Opinion
No. 214-2014-CV-00014
06-01-2015
Berlin Station, LLC v. Babcock & Wilcox Construction Co., Inc.
ORDER
The Plaintiff, Berlin Station, LLC ("Berlin Station"), filed this suit against the Defendant, Babcock & Wilcox Construction Co., Inc. ("Babcock"), alleging a breach of contract pursuant to which Babcock agreed to design and construct a power plant in Berlin New Hampshire for a lump sum price of $187,589,727. Babcock has filed eleven counterclaims against Berlin Station, seeking damages in excess of $ 66,000,000, excluding costs and claimed attorneys' fees. Berlin Station has moved to dismiss Counts II-XI of Babcock's Counterclaims for failure to state a claim, and Babcock has objected. Based on the pleadings and the applicable law, Berlin Station's Motion to Dismiss is GRANTED IN PART AND DENIED IN PART. The Court GRANTS Berlin Station's Motion to Dismiss Count II, alleging breach of the implied covenant of good faith and fair dealing in contract formation, Count IX, seeking damages for unjust enrichment/quantum meruit, and Count X, alleging a violation of RSA 358-A, New Hampshire's Consumer Protection Act ("CPA"). The remainder of Berlin Station's Motion is DENIED.
Berlin Station has also moved to amend its Complaint. Babcock objects in part. For the reasons stated in this Order, The Motion to Amend is GRANTED. Finally, the parties have begun discovery, but dispute what discovery should be allowed and the circumstances under which discovery should be taken from third parties. Babcock's Motion for Entry of Order nunc pro tunc is DENIED. Its Motion to Appoint Commissioners to Take Out-of-State Depositions and its Motion to Substitute Appointed Commissioners and Appoint Additional Commissioners is DENIED WITHOUT PREJUDICE. The Clerk shall schedule a status conference at which the Court will consider the letter briefs submitted by the parties and how discovery of third parties shall be structured in light of this Order.
Index to Subject Headings
I. Background ................................................................................................................................... 3
A. The Standard of Review on a Motion to Dismiss .......................................................... 3
B. Babcock's Allegations ..................................................................................................... 4
i. Background on the Project .................................................................................... 4II. Berlin Station's Motion to Dismiss Counterclaims .................................................................. 16
ii. Unknown Difficulties that Affected the Project ................................................. 7
iii. Allegations Regarding Change Orders that Affected the Project ...................... 9
iv. June 13, 2014 Change Order Request for Non-Conforming Fuel ................... 11
A. Choice of Law ............................................................................................................... 16
B. Counterclaim II: Implied Covenant of Good Faith During Negotiations ..................... 20
C. Counts III-VIII: The Fraud Claims ............................................................................... 22
i. The Economic Loss Doctrine ............................................................................ 22
ii. Reliance ............................................................................................................ 25
iii. Pleading Fraud with Particularity ..................................................................... 26
iv. Duplicative Actions .......................................................................................... 27
v. Ratification ......................................................................................................... 28
vi. Summary .......................................................................................... 29
D. Unjust Enrichment and Quantum Meruit .......................................................................................... 29
E. The Consumer Protection Act Claim ............................................................................31
F. Declaratory Judgment .................................................................................................... 33 III. Berlin Station's Motion to Amend ........................................................................................... 34 IV. Discovery ................................................................................................................................. 35
I. Background
A. The Standard of Review on a Motion to Dismiss
When considering a motion to dismiss, the Court must determine whether the plaintiff's allegations stated in the complaint "are reasonably susceptible of a construction that would permit recovery." Plourde Sand & Gravel v. JGI Eastern, Inc., 154 N.H. 791, 793 (2007) (quoting Berry v. Watchtower Bible & Tract Soc'y of N.Y., Inc., 152 N.H. 407, 410 (2005)) (internal quotations omitted). In doing so, the Court must "assume all facts pled in the plaintiff's writ are true, and . . . construe all reasonable inferences drawn from those facts in the plaintiff's favor." Id. (quoting Berry, 152 N.H. at 410). However, the Court need not "assume the truth of statements . . . that are merely conclusions of law" not supported by "predicate facts." Gen. Insulation Co. v. Eckman Constr., 159 N.H. 601, 611-12 (2010). The Court should test these facts against the applicable law and deny the motion to dismiss "[i]f the facts as alleged would constitute a basis for legal relief." Starr v. Governor, 148 N.H. 72, 73 (2002). "Although normally the court's decision on a motion to dismiss is based solely on the allegations in the pleadings, if additional evidence is submitted, without objection, the trial court should consider it when making its ruling." DiFruscia v. New Hampshire Department of Public Works and Highways, 136 N.H. 202, 204 (1992) (citing Chasan v. Village District of Eastman, 128 N.H. 807, 813 (1986)).
As Berlin Station is moving to dismiss Babcock's counterclaims, the Court will take the facts as pled in Babcock's amended counterclaim as true, to determine whether they are susceptible of a construction that would permit recovery. The Court, then, sets forth the following allegations, construing all inferences from those allegations in Babcock's favor.
B. Babcock's Allegations
i. Background on the Project
Berlin Station is a limited liability company with its principal place of business in Portsmouth, New Hampshire. The company owns Burgess BioPower Plant, a 75 megawatt biomass energy power plant in Berlin, New Hampshire, on the site of the former Fraser Paper Mill. Berlin Station was created specifically to act as owner of this power plant. Babcock is a Delaware corporation with its principal place of business in Barberton, Ohio. Babcock is in the business of construction, construction management, and maintenance services.
In January 2009, Berlin Station's predecessor corporation, Laidlaw Berlin Biopower, LLC ("Laidlaw"), purchased the Fraser Paper Mill property with the intent to convert and upgrade it to construct a biomass power plant that would use specified wood chips to fuel a steam boiler and generate electricity for public consumption. In April of 2010, Laidlaw requested proposals from contractors to construct the power plant, and Babcock was one of the companies that submitted a proposal. In June 2010, Laidlaw entered a Power Purchase Agreement with the Public Service Company of New Hampshire ("PSNH") by which PSNH would purchase 100 percent of the power plant's output for 20 years. Laidlaw also entered an agreement with Richard Carrier Trucking, Inc. by which the trucking company would provide the power plant with feedstock for 20 years.
On May 27, 2010, Babcock and Laidlaw's equity owner, Homeland Renewable Energy, Inc. ("Homeland"), met to review Babcock's proposal for the project. The next day, Babcock provided "Scope Clarifications" about its proposal. This document stated that the "[p]reliminary foundation design will be based upon geotechnicalinformation provided by [Laidlaw] along with drawing exhibiting the types of foundations used for the boiler building and other structures on the site." It further stated that "[a]ll existing geotechnical subsurface investigation, soil testing and foundation recommendation reports will be provided by the owner for the project site. This information will be adequate for [Babcock's engineering subcontractor] to develop their detailed design."
In August 2010, Laidlaw and Babcock entered into an exclusive Pre-Engineering, Procurement, and Construction contract ("the Pre-EPC contract'). See (Berlin Station's Mot. to Dismiss Counterclaims Ex. 2 ("Pre-EPC Contract").) The pre-EPC Contract established BWCC's scope of work under the later EPC Contract, a work schedule for construction, and an estimate of costs for the project. The pre-EPC contract expressly excluded "subsurface geotechnical investigations" from BWCC's scope of work in preparing for negotiating the EPC contract. The parties utilized an "open-book manner" to come to an agreement as to the cost of the agreed to scope of work.
In June 2011, Laidlaw transferred its interests in the power plant project to Berlin Station. Babcock and Berlin Station subsequently met for three days to review the scope of work and cost estimates. The parties communicated by e-mail for further negotiations.
