ML20137B939
| ML20137B939 | |
| Person / Time | |
|---|---|
| Site: | Shoreham File:Long Island Lighting Company icon.png |
| Issue date: | 11/20/1985 |
| From: | Rolfe R HUNTON & WILLIAMS |
| To: | Caruso R NRC |
| References | |
| NUDOCS 8511260387 | |
| Download: ML20137B939 (91) | |
Text
Huwrow Be WILLIAMS 707 EAsr MAIN STREET P.O. Box 1535 aooo PENNSYLVANIA AVENUE N.w.
RIcnuown VIaoIwIA 2a212 me PAaK AVENUE P. o. sox nosso NEW YORK. NEw YoRM tot 71 waswiNovoN. O c. aoo3e TELEPwoNE asa seo-saoo TELEPwoNE aoa-ess-anoo TELEPHONE 804-788 8200 TELEX 7s47oe -
nast vinosNiA mANK vowEn TWX-7tO - 9 5 6 - Oo s t a e a y evitoiNo P. o. sox sos P, o som 3aee nALEnow. NORTH CAmouNA a76Ca NonroLM. venoiNeA a3sid TELEPMoNE 919-828 9371 TELEPwoNE so4 ors-ason November 20, 1985
" " * " * " " * * * * * " ^ " " * " ' ' ' "
- doll CMAIN gmeDat RoAO MNoXVILLE. TENNESSEE 379ol FAsRFAM. YtRolNI A amo3o TELEPMoNE Sts-637-4381 TELEPMoNE 703 3Sa-aaOo n'* "a-24566. 300005 8466 o..ECr o. A No..o. 7...
/
-Mr. Ralph Caruso Shoreham Project Manager U.S. Nuclear Regulatory Commission Staff 7920 Norfolk Avenue Bethesda, Maryland 20014 LILCO v. Transamerica Delaval, Inc. [O*
Dear Ralph:
Enclosed is a copy of Memorandum of Law in Support of De-fendant's Motion to Dismiss.
I have not enclosed copies of TDI's lengthy attachments.
If you would like a copy, please let me know.
Sincerely yo s,
/
e Rober_t M.
Rolf r 177/6071 Enclosures
,. c. 3 + *
- a g.peyo > OI pBA22 nan Bi!!!h2 G
.., ~ 'a,
..L 3
It UNITED STATbS DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK l
~~~--------------x LONG ISLAND LIGHTING COMPANY, Plaintiff, 85 Civ. 6892 (GLG) i
-aga nst-1 TRANSAMERICA DELAVAL INC.
Defendant.
x MEMORANDUM OF LAW IN SUPPORT F
DEFENDANT'S MOTION TO DISMISS WEIL, GOTSHAL & MANGES 767 Fifth Avenue New York, New York 10153
-and-ROSENMAN COLIN FREUND LEWIS & COHEN 515 Madison Avsnue
~
New York, New York 10022 Attorneys for Defendant Transamerica Delaval Inc.
o
&way.--
,,.e.
-m-=r.. - - -. -, --
7
-1
. a.
e9 r,
~
TABLE OF CONTENTS Page TABLE OF AUTHORITIES.
iii PRELIMINARY STATEMENT.
1
SUMMARY
OF ARGUMENT 4
THE RELEVANT FACTS.
9 A.
The Delaval-LILCO Contract.
9 B.
Proceedings Before The PSC.
12 C.
Proceedings Before The NRC.
14 ARGUMENT.
15 I.
LILCO'S ON-THE-RECORD ADMISSIONS BEFORE THE PSC THAT DELAVAL'S DIESEL GENERATORS DID NOT CAUSE THE SHOREHAM DELAYS BAR SUCH A CLAIM HERE.
15 A.
Summary Of LILCO's Admissions Before The PSC.
16 B.
LILCO Is Precluded From Repudiating Its Prior Testimony.
20 C.
LILCO's Admissions Are Conclusive On The Issue Of Delay Damages.
24 D.
The ASLB Findings Also Bar LILCO's Delay Damage Claims.
27 II.
LILCO'S CLAI S ARE BARRED BY THE APPLICABLE STATUTES OF LIMITATIONS.
28 A.
LILCO's Fraudulent Concealment Allegations Are Barred By The Doctrine Of Collateral Estoppel.
29
- , <,, f i
B.
LILCO's Contract And Breach Of Warranty Claims Are Time Barred.
33 C.
LILCO's Negligence And Strict Liability Claims Are Time Barred.
35 D.
LILCO's Fraud Claims Are Time Barred.
38 E.
LILCO's RICO Claims Are Time Barred.
40 III.
LILCO FAILS TO STATE A CLAIM UNDER RICO.
42 A.
The Complaint Does Not Sufficiently Set Forth A " Pattern Of Racketeering Activity" 44 B.
LILCO Fails To Allege A RICO Violation Because The Complaint Casts Delaval As Both The " Person" And The " Enterprise.
49 C.
The Complaint Fails To State A RICO Violation Because It Does Not Identify The Enterprise In Which Delaval Allegedly Invested Racketeering Profits.
52 IV.-
LILCO FAILS TO PLEAD A SEPARATELY COGNIZABLE FRAUD CLAIM..
53 A.
LILCO's Allegations Of Fraud Amount To No More Than A Rehashing Of Its Breach Of Warranty Claim.
54 B.
The Complaint Fails To State A Claim For Fraudulent Inducement Of The Contract 56 V.
LILCO IS BARRED AS A MATTER OF LAW FROM RECOVERING ECONOMIC LOSS UNDER ITS NEGLIGENCE i
AND STRICT LIABILITY CLAIMS.
62 VI.
LILCO IS BARRED BY CONTRACT FROM RECOVERY OF CONSEQUENTIAL DAMAGES.
67 VII.. DISCOVERY SHOULD BE STAYED 70' CONCLUSION.
76 f
a 11 4
..___....,_,_._,.._._-----_,_..--._,_,---..,---,_--_....-....-m,..-,,,--
.,0**
g Table of Authorities Cases Paces (s)
Accusvstem, Inc. v. Honeywell Informatiori Systems, Inc.,
580 F. Supp. 474 (S.D.N.Y. 1984)....................
38 Alexander v. Perkin Elmer Coro.,
729 F.2d 576 (8th Cir.
1984)........................
41,43 Allen v. Zurich Ins. Co.,
667 F.2d 1162 (4th Cir.
1982).......................
20 Allincton v. Caroenter No. CV84-8403 slip opf (C.D. Cal. Aug. 29, 1985)....
47 American Communication Association v. Retirement Plan for Emolovees of RCA Coro.,
488 F.
Supp. 479 (S.D.N.Y.),
aff'd, 646 F.2d 559 (2d Cir.
1980)..................
75 American Electric Power Cgt v. Westinchouse Electric Coro.,
418 F. Supp. 435 (S.D.u.Y.
1976)....................
6,68 Antel. Oldsmobile-Cadillac, Inc. v.
Cyrus Leasina Co.,
101 A.D.2d 688, 475 N.Y.S.2d 944 (4th Dept.
1984)....................................
64 l
Arizona v. Shamrock Foods Co.,
729 F.2d 1208 (9th Cir.
1984).......................
20,21 Associated Soinners v. Massachusetts Textile, 75 N.Y.S.2d 263 (Sup. Ct.
1947).....................
67 Bagf,, v. A. H. Robins Co.,
616 F. Supp. 333 (E.D. Wis.
1985)...................
43 i
Bavles v. Clark, 115 A.D.
33, 100 N.Y.S.
586 (1906)..................
57 Bennett v. EgIg, 710 F.2d 1361 (8th Cir.
1983).......................
50,51 111
l
..a o
e Bennett v. United States Trust Co.,
770 F.2d 308 (2nd Cir.
1985)........................
50,51 j
52,53 l
Beraman v. Stein, 404 F. Supp. 287 (S.D.N.Y.
1975)....................
74 Bowlina v. Founders Title Co.,
773 F.2d 1175 (llth Cir.
1984)......................
41 Brick.v. Cohen-Hall-Marx Co.,
237 N.Y.
259, 11 N.E.2d 902 (1937)..................
35,39 55 Bulk oil (Zua) A.G.
- v. Sun Co.,
503 F.
Supp. 1134 (S.D.N.Y.
1983)...................
51 B.V.D.
Co. v. Marine Midland Bank.,
46 A.D.2d 51, 360 N.Y.S.2d.901 (1st Dopt.
1974)....................................
59 Cabrini Medical Center v. Desina, 64 N.Y.2d 1059, 489 N.Y.S.2d 872 (1985).............
39 California Truckina Association v. Brotherhood Of Temmaters & Auto Drivers, 679 F.2d 1275(9th Cir. 1981),
cert. denied, 479 U.S. 970 (1982)...................
21 Camobell v. A.H. Robins Co.,
615 F. Supp. 496 (W.D. Wis.
1985)...................
43 Cashco Oil Co. v. Moses, 605 F.
Supp. 70 (N.D. Ill.
1985)....................
53 Cauble v. Mabon Nuaent & Co.,
594 F.
Supp. 985 (S.D.N.Y.
1984)....................-
59 Channel Master Coro. v. Aluminum Limited Sales, Inti, 4 N.Y.2d 403, 176 N.Y.S.2d 259 ( 19 5$ ).............................
60 Chris-Craft Industries, Inc. v. Pioer, Aircraft Coro.,
384 F.
Supp. 507 (S.D.N.Y. 1974),
modified on other arounds, 516 F.2d 172 (2d. Cir.),
rev'd on other arounig, 430 U.S.
1 (1977)...........
26 iv
y o
r Coastal States Gas Coro. v. Deoartment of Enerav, 84 F.R.D. 278 (D. Del.
1979)........................
75 domotonv.Ida, 732 F.2d 1429.(9th Cir.
1984).......................
40 Comouterized Radioloaical Services v. Syntax Coro., 595 F. Supp. 1495 (E.D.N.Y.
1984)..............
59 Consolidated Edison Co. v. Westinchouse Electric Coro.,
567 F. Supp. 358 (S.D.N.Y.
1983)....................
64 County of Suffolk v. Lona Island Lichtina Co.,
~
728 F.2d 52 (2d Cir.
1984)..........................
32,64 Cranston Print Works Co. v. Brockmann
' International A.G.,
521 F. Supp. 609 (S.D.N.Y.
1984).....................................
59 Decker v. Massev-Ferouson Ltd.,
681 F.2d 111 (2nd Cir.
1982)................,.......
44-Durante Bros. & Sons, Inc. v.
Flushina National Bank, 755 F.2d 239 (2nd Cir.
1985)...........
40 Ebasco Services, Inc. v. Pennsylvania Power & Licht Co.,
460 F. Supp. 163 (E.D. Pa.
1978)....................
6,69 Edwards v. Aetna Life Ins. Co.,
690 F.2d 595 (6th Cir.
1982)........................
20 Environmental Concern, Inc. v. Larchwood Construction Co.,
101 A.D.2d 591, 476 N.Y.S.2d 175 (2d Dept. 1984)....
21 Exeter Towers Associates v.'Bowditch, 604 F.
Supp. 1547 (D. Mass.
1983)...................
45 Fatalo, Inc. v. Decrescente Dist. Co.,
86 A.D.2d 600, 446 N.Y.S.2d 120
-(2d Dept.
1982).....................................
58 Florida Power & Licht Co. v. Westinchouse Electric Coro.,
No. 78-1896-Civ-JE slip op.
(S.D. Fla. June 2, 1982)............................
6,68 v
J
T.
g s
- t
.s ;
Frevne v. Xerox Coro.,
98 A.D.2d 965, 470 N.Y.S.2d 187 (4th Dept.
1983)....................................
55 Giblin v. Murchv, 97 A.D.2d 668, 469 N.Y.S.2d 211 (3rd Dept. 1983)....
59 Griffin v. O'Neal, Jones & Feldman, Inc.,-
604 F. Supp. 717 (S.D. Ohio 1985)...................
43
' Gross v. Diversified Mortcace Investors, 431 F. Supp. 1080 (S.D.N.Y. 1977) aff'd mgm., 636 F.2d 1201 (2d Cir. 1980)............
60 Guerrero v. Katzen, 571 F. Supp.-714 (D.D.C.
1983)......................
52 Himel v. Continental Ill. Nat'l Bank & Trust Co.,
596 F.2d 205 (7th Cir.
1979)........................
20 Hellenic Liner Ltd. v. O'Hearn, 523 F. Supp. 244 (S.D.N.Y.
1981)....................
43 H.L.
Moore Drua Exchance, Inc. v. Smith Klein &
French Laboratories, 384 F.2d 97 (2nd Cir.
1967).........................
74 Hole v. General Motors Coro.,
83 A.D.2d 715, 442 N.Y.S.2d 638 (3d Dept.
1981).....................................
65,66 Houston Lichtina & Power Co. v. Brown Root, Inc.,
No. 81-H-0686-C (District Court of Matagorda County, Texas, 130th Judicial District).....................
72 Hudson v. LaRouche, 579 F. Supp. 623 (S.D.N.Y.
1983)....................
44,51 In the Matter of Lona Island Lichtina Co.,
No. LBP-85-18 (ASLB June 14, 1985)..................
14,18 25 In the Matter of Lona Island Lichtina'Co.,
No. 50-322-OL-3 (ASLB August 26, 1985)..............
14,18 In the Matter of Lona Island Lichtina Co.,
No. 50-322-OL-3 (ASLB October 18, 1985).............
15 vi
r g..
e' International Telechone and Telecraoh Coro. v.
American Telechone and Telecraoh, 444 F.
Supp. 1148 (S.D.N.Y.
1980)...................
31 Jo Ann Homes at Bellmore, Inc. v. Dworetz, 25 N.Y.2d 112, 302 N.Y.S.2d 799 (1969)..............
26 Johnson v. Gold, 71 A.D.2d 1056, 420 N.Y.S.2d 816 (4th Dept.
1979)....................................
39 Kaufman v. Chase Manhattan Bank N.A.,
581 F. Supp. 350 (S.D.N.Y.
1984)....................
51,53 Kredietbank N.V.
- v. Joyce Morris, Inc.,
No. 84-1903 slip op.
(D.N.J. Oct. 11, 1983).........
46 Lanzi v. Brooks, 54 A.D.
2d 1057 (3d Dept. 1976),
aff'd, 43 N.Y.S.2d 778 (1977).......................
59 Lockman v. Town of Southold, 108 A.D.2d 900, 485.N.Y.S.2d 7114 (2nd Dept. 1985)...
.~
Mauriber v. Shearson/American Exuress Inc.,
i 564 F. Supp. 391 (S.D.N.Y.
1982).........~...........
44 McKay Construction Co. v. City of Cheida Housina Authority, j
70 A.D.2d 993, 417 N.Y.S.2d 808 (3d Dept.
1979).....................................
26 Mid-Hudson Mack, Inc. v. Dutchess Ouarv & Sucolv Co, 99 A.D.2d 751, 471 N.Y.S.2d 664 (2d Dept. 1984).....
35,64 Miller v. Columbia Records, l
70 Misc. 2d 517, 415 N.Y.S.2d 869 l
(1st Dept.
1979)....................................
56 Miller v. Volk & Huxlev, Inc.,
44 A.D.2d 810, 355 N.Y.S.2d 605 (1st Dept.
1974)...~.................................
55 Morcan v. Bank of Waukeaan, No. 84C6251 slip op. (N.D. Ill. Aug. 28, 1985)......
47 vil
e-.
s 8
Morrison v. Syntex Laboratories, Inc.,
101 F.R.D. 743 (D.D.C.
1984)........................
43 Hggg v. Moraan Stanelv, Inc.,
553 F..Supp. 1347 (S.D.N.Y. 1983),
aff'd, 719 F.2d 5 (2d Cir. 1983),
cert. denied, 465 U.S. 1025 (1984)..................
44 Northern Trust Bank /O' Hare v.
Inrvco, Inc., 615 F.
Supp. 828 (N.D. Ill.
1985).......
47,49 Piffath v. Esoosito, 58 A.D.2d 577, 395 N.Y.S.2d 219 (2d Dept. 1977).....
