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DYNALECTRIC CO. v. WESTINGHOUSE ELEC. CORP.

September 11, 1992

DYNALECTRIC COMPANY, Plaintiff,
v.
WESTINGHOUSE ELECTRIC CORPORATION and DAVY McKEE CORPORATION, Defendants.



The opinion of the court was delivered by: HAROLD A. ACKERMAN

 Ackerman, D.J.

 This matter comes before the court upon a motion by defendants to dismiss the complaint, or in the alternative, to stay the case pending arbitration. For the following reasons, I deny defendants' motion to dismiss but grant their motion to stay.

 I. Motion to dismiss

 Under Federal Rule of Civil Procedure 12(b)(6), "the court must accept as true all factual allegations in the complaint and view them in a light most favorable to plaintiff." DP Enterprises, Inc. v. Bucks County Community College, 725 F.2d 943, 944 (3rd Cir. 1984); Walck v. American Stock Exchange, Inc., 687 F.2d 779, 780 (3rd Cir. 1982). The court may dismiss the complaint only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Wiley v. Hughes Capital Corp., 746 F. Supp. 264 (D.N.J. 1990), (quoting Conley v. Gibson, 355 U.S. 41, 45-46); see also Johnsrud v. Carter, 620 F.2d 29, 33 (3rd Cir. 1980). Thus, the following factual background assumes that plaintiff's allegations are correct.

 II. Background

 This case involves a contract and several subcontracts for the construction of a Cogeneration Facility near Sayreville, New Jersey, designed to provide electrical power in northern New Jersey.

 On June 29, 1989, North Jersey Energy Associates, the owner and operator of the Facility, contracted with defendant Westinghouse Electric ("Westinghouse") for Westinghouse to furnish equipment and services for the design, construction and operation of the Facility. Westinghouse in turn entered into two subcontracts to effectuate its tasks. First, it contracted with defendant Davy McKee Corporation ("Davy") for design and engineering services to develop plans and specifications for the construction of the Facility. Second, Westinghouse contracted with Dick Corporation ("Dick") for construction services, materials, labor, equipment, and supervision to accomplish most of the construction-related tasks necessary to the project.

 On September 29, 1989, Dick subcontracted with plaintiff Dynalectric Company ("Dynalectric") for Dynalectric to install electrical systems for the Facility for an adjustable price of $ 5,900,000. Based on all the contracts involving the Facility, Dynalectric made projections for the scope of its sub-contract work, the completeness of the design of the Facility, and the schedule for construction of the Facility.

 Dynalectric then began performing its obligations under the sub-contract. However, according to the complaint, Westinghouse and Davy continued to develop, modify and add to the original engineering, scope and design of the Facility well after Dynalectric began its performance. As a result, Dynalectric's work was delayed and disrupted, resulting in increased costs to Dynalectric.

 In October 1989, Westinghouse and Dick developed an Integrated Project Schedule ("IPS"), which consolidated and sequenced certain design, procurement, construction, and start-up activities required of the relevant parties to build the Facility. The IPS contained dates for the issuance of electrical drawings, and provided the baseline against which Dynalectric planned its performance of the electrical installation work. However, Westinghouse and Davy were late in providing electrical design drawings, while they simultaneously increased the scope of the Facility project. Specifically, Westinghouse ordered changes to the electrical installation work that required tens of thousands of extra hours of work. Moreover, Westinghouse and Davy periodically issued incorrect and/or incomplete electrical design drawings, and supplied major mechanical and electrical equipment to the Facility much later than scheduled.

 During the course of the building of the Facility, Westinghouse and Davy significantly revised plans for the project, resulting in the need by Dynalectric to re-plan and re-evaluate purchased cable inventories and to re-purchase cable. Moreover, Westinghouse desired the electrical work to be accelerated, to be performed simultaneously with the installation of piping and instrumentation.

 Dynalectric alleges that as a result of the revisions and the failure of defendants to adhere to the timetable, it incurred additional costs resulting from the necessity to delay and revise its performance obligations. While Dynalectric generally completed its performance under the sub-contract by about July 1991, it has not yet received compensation for these extra costs.

 Because of the mammoth scope of the project at issue in this case, the relevant contracts contained detailed dispute-resolution provisions. The contract between Westinghouse and Dick provided that:

 Any dispute which shall arise as the obligations of either Party under this Subcontract or the interpretation of any provision thereof, if not settled by mutual agreement or unless otherwise agreed, shall be decided by arbitration in accordance with the Construction Industry Rules of the American Arbitration Association.

 The Dick-Dynalectric subcontract contained a clause incorporating the entire agreement between Westinghouse and Dick. Moreover, it specifically provided that "The disputes provision of the Prime Contract shall govern and Subcontractor [Dynalectric] shall be afforded the right to pursue all appropriate remedies available to the Contractor [Dick] under its Prime Contract."

 The Dick-Dynalectric contract also provided for a specific procedure that Dick would not be liable for delays due to Westinghouse end/or its agents, and provided a mechanism for Dynalectric to present claims for damages due to actions by Westinghouse or its agents:

 Finally, the contract provides that "in the event of a lump sum settlement or award to [Dick] on behalf of a claim representing and including [Dynalectric's] claim, distribution of the proceeds shall be by mutual agreement.

 In other words, the contracts provide that if Dynalectric suffers economic loss due to delays caused by Westinghouse or its agents (which includes Davy) & it must submit those claims to Dick, who then submits them to Westinghouse.

 Before the instant proceedings were instituted, Dynalectric presented to Dick a claim of $ 5,545,900 for additional compensation due under the subcontract. On December 2, 1991, Dick presented Dynalectric's claim to Westinghouse. The Claim was formally titled "Request of Dynalectric Company for Equitable Adjustment Under Sub-Subcontract Between Dick Corporation and Dynalectric Company."

 On April 16, 1992, Dick filed a Demand for Arbitration against Westinghouse, which expressly incorporated Dynalectric's December 2, 1991 claim for additional compensation.

 On April 21, 1992, Dynalectric filed this action, alleging that negligence on the part of Westinghouse and Davy caused it to suffer economic losses totalling $ 6.5 million. Dynalectric contends that these claims may not be arbitrated because they constitute tort claims and are not covered by the arbitration agreements.

 In response to the Complaint, Westinghouse and Davy, in lieu of answering, filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted, under Fed.R.Civ.P. 12(b)(6); and for failure to join a necessary party, under Fed.R.Civ.P. 19. In the alternative, Westinghouse seeks to have this action stayed pending the outcome of the arbitration proceeding.

 I turn to these motions now.

 III. Discussion

 A. Dick as a Necessary ...


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