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Rochester Gas and Electric Corp. v. Delta Star

February 13, 2009

ROCHESTER GAS AND ELECTRIC CORPORATION, PLAINTIFF,
v.
DELTA STAR, INC., DEFENDANT.
DELTA STAR, INC., COUNTER CLAIMANT,
v.
ROCHESTER GAS AND ELECTRIC CORPORATION, COUNTER DEFENDANT.



The opinion of the court was delivered by: Charles J. Siragusa United States District Judge

DECISION and ORDER

INTRODUCTION

This diversity contract case is before the Court on Plaintiff's motion to strike four affirmative defenses from Defendant's answer. The motion was argued before the Court on December 21, 2006, but the Court withheld issuing a decision pending the parties' attempts to mediate the dispute. Subsequently, the parties informed the Court that mediation was not successful. Now, for the reasons stated below, the Court grants the application.

BACKGROUND

The following information is taken from the undisputed portions of the parties' submissions pursuant to Local Rule of Civil Procedure 56.1 and Plaintiff's notice of motion. On February 8, 2006, Rochester Gas and Electric Corporation ("RG&E") commenced an action for breach of contract against Delta Star, Inc. ("Delta Star") in New York State Supreme Court. On March 16, 2006, Delta Star removed the action to this Court, alleging diversity jurisdiction. A month later, Delta Star filed an answer asserting several affirmative defenses and a counterclaim. The affirmative defenses are:

1. Doctrine of commercial impractibility;

2. Force majeure;

3. Failure of presupposed conditions;

4. Estoppel;

5. Failure to comply with N.Y. U.C.C. §§ 2-609, 2-610 and 2-616;

6. Lack of privity;

7. Breach of contract by RG&E; and

8. Failure by RG&E to specify damages.

RG&E has moved for summary judgment seeking an order striking the following affirmative defenses on the basis that each is deficient as a matter of law: (1) doctrine of commercial impractibility; (2) force majeure; (3) failure of presupposed conditions; (4) lack of privity; and (5) failure of consideration.

Through a Master Agreement ("Agreement")*fn1 between Utility Shared Services ("USSC"), as agent for RG&E, and Delta Star, dated June 15, 2005, Delta Star agreed to sell to RG&E eight electrical transformers, as specified in subsequent purchase orders issued by RG&E. Although USSC executed the document, the Agreement specified that RG&E was the purchaser and the Delta Star was the seller. Paragraph nine of the Agreement says that "prices stated on the face of the Purchase Order, shall be considered firm, unless otherwise noted, and [Delta Star] warrants that said prices do not exceed the prices allowed by any federal, state or local law, regulation, or order." (Agreement ¶ 9 (Compl., at Ex. A.).)

In July 2005, Delta Star received RG&E's Purchase Orders, numbered 5000010351 and 5000010353 ("Purchase Orders"), for the purchase of eight transformers at a price of $616,780 per unit. (Compl., at Ex. B.) Delta Star agreed to supply the transformers for a total price of $5,586,664.00. (Pl.'s Statement of Facts ¶ 13, Docket No. 24, at 3.)

Delta Star contends that by November 2005, the demand for M3 core steel outstripped supply and no M3 steel was to be had, since buyers in China and India were paying premiums above other markets for M4 steel. (Jaroszewski Aff. ¶ 4; Brown Aff. ¶¶ 7-8.) On December 21, 2005, Delta Star's Sales and Marketing Manager, Kevin Anderson ("Anderson") sent a letter to USSC's Katy Maksymiu ("Maksymiu") stating, inter alia:

Delta Star received notification from our sole electrical steel supplier, AK Steel, Butler, PA that they will not guarantee any core steel production as of December 7. Delta Star has relied upon this relationship for roughly forty years but now must quickly look to other suppliers.. Another factor that has definitely had an effect is the increase in distribution transformer demand due to the hurricanes*fn2 hitting the gulf coast..

The predictable results of this is dramatically overall higher prices and some designs requiring modification to accommodate other grades of core steel and changes to guaranteed losses..

The grave reality of the situation is the Delta Star has no choice but to submit these increased prices to all our customers. This is a force majeure condition impossible for us to predict and impossible for us to deal with any other way..

To clarify, Delta Star must ask for excess core steel increases and nothing more. The exact amount of the increase can be substantiated by our invoices for core steel actually used for your unit compared with the recent invoice of December 5, 2005 showing a final price of $0.98/lb.. (Letter from Kevin Anderson, Delta Star, to Katy Maksymiu, USSC (Dec. 21, 2005), Compl, at Ex. C.) The letter further stated that Delta Star anticipated the per unit increase in price for RG&E's transformers to be $67,183.00, for a total increase of $537,464.00 over the contract price.

The Agreement between Delta Star and USSC contained a force majeure provision that reads as follows:

20. Force Majeure

Any delay or failure in the performance by either Party hereunder shall be excused if and to the extent caused by the occurrence of a Force Majeure. For purposes of this Agreement, Force Majeure shall mean a cause or event that is not reasonably foreseeable or otherwise caused by or under the control of the Party claiming Force Majeure, including acts of God, fires, floods, explosions, riots, wars, hurricane, sabotage terrorism, vandalism. accident, restraint of government, governmental acts, injunctions, labor strikes, other than those of Seller or its suppliers, that prevent Seller from furnishing the materials or equipment, and other like events that are beyond the reasonable anticipation and control of the Party affected thereby, despite such Party's reasonable efforts to prevent, avoid, delay, or mitigate the effect of such acts, events or occurrences, and which events or the effects thereof are not attributable to a Party's failure to perform its obligations under this Agreement. The Parties agree to use reasonable efforts to mitigate the effects of events of Force Majeure. The affected Party shall promptly give written notice to the other Pam of the occurrence or impending occurrence of a Force Majeure, specifying the nature of the delay, and the probable extent of the delay, if determinable. Following the receipt of any written notice of the occurrence of a Force Majeure, the Parties shall meet to determine what fair and reasonable adjustment to the delivery schedule or the price, may be necessary to compensate for the effect of the Force Majeure upon Seller's performance hereunder. No failure to so agree shall excuse continuing delay or nonperformance. (Agreement ΒΆ 20, Compl., at Ex. A.) Delta Star points out ...


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