57 Pittsburah Coke & Chemical Co. v. Bolle, 421 F.
Supp. 908 (E.D.N.Y.
1976)....................
58 Portland General Electric Co. v. Bechtel Coro.,
No.79-103 slip op. (D. Ore. June 4, 1980)..........
68 Potomac Ins. Co. v. Rockwell International Coro.,
94 A.T.2d 763, 462 N.Y.S.2d 707 (2d Dept. 1983).....
34 Power Mercantile Coro. v. Feinbero, 109 A.D.2d 117, 490 N.Y.S.2d 190 (1st Dept.
1985)....................................
38 Price Brothers Co. v. Olin Construction Co.,
Inc',
528 F.
Supp. 716 (W.D.N.Y.
1981)....................
Professional Assets Manaaement, Inc. v.
Penn Sauare Bank, N.A.,
Civ. 82-1357 slip op.
(W.D. Okla. Aug. 30, 1985)..........................
46,47 48 Rae v. Union Bank, 725 F.2d 478 (9th Cir.
1984)........................
50 Roias v. First Bank National Association,
~613 F. Supp. 968 (E.D.N.Y.
1985)...................
47,48 49 Ronson Coro. v. Licuifin Aktiencesellshaft, 375 F. Supp. 628 (S.D.N.Y.
1974)....................
21 viii
.wo-.-ws-v--~v,
,m+,.,,.-,
r""
Rath v. McAllister Bros., Inc.,
316 F.2d 143 (2d Cir.
1963).........................
20 Royal Indemnity Co. v. Westinchouse Electric Coro.,
385 F.
Supp. 520 (S.D.N.Y.
1974)....................
69 RXag v. New York Telechone Co.,
62 N.Y.2d 494, 478 N.Y.S.2d. 823, 467 N.E.2d 487 (1984)...............................
31 S.M. Wilson & Co. v. Smith International, Inc.,
587 F.2d 1363 (9th Cir.
1978).......................
65 Eahn v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714 (1957)...............
61 Safir v. Gibson, 432 F.2d 137 (2d Cir.
1970).........................
27 Scarano v. Central Railroad Co. of New York, 203 F.2d 510 (3d Cir.
1953).........................
21 Schiavone Construction Co. v.
Elacod Mavo Coro.,
56 N.Y.2d 667, 451 N.Y.S.2d 720 (1982),
rev'a, 81 A.D.2d 221, 439 N.Y.S.2d 933 (1st Dept.
1981)................................
64,66 Schmidt v. Merchants Discatch Transco.,
270 N.Y. 287 (1936).................................
37 Schwartz v. Havden Newoort Chemical Coro.,
12 N.Y.2d 212, 237 N.Y.S.2d 714, 188 N.E. 142 (1963)..................................
36,37 Sedima S.P.R.L.
v.
Imrex Co., et. al.,
U.S.
105 S. Ct. 3275 (1985)..............................
42,45 47,49 Seria v. Cook County Service Coro.,
581 F. Supp. 575 (N.D. Ill.
1984)...................
45 Seven-Un Battlina Co. v. Dow Chemical Co.,
96 A.D.2d 1051, 466 N.Y.S.2d 478, (2d Dept. 1983), aff'd, 61 N.Y.2d 828 473 N.Y.S.2d 973 (1984)............................,
38 ix i
J i
j
-. _. _... -. _ _ _ _, _ _. _ -.., _ _ _. _ _. - - _ -. ~ - _. -.., -.. _ _ _,
.. -. -.~
Sherkate Sahami Khas Ranol v'. Jahn & Son. Inc.,
531 F.
Supp. 1048 (S.D.N.Y. 1982)...................
54 Southern California Edison Co. v.
Westinchouse Electric Coro.,
No. CV-83-1985/6 slip op.
(S.D. Fla. April 18, 1984)..........................
6,21,22 23,68 Southern California Edison Co. v.
Westinchouse Electric Coro.,
No. CV-83-1985/6 slip. op.
-(C.D. Cal. July 17, 1984)...........................
6,21 22,23 Southern Pacific Communications Co. v.
American Telenhone and Telecraoh Co.,
556 F. Supp. 825 (D.D.C. 1982),
aff'd, 740 F.2d 980 (D.C. Cir. 1984),
cert. denied, 105 S. Ct 1359 (1985).................
26 Southwest Forest Industries, Inc. v.
Westinchouse Electric Coro.,
422 F.2d 1013 (9th Cir.), cert. denied, 400 U.S. 902 (1970).................................
68 Soerbera v. Firestone Tire & Rubber Co.,
61 F.R.D. 70 (N.D. Ohio 1973).......................
74 Soerlina v. United States, 692 F.2d 223 (2d. Cir. 1982),
cert. denied, 462 US 1131 (1983)....................
22 Sorina Mills. Inc. v. Carolina Underwear Co.,
87 A.D.2d 524, 448 N.Y.S.2d 10 (1st Dept.
1982)....................................
35 Stafford v. International Harvester Co.,
668 F.2d 142 (2d Cir.
1981).........................
33 Steinhardt v. Johns-Mansville Corooration, 78 A.D.2d 577, 432 N.Y.S.2d 422 (4th Dept. 1980), aff'd, 54 N.Y.2d 1008, 446 N.Y.S.2d 244, 430 N.E.2d 1297 (1981),
cert. denied, 102 S. Ct. 2226 (1982)................
36,37 X
Teleoromoter of Erie, Inc. v. City of Erie.,
537 F. Supp. 6 (W.D. Pa.
1981)......................
45 Teltronics Services, Inc. v.
Anaconda-Ericcson, Inc., 587 F. Supp.
724 (E.D.N.Y.
984)..................................
40 Tesoro Petroleum Coro. v. Holborn Oil Co.,
108 A.D.2d 607, 484 N.Y.S.2d 834 (1st Dept.
1984)....................................
55,58 Thornton v. Roosevelt Hosoital, 47 N.Y.2d 780, 417 N.Y.S.2d 92, 391 N.E.2d 1002 (1979)..............................
36,37 Todd v. Oooenheimer & Co.,
78 F.R.D. 415 (S.D.N.Y.
1978).......................
60 Trianale Underwriters, Inc. v. Honeywell, Inc.,
604 F.2d 737 (2d Cir. 1979), aff'd after remand, 651 F.2d 132 (2d Cir.
1981).................
36,38 39,56 United States v. Mandel, 591 F.2d 1347 (4th Cir.
1979)......................
51 United States v. Scotto, 641 F.2d 47 (2nd Cir. 1980),
cert. denied, 452 U.S.
961 (1981)...................
51,53 U'nited States v. Utah Cot 1struct & Minina Co.,
384 U.S.
394........................................
27 United virainia Bank / Seaboard Nellonal v.
B.F.
Saul Real Estate Investment Trust, 641 F.2d 185 (4th Cir.
1981)........................
21 Utica Observer Discatch, Inc. v. Booth, 106 A.D.2d 863, 483 N.Y.S.2d 548 (4th Dept. 1984)...
64 Victorson v. Bock Laundrv Machine Co.,
32 N.Y.2d 395, 373 N.Y.S.2d 39, 335 N.E.2d 275 (1975)...............................
35 -
Xi
7--
1 i
l Eggd v. Desachem Co.,
771 F.2d 663 (2d Cir.
1985).........................
37 Wegman v. Dairvlea Coro.,
)
50 A.D.2d 108, 376 N.Y.S.2d 728 (4th Dept. 1975), iv. dismissed, 38 N.Y.2d 918, 382 N.Y.S.2d 978 (1976)..............
59 Williamette Savinos and Loan v. Blake
& Neal Finance Co.,
577 F. Supp. 1415 (D. Ore.
1984)......................................
54
-Wyatt Industries, Inc. v. Publicker Industries, Inc.,
420 F.2d 454 (5th Cir.
1969)........................
68 Federal Statutes 1
18 U.S.C.
$1961....................................
3 18 U.S.C.
S1961(3).................................
50 18 U.S.C.
S1961(4).................................
50 i
18 U.S.C.
$1961(5).................................
44 18 U.S.C.
S1962....................................
42,43,44 18 U.S.C.
S.1962(a).................................
42,52,53 18 U.S.C.
S1962(b).................................
43 18 U.S.C.
$1962(c).................................
41,47,49,53 18 U.S.C.
$1962(d).................................
42 18 U.S.C.
$1964(c).................................
40,42 Federal Rules of Civil Procedure Rule 9(b)..........................................
44,45,57 Rule 12(b)(6)......................................
1 Rule 26(c).........................................
75 Rule 56(e).........................................
24 State Statutes New York Civil Practice Law & Rules S203(f)..................................
38 S213(8)..................................
38 5214(2)..................................
40 i
5214(4)..................................
36 _
New York Uniform Commercial Code 52-715(2)(1).............................
67 52-719(3)................................
67 52-719...................................
67 l
1 xiL
{
52-725(1)................................
33 s2-725(2)................................
34 Miscellaneous Authorities U.S. Code Cong. & Admin. News pp. 1073 31,. ggg.
(1970)............................
42 24 N.Y. Jur. Fraud and Deceit 5 171 (1962)............
58 W. Kimble and R. Lester, Products Liability...........
5 J. Weinstein and M. Berger, Evidence..................
24 C. Wtight, A. Miller and C. Cooper, Federal Practice and Procedure $4477 (1981)...........
22 The Law of Vicarious Admissions -- and Estocoel, 26 U.Cinn. L. Rev. 17 (1957)........................
24 The Doctrine of Preclusion Acainst Inconsistent Positions in Judicial Proceedinas, 59 Harv. L. Rev. 1132 (1946)........................
22 e
8 xiii
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
'-------------------------------x LONG ISLAND LIGHTING COMPANY, Plaintiff, 85 Civ. 6892 (GLG)
-against-TRANSAMERICA DELAVAL INC.
Defendant.
x MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT'S MOTION TO DISMISS PRELIMINARY STATEMENT Defendant Transamerica Delaval Inc. ("Delaval")
submits this memorandum of law in support of its motion, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the Complaint filed by plaintiff Long Island Lighting Company ("LILCO") for failure to state a claim upon which relief can be granted and for a stay of discovery.
Each of plaintiff's many claims -- all arising out of a single sale of goods occurring more than a decade ago -- is defective as a matter of law under the doctrines of judicial and collateral estoppel, applicable statutes of limitations, relevant contract documents or other governing legal principles.
3 l~
Despite LILCO's contorted efforts in the Complaint to make it otherwise, this is essentially _a warranty dispute.
The gravamen of LILCO's Complaint is familiar under the law of sales:.the buyer is dissatisfied with the goods it re-ceived and with the bargain it struck.
The contract that was negotiated between Delaval and LILCO sets forth the allocation of risk between the parties as well as the remedies available to LILCO for breach.' The contract contained a limited repair o~r replace warranty and specifi-cally excluded recovery of consequential damages.1 Apparently discontented with the prospective remedies contained in its elaborate contract which LILCO, a plainly sophisticated commercial buyer, negotiated with Delaval, by filing this lawsuit LILCO improperly seeks to 1.
The contract documents referred to in LILCO's Complaint (19) are submitted herewith as part of Delaval's Appendix to-gether with'other documents, including LILCO's filings before the New York Public Service Commission, necessary for the Court to understand the nature of the' dispute between the parties.
Other relevant background information and documents are contained in and appended to the affidavit of Ira M.
Millstein, Esq., sworn to November 15, 1985 ("Millstein Aff."), which inter glia, describes the persuasive reasons why for now at least, discovery in this action should be halted before the parties-and the Court are subjected to monstrous discovery demands, the bulk of which may well be unnecessary.
Three appendices are submitted herewith:
Appendix A contains the relevant contract documents; Appendix B contains relevant Public Service Commission and other regulatory decisions; Appendix C contains relevant' portions of LILCO's submissions in the Public Service Commission proceedings.
2
P f
l 1
parlay its contract grievances not only into impermissible claims for tort, including negligence and strict liability, but also fraud and even a violation of the so-called RICO statute.2 The centerpiece of this effort is LILCO's attempt to claim that Delaval fraudulently concealed alleged defects in the diesel generators thereby causing extraordinary delay in the construction and operation of the Shoreham Nuclear Power Station ("Shoreham").
In seeking to transform an alleged breach of con-tract into a case of fraud and RICO so as to recover damages for delay, LILCO lays before this Court allegations which
, directly contradict not-only the findings of two Administrative Law Judges of the New York Public Service Commission (the "PSC"), made in an adjudicative proceeding respecting LILCO's mismanagement of the construction and licensing of Shoreham, but also positions which LILCO itself maintained before that tribunal.
LILCO's duplicitous claim for delay damages allegedly caused by Delaval's diesel generators is the exact antithesis of its testimony and argument before the ~r3C.
At every stage of that proceeding, LILCO steadfastly maintained that Delaval's diesel generators did not cause any delay in the operation or licensing of Shoreham.
Those same PSC 2.
18 U.S.C. S1961 gi agg. (1982).
3
m Administrative Law Judges also found that LILCO knew or should have known no later than mid-1977 of the alleged defects in the design of the crankshaft for which LILCO now seeks to recover from Delaval.
As explained below, those two unassailable facts legally estop LILCO from pursuing each of the claims contained in its complaint.
SUMMARY
OF ARGUMENT This action arises out of the 1974 sale by Delaval to LILCO of three diesel generators for use at Shoreham.
Egg Complaint (" Comp 1.") 118-10.
Delaval delivered the diesel generators to LILCO in 1976.
More than six years later, in August 1983, during testing at Shoreham, a problem in one of the diesels' crankshafts developed.
Egg Compl. 118.
Thereafter, according to the Complaint (Comp 1. 1119, 21),
other alleged defects in the diesels came to light.
Ignoring both the contract it negotiated and its sworn statements before the.PSC, LILCO filed a blunderbus Complaint asserting eleven separate claims for relief and attempting in large part to pass on to Delaval the enormous delay costs incurred by it at Shoreham.
Unwilling to live with the PSC findings of its own mismanagement and its sworn statements absolving Delaval of any responsibility.for delay
~
4
e l
damages at Shoreham,3 LILCO now belatedly seeks to make Delaval the scapegoat for its Shoreham woes.
Like many dissatisfied purchasers before it, LILCO attempts to rewrite its contract with Delaval by " shotgun" pleading of fraud and negligence relating principally to the crankshaft problems.
Egg W. Kimble & R. Lesher, Products Liability at 17 (1979).
LILCO has even concocted a RICO claim out of its purchase of allegedly non-conforming goods.
See Compl. 1166-74.
When stripped of rhetoric, the issues here are war-ranty limitations, disclaimers, and other contractual provi-sions which were all the result of arm's length negotiation between two sophisticated commercial entities.
The relevant contract'ual provisions -- which provided a limited repair warranty and expressly excluded recovery of consequential damages -- represent the normal give and take (and the trade-offs on price and other terms) which are found in any contract for the sale of large pieces of equipment, particularly components of nuclear power plants.
Courts in this and other districts have consistent-ly recognized in the context of claims for economic loss and 3.
The PSC has already held that LILCO consistently and con-tinually mismanaged Shoreham in seven different major areas:
project planning and management, construction management, engineering and design, quality control, license proceedings, diesel generators, and equipment purchases.
PSC Decision by Administrative Law Judges, Case 27563 ("ALJ Decision") at 71, Appendix B'at 175.
5 l
l l
other consequential damages arising from the sale of equip-ment for use in power plants that a public utility cannot be viewed in the same light as an individual " consumer," who, lacking meaningful bargaining power, is unable to determine the conditions of his purchases.
Courts have consistently found as a matter of law that sophisticated purchasers like LILCO must adhere to the terms of the bargain they struck and not be permitted to circumvent written agreements which expressly set forth their rights.
Courts will not upset the allocation of risk carefully negotiated and agreed to by the parties.4 Not only does the Complaint here reflect a studied i
I effort to avoid the full terms of the parties' bargain, but it is also cleverly drafted so as to divert the Courts attention away from the bar of applicable statutes of limita-tions as to each and every claim.
LILCO tries to save its warranty and breach of contract claims by dressing them in fraud clothing and pleading concealment as to the alleged crankshaft defects, ignoring, as it must, the unequivocal 4.