Financing for the project was delayed, which in turn delayed the execution of the EPC Contract. The parties agreed that, due to the delay, Berlin Station would be responsible for "certain site preparation and demolition work." Accordingly, Berlin Station demolished and removed certain foundations and structures. In return, Babcock gave Berlin Station a $575,000 credit on the EPC Contract price. In August 2011, the financial closing occurred, and Babcock and Berlin Station entered into an EPC Contract under which Babcock would design and construct the project for a lump sum price of $186,589,727. The EPC Contract incorporated Babcock's preliminary schedule that showed a completion of the project on October 15, 2013.
The EPC Contract contained a provision that required both parties to "act reasonably and in accordance with the principles of good faith and fair dealing in the performance of this Agreement." See (Am. Countercl. Ex. A ("the EPC Contract").) Additionally, the EPC Contract stated that it "shall be governed and construed" under New York law. The provisions regarding BWCC's scope of work specifically excluded the "[d]emolition of existing concrete foundations identified to be removed" and incorporated other documents stating that all or the majority of Mill equipment or buildings had been removed. Article 1.7 further stated that during the performance of the pre-EPC Contract work, BWCC "was entitled to reasonably rely" on Berlin Station's geotechnical report and Phase I Environmental Site Assessment prepared by ESS Group, Inc. in August 2008. That provision also gave BWCC rights stated in Sections 6.2 and 6.3 if there were differing site conditions. Additionally, the EPC Contract contained a provision providing that Babcock would be entitled to an adjustment of the contract price and the completion date if Berlin Station requested changes in, additions to, or deletions in the work required on the Project, or if there were any "excusable delays" as defined by the EPC contract. EPC Contract at Articles 7-8.
The EPC Contract further provided that Babcock shall deliver to Berlin Station an irrevocable standby Letter of Credit ("LOC") in the amount of fifteen percent (15%) of the EPC Contract Price and that the LOC serves as a security for Babcock's performance of its obligations under the EPC Contract. EPC Contract at Article 3.15.1. On August 30, 2011, Babcock was issued an irrevocable standby LOC by BNP Paribas ("BNP"), in the amount of $27,988,459, naming Berlin Station as the beneficiary. Article 4.5.3 of the EPC Contract stated that, in lieu of having Berlin Station withhold Retainage from each Payment Application, Babcock may elect to instead provide Berlin Station with an irrevocable standby Letter of Credit ("Retainage LOC"). On August 30, 2011, this Retainage LOC was issued by BNP in the amount of $2,798.845.90, naming Berlin Station as the beneficiary. Throughout its performance of the contract, Babcock increased this Retainage LOC as needed to equal the amount of retainage that Berlin Station could have otherwise withheld.
ii. Unknown Difficulties that Affected the Project
After it had received the Notice to Proceed, Babcock began work on the site, but immediately encountered unknown buried foundations and obstructions beneath the surface. As it continued its work, Babcock found that these obstructions were buried throughout the project site. Upon first discovering these problems, Babcock immediately notified Berlin Station of these subsurface conditions. Berlin Station's Managing Director and primary contract negotiater, Charles Grecco ("Grecco") responded, "now you know why we didn't want to have this subsurface investigation done." (Am. Countercl. ¶ 46.) These buried obstructions significantly impacted the cost and schedule for completion of Babcock's work. Berlin Station refused to grant time extensions to complete the work.
Babcock alleges that Berlin Station did not want a pre-contract subsurface investigation to be performed because, if Babcock knew of the buried obstructions, it would have resulted in an increase in the contract price, construction delays, and problems with Berlin Station's financing. One of Berlin Station's owners, Cate Street, stated that any delay to the project closing or construction endangered the viability of the project and its own economic solvency. Babcock contends that Berlin Station specifically excluded subsurface investigations from Babcock's pre-EPC Contract work, and it therefore relied on certain information provided by Berlin Station with regard to subsurface conditions at the site. Berlin Station was aware that Babcock was relying on the information it supplied.
After it had executed the EPC Contract, Babcock discovered that Berlin Station had prior knowledge of the subsurface conditions on the project site. For instance, Berlin Station's Site Manager, Carl Belanger ("Belanger") was present on the site in 2006 when 48 buildings were razed to ground level and their foundations were buried. Additionally, in 2011, when Berlin Station undertook demolition work, it encountered numerous buried foundations and chose not to remove them but instead had its excavation contractor grade over the foundations. Further, in mid-August 2011, Berlin Station conducted soil borings in the areas of the planned project foundations. Unknown to Babcock, on August 5, 2011, Belanger corresponded with contractors regarding which boring locations should be moved to avoid striking the buried obstructions. Babcock alleges that Grecco has since stated that he was aware at the time that the site was "riddled" with buried foundations and other obstructions. Berlin Station did not disclose any of this information, and in fact concealed several of the obstructions by having its contractor grade over them.
Babcock also encountered site conditions different from those expected at the project site. Information supplied by Berlin Station showed bedrock at a certain elevation, but, when Babcock began excavation, it found only fractured bedrock at that elevation and eventually found competent bedrock at elevations different than what was depicted in the information supplied by Berlin Station. Because of this, Babcock needed to redesign significant portions of the project.
Babcock encountered additional difficulties because it needed to dispose of contaminated soil and other hazardous materials. These were encountered throughout the site, and Babcock was required to perform extra work as a result. Though Berlin Station did compensate Babcock for the costs of that extra work, it refused to adjust the guaranteed completion date.
Berlin Station pushed Babcock to use a local supplier of structural steel for the project, Isaacson Structural Steel ("Isaacson"), despite the fact that Isaacson had filed for Chapter 11 Bankruptcy protection. Berlin Station continually requested that Babcock find a way to use Isaacson as a subcontractor, and Babcock attempted to do so, leading to significant delays in the project.
Due to these factors, Babcock's performance under the EPC Contract was delayed, and it notified Berlin Station. Berlin Station refused to grant any time extensions, and instead requested that Babcock develop a recovery plan to accelerate the work. Babcock did so, increasing the manpower, increasing the work hours and shifts, and other modifications, which led to significant increased costs for Babcock.
iii. Allegations Regarding Change Orders that Affected the Project
On May 21, 2012, Babcock submitted a Notice of Proposed Change of the Guaranteed Completion Date ("NPC") to Berlin Station, detailing the above issues. Berlin Station refused to grant a time extension, and instead requested additional information from Babcock. Babcock gave this information and also detailed additional obstructions it had discovered since submitting its original NPC. Babcock then revised the NPC by submitting a Change Order Request ("COR") on May 23, 2013 that addressed the cost and schedule impact of the above detailed issues. This COR listed the additional cost as $32,863,011.47 and further stated Babcock was entitled to an extension of 202 calendar days for the additional work. On July 12, 2013, after encountering further obstructions that led to more cost increases, Babcock submitted a COR Update that identified the impact of these. The COR Update listed this additional cost as $4,351,601.41.
The EPC Contract mandated that Babcock was due a progress payment for Mechanical Completion, totallying $932,949 on December 10, 2013, and a progress payment for Change Order 18 totalling $49,154.09 on January 4, 2014. Berlin Station was owed a credit of $200,000 against those payments pursuant to a Babcock invoice dated December 12, 2013. Total payments due to Babcock as of January 4, 2014 equaled $782,103.09.
On December 31, 2013, Berlin Station rejected both the COR and the COR Update and also issued Babcock an invoice for $3,265,000 for amounts it alleged were due for Delay Liquidated Damages due to the delay. Berlin Station alleged that all of the delays except for one day were caused by Babcock. It stated that it would withhold $782,103 of the sum due to it from the above payment otherwise due to it and that the balance of $2,482,896 must be paid within ten days. If it was not paid by that time, Berlin Station stated it would draw down on the LOC that Babcock provided.
