DURR MECHANICAL CONSTRUCTION, INC. v. PSEG FOSSIL, LLC
Civ. No. 18-10675 (KM) (CLW)
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
January 29, 2021
PageID: 1502
KEVIN MCNULTY, U.S.D.J.
KEVIN MCNULTY, U.S.D.J.:
PSEG Fossil, LLC, an energy company, hired Durr Mechanical Construction, Inc., a contractor, to construct a power plant. The project and their relationship went awry, so Durr sued PSEG, asserting contract, quasi-contract, and tort claims. PSEG moves to dismiss most of those claims. (DE 62.)1 For the following reasons, PSEG‘s motion to dismiss is GRANTED IN PART and DENIED IN PART.
I. BACKGROUND
A. Facts
PSEG sought to build a power plant (the “Project“). (Am. Compl. ¶ 13.) Instead of providing drawings of the plant to potential contractors to estimate their bids for the Project, PSEG provided a Bill of Quantity (“BOQ“) that “set out the type and amount of materials to be used to construct the Project.” (Id. ¶ 19.) In effect, the BOQ “quantif[ied] the extent of the Project scope.” (Id.)
It became clear that “the BOQ wildly understated the critical elements of the Project.” (Id.) Although PSEG had drawings available at bidding time, PSEG chose to send bidders the inaccurate BOQ in order to receive lower quotes for a Project for which PSEG had not properly budgeted. (Id. ¶¶ 20–22.) Unbeknownst to Durr when it began work, the Project was already behind schedule and over-budget. (Id. ¶ 34.)
As the Project moved forward, PSEG asked Durr for a proposal to perform all mechanical work for the Project, instead of just the components it originally bid on. (Id. ¶ 28.) Durr did so, and since there were no drawings, “Durr proposed, and PSEG accepted, that Durr would be paid for work it performed on a cost reimbursable basis.” (Id. ¶ 31.) “To establish an initial monetary value for Durr‘s work, subject to future adjustments based on the final design, Durr and PSEG negotiated and established a target price, i.e., a price goal assuming the final design matched the BOQ.” (Id. ¶ 32.)
The Project continued, and new drawings kept arriving. (Id. ¶ 41.) These drawings “substantially revised the BOQ” and changed all types of specifications. (Id. ¶ 42.) Such changes caused Durr to spend more manpower and money. (Id. ¶ 43.) Nonetheless, PSEG assured Durr “that at the end of the Project there would be a ‘true-up’ between what was originally called for in the BOQ and what was required pursuant to the final version of the design.” (Id. ¶ 40.)
At one point, however, PSEG purported to draw “a line in the sand.” (Id. ¶ 45.) When Durr submitted its final bid documents, PSEG‘s Project director, Kevin Reimer, told Durr that it should not consider any documents after September 2016 for purpose of developing its price. (Id. ¶¶ 44–45.) So PSEG and Durr finalized a contract in November 2016 that limited the scope of work based on documents received as of September 2016. (Id. ¶ 47.) Nonetheless,
Despite the “line in the sand,” PSEG continued to authorize design changes and send drawings. (Id. ¶¶ 49, 54.) Indeed, it became clear that numerous aspects of the mechanical design had been incomplete, requiring costly, mid-Project changes. (Id. ¶ 61.) Further complicating the Project, PSEG failed to manage the other contractors or provide necessary, promised supplies. (Id. ¶¶ 63, 69, 73.) Not only that, PSEG had Durr perform additional work at another site. (Id. ¶¶ 81–82.)
All the while, Durr submitted progress payment applications to PSEG for the work it had performed, which PSEG failed to pay. (Id. ¶¶ 77–78) When the Project was finally completed, “PSEG began a concerted effort to avoid its payment obligations” entirely. (Id. ¶ 87.) PSEG hoped that Durr would “accept an amount less than it had earned for its work on the Project, or to abandon its claims.” (Id. ¶ 101.) As part of this effort, PSEG informed Durr‘s surety that PSEG was considering declaring Durr to be in default—even though PSEG owed Durr money under the contract. (Id. ¶¶ 102–04.) As a result of actions like these, PSEG “has effectively destroyed Durr” and allegedly owes Durr tens of millions of dollars. (Id. ¶¶ 111, 114.)
