Ontario Hydro v. Zallea Systems, Inc.

569 F. Supp. 1261, 36 U.C.C. Rep. Serv. (West) 1222, 1983 U.S. Dist. LEXIS 14920
District Court, D. Delaware·Decided August 3, 1983·No. Civ. A. 82-666·Published·Cited by 50 cases

Opinion

OPINION

LATCHUM, Chief Judge.

This is a diversity action brought by Ontario Hydro, a corporation established and continued under the laws of the Province of Ontario, Canada (“Hydro”) against Zallea Systems, Inc., a New York corporation doing business in the State of Delaware, formerly known as Zallea Brothers, Inc., and Zallea Foundation, a Delaware corporation (collectively “Zallea”). The complaint (Docket Item [“D.I.”] 1) asserts twelve counts against Zallea in connection with Zallea’s agreement to sell to Hydro certain expansion joints which were to be used in the construction of a heavy water facility being built in Ontario, Canada. Hydro seeks compensatory, consequential and incidental damages of one hundred ten million dollars, together with interest and costs for Zallea’s alleged breach of contract for sale of goods (Counts I & II), breach of implied warranty of quality fitness and for particular purpose (Counts III & IV), negligence in failing to inform Hydro of the expansion joint’s dangerous condition (Count V), negligence in design, fabrication, production, inspection and testing of the joints (Count's V through XI), and strict product liability for defective design and workmanship (Count XII). 1

Zallea has moved to dismiss the Counts I through XI on the ground those counts are barred by the applicable statute of limitations. (D.I. 15.) Because it has been necessary in determining Zallea’s motion to refer to specific dates and to the exact terms of the contracts for sale which did not appear in the complaint but which were revealed in the affidavit of Robert A. Grunau and exhibits thereto (D.I. 27), and the affidavit of Edmund F. Hunt (D.I. 20), the motion to dismiss Counts I through XI will be treated as a motion for summary judgment as required by Rule 12(b), Fed.R. Civ.P.

1. FACTS

The undisputed material facts may be summarized as follows. 2 Hydro, one of the largest electrical utilities in Canada, provides virtually all the electric power in the Province of Ontario. (D.I. 1, ¶4.) About 1962, Hydro began a construction program designed to develop a large nuclear power generating complex along Lake Huron and one of the facilities in the complex was to serve the heavy water requirements of the nuclear generating program. (D.I. 1, ¶¶ 5-7.) In May 1974, Hydro and Zallea entered into two contracts whereby Zallea agreed to manufacture and deliver forty expansion joints (comprising two different types of joints) for use in the construction of the heavy water plant. (D.I. 1, ¶ 9.) The two contracts in question were represented by two purchase orders. (Id.) The purchase orders contained in paragraph 26 of the Contract Standard the following clause pertaining to the corrections of defects:

*1264 If at any time up to twelve (12) months after the date of Acceptance of the Equipment by the Engineer, any defect or deficiency should appear due to faulty workmanship, material or design, or if the Equipment or any part thereof fails to meet the requirements of the Contract, the Company shall restore the Equipment to satisfactory operating condition by making good every such defect, deficiency or failure without cost to the Commission.. The Company shall pay all freight charges for parts and/or Equipment both ways between the Company’s factory or repair depot and the delivery point. The costs of transporting the Equipment both ways between the delivery point and the site will be borne by the Commission. Where supervision was called for in the Contract, similar supervision shall be provided without cost to the Commission for removing, transporting and re-installing the Equipment at the site. Any part of the Equipment made good under this Section shall be subject to all the provisions of this Section for a further period of twelve (12) months from the date when the same has been made good as aforesaid.

(D.I. 27, Ex. A, p. 26.)

Zallea was aware that these joints were to be used for piping in which pressurized hydrogen sulfide (“H2S”) circulates. (D.I. 1, ¶¶ 12, 16.) Zallea delivered the various expansion joints between 1976 and 1979. (D.I. 1, ¶ 15.) On approximately October 8, 1978, some H2S was released at the plant because of a failure in the weld of one of the expansion joints. (D.I. 1, ¶ 18.) Thereafter, from October 8, 1978 through February, 1980, other failures of the expansion joints occurred. Id. As a result, Hydro investigated these failures and discovered:

that virtually all of the expansion joints supplied by Zallea from 1976 through 1979 for use in [the Hydro plant] were defective due to faulty design, fabrication, production, inspection and testing, and faulty workmanship by Zallea, including but not limited to improper welding, failure to comply with specifications, improper testing and inspection practices, and improper fabrication and assembly.

