Combustion Engineering, Inc. v. Miller Hydro Group

13 F.3d 437, 1993 WL 537478
CourtCourt of Appeals for the First Circuit
DecidedJanuary 5, 1994
Docket93-1266, 93-1267
StatusPublished
Cited by18 cases

This text of 13 F.3d 437 (Combustion Engineering, Inc. v. Miller Hydro Group) is published on Counsel Stack Legal Research, covering Court of Appeals for the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Combustion Engineering, Inc. v. Miller Hydro Group, 13 F.3d 437, 1993 WL 537478 (1st Cir. 1994).

Opinion

BOUDIN, Circuit Judge.

This appeal arises out of a complex commercial dispute, with overtones of deception, relating to the construction of a hydroelectric facility in Maine. In the ensuing litigation, neither the builder, Combustion Engineering, Inc., nor the owner, Miller Hydro Group, succeeded in recovering against the other. Both appeal. We affirm the district court.

I. BACKGROUND

In the early 1980’s, Miller Hydro set about creating a hydroelectric facility on the An-droscoggin River near Lisbon Falls, Maine, to generate electricity. It first negotiated a contract with Central Maine Power Company by which the latter agreed to purchase a set amount of power from the planned facility. Miller Hydro also obtained financing from a Finnish bank, Kansallis-Osake-Pankki, and a license to build the project from the Federal Energy Regulatory Commission (“FERC”).

In May 1986, Miller Hydro entered into a contract — the central document at issue in this case — with Combustion Engineering for the latter to build the facility on a “turnkey” basis. The turnkey contract, by cross-reference, provided for a facility including turbines with a capacity of 7800 cubic feet of water per second. 1 Under its contract with Maine Central Power, Miller Hydro was expected to provide power capacity of 14 megawatts, and the Miller Hydro contract with Combustion Engineering also referred to this requirement by cross-reference.

Subject to these and other specifications, it was entirely up to Combustion Engineering to design and build the new facility. The turnkey contract contained incentive and penalty provisions, one of which lies at the heart of this case. The price set for construction was fixed at just under $24 million, but the contract provided that Combustion Engineering would earn a sliding-scale bonus for efficiency to the extent that the facility produced power in excess of 77,500 megawatt hours per year; a corresponding penalty provision reduced Combustion Engineering’s fixed price to the extent that the facility was less efficient than a specified minimum output of 73,500 megawatt hours per year.

The turnkey contract provided that the bonus or penalty would be determined by certain tests that would be performed by an independent tester at the completion of construction. A protocol specified how the test would be conducted, including a requirement that the facility be tested at a “total flow of 7800 cfs.” It also permitted Miller Hydro to require a retest by a different tester if it were dissatisfied with the initial test. It appears that if Combustion Engineering had built a highly efficient plant of the size specified, Miller Hydro might have been liable for a bonus payment as large as $850,000.

What happened instead is that Combustion Engineering built a far larger plant with turbines having a maximum flow capacity of over 9000 cfs or more and a power capacity of 18 to 19 megawatts. Miller Hydro claims that this increase in size was done deliberately and secretly by Combustion Engineering in order to manipulate the bonus provisions of the construction contract. Miller Hydro and Kansallis-Osake-Pankki both say that they did not learn of the increase until it was too late to modify the facility.

*440 When the facility was tested at a total flow of 9000 or more cfs, the tester reported results that equated to a bonus of over $8 million. In Miller Hydro’s view, Combustion Engineering had invested $1 million or so of its own money in increasing the facility’s size in order to reap a ten-fold increase in the incentive bonus. Miller Hydro also objected to the test itself and invoked its right to a retest. It also refused to state its “final acceptance” of the facility, or to make final construction payments. Instead of agreeing to a retest, Combustion Engineering promptly brought suit against Miller Hydro in district court.

In its complaint Combustion Engineering set forth claims based on contract, unjust enrichment, and promissory estoppel, and it sought to enforce a mechanic’s lien against the facility. As damages, it demanded an incentive bonus of $8.16 million, a final construction payment of $45,364, a further payment of $1,236,427 in amounts withheld from prior payments, and a claimed early completion bonus of $893,894. Kansallis-Osake-Pankki intervened, arguing that Combustion Engineering had by contract subordinated its rights under the mechanic’s lien statute to the bank’s mortgage on the facility.

Miller Hydro counterclaimed against Combustion Engineering asserting contract, fraud, and racketeering claims. Miller Hydro tells us that Central Maine Power has not agreed to buy the extra power that the facility can generate and that Miller Hydro will or may incur additional costs as a result of the facility’s enlarged size. In particular, it says that it may face penalties from FERC for building a facility larger than the license permits, and that it may have to reconstruct fish-protection facilities that were keyed to the originally planned smaller turbines.

Because the case presented both legal and equitable claims, the district court bifurcated the trial. In the first phase, Combustion Engineering tried its contract claims to the jury and Miller Hydro tried its contract and fraud counterclaims to the same jury. (Miller Hydro’s racketeering counterclaim was dismissed by the court in circumstances recounted below.) In the second phase the trial judge proposed to rule himself on Combustion Engineering’s equitable claims (unjust enrichment and promissory estoppel) and to resolve any outstanding issues concerning the mechanic’s lien claim, including priority as between Combustion Engineering and Kansallis-Osake-Pankki.

After Combustion Engineering presented its case in chief to the jury, the district court entered judgment as a matter of law against Combustion Engineering on its contract claims. The court held that Combustion Engineering had materially breached its contract in testing the facility at a total flow in excess of 7800 cfs and in other departures from the test protocol. The court found it unnecessary to reach Miller Hydro’s argument that the refusal of Combustion Engineering to agree to a retest was also a breach of contract that barred recovery.

Miller Hydro’s own contract and fraud counterclaims against Combustion Engineering were submitted to the jury together with a special verdict form. On January 23,1992, the jury returned its verdict, finding that Combustion Engineering had breached the contract by designing the facility for a maximum flow in excess of 7800 cfs, and not in accordance with the FERC license. It found the actual maximum flow to be at least 9000 cfs and the power output capacity to be 18 megawatts. It also found that Combustion Engineering had provided materially false information to Miller Hydro. Nevertheless, the jury awarded no damages to Miller Hydro either for breach of contract or fraud, finding (in response to special verdict questions) that Miller Hydro had not proved damages from the breach of contract or the misrepresentations.

On October 6, 1992, the trial judge filed a decision denying Combustion Engineering recovery on its equitable claims.

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13 F.3d 437, 1993 WL 537478, Counsel Stack Legal Research, https://law.counselstack.com/opinion/combustion-engineering-inc-v-miller-hydro-group-ca1-1994.