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Silec Cable S.A.S v. Alcoa Fjardaal Sf

November 26, 2012

SILEC CABLE S.A.S, PLAINTIFF,
v.
ALCOA FJARDAAL SF, DEFENDANT.



The opinion of the court was delivered by: Judge Nora Barry Fischer

MEMORANDUM OPINION

I. INTRODUCTION

This case involves a dispute between two international entities arising from an explosion and fire at an aluminum smelter facility owned by Defendant Alcoa Fjardaal, SF ("Alcoa Fjardaal") near Reydarfjordur, Iceland on December 18, 2010. (Docket No. 1). Alcoa Fjardaal initiated an arbitration proceeding under the Rules of the International Chamber of Commerce ("ICC") against Plaintiff Silec Cable S.A.S. ("Silec") on July 31, 2012, alleging that the explosion and fire were caused by a latently defective product supplied by Silec in breach of a Purchase Order between the parties under which Silec supplied cables and cable terminations for the facility. (Id. at ¶ 5). Silec responded by filing suit against Alcoa Fjardaal in the Court of Common Pleas of Allegheny County, Pennsylvania on September 7, 2012, seeking to stay or enjoin the arbitration and a declaration that Alcoa Fjardaal's claims are not arbitrable and that Silec bears no liability for the explosion and fire. (Docket No. 1-1). Alcoa Fjardaal has removed the state case to this Court, while the international arbitration remains ongoing. (Docket No. 1).

There are two motions presently before the Court: (1) a motion to dismiss filed by Alcoa Fjardaal, (Docket No. 4); and (2) a motion to remand filed by Silec, (Docket No. 7). Silec argues that this case should be remanded because the Court lacks subject matter jurisdiction over its Complaint. (Docket No. 8). Alcoa Fjardaal counters that the case should be dismissed because the Court lacks personal jurisdiction over it, or alternatively, for failure to state a claim upon which relief may be granted. (Docket No. 5). For the following reasons, Silec's motion to remand [7] is denied and Alcoa Fjardaal's motion to dismiss [4] is granted.

II. RELEVANT FACTUAL BACKGROUND

Silec is a French entity that is a subsidiary of General Cable Corp., a United States company. (Docket No. 1 at ¶ 4; Docket No. 1-1 at ¶ 12). Silec is a "manufacturer of insulated cable systems." (Docket No. 1-1 at ¶ 12). Alcoa Fjardaal is an Icelandic entity and an affiliate of Alcoa, Inc., an aluminum manufacturer headquartered in Pittsburgh, Pennsylvania. (Id. at ¶¶ 1, 13). Alcoa Fjardaal was created by Alcoa, Inc. to operate an aluminum smelter plant in Reydarfjodur, Iceland, a small town on the east coast of Iceland. (Id. at ¶¶ 1, 21). Alcoa Fjardaal engaged Bechtel International Inc. and Bechtel Overseas Corporation (collectively, "Bechtel") to design and build the facility by performing engineering, procurement and project management. (Id. at ¶¶ 23-25). Bechtel entered into two agreements on Alcoa Fjardaal's behalf which are relevant to this case, a Purchase Order and a Services Contract. (Id. at ¶ 26).

On December 16, 2005, Bechtel, as an agent of Alcoa Fjardaal, entered into a Purchase Order with Sagem S.A. ("Sagem") for the supply of certain equipment for the construction of the plant. (Id. at ¶¶ 26-27). The Purchase Order provides for Sagem to design, manufacture, factory test and deliver high voltage power cables and cable termination equipment for the plant.*fn1 (Id. at ¶ 27). Although Silec was not a signatory to this agreement, it later took over the contract from Sagem and designed, manufactured, factory tested and delivered high voltage power cables and cable termination equipment for the project. (Id. at ¶¶ 26, 29, 49, 52). Silec maintains that the Purchase Order did not require installation of these products but specified that its responsibilities ended upon their delivery. (Id. at ¶ 52).

Relevant here, the Purchase Order provides that it is governed by Pennsylvania law.*fn2

(Docket No. 1-1 at 74; Purchase Order at § 4A, ¶ 17). There is also no cap on liability set forth in this agreement. Importantly, the Purchase Order contains a dispute resolution provision, which provides, in pertinent part, that:

Any claim arising out of or attributable to the interpretation or performance of this AGREEMENT, which cannot be resolved by negotiation shall be considered a dispute within the meaning of this clause.

If for any reason BUYER and SELLER are unable to resolve a claim for an adjustment, BUYER or SELLER shall notify the other party in writing that a dispute exists and request or provide a final determination by BUYER. Any such request by SELLER shall be clearly identified by reference to this clause and shall summarize the facts in dispute and SELLER's proposal for resolution. BUYER shall, within ten (10) calendar days of any request by SELLER, provide a written final determination setting forth the contractual basis for its decision and defining what adjustments it considers equitable. Upon SELLER'S written acceptance of BUYER'S determination the AGREEMENT will be modified and the determination implemented accordingly or, failing agreement, BUYER may in its sole discretion pay such amounts and/or revise the time for performance of the work in accordance with BUYER'S final determination.