Egg Southern California Edison Co. v. Westinahouse Electric Coro., No. CV-83-1985/6 slip op. (C.D. Cal. April 18, 1984) ("SCE I") (annexed hereto as Exhibit A); Florida' Power & Licht Co. v. Westinahouse Electric Coro., No. 78-1896-Civ-JE slip op. (S.D. Fla. June 2, 1982) (annexed hereto as Exhibit B); American Electric Power Co. v.
Westinahouse-Electric Coro., 418 F.
Supp. 435, 459 (S.D.N.Y.
1976); ggg gl12 Ebasco Services, Inc. v. Pennsylvania Power
& Licht Co., 460 F. Supp. 163 (E.D. Pa. 1978).
J 6
l t
e--se's-*wew--m.m+
e,wgy.wewa
finding by the PSC that LILCO knew or should have known of any alleged crankshaft defect years ago, ligt, by no later than mid-1977.
LILCO is collaterally estopped from asserting any fraudulent concealment; as a result, all claims sounding in tort or contract are barred.
Egg Point II.
Yet even apart _from the statute of limitations defenses, LILCO's Complaint is fatally defective for other reasons.
The RICO claim, for example, is not proper here' on a host of different grounds (Poin". III).
Nor has LILCO properly pleaded a separately cognizable fraud claim (Point IV).
LILCO's claims for economic loss under theories of negligence and strict products liability are precluded both by applicable state law and by the express terms of the par-ties' contract (Point V).
And, the unequivocal disclaimer of consequential damages in the contrac'c requires dismissal of LILCO's demand for all such damages (Point VI).
One further point of overriding importance need be separately touched upon:
LILCO's outrageous claim for Shoreham delay damages allegedly arising from its $2.1 million purchase of the diesel generators.
This claim threatens to transmogrify this essentially discrete warranty dispute into a lawyers' maelstrom to be litigated for years to come.
The delay claim has been made by LILCO in cavalier disregard both for the integrity of the judicial process and 7
~
the incalculable costs of wasteful and duplicative litigation now faced by the parties.
LILCO has asserted-this claim despite its earlier repudiation of this claim before the PSC.
-As we shall see, LILCO presented elaborate testimony'of all sorts -- scientific, legal and lay -- to demonstrate, ' inter AllA, that the problems with the Delaval diesel generators did not contribute to any delay costs associated with Shoreham.
In sworn testimony, LILCO strenuously asserted that the diesel generator failure did not. impact at all on the commercial operation of Shoreham.
(
Now, in a complete turnabout, LILCO threatens to l
~
relegate Delaval and many others to years of costly, burdensome litigation as to the reasons for the multi-billion,
dollar delays at Shoreham.
As shown in Point I below, LILCO should not be permitted to flout the integrity of the judicial bystem in this manner.
This claim should be dismissed as a matter of law under the doctrine of judicial estoppel at the outset of this case.
Otherwise, the I
complexion of this litigation will be radically changed and Delaval will unfairly be compelled to defend itself against multi-billion dollar delay claims already' foresworn by LILCO.
In addition to relitigating the issues of LILCO mismanagement
~
with respect to Shoreham, others involved at Shoreham, such r45 #
8 m'
mg
as the architect-engineer, will necessarily become enmeshed
-in this litigation.
Finally, in light of the enormous burden that will be imposed on the parties and the judicial system if LILCO is permitted to continue its claim for Shoreham delay damages against Delaval,. discovery in this action should be stayed until this Court determines whether LILCO should be permitted to reverse field and assert this claim at all.
Since this motion also challenges the legal sufficiency of the entire 1
complaint, the Court should exercise its discretion and stay discovery pending its resolution for that reason as well j
(Point VII).
THE RELEVANT FACTS t
A.
The Delaval-LILCO Contract In December 1973, LILCO invited Delaval to submit a a
proposal for the manufacture and supply of three emergency i
diesel generators for use at Shoreham.
Compl. 18.
Delaval responded with a formal Proposal.5 Compl. 19.
On May 20, 1974, after a series of correspondence and meetings among Delaval, LILCO and its architect-engineer, l
Stone and Webster, regarding the Proposal, LILCO issued Pur-5.
Egg Appendix A at 1-106.
- 9 f
=
t 9
- j. g n
o'
.... ~,
1 4
chase Order No. 310552 ("The Purchase Order"),6 for the pur-i f
chase *of the diesel generators from Delaval.
The Complaint alleges that the Purchase Order incorporated various docu-ments, including Delaval's Proposal and certain letters supplementing the Proposal forming a contract between LILCO l
and Delaval.
Compl. 19.
I l
The contract contained a number of warranties and limitations of liability.
First, there was a limited war-ranty of repair and replacement,7 and disclaimer of all im-plied warranties:
(Delaval] warrants the machinery, so far as of its own manufacture, to be free 1
from defects of material and workmanship, and should any part of it be found, under specified service conditions within one year after date of notification of com-pletion at (Delaval's] olant or shipment, whichever is the earlier, to have been 4
defective (Delaval] will repair or replace said part F.O.B.
its factory.
. Delaval shall in no event be held liable for damage or delay caused by defective material, workmanship, and no allowance will be made for repairs or alterations unless made with its written approval.
The product to be provided hereunder is the subject matter in the specifications relating thereto and made a part hereof; therefore no 6.
Appendix A at 107-13.
7.
Th'e warranty language was changed to reflect an extension of the warranty to a date to be mutually agreed upon in writing by the parties.
Egg, gzgt, Appendix A at 110.
10
warranty of MERCHANTABILITY for fitness or purpose shall apply.
Appendix A at 7.
Th'e printed tern:s similarly excluded consequential damages:
11.
LIMITS OF LIABILITY.
In no circum-qtances shall Delaval be liable for special or consequential damages.
The complete liability of Delaval, whether expressed or implied, is limited.to that stated in these conditions of sale.
I Id.
Further, paragraph 14 stated that "the provisions hereof supersede and take precedence over any other conditions of sale, and are binding unless modified in writing and s'igned by a duly authorized official of Delaval."
Id.
The contract also contained a three page printed form with certain items to be completed by the parties.
Those terms reiterated the limitations upon Delaval's liability described in the preceding pages.
Delaval's liability was limited to the cost of correcting defects, and terminated on the expiration of the warranty.
Specifically, in a section entitled " Liability and Indemnification", the terms stated:
"(u]nder no circumstances shall (Delaval] be liable for special or consequential damages including the loss of profits or use of any or all of purchaser's i
facilities."
Appendix A at 9.
The clause continued:
TOTAL LIABILITY OF (DELAVAL] WHETHER EX-PRESS OR IMPLIED IS LIMITED TO THAT 11
h STATED IN THESE TERMS AND CONDITIONS OF SALE.
The machinery or equipment to be provided hereunder is the subject matter of specifications relating thereto and made a part hereof; therefore, NO WAR-RANTY OF MERCHANTABILITY OR FITNESS FOR USE shall apply.
Appendix A at 9.
The diesel generators were delivered to LILCO in 1976.
LILCO paid Delaval for the diesel generators by 1977.
Egg Millstein Aff. 15.
According to LILCO's Proposed Findings of Fact before the PSC, the diesel generators were stored for more than a year after shipment in a temporary warehouse on the Shoreham job site and for four more years
~
the diesel generators were' stored inside the plant.
PSC Case No. 27563 1VII:19 at 115-16 (December 21, 1984),
Appendix C at 2-3.
In August 1983, more than six years
~
after the generators had been delivered and nearly 10 years after.the contract' to purchase had been agreed to, the crankshaft of one of the diesels fr'actured during testing.
Compl. 118.
This lawsuit followed two years later.
B.
Proceedinos Before the PSC_
In May 1979, the PSC commenced a proceeding to determine "whether the costs of Shoreham.
. were prudently incurred by Long Island Lighting Company.
(to] determine whether the steep escalation (of the cost] was attributable to factors within the control of LILCO management.
(and 12 w
w ew -
a w -- "
~ - _ -.
4 l
to]-determine whether or to what extent-the incurred cost of the Shoreham facility exceed (ed] the reasonable and prudent cost of such a~ facility because of LILCO's imprudence, i
mismanagement, or gross inefficiency."
ALJ Decision at 2-3, Appendix B at 6-7.
The five-year investigation took the form of an adversarial proceeding between LILCO on the one hand, and the Staff of the PSC and Intervenors (primarily Suffolk County) on the other.
Each side, represented by counsel, presented extensive direct, rebuttal and surrebuttal testimony.
ALJ Decision at 4-5, Appendix B at 8-9.
Each side had the opportunity to cross-examine the others' witnesses (51 for LILCO, 19 for Staff and 9 for Intervenors), id., and each filed many thousands of pages of briefs.
Id. at 6, Appendix B at 18.
During the' course of the proceeding, LILCO con-tended repeatedly that H2ng of the delay costs relating to
. Shoreham were attributable to the Delaval diesel generators and that the delays were associated with factors beyond LILCO's control, including in particular its inability to get an emergency evacuation plan approved by the Nuclear Regulatory Commission ("NRC") due'to the refusal of New York State and Suffolk County to participate in such a plan.
Id.
at 52, 103, 115, Appendix B at 56, 107, 119.
13 -
t e~
e
-y
---e
,------.---.w r--,
-+-1 7--
e,
~
On the basis of the voluminous record described above, the Administrative Law Judges found that LILCO im-prudently managed Shoreham and thus, "a substan.tial part of the cost increases and delays were due to factors within the control of LILCO management."
ALJ Decision at 70, Appendix
~
B at 70.
The judges also found that:
" Based on th'e contemporary documentary evidence that reasonable management oversight and review would have revealed the crankshaft design error (by no later than mid-1977] and that the failure to do so constitutes imprudence chargeable to LILCO."
ALJ Decision at 122, Appendix B at 126.
C.
Proceedinos Before the NRC On June 14, 1985 an Atomic Safety and Licensing Board ("ASLB") approved the Delaval diesel generators for use at Shoreham.
In th'e Matter of Lona Island Lichtina Co.,
No. LBP-85-18 (ASLB June 14, 1985) ("ASLB I") (see Appendix B at 146-320).
Another ASLB, however, refused to grant LILCO an o'perating license due to LILCO's inability to promulgate an acceptable emergency evacuation plan.
In the Matter of Lono Island Lichtina Co., No. 50-322-OL-3 (ASLB August 26, 1985) ("ASLB II") (see Appendix B at 322-359).
That ASLB found that LILCO's proposed plan was deficient because it contemplated the aid of Suffolk County and New York State although both governmental entities had refused l
14 l
to cooperate in such a plan.
In the absence of such cooperation or a self-sufficient plan by LILCO, the Board l
concluded that Shoreham should not be allowed to commence operation.
Id. at 26-34, Appendix B at 349a-356.
On October 18, 1985, an Atomic Safety and Licensing Appeal Board, affirming a portion of an earlier ASLB decision that LILCO lacks the legal authority under New York law to implement its proposed emergency evacuation plan, concluded that federal law does not preempt the New York laws which prevent LILCO from presenting a viable emergency plan.
In the matter of Lona Island Lichtina Co.,
+
No. 50-322-OL-3 (ASLB October <18, 1985) ("ASLB III") (see Appendix B at 360-407).
ARGUMENT I.
LILCO'S ON-THE-RECORD ADMISSIONS BEFORE THE PSC THAT DELAVAL'S DIESEL GENERATORS DID NOT CAUSE THE SHOREHAM DELAYS BAR SUCH A CLAIM HERE In reviewing LILCO's, prior repudiation of its pres-ent claim for " increase'd costs and expenses to construct and operate Shoreham caused by the delays resulting from the defects in the Diesel G'enerators" (Compl. 125(e)) we are not dealing with haphazard admissions -- with chance statements overheard on the street.
For-the-record testimony by utilities concerning plant operations is not offered lightly; such testimony is backed up by written reports, hard data, 15 v
, + -
.vn
-m.,s e
,,-,----n----e,
and extensive research.
LILCO's testimony to the PSC concerning the diesel generators was no exception to this practice.
A.
Summary of LILCO's Admissions Before the PSC In its Complaint, LILCO makes a complete turnaround from the position it steadfastly maintained for more than two years before the PSC.
In its own words "LILCO has asserted from the very beginning that all of the delay related costs
. would havg been incurred recardless 21 thg diesel fail-nLg because of the licensing controversies surrounding the emergency plan.
Shoreham simply would not have cost
$798 million less.
had the diesel generators not failed.
The delav-related costs incurred to date would have occurred reaardless of the diesel failure because of the lack of an approved emergency plan."
In the Matter of Lona Island Lichtino Comoany, PSC Case No. 27563, Brief Opposing Exceptions of the Long Island Lighting Company at 19-20 (emphasis added), Appendix C at 6, 7-8.
LILCO's position on the effect of the diesel gener.
ators on the cost of Shoreham has been consistent, simple, and indeed, quite compelling.
In short, LILCO has argued.
that the primary element of delay damages, so-called AFUDC,8 continues to accrue at the rate of approximately $40 million 4
8.
" Allowance For Funds Used During Construction."
16
e per month until the plant begins commercial operation and Shoreham cannot begin commercial operation until it has an approved emergency plan.
From the time of the initial diesel problems through today, months after the NRC approved the Delaval diesels for operation at Shoreham, there is still no approved emergency plan and the plant is not in commercial operation and may not be for the foreseeable future, if ever.9 Thus, as LILCO has repeatedly stated, any problems with the diesel generators have not delayed the commercial operation of Shoreham and therefore caused no delay damages.
During the PSC proceedings, LILCO's Vice President in Charge of Engineering and Administration,'Dr. Matthew C.
Cordaro, flatly stated that he disaareed with the contention of Intervenor Suffolk County "that the AFUDC being accrued since the failure of the diesel generators should be excluded from the rate base" because of the diesel generators.
Rather, Mr. Cordaro testified that:
AFUDC will continue to accrue until com-mercial operation.
Even had the diesel generators not failed, AFUDC would still be accruing to this day because the plant does not have an (emergency plan] and could not have begun commercial opera-tion.
And, as stated above, the County, since February 1982, has hindered the formation and implementation of an
[ emergency plan].
(Quite simply,]
9.
Within the past week, the Suffolk County Executive stated that, in his view, "the Shoreham nuclear power plant is dead."
Egg Millstein Aff., Exhibit 3.
17 n
the County's actions in hindering the
[ emergency plan] formation and implemen-tation, have been an independent cause of the delay of commercial ~ operation at Shoreham.
Shoreham will not achieve com-mercial operation, recardless of the status of the diesel cenerators, until the femeraency olani issue has been finally resolved.
LILCO PSC Proceeding, Transcript at 7572-7573, Appendix C at 9,.10-11 (emphasis added) (hereinafter " Transcript").
The Delaval diesel generators have been approved by the NRC, but Shoreham has still not opened and AFUDC continues to accrue, because an emergency plan has not yet been approved..ASLB I at 3-4, Appendix B at 152-153; ASLB II at 34-35, Appendix B at 356-357..
During the PSC proceedings, LILCO filed hundreds of pages of briefs and proposed findings of fact with regard
=
to the diesel generators in which LILCO consistently asserted that "the diesels have not to date delayed commer-cial operation of the' plant and are not responsible for the increased costs of the plant."
PSC Proceeding, Proposed i
Findings of Fact on Behalf of Long Island Lighting Company.
l Regarding the Shoreham Diesel Generators 113 at 136, Appendix C at 5.10 i
.c 10.
Egg also id. 17 at 132, Appendix C at 4.
("Even had the diesel generators not failed, AFUDC would still be accruing because the plant does not have an emergency plan and could not have begun commercial operation.").
18
+
The simple fact is that the diesel generators have not delayed commercial operation at Shoreham at all.
In the Matter of Lona Island Lichtina Comoany, PSC Case No.
27563, Brief and Proposed Findings on Behalf of Long Island Lighting Company Regarding the Shoreham Diesel Generators at 157, Appendix C at 15.
In the same vein LILCO argued:
If the diesels had never broken, Shoreham would to this day not be in commercial operation.
The diesel generators
. have not delaved commercial ooeration.
The delay in fuel-load has not increased the cost of Shoreham.
