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Kingsbury, Inc. v. GE Power Conversion UK, Ltd.

United States District Court, E.D. Pennsylvania

December 24, 2014

KINGSBURY, INC, Plaintiff,
v.
GE POWER CONVERSION UK, LIMITED, Defendant

Page 612

For KINGSBURY, INC., Plaintiff: MATTHEW BLEICH, LEAD ATTORNEY, COZEN O'CONNOR, PHILADELPHIA, PA; PHILIP G. KIRCHER, LEAD ATTORNEY, COZEN O'CONNOR, PHILA, PA.

For GE ENERGY POWER CONVERSION UK, LIMITED, Defendant: EDWARD A. GREENBERG, LEAD ATTORNEY, KRISTIN A. TOPOLEWSKI, WARD GREENBERG HELLER & REIDY LLP, PHILADELPHIA, PA; JEFFREY J. HARRADINE, LEAD ATTORNEY, PRO HAC VICE, WARD GREENBERG HELLER & REIDY LLP, ROCHESTER, NY.

Page 613

MEMORANDUM

ANITA B. BRODY, J.

This action arises out of the construction of a motor for a nuclear reactor that Defendant GE Power Conversion UK, Limited (" GE" ) was building in South Korea. Plaintiff Kingsbury, Inc. (" Kingsbury" ) contracted with GE to design, manufacture, and install the bearings for the motor. During construction of the nuclear reactor, the motor experienced a catastrophic failure. Kingsbury brings suit against GE seeking a declaratory judgment that it is not responsible for the catastrophic failure of the motor and alleging four counts of breach of contract.[1] I exercise diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332. GE moves to dismiss four counts of the Complaint, and to stay and compel arbitration of the fifth count. For the reasons set forth below, I will grant in part and deny in part GE's motion.

I. BACKGROUND

In August 2010, GE sent Kingsbury and other companies a Request for Tender for

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the supply of a top bearing and a bottom bearing to be used in the construction of a motor for a nuclear reactor that GE was building for the KSTAR project in South Korea. Compl. ¶ 12; Def.'s Mot. Ex. 1. The Request for Tender invited companies to submit proposals for the design and manufacture of these bearings in conformance with Version B of GE's specifications for the bearings that were attached to the request. Def.'s Mot. Ex. 1 ¶ 1. The Request for Tender stated that it was " not an offer to purchase any goods or services." Id. The Request for Tender also included the " Coverteam's Conditions of Purchase," and stated that to " win the business" any buyer would have to comply with the terms of both. Id. Coverteam's Conditions of Purchase defined the " Contract" as " the contract between the Buyer and Seller consisting of the Purchase Order, any documents referred to in the Purchase Order and these Conditions of Purchase." Id. Coverteam's Conditions of Purchase also specified liquidated damages at 2% of the contract price per week of delay up to a maximum of 8% of the contract price. Id.

On December 9, 2010, after several months of discussions between the parties, Kingsbury sent GE " Quotation # E103184-4." Compl. ¶ 13, Ex. A. The top portion of every page of the quotation included the statement, " Kingsbury is pleased to offer the following in reference to your recent inquiry." Compl. Ex. A. The quotation described plans for the design, manufacture, and testing of the two bearings in conformance with Version B of GE's specifications for the bearings. Id. It listed a " preliminary design & production schedule" for the bearings. Id. Additionally, the quotation set forth an itemized price quote for the engineering design services; supply of a top bearing, a bottom bearing and other components related to those bearings; and estimated shipping costs. Id. Kingsbury, however, did not guarantee the prices or delivery dates it quoted. Id. As Kingsbury explained in the quotation:

These prices & lead times are valid for acceptance for 6 days and are subject to the final design of the brake. Since the brake is undefined at the time that this proposal was prepared, Kingsbury reserves the right to adjust the pricing and lead time based on the final design configuration of the brake or its interface with the bearing housings.

Id. The quotation concluded with the statement, " Please review this at your convenience and let me know if you have any questions." Id. The price quotation did not contain a liquidated damages provision. Id.

Over the course of the next month, the parties engaged in further negotiations regarding GE's purchase of bearings from Kingsbury. On December 13, 2010, the parties exchanged emails about the quotation and GE's insistence on the inclusion of a liquidated damages provision. Def.'s Mot. Ex. 2. GE reminded Kingsbury that in an earlier statement it had already offered a liquidated damages provision of 0.5% of the contract price per week up to maximum of 3% of the contract price. Id. GE countered by requesting a liquidated damages provision of 0.5% up to 5% of the contract price for delay. Id. Kingsbury responded, " Obviously Kingsbury would prefer to have no [liquidated damages], however, we will agree to 0.5% per week up to a total of 4% of the bearing assembly price if [GE] agrees to the following dates (as shown on the latest revision of the quote.)" Id.