B. Procedural History
Durr filed this action against PSEG. (DE 1.) The currently operative Amended Complaint asserts eight claims:
- breach of contract (Am. Compl. ¶¶ 113–15);
- violation of New Jersey Prompt Payment Act,
N.J. Stat. Ann. § 2A:30A-1 , et seq. (Am. Compl. ¶¶ 116–24); - cardinal change (id. ¶¶ 125–28);
- quantum meruit and unjust enrichment (id. ¶¶ 129–32);
- breach of the covenant of good faith and fair dealing (id. ¶¶ 133–44);
- misrepresentation (id. ¶¶ 145–55);
- tortious interference with contract (id. ¶¶ 156–63); and
- tortious interference with prospective advantage (id. ¶¶ 164–68).
PSEG moves to dismiss Counts 3 through 8. (Mot.)
II. STANDARD OF REVIEW
III. DISCUSSION
I apply the foregoing motion-to-dismiss standards to each claim. In sum, I hold that the claims of cardinal change (Count 3) and tortious interference with contract (Count 7) require dismissal, while the rest survive.
A. Cardinal Change Claim
Count 3 is a claim under the “cardinal change” doctrine. (Am. Compl. ¶¶ 125-28.) This doctrine, derived from federal government contracts law, holds that “when the government effects an alteration in the work so drastic
PSEG argues that this federal government-contracts doctrine is not cognizable under New Jersey law. (Mot. at 7–11.) I agree.
“[I]t is not the role of a federal court to expand state law in ways not foreshadowed by state precedent.” City of Philadelphia v. Beretta U.S.A. Corp., 277 F.3d 415, 421 (3d Cir. 2002). Neither the New Jersey Supreme Court nor the Appellate Division has precedentially recognized the doctrine, a circumstance which strongly weighs against this Court‘s recognizing it. See Crystallex Int‘l Corp. v. Petreoleos De Venezuela, S.A., 879 F.3d 79, 84 (3d Cir. 2018) (when applying state law, federal courts look mostly to the state supreme court and then to intermediate courts). Durr acknowledges as much, but nevertheless argues that I should recognize the doctrine, for two reasons. (Opp. at 5.) Neither is persuasive.
First, Durr cites two non-precedential Appellate Division cases which, it says, support recognition of the doctrine for purposes of New Jersey contract law. (Id. at 5–7.) At the outset, because those decisions are not binding, they do not establish state law. King v. Order of United Commercial Travelers of Am., 333 U.S. 153, 160–62 (1948); see Ryu v. Bank of Hope, Civ. No. 19-18998, 2021 WL 50255, at *5 n.7 (D.N.J. Jan. 6, 2021). But see In re Remicade (Direct Purchaser) Antitrust Litig., 938 F.3d 515, 525–26 (3d Cir. 2019) (relying on unpublished Appellate Division cases, in the context of confirming a “strong intimation” from the New Jersey Supreme Court). I consider these two cases for
In the first, St. Joseph‘s Hospital & Medical Center v. Muirfield Construction, the Appellate Division seemingly alluded to the cardinal change doctrine (though not by name). It did so in the course of holding that a clause precluding damages from “delays” did not bar recovery for certain major changes which “lay beyond the ‘scope’ of the contracts.” No. A-6620-99T2, slip op. at 2-3, 93–94 (N.J. Super. Ct. App. Div. July 29, 2003) (per curiam) (copy provided at DE 67-3).3 The rationale, however, boiled down to a finding that the changes did not qualify as “delays” under the contract. This was not so much an application of the cardinal change doctrine, then, as it was an ordinary case of contract interpretation.