Babcock then notified Berlin Station that withholding the payment and drawing down the LOC were inconsistent with the provisions of the EPC Contract and improper given the adjustments in the guaranteed completion date it deemed it was entitled to under the COR. Despite this, in January 2014 Berlin Station withheld $782,103 in payments that were due to Babcock and also presented a Certificate for Drawing to BNP to draw down on the LOC in the amount of $2,482,896.91. Berlin Station has continued to withhold payments to Babcock and also has further drawn down the LOC; to date it has withheld $860,435.51 in payments due to Babcock and has also drawn $10,187,564.49 from the LOC.
Although Babcock did not know it at the time, after Babcock had encountered the first of the buried obstructions, Berlin Station recognized in its monthly reports to its lenders that the obstructions were "differing site conditions" under the EPC Contract and that Babcock was entitled to be paid an additional sum for this work. Moreover, Berlin Station advised Black and Veatch, the independent engineer retained by its lenders, that the obstructions were unexpected and that Babcock was entitled to additional compensation. However, despite these internal acknowledgments, Berlin Station still rejected the COR and denied additional compensation.
iv. June 13, 2014 Change Order Request for Non-Conforming Fuel
The EPC Contract further specified that Berlin Station was required to provide fuel for use in starting, commissioning, and testing the Biofuel Plant. EPC Contract at Article 2.1.5. The EPC Contract further specifies the exact type of fuel that must be provided: "The fuel is whole tree chips and clean woody biomass only . . . . [T]he fuel mix shall have a top size of 4 inches (maximum) and a 'fines' limit of no greater than 10% being less than .25 inches in any dimension." EPC Contract at Annex A, Table 10. It also specified the permissible percentages of components such as the amount of moisture, sulfur, and nitrogen. In late September 2013, Berlin Station began delivering fuel deliveries, and Babcock ascertained that the delivered fuel did not meet the specifications set forth in the EPC Contract. Most notably, the fuel delivered contained "fines" measuring 60% to 90% of the weight of the fuel samples taken, as opposed to the 10% maximum set forth in the EPC.
Babcock then informed Berlin Station that the delivered fuel did not meet the specifications and warned that the large amount of "fines" may damage the plant's equipment. On November 11, 2013, Babcock informed Berlin Station that the non-conforming fuel also caused higher carbon monoxide emission levels that exceeded the plant's limits. On November 19, 2013, Babcock again informed Berlin Station that large amount of "fines" posed a danger to the plant's equipment, specifically to filter bags that were used to catch particulate in the plant's exhaust. That same day, the filter bags caught fire, causing a shutdown of the facility. Babcock told Berlin Station that the fire was a direct result of the excess "fines" and that it had to suspend Performance Testing due to the noncompliant fuel.
On November 21, 2013, Babcock submitted a Notice of Proposed Change Order due to the noncompliant wood fuel delivery by Berlin Station to the project. On December 6, 2013, Babcock sent an additional Notice of Proposed Change Order ("Fuel NPC") that asked for an adjustment in the contract price and the guaranteed completion date. Berlin Station rejected this request and also advised that it would not provide fuel as specified in the EPC Contract and that Babcock must make the plant be able to operate using the fuel provided.
Due to the November 19, 2013 fire, Babcock was unable to undertake the Performance Tests. The EPC Contract specified that if Babcock was precluded from undertaking Performance Tests due to Berlin Station's failure to obtain sufficient fuel for a period of forty five days, "then the Performance Tests will have been deemed to have been successfully completed." EPC Contract at Article 11.7.4. Berlin Station did not provide compliant fuel after the November 19, 2013 fire, and on January 5, 2014, the forty five days had passed. On January 9, 2014, Babcock advised Berlin Station that the forty five days had passed and that, under the EPC Contract, the Performance Tests were deemed successfully completed. EPC Contract at Article 11.7.4. Then, on January 15, 2014, Babcock submitted a Substantial Completion Certificate, which stated that it had substantially completed all requirements for the project, including the Performance Testing. Berlin Station rejected the Substantial Completion Certificate and directed Babcock to perform the Performance Tests using the non-compliant fuel it had supplied.
During the initial disruption of the Performance Testing, Berlin Station had requested that Babcock undertake a Root Cause Analysis to determine the cause of the operation problems. In response, Babcock assembled a team of engineers to review the problems. At around this same time, Babcock installed a temporary ash collection system that could temporarily accommodate the noncompliant fuel. As a result, the facility was able to operate, albeit at a significantly reduced capacity, beginning on January 15, 2014.
Then, on January 20, 2014, Babcock submitted a Root Cause Analysis Protocol, which detailed the testing and analysis to be performed. Babcock and Berlin Station reviewed this together; however, before Babcock could begin implementation, Berlin Station directed it to allow a third party consultant, McHale, to begin a series of tests at the facility and to support McHale. McHale finished their testing on February 24, 2014, and it was determined that Berlin Station's testing had damaged the boiler bed material, which required a plant shutdown to replace the boiler bed sand. In March 2014, Babcock submitted a Notice of Proposed Change Order for the cost of dumping the bed materials.
On February 25, 2014, Babcock submitted a Notice of Proposed Change- Owner Initiated Testing, which stated that Babcock was entitled to an adjustment to the Contract Price and to the Guaranteed Completion Date due to McHale's testing that Berlin Station requested. Babcock further noted that McHale's testing confirmed that the plant was underperforming because of the excess "fines" in the fuel, and stated it would continue its Root Cause Analysis to determine what other changes would be necessary to allow the plant to use the noncompliant fuel. Babcock could not begin, however, because the plant had been shut down due to damage caused by McHale's testing.
Once McHale completed its testing, it provided Berlin Station with a report on plant operations and a list of recommendations, and on March 7, 2014 Berlin Station directed Babcock to develop an implementation plan based on those recommendations. On March 14 and March 18, 2014, Babcock provided Berlin Station with a two-part "Implementation Plan and Notice of Proposed Change Order." Babcock advised Berlin Station that by requesting that it develop this plan, Berlin Station had strayed from the terms of the EPC Contract which entitled Babcock to an adjustment to the contract price and to the Guaranteed Completion Date. Under Berlin Station's direction, Babcock implemented the recommendations, and it also conducted further testing through March 20, 2014 in order to complete its Root Cause Analysis ("RCA"). On April 7, 2014, Babcock submitted a RCA Report, which further confirmed that the plant problems were caused by the excess "fines" in the fuel and also noted that the noncompliant fuel contained excess levels of ash, sulfur, and nitrogen. Based on this, Berlin Station requested that Babcock further modify the plant to accommodate the noncompliant fuel. These modifications have allowed the plant to operate at full capacity and also to meet emission requirements while still using the noncompliant fuel. Berlin Station required Babcock to re-run the Performance Tests, even though they had been deemed satisfied pursuant to the EPC Contract. EPC Contract at Article 11.7.4.
As a result of Berlin Station delivering noncompliant fuel, Babcock incurred numerous costs. On June 13, 2014, Babcock submitted a "Change Order Request Update-Fuel Depay & Equipment Modifications" ("the Fuel COR") for the amount of $5,985,382. This also noted that Babcock was entitled to 205 total days of Excusable Delay, and also advised that Babcock was continuing to compile the costs associated with the re-performance of the Performance Testing.