Id. at 157, 172, Appendix C at 15, 16 (emphasis in original).
The AFUDC that has accrued to date, and the AFUDC that will accrue until the emeroency olan has been accroved and imolemented would have been accrued and borne by the rateoavers recardless of whether the diesels had failed.
The total cost of the olant is not areater than it would otherwise have
- been, j
Id. at 172-73, Appendix C at 16-17 (emphasis in original).
Delaval cannot put it any better than LILCO did in 1:
its.Brief Opposing Exceptions:
i There is no evidence in the record to succort a conclusion that commercial ooeration could have been achieved to date even if the diesels had never failed.
The delay related costs incurred to date would have occurred regardless of 19
l the diesel failure because of the lack of an approved emergency plan.
l LILCO PSC Proceeding, LILCO Brief Opposing Exceptions at 20, Appendix C at'8 (emphasis in original).
Despite these repeated admissions before the PSC that Delaval is not responsible for LILCO's massive construction and other delays at Shoreham, LILCO now asserts precisely such a claim against Delaval.
B.
LILCO is Precluded From Recudiatino its Prior Testimony Fortunately, there is an available remedy.
Federal courts have repeatedly applied the doctrine of judicial estoppel to protect against those who engage in " broken field" litigation -- the reversing of positions whenever it i
i is expedient to do so.
It is precisely to protect the in-tegrity of the judicial system and insure that litigants do not'" play fast and loose with the court" that the courts i
developed the doctrine.
- Sgg, e.g., Arizona v. Shamrock Foods, Co., 729 F.2d 1208, 1215 (9th Cir. 1984); Edwards v.
Aetna Life Ins. Co., 690 F.2d 595, 598 (6th Cir. 1982)
(applying judicial estoppel based upon prior statements made in an administrative proceeding); Allen v. Zurich Ins.
Co.,.
667 F.2d 1162, 12.66 (4th Cir. 1982); Himel v. Continental Ill. Nat'l Bank & Trust Co., 595 F.2d 205, 210 (7th Cir.
1979); Roth v. McAllister Bros., Inc., 316 F.2d 143 (2d Cir.
i 20
.=
1963) (estoppel based on statements in prior administrative proceeding);'Scarano v. Central Railroad Co. of New York, 203 F.2d 510,.513 (3d Cir. 1953); Ronson Cord. v. Licuifin AktienceseIlshaft, 375 F. Supp. 628, 630 (S.D.N.Y. 1974)
(Plaintiff "is not permitted to ' blow hot and cold' in a lawsuit, or in two or more lawsuits"); SCE I; Southern California Edison Co. v. Westinchouse Electric Coro., No.
CV-83-1985/6 slip op. (C.D. Cal. July 17, 1984) (annexed hereto as Exhibit C) (hereinafter "SCE II").ll "The policies underlying (judicial estoppel] are
' general considerations of the orderly administration of justice and regard for the dignity of judicial proceedings'".
Environmental Concern, Inc. v.iLarchwood Construction Co.,
101 A.D.2d 591, 476 N.Y.S.'2d 175 (2d Dept. 1984)(cuotina Arizona v. Shamrock Foods Co., 729 F.2d 1208, 1215 (9th Cir.
1984)).
"(A] litigant in a court should not be permitted to lead a court to find a fact.one way and then con-tinue to contend in another judicial proceeding that the same fact should be found otherwise."
- 14. at 593, 476 N.Y.3.2d at 177 (citina Note, The Doctrine of Preclusion Acainst Incon-11.
Accord United Vircinia Bank / Seaboard National v. HzFz Saul Real Estate Investment Trust, 641 F.2d 185, 190 (4th Cir. 1981); California Truckina Association v. Brotherhood of i
Teamsters, 679 F.2d 1275, 1284 (9th Cir. 1981), cert. denied, 479 U.S. 970 (1982).
21 j
n
sistent Positions in Judicial Proceedinas, 59 Harv. L.
Rev.
1132 (1946)).12 Concepts of judicial estoppel have likewise been
)
approved by this Circuit.
"[T]he well-established doctrine, sometimes referred to as ' judicial estoppel',
.. precludes a litigant from leading the court to find one way in one pro-ceeding and then, because his interests have changed, leading the court to find another way in a subsequent proceeding."
Soerlina v. United States, 692 F.2d 223, 228 (2d Cir. 1982)
(Van Graafeiland, J. concurring).
In circumstances remarkably like those at issue here, a federal district court in California recently held that two utility plaintiffs were judicially estopped from asserting certain claims against a defendant who, like Delaval, had supplied electrical generating equipment to a nuclear power plant.
SCE I, suora, at 6; SCE II, suora, at 2-4 (denying plaintiffs' motion to reconsider judicial 12.
LILCO itself has relied on this very doctrine before the PSC in describing what it called the PSC staff's " facile ability to shift legal and factual positions to support their objectives."
There, LILCO recognized that "in trial courts, the doctrine of judicial estoppel or estoppel by record prevents a. party and its privies from taking positions that are inconsistent with the positions taken in prior pro-ceedings."
Egg LILCO PSC Proceedina, Reply Brief of Long Island Lighting Company -- Emergency Diesel Generators at 5, Appendix C at 18, 19 (citina 18 C. Wright, A. Miller and C.
Cooper, Federal Practice and Procedure $4477 (1981) (citing cases)).
I 22
estoppel point).
In ECE_1, the utility plaintiffs had argued before the California Public Utilities Commission (the "CPUC") that the manufacturer could not have foreseen the damage to the generators at issue and that the contract between the parties excluded consequential damages.
The CPUC rejected the utilities' position, and threatened instead to
~
deny them rate increases if they did not pursue litigation against the manufacturer.
Following the CPUC decision, the utilities brought suit against the manufacturer arguing, in contradiction to their prior statements before the CPUC, that the manufacturer had negligently designed and manufactured
-the equipment resulting in consequential and other' damages.
Fi'nding the utilities' turnabgut in position an affront to the judicial system, the court held that the utilities were judicially estopped from asserting factual positions contrary to those taken before the CPUC.
SCE I, supra, at 6; SCE II, suora, at 2-4.
Likewise here, LILCO should not be permitted to misuse this Court's resources and make a mockery of its process by asserting facts and positions it knows to be untrue.13 13.
If need be, Delaval will show at trial that the delay'in operation of Shoreham was not due in any way to the diesel
~
generators, but to LILCO's own mismanagement, the lack of an approved emergency plan and a host of other problems in the construction of Shoreham.
Egg Mi11 stein Aff. 1111-19, 23, 24, 26-29.
This, of course, will necessitate extensive (footnote continued) 23
l l
i i
C.
LILCO'S Admissio'ns Are Conclusive On The Issue of Delav Damaaes Even if LILCO were not precluded by the doctrine of
~
judicial estoppel from asserting that Delaval is liable for i
delay damages, LILCO's admissions are conclusive on this issue.
Under the Federal Rules of Evidence, admissions by a party-opponent are admitted as substantive evidence of the facts stated.
4 J. Weinstein & M. Berger, Evidence 1801(b)(2)(1], at p. 801-134 (1981).
In short, the rule.on admissions is the " judicial counterpart of the aphoristic penalty that one must sleep in the bed he has made.
Lev, The Law of Vicarious Admissions -- and Estocoel, 26 U.
Cinn.
L. Rev. 17, 29-30 (1957).
In light of LILCO's ad$$$sions that the failure of the Delaval diesel generators did not cause delav damaaes there are no " genuine issues" left for trial on that issue.
Fed. R. Civ. P. 56(e).
To continue this litigation-through years of costly and burdensome discovery on the issue of who or what caused the delay at Shoreham would be a farce -- a theatre of the absurd.
What better expert could Delaval call to the stand than LILCO's own Vice President of Engineering and
. discovery of third-parties as well as the joining of one or more additional parties in the instant action.
Neither this Court nor Delaval should be put to such a burden when LILCO has flatly contradicted the position it now asserts.
24 1
v---
r
-.,,--,..,,_--,mre-.-.
-...-,,.-,n r-.--
.-,r
Administration (Cordaro) who has already testified that the failure of'the diesel generators did not c'use delay damages.
a (Transcript at 7572 - 7573, Appendix C at 10-11.)
What better evidence could Delaval provide than the pages upon pages of briefs and proposed facts submitted by LILCO before the PSC categorically affirming that the lack of an emergency plan -- ng.t. j;hg failure gf..the diesel cenerators -- is responsible for the delay costs of Shoreham.
LILCO cannot explain away its admissions; they absolve Delaval of any liability whatsoever for the construction and operation delays at Shoreham.
LILCO admits that the costs of the Shoreham delay would have been incurred even if there had been no problems with the Deltval diesel generators because Shoreham could not operate without an approved emergency evacuation plan.
The absence of that approved emergency plan, LILCO admits, is due to Suffolk County's continuous and vigorous opposition to Shoreham's opening which it has pursued in many different regulatory and judicial proceedings.
In these circumstances, at'the very least, Suffolk County and various regulatory agencies, not Delaval are the cause of the delay to the opening of Shoreham.14 In such circumstances, Delaval is not 14.
Egg ASLB I, Appendix B at 146-320 and ASLB II, Appendix B at 322-354.
25
1 legally chargeable with the costs of delay.
Egg, gigt, Southern Pacific Communications Co. v. American Telechone and Telecraoh Co.,
556 F. Supp. 825, 881 & n.53 (D.D.C. 1982),
aff'd,.740 F.2d 980 (D.C.Cir. 1984), cert. denied, 105 S. Ct.
1359 (1985) (where "any delays (were the results].
. of the various (California] regulatory bodies' close scrutiny of the obviously meritorious (objections to plaintiff's permit're-quests]," and "the result of the,FCC's inaction and/or inept-ness, as well as known regulatory lag which is so common in these proceedings," defendant found not responsible for the delay).15 LILCO should not be permitted to engage in a liti-gation charade to attempt to pass on to Delaval Shoreham delay costs when it has already stated under oath that Delaval was not the cause of such delay.
15.
Egg Chris-Craft Industries, Inc. v. Pioer Aircraft Coro., 384 F. Supp. 507, 526 (S.D.N.Y. 1974)
(" consequential damages are awarded only upon a clear showing of causal connection (between] the misconduct and the consequence claimed"), modified on other arounds, 516 F.2d 172 (2d Cir.
4 1975), rev'd on other arounds, 430 U.S. 1 (1977).
New York cases are in accord.
Egg Jo Ann Homes at Bellmore, Inc. v.
Dworetz, 25 N.Y.2d 112, 302 N.Y.S.2d 799 (1969) (affirming dismissal of claim for delay damages where delay due to town ordinance and not due " solely to defendant's (conduct]");
i*.cKav Construction Co. v. City of Oneida Housina Authority, 70 A.D.2d 993, 417 N.Y.S.2d 808 (3d Dept. 1979) (defendant not liable for delay caused by Housing and Urban Development Corp.).
1 l
26
.,,c_..
. - -.. _ ~ _.
D.
The ASLB Findings Also Bar LILCO's Delav Damace Claims By reason of the findings in the ASLB decisions referred to above (pp.14-15 suora) and set forth in the Millstein Affidavit (1113-14), LILCO is collaterally estopped from contending in this action that the diesel generators prevented or delayed the commercial operation of Shoreham.
In those adjudicatory proceedings, one ASLB approved the Delaval diesel generators for use at Shoreham.
Another ASLB and an ASLB Appeal Board thereafter ruled that Shoreham could not receive a license for commercial operation because Suffolk County and New York State have refused to cooperate in the preparation and implementat' ion of an emergency f
evacuation plan.
Those findings are entitled to collateral estoppel effect.
Egg, g2g2, United States v. Utah Construct
& Minino Co.,
384 U.S. 394, 421-422 (1966); Safir v. Gibson, 432 F.2d 137 (2d Cir. 1970) and authorities cited infra.
Consequently, Delaval can not be legally chargeable with the costs of delay of Shoreham's commercial operation which LILCO now seeks to recover.
Egg authorities cited at p. 26 suora.
O 27 v--
-,, ~ _,,,, -
a II.
LILCO'S CLAIMS ARE BARRED BY THE APPLICABLE STATUTES OF LIMITATIONS This action, as earlier noted, essentially involves a contract dispute -- the scope and duration of the appli-cable warranties.
As LILCO well knows, its ten year old contra'ct claims are stale.
In a transparent effort to avoid the effect of the statute of limitations, LILCO alleges that Delaval fraudulently concealed its knowledge that its diesels were defective.
But these allegations do not save LILCO's claims.
New York courts are particularly suspicious of the practice of sprinkling fraud allegations into a complaint in order to toll the statute of limitations; "(i]t is a
well-established principle of law that where an allegation of fraud is not essential to the cause of action pleaded except as an-answer to an anticipated defense of statute of limitations, Courts look for the reality, and the essence of the action and not its mare name."
Power Mercantile _ Corp. v.
Feinbera, 109 A.D.2d 117, 120, 490 N.Y.S.2d 190, 192 (1st Dept. 1985) (citations omitted).
The reality here is a warranty claim.
LILCO's fraud claims are legally defective for the reasons stated in Point IV.
But even more important, LILCO has already fully
~
litigated and lost this very issue of fraudulent concealment 1
before the PSC.
ALJ Decision at 122, Appendix B at 126.
It 1
l 28 i
may not relitigate this issue in another forum solely for the j
purpose of saving its otherwise stale claims.
A.
LILCO's Fraudulent Concealment Allegations Are Ba'rred By The Doctrine of Collateral 4
Estocoel Before the PSC, LILCO sought to prove that Delaval i
had concealed knowledge of defects in the diesels from LILCO and its architect engineer, Stone & Webster Engineering Corporation (" Stone & Webster"), in order to demonstrate that LILCO's failure to discover the defects prior to 1983 was not
" imprudent."
LILCO did not succeed in that position; the PSC found that LILCO throuch-its acent, Stone & Webster, should have discovered the diesel cenerators' defects by mid-1977, at the latest.
ALJ Decision at 121-22, Appendix B at 125-126.
In that proceeding, the PSC's Administrative Law Judges made the following findings, among others:
i The documentary evidence indicates that Stone
& Webster requested the test to verify the calcula-tion of predicted stresses.
All Mr. Fusegni of Stone & Webster had to do was examine the measured
. stresses and read the graph.
That would have con-firmed the existence of the problem shown by the predicted values, or, if the predicted values were wrong, shown the problem to be greater than, or less than, previously indicated.
Stone & Webster, however, never soucht the information certainino to measured stresses; the oroblem was droceed and not resolved until the crankshaft failed in 1983.
The actual stress values derived from the 1975 torsiograph test indicated that the crankshaft was undersized.
Reasonable review by Stone & Webster would have uncovered this desian flaw no later than E
early 1976, seven years before the crankshaft r,
29
. ~..
.. -. _. _. _.. _. _ _ - -. -. _, _.. _.. _ -., ~ _ _.. _ _ _ _ _ _.. - _ _ -. - - -.. _,
l-i failed.
The diesel cenerator failure, reoairs, reolacements and delav which becan in 1983, and continue to the cresent are due to inadeouat.g manaaement oversicht for which LILCO is responsible l
as owner and licensee of the Shoreham croiect.
(emphasis added).
j Stone & Webster acted as LILCO's agent for the monitoring of Delaval's performance under the con-tract between LILCO and Delaval.
LILCO, as orinci-cal, is resoonsible for Stone & Webster's essen-tially nealicent failure to ensure the diesels satisfied contract recuirements and soecifications.
If Stone & Webster was not aware of the design error in the underdesigned 11" x 13" Shoreham crankshaft in 1976, it became aware of the chance in desian in 1977,'six years before the test fail-ure in 1983
. Accordinalv, by no later than mid-1977,
' Stone & Webster was aware of chances in Delaval's 8-cylinder emercency diesel enaines and of Delaval's use of the torsioaraoh test to measure stress levels.
We conclude, based on the contemporary docum-entary evidence, that reasonable manacement over-siaht and review would have revealed the crankshaft desian error and that the failure to do so consti-tutes imorudence charaeable to LILCO Id.
(emphasis added).