In the second case, Ponns & Thomas Co., Inc. v. State of New Jersey, Department of Transportation, a contractor argued that “the cardinal change doctrine [had] been ‘constructively adopted’ in New Jersey.” The contractor sought to recover under the doctrine because it had been required to perform additional, unanticipated work. No. A-6137-98T5, slip op. at 3–4 (N.J. Super. Ct. App. Div. Oct. 5, 2000) (copy provided at DE 67-4). The trial court held that even if the doctrine applied, there was no such drastic change, and the Appellate Division summarily affirmed. Id. at 4. Both the trial court and the Appellate Division, then, seemingly assumed arguendo that the doctrine applied in the course of holding that it would not help the contractor. Neither the trial nor appellate court explicitly adopted the cardinal change doctrine.
Neither Ponns nor St. Joseph‘s, then, would strongly support a conclusion that the cardinal change doctrine has been or would be adopted as part of New Jersey contract law.
Even when considering a genuine majority view, a federal court must assess whether that view comports with the state‘s law or is otherwise persuasive. See Bobo v. Tenn. Valley Auth., 855 F.3d 1294, 1304 (11th Cir. 2017). By that standard, I find little in the way of a persuasive rationale for importing the cardinal change doctrine. For starters, the doctrine grew out of peculiarities of federal government contracting law—particularly, the need to
I find no compelling reason to recognize a cardinal change doctrine claim under New Jersey law, and decline to do so. The motion to dismiss Count 3 is therefore granted.
B. Quantum Meruit/Unjust Enrichment Claim
Count 4 is a claim of quantum meruit and unjust enrichment. (Am. Compl. ¶¶ 129–32.) Quantum meruit and unjust enrichment are often pleaded as separate claims, but they are similar, and both fall under the umbrella of quasi-contract. Compare Canadian Nat‘l Ry. v. Vertis, Inc., 811 F. Supp. 2d 1028, 1033 (D.N.J. 2011) (discussing quantum meruit), with id. at 1034 (discussing unjust enrichment).
It is true, of course, that double recovery is prohibited; a claimant cannot collect damages for breach of express contract and recover the same damages on a quasi-contract theory . . . . But what a claimant may recover is distinct from what a claimant may plead, and Federal Rule of Civil Procedure 8(d) permits alternative and inconsistent pleading of claims. Accordingly, federal courts applying New Jersey law have generally declined to dismiss quasi-contract claims that are pleaded along with express contract claims.
Gap Props., LLC v. Cairo, Civ. No. 19-20117, 2020 WL 7183509, at *4 (D.N.J. Sept. 17, 2020) (citations omitted).
Where the quasi-contract claim is truly just the contract claim by another name, I might dismiss it as superfluous. This, however, is an understandable case of backup or alternative pleading. The quasi-contract claim seeks to recover for ”additional work.” (Am. Compl. ¶ 129 (emphasis added).) Durr‘s theory seems to be that if the Court finds that the Contract does not literally provide for recovery on any additional work performed—which cannot be ruled out at this early stage—then Durr should still be able to recover via a quasi-contract theory. Because such alternative pleading is permissible, the motion to dismiss Count 4 is denied.
C. Implied Covenant of Good Faith and Fair Dealing
Count 5 is a claim for breach of the implied covenant of good faith and fair dealing. (Am. Compl. ¶¶ 133–44.) Every contract is deemed to contain that implied covenant. Wade v. Kessler Inst., 798 A.2d 1251, 1259 (N.J. 2002). A claim of breach “arises when the other party has acted consistent with the contract‘s literal terms, but has done so in such a manner so as to ‘have the effect of destroying or injuring the right of the other party to receive the fruits of the contract[.]‘” Id. at 1262 (quoting Bak-A-Lam Corp. of Am. v. Alcoa Bldg. Prods., Inc., 351 A.2d 349, 352 (N.J. 1976)). PSEG moves to dismiss this claim because it is duplicative and insufficiently alleged. (Mot. at 19–22.)