If BUYER'S final determination is not accepted by SELLER, the matter shall, be referred to senior executives of the parties who shall have designated authority to settle the dispute. If the dispute remains unresolved, the Parties agree that the dispute shall be referred to mediation by a mediator agreed by the Parties with the mediation to be conducted as agreed between the Parties ("Mediation"). The Mediation shall last no more than three (3) calendar days unless the Parties agree to an extension of time. The costs of the Mediation (including the Mediator's fees, mediation premises and other related costs) shall be borne equally by the Parties. The Parties agree to use their best endeavors and to negotiate in good faith to resolve any dispute at Mediation and will ensure that their respective representatives involved in any Mediation have full power and authority to settle the dispute.

If the dispute has not been resolved within seven (7) calendar days of the conclusion of the Mediation convened, the Parties agree that the dispute shall and is hereby referred to binding arbitration by three arbitrators. One each shall be selected by the Parties who shall endeavor to agree selection of the third failing, which the third shall be referred to and selected by the International Chamber of Commerce under ICC ("Arbitration"). The Arbitration shall be conducted in accordance with the rules of the ICC and shall be held in Pittsburgh, Pennsylvania and the decision of the Arbitration shall be final and conclusive save where ICC rules permit appeal therefrom. (Docket No. 1-1 at 79; Purchase Order at § 4B, ¶ 10 (emphases added)).

On August 11, 2006 Bechtel, as agent of Alcoa Fjardaal, and Silec entered into a Construction Services Order ("the Services Contract") for installation of the cable termination equipment which was previously delivered under the Purchase Order. (Docket No. 1-1 at ¶ 56; Exhibit B to Complaint). The Services Contract contains a limited warranty clause, wherein "[Silec] warrants that all equipment and material it furnishes and all work it performs against defects in design, equipment, materials or workmanship for a period from Work commencement to a date twelve (12) months after completion and acceptance of the Fjardaal project as a whole." (Id. at ¶ 64). This agreement also contains a provision which limits Silec's liability and damages for its work under the project and provides that Silec's "total aggregate liability arising out of or in connection with this contract shall not exceed 10% of the total amounts paid to [Silec] under the [contract]." (Id. at ¶ 62). Silec avers that its total compensation under the Services Contract was $600,000.00, thus, capping its potential liability to Alcoa Fjardaal for any alleged breach of the Services Contract at $60,000.00. (Id. at ¶ 63).

Silec maintains that it completed all of its obligations under the Services Contact by March 16, 2007 and Bechtel accepted its work. (Id. at ¶¶ 65-66). The plant was completed in 2007 and began production. (Id. at ¶ 67). Aloca Fjardaal operated the plant for over three years (from June of 2007 through December 2010) without contacting Silec, or its related entity, General Cable, to advise Silec of any problems (real or perceived) with its products or work. (Id. at ¶¶ 69-71).

On December 18, 2010, an explosion and fire occurred at the plant, causing widespread damage to the physical structures and forcing a reduction in aluminum production at the plant for an extended period of time. (Id. at ¶¶ 1, 77; Docket No. 5 at 4-5). Alcoa Fjardaal alleges that it sustained losses in excess of $18 million in direct and consequential damages. (Docket No. 1-1 at ¶ 77). However, shortly after the incident, Alcoa Fjardaal determined that its insurance coverage had a $50 million deductible. (Docket No. 1-1 at ¶¶ 2, 78-80). The company also recognized that the one-year warranty under the Services Contract with Silec had expired. (Id. at ¶ 79). Given same, Alcoa Fjardaal started to investigate whether the products provided by Silec had a latent defect. (Id. at ¶ 80).

Alcoa Fjardaal first engaged Kevin Kennedy Associates ("KKA") to investigate the cause of the explosion and fire. (Id. at ¶ 82). Silec maintains that after examining the site and artifacts, KKA determined that "the fire originated from a failure of electrical insulation within one of the cable termination assemblies and that the fire most probably happened during installation." (Id. at ¶¶ 83-84). KKA also allegedly "concluded that a cable insulator (provided and installed by Silec) was cracked before Fuji performed maintenance work in 2008 or 2009." (Id. at ¶ 87). A second company, KEMA Nederland B.V. ("KEMA") was engaged to review KKA's work and to further investigate the fire. (Id. at ¶ 85). According to Silec, KEMA identifies three points in time when the cracking of the epoxy insulator may have occurred, including: "(1) during transportation; (2) during installation; or (3) during maintenance work of Fuji carried out in 2008/2009." (Id. at ¶ 89).

