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MERRIMACK, SS SUPERIOR COURT
Berlin Station, LLC
v.
Babcock & Wilcox Construction Co., Inc.
No. 214-2014-CV-00014
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
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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 ....................................................................................4
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
II. Berlin Station’s Motion to Dismiss Counterclaims ..................................................................16
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
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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.
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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
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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.
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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
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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 sub-
surface 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
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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
- 9 -
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
- 10 -
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
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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
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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
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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
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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
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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,
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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
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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
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pursuant to M.G.L. 93-B,1 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.
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
1 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).
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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:
(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.
(Complaint Ex. 1 ¶ 17.) 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
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inducement and that New York law applies to Counts II-VIII of the Counterclaim.2
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 XI3, 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.
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
2 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.
3 As Babcock specifically brought Count X under New Hampshire’s Consumer Protection Act, the Court will apply New Hampshire law.
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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.4
4 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.
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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
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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
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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 .5
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.
5 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.”
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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
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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.6 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).
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
6 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).
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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
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determines that Babcock has sufficiently pled allegations that Berlin Station owed it a
legal duty distinct from its duties under the EPC Contract7. 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.
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
7 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.
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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
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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
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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.8
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
8 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.
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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 .
. . . 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.”
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, 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
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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,
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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.9 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.
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
9 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.”)
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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.
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SO ORDERED.
6/1/15 s/Richard B. McNamara __________________ _________________________ DATE Richard B. McNamara, Presiding Justice RBM/