LILCO is thereby-collaterally estopped from assert-ing that it could not have discovered the alleged defect by reason of Delaval's alleged concealment.
It is elementary that the doctrine of collateral estoppel " precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior l
30 m.
_ _ -..,.... _ - -,. ~, _ _. _ _,..,.
action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same."
Egga v. New York Telechone Co., 62 N.Y.2d 494, 500, 478 N.Y.S.2d 823, 826, 467 N.E.2d 487, 490 (1984).
The doctrine of " collateral estoppel (is] applicable to give conclusive effect to the quasi-judicial determinations of administrative agencies (citations omitted), when rendered pursuant to the adjudicatory authority of an agency to decide cases brought before its tribunals employing procedures sub-stantially similar to those used in a court of law."
Ryan v.
New York Telechone Co.,
62 N.Y.2d 494, 499, 478 N.Y.S.2d 823, 825-26, 467 N.E.2d 487, 489-90 (1984) (citations omitted).
Egg also International Telecho'ne and Telearaoh Coro, v.
I American Telechone & Telearaoh, 444 F.
Supp. 1148, 1156-59 (S.D.N.Y. 1980) ("121T").16 16.
A determination of the extent to which an administrative proceeding approximates a judicial proceading turns largely on two criteria -- fact-finding and pre cedural safeguards.
IT&T, suora, 444 F. Supp. at 1156-59.
"nder both criteria it is entirely fair to collaterally estop LILCO on the basis of the ALJ Decision.
The PSC proceeding at issue here was instituted for the very purpose of making specific findings
-about past events and concerned "the kind of discrete factual findings of past conduct that the adjudicative process is specifically designed to provide."
Id.
Further, as in a judicial proceeding, LILCO was represented by counsel, permitted to present and cross-examine witnesses, had a i
clearly allocated burden of proof and had established legal standards -
._ conableness under the circumstances --
against which its past conduct was being measured.
31
I i
The issue of when LILCO could have reasonably 4
discovered the defects in the diesel generators was necessarily decided in that proceeding.
That issue,is, as
' discussed above, material to the statute of limitations bar here.
LILCO itself fully expected to be bound, both'be-fore the PSC and in front of other. courts by the PSC's find-ings.
LILCO is plainly aware of the collateral estoppel effect of PSC determinations and has argued before this Court and the Second Circuit that the PSC's findings constitute a basis for applying the doctrine of collateral estoppel.
County of Suffolk v. Lono Island Lichtino Co., 728 F.2d 52 (2d Cir. 1984), Brief of Defendant-Appellees at 30-31 (annexed hereto as Exhibit D).
Indeed, in its Brief on Exceptions in Shoreham PSC proceedings", LILCO requested that the PSC make no findings at that time with regard to the diesel generators, because LILCO would be bound by those findinas in a later oroceedina between LILCO and Delaval.
Egg LILCO PSC Proceedino Brief on Exceptions at 135, Appendix C at 13.
LILCO is collaterally estopped from asserting that it could not have reasonably discovered the crankshaft and other alleged defects by mid-1977.
LILCO's fraudulent con-k 32
,4 cealment allegations therefore do not save LILCO's claims from the effect of the applicable statutes of limitations.
B.
LILCO's Contract And Breach of i
Warrantv Claims Are Time Barred LILCO has pleaded five causes of action which sound in warranty and/or contract law.
Egg Count Five (breach of contract), Count Six (breach of express warranty), Count i
i Seven (breach of warranty to repair or replace), Count Eight (breach of performance warranty), Count Nine (breach of con-tract).
Under applicable New York law,17 each of the war-ranty causes of action is subject to a four year limitations period.18 Section 2-725(1) N.Y.U.C.C. provides that: "an 17.
A federal court adjudicating a diversity action must look to the law of the forum for the purposes of applying the statute of limitations.
Stafford v.
International Harvester C22, 668 F.2d 142 (2d Cir. 1981).
New York, for choice of law purposes, considers statutes of limitations to be procedural and thus governed by the law of the forum.
Stafford, suora, at 147.
18.
LILCO's two contract claims, Count Five and Count Nine respectively, are duplicative of its warranty claims.
Count Five alleges that Delaval breached the contract by supplying non-conforming goods.
In Count Six, LILCO claims that Delaval breached its warranty that all goods would be free from defects and suitable f'or their intended purpose.
The claims are essentially identical.
Similarly, in Count Nine, LILCO alleges that Delaval breached its contractual duty to make adjustments or modifications to enable the diesel generators to achieve their warranted performance.
This claim is essentially duplicative of Count Seven, alleging that Delaval breached its warranty to repair and replace.
As such, the breach'of contract claims are merged into the warranty claims and are governed by the warranty statute of limitations.
33
2 action for breach of any contract for any sale must be com-menced within four ye'rs after the cause of action has a
accrued.
With respect to accrual of the cause of action, N.Y.U.C.C.52-725(2) makes plain that a breach of warranty occurs and the statute of limitations begins to run from the date on which " tender of delivery"19 is made "re-gardless of the aggrieved party's lack of knowledge of the breach."
S2-725(2).
Egg, gigt, Potomac Ins. Co. v. Rockwell Internat'l Coro., 94 A.D.2d 763, 462 N.Y.S.2d 707 (2d Dept.
1983).
Because Delaval delivered the diesel generators to LILCO in 1976, the statute of limitations on all of the warranty claims had run by 1980.
Therefore, Counts Five, 4
Six, Seven, Eight and Nine should be dismissed.
i R
19.
Under N.Y.U.C.C.52-725(2) the only exception to this rule concerns a warranty which " explicitly extends to future performance of the goods."
None of the warranties alleged to have.been breached in the complaint explicitly extend to future performance.
34
=.
i C.
LILCO's Negligence And Strict Liability Claims Are Time Barred LILCO alleges three causes of action purportedly sounding in negligence or strict liability, alleging that LILCO suffered economic injury as a result of Delaval's negligent design and manufacture of the diesel generators.
The strict products liability claim is predicated on the existence of the alleged defects.
Egg Count Two (negligence), Count Ten (strict liability), Count Eleven (negligence).20 Under New York law, the statutory period of limitations for a negligence claim applies to a claim for strict liability. Egg, g2gt, Victorson v. Bock Laundry Machine Co.,
32 N.Y.2d 395, 403-04, 373 N.Y,S.2d 39, 43-45, 335 N.E.2d 275, 278 (1975).
In each case, the relevant i
20.
In reality, LILCO's claims of negligence and strict liability, like its " fraud" claims, are nothing more than a
. rehash of its warranty / contract claim -- LILCO bought allegedly defective goods.
New York courts look to the
" reality" or essence of an action, and not its label, to l
determine the applicable Enatute of limitations.
Eigt, Brick
- v. Cohen-Hall-Marx Co.,
276 N.Y.
259, 11 N.E.2d 902 (1937).
In circumstances conceptually identical to those presented here, New York courts have held that " negligence" and " strict liability" claims that "in reality" are contract claims are governed by the UCC's four year statute cf limitations.
Mid-Hudson Mack. Inc. v. Dutchess Quarry & Sucolv Co., 99 '.
A.D.2d 751, 471 N.Y.S.2d 664 (2d Dept. 1984); Sorinc Mills, Ingt v. Carolina Underwear Co., 87 A.D.2d 524, 448 N.Y.S.2d 10, 11 (1st Dept. 1982) (where action brought for sale of defective goods (textiles), warranty statute of limitations not " injury to property" statute of limitations applied).
Under either theory, these claims are legally barred.
35
- ~ -.. - - -. - - -
statutory period to recover damages for injury to property is three years.
C.P.L.R. S 214(4) (McKinney 1972).21 Causes of action for tortious injury to person or p,roperty accrue, and the statute begins.to rud','when the 1
[
first, injury occurs even where a plaintiff does not discover that r.n injury has been inflicted;~ Trianale Undarwriters, Inc, v. Honeywell, Inc., suora, 604 F.2d 744; Thornton v.
s Roosevelt Hosoital, supra, 471N.Y.2d at 781, 417 N.Y.S.2d at a
~
~
921-22, 391 N.E.2d at 1003; Schwartz v. Havden Newoort Chemical Coro., 12 N.Y.'Ed 212, 216-17, 237 N.Y.S.2d 714, 717, t 188 N.E.2d 142 (1963)f1Lockman v. Town of S'o'uthold, 108 A.D.2d 900, 485 N.Y.5.2d 784 (2nd Dept.'1985).
In this case,
' I
~
'the injury a-11eged -- the defects'se4,forth in paragraphs 17 s
'and21oftheComplaintoccurred,atthevery1[ test',
at the time:'the diesel generators were delivered to'LILCO.
It was
~
A
'.t atthatpointthatn[ILCO"hadpurchased"defec$ive 1
e+.
_ipjurious" goodsi. This occurred at the latestfin 1977.
'Thh.*,tet'hreeyearstatuteoflimitationshasrunandthe clair.3 ' alleged in' Counts Two, Ten and ' Eleven of the Complaint are time-barred and must be dismissed.
~
~.
- 21. - 111 ale 2 Triancle Underwriters, Inc. v. Honeywell,'Inc.,
604 F.2d 737, 744 (2d Cir. 1979); Thornton v. Roosevelt Hosoital, 47 N.Y.2d 780, 781, 417 N.Y.S.2d 920, 921-22, 391 N.E.2d 1002 (1979); Steinhardt v. Johns-Mansville Coroo-ration, 78 A.D.2d 577, 432 N.Y.S.2d 422 (4th Dept. 1980),
aff'd 54 N.Y.2d 1008, 446 N.Y.S.2d 244, 430 N.E.2d 1297 (1981), ggyt. denied, 102 S.Ct. 2226 (1982).
36 e-
,y,--.-.,--
.,y y.,,,u--,.,.
,,_..%me,-.
-.m.,-..,-
-.----e.--..1,,-.m_
td' 4
That LILCO alleges that it did not and could not have discovered the " defects" until testing in 1983 (Compl.
~%
123) is irrelevant to the running of the statute of s
limitations.22 It is well settled under New York law that a cause of action in negligence or strict liability accrues (and the statute begins to run) from the time of injury reaardless of when the injury was discovered.
Egg Hard v.
Desachem Co.,.771 F.2d 663,' 666-67 (2d Cir. 1985) (no general discoverability exception as to accrual); Schmidt v.
Merchants Discatch Transco., 270 N.Y. 287, 300 (1936) ("the statutory period of limitations begins to run from the time
.when the liability for a wrong has arisen even though the injured party may be ignorant of the existence of the wrong i
or injury"); Steinhardt v. Johns-Mansville Corooration, 54 N.Y.2d 1008, 1010-11, 446 N.Y.S.2d 244, 246 (1981) (cause of i
action accrued when asbestos particles'were inhaled'not when condition became apparent).23 22.
By reason of the PSC findings quoted above, LILCO is, in any event, collater. ally estopped from denying that it discovered or should have discovered defects no later than mid-1977.
23.
Egg also Thornton v. Roosevelt Hosoital, supra, 47 N.Y.2d at 781-82, 417 N.Y.S.2d at 921-22, 391 N.E.2d at 1 (cause of action accrued when chemical was injected, not twenty years later when effects of chemical became apparent);
Schwartz v. Havden Newoort Chemical Coro., suora, 12 N.Y.2d at 217, 237 N.Y.S.2d at 717 (declining to apply discovery rule to negligence cause of action).
37
. -.. - - ~, - -, -.
,-------m.__,.-,
,,--m
D.
LILCO's Fraud Claims Are Time Barred LILCO purportedly alleges claims for fraud in Counts One and-Three of the. Complaint.
Pursuant to CPLR 213(8) and 203(f), a fraud action must be commenced within six. years after commission of the fraud, or within two yemL3 after the plaintiff discovers or should have discovered the fraud, whichever period is longer.
Egg Trianale Under-writers, Inc. v. Honeywell, Inc., 604 F.2d 737, 746 (2d Cir.
1979), aff'd after remand, 651 F.2d 132 (2d Cir. 1981); Agcg-systems, Inc. v. Honeywell Information Systems, Inc., 580 F.
Supp. 147.4, 482 (S.D.N.Y. 1984).
LILCO's claim that the
)
sales contract was induced by fraud began to run at the time the contract was entered into, no later than May.1974.
As such,.the statute of limitations ran by mid-1980.
To the extent LILCO claims Delaval fraudulently withheld knowledge of defects in the diesels subsequent to its. entering into the contract (Compl. 1127-30, 30-33, 58-59), the PSC has found (and LILCO is collaterally estopped from denying) that LILCO knew of the defects by mid-1977.
Accordingly, this claim was
, time-barred under a discovery theory.by mid-1979.
Moreover, as noted earlier, LILCO is essentially.
Z:
alleging that Delaval sold it a defective product.24 That
\\
f, 24.
LILCO, as discussed below (agg Point'IV), has not pleaded an independent claim for fraud.
Rather, it has made (footnote continued) i 38
+
---_.-.,,mv,,-,
,,,,-,,-y,--
,-.,.w-y
.s 4
sale is governed by the terms of the contract between the parties.
There are no allegations that the alleged fraud f
somehow caused LILCO harm independent of the claimed defects in the diesel generators.
Under New York law, LILCO's
" fraud". claims, sounding in contract and breach of warranty, must be governed by the UCC four year statute of limitations and are therefore barred.25 a poor attempt to. dress up its contract warranty claim in fraud clothing.
Under New York law, such allegations do not constitute a claim of fraud for statute of limitations pur-pccf7? rather, they constitute contract-type claims.
Brick
- v. Cohen-Hall-Marx Co.,
276 N.Y.
259, 11 N.E.2d 902 (1937).
Egg also Cabrini Medical Center v. Desina, 64 N.Y.2d 1059, 1061, 489 N.Y.S.2d 872 (1985)
(" plaintiffs could not by allegations of fraud that are incidental to its complaint for breach of contract extend the life,of its claim"); Power Mercantile Coro. v. Feinbero, 109 A.D.2d 117, 490.N.Y.S.2d 190, 192 (1st Dept. 1985) (same); Seven-Un Bottlina Co. v.
Dow Chemical Co., 96 A.D.2d 1051, 1052, 466 N.Y.S.2d 478 (2d Dept. 1983), aff'd, 61 N.Y.2d 828, 473 N.Y.S.2d 973 (1984)
-(same); Johnson v. Gold, 71 A.D.2d 1056, 420 N.Y.S.2d 817 (4th Dept. 1979).
25.
This was precisely the nolding of the Second Circuit in Trianale Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 748 (2d Cir. 1979), aff'd after remand, 651 F.2d 132 (2d Cir.
1981).
There, fraud claims that referred "to alleged
-misrepresentations and concealments made after the parties had entered into the contractual relationship with each other" were dismissed under the Brick rule that they did not,
" state separate claims for the purpose of the statute of limitations."
Li. at 748.
The misrepresentations alleged included defendant's assertions that its product would perform as warranted upon installation.
Defendant's product apparently did not " work perfectly" as expected.
Id.
Delaval's alleged representations -- in essence that its diesel generators would perform as warranted -- are no different.
As in Trianale, LILCO has failed to bring a timely suit under the contract.
}'
39
l
'?
i E.
LILCO's RICO Claims Are Time Barred RICO contains no express statute of limitations for private actions brought under 18 U.S.C. $1964(c).
According-ly, courts construing RICO claims must borrow analogous statutes of limitations from the laws of the forum state.
Egg, g2gt, Durante Bros. and Sons, Inc. v. Flushina National Rank, 755 F.2d 239-(2d Cir. 1985).
As demonstrated below, the RICO claim is time-barred under the analogous New York statute of limitations.
In Durante Bros. & Sons, Inc., suora, the Second Circuit adopted the three-year New York statute for
" liabilities created by statute" from CPLR 214(2) for RICO claims.
Durante thus follows th'e example previously provided in the Second Circuit by Teltronics Services, Inc. v.
Anaconda-Ericsson, Inc., 587 F.
Supp. 729 (E.D.N.Y 1984),
where the court recognized the need for a uniform statute of limitations applying to all private civil RICO actions, regardless of the nature of the predicate offenses.
The rule in civil RICO cases is that the claim accrues no later than the time plaintiff knows or has reason to know of the injury which is the basis for the action.