PSEG argues that these allegations, even if not duplicative, fall short of the standard for bad faith. A plaintiff must allege that “the defendant act[ed] with ill motives and without any legitimate purpose.” Elliott & Frantz, Inc. v. Ingersoll-Rand Co., 457 F.3d 312, 329 (3d Cir. 2006). “[A]n allegation of bad faith . . . should not be permitted to be advanced in the abstract and absent improper motive.” Id. (quoting Wilson v. Amerada Hess Corp., 773 A.2d 1121, 1130 (N.J. 2001)). Durr alleges ill motives. Specifically, Durr alleges that “PSEG intentionally stopped and withheld payments to cause Durr to accept an amount less than it had earned for its work on the Project, or to abandon its claims in their entirety.” (Am. Compl. ¶ 101.) This is not a simple “defendant failed to pay” allegation. Rather, this allegation shows that PSEG had the design to not only breach the contract, but to do so in a way to strongarm Durr into accepting this non-performance. Indeed, Durr also alleges that PSEG‘s actions were part of “a concerted effort to avoid its payment obligations by causing Durr extreme financial distress and slowly starving Durr for cash, in
For these reasons, the motion to dismiss Count 5 is denied.
D. Misrepresentation
Count 6 is a “misrepresentation” claim. (Am. Compl. ¶¶ 145–55.) New Jersey recognizes negligent misrepresentation claims, Green v. Morgan Props., 73 A.3d 478, 493–94 (N.J. 2013), and intentional misrepresentation claims, more commonly called fraud, Boyko v. Am. Int‘l Grp., Civ. No. 08-2214, 2009 WL 5194425, at *3 (D.N.J. Dec. 23, 2009) (citing Jewish Ctr. of Sussex Cnty. v. Whale, 432 A.2d 521, 524 (N.J. 1981)). Either way, says PSEG, the economic loss doctrine bars the claim, which in any event is not adequately alleged. (Mot. at 22.)
1. Economic Loss Doctrine
The economic loss doctrine “precludes tort claims where the allegedly tortious conduct is intrinsic to the contract—i.e., where the alleged tort consists of the breach of a contractual promise.” CPS MedManagement LLC v. Bergen Reg‘l Med. Ctr., L.P., 940 F. Supp. 2d 141, 159 (D.N.J. 2013). In deciding whether the doctrine applies, we focus on “whether the plaintiff‘s entitlement to economic losses flows directly from obligations set forth in a contract.” State Cap. Title & Abstract Co. v. Pappas Bus. Servs., LLC, 646 F. Supp. 2d 668, 678 (D.N.J. 2009). The doctrine does not apply, however, when a
The distinction between a claim of fraudulent breach (impermissible) and fraudulent inducement (permissible) forces the court to tread a “fine line.” 940 F. Supp. 2d at 159. Examples help. In one case, a hazelnut spread manufacturer contracted with a warehouse to store its products. Prior to execution of the contract, the warehouse inaccurately represented that it had adequate liability insurance. Wilhelm Reuss GmbH & Co. KG, Lebensmittelwerk ν. Ε. Coast Warehouse & Distrib. Corp., Civ. No. 16-4370, 2018 WL 3122332, at *1 (D.N.J. June 26, 2018). The products became infested, the warehouse‘s insurer declined to provide coverage, and, as a result, the manufacturer faced extensive damages. Id. The court held that the warehouse‘s misrepresentation regarding its insurance coverage induced the manufacturer to enter the contract, and that the economic loss doctrine therefore did not bar the tort claim. Id. at *5–6.
In another case, a printing company sought a printing press to meet its expanded needs, and a seller represented that it had a suitable model. G & F Graphic Servs., Inc. v. Graphic Innovators, Inc., 18 F. Supp. 3d 583, 585 (D.N.J. 2014). The press did not work properly, and the printing company alleged that it was not the model the seller represented it to be. Id. at 586. The court held that the company stated a fraudulent inducement claim, so the economic loss doctrine did not apply, because the misrepresentation as to the type of model induced the company to purchase it. Id. at 593.
Some of the allegations in Count 6 resemble Wilhem and G & F. Prior to contract formation, PSEG allegedly misrepresented and withheld material information regarding the conditions of the Project. (Am. Compl. ¶¶ 145–51.) Durr alleges that it entered into the contract only because it believed those misrepresentations. (Id.) Such a claim is distinct from a claim that the other party breached its contractual obligations.7 Accordingly, I will not dismiss the misrepresentation claim based on the economic loss doctrine.
