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POWER CITY v. ABB POWER GENERATION

January 16, 1996

POWER CITY PARTNERS, L.P., (Zurich Insurance Company, as subrogee and real party in interest), Plaintiff,
v.
ABB POWER GENERATION, INC. AND SYSTRON-DONNER CORPORATION, Defendants and Third-Party Plaintiffs, v. NATIONAL ENERGY PRODUCTION CORPORATION, Third-Party Defendant.



The opinion of the court was delivered by: MCAVOY

 I. Background

 NEPCO entered a contract with plaintiff to design and build plaintiff's Plant. (Aaron Aff. P 14.) As part of this project, NEPCO entered into a subcontract with ABB pursuant to which ABB installed a gas turbine generator in plaintiff's Plant. (Id. at P 15-16.) Plaintiff alleges that ABB designed, manufactured, and sold this generator. (Compl. PP 3, 8, 11.) On June 14, 1993, the fuel valve assembly on ABB's generator allegedly failed, causing a fire at the Plant. Plaintiff brought a tort action against ABB (for having installed an allegedly defective generator) and against Systron (for having installed an allegedly faulty fire suppression system that allowed the fire to spread). (Id. at P 8.) ABB filed a third-party complaint against NEPCO, alleging that NEPCO's failure to provide an adequate fire protection system for the Plant increased the fire-related damages.

 Citing the Arbitration Act, 9 U.S.C. § 3, and its contract with ABB, NEPCO seeks an order staying the third-party action pending arbitration. The Arbitration Act provides that

 
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . . .

 9 U.S.C. § 3. Paragraph 21 of the NEPCO/ABB contract reads as follows:

 
RESOLUTION OF DISPUTES
 
Any controversy or claim arising out of or relating to this Contract shall be settled by arbitration, in accordance with the rules of the American Arbitration Association and judgment upon the award may be entered in any court having jurisdiction. The parties shall cooperate in providing reasonable disclosure of relevant documents. The exclusive venue and place of arbitration shall be in Seattle, Washington. Seller agrees to participate in and be bound by anything between Owner and Buyer which relates in any manner to the Equipment furnished by Seller. Each party shall bear its own expenses, and the costs and fees of the arbitration shall be borne as allocated by the Arbitrators.

 (Id. Ex. E.) NEPCO argues that ABB's third-party complaint arises out of or is related to the NEPCO/ABB contract. ABB counters that the Court should deny NEPCO's motion because its third-party complaint against NEPCO neither arises out of nor is related to this contract.

 II. Discussion

 NEPCO's argument is quite simple. According to it, ABB's third-party claim for contribution and indemnity arises out of or relates to the NEPCO/ABB contract because "the fire, the adequacy or inadequacy of the gas turbine itself, the fire protection system for the gas turbine and the overall fire protection system for the [Plant]" all arise out of or relate to that contract. (NEPCO Mem. at 2.) As legal support for its position, NEPCO cites Maldonado v. PPG Industries, Inc., 514 F.2d 614 (1st Cir. 1975), and Schulman Investment Co. v. Olin Corp., 458 F. Supp. 186 (S.D.N.Y. 1978), both of which the Court discusses below.

 Maldonado v. PPG Industries, Inc., 514 F.2d 614 (1st Cir. 1975) lends some support to plaintiff's position, but is ultimately distinguishable on its facts. In that case, residents of a Puerto Rican town brought a negligence action against the defendant, the operator of a plant from which chlorine gas leaked, causing injuries to the plaintiffs. The defendant filed a third-party complaint against Fluor, the designer and builder of the plant, seeking contribution for any damage award against the defendant. Fluor moved for a stay of the third-party action pending arbitration. According to Fluor, PPG's third party claim was subject to arbitration because the PPG/Fluor design and construction contracts provided for arbitration of "any controversy or ...


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