In Comoton v. Idg,' 732 F.2d 1429 (9th Cir. 1984), the court dismissed a RICO claim as time barred by the three-year statute of limitations applying to actions based on statutes 40 r~m'-w r
w -
7 7
because the RICO claim accrued in 1977 when plaintiffs.had sufficient knowledge of-their damages to bring a RICO claim.
.The court noted that "when a plaintiff has notice of wrongful conduct, it is not necessary that he have knowledge of all
- the details or'all of the persons involved in order for his
'cause of action to accrue "
732 F.2d at 1433.
Similarly, in Alexander v. Perkin Elmer Coro., 729 F.2d 576 (8th Cir. 1984), in which it was alleged that the sale of computer programs in 1974 gave rise to civil RICO claims, the court dismissed a complaint filed in 19'81 as barred by.the applicable state statute of limitations because the plaintiff " knew or should have known" that the defendant was making misrepresentations about the computer. programs as early as 1974.
Egg als_o Bowlina v. Founder Title Co., 773
~
F.2d 11'75, 1178 (11th Cir. 1985) ("the general federal rule, 4
which provides that the statute of limitations begins to run when a plaintiff knows or should know of the injury, applies in civil RICO' cases").
Here, the PSC has already found that LILCO should
'l have discovered defects in the diesel generators no.later than mid-1977.
As such, LILCO's RICO claim is barred by the I
statute of limitations.
2 O
41 4
1-, - ~ ~
~
-s
~.-r--
cw.-,n,,n,,e--n...
n.,
--,~,. +,,---,
,n
s.
5 III.
LILCO FAILS TO STATE A CLAIM UNDER RICO Count Four of LILCO's Complaint is an attempt to disguise an ordinary claim for breach of contract and breach of warranty as a violation of RICO.
An examination of the statutory framework demonstrates the preposterous nature of f
LILCO's claim.
The RICO statute creates a private cause of action a'nd awards treble damages and attorneys' fees to any person
" injured in his business or property" by reason of another's violation of $1962 of the statute.
18 U.S.C. S1964(c).
Section 1962 of the statute outlaws various actions 26 involving " racketeering activity," a term defined in S1961 as any of a variety of state and federal crimes including
-murder, arson, gambling, drug dealing, mail fraud, etc. en-gaged in by mobsters.27 26.
Section 1962 prohibits four kinds of actions.
SS1962(a)-(d).
LILCO has alleged that Delaval violated two of those prohibitions:
51962(a) and $1962(c).
Section 1962(a)'" outlaws the use of income derived from a ' pattern of racketeeringto.
. establish (or operate) an enterprise engaged in or affecting inter' state commerce" and S1962(c) outlaws " conducting or participating in the conduct of an enterprise through a pattern of racketeering activity."
Sedima S.P.R.L.
v.
Imorex Co.,
U.S.
, 105 S. Ct. 3275, 3278 (1985).
27.
The RICQ Statute was merely one portion of the Organiz d e
Crime Control Act of~1970 Pub. L.91-452, Laws of 91st Cong.
2d Sess., U.S. Code Cong. & Admin. News pp. 1073 gt agg.
(1970).
42
. _ ~
2
.E Lured by the prospect of treble damages and attor-neys' fees, LILCO seeks'to transform ordinary sales communi-cations, alleged to have been made by mail and. telephone long after the parties' May 1974 agreement, into " racketeering activity."
Comp 1. 1511, 12, 31-35, 68-69.
Thus, a handful of letters and telephone calls between March 1975 and March 1981, all relating to a sinale sales transaction, and all to the effect that the Delaval diesel generators had passed their qualification tests and complied wi:h the standards of various technical associations are -- incredibly -- alleged to form a " pattern of racketeering activity" in violation of 18 U.S.C. S1962.
This use of RICO in an otherwise routine breach of warranty lawsuit demonstrates the outer limits of the abuse of RICO in private business disputes:
if two mailings or telephone conversations between parties to a sales contract give rise to a RICO' action for treble damages and attorneys' fees, then the entire area of contract law has been radically altered.28 28.
It is difficult to imagine circumstances which would ever give rise to both a breach of warranty or products liability suit and a RICO suit.
- Egg, e.c., Alexander v.
Perkin Elmer Coro., 729 F.2d 576 (8th Cir. 1984); Camobell v.
A.H. Robins Co.,
615 F. Supp. 496 (W.D. Wis. 1985); Bast v.
A.H. Robins Co.,
616 F. Supp. 333 (E.D. Wis. 1985); Griffin
- v. O'Neal. Jones & Feldman, Inc., 604 F. Supp. 717 (S.D. Ohio 1985); Morrison v. Syntex Laboratories, Inc._,
101 F.R.D. 743 (D.D.C. 1984).
43
)
.o l
As set forth below, Count Four of the Complaint fails in.several major respec.ts to allege a RICO claim.
i A.
The Complaint Does Not Sufficiently Set
'Forth A " Pattern'Of Racketeerina Activity" LILCO's RICO claim does not satisfy the.most basic element of a violation of $1962; it does not establish a
" pattern of racketeering."
Section 1962 is not violated unless a defendant has engaged in a " pattern of racketeering activity," which is defined to require "at least two acts of f
racketeering activity."
18 U.S.C. S1961(5).
As shown below, LILCO's attempt to plead that Delaval was engaged in a pattern of racketeering activity is legally insufficient.29 l
29.
Indeed, plaintiff has even failed to meet the pleading requirements of Rule 9(b) of.the Federal Rules of Civil Procedure.
Where the underlying predicate offenses of a-civil RICO claim are based on fraud, plaintiff must plead the offenses with particularity.
Fed. R. Civ. P.
9(b); Moss v.
Moraan Stanlev Inc., 719 F.2d 5, 19 (2d Cir. 1983), cert.
denied, 465 U.S. 1025 (1984) (RICO complaint dismissed where-securities fraud serving as predicate offense not pleaded with sufficient particularity); Mauriber v. Shearson/American Exoress, Inc., 546 F. Supp. 391 (S.D.N.Y. 1982) (RICO claim dismissed because allegations of securities fraud failed in numerous respects to comply with the specificity requirements of Rule 9(b)); Hellenic Liner Ltd. v. O'Hearn, 523 F.
Supp.
244, 249 (S.D.N.Y. 1981) (complaint dismissed for lack of specificity wherein alleged fraud in connection with false invoices fell short of Rule 9(b)'s requirement that "all matters of fraud.
shall be stated with particularity.")
Thus, for example, in Hudson v. LaRouche, 579 F.
Supp. 623 (1983), in which a RICO complaint was dismissed for i
failure to satisfy Rule 9(b), the court, quoting Decker v.
Massev-Ferauson Ltd., 681 F.2d at 114, stated, "to pass j
muster in this Circuit a complaint must allege with some (footnote continued) o 44
i In Sedima S.P.R.L. v. Imrex Co.,
U.S.
105 S. Ct. 3275, 3285 (1985), the Supreme Court stated that g
courts had failed "to develop a meaningful concept of
-pattern" and instructed the federal courts to apply a stringent pattern requirement to narrow the increasing divergence between what Congress intended and the " extra-ordinary uses to which civil RICO has been put."
Id. at 3287.
In that regard, the Supreme Court emphasized that while two acts of racketeering activity are a statutory necessity, they will almost never constitute the requisite
" pattern".
105 S. Ct. at 3285 n.1430 ("[I]n common parlance specificity the acts constituting the ' fraud.
Conclusory allegations that defendant's conduct was fraudulent or deceptive are not enough."
579 F.
Supp. at 629.
Egg also Seria v. Cook County Service Coro., 581 F. Supp. 575 (N.D.
Ill. 1984) (RICO count dismissed where facts alleged indi-
'cated only breach of contract and-did not establish basis for believing that defendant acted with intent to defraud.).
As discussed in detail below, plaintiff has totally failed to meet the 9(b) requirements for pleading a fraud claim.
Egg IV.B., supt.a.
I 30.
Before sedima some courts had noted that pattern meant more than two acts of racketeering.
Thus, in Exeter Towers Associates v. Bowditch, 604 F.
Supp. 1547, 1554 (D. Mass.
1985), the court held the pattern requirement was not 2
satisfied.by two or more allegations of mail fraud:
(A) pattern of racketeering activity, (is not established] by proof that, in effectuating the purchase of a single mortgage, the. defendant committed two or more predicate. acts of. mail fraud....
Most substantial business transactions (footnote continued) 45
+
,sw-,
we
>.-en--nw.
y s
,-,,,,.e,r..,-
-..v.c%.-
+-,.r-
---.,,-_-m
--.,.-,.--,-----v%.,,._a er-m--y-,.
,,ri
=-ev,v.--
e two of anything do not generally form a " pattern.").
A pattern, according to the legislative history cited by the Court,' requires " continuity olus relationshio."
Id. at 3290 (citing S. Rep. No.91-617, p. 158 (1969))
(emphasis added by Court).
As a result, two isolated acts, without more, do not establish a pattern; rather, it is the
" threat of continuing activity" that defines a RICO viola-tion.
Thus a pattern of racketeering activity results from continuous criminal activity or numerous criminal episodes and does not arise from a single, unitary fraudulent scheme.
At most, LILCO has alleged that Delaval engaged in one such.
scheme -- to " fraudulently sell" the diesel generators to LILCO.
Post-Sedima cases consistently demonstrate that such an allegation does not satisfy the " pattern requirement" of RICO.
Kredietbank N.V.
- v. Joyce Morris, Inc., No.'84-1903 involve two or more uses of the mail during negotiations.
To hold that two such uses of the mail,
...are sufficient to constitute a pattern of racketeering activity would be to sweep into federal courts, under RICO, the great majority of actions for fraud in commercial transactions.
Egg also Teleoromoter of Erie, Inc. v. City of Erie, 537 F.
Supp. 6, 12-13 (W.D. Pa. 1981) (numerous alleged bribes relating to a single fundraising event did not constitute a pattern of racketeering activity because the fundraiser
" constitute (d] one single act of unlawful activity").
46 l
slip op.
(D.N.J. October 11, 1985) ("two instances of submitting false affidavit to a court in connection with a singleLmatter
. does not, without more, constitute a pattern") (annexed at Exhibit E hereto); Professional Assets Manacement, Inc. v. Penn Scuare Bank, N.A.,
Civ. 82-1357
.(W.D. Okla. Aug. 30, 1985) (fraudulent performance of audit not a pattern) (annexed as Exhibit F hereto); Allincton v.
Caroenter, No. CV84-8403 (C.D. Cal. Aug. 29, 1985) (finding that Sedima predicate acts must occur in different criminal episodes and thus three acts of wire fraud that were all part of a single scheme to defraud plaintiff of her money did not constitute a pattern) (annexed as Exhibit G hereto); Moraan
- v. Bank of Waukeaan, 615 F.
Supp. 836 (N.D. Ill. 1985)
(allegations of " repeated acts to carry out the same criminal activity," do not satisfy the pattern requirement); Northern Trust Bank /O' Hare v. Inrvco, Inc., 615 F. Supp. 828 (D.C.
Ill. 1985) (mailing of a subcontract and a kickback check failed to establish a pattern; even if there were additional mailings, the complaint still would not satisfactorily allege
- a. pattern because the mailings would " implement the same fraudulent scheme"); Roias v. First Bank National Association, 613 F. Supp. 968, 971 n.1 (E.D.N.Y. 1985)
~
(multiple misrepresentations to induce plaintiff to enter into two transactions not a pattern).
47
I These cases, most significantly Roias and Profes-sional Assets Manacement, demonstrate that courts will not allow a plaintiff to trump-up a " pattern" by splintering one transaction into tiny composite fragments.
The facts of Roias are similar to those alleged here.
There, the plain-tiff alleged that the defendant had induced it to enter into a contract and loan guarantee by means of several misrepre-i sentations made over the telephone and sent through the mails.
Roias, supra, 613 F.
Supp. at 969.
Refusing to allow the plaintiff to " count" each misrepresentation separately to accumulate a pattern, the court granted summary judgment to the defendant, stating plaintiff's allegations " arising out of two discrete transactions with defendant, fall'far short of establishing a pattern within the meaning of the RICO statute."
Id. at 971 & n.l.
Similarly, in Professional Assets Manacement, a fraudulently performed audit was found to be but a single act.
The plaintiff could not, for the purpose of fabricating
-a RICO claim, count each act performed as part of the audit as separate predicate acts.
Professional Assets Manacerent, supra, at 2-3.31 31.
In addition, the court dismissed a RICO counterclaim (in a related action) against the same auditor based on an alleged scheme to disseminate fa.1.se and misleading informa-i tion.
The court held that any communications made in fur-(footnote continued) 48
{/
~Here the Complaint merely alleges a single " scheme
.or artifice to defraud LILCO or to obtain money from LILCO by means of false or fraudulent pretenses, representations or promises" (Compl. 168).
LILCO alleces that in reliance upon the alleged misrepresentations it entered into the sales con-j tract ~and made payments to Delaval (Compl. 162).
As in Roias and Professional Assets Manaaement, the plaintiff's RICO count alleges only a single, unified transaction and therefore does not satisfy the pattern requirment of Sedima i
and its progeny.
lo must be dismissed.
B.
LILCO Fails to Allege A RICO Violation Because The Complaint Casts Delaval As Both The " Person" And The "Enterorise" As noted earlier, $1962(c) of the RICO statute pro-
.hibits a person from conducting or participating in the con-duct of an enterorise through a pattern of racketeering activity.
The statuteIis not concerned with the wrongdoing of a single entity," but rather it seeks to prevent the i
amassing of criminalLpower.
i therance of the alleged scheme "were mr: rely constituents of a single, unified activity."
Instead of a pattern the court, found simply a series of related statements which the plaintiff had to'" splinter" into the several elements of a RICO claim.
The court held that "just as a series of kickback payments did not amount to a pattern in Inrvco, Peat (Marwick's] sequential representations in furtherance of its alleged ' scheme' do not constitute a pattern."
Professional Assets Manaaement, supra, at 4.
b i
49
-LILCO's Complaint alleges that "Delaval conducted and participated in the conduct of its own affairs through a pattern of racketeering activity in violation of 18 U.S.C.
S1962(c) (Compl. 171)."
Delaval is cast as the " person"32 who has conducted a " pattern of racketeering activity", as we'll as the " enterprise"33'whose affairs were conducted through a pattern of racketeering.
That allegation stands in flat contradiction to the law of this and othe'r circuits
~
which have held that the language, structure, and purpose of the statute preclude a claim based on a violation of S 1962(c) where, as alleged here (Compl. 171), the same entity is claimed to be the " person" and the " enterprise."
Egg, gtg., Bennett v. United States Trust Co., 770 F.2d 308 (2d Cir. 1985); Rae v. Union Bank, 725 F.2d 476 (9th Cir.
1984); Bennett v. ggrg, 710 F.2d 1361 (8th Cir. 1983).
i
.4 The holding in Bennett v. United States Trust Co.,
770 F.2d 308 (2d Cir. 1985), decided after Sedima, could not be clearer.
In Bennett the RICO~ count was dismissed because, as a matter of law, "a corporate entity may not be simul-32.
" Person" is defined in S1961(3) to include "any individual or entity capable of holding a legal or beneficial interest in property."
33.
" Enterprise," is defined in S1961(4) to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associ-ated in fact although not a legal entity."
t j
50
taneously the ' enterprise' and the ' person' who conducts the affairs of the enterprise through a pattern of racketeering activity."
770 F.2d at 315.34 LILCO plainly fails to plead this basic prerequi-site 35 of the RICO statute and thus its claim must be dismissed.
34.
Egg also Kaufman v. Chase Manhattan Bank, N.A.,
581 F.
Supp. 350 (S.D.N.Y. 1984) (RICO count dismissed because the
-defrauding bank was cast as both the. person and the enter-prise); Hudson v. LaRouche, 579 F. Supp. 623, 628 (S.D.N.Y.
1983) (faulting complaint for failure to distinguish enter-prises from the individual defendants); Bulk Oil (Zuo)
A.G.