2. Adequacy of Allegations
Next, PSEG argues that Count 6 fails to state a claim. (Mot. at 23–25.) I disagree, but first I must nail down the type of misrepresentation claim Durr pleads and whether a heightened pleading standard applies.
a. Rule 9(b)
As a threshold matter, PSEG argues that the misrepresentation claim is subject to the heightened pleading requirements of
On one hand, the Third Circuit has held that “where the claims are expressly premised on negligence rather than fraud,”
Durr has not “exercised care in differentiating asserted negligence claims from fraud claims,” so it must take the bitter with the sweet, and I will apply
Many of the allegations state that PSEG “knew or should have known” about certain facts and failed to disclose them. (E.g., Am. Compl. ¶ 147.) Although sometimes “knew or should have known” is an allegation relevant to whether a duty existed, see H. Rosenblum, Inc. v. Adler, 461 A.2d 138, 143 (N.J. 1983) (citation omitted), more often “knew or should have known” allegations mean that the plaintiff is alleging a knowing, deliberate misrepresentation. Livingston, 2019 WL 397982, at *3 (allegations that a defendant “knowingly sold . . . defective systems” “do not amount to nothing more than negligence—they sound in fraud” (alterations, quotation marks, and citation omitted)); Union Ink Co. v. AT&T Corp., 801 A.2d 361, 366 (N.J. Super. Ct. App. Div. 2002) (complaint “charge[d] knowing misrepresentation” when it used “knew or should have known“).
Other allegations, too, may support an inference of fraudulent intent. For example, Durr alleges that PSEG misrepresented the BOQ, “caus[ing] Durr to reply to the BOQ and submit a materially lower bid price for the Project.” (Am. Compl. ¶ 148.) The circumstances (for example, the discrepancy between the BOQ and the drawings PSEG had in its possession) suggest intentional misrepresentation of the BOQ, and an obvious motive to do so (a lower bid price). And indeed, the entire theme of the Amended Complaint is “the
In short, the Amended Complaint and Count 6 specifically contain plenty of fraud and fraud-like allegations, and do not “expressly premise[]” the allegations “on negligence rather than fraud,” so Durr cannot avoid
b. Failure to State a Claim
I therefore apply
Those requirements are met. First, PSEG materially misrepresented the scope of the project by providing a BOQ that underestimated the materials needed. Second, PSEG knew that the BOQ was misleading because PSEG had drawings at the time that more accurately captured the Project‘s scope. Third, PSEG intended for Durr to rely on the misleading BOQ because that was all PSEG provided to Durr. Fourth, Durr relied on the BOQ to bid on the project and begin its work. And fifth, Durr faced damages due to the misrepresentation, both in extra costs to complete the Project and the fallout with PSEG that in turn led to injuries to its business. (Am. Compl. ¶¶ 19–23.) Thus, the elements of fraud are plausibly pleaded.
Still, in pleading those elements,
The allegations are sufficiently specific to put PSEG on notice of what misconduct Durr is alleging. The Amended Complaint alerts PSEG that Durr is zeroing in on the bid process occurring around May 12, 2016. (Am. Compl. ¶ 19.) The claim will turn on a comparison of the BOQ provided on that date and the drawings PSEG had in possession at the time. Those facts place PSEG on sufficient notice of the particulars of Durr‘s claim.9
For these reasons, the motion to dismiss Count 6 is denied.
E. Tortious Interference Claims
Counts 7 and 8 allege tortious interference with contract and prospective economic advantage. (Am. Compl. ¶¶ 156–68.) PSEG argues that these claims are (1) inadequately alleged, (2) barred by the contract‘s exculpatory clause, and (3) barred by the economic loss doctrine. (Mot. at 25.)
