Nada Pac. Corp. v. Power Eng'g & Mfg., Ltd.

73 F.Supp.3d 1206

Nada Pacific Corp., Plaintiff

v.Power Eng'g and Mfg., Ltd., et al., Defendants.And Related Counter- and Cross–Claims.

No. C 13–04325 LB

UNITED STATES DISTRICT COURT Northern District of California San Francisco Division

Signed November 10, 2014

David Michael Schoenfeld, Jay Scott Alexander, Lisa Denise Nicolls, Murphy Austin Adams Schoenfeld LLP, Sacramento, CA, for Plaintiff.

Christopher K. Wee Teng, Guichard Teng & Portello, Concord, CA, Cory M. Curtis, Baker & Hostetler, LLP, Houston, TX, Michael Roland Matthias, Baker & Hostetler LLP, Los Angeles, CA, Cory M. Curtis, Justin Tyler Winquist, Baker & Hostetler LLP, Denver, CO, Cameron D. Davis, Hoversten Law Office, Austin, MN, for Defendant.

ORDER GRANTING BESSER'S MOTION FOR SUMMARY JUDGMENT

[Re: ECF No. 71]

LAUREL BEELER, United States Magistrate Judge

INTRODUCTION

In this action, several entities sued each other after a microtunnel boring machine broke down while it was boring an underground tunnel on a construction project for the San Francisco Public Utilities Commission (“SFPUC”). Plaintiff Nada Pacific Corporation (“Nada”) leased and operated the machine as a subcontractor for the project's general contractor, and Defendant/counter-defendant Besser Company (“Besser”) manufactured a component in the machine. Besser moves for summary judgment against Nada on three grounds: (1) Nada is judicially estopped from arguing that Besser's allegedly defective component caused the boring machine to fail because Nada argued before a dispute resolution board established by its general contractor's contract with the SFPUC that site conditions caused the machine to fail; (2) alternatively, Nada cannot use the collateral source rule to obtain a duplicate recovery of the amounts it recovered from its general contractor for the same damages it seeks in this case; and (3) alternatively, Nada has put forth evidence of only its economic losses and thus the economic loss rule bars its tort claims. Upon consideration of the parties' papers and their arguments at the November 6, 2014 hearing, the court holds that (1) judicial estoppel does not apply because the dispute resolution board did not decide the dispute, (2) Nada's potential recovery is offset by the money it recovered from its general contractor, and the collateral source rule does not apply, and (3) the economic loss rule bars Nada's tort claims against Besser. The court thus GRANTS Besser's motion.

STATEMENT

I. THE PARTIES AND THE PROJECT

This case arises out of the September 2010 failure of a microtunnel boring machine (“MTBM”) while it was boring an underground tunnel on a construction project referred to as the San Francisco Public Utilities Commission–Alameda Siphon Project No. 4, in Alameda County, California (the “Project”). Joint Statement of Undisputed Facts (“JSUF”), ECF No. 71–2 at 2.¹ The owner of the Project was the SFPUC, and the general contractor on the Project was Steven P. Rados, Inc. (“Rados”). Id. Nada, a licensed general engineering contractor specializing in microtunnelling construction projects, acted as a microtunneling subcontractor to Rados on the Project. Id.

To perform its work as a tunneling subcontractor on the Project, Nada leased an MTBM from third-party defendant, Akkerman, Inc. (“Akkerman”). Id. Because the leased MTBM had a 74? diameter and the Project required a 96? diameter, Nada separately leased an “increase kit” from non-party Walter C. Smith Co., Inc. to enlarge the diameter of the face of the MTBM to the required project dimensions. Id. at 2–3. Nada also installed on the leased MTBM a “cutter head” that Nada owned. Id. at 3. The cutter head is the front-most piece of an MTBM, which rotates to bore through the ground. Id.

The leased MTBM contained a planetary gearbox designed and manufactured by defendant and cross-claimant Power Engineering and Manufacturing, Ltd. (“PEM”). Id. The PEM gearbox contained a cast iron planetary carrier manufactured by Besser, which Besser sold to PEM for $952.00, plus a $25 pallet and box charge, in September 2008. Id.

II. THE MTBM'S IMMOBILAZATION, RESCUE, AND INVESTIGATION

In September of 2010, while Nada was operating the MTBM to bore a tunnel on the Project, the MTBM became immobilized underground. Id. The immobilization occurred roughly 254 feet into tunnel bore, and 12 lengths of 20–foot interconnected steel casing pipe had been installed behind the MTBM when it became immobilized.Id. With Nada unable to advance the MTBM forward or move it backwards because of the pipe sections that had been installed behind the MTBM, a rescue shaft (or “911 shaft”) was constructed above the MTBM to expose it and then raise it out of the ground with a crane. Id. at 3–4.

