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SIEMENS WESTINGHOUSE POWER CORPORATION v. DICK CORP.

January 14, 2004.

SIEMENS WESTINGHOUSE POWER CORPORATION, Plaintiff, -against- DICK CORPORATION, Defendant/Counterclaim Plaintiff; CONTINENTAL CASUALTY COMPANY and NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Defendants; DICK CORPORATION, ON BEHALF OF THE CONSORTIUM OF DICK CORPORATION AND SIEMENS WESTINGHOUSE POWER CORPORATION, and INDIVIDUALLY, Third-Party Plaintiff, -against- AES LONDONDERRY, L.L.C., SYCAMORE RIDGE, L.L.C., STONE & WEBSTER, INC., LIMBACH COMPANY and SACHS ELECTRIC COMPANY, Third-Party Defendants


The opinion of the court was delivered by: VICTOR MARRERO, District Judge

DECISION AND ORDER

Defendant and third-party plaintiff Dick Corporation ("Dick") moves this Court for leave to file a second amended answer and counterclaim for the purpose of, among other things, adding updated counterclaims of negligent misrepresentation and fraudulent concealment. Plaintiff Siemens Westinghouse Power Corporation ("SWPC") opposes the Page 2 motion on the ground that the proposed amended filing would be futile with respect to those counterclaims. The Court agrees that those claims would not survive a motion to dismiss because they fail to sufficiently allege justifiable reliance upon the alleged misrepresentations and omissions. The motion is therefore denied with respect to those proposed amendments, and, in all other respects, granted.

The Court also addresses motions to dismiss Dick's third-party complaint. Because the third-party complaint is not proper under Federal Rule of Civil Procedure 14, it is dismissed. Dick seeks to amend its third-party complaint, as well. However, the proposed new filing does not remedy the Rule 14 defect and therefore the motion to amend is denied.

  I. BACKGROUND

  SWPC and Dick formed a Consortium for the purpose of constructing a power plant in Londonderry, New Hampshire on behalf of global power company AES Corporation ("AES"). Two AES subsidiaries, AES Londonderry, LLC, and Sycamore Ridge Co., LLC (collectively, the "Owners"), are signatories to the relevant contracts parties to this action. Because of delays in the project, SWPC has paid extensive liquidated damages to the Owners. SWPC filed a complaint seeking reimbursement of those payments from Dick, and from Dick's sureties. SWPC moved the Court for partial summary judgment, and the Court granted, Page 3 in part, SWPC's motion. See Siemens Westinghouse Power Corp. v. Dick Corp., 2003 WL 22383284 (S.D.N.Y. Oct. 14, 2003). The Court determined that, under the Consortium Agreement, Dick was responsible for paying liquidated damages to the Owners in the first instance and that the parties were to later determine, by applying certain formulas in the Consortium Agreement, SWPC's share of those damages. See id. at *3. Accordingly, the Court determined that, for now, Dick owed SWPC about $15 million. Id. at *7.

  In opposing that summary judgment motion, Dick asserted that the Consortium Agreement was the product of negligent misrepresentation. The Court found that defense, as stated in the first amended answer and counterclaim, to lack the particularity required under Federal Rule of Civil Procedure 9(b). See id. at *6. While the summary judgment motion was in briefing, Dick filed a motion for leave to file a second amended answer and counterclaim. The proposed new filing contained, among other changes, more specific allegations of negligent misrepresentation and a related counterclaim for fraudulent concealment. Specifically, Dick alleges that SWPC, via misrepresentations and omissions, disguised the fact that a certain combustion turbine SWPC supplied to the project was still experimental and therefore not ready for commercial operation. Dick maintains that these counterclaims serve as Page 4 valid defenses to SWPC's contract remedies at issue in the summary judgment motion.

  The Court did not address the updated allegations because it had yet to determine whether Dick was entitled to leave to amend, and because SWPC's motion related to Dick's first amended answer and counterclaim. The Court stayed entry of its judgment for the purpose of determining whether Dick was entitled to leave to amend, and if so, whether those counterclaims would suffice as defenses to defeat SWPC's motion for partial summary judgment. See id. This Decision and Order addresses the issue of whether Dick is entitled to leave to amend.

  Dick's second amended counterclaims for negligent misrepresentation and fraudulent concealment describe the following facts, which the Court will assume are true for purposes of this motion. At the inception of the power plant project in December 1999, Stone & Webster, Inc. ("Stone & Webster") agreed with the Owners to supply engineering, procurement, and construction services (the "EPC contract") to the project. SWPC agreed to provide around $164 million in equipment, including two combustion turbines. When Stone & Webster went bankrupt shortly thereafter, the remaining parties scrambled to find a new EPC contractor.

  The Owners hoped to get SWPC to agree to be the EPC Page 5 contractor, but SWPC refused. The Owners and SWPC then approached Dick in May 2000 with the prospect of joining the project. Dick "diligently attempted to investigate the Project . . ., but the time period afforded to Dick to investigate the prior design and construction efforts on the Project, as well as its overall viability, was extremely short." Proposed Second Amended Counterclaim ¶ 25. The other project participants, including SWPC, knew that time was short and that: Dick would rely on their representations in deciding whether to join the project. By September 2000, Dick and SWPC agreed to complete the project as a Consortium. The Consortium Agreement incorporated SWPC's previous commitment to supply the equipment.

  Dick now asserts it never would joined the project if it had known the truth about its viability. Dick alleges that SWPC, among others, made several material misrepresentations and omissions in the period between May and September 2000, when Dick was deciding whether to participate.

  The Consortium Agreement provided that SWPC would have a total of seventy-five (75) days — called "pool days" — to perform "corrective work" on certain equipment it supplied, before being responsible for any delay attributable to defects in the equipment. Dick therefore anticipated that SWPC would require around that many days in corrective work. It turns out Page 6 that SWPC spent over two hundred (200) days doing corrective work, causing a massive delay in the project overall. Dick attributes the unanticipated delay to the fact that SWPC's combustion turbine was still experimental and, therefore, not commercially viable. Dick states that SWPC knew or should have known this fact, but never alerted Dick before Dick signed the Consortium Agreement.

  Dick directs the Court's attention to a March 2000 bond offering prospectus for a company formed to build and operate a power plant in Pennsylvania, and for which SWPC supplied two of the exact model of combustion turbine at issue here. Under the heading "Summary of Risk Factors, " that prospectus states: "The success of our project and future operations may be impaired because . . . the combustion turbine to be used in our facility has no significant operating experience, and we may incur problems relating to start-up, commissioning and performance." Second Affidavit of Keith A. Moatz, dated Dec. 4, 2004, Ex. 14, at 19. The prospectus also states that the turbines in question were to become only the third and fourth ones of that make and model in operation. Id. at 20. SWPC's failure to inform Dick of the true nature of its combustion turbines is the essence Dick's counterclaims for negligent misrepresentation and fraudulent concealment.

  SWPC opposes the motion for leave to amend only with Page 7 respect to the proposed changes regarding negligent misrepresentation and fraudulent concealment, and only upon the ground that the changes would be futile. The issue here is therefore narrow: whether Dick's proposed second amended answer and counterclaim states ...


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