In December 2013, Babcock requested a Project Executive dispute negotiation, pursuant to Article 25 of the EPC Contract, regarding the noncompliant fuel. These negotations occurred but were unsuccessful. Next, Babcock requested Senior Management Negotiations, as also contemplated by Article 25. Berlin Station requested that these negotiations be postponed pending the outcome of testing, and Babcock agreed.
Pursuant to Article 4.5.3 of the EPC Contract, Babcock provided a Retainage LOC instead of having Berlin Station withhold retainage from each Payment Application. The Retainage LOC increased with each payment Babcock received, and as of the date of the Counterclaim it totalled $16,046,716.25. Article 4.5.2 states that "[u]pon the Substantial Completion Date, the Retainage Amount shall be reduced to a value of two hundred percent (200%) of the estimated cost of any Punchlist items remaining at such time. The balance of the Retainage Amount shall be released as Punchlist items are completed . . . ." EPC Contract at Article 4.5.2. In addition, the release of the Retainage only occurs after several conditions have been meet, and Babcock met those conditions.
As stated above, Babcock obtained Substantial Completion on January 5, 2014, yet Berlin Station then rejected the Substantial Completion Certificate and directed Babcock to perform the Performance Tests using the noncompliant fuel. On July 19, 2014, Babcock completed the Performance Tests as directed by Berlin Station, and its Substantial Completion Certificate was accepted. Babcock, then, possessed the present right to a reduction in the Retainage LOC amount, and, as of July 19, 2014, the parties mutually agreed the value of the Punchlist was $1,773,683. Based on this, Babcock requested that Berlin Station reduce the Retainage LOC to 200% of the Punchlist value, or $3,547,366. Berlin Station refused to do so.
Babcock asserts damages due to the extra work required of it to address the buried foundations, differing site conditions, noncompliant fuel, acceleration of the project, inefficiency and delay due to the aforementioned, and Berlin Station's failure to pay for some work performed. In addition, Babcock incurred damages due to Berlin Station's improper draws on the LOC. In total, Babcock asserts damages in excess of $66 million, exclusive of interest, attorneys' fees, and costs.
II. Berlin Station's Motion to Dismiss Counterclaims
Babcock has filed eleven counterclaims against Berlin Station, alleging: I) breach of contract; II) breach of implied duty of good faith and fair dealing; III) negligent misrepresentation; IV) fraud; V) constructive fraud; VI) fraudulent inducement; VII) fraudulent concealment; VIII) fraudulent misrepresentation; IX) unjust enrichment and quantum meruit; X) violation of the New Hampshire Consumer Protection Act, RSA 358-A; and XI) declaratory judgment. Berlin Station now moves to dismiss Counts II-XI of Babcock's counterclaim.
A. Choice of Law
The Court must first determine which State's laws apply to each claim. The EPC Contract contains a clause stating: "This Agreement shall be governed by and construed in accordance with the internal laws of the state of New York, without regard to its conflict of laws principles that would require the application of the laws of another jurisidiction." EPC Contract at Article 29.2. The parties agree that New York law applies to Count I, the breach of contract claim. However, the parties disagree as to whether New Hampshire or New York law should apply to the remaining claims.
Under New Hampshire law, when parties to a contract select a law of a particular jurisdiction to govern their affairs, that choice will be honored if the agreements bears a "significant relationship" to that jurisdiction. See, e.g., Hobin v. Coldwell Banker Residential Affiliates, Inc., 144 N.H. 626, 628 (2000); Allied Adjustment Services v. Heney, 125 N.H. 698, 700 (1984). Here both parties assert that New York law applies to the contract, and note that funding for the project was conducted in the State of New York. Berlin Station's predecessor, Laidlaw Berlin Biopower, LLC ("Laidlaw") at all relevant times had a principal place of business in New York. Berlin Station asserts that there was a reasonable basis to select New York law as governing the parties' contract, based on New York's well-established body of law regarding sophisticated project financing transactions, and the comfort project lenders have with New York law. These considerations constitute a significant relationship to the transaction, and the Court must therefore honor the Parties' expectations and apply New York law to Count I of the Counterclaim for breach of contract.
The more difficult question is whether or not the contractual language applies to the other counterclaims brought by Babcock. The New Hampshire Supreme Court held that a contractual choice of law provision controlled tort claims in Hobin v. Coldwell Banker Residential Affiliates, Inc., 144 N.H. 626, 628 (2000). However, in that case, the choice of law provision before the Court provided that it was "to govern the agreement and the parties' legal relationships." The provision in this case is narrower; and it provides only that "the Agreement shall be governed" by New York law.
In Stonyfield Farms Inc. v. Agro Farma, Inc., No. 08-CV-488-JL, 2009 WL 3255218, at *5 (D.N.H. Oct. 7, 2009), the court stated that New Hampshire law was not clear on when a contractual choice of law provision controls tort claims but noted, after surveying the law, that "[i]n addition to the language of the provision, the other factor that attracts a great deal of attention in these cases is the nature of the particular tort claims at issue—and the extent, if any, to which they hinge upon the contract." The court cited Northeast Data Sys. Inc., v. McDonnell Douglas Computer Sys. Co., 986 F.2d 607, 609-610 (1st Cir. 1993), in which the parties had agreed that California law would apply to their breach of contract claim, and the court held that allegations that the contract was breached "willfully" and "knowingly" were not sufficient to allow a claim to be made pursuant to M.G.L. 93-B, the Massachusetts Consumer Protection Act. The First Circuit reasoned that where a claim is essentially an "embroidered contract claim"—a claim for breach of contract with an allegation of bad motive—it would undermine the parties' choice of law agreement to permit one of them, through artful pleading, to bring an unfair trade practices claim under the law of a State that the parties agreed would not apply. Id. However, in the case before it, the First Circuit distinguished a claim of fraud in the inducement, holding that the contractual choice of law provision did not apply to the fraud claim, reasoning that "because this claim concerns the validity of the formation of the contract, it cannot be characterized as one involving the rights or obligations arising in the contract. Hence, the claim falls outside the contract choice of law provision." Id. at 611.
The Massachusetts statute is the model for the New Hampshire Consumer Protection Act, RSA 358-A, and the New Hampshire Supreme Court has considered cases decided under it persuasive authority. See, e.g., Barrows v. Bowles, 141 N.H. 382, 390 (1996).
Counts III through VIII of Babcock's Counterclaims allege tort claims which are varieties of fraud: negligent misrepresentation, fraud, constructive fraud, fraudulent inducement, fraudulent concealment and fraudulent misrepresentation. Count II of the counterclaim, although cast as a breach of the implied covenant of good faith and fair dealing in contract negotiation actually relates to an allegation that Berlin Station "concealed material facts and made numerous misrepresentations of material facts." (Counterclaim ¶ 141.) All of these claims can be generally described as claims of fraud in the inducement.
At first blush, Stonyfield and Northeast Data would seem to require that New Hampshire law apply to these Counterclaims because they do not, on their face, involve rights or obligations arising in the contract to construct the Power Station. However, an examination of the contract documents establishes that the issue of representation and, for that matter misrepresentation, was addressed in the contract between the parties. The Contract provides, in relevant part:
Contractor hereby knowledges and agrees that:(Complaint Ex. 1 ¶ 17.)
(b) during its performance of the Pre-EPC Contract, Contractor was capable of conducting and did conduct any investigations to verify or supplement its understanding of any information provided by Company, existing conditions at the Mill and anything else needed to commit to its obligations in the Contract Documents;
(c) Company has made no representation or warranty to Contractor that the information contained in the Project Technical Specifications, or provided to Contractor in conjunction with the Pre-EPC contract, is correct, sufficient, complete or accurate. Contractor assumes responsibility for the sufficiency, completeness, and accuracy of all such information, notwithstanding the fact that Company may have provided, and/or approved such information; and
(d) Contractor shall have no right to claim or seek an adjustment to the Contract Price, Guaranteed Completion Date(s), or any Guaranteed Value as the result of: (i) any incomplete, inaccurate, ambiguous, or inadequate information or requirements contained in or among any of the Contract Documents; (ii) Company's review or approval of any Contract Documents; (ii) or (iii) Company's involvement during the Pre-EPC contract.