After the MTBM was removed from the ground, it was sent to Nada's facility in Caruthers, California for examination and repair. Id. at 4. Upon examination, Nada discovered that the gearbox within the MTBM was cracked. Id. Nada subsequently obtained a replacement gearbox, performed other repairs to the MTBM, returned the MTBM to the site, lowered it into the tunnel bore alignment, restored the earthen cover removed to create the 911 shaft, and re-launched the MTBM on the Project, which Nada was then able to complete. Id.

The failed gearbox was sent to PEM's facility where a non-destructive inspection was performed on or about November 16, 2010. Id. The Besser-manufactured planetary carrier within the gearbox then was sent to the University of Northern Iowa (“UNI”) in Cedar Falls, Iowa, where it underwent destructive testing on or about February 28, 2011 at PEM's request. Id. Based on that destructive testing, UNI prepared a report dated March 31, 2011. Id. Structural Integrity Associates, Inc. then prepared a report dated April 12, 2011, which analyzed the UNI report. Id. Both reports were available to Nada prior to the Dispute Review Board proceeding discussed below. Id.

III. NADA'S REQUEST FOR CHANGE ORDER

In connection with the costs Nada incurred to rescue and repair the immobilized MTBM, Nada submitted a Request for Change Order to Rados on September 6, 2011 and Rados passed that Request for Change on to the SFPUC. Id. Nada's Request for Change sought compensation for additional costs as follows:

Item	Date of Work	Description of Work	Extended Costs
A	Sept 21, 2010 to Sept 24, 2010	Additional Costs related to Initial Lockup of Mtbm Cutter Bit and efforts to free Mtbm	$144,061.23
B	Sept 27, 2010 to Oct 7, 2010	Additional Costs incurred during installation of Recovery Shaft	$266,847.06
C	Oct 8, 2010 to Oct 13, 2010	Additional Costs—NPC Shop Repairs to Mtbm	$264,304.75
D	Oct 8, 2010 to Oct 14, 2010	Additional Costs incurred during Mtbm Repairs and Relaunching Mtbm.	$152,130.39
E	Sept 25, 2010 to Dec 1, 2010	SPR Additional Costs for support to Install, Maintain and Close Recovery Shaft	$308,047.13
F	Sept 8th, 2010 to Nov 8th, 2010	Additional Costs associated with Microtunneling due to DSC's	$343,339.77
Requested for Change—Total Costs

Item Date of Work Description of Work Extended Costs---------------------------------------------------------------- A Sept 21, 2010 Additional Costs related to $144,061.- to Sept 24, Initial Lockup of Mtbm 23 2010 Cutter Bit and efforts to free Mtbm---------------------------------------------------------------- B Sept 27, 2010 Additional Costs incurred $266,847.- to Oct 7, during installation of 06 2010 Recovery Shaft---------------------------------------------------------------- C Oct 8, 2010 to Additional Costs--NPC Shop $264,304.- Oct 13, 2010 Repairs to Mtbm 75---------------------------------------------------------------- D Oct 8, 2010 to Additional Costs incurred $152,130.- Oct 14, 2010 during Mtbm Repairs and 39 Relaunching Mtbm.---------------------------------------------------------------- E Sept 25, 2010 SPR Additional Costs for $308,047.- to Dec 1, support to Install, Maintain 13 2010 and Close Recovery Shaft---------------------------------------------------------------- F Sept 8th, 2010 Additional Costs associated $343,339.- to Nov 8th, with Microtunneling due to 77 2010 DSC's---------------------------------------------------------------- Requested for Change--Total Costs $1,478,730.33Id. at 5.

IV. THE DISPUTE REVIEW BOARD PROCEEDINGS

After the SFPUC refused to execute a change order on Nada's Request for Change, the SFPUC, Rados, and Nada, in accordance with the prime contract between the SFPUC and Rados, submitted the dispute to a Dispute Review Board (“DRB”). Id. The DRB, which was established by the prime contract between the SFPUC and Rados and whose purpose was “to assist the parties by facilitating the timely resolution of disputes relating to” work on the Project, consisted of one member selected by the SFPUC, one member selected by Rados, and a third member selected by the other two members. Id., Ex. G (“DRB Specification”), ECF No. 71–9 ¶¶ 1.1, 2–3. Each DRB member was required to hold a certification or pre-qualification from the Dispute Resolution Board Foundation or the American Arbitration Association evidencing that the member received training the DRB process and meets the requirements for DRB members. Id. ¶ 3.2.

The DRB review process proceeds as follows. Either party to the prime contract could initiate the DRB's review of a dispute. Id. ¶ 7.2. The DRB then sets deadlines for the parties to provide pre-hearing submittals, which are position papers supported by evidence, and for a hearing. Id. ¶ 7.3, 7.4. The pre-hearing submittal contains a brief statement of the dispute, a summary of the party's position and the basis and justification for that position (with reference to contractual language and other evidence), and cost details. Id. ¶ 7.4.

The DRB then conducts a formal hearing that is attended by the parties. Id. ¶ 2.2. Attorneys are not allowed to attend the DRB hearing without prior written approval, and if they are granted such approved, they may only observe. Id. ¶ 8.4. The party who referred the dispute to the DRB presents its position first,...