1. Failure to State a Claim
Tortious interference claims require (1) a contract or prospective contract, (2) defendant‘s intentional interference without justification, (3) a reasonable likelihood that the interference caused the loss of contract or prospective gain, and (4) resulting damages. Matrix Distribs., Inc. v. Nat‘l Ass‘n of Bds. of Pharm., Civ. No. 18-17462, 2020 WL 7090688, at *15 & n.22 (D.N.J. Dec. 4, 2020) (citations omitted), appeal docketed, No. 20-3638 (3d Cir. Dec. 31, 2020).
In contrast, the Count 7 claim of tortious interference with contract is sufficiently alleged because it focuses specifically on the surety contract. First, Durr had a protected interest in its surety contract. Second, PSEG intentionally and maliciously interfered with that contract by notifying the surety that Durr was likely to default, when in fact, PSEG owed Durr payment. (Am. Compl. ¶ 158.) PSEG argues that this communication was in the standard course of business and so cannot be malicious. (Mot. at 28 (citing Graco, Inc. v. PMC Global, Inc., Civ. No. 08-1304, 2009 WL 904010, at *33 (D.N.J. Mar. 31, 2009))). I must, however, accept as true the allegation that Durr was not nearing default, so PSEG had no justification for its representation to the surety. Third, Durr lost its surety contract or the benefit thereof because, following PSEG‘s communication, the surety declined to provide bonding for another one of Durr‘s projects. (Am. Compl. ¶ 160.) And fourth, that
I next consider whether, as to the adequately pled Count 7, either the exculpatory clause or economic loss doctrine nevertheless requires dismissal.
2. Exculpatory Clause
PSEG argues that the contract‘s exculpatory clause bars the tortious interference with contract claim. (Mot. at 25–26.) That clause provides, in essence, (a) that PSEG‘s tort liability for any claims arising out of the contract cannot exceed the contract price, and (b) that PSEG cannot be held liable for consequential damages, including “bonding capacity” or “business opportunities.” (DE 62-3 at 68–69 (capitalization altered).)
Such exculpatory clauses, however, cannot reach willful conduct. Kane v. U-Haul Int‘l Inc., 218 F. App‘x 163, 167 (3d Cir. 2007) (citing Tessler & Son, Inc., v. Sonitrol Sec. Sys. of N. N.J., Inc., 497 A.2d 530, 533 (N.J. Super. Ct. App. Div. 1985)). A defendant acts willfully when it “consciously and intentionally does some wrongful act.” Id. (quoting McLaughlin v. Rova Farms, Inc., 266 A.2d 284, 293 (N.J. 1970)). The tortious interference with contract claim is based on willful conduct—i.e., an alleged intentional misrepresentation to the surety that Durr would likely default. (Am. Compl. ¶¶ 158–61.) As alleged, this would be an intentional and wrongful act, so the exculpatory clause does not apply.
3. Economic Loss Doctrine
Finally, PSEG argues that the economic loss doctrine bars the tortious interference with contract claim. (Mot. at 30.) As explained, that doctrine applies when “the plaintiff‘s entitlement to economic losses flows directly from obligations set forth in a contract.” State Cap., 646 F. Supp. 2d at 678 (emphasis added). The doctrine does not apply when a plaintiff alleges that the defendant‘s conduct breached an “independent duty,” rather than a duty imposed by the contract. Saltiel v. GSI Consultants, Inc., 788 A.2d 268, 280 (N.J. 2002).
* * *
Count 8 is dismissed because it fails to state a claim, but Count 7 is plausibly alleged and not barred by either the exculpatory clause or the economic loss doctrine. The motion to dismiss is granted as to Count 8 but denied as to Count 7.
IV. CONCLUSION
For the reasons set forth above, Counts 3 and 8 are dismissed, but the motion to dismiss the remaining claims is otherwise denied.
A separate order will issue.
Dated: January 29, 2021
/s/ Kevin McNulty
Hon. Kevin McNulty
United States District Judge
Notes
DE = docket entry
Am. Compl. = Amended Complaint (DE 59)
Mot. = PSEG‘s Brief in Support of its Motion to Dismiss (DE 62-1)
Opp. = Durr‘s Opposition to PSEG‘s Motion to Dismiss (DE 67)
Reply = PSEG‘s Reply Brief in Support of its Motion to Dismiss (DE 68)