts that it need not rely on the assignment of the claim from Consolidation because it had a direct right as third-party creditor beneficiary of the contract, giving it six years after December 12, 1968 within which to bring the action.
Defendant claims that the complaint sounds in tort and therefore that the statute had run at the time of the assignment, regardless of any concealment of facts.
It is unnecessary to decide which state law applied before the assignment to the United States, because the statute is the same in each state and there is no showing of any difference in decisions interpreting the statute.
The normal rule is that the court should look to the complaint in determining whether a cause of action is statute-barred. Kincheloe v. Farmer, 214 F.2d 604 (7th Cir. 1954), cert. denied, 348 U.S. 920, 75 S.Ct. 306, 99 L. Ed. 721 (1955). The case is not like Chambliss v. Coca Cola Bottling Corp., 274 F.Supp. 401, 409 (E.D.Tenn.1967), where the court rejected an attempt to amend the complaint by a statement in a brief. Here it is appropriate and practical to consider the Schula affidavit as a help in interpreting the complaint.
Cases interpreting Section 2-725 of the Uniform Commercial Code have held that fraud will suspend the running of the statute of limitations. Hoeflich v. William S. Merrell Co., 288 F.Supp. 659 (E.D.Pa.1968) ( ); Shaffer v. Lazelere, 410 Pa. 402, 189 A.2d 267 (1963) ( ); Flynn v. Royal Development Co., 54 N.Y.S.2d 585, 589 (Sup.Ct. Broome Co., 1944); Glus v. Brooklyn Eastern District Terminal, 359 U.S. 231, 79 S.Ct. 760, 3 L.Ed.2d 770 (1959); Krupa v. Kelley, 5 Conn.Cir. 127, 245 A.2d 886 (Conn.1968).
Assignment to the United States will not revive a claim which has already been barred by a state statute. Guaranty Trust Co. v. United States, 304 U.S. 126, 141-142, 58 S.Ct. 785, 793, 82 L.Ed. 1224 (1938). In the case of an assignment before the state statute of limitations has run, however, the case will not be barred until the federal statute has run. United States v. Nashville, Chattanooga, St. Louis Ry. Co., 118 U.S. 120, 125, 6 S.Ct. 1006, 30 L.Ed. 81 (1886); United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84...
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