(D.I. 1, ¶ 18.)

Hydro alleges that these defects were “inherently undiscoverable” prior to use of the expansion joints. (D.I. 1, ¶ 19.) From October 8, 1978 through February, 1980, Zallea unsuccessfully attempted to correct the defects. (D.I. 1, ¶21.) As a result, Hydro alleges, full use of its plant was delayed from October 8, 1978 until June, 1981, resulting in “extensive monetary damage to Ontario Hydro by virtue of the resulting loss of revenue, damage to the facility, loss of use of the facility, corrective actions taken, and design and installation of” an alternate pipe system. (D.I. 1, ¶¶ 22 & 28.) On October 7, 1982, Hydro commenced the present action in this Court. (D.I. 1.)

II. THE BREACH OF CONTRACT FOR SALE AND BREACH OF WARRANTY CLAIMS

Zallea contends that with respect to Hydro’s breach of contract for sale and breach of warranty, claims set forth in Counts I through IV, the Delaware four year statute of limitations, 6 Del.C. § 2-725, applies and that the statute began to run upon Zallea’s tender of delivery of the expansion joints to Hydro. Since the tender of delivery of all the joints was completed on July 18, 1978 (D.I. 27, ¶ 14), 3 Zallea contends that the four year limitation period had expired before this suit was filed on October 7, 1982.

Hydro counters these arguments by contending that the six year Ontario statute of *1265 limitations, Ontario Limitations Act R.S.O. 1970, c. 45(l)(g), is applicable to the contract and warranty claims because the purchase orders contained a choice of law provision that they should be interpreted in accordance with the laws of Ontario, Canada. (D.I. 27, Ex. A, p. 27, ¶ 31.) Alternatively, Hydro contends, that even if the Ontario statute of limitations does not apply, the breach of contract for sale and warranty claims accrued within the limitations period of 6 Del.C. § 2-725.

The Court must first determine whether to apply the Ontario or Delaware limitations period to the contract for sale and warranty claims. The purchase orders incorporated by reference the following choice of law clause:

Free access — add to your briefcase to read the full text and ask questions with AI

Ontario Hydro v. Zallea Systems, Inc., 569 F. Supp. 1261, 36 U.C.C. Rep. Serv. (West) 1222, 1983 U.S. Dist. LEXIS 14920 (D. Del. 1983).

569 F. Supp. 1261 (Ontario Hydro v. Zallea Systems, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Related

Hatcher v. Collecto, Inc.
D. Delaware, 2021
Armstrong v. Council of the Devon
Superior Court of Delaware, 2018
Leprino Foods Company v. DCI
Tenth Circuit, 2018
Day Masonry v. Independent School District 347
781 N.W.2d 321 (Supreme Court of Minnesota, 2010)
Woolums v. NATIONAL RV
530 F. Supp. 2d 691 (M.D. Pennsylvania, 2008)
Electric Insurance v. Freudenberg-NOK, General Partnership
487 F. Supp. 2d 894 (W.D. Kentucky, 2007)
Boveri v. Alcoa Fujikura Ltd.
Superior Court of Rhode Island, 2007
Johnson v. Southern Energy Homes, Inc.
391 F. Supp. 2d 1118 (S.D. Alabama, 2005)
Webco Industries, Inc. v. Thermatool Corp.
278 F.3d 1120 (Tenth Circuit, 2002)
Kittitas Reclamation District v. Spider Staging Corp.
107 Wash. App. 468 (Court of Appeals of Washington, 2001)
Kittitas Reclamation v. Spider Staging
27 P.3d 645 (Court of Appeals of Washington, 2001)
Joswick v. Chesapeake Mobile Homes, Inc.
765 A.2d 90 (Court of Appeals of Maryland, 2001)
Holbrook, Inc. v. Link-Belt Construction Equipment Co.
103 Wash. App. 279 (Court of Appeals of Washington, 2000)
Holbrook v. LINK-BELT CONST. EQUIPMENT
12 P.3d 638 (Court of Appeals of Washington, 2000)
Giraud v. Quincy Farm and Chemical
6 P.3d 104 (Court of Appeals of Washington, 2000)