Berlin Station argues that these provisions bar all of Babcock's fraud claims. Babcock disputes this claim, arguing that "Berlin Station's argument relies on a mischaracterization of this contract provision" and that in any event "the alleged disclaimer language is insufficient under New York law to bar [Babcock's] fraud claim." (Def.'s Obj. to Mot to Dismiss at 22.) The Court addresses that issue infra. But for choice of law purposes, the point is that the issues of misrepresentations and reliance were addressed in the contract. It is thus reasonable to believe that the parties understood that New York law would apply to any claim of misrepresentation or fraud in the inducement and that New York law applies to Counts II-VIII of the Counterclaim.
As a practical matter, whether New York or New Hampshire law applies makes little difference in the court's analysis, because Babcock concedes that apart from Counterclaim II there is no substantial difference between the law of New York and the law of New Hampshire. (Obj. to Mot. to Dismiss at 14.) More importantly, Babcock's brief contains only references to New York substantive law in objecting to dismissal of the six fraud claims, counterclaims III- VIII. Under these circumstances, Babcock can hardly expect the Court to analyze its claims and defenses under New Hampshire law. It has waived any claim that New Hampshire law should apply.
Counterclaim IX of the contract seeks unjust enrichment and quantum meruit damages; the parties agree New Hampshire and New York law are identical. Finally, the parties do not dispute that New Hampshire law applies to Count XI, Babcock's request for declaratory judgment. Because the forum state is New Hampshire, the Court will apply New Hampshire law to procedural matters. See, e.g., Waterfield v. Meredith, Corp., 161 N.H. 707, 710 (2011). RSA 491:22 is the New Hampshire statute that sets forth the procedures for seeking declaratory judgment.
As Babcock specifically brought Count X under New Hampshire's Consumer Protection Act, the Court will apply New Hampshire law.
Mindful of the above, the Court proceeds with the substance of Berlin Station's Motion to Dismiss.
B. Counterclaim II: Implied Covenant of Good Faith During Negotiations
Berlin Station asserts that Counterclaim II, alleging violation of the breach of good faith and fair dealing, should be dismissed because New York law does not recognize a duty of good faith and fair dealing in the formation or negotiation of a contract. Mendez v. Bank of America Home Loan Servicing, LP, 840 F.Supp.2d 639, 653 (E.D.N.Y. 2012). It also alleges that this Counterclaim is duplicative of Count I, the breach of contract counterclaim, because New York law does not recognize an independent claim for breach of the implied covenant of good faith and fair dealing when it arises out of the same damages or injury as a party's breach of contract claim. Deerpark Enterprises, LLC v. Ail Sys., Inc., 870 N.Y.S.2d 89, 90 (N.Y. App. Div. 2008). The Court agrees.
Babcock does not seriously dispute the fact that New York law would require dismissal of this claim as characterized, but argues that New Hampshire law applies, and that under New Hampshire law an actionable implied duty of good faith and fair dealing exists independently of the terms of the relationship between the parties that may independently develop, citing Harris Wayside Furniture Co., Inc. v. Idearc Media Corp., No. 06-CV-392-JM, 2007 WL 1847313 (D.N.H. Sept. 14, 2007).
The Court believes that Counterclaim II is, in substance, merely a restatement of the fraud and misrepresentation claims made by the Plaintiff. As pled, it is not actionable under New York law, because it is simply duplicative of the other fraudulent inducement claims.
No different result would be reached under New Hampshire law. The parties agree that while New York law does not recognize a claim for breach of the covenant of good faith and fair dealing during contract negotiations, New Hampshire law does. Compare (Berlin Station's Mot. to Dismiss Def.'s Counterclaims at 12) with (Babcock's Opp. To Mot. to Dismiss at 15.) But examination of New Hampshire law illustrates why this claim must be dismissed as duplicative. In the seminal case on the implied covenant of good faith and fair dealing in New Hampshire, Centronics Corporation v. Genicom Corporation, 132 N.H. 133, 139 (1989) Justice Souter, then on the New Hampshire Supreme Court, stated that the Court had recognized the implied covenant in three distinct categories, each serving markedly different functions, one of which dealt contract formation. But he went on to state that "[i]n our decisions setting standards of conduct in contract formation, the implied good faith obligations of the contracting party are tantamount to the traditional duties of care to refrain from misrepresentation and to correct subsequently discovered error insofar as any representation is intended to induce, and is material to, another party's decision to enter into a contract in justifiable reliance on it". Id. at 139 (Emphasis supplied). Ironically, the contract before the Court in Centronics provided that New York law would apply, but Justice Souter assumed that "the New York decisions are not at odds with our own" and "we will assume that to whatever extent the governing foreign law is not been proven it is identical to our own." Id. at 139; see also Livingston v. 18 Mile Drive, Ltd., 158 N.H. 619, 624 (2009).
Properly understood, the New Hampshire doctrine of the implied covenant of good faith and fair dealing does not create an independent cause of action for conduct during contract negotiations but simply restates the common law view that there is liability for fraudulent inducement to a contract. See Ruvio v. Wells Fargo Bank, No. 11-CV-466-PB, 2012 WL 5845452 (D.N.H. Nov. 19, 2012) (reaching an identical conclusion to that reached in Mendez, both holding that no cause of action for breach of the implied covenant exists apart from an existing contract). However, a claim may be made for fraudulent conduct in inducing a party to contract. Therefore, even if New Hampshire law applied, Counterclaim II would be dismissed as duplicative of Counterclaims III-VIII, alleging misrepresentation and fraud in the inducement.
C. Counts III-VIII: The Fraud Claims
Berlin Station argues that Babcock's Counts III-VIII, alleging six forms of fraud (collectively, "the fraud counts"), should be dismissed pursuant to the economic loss doctrine. Next, it alleges that the provisions of the EPC Contract defeat these claims of misrepresentation and fraud. Third, Berlin Station asserts that it should be dismissed because they do not comply with the pleading requirements applicable to claims of misrepresentation and fraud. Fourth, Berlin Station alleges that Counts III-VIII impermissibly duplicate Count I, the breach of contract claim. Finally, Berlin Station alternatively argues that even if they all should not be dismissed, Counts II, VI, and VIII also fail because Babcock has ratified the EPC Contract.
i. The Economic Loss Doctrine
Under New York law, and in most other jurisdictions, including New Hampshire, a simple breach of contract is not considered a tort unless a legal duty independent of the contract itself has been violated. Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 390 (N.Y. 1992). This legal duty must spring from circumstances extraneous to and not constituting elements of the contract, although it may be connected with and dependent upon the contract. Id. "New York's economic loss rule restricts plaintiffs who have suffered 'economic loss,' but not personal or property injury, to an action for the benefits of their bargain." EED Holdings v. Palmer Johnson Acquisition Corp., 387 F.Supp.2d 265, 279 (S.D.N.Y. 2004) (citations and quotations omitted). In general, "[i]f the damages suffered are of the type remediable in contract, a plaintiff may not recover in tort." Id.
