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PORTLAND GE v. WESTINGHOUSE ELEC. CORP.

June 24, 1993

PORTLAND GENERAL ELECTRIC COMPANY, an Oregon corporation, Plaintiff,
v.
WESTINGHOUSE ELECTRIC CORPORATION, a Pennsylvania corporation, Defendant. CITY OF EUGENE, acting by and through Eugene Water and Electric Board, and EUGENE WATER AND ELECTRIC BOARD, a municipal utility corporation of the State of Oregon, Plaintiffs, v. WESTINGHOUSE ELECTRIC COMPANY, a Pennsylvania corporation, Defendant.


Bloch


The opinion of the court was delivered by: ALAN N. BLOCH

BLOCH, District J.

 The instant cases arise from a contract entered into between plaintiff Portland General Electric Company (PGE) and Westinghouse Electric Corporation (Westinghouse), wherein Westinghouse was to supply a Nuclear Steam Supply System (NSSS) for PGE's Trojan Nuclear Power Plant. PGE has filed a complaint at Civil Action No. 93-225 alleging breach of contract, negligence, negligent misrepresentation, fraud, Racketeering Influenced and Corrupt Organizations Act (RICO), and Oregon RICO claims. Plaintiffs at Civil Action No. 93-562, City of Eugene, acting by and through Eugene Water and Electric Board, and Eugene Water and Electric Board (collectively EWEB) have filed an identical complaint, asserting that they own a 30 percent share in the Trojan Plant pursuant to an agreement with PGE. These two cases have been consolidated.

 Defendant Westinghouse has filed motions to dismiss Counts One through Four and Six through Nine of PGE's complaint and all of EWEB's complaint.

 I. Standard

 In ruling on a motion to dismiss, the applicable standard of review requires the Court to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the non-moving party. Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989). The question before the Court is not whether the plaintiffs will ultimately prevail; rather, it is whether the plaintiffs can prove any set of facts in support of their claim that will entitle plaintiffs to relief. Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984).

 II. Negligence and negligent misrepresentation (Counts Four and Six)

 Plaintiffs' negligence and negligent misrepresentation tort claims are based upon allegations that the defendant provided the Trojan Plant with steam generators that were defectively designed, fabricated and installed. Plaintiffs contend that defendant represented that it offered special technical and expert capabilities in the field and that defendant failed to exercise the standard of care and competence reasonably expected of a supplier of steam generators. Further, plaintiffs contend that defendant breached its duty to exercise reasonable care in providing PGE and other Trojan entities with truthful and accurate information concerning the Trojan steam generators.

 Defendant asserts that the economic loss doctrine precludes these tort claims. Under the economic loss doctrine, "one is ordinarily not liable for negligently causing a stranger's purely economic loss without injuring his person or property." Hale v. Groce, 304 Ore. 281, 744 P.2d 1289, 1290 (Or. 1987). *fn1"

 As a threshold matter, plaintiffs assert that the question of the applicability of the economic loss doctrine precluding the tort claims is irrelevant because the plaintiffs have claimed damages other than economic losses, e.g., being forced to prematurely shut down the entire Trojan Plant. However, these costs are "characteristic financial injuries alleged to result from faulty performance of a business transaction." Securities-Intermountain, Inc. v. Sunset Fuel Co., 289 Ore. 243, 611 P.2d 1158, 1163 (Or. 1980). There is no allegation of personal injury or injury to tangible property occurring in the course of or in consequence of the alleged faulty steam generators. Plaintiffs' alleged damages are simply economic losses and do not shield the plaintiffs from application of the economic loss doctrine. See Onita Pacific Corp. v. Trustees of Bronson, 315 Ore. 149, 843 P.2d 890, 896 n. 6 (Or. 1992).

 Plaintiffs correctly point out that Oregon law provides an exception to the economic loss doctrine. The Oregon Supreme Court summarized that exception in Georgetown Realty, Inc. v. Home Insurance Co., 313 Ore. 97, 831 P.2d 7 (1992).

 Id. at 12 (citing Ashmun v. Nichols, 92 Ore. 232, 180 P. 510 (1919)).

 The Georgetown Realty exception provides that "tort claims arise out of a contract if the defendant assumes a position, relationship or status upon which the law predicates a duty independent of the contract." Susitna Ltd. v. Pacific First Federal, 118 Ore. App. 126, 846 P.2d 438, 440 (Or. App. 1993). For example, "the law imposes a duty of care in the attorney-client relationship. . . . If the professional breaches that duty, the client and the intended beneficiary can recover economic losses." Onita, 843 P.2d at 896-97. The Onita Court found most relevant that "unlike parties who are negotiating at arm's length, the attorney is engaged by the client to use his or her expertise for the benefit and protection of the client's interests." Id. at 897. The Onita Court listed other examples: "Engineers and architects are among those who may be subject to liability to those who employ . . . their services and who suffer losses caused by professional negligence," id., "an agent owes duties of care and loyalty to his or her principal," id., and "[a] primary insurer has a duty to excess insurers and to the insured to exercise reasonable care in attempting to settle third-party claims within policy limits," id.

 
In the above relationships, the professional who owes a duty of care is, at least, in part, acting to further the economic interests of the "client," the person owed the duty of care. In contrast, [is the situation which] involves two adversarial parties negotiating at arm's length to further their own economic interest.

 Onita, 843 P.2d at 897.

 In such an "adversarial" relationship, economic losses cannot be recovered in negligence claims. Hence, in Onita, land purchasers could not maintain an action against vendors for alleged negligent misrepresentation in arm's length negotiations with respect to the sale of real property. The Court stated:

 
In the case at bar, defendants and their representative did not owe any duty to plaintiffs during the negotiations by virtue of a contractual, professional, or employment relationship or as a result of any fiduciary or similar relationship implied in the law. Here, the relationship was adversarial. In an arm's length negotiation, a negligent misrepresentation is not actionable. Hence, plaintiffs cannot maintain their claim for negligent misrepresentation against the defendants.

 Onita, 843 P.2d at 899 (emphasis added).

 Similarly, in Susitna, supra, property managers could not bring an action for damages against a bank, as property owner, based on the bank's refusal to close a property sale deal which would have resulted in plaintiff receiving $ 1.4 million in profit. "As alleged, [the bank's] obligations were those of the ordinary party to an arm's length business transaction. That does not give rise to a fiduciary duty." Susitna, 846 P.2d at 440.

 The instant case provides another example of a standard adversarial relationship between two parties conducting an arm's length business transaction. For example, the complaints allege that defendant was negligent because the existing "design defects rendered the steam generators unsuitable for use in the NSSS as contemplated in the Trojan contract." (PGE complaint at P 49; EWEB complaint at P 55). Further, plaintiffs allege that the steam generators "suffered from serious fabrication and installation defects . . . [and] Westinghouse failed to test the steam generators or the steam generator tubing in the environment in which they would be operating prior to placing them into service." (PGE complaint at P 50; EWEB complaint at P 56). These allegations mirror warranties expressly stated in the contract. Article V of the contract between PGE and Westinghouse provides that:

 
Westinghouse warrants that the equipment furnished hereunder by Westinghouse shall be free from defects in the workmanship and material and shall be suitable for ...

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