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Genon v. Stone & Webster

June 6, 2011

GENON MID-ATLANTIC, LLC, GENON CHALK POINT, LLC, PLAINTIFFS,
v.
STONE & WEBSTER, INC.
DEFENDANT.



The opinion of the court was delivered by: Hon.HAROLD Baer, Jr., District Judge

OPINION AND ORDER

Before the Court are motions by plaintiffs-counterclaim defendants Genon Mid-Atlantic, LLC and Genon Chalk Point, LLC (collectively "GenOn") to enforce an order of this Court and to quash a subpoena, as well as motions by defendant-counterclaim plaintiff Stone & Webster to compel production of the subpoenaed documents and to disqualify GenOn's counsel and a potential expert witness. For the reasons that follow, GenOn's motion to enforce is GRANTED and its motion to quash is DENIED; Stone & Webster's motion to compel is GRANTED and its motion to disqualify is DENIED.

I.Background

This lawsuit arises out of an agreement dated July 30, 2007 between GenOn and Stone & Webster (the "Turnkey Agreement"). Under the Turnkey Agreement, Stone & Webster would design and build certain air quality control systems known as "wet scrubbers" at three of Genon's Maryland power plants. The upgrade was necessary to ensure compliance with Maryland's Healthy Air Act, which became effective January 1, 2010. The amount payable to Stone & Webster was not fixed, but was to be determined by applying a formula containing two variables: (1) the target cost set out in the contract; and (2) the total amount of reimbursable costs incurred by the contractor to complete the work (the "Actual Costs"). The formula is intended to reward the contractor if its Actual Costs are less than the target, and discourage it from incurring Actual Costs greater than the target.

The target cost was subject to modification by "change order" on grounds set forth in the Turnkey Agreeement. Thus, the amount payable to Stone & Webster under the Turnkey Agreement cannot be determined until the amount of all change orders are known, and Stone & Webster has submitted to GenOn a final accounting of its Actual Costs. Stone & Webster is contractually bound to provide this final accounting on an "Open Book" basis, which means essentially that it must make available all relevant "books, records, schedules, logs and electronic communications and data" in order to substantiate the costs and expenses incurred. Turnkey Agreement §§12.11.2; 1.93.

In view of cost overruns projected at one point to exceed $100 million, GenOn filed this lawsuit seeking a declaratory judgment that it need not pay certain costs and invoices. Its complaint focuses on allegedly improper billings by Stone & Webster that breach the Turnkey Agreement. In 2009, Stone & Webster indicated that its Actual Costs would exceed the initial target cost. GenOn exercised its audit rights under the Turnkey Agreement to obtain cost information, and concluded that the cost overruns were due to improper manipulation and abuse. For example, GenOn points to data indicating that Stone & Webster billed it for excessive hourly wages (e.g., charging $146/hour for 2125 hours logged by a "Safety Manager" who Stone & Webster paid $23/hour), and kept financial records for itself that differed from those created for GenOn.

In its counterclaim, Stone & Webster contends that, above and beyond what it has already received, it is entitled to an amount in excess of $200,000,000 under the Turnkey Agreement. It posits that GenOn's failure to pay constitutes a breach of contract.

II.GenOn's Motion to Enforce the Order dated April 8, 2011

GenOn has moved to enforce a pretrial scheduling order, dated April 8, 2011 (the "Order") that required production of certain documents as they become available. It claims that Stone & Webster's Rule 26 disclosures and initial document productions make clear that Stone & Webster has withheld discoverable documents that come within the scope of the Order. GenOn focuses on two categories of documents: final accounting documents and change order documents. Stone & Webster has apparently provided a final accounting, but not what GenOn refers to as the underlying "source documents" to substantiate that accounting. Similarly, GenOn has requested documents that support and substantiate the change orders that Stone & Webster has submitted or will submit.

As described above and on the record from oral argument, GenOn is entitled to such documents under the Turnkey Agreement, and requested them in its document requests. According to the parties, Stone & Webster has produced some of the underlying source documents that exist in hard-copy, and is preparing to produce those that exist in electronic format. Nonetheless, certain hard-copy documents remain outstanding, including but not limited to invoices from vendors, expense reports for salaried personnel, and non-confidential information contained in personnel records (e.g., curricula vitae). These and any other outstanding hard-copy source documents must be produced forthwith, and all source documents that exist in electronic format must be produced so as to conform to the timetable agreed or Ordered by the Court.

III.The Motions to Quash and Compel

On April 12, 2011, Stone & Webster served a subpoena on FTI Consulting, Inc. ("FTI"). The documents it seeks relate to an audit that FTI performed in 2010 at GenOn's behest. FTI was retained on September 24, 2009 by Alston & Bird, GenOn's legal counsel, to provide GenOn with its confidential analysis of Stone & Webster's accounting data. In July, 2010, GenOn exercised its contractual rights to audit Stone & Webster's accounting, and requested that Stone & Webster provide FTI access to certain information. There was some dispute around whether and how such access would be granted, but ultimately Stone & Webster and FTI executed a Confidentiality Agreement, dated September 30, 2010, and the audit proceeded.

According to Stone & Webster, who has now subpoenaed FTI, while Alston & Bird arranged and directed the audit, Stone & Webster was never made aware of the involvement of legal counsel; to the contrary, Stone & Webster shows that counsel's participation was not disclosed, and GenOn represented that GenOn, and not Alston & Bird, had retained FTI. See Def.'s Opp'n to Mot. to Quash at 10. According to Stone & Webster, the FTI audit contains the basis for GenOn's lawsuit, and is necessary to form its defense. GenOn now moves to have the FTI subpoena quashed, or for a protective order on the basis of work-product privilege. Stone & Webster moves to compel compliance with the subpoena, and also seeks to have FTI disqualified as an expert and Alston & Bird disqualified as attorneys.

The work product doctrine established in Hickman v.Taylor, 329 U.S. 495 (1947) and codified in FRCP 26(b)(3) precludes the discovery of "documents and tangible things that are prepared in anticipation for litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent)." FRCP 26(b)(3)(A). The privilege exists in order to "protect 'attorneys' mental impressions, opinions or legal theories concerning specific litigation from discovery." Strougo v. BEA Assocs., 199 F.R.D. 515, 520 (S.D.N.Y. 2001) (citing Horn & Hardart Co. v. Pillsbury Co., 888 F.2d 8, 12 (2d Cir. 1989). The party claiming work ...


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