The language of some of decisions suggests that New York courts are split on whether the economic loss doctrine applies as a bar to fraud claims. Compare id. ("[T]his court's renewed canvass of New York cases . . . reveals no authority for the application of the economic loss doctrine to claims, such as this one, that sound in fraud."); Computech Intern., Inc. v. Compaq Computer Corp., No. 02-Civ-2628, 2004 WL 1126320, at *10 (S.D.N.Y. May 21, 2004) ("In the absence of any articulation to the contrary by the New York courts, the economic loss doctrine will not be presumed to extend to fraud claims."); with Shred-It USA, Inc. v. Mobile Data Shred, 222 F.Supp.2d 376, 379 (S.D.N.Y. 2002) (stating that the fraud claim was barred by the economic loss doctrine); see also Sofi Classic S.A. de C.V. v. Hurowitz, 444 F.Supp.2d 231, 246-47 (2006) (collecting the divided cases); Genna v. Sallie Mae, Inc., No. 11-CV-7371, 2012 WL 1339482, at *4 (S.D.N.Y. April 17, 2012).
However, in Merrill Lynch and Co. Inc., v. Allegheny Energy Inc., 530 F.3d 171, 183 (2d Cir. 2007), the Second Circuit recognized that under New York law "parallel fraud and contract claims may be brought if the plaintiff (1) demonstrates a legal duty separate from the duty to perform under the contract; (2) points to a fraudulent misrepresentation that is collateral or extraneous to the contract; or (3) seeks special damages that are unrecoverable as contract damages". The court concluded that "[h]ence, a claim based on fraudulent inducement of a contract is separate and distinct from a breach of contract claim under New York law." Id. at 184.
Moreover, "the cases make clear that the economic loss rule will not apply where the damages sought are for a 'harm distinct' from the contract." Id. (citing Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 17 (2d Cir. 2000)). Conversely, it is clear that "a plaintiff cannot sustain a fraud claim where no characteristically tort damages are alleged." Sofi, 444 F.Supp.2d at 246 (citations omitted). Therefore, "to state a claim for fraud, a plaintiff must plead damages apart from the damages arising from breach of the underlying contract." Id. (citing Bruce v. Martin, No. 90-CV-0870, 1993 WL 148904, at *5 (S.D.N.Y. April 30, 1993). Based upon these cases, the Court believes that New York law is essentially consistent with the common law of most of the United States .
The Court notes that the Restatement (Third) of Torts: Liability for Economic Harm § 9 (Tentative Draft, April 7, 2014) provides that "one who fraudulently makes a material representation of fact, opinion, intention, or law for the purpose of inducing another to act or refrain from acting, is subject to liability for economic loss caused by the others' justifiable reliance on the misrepresentation."
Reviewing the fraud Counterclaims in light of New Hampshire's liberal standard for pleading, the Court determines that Babcock has sufficiently sought damages for a harm distinct from the contract. Plaintiff's claims are all essentially for fraudulent inducement. For instance, the fraud counts allege that before Babcock and Berlin Station entered into the EPC Contract, Berlin Station knew that there were significant subsurface conditions present on the property but failed to disclose these conditions to Babcock. Babcock further alleges that Berlin Station owed it a duty to do so, knowing that these site conditions would affect Babcock's cost and schedule. This harm arose before the parties entered into the EPC Contract, and thus the fraud counts allege a harm distinct from the contract.
Furthermore, the Court determines that Babcock has likewise sufficiently pled damages apart from the damages arising from the breach of the EPC Contract. As Babcock states in its objection to the motion to dismiss, the damages sought by the fraud counts would not be subject to the contractual limitations that may apply to the breach of contract damages. See EPC Contract at Article 7.4.4 (stating that Babcock must bear the first $250,000 in costs associated with differing site conditions and split the cost of the next $250,000 with Berlin Station.). Furthermore, in Counts VI and VII, Babcock seeks that the EPC Contract be fully voided and asks that it be awarded the reasonable value of all work it performed. For these reasons the Court finds Berlin Station's economic loss doctrine argument unavailing.
ii. Reliance
Berlin Station argues that the fraud counts all require that Babcock plead that it justifiably relied on a misrepresentation or other concealment by Berlin Station. It argues that Babcock cannot argue that it justifiably relied on such a misrepresentation because the EPC Contract specifically states that Babcock could have independently investigated to determine if there were any subsurface conditions on the Project Site. See, e.g., EPC Contract at Article 1.7(b) (stating that "Contractor was capable of conducting and did conduct any investigations to verify or supplement its understanding of any information provided by [Berlin Station], existing conditions at the 'Mill', and anything else needed to commit to its obligations in the Contract Documents.").
Berlin Station argues that under New York law, where misrepresentations directly conflict with the terms of a written agreement, a plaintiff cannot be said to have justifiably relied on the alleged misrepresentation, citing Ruffino v. Niemann, 794 N.Y.S.2d 228, 229 (N.Y. App. Div. 2005). However, under New York law, "[Babcock's] disclaimer of reliance cannot preclude a claim of justifiable reliance on [Berlin Station's] misrepresentations or omissions unless (1) the disclaimer is made sufficiently specific to the particular type of fact misrepresented or undisclosed; and (2) the alleged misrepresentations or omissions did not concern facts peculiarly within the [Berlin Station's] knowledge." LBBW Luxembourg S.A. v. Wells Fargo Securities LLC, No. 12-CV-7311, 2014 WL 1303133, at *9 (S.D.N.Y. Mar. 31, 2014) (citing Basis Yield Alpha Fund (Master) v. Goldman Sachs Group, Inc., 980 N.Y.S.2d 21, 28 (N.Y. 2014)).
Here, the EPC Contract provisions at issue do not specifically address the subsurface conditions, which is the condition that Babcock asserts was undisclosed and misrepresented. See EPC Contract at Article 1.7, 1.2. Babcock points out that the provisions of article 1.7 (b) references "existing conditions at the 'Mill' which is defined in the contract as the former Frazier Papermill located on the 'Project Site'". "Project Site" is defined in the EPC Contract as "the location where the entirety of the temporary and permanent construction work for the project will be performed . . . ." EPC Contract Art. 16. Therefore, by its terms, the language of the disclaimer does not bar this action.
iii. Pleading Fraud with Particularity
Berlin Station argues that Babcock has not pled fraud with particularity, as required by New Hampshire law. When alleging fraud, a plaintiff must specify the essential details of the fraud, and specifically allege the facts of the defendant's fraudulent actions. Lamprey v. Britton Construction, Inc., 163 N.H. 252, 262-263 (2012). The requirement that fraud be pled with particularity applies to misrepresentation generally. Brzica v. Trustees of Dartmouth College, 147 N.H. 443, 448-449 (2002).
The requirement that fraud be pled with particularity, and proved by clear and convincing evidence is procedural, not substantive, and therefore New Hampshire law applies. However, it appears that New York law is in accord. NY CPLR 3016(b).
Here, Babcock has satisfied its burden. For instance, Babcock's counterclaim asserted that in 2011, while Berlin Station was performing demolition and site preparation work, it found numerous buried foundations other subsurface conditions. (Am. Countercl. ¶ 55.) Babcock stated that, rather than removing these structures, Berlin Station "concealed the obstructions . . . by having its excavation contractor grade over them, leaving a smooth, clean appearance at the site." (Am. Countercl. ¶ 56.) Babcock further asserted that once it began construction and found the buried subsurface conditions, it notified Berlin Station of these obstructions and Grecco responded by stating, "now you know why we didn't want to have this subsurface investigation done." (Am. Countercl. ¶ 46.) Babcock has identified numerous other instances where it pled the fraud counts with specificity. See (Babcock's Opp'n to Mot. to Dismiss at 32-33.) For this reason, then, the Court finds Berlin Station's third argument unpersuasive.
iv. Duplicative Actions
Berlin Station arguest that the fraud counterclaims should be all dismissed because they impermissibly duplicate Count I, the breach of contract claim. "[U]nder New York law, parallel fraud and contract claims may be brought if the plaintiff (1) demonstrates a legal duty separate from the duty to perform under the contract; (2) points to a fraudulent misrepresentation that is collateral or extraneous to the contract; or (3) seeks special damages that are unrecoverable as contract damages." Merrill Lynch & Co., Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 183 (2d Cir. 2007) (citing Bridgestone/Firestone Inc. v. Recovery Credit Services, Inc., 98 F.3d 13, 20 (2d Cir. 1996)).
