Construction Law Insights

SourceOne, Inc. (DE) v. ESI, Inc. of Tenn., 2020 U.S. Dist. LEXIS 133045 (E.D. Va. Jul. 27, 2020)

DuPont contracted with Veolia Energy Operating Services LLC (“Veolia”) to upgrade the utilities infrastructure at a DuPont plant in Richmond, Virginia. Veolia, in turn, contracted with SourceOne, Inc. (DE) (“SourceOne”) to handle the design, procurement, installation, and commissioning for upgrading the cogeneration plant’s burners from coal-fired to natural gas-fired. SourceOne had contracted with ESI, Inc. of Tennessee (“ESI”) to provide engineering services for the burner upgrades. The SourceOne-ESI agreement included a warranty for ESI’s work and an indemnification provision in favor of SourceOne. ESI recommended Coen Company, Inc. and John Zink to supply the new burners for the project (“suppliers”). Significant problems developed with the burners, resulting in damage to downstream superheater equipment and a decrease of the equipment life.

ESI moved to dismiss SourceOne’s breach of warranty claims, contractual indemnity claims, and negligent misrepresentation claims for failure to state a claim under Rule 12(b)(6). In Count Two, SourceOne alleged that ESI breached the express warranties in the ESI agreements. ESI argues that this claim duplicates Count One for breach of contract. Under Rule 8, a party may set out two or more statements of a claim or defense alternatively or hypothetically, either in a single count or defense in separate ones. Although a party may not receive a duplicate recovery, a plaintiff has the right to plead alternative theories of recovery based on entirely separate provisions of a contract. SunTrust Mortg., Inc. v. Old Second Nat’l Bank, No. 3:12-cv-99, 2012 WL 1656667, at *2 (E.D. Va. May 10, 2012). The court denied the motion to dismiss Count Two.

In Counts Three and Six, the plaintiffs allege that the indemnity provisions in the ESI agreements require ESI to indemnify them for the damages, costs, and expenses incurred. ESI argues that first-party claims fall outside the scope of the plain language of the indemnity provisions. Because the indemnity provision does not clearly exclude first-party claims, and because courts considering similar provisions have not limited their application to only third-party claims, the court denied the motion to dismiss Counts Three and Six.

In Count Five, Veolia alleged that it relied on ESI’s negligent misrepresentations about the recommended burners and suppliers. Veolia argued that Massachusetts law governs the common law tort claim. Applying Virginia’s choice of law rule, the court determined that ESI’s duties to Veolia sound in contract not in tort, because the duties arise out of the ESI agreements. Because ESI’s duties are contractual, Veolia cannot assert a tort claim for a breach of duty arising out of contract under Virginia law. Tingler v. Graystone Homes, Inc., 298 Va. 63, 82 (2019). The court granted the motion to dismiss Count Five.

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