On December 14, 2010, GE informed Kingsbury that it had decided to adopt a new version of the specifications for the bearings. Before it released Version C of the bearings, GE sent Kingsbury a copy of

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the proposed specifications and invited Kingsbury to send " any questions or comments you may have on the attached specification." Def.'s Mot. Ex. 3. On January 10, 2011, Kingsbury responded with a " list of questions, exception and comments," and stated, " I hope this meets with your approval. However, if there are any questions, please feel free to contact [us] at your convenience." Id.

On December 17, 2010, while Kingsbury was still reviewing the Version C specifications, GE sent Purchase Order 42047591 to cover the engineering design work for the top and bottom bearings. Compl. Ex. C. On January 11, 2011, GE sent two additional purchase orders: Purchase Order 190891 for the purchase of the bottom bearing and Purchase Order 190894 for the purchase of the top bearing.[2] Id. Exs. D, E. Both purchase orders for the supply of the bearings set a firm shipment date for the bearings and contained a liquidated damages provision of 0.5% of the contract price per week of delay up to a maximum of 4% of the contract price. Id. Additionally, both purchase orders for the supply of the bearings stated, " This Bearing Assembly is to be designed, manufactured and tested in accordance with KSTAR Bearing Specification [Version] C." Id. All three purchase orders referred to " quotation ref: E103184-4." Id. The purchase orders established firm prices for the design work, manufacture, and supply of the bearings. Id. Moreover, all three purchase orders were made subject to Coverteam's Conditions of Purchase. Id. Coverteam's Conditions of Purchase included the following forum selection provision: " The Contract shall be governed by and construed in accordance with the Laws of England and shall be subject to the exclusive jurisdiction of the English Courts." Def.'s Mot. Ex. 1 ¶ 24. In response to the purchase orders, Kingsbury sent " Order Acknowledgements" to GE.[3] Compl. ¶ 26, Ex. F; Pl.'s Resp. Ex. 2. Despite their agreement, GE never paid Kingsbury the $17,227.45 in shipping costs for the shipment of the bearings to South Korea. Compl. ¶ 59.

Kingsbury shipped the bottom bearing to GE in South Korea in November 2011, and the top bearing in January 2012. Compl. ¶ ¶ 29, 30. In August 2012, at GE's request, Kingsbury performed field service and repair work for GE. Id. ¶ 60. On August 31, 2012, Kingsbury sent an invoice to GE in the amount of $43,272 for the field service and repair work. Id. ¶ 60, Ex. J. The invoice did not reference any purchase order. Id. Ex. J. GE never paid Kingsbury for this work. Id. ¶ 60.

As early as October 2012, it became apparent that the GE runner was incompatible with the bottom bearing. Id. ¶ 32. On October 19, 2012, GE sent Kingsbury a Non-Conformance Notice stating that the bottom bearing " was not fit for its purpose." Id. ¶ 36. In January 2013, at GE's request, Kingsbury performed field service and repair work for GE. Id. ¶ 61. On January 31, 2013 Kingsbury sent an invoice to GE in the amount of $63,435.93 for

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the field service and repair work. Id. ¶ 61, Ex. K. The invoice did not reference any purchase order. Id. Ex. K. GE never paid Kingsbury for this work. Id. ¶ 61.

On February 13, 2013, the motor for the nuclear reactor experienced a catastrophic failure that resulted from contact between the bottom bearing and the runner. Id. ¶ 37. GE selected a thrust bearing design specialist to investigate the cause of the motor failure. Id. ¶ 40. In March 2013, GE's specialist issued a report that concluded that Kingsbury's defective design and manufacture caused the failure. Id. ¶ 41.

On August 20, 2013, GE sent Kingsbury Purchase Order 44033885 requesting that Kingsbury " perform labor for assembly and disassembly of new and reworked bearings" for $130,000. Id. ¶ 63, Ex. L. In the purchase order, GE explained to Kingsbury:

The price is based on your letter dated 14th August 2013 confirmed on your email dated 19th August 2013 of which the following is an extract[:]
[" ]Our previous cost estimate can be considered the Fixed Price cost for the Kingsbury scope of work. Or. summary assessment for the reassembly work is 160 hours.[" ]

Id. Ex. L. The purchase order also stated: " GE ENERGY STANDARD EUROPE TERMS OF PURCHASE REV. H (REVISED FEBRUARY 1, 2011) APPLY TO THIS ORDER." Id. The GE Energy Europe Terms of Purchase Rev. H provide:

DISPUTE RESOLUTION. In the event of any dispute arising out of or in connection with this Order, the parties agree to submit such dispute to settlement proceedings under the Alternative Dispute Resolution Rules (the " ADR Rules" ) of the International Chamber of Commerce (" ICC" ). If the dispute has not been settled pursuant to the ADR Rules within forty-five (45) days following the filing of a request for ADR or within such other period as the parties may agree in writing, such dispute shall be finally settled under the Rules of Arbitration and Conciliation of the ICC (the " ICC Rules" ) by one or more arbitrators appointed in accordance with such ICC Rules. The place of arbitration shall be London, England and proceedings shall be conducted in the English language, unless otherwise stated on the face of this Order. ...

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