The Court has already determined that Babcock has pled losses sustained from the losses it seeks on its contract counterclaims. See § II c i (supra). The first question, then, is whether Babcock has demonstrated a legal duty separate from the duty to perform under the EPC Contract. New York law imposes a duty on a party to a business transaction to disclose information to the other party where: (1) one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of that mistaken knowledge; (2) the parties stand in a fiduciary or confidential relationship with each other; or (3) the party has made a partial or ambiguous statement to the other that needs clarification. See, e.g., Banque Arabe et Internationale D'Investissement v. Maryland National Bank, 57 F.3d 146, 155 (2d Cir. 1995); see also Frontier-Kemper Constructors, Inc. v. Am. Rock Salt Co., 224 F.Supp.2d 520, 530 (W.D.N.Y. 2002) (citations omitted).
Looking only at the above first category of duty that New York imposes, the Court determines that Babcock has sufficiently pled allegations that Berlin Station owed it a legal duty distinct from its duties under the EPC Contract. Babcock has alleged that Berlin Station had vastly superior knowledge of the conditions at the Project Site, including the subsurface conditions, because it owned the Project Site, its Site Manager had extensive experience with the property, and it conducted excavation activities prior to signing the EPC Contract that showed the existence of numerous subsurface obstructions. (Am. Countercl. ¶ 55.) The Pre-EPC Contract specifically excluded any "subsurface geotechnical investigations" from Babcock's scope of work. Babcock has also alleged that Berlin Station knew that Babcock was acting under the assumption that it need not estimate the time or cost of removing these unknown buried obstructions. See generally (Am. Countercl. ¶¶ 55-60.) Since Babcock has alleged that Berlin Station had superior knowledge not readily available to it and knew that Babcock was acting on the basis of its mistaken knowledge, the Court determines that Berlin Station owed Babcock a legal duty distinct from its duty under the EPC Contract. For this reason, the Court finds this argument unavailing.
New Hampshire would likely characterize this duty as part of the implied covenant of good faith and fair dealing in contract negotiation. Centronics, 132 N.H. at 139.
v. Ratification
Berlin Station argues that Counts II, VI, and VIII also fail because Babcock cannot, as a matter of law, disavow the EPC Contract because it ratified the contract through substantial performance and accepting substantially the purchase price. "In adjudicating the issues of ratification, the key factors are whether a party silently acquiesced in the contract or rather promptly interposed his objections upon discovering the basis for the claim of rescission." Prudential Insurance Co. of America v. BMC Industries, Inc., 630 F.Supp. 1298, 1302 (S.D.N.Y. 1986). Here, Babcock has sufficiently pled that after it discovered the issues that it argues gave rise to a claim for rescission, it promptly notified Berlin Station of these problems. For instance, Babcock asserts that directly after discovering the existence of the subsurface conditions, it notified Berlin Station and shortly thereafter submitted a Notice of Proposed Change. Babcock repeatedly sought to renegotiate the completion dates and the project costs due to these previously unknown subsurface conditions.
Berlin Station makes a compelling argument that Babcock has, on the facts, ratified the contract because it has been paid $195 million for a contract price of $186,589,727. But this argument, while appropriate for summary judgment, cannot be considered on a Motion to Dismiss because it depends upon extrinsic evidence. For this reason, the Court finds Berlin Station's fifth argument unavailing.
vi. Summary
For the reasons set forth above, then, the Court determines that Berlin Station's arguments to dismiss Counts III-VIII are without merit, and the Motion to Dismiss these Counterclaims is DENIED.
D. Unjust Enrichment and Quantum Meruit
Berlin Station next argues that Babcock's Count IX, which asserts theories of unjust enrichment and quantum meruit, must be dismissed because Babcock cannot deny the existence of a valid and enforceable contract. Under New York law, the Court analyzes unjust enrichment and quantum meruit claims together as a single quasi-contract claim. See, e.g., Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 175 (2d Cir. 2005) (citations omitted). Such a claim "does not permit recovery . . . however, if the parties have a valid, enforceable contract that governs the same subject matter as the . . . claim." Id., see also McDraw, Inc. v. The CIT Group Equipment Financing, Inc., 157 F.3d 956, 964 (2d Cir. 1998) (citations omitted) ("The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract . . . for events arising out of the same subject matter."). Additionally, when there is no disagreement that a written contract covers the same subject matter as a quasi-contract claim, that claim must be dismissed. See, e.g., ARB Upstate Communications, LLC v. R.J. Reuter, LLC, 940 N.Y.S.2d 679, 686 (N.Y. App. Div. 2012) (citations omitted) ("While a quasi contract recovery, such as through an unjust enrichment cause of action, is precluded where a valid and enforceable contract applies to the dispute, a party need not elect its remedies and may proceed on alternative theories if a disagreement exists concerning whether the contract covers the situation at issue.") (emphasis added); see also Kosowsky v. Willard Mountain, Inc., 934 N.Y.S.2d 545, 550 ( N.Y. App. Div. 2011) ("[T]he unjust enrichment claim was properly dismissed as to [the defendant] because recovery in quasi contract is precluded where, as here, there is no dispute as to the validity and enforceability of the contract governing the dispute.").
Here, Babcock's unjust enrichment and quantum meruit claim is based on topics that are covered by allegations in its breach of contract claim: subsurface conditions, the LOCs securing the project, and alleged extra work on the contract. Further, these topics are covered in various sections of the EPC Contract, which both parties agree govern this dispute. See EPC Contract at Article 6 (governing the subsurface condition issue); Articles 3 and 4 (governing the LOCs issue); and Articles 6 and 7 (governing, in part, the alleged extra work on the project). Since the EPC Contract applies to this dispute and because it governs the situations at issue, Babcock cannot, as a matter of law, maintain a claim for unjust enrichment or quantum meruit. For this reason, Berlin's Motion to Dismiss Count IX is GRANTED.
E. The Consumer Protection Act Claim
Berlin Station next argues that Babcock's claim of a violation of New Hampshire's Consumer Protection Act ("CPA") should be dismissed because Babcock has failed to plead a cognizable cause of action under the CPA and, further, Babcock is barred from invoking the CPA in this action.
Berlin Station does not argue that the New Hampshire CPA is not applicable because the parties chose New York law to apply to their agreement, and the CPA claim is merely an "embroidered contract claim". Northeast Data Systems, Inc. v. McDonnell Douglas Computer Sys. Co., 986 F.2d at 609-610 ( Massachusetts consumer protection act did not apply in contract actions where plaintiff simply added a claim that the defendant acted with a bad motive to the breach of contract claim). Babcock has argued that New Hampshire law applies to all claims but the tort claims. Accordingly, the Court considers the sufficiency of the claim under New Hampshire law.
Under the CPA it is "unlawful for any person to use any unfair method of competition or any unfair or deceptive act or practice in the conduct of any trade or commerce within this state." RSA 358-A:2. Trade and commerce are broadly defined as "the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situate, and shall include any trade or commerce directly or indirectly affecting the people of this state." RSA 358-A:1, II. However, the New Hampshire Supreme Court has determined that the scope of the CPA is narrower than this broad language suggests. See, e.g., Hughes v. DiSalvo, 143 N.H. 576 (1999); Ellis v. Candia Trailers and Snow Equipment, Inc., 164 N.H. 457 (2012).