- v. Sun Co.,
583 F. Supp 1134, 1145 (S.D.N.Y. 1983) (dis-missing complaint which appeared to allege identical person and enterprise).
35.
In a transparent attempt to plead around the Bennett Rule, LILCO alternatively alleges, Compl. 172, that Delaval conducted the affairs of a separate enterprise, Transamerica Corporation ("Transamerica"), through a pattern of racketeering activity in violation of 51962(c).
In factual support.of-the relation between Transamerica (the enter-prise), Delaval (the person) and the communications by mail and telephone (the pattern of racketeering activity), the Complaint offers nothing more than the parent-subsidiary relationship between Transamerica and Delaval (Compl. 167).
The Complaint is devoid of any allegation that LILCO ever had r
any dealings with Transamerica or that Transamerica ever undertook any actions related to LILCO.
The naked assertion of parent-subsidiary relationship, without an allegation of some nexus to the racketeering activity, is insufficient to support an alleged' violation of S1962(c).
United States v.
Scotto, 641 F.2d 47, 54 (2d Cir. 1980), cert. denied, 452 U.S.
961 (1981); 111 al12 Bennett v. Berc, 710 F.2d 1361, '
1364 (8th Cir. 1983) (complaint not specifically alleging
" requisite degree of participation in or conduct of an enterprise" deficient); United States v. Mandel, 591 F.2d 1347, 1375 (4th Cir. 1978)
("' conduct or participate' language in S1962(c) require (s) some involvement in the operation or management of the business.")
51
C.
The Complaint Fails to State a RICO Violation Because it Does Not Identify the Enterpr.ise In Which Delaval Allecedly Invested Racketeerina Profits Section 1962(a) of the RICO statute makes it unlawful for any person to use income derived from a pattern of racketeering to establish or operate an enterorlag engaged
'in int'erstate commerce.
It follows, a fortiori, that a
. complaint not identifying an enterprise is legally deficient.
But this is exactly what LILCO fails to do here.
The allegation of a violation of $1962(a) (Compl. 170) does not identify the enterprise which Delaval allegedly invested in and operated.
This omission, whether an oversight or delib-erate attempt to obscure the problems raised by Bennett v.
I United States T"ust Co.,
renders the allegation of a $1962(a) violation deficient as a matter of law.
In Guerrero v. Katzen, 571 F. Supp. 714, 721 (D.D.C. 1983), the complaint alleged only the commission of predicate acts (mail fraud and interstate transportation of stolen goods in connection with a partnership to develop a
. shopping center) by the defendant and did not identify the enterprise.
The court stated, "the gravamen of $1962(a) is not the receipt of funds or benefits from a pattern of racketeering; rather it is the investment of such funds to acquire an interest in, establish or operate an enterprise."
The RICO counts were dismissed since the failure to identify 52
s an enterprise went to the heart of a violation of S1962(a).
Simply stated, there is no entity that can satisfy the entity requirement.
If Delaval is claimed to be the enterprise, the Bennett rule is violated;36 if Transamerica is claimed to be the enterprise, the Scotto rule (agg fn. 35 supra) is violated.
Accordingly, LILCO's RICO count must be dismissed.
IV.
LILCO FAILS TO PLEAD A SEPARATELY COGNIZABLE FRAUD CLAIM LILCO attempts to plead 37 tw*o different fraud claims:
one for fraud in the performance and another for fraud in the inducement.
Neither states a cause of action and both should be dismissed.
36.
111 ale 2 Kaufman v. Chase Manhattan Bank, N.A.,
- supra, 591 F. Supp. at 357 (complaint failed to state a violation of either S1962(a) or 1962(c) where it did not " distinguish the enterprise, as the vehicle for the pattern of racketeering activity, from the culpable person, whose conduct RICO pro-scribes"); Cashco Oil Co. v. Moses, 605 F. Supp. 70 (N.D.
Ill. 1985); Willamette Savinas and Loan v. Blake & Finance N'eal Co.,
577 F.
Supp. 1415 (D. Ore. 1984).
37.
These claims are not even pleaded separately, but have been grafted onto counts alleging the torts of negligent or intentional failure to warn (Count I) and negligent or inten-tional misrepresentation (Count III).
Thus in Count I, with respect to the purportedly defective engine block, LILCO alleges that Delaval " negligently, willfully and fraudu-lently" concealed the defect from LILCO, and that TDI's alleged failure to warn LILCO of other defects was "negli-gent, grossly negligent, willful, wanton, knowing, and inten-tional" (Compl. 1146, 52, 53).
In Count III, LILCO similarly alleges that Delaval made misrepresentations as to its compliance with the contract "frauduler...y, carelessly, reck-lessly, knowingly and inter.tionally" (Comp 1. 1560, 61).
53
A.
LILCO's Allegations of Fraud Amount to No More Than A Rehashing of Its Breach of Warrantv Claim New York law does not recognize a cause of action for " fraudulent breach of contract."
Miller v. Volk &
Huxlev, Inc., 44 A.D.2d 810, 810, 355 N.Y.S.2d 605, 606-07 (1st Dep't 1974) ("cause of action for fraud will not arise when'the only fraud charged relates to a breach of con-t tract"); ggg Brick v. Cohn-Hall-Marx Co.,
276 N.Y.
259, 263-64 (1937) (falsity of statements and fraud of defendants amounted only to a breach of contract and whether defendant negligently or deliberately made false statements in performing contract, "the action of the plaintiffs is founded and' based upon the contract, without which they would have no claim at all"); Miller v. Columbia Records, 70 A.D.2d 517, 518, 415 N.Y.'S.2d 869, 871 (1st Dept. 1979) (fraud claim dismissed as it is " redundant with respect to the first cause of action which is already for breach of contract").
1 Alleged concealments and misrepresentations involv-ing nothing other than a defendant's nonperformance of a con-j l
tract simply do not give rise to a cause of action for fraud.
Trianale Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 748 (2d Cir. 1979) (affirming dismissal of allegations of i
fraudulent nonperformance of contract); ShgIkate Sahami Khass Ranol v. Jahn & Son, Inc., 531 F. Supp. 1048, 1061 (S.D.N.Y.
j 4
54
1982) (dismissing purported fraud claim alleging that seller falsely represented it had performed); Frevne v. Xerox Coro.,
98 A.D.2d 965, 965, 470 N.Y.S.2d 187, 188 (4th Dep't 1983)
(alleged fraudulent representations held to be "in essence, restatements of plaintiff's contract cause of action and do not state separate causes of action in fraud").
~
The fraud alleged here consists entirely of Delaval's supposedly false representation that the diesel generators conformed to the contract and, conversely, con-cealing from LILCO that the diesel generators did not conform to the contract (Compl. 161).
Since the essence of these allegations is Delaval's purported failure to properly perform the contract, they do not state a claim separate from the alleged breach of contract.38 38.
Particularly telling in this regard is the fact that the Complaint alleges no distinct injury due to fraud, and s'eeks damages on the purported fraud counts (Compl. 1125, 52, 64) which are identical to those claimed on the other causes of action (Comp 1. 1156, 73, 79, 83, 87, 92, 96, 100, 103).
This in itself demonstrates the failure of the Complaint to state a claim for fraud.
Affirming the dismissal of an attempted fraud claim for just these reasons, une Appellate Division noted in Tesoro Petroleum Coro. v. Holborn Oil Co., 108 A.D.2d 607, 607, 484 N.Y.S.2d 834, 835 (1st Dept. 1985):
[P]laintiff did not allege that defen-dants breached any duty owed to plaintiff separate and apart from the contractual duty when they misrepresented their intent to perform as promised.
Nor has plaintiff claimed any special damages proximately caused by the false represen-(footnote continued) 55
t B.
The Complaint Fails to State a Claim for Fraudulent Inducement of the Contract LILCO alleges in Count Three of the Complaint that through a variety of misrepresentations and omissions, 3
Delaval fraudulently induced it to enter into a contract for The the purchase and sale of three diesel generators.
" misrepresentations" are not specifically set out in Count three, but rather are littered throughout the Complaint.
Reading LILCO's Complaint as charitably as possible, it
. alleges two categories of " inducing misrepresentations."
One category -- into which all of the misrepresentations alleged in' Count Three fall -- includes statements or omissions alleged to have occurred after the contract between the parties was made in 1974.39 The other category -- containing but a single allegation, (Compl. 113) -- contains statements I
or omissions allegedly occurring before the contract was made.
LILCO's " fraudulent inducement" claim with regard to the first category makes no legal or common sense.
A i
statement made after a contract is entered into simply cannot 1
tation, not recoverable under the con-tract measure of damages.
Consequently, the fourth cause of action was redundant and should have been dismissed.
The same result is proper here.
39.
Sag, gtgt, Compl. 1132-35 and 58-61.
56
.i*.
s*
i be said to induce that contract.'
E.g.,
24 N.Y. Jur. Fraud and Deceit 5171 (1962)
(" Fraud may be predicated on representations previously made, provided the other party still has a right to rely on them.
However, reoresentations-made after a transaction or contract cannot be made the basis 4
of fraud for an attack uoon such transaction or contract")
(emphasis added); Pittsburah Coke and Chemical Comoany v.
Bolle, 421 F. Supp. 908, 923 (E.D.N.Y. 1976), aff'd, 560 F.2d 1089 (2d Cir. 1977) (dismissing claim for fraudulent j
inducement predicated on allegations that after contract to sell, but prior to its closing, seller learned of but did not disclose material adverse facts); Bayles v. Clark, 115 App.
Div. 33, 35, 100 N.Y.S.2d 586 (2d Dept. 1906) (false representations made during the course of performance are "of J
no importance" to a claim for fraudulent inducement); ggg A112 Piffath v. Esoosito, 58 A.D.2d 577, 577, 395 N.Y.S.2d 219, 220 (2d Dept. 1960) (fraudulent inducement requires
" misrepresentations prior to the execution of the contract").
As to alleged pre-contractual misrepresentation in the second category, LILCO's claim for fraudulent inducement is equally flawed.
As a matter of law, the statements
^
described (Compl. 113) cannot -- even if untrue when made,
\\
-which LILCO has nat pleaded -- support a fraud claim.
Further, LILCO fails to set forth the misrepresentations 57 i
e.
referred to in Compl. 113 with particularity, in violation of Rule 9(b) of the Federal Rules of. Civil Procedure.
The only allegation which concerns pre-contract statements is not even specifically set out in LILCO's
" fraudulent inducement" claim (Compl. 1157-65).
The
' Complaint alleges (Compl. 113) that Delaval " rep' resented that
~
it had the experience, skill, judgment and expertise to de-sign, manufacture and supply the Diesel generators.
suitable for (their intended] use."
Whether this allegation is. read to allege a false proraise to provide suitable goods or a false statement of Delaval's qualifications, it cannot be the basis for a fraudulent inducement claim.
First, a failure to perform promised future acts (gzgt, provide suitable diesel generators) is at best a contract claim, not a fraud claim.
Egg, gagi, Tesoro Petroleum Coro., suora, 108 A.D.2d at 607, 484 N.Y.S.2d at'834 ("A failure to perform promises of, future acts is merely a breach of contract to be enforced by an action on the contract.
A cause of action for fraud does not arise when the only fraud charged relates to a breach of contract"); Patalo, Inc. v. Descrescente Dist. Co.,
86 A.D.2d 600, 601, 446 N.Y.S.2d 120, 121-22 (2d Dept. 1982)
(a claim for fraud predicated on allegations that defendant made agreement knowing that it would not abide by its terms says nothing which is not legally embraced by the action for 58
- _ _.... - -.. -. ~. - - ~ -. - - - ~..... -. -. - -... -. - -...,, - -.. - - -..
a<
v breach of contract and therefore must be dismissed).40 Nor does a false representation'of one's general qualifications support a fraud claim.
Egg Giblin v. Murchv, 97 A.D.2d 668, 670, 469 N.Y.S.2d 211, 214 (3d Dep't 1983) (promissory statements made by defendant with respect to "their own competence and ability to generate business" held "not actionable as fraud").
Further, LILCO has not even alleged that the repre-sentations were false when made or were intended to deceive.
l Compl. 113.
Unless a representation was false when made and made w.ith intent to deceive, it will not support a claim of i
fraudulent inducement.
Lanzi v. Brooks, 54 A.D.2d 1057, 1058, 388 N.Y.S.2d 946, 947 (3d Dept. 1976), aff'd, 43 N.Y.2d l
778, 402 N.Y.S.2d 384 (1977); Comouterized Radioloolcal i.
Services v. Syntax Coro., 595 F.
Supp. 1495 (E.D.N.Y. 1984) 40.
Egg also Wecman v. pairvlea Coooerative, 50 A.D.2d 108,
'113, 376 N.Y.S.2d 728, 735 (4th Dept. 1975), leave dism'd, 38 N.Y.2d 918, 382 N.Y.S.2d"79 (1976) (as allegations of fraudulent misrepresentation related only to the specific ter:ms of ' the contract, plaintif f was necessarily limited to suit for breach of contract); BVD Co., Inc. v. Marine Midland Rank, 46 A.D.2d 51, 54, 360 N.Y.S.2d 901, 904 (1st Dept.
1974) (failure of equipment-to meet specifications might be breach of warranty or contract but not fraud); Cranston Print
~
Works v. Brockman International A.G.,
521 F. Supp. 609, 614 i
(S.D.N.Y. 1981) (claim for fraudulent inducement cannot be' based solely upon the failure to perform the promises of
(
future acts which constitute the contractual obligations i
themselves); Cauble v. Mabon Nuoent & Co.,
594 F. Supp. 985, 993 (S.D.N.Y. 1984) (fraud claim cannot be predicated solely upon promissory statements relating to future acts which con-l l
stitute the contractual obligations themselves).
l 59 i
1 i
--r----
_-,----_,,---_-_,,-,.--._,...,~,----,----,,_mm._---,--,w,,
,-w
,+.,- - - --
9 (claim for fraudulent misrepresentation with respect to capabilities of highly complex equipment to be fabricated and sold by defendant failed as a matter of law because defendant had not knowingly intended to deceive when representations were made) ; 111 A112 Sabo -v.
Delman, 3 N.Y. 2d 155, 16d, 164 N.Y.S.'2d 714,.718 (1957); Channel Master Corn. v. Aluminum Limited Sales, Inc., 4 N.Y.2d 403, 407, 176 N.Y.S.2d 259, 262 (1958) (same).
Finally, nowhere is it alleged who made such a statement, to whom, or when.
LILCO's claim of fraud in the inducement therefore does not comport with Fed. R. Civ. P.
.9(b) and should be dismissed on that ground alone.
Todd v.
Oooenheimer & Co., 78 F.R.D.
415, 420-21 (S.D.N.Y. 1978)
.(plaintiffs failed to allege, among other things, the time and place of each alleged misrepresentation and the person responsible for making it); Gross v. Diversified Mortoaae Inyestors, 431 F. Supp. 1080, 1087 (S.D.N.Y. 1977), aff'd 3g32, 636 F.2d 1201 (2d Cir. 1980).
To the extent the complaint pleads " facts" at all, it is clear that (i) virtually all of the alleged false representations were made after the May 1974 contract for the diesel generators and (ii) Delaval's knowledge, if any, that any alleged representations were false also occurred after the contract was made.
60
4
,9 M
In short, both LILCO's " fraudulent performance" claims and " fraudulent inducement" claim are defective as a matter of law and should be dismissed.
't 6
O 9
e G
l l
61
V.
LILCO IS BARRED AS A MATTER OF LAW FROM RECOVERING ECONOMIC LOSS UNDER ITS NEGLIGENCE AND STRICT LIABILITY CLAIMS Dissatisfied with the remedies and allocation of risk provided for in'the contract it negotiated with Delava1, LILCO attempts to rely on tort theories of lEck of due care and strict liability to bolster and expand its claims.
In Count Two, LILCO alleges that Delaval negligently performed technical and engineering service's "in connection with the design, manufacture, startup and-testing of the Diesel Generators... in that Delaval failed to advise and warn about and assist LILCO to discover the defects which.were or j
I should have been known to Delaval at the time."
Compl. 155.
)
In Count Ten, LILCO alleges that "Delaval is strictly liable for damages arising out of the Diesel Generators' defective 2
condition and (Delaval's] failure to warn LILCO of this
},
condition."
