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E.C. ERNST, INC. v. KOPPERS CO.

August 14, 1981

E.C. ERNST, INC., Plaintiff,
v.
KOPPERS COMPANY, INC., Defendant



The opinion of the court was delivered by: WEBER

This protracted litigation arises out of a multi-million dollar construction project undertaken by Koppers Co. Inc., at the Aliquippa Works of the Jones & Laughlin Steel Corporation. The Plaintiff, E. C. Ernst, Inc., was the electrical subcontractor hired by Koppers for this project. In this diversity action Ernst is suing Koppers to recover for work done on the project beyond that specified in the contract and for delay damages.

 At the outset we recognize that, in this case, we do not write on a blank slate. Quite the contrary, since 1977 this matter has been the subject of extensive ongoing litigation, both in this court and in the Court of Appeals. The issues presented in this litigation have been the subject of a 23 day bench trial and have received exhaustive consideration, both at trial and on appeal. See, E. C. Ernst, Inc. v. Koppers Co., Inc., 626 F.2d 324 (3d Cir. 1980); E. C. Ernst, Inc. v. Koppers Co., Inc., 476 F. Supp. 729 (W.D.Pa.1979).

 As a result of this process the issues now remaining for this court's consideration have been narrowed considerably. Presently this case is before the court for the purpose of making additional findings of fact and conclusions of law as mandated by the Court of Appeals. The parties have agreed to present these issues for resolution on the record developed in the initial trial of this matter. Therefore, the issues remanded to this court by the Court of Appeals are now ripe for our determination.

 I. BACKGROUND

 In June of 1973, Koppers Co. Inc. entered into an agreement with Jones & Laughlin Steel Corporation to design engineer and construct a coke oven battery at J & L's Aliquippa Works. The proposal submitted by Koppers for the Aliquippa project was extremely ambitious in scope. It involved the incorporation of several unique design features into the Aliquippa Works' coke oven battery. Specifically the design submitted by Koppers was unique in its method of preheating coal and charging the ovens' furnaces. At the time of its construction the Aliquippa coke oven battery was only the fifth commercial application of this particular process in the world. It, therefore, was contemplated by the parties that the project's design would be subject to change as experience was gained with this particular process. Under the terms of this agreement the Aliquippa facility was to be functional by June 17, 1975.

 Following this agreement Koppers' Engineering Department developed plans and specifications for the work to be subcontracted on this project. One such item of work was the installation of electrical materials. On June 4, 1974, Koppers awarded the electrical materials subcontract for this project to E. C. Ernst, Inc.

 From the outset Koppers encountered enormous difficulties in the construction of this project. Several independent factors contributed to these difficulties. For example, the price of materials rose dramatically during the course of this construction as a result of the lifting of Federal Price Controls. In addition engineering difficulties encountered in other, similar coke oven batteries made it necessary for Koppers to substantially revise the design of the Aliquippa facility. These revisions were far in excess of those originally contemplated by the parties. Finally, Koppers itself exacerbated these problems by failing to adequately supervise and coordinate construction on this project.

 Under this crash program Koppers had to add 654,000 hours of direct labor to the 928,000 hours already allocated to the project. This additional work was performed by 450 men, with more than two-thirds of the work committed to the last six months of the project. This crash program also resulted in a dramatic increase in the number of man hours spent on the project by the various subcontractors. In Ernst's case these problems eventually increased the estimated man-hours spent on the project by more than 100%.

 On September 12, 1977, E. C. Ernst filed this action in the United States District Court for the Western District of Pennsylvania. The plaintiff's complaint in this case proceeded on three counts. In Count I Ernst claimed damages resulting from the delays caused by the voluminous changes in the Aliquippa project. In Count II Ernst sought payment for the extra work it had undertaken as a result of drawing revisions made by Koppers on this project. In Count III Ernst demanded compensation for certain specific work performed pursuant to field authorizations issued by Koppers. Koppers counterclaimed for the cost of the supporting personnel it provided for this job and for the premium time it paid to Ernst to prevent delays.

 The matter was tried non-jury before the Honorable Daniel J. Snyder, District Judge. *fn1" At the conclusion of this 23 day trial, Judge Snyder filed an extensive opinion.

 In this opinion the District Court rejected the plaintiff's Count I claim for damages in its entirety. The court acknowledged that delays had occurred on this project and that these delays were caused exclusively by Koppers. Yet the court held that a damages award was inappropriate for two reasons. First, the court indicated that the total cost method of proof employed by the plaintiff at trial was invalid as a matter of law. The court then assumed the validity of the total cost approach but concluded that, even under this approach, the plaintiff's proof of damage was insufficient to support an award under Count I. Specifically the court concluded that the plaintiff had failed to properly allocate these delay hours over the three years Ernst worked on the project.

 With respect to the plaintiff's Count II claim the court concluded that Ernst was entitled to payment for its additional labor on the drawing revisions made by Koppers. The court deducted $ 62,080 from this claim, however, holding that these deductions were required under paragraph six of the agreement between Ernst and Koppers.

 The court also found in favor of Ernst on Ernst Count III claim for work performed pursuant to field authorizations. Finally, the court rejected all of Koppers' counterclaims.

 Both parties appealed this decision to the United States Court of Appeals for the Third Circuit. The Court of Appeals, in its opinion, affirmed the District Court's findings with respect to the plaintiff's Count III claim for damages and the dismissal of the defendant's counterclaim. The Court then remanded this case back to the district court for further findings of fact and conclusions of law on the plaintiff's first two damages counts. The Court of Appeals concluded that it was error for the District court to reject the plaintiff's Count I claim for delay damages. The appellate court indicated that, under Pennsylvania Law, the total cost method was an acceptable approach to use in calculating damages. The Court also indicated that it believed damages could be properly assessed from the existing record in this case. Therefore the Court of Appeals held that "the district court should, in the first instance, consider this record and make additional findings of fact and conclusions of law on damages." Ernst v. Koppers, supra, 626 F.2d at 329. In addition the Court of Appeals directed that the district court should make further findings with respect to the deduction of $ 62,080 from the plaintiff's Count II damages claim.

 II. COUNT I DAMAGES

 At the trial of this action the plaintiff attempted to prove its Count I delay damages through a variation of the total cost approach. Generally, this method of proof requires computation of both the contract costs and the actual costs of the project. The contract cost is then subtracted from the actual cost to determine costs due to delay.

 In this case the variation of the total cost approach employed by the plaintiff reflected the fact that this was a labor intensive contract. Essentially, what the plaintiff proposed to do was calculate the total number of man hours Ernst spent on the project. From this figure the plaintiff then deducted the estimated man hours Ernst would have employed on the project if there had been no delay. The plaintiff also deducted from this figure those man hours that were attributable to work done on drawing revisions or pursuant to field authorizations, work which was ...


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