In Hughes, the plaintiff acquired a property in 1987 and, in 1991, she moved and began renting the property to a series of tenants. Hughes, 143 N.H. at 576. The plaintiff filed an action against the defendant, a tenant of her property, claiming non-payment of rent and recovered CPA damages. Id. at 577. On appeal, the New Hampshire Supreme Court first noted that, although the CPA is broadly worded, "it is not unlimited in scope." Id. at 578 (quoting Chase v. Dorais, 122 N.H. 600, 601 (1982). The Court then stated, "[t]o determine whether the Consumer Protection Act applies to a particular transaction, we analyze the activity involved, the nature of the transaction, and the parties to determine whether a transaction is a personal or business transaction." Id. (citing Begelfer v. Najarian, 409 N.E.2d 167, 176 (Mass. 1980)). The plaintiff was simply attempting to rent or sell her residence through a lease and sales arrangement and was not in the business of renting or selling residential property. Id. in finding the CPA inapplicable, the Court stated,
Remedies under the Consumer Protection Act are "not available where the transaction is strictly private in nature, and is in no way undertaken in the ordinary course of a trade or business." We do not find the plaintiff's involvement in this transaction, by itself, sufficient to constitute 'trade or commerce' within the meaning of RSA 358-A:2 .Id. (citing Lantner v. Carson, 373 N.E.2d 973, 975 (Mass. 1978); McGrath v. Mishara, 434 N.E.2d 1215, 1222 (Mass. 1982)).
. . .
Similarly, isolated sales of property by an owner are not subject to the Consumer Protection Act. The purpose of the Act "is to ensure an equitable relationship between consumers and persons engaged in business."
Similarly, in Ellis, the defendants owned and operated a company named Precision Truck, which they sold to the plaintiff in 2006. Id. at 460. As part of the agreement, the defendants agreed not to compete with the plaintiff for a period of seven years. Id. at 461. However, a few weeks after signing the non-compete agreement, the defendants began operating a competing business, and the plaintiff sued for breach of contract and violation of the CPA. Id. In holding that a CPA claim could not be maintained, the New Hampshire Supreme Court relied on Hughes, stating that the plaintiff "concedes that the sale of Precision Truck was 'an isolated, one time transaction for both parties.' The CPA, therefore, does not apply because the involvement in a single transaction is insufficient to constitute an engagement in trade or commerce." Id. at 465-66. However, recognizing the Court's holding in Hughes, the plaintiff also argued that, because the non-compete agreement included provisions seeking performance from both parties over a period of time, he and the defendants were involved in an "ongoing business relationship" and thus the CPA should apply. Id. at 466. The Court rejected this argument, stating:
We are not persuaded. As was the case with the lease-purchase agreement between the parties that was the subject of the CPA claim in Hughes, the mere fact that the business sale here at issue contemplated performance by the parties over a period of time is not sufficient to bring it within the ambit of the CPA where the overall transaction remained a single, isolated event rather than on-going course of trade or commerce.Id. The New Hampshire Supreme Court then affirmed the trial court's dismissal of the claim. Id. at 465.
Babcock does not assert that Berlin Station was in the business of building or operating power plants. Rather, Babcock alleged that Berlin Station "was created specifically to act as owner of the biomass energy power plant at issue in this lawsuit." (Am. Countercl. ¶ 2.) Although the EPC Contract did involve an ongoing relationship between Babcock and Berlin Station while the power plant was being built, the EPC Contract ultimately contemplated one single transaction—the building of the power plant. Under Hughes and Ellis, then, Berlin Station's Motion to Dismiss Babcock's CPA claim must be GRANTED.
F. Declaratory Judgment
Lastly, Berlin Station asserts that Babcock's request for declaratory judgment should be dismissed because there is an adequate remeday available to it. Babcock objects, first noting that its declaratory judgment request seeks for the Court to declare that Berlin Station must, pursuant to the EPC Contract, reduce the Retainage LOC from its full value to 200% of the Punchlist value, since Berlin Station accepted the Substantial Completion Certificate on July 19, 2014. Babcock asserts it continues to be at risk of suffering further damages because, by refusing to reduce the Retainage LOC, Berlin Station is attempting to maintain its right to draw down upon the value of the retainage.
Babcock brought this action under RSA 491:22, which specifically states that "[t]he existence of an adequate remedy at law or in equity shall not preclude any person from obtaining such declaratory relief." See RSA 491:22, I. Furthermore, even if this statute did not apply, the Court agrees with Babcock that there is no adequate remedy at law to mitigate Babcock's risk of future damages. For this reason, then, Berlin Station's Motion to Dismiss Count XI is DENIED.
As the law surrounding declaratory judgments is a procedural, rather than substantive law, the Court applies New Hampshire law for purposes of this motion to dismiss. See, e.g., Waterfield v. Meredith Corp., 161 N.H. 707, 710 (2011) ("if [a law] is procedural, we generally apply our own law.")
III. Berlin Station's Motion to Amend
Berlin Station has also moved to amend its Complaint, to add certain warranty claims. Berlin Station asserts that under the contract between the parties, it is obligated to undergo negotiations with certain claims before the amendments are ripe. (Motion to Amend, ¶ 8-9, citing Contract Article 25). In fact, it asserts that negotiations are ongoing, and that further amendment is possible. Id.
As a general rule, New Hampshire permits liberal amendments of pleading. RSA 514:9. Kravitz v. Beech Hill Hospital, LLC, 148 N.H. 383, 392 (2002). The proposed allegations relate to the same claims which have been joined by the parties already-whether or not Babcock complied with its contractual obligations. The case has only been recently transferred to the Business and Commercial Dispute Docket of the Superior Court, and the parties have yet to take a deposition.
The decision to grant or deny a Motion to Amend rests in the discretion of the trial court. Kalil v. Town of Dummer Zoning Board of Adjustment, 159 N.H. 725, 729 (2010). Under the circumstances of this case, the Court believes that the interest of justice requires that the Amendment be allowed. Accordingly, the Motion to Amend is GRANTED.
IV. Discovery
Berlin Station moved to vacate all of judge Bornstein's orders based on refusal. In an abundance of caution, the Court granted that Motion and ordered as follows:
However, given the uncertainty in the law, the Court believes that, given the magnitude of this litigation, judicial economy would be best served if the Court vacates all of Judge Bornstein's orders and considers them de novo. Accordingly, the Court directs the parties to advise the Court, by March 23, 2015 what current orders they believe can be entered as stipulated orders and what orders must be considered de novo. No argument will be had any on Motion previously decided by Judge Bornstein; the Motions will be decided on the papers. Depending upon what Motions must be decided by this Court, the Court will advise the parties by March 30, 2015 what, if any, pending discovery motions may be heard on April 13, 2015.Order dated March 20, 2015.
The parties have responded to the Court's Order, and it appears that the primary area of dispute is the extent of third-party discovery. Babcock has filed a Motion to Enter Orders Issued by Judge Bornstein nunc pro tunc. In light of the Court's Order of March 20, 2015, that motion must be DENIED. In addition, Babcock has filed two motions relating to appointment of out-of-state commissioners. Those Motions are DENIED WITHOUT PREJUDICE. The issues raised by those Motions, and the letter briefs of the parties will be taken up in a status conference to be scheduled by the Clerk of Court.
SO ORDERED. 6/1/15
DATE
s/Richard B. McNamara
Richard B. McNamara,
Presiding Justice
RBM/