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

367 F. Supp. 976

UNITED STATES of America, Plaintiff, v. PALL CORPORATION and LFE, Inc., Defendants.

No. 73-C-45.

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

November 30, 1973.

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.

MEMORANDUM AND ORDER

JUDD, District Judge.

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

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.

Other Facts

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."

Applicable Statutes of Limitations

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:

(1) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. . . .

(2) A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.

. . . . . .

(4) This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action which have accrued before this Act becomes effective. L.1962, c. 553, eff. Sept. 27, 1964.

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:

§ 2415. Time for commencing actions brought by the United States

(a) Subject to the provisions of section 2416 of this title, and except as otherwise provided by Congress, every action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues or within one year after final decisions have been rendered in applicable administrative proceedings required by contract or by law, whichever is later . . ..

(b) Subject to the provisions of section 2416 of this title, and except as otherwise provided by Congress, every action for money damages brought by the United States or an officer or agency thereof which is founded upon a tort shall be barred unless the complaint is filed within three years after the right of action first accrues . . ..

§ 2416. Time for commencing actions brought by the United States—Exclusions

For the purpose of computing the limitations periods established in section 2415, there shall be excluded all periods during which—

. . . . . .

(c) facts material to the right of action are not known and reasonably could not be known by an official of the United States charged with the responsibility to act in the circumstances;

Discussion of Law

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.

Suspension of the Statute of Limitations by Concealment of Facts

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) (fraudulent inducement to delay bringing suit); Shaffer v. Lazelere, 410 Pa. 402, 189 A.2d 267 (1963) (holding that the statute runs from the date when the plaintiff with reasonable diligence could have ascertained defendant's culpability); 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).

The Effect of Assignment to the United States

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...