On March 16, 2012, Alcoa Europe, a division of Alcoa, Inc., wrote to Silec's parent company, General Cable, about the explosion and fire at the plant and, relying on the reports produced by KKA and KEMA, claimed that the damage was caused by Silec's products. (Id. at ¶¶ 93-95). The letter also suggested that the parties were required to first mediate under the Dispute Resolution provision in the Purchase Order. (Id. at ¶ 96). Silec responded through an April 12, 2012 letter, denying any liability for the fire and arguing that, "to the extent that Alcoa was claiming that the insulator cracked during installation by Silec, the installation was covered by a separate stand-alone agreement that did not contain any agreement to arbitrate." (Id. at ¶ 98).

Months passed without further correspondence between the parties. (Id. at ¶ 99). Then, on July 31, 2012, Alcoa Fjardaal served an arbitration demand on Silec.*fn3 (Id. at ¶ 99). In its demand, "Alcoa Fjardaal alleges that the fire was caused by a latently defective cable termination product supplied by Silec Cable under the Purchase Order and in breach of the Purchase Order's express warranty." (Docket No. 5 at 10). Alcoa Fjardaal claims that it is entitled to damages in excess of $18,000,000.00. Silec responded initially by advising the ICC that the dispute was not arbitrable, arguing that arbitrability was a matter to be decided by the courts and requesting an extension of time to fully respond to the demand. (Ex. 1 to Motion to Remand). The ICC answered that it would take no action on Silec's arguments until it first nominated an arbitrator. (Ex. 2 to Motion to Remand). Silec nominated Judge Abraham Gafni as an arbitrator on September 7, 2012 and Silec was granted an extension to file its answer until October 11, 2012.*fn4 (Docket No. 5 at 10). Silec did so along with a disclaimer that it was not waiving the right or conceding that the dispute was arbitrable. (Ex. 2 to Motion to Remand).

Through the state action, which is now before this Court after removal, Silec maintains that Alcoa Fjardaal's claims against it do not fall within the arbitration provision of the Purchase Order. (Docket No. 1-1 at ¶¶ 100, 114-157). Silec argues that the Services Contract controls and that the limited one-year warranty provided under that agreement has long since expired. (Id.). Silec requests that the Court order the following relief:

1. Stay or enjoin the Pennsylvania Arbitration, pending a resolution of whether Alcoa's claim is arbitrable;

2. Declare that Alcoa's claim is not arbitrable; and,

3. Declare that Silec has no liability for any alleged damages that resulted from the December 18, 2010 explosion.

(Docket No. 1-1 at ¶¶ 157(A)-(D), 163(A)-(D), 173(A)-(D)).

III. PROCEDURAL HISTORY

Silec initiated this case by filing its Complaint in the Court of Common Pleas of Allegheny County on September 7, 2012.*fn5 (Docket No. 1-1). Alcoa Fjardaal then removed the case to this Court on September 25, 2012. (Docket No. 1). The next day, Alcoa Fjardaal filed its Motion to Dismiss and Brief in Support, seeking dismissal of Silec's Complaint under Rules 12(b)(2) and 12(b)(6). (Docket Nos. 4, 5). Silec filed its Motion to Remand and Brief in Support on October 10, 2012. (Docket Nos. 7, 8). Silec later responded to the motion to dismiss by filing a Brief in Opposition on October 22, 2012. (Docket No. 9). Alcoa Fjardaal subsequently filed its Brief in Opposition to the motion to remand (Docket No. 10) and a Reply Brief in support of its own motion to dismiss (Docket No. 11). Silec then filed a Reply Brief in support of its motion to remand on November 14, 2012. (Docket No. 12). Finally, Alcoa Fjardaal filed a sur-reply brief on November 21, 2012 in response to the Court's order requesting same. (See Docket Nos. 13, 14).

As all briefing has concluded, the pending motions are now ripe for disposition.

IV. DISCUSSION

The Court will first address the motion to remand through which Silec challenges this Court's subject matter jurisdiction to preside over this dispute. (Docket Nos. 7, 8). Second, the Court will discuss the motion to dismiss filed by Alcoa Fjardaal to the extent that it asserts that personal jurisdiction is lacking and third, the Court will analyze Alcoa Fjardaal's contention that the removed Complaint fails to state a claim upon which relief may be granted. (Docket Nos. 4, 5). The applicability of the Purchase Order's arbitration clause is featured prominently throughout the parties' arguments on each of these legal issues. The relevant portions of that provision state that:

Any claim arising out of or attributable to the interpretation or performance of [the Purchase Order] . shall be considered a dispute.

[Any] dispute shall and is hereby referred to binding arbitration by three arbitrators. One each shall be selected by the Parties who shall endeavor to agree selection of the third failing, which the third shall be referred to and selected by the International Chamber of Commerce under ICC ("Arbitration").

The Arbitration shall be conducted in accordance with the rules of the ICC and shall be held in Pittsburgh, Pennsylvania and the decision of the Arbitration shall be final and ...


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