Compl. 199.
In Count Eleven, LILCO alleges that Delaval negligently designed, manufactured and failed to inspect and test the Diesel Generators.
Compl. 1102.-
),
Conspicuously missing from the Complaint is any allegation of property damages or personal injury.
Here, LILCO attempts to recover under yet another theory the costs of the Shoreham delay.
The damages sought are plainly for economic loss; that is, for "the purchase price," "the cost incurred in investigating the cause of and 62
remedy for the defects," "the costs of repairing and testing the generators," " increased licensing costs," " increased costs and expenses to construct and operate Shoreham,"~" costs of purchase and designing and constructing and testing alter-native die.sel generators," " costs of defending allegations ccncerning the diesel generators made by the staff of the New York PSC," and the " costs of future testing."
Compl. 125.
Whatever labels'are used to describe these claimed damages --
direct, consequential or economic loss -- the foundations lie in LILCO's assertion that the product is defective (whether in design, manufacture or installation) and has failed to perform as expected.
Property damage or personal injury is not alleged anywhere in the Complaint.
At most, LILCO claims that the diesel generators simply did not work.
Such economic or consequential loss is simply not recoverable 9
here.
Under such circumstances, New York courts and
. federal courts applying New York law have repeatedly recognized that expansion of tort liability is inapplicable where., as here, one sophisticated party to a contract, disappointed that the purchased product has not lived up to its expectations, sues the manufacturer of that product to recover economic loss.
Where the product alleged to be defective causes no property damage or personal injury, a 63 l
J
suit in strict liability or negligence plainly does not lie.
Egg, gigs, County of Suffolk v. Lona Island Lichtina Co.,
728 F.2d 52 (2d Cir. 1984) (no recovery for economic loss in strict liability or negligence); consolidated Edison Co. v.
Westinchguse Electric Coro., 567 F. Supp. 358 (S.D.N.Y.) ("In the context of suits by purchasers against sellers of defec-tive goods, New York law does not permit recovery, in negligence, of economic loss (nor is] an action in strict liability by parties in privity available.").
Schiavone Construction Co. v. Elcood Mavo Coro., 56 N.Y.2d 667, 451 N.Y.S.2d 720 (1982), rev'a, 81 A.D.2d 221, 439 N.Y.S.2d 933 (1st Dept. 1981)'(adopting Appellate Division dissent that a cause of action in strict liability not available to recover
~
economic loss); Utica Observer Discatch, Inc. v. Booth, 102 A.D.2d 863, 483 N.Y.S.2d 540 (4th Dept. 1984) ("A claimant seeking to recover for economic loss resulting from the non-performance of a product is relegated to the 1.aw of contracts and may not sue in negligence.
"); Antel Oldsmobile-Cadillac, Inc. v. Cyrus Leasina Co.,
101 A.D.2d 688, 475 N.Y.S.2d 944 (4th Dept. 1984) ("When damage suffered by a plaintiff is the result of a non-accidental cause, such as.
deterioration or breakdown of the product itself, the injury is properly characterized as ' economic loss' and the plain-tiff is relegated to contractual remedies."); Mid-Hudson 64
c Mack, Inc. v. Dutchess Quarry & Sucolv Co.,
99 A.D.2d 751, 753, 471 N.Y.S.2d 664, 666 (2d Dept. 1984) ("The law is clear in this state that economic loss.(gtgt, the cost of repair and consequential damages) may not be recovered in an action j
. predicated on negligence or a strict products liability
"); H21g v. General Motors Coro., 83 A.D.2d 715, theory.
717, 442 N.Y.S.2d 638, 641 (3d Dept. 1981)
(" economic loss is not the character of harm contemplated by the rule which renders a manufacturer liable for negligence or strict products liability").
Other courts are in accord.
For example, this 8
t point was succinctly made by the Ninth Circuit:
Where the suit is between a'non-perform-ing seller and aggrieved buyer and the
-injury consists of damage to the goods themselves and the costs of repair of such damage or a loss of profits that the 4
deal had been expected to yield to the 4
buyer,'it would be sensible to limit the buyer's rights to those provided by the Uniform Commercial Code.
To treat such a i
breach as.an accident is to confuse disappointment with disaster.
Whether the complaint is cast in terms of strict liability in tort or negligence would make no difference.
S.
M. Wilson & Co. v. Smith International, Inc., 587 F.2d 1363, 1376 (9th Cir. 1978) (citations omitted).
In sum, LILCO is barred from recovery of economic loss.
No party -- not even one who is without. contractual i
65
o t
(
remedies -- may recover economic loss in a negligence or strict liability action under New York law.
Schiavone,
{
supra.
Economic loss is simply not the character of harm sought to be redressed by such actions.
Egt, Egig., sunta.
It would be particularly inappropriate to allow LILCO to recover for economic loss when it, a sophisticated and i
experienced public utility, had more than ample opportunity to protect itself by contract against the risk of loss for which it now seeks recovery.
LILCO's negligence and strict liability claims should therefore be dismissed.
9 e
e.
L e
l i
I 66 I
i 4
_,,m_
...,_.y___
,_-.y
,.,,,-,_..-_._._77__.__.,
~
VI.
LILCO IS BARRED BY CONTRACT FROM RECOVERY OF CONSEOUENTIAL DAMAGES The damages LILCO seeks to recover from Delaval are itemized in the Complaint.
Compl'. 125.
These damages, as alleged, are consequential 41 and are expressly barred by the-parties' contract.
The UCC provides that the parties may readily alter the risk of loss between them.
" Consequential damages may be limited or excluded unless limitation or exclusion is unconscionable."
N.Y.U.C.C.52-719 (McKinney 1964).
The purpose of this provision is explained in the official comment:
"Under this section, parties are left free to shape their remedies to their particular requirements in reasonable agreements limiting or modifying remedies to be given effect."
N.Y.U.C.C.52-719 (Official Comment).42 In keeping with modern commercial bargains, particularly those concerning the sale of equipment for nuclear power plants, the contract between'LILCO and Delaval limits Delaval's liability for consequential damages.
The 4
41.
Consequential damages are defined by the UCC as
" loss (es] resulting from general and particular requirements and needs... which could not be reasonably prevented by cover or otherwise...."
N.Y.U.C.C.52-715(2)(a) (McKinney, 1964).
42.
In New York, the enactment of $2-719(3) was merely a codification of long-standing New York law.
Egg Assoc:.ated Soinners v. Massachusetts Textile, 75 N.Y.S.2d 263 (Sup. Ct.
1947) (enforcing exclusion of consequential damages).
67
contract _ states that:,"(u]nder no circumstances shall Delaval be liable for special or consequential damages, including the loss of profits or use of any part or all of the purchaser's facility."
gag Appendix A at 9.
Paragraph 11 of Delaval's Proposal, incorporated into the contract, contained the following-language:
11.
LIMITS OF LIABILITY.
In no circum-stances shall DELAVAL be liable for special or consequential damages.
The complete liability of DELAVAL, whether expressed or implied is limited to that stated in these conditions of sale.
SAR Appendix A at 7.
In circumstances identical to those here,'this and other federal courts have repeatedly enforced similarly worded consequential damage clauses.
American Electric Power gas v. Westinahouse Electric Corn., 418 F. Supp. 435, 455-58 (S.D.N.Y. 1976) (such clauses common in sophisticated commercial dealings); gag glgg Southwest Forest Industries, Inc. v. Westinahouse Electric Corn., 422 F.2d, 1013, 1019-1020 (9th Cir.), cert. denied, 400 U.S. 902 (1970); Hggli Industries, Inc. v. Publiker Industries. Inc., 420 F.2d 454, 457 (5th Cir. 1969); SCE.1 (agg Exhibit A); Florida Power &
Liaht Co. v. Westinahouse Electric Corn., No. 78-1896-Civ-JE slip op. (S.D. Fla. June 2, 1982) (131 Exhibit B); Portland General Electric Co. v. Bechtel Corn., No.79-103 slip op.
68
(D. Ore. June 4, 1980) (attached hereto as Exh. H);
Royal Indemnity Co. v. Westinchouse Electric Coro., 385 F. Supp.
520, 522 (S.D.N.Y. 1974); Ebasco Services, Inc. v.
Pennsylvania Power & Licht Co.,
460 F. Supp. 163 (E.D. Pa.
1978).
Just as.the plaintiff utilities in the cases cited above attempted to do -- in each instance unsuccessfully --
LILCO seeks to avoid the plain language of the contract negotiated between bargaining equals regarding a purchase of power plant equipment. Courts will not upset the allocation of risk negotiated and agreed to by the parties.
t 4
e 69
.=
VII.
DISCOVERY SHOULD BE STAYED Delaval respectfully requests that this Court stay discovery until this motion -- and particularly the propriety of LILCO's claim for delay damages -- is decided.
Although LILCO's claim for delay damages is but one paragraph in its Complaint (Compl. 125(e)), the determination of whether or not it should be dismissed will radically alter the course of discovery in this action.
1 If Delaval's motion to dismiss plaintiff's delay l
damage claims is not granted, Delaval will be compelled to defend these damage claims by litigating the responsibility of LILCO, Stone & Webster, various Shoreham contractors and suppliers and various governmental entities for the l
substantial cost overruns and delays which have plagued l
Shoreham throughout its history.
Millstein Aff. 1111-19, 23, 24, 26-29.
Some indication of the massive quantum of materials and information that would be involved in the Shoreham plant discovery in this action may be gleaned from just one recent l
investigation of Shoreham.
The staff of the PSC and an outside consulting firm retained by the staff reviewed the files of 66 LILCO departments and offices, scrutinized the personal files of 58 managerial officials and examined some 1.5 million pages of information reproduced on 950 rolls of 70
microfilm and the company's computerized cost accounting sys-tem.
In addition, 49 individuals were interviewed and the testimony of approximately 79 fact or expert witnesses was taken.
Millstein Aff. 121.
The PSC's investigation documents millions of wasted hours expended by engineers and workmen, mismanagement at every level, defectively designed equipment, and scores of other problems which caused massive cost overruns and delays.
Millstein Aff. 1117-19.
Delaval's discovery directed to LILCO's responsibility for the cost l
l overruns and delays at Shoreham would be at least as compre-l hensive as that investigation.
l Delaval will also have'to conduct discovery of (and possibly implead) Stone and Webster as well as numerous
' contractors and suppliers of equipment and services to the Shoreham project.
Millstein Aff. 123.
Given the well-documented labor problems at Shoreham (112 Millstein Aff.,
Exhibit 4), extensive discovery will likely have to be conducted of unions and workers.
Discovery will have to be taken of other utilities I
and other entitles involved'in the construction of other nuclear power plants in order to adduce evidence to demonstrate the extent of excessive and wasteful costs incurred at Shoreham.
Other utilities which started construction of nuclear power plants at approximately the 71
o same time as Shoreham have been in operation for years and were constructed at a fraction of the cost of Shoreham.
Egg ALJ Decision at 13, Appendix B at 1, 17.
Evidence regarding the cost of construction of such other plants would be probative in demonstrating to the jury the excessive costs incurred at Shoreham and the responsibility therefore of plaintiff and others.
That discovery will also be monumental and the evidence at trial will be complex and voluminous.
Since its inception, Shoreham has aroused the heightened scrutiny of federal regulators spurred in great part by concerted, influential local opposition.
As a result, by 1983 LILCO had alreadv endured the longest Construction Permit hearing process in the history of the nuclear industry, and to date, remains involved in the longest operating License hearings in history.
Millstein Aff. 126.
To the extent additional costs and delays were caused by various regulatory proceedings and not Delaval, they should be excluded from any calculation of delay damages y
sought to be recovered from Delaval.
This is another time-consumi,ng and complex matter which must be explored during discovery aad presented to the jury at trial.
The example of Houston Liahtina & Power Co. v.
3 Brown & Root. Inc., No. 81-H-0686-C, District Court of Matagorda County, Texas, 130th Judicial District (" South 72
s Texas Project Litigation") graphically demonstrates the kind and extent of discovery that would be necessary here.
In that case the plaintiff utility charged the defendant-architect / engineer with mismanagement, resulting in delays in commercial operation.
The defendant maintained that the delay was the fault of the project manager, other contractors and government regulation.
Over a period of nearly five years, according to published reports, discovery produced over 30 million documents, four million pages of interroga-tory answers and more than 275 depositions.
Costs of litiga-tion were estimated at over $100 million.
Millstein Aff.
122.
The discovery that would be required with respect to the calculation of delay damages, the quantum of such damages, if any, that might be assessed against Delaval, the quantum of such damages that should be borne by plaintiff or other entities is almost beyond comprehension.
In summary, although Lilco's delay damage claim is alleged in only one paragraph (Comp 1. 125(e)) of Lilco's t$enty-eight page complaint, in reality it will be the preponderant and most expensive and time-consuming issue before this Court if it.is not dismissed -- as it should be -- for all of the reasons discussed above.
73
.s Federal courts have broad discretion under Fed. R.
Civ. P.
26(c) to stay discovery pending resolution of a I
motion to dismiss the complaint and have frequently exercised that discretion.
Egg, gtgt, H.L. Moore Druc Exchanae, Inc.
- v. Smith Klein & French Lab., 384 F.2d 97, 97-98 (2nd Cir.
1967); Bergman v. Stein, 404 F. Supp. 287, 291 (S.D.N.Y.
1975); Soerbera v. Firestone Tire & Rubber Co., 61 F.R.D. 70, 74 (N.D. Ohio 1973).
A stay of discovery is particularly appropriate here, where resolution of this motion will necessarily determine the scope of this case.
As the accompanying M111 stein Affidavit demonstrates, extensive, costly and burdensome discovery will be necessary to judicially establish the true cause of the Shoreham delays.
This Court, Delaval and numerous third parties snould not be put to this burden until it is determined whether LILCO's claim for delay damages can stand.
Additionally, resolution of this motion in Delaval's favor, in whole or in part, will be dispositive of many, if not all, of LILCO's claims.
Discovery during the interim would be a needless waste.
Delaval should not be subjected to the enormo'un burden and expense of complying with discovery requests that may become moot upon resolution of this action.
Nor would the interests of judicial economy 74
---,----,,--,,--,--.,n,,.-.
.---.,-,-.n,, - -.., - - -, -,.. _,.,
be served by requiring this court to now adjudicate discovery disputes which may arise between the parties.
And, because LILCO has served an exceedingly broad, ambiguous and burdensome set of discovery requests, discovery disputes seem inevitable.43 As explained by the Court in Coastal States EAR V.
Department of Energy. 84 F.R.D.
278, 282 (D. Del.
1979):
It is within the sound discretion of the court to postpone discovery issues relat-ing to the merits of the case pending
. resolution.of potentially dispositive motions....
Indeed, such a procedure is an eminently logical means to prevent wasting of time and effort of all con- -
corned, and to make the most efficient use of judicial resources.
Moreover, absent properly pleaded claims, LILCO has no right to discovery at all, ggg American communication Association v. Retirement Plan, 488 F. Supp. 479, 484 (S.D.N.Y.), aff'd, 646 F.2d 559 (2d Cir. 1980).
Since Delaval has moved with respect to the legal sufficiency of each of LILCO's claims,.it is respectfully requested that this Court, pursuant to Fed. R. Civ. P. 26(c), stay any fur-ther discovery pending the resolution of the instant motion.
43.
Delaval has responded to LILCO's first set of discovery demands and has indicated that responsive documents and information will be supplied subject to and in accordance with the resolution of this motion.
75
a p
k CONCLUSION For the reasons set forth herein, Delaval's motion to dismiss the complaint and to stay discovery should be granted.
Dated:
New York, New York November 18, 1985
)
- WEIL, SHAL & MANGES
[
t Member' of thW Firm) 767 Fifth Avenue New York, New York 10153 (212) 310-8000 l
1
- and -
l ROSENMAN COLIN FREUND i
LEWIS & COHEN By:
(A Member of the Firm) 575 Madison' Avenue New York, New York 10022 (212) 940-8800 l
Attorneys for Defendant Transamerica Delaval Inc.
_ _ _ _ _ _ _.