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Boc Group Inc. v. Lummus Crest Inc.

Decided: August 3, 1990.


Meehan, J.s.c.


This case is before the court on defendant, Lummus' motion to dismiss the 12th count of plaintiff's complaint alleging violations of the Consumer Fraud Act. N.J.S.A. 56:8-1, et seq.

This case arises from the design, engineering and operation of a plant in Texas intended to manufacture needle coke, which is used to produce graphite electrodes. Needle coke can be produced from various petroleum-derived feedstocks, including decant oil and pyrolysis tar.

Since the late 1960's, defendants, Lummus Co. (Lummus) and Maruzen Petrochemical Co. (Maruzen), had been conducting research and development efforts to produce high-quality needle coke from pyrolysis tars. Decant oil was the most often used feedstock at this point in time.

Plaintiff's subsidiary, Airco, after evaluating needle coke samples produced from pyrolysis tars by both Lummus and Maruzen, contacted defendant, Maruzen in 1976 in reference to Maruzen's research. In 1979, plaintiff began looking into the construction of its own needle coke production plant in conjunction with proposed plans to build another graphite electrode manufacturing plant. Plaintiff contacted Lummus and two other engineering companies to investigate the feasibility of constructing a plant which would produce needle coke from pyrolysis tar. Airco then authorized pilot plan tests, using defendants' technology, at each of three competing engineering companies and spent months performing tests to evaluate needle

coke samples supplied by the engineering companies to determine if it had the characteristics to produce graphite electrodes.

On May 28, 1980, plaintiff, after reviewing proposals from the three engineering companies, selected Lummus to design a commercial needle coke plant based on a modified "L Process". Between 1980 and 1981, Airco had Lummus perform numerous pilot plant tests using additional feedstocks to aid in the design of a commercial scale plant. Airco determined the suitability of each coke sample for the production of its graphite electrodes. In November, 1980, Airco contracted with the engineering company of Foster Wheeler to build a pilot plant in Niagara Falls, New York, to allow it to conduct tests using the modified "L Process".

Airco conducted studies of market demand and anticipated market share for its proposed coke needle plant which included investment and operation cost estimates from Foster Wheeler and Lummus and the retention of independent consultants. Airco also studied the use of decant oil rather than pyrolysis tar in the production of needle coke. In April, 1981, a Lummus feedstock screening study revealed that the plant production would be less than the designated needle coke production with Exxon pyrolysis tar, than if other pyrolysis tar and decant oil were used. Airco then authorized Lummus to redesign the plant using Airco, CCPC and Shell pyrolysis tars.

In June of 1981, Lummus gave Airco an initial product specification and performance guarantee based on the use of Exxon pyrolysis tar in the production of needle coke. In July of 1981, Airco requested that CCPC pyrolysis tar feedstock be used as the basis for guarantees, rather than the Exxon tar. Also during July, Airco's parent, the BOC Group (BOC), authorized $115 million for construction of the coke plant but required that the plant also be designed for the designated needle coke production rate when utilizing a decant oil stock. Due to this extra requirement BOC authorized an additional $5 million

for design, engineering and construction. Airco further directed Lummus to conduct pilot plant tests with two additional decant oils.

Between 1978 and 1982, Airco manufactured and tested electrodes made from needle coke derived from Shell pyrolysis tar. Airco advised Shell that it would make no further purchases of Shell's needle coke, due to the poor performance of the resulting electrodes. Also by 1982, Airco had conducted over 50 tests at its Niagara Falls pilot plant using over one dozen different pyrolysis tar and decant oil feedstock.

During Airco's fiscal year 1982, due to a severe drop in the demand for steel, Airco suffered a 22 percent decrease from the prior year in its graphite electrode shipments, which was in sharp contrast to its projections of a 23 percent increase in shipments. Airco also learned that the only commercially available pyrolysis tar derived needle coke, from Shell, was unsuitable for producing its graphite electrodes.

In March of 1983, after intense negotiations, Lummus and Airco agreed upon and signed the Engineering Services Agreement and Licensing Agreement. This agreement contained a clause which limited Lummus' total liability to $2 million for "all obligations, agreements, representations, warranties or guarantees." The agreement also provided that Lummus shall not be liable "for any special, incidental, indirect, or consequential damage of any nature", regardless of whether such claims were based on contract, tort or otherwise.

The Seadrift plant construction took over 18 months and cost approximately $125 million. The plant processed feedstock for the first time in September of 1983 but had to be shut down shortly thereafter due to mechanical problems. In March of 1984, the plant became fully operational and Airco, after firing its own plant manager, requested that Lummus conduct a comprehensive training program for its plant staff.

Subsequently, certain claims were made and agreements entered into which are not relevant to this ...

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