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United States Welding, Inc. v. Battelle Energy Alliance

July 20, 2010

UNITED STATES WELDING, INC., A FOREIGN CORPORATION; PLAINTIFF/COUNTERDEFENDANT,
v.
BATTELLE ENERGY ALLIANCE, LLC, A FOREIGN LIMITED LIABILITY COMPANY; DEFENDANT/COUNTERCLAIMANT



The opinion of the court was delivered by: Honorable Ronald E. Bush U. S. Magistrate Judge

MEMORANDUM DECISION AND ORDER

Currently before the Court is Defendant's Motion for Partial Summary Judgment (Docket No. 22). Defendant seeks dismissal of all of Plaintiff's non-contract claims and judgment in its favor on two of its breach of contract counterclaims against Plaintiff.

Both parties have consented to proceed for a United States Magistrate Judge. (Docket No. 12). The Court has carefully reviewed the record; considered the oral argument of counsel; and now enters the following Order.

I. FACTUAL AND PROCEDURAL BACKGROUND

This lawsuit stems from a prior business relationship between Plaintiff/Counterdefendant, United States Welding, Inc. ("USW"), and Defendant/Counterclaimant, Battelle Energy Alliance, LLC ("Battelle") regarding the supply of compressed gas cylinders ("cylinders") to the Idaho National Laboratory ("INL"). The parties' contract is reflected in the original Blanket Purchase Order Number 0021573, including Attachments A and B ("BPO") and subsequent Amendments thereto. See Affidavit of Aron Derbidge, Exs. A- H (Docket Nos. 22-3 - 22-11).

The original parties to the BPO were USW and Bechtel BWXT Idaho, LLC ("Bechtel"). Pursuant to the BPO, USW was required, inter alia, to furnish Bechtel, and later its INL contract successor, Battelle, with day-to-day compressed gas requirements, in accordance with a price and delivery schedule. BPO, ¶¶ 1.1, 6.2 (Docket No. 22-4). The Contractor (Bechtel and later Battelle) would issue a release order, indicating the amount of each type of gas required. Id. at ¶ 6.2. USW was then required to deliver the products identified in the release within five, ten, or thirty days, depending upon the type of gas ordered. Id.

USW was also charged with the responsibility of maintaining adequate inventory to meet the Contractor's requirements. "It is the Subcontractor's responsibility to maintain adequate inventory to meet the delivery requirements of the Subcontract. If the subcontractor fails to do so, the Contractor reserves the right to procure the item from another source." Id. at ¶ 6.9.

It is undisputed that the BPO allowed USW to provide the compressed gas in either USW cylinders or in cylinders owned by the United States Department of Energy ("DOE"). Memorandum in Support of Motion for Summary Judgment, p. 11 (Docket No. 22-1). When USW provided compressed gas in its own cylinders, it was permitted to charge rent or demurrage for the use of the cylinders. Id. USW was not permitted to charge rent for DOE cylinders. Id. It is undisputed that USW was required to fill all orders with DOE cylinders first before using its own cylinders. Id. at pp. 11-12; Plaintiff's Statement of Facts, ¶ 3(f) (Docket No. 27).

The BPO provided that it would be in effect for one year, commencing on August 1, 2003 and expiring on July 31, 2004. BPO, ¶ 6.1 (Docket No. 22-4). The BPO allowed the parties to extend the agreement for two one-year periods, from August 1, 2004 through July 31, 2005 and from August 1, 2005 through July 31, 2006. Id.

In July 2004, USW and Bechtel entered into Amendment No. 1 of the BPO. See Derbidge Affidavit, Ex. B (Docket No. 22-5). Amendment No. 1 extended the period of performance under the BPO from August 1, 2004 through July 31, 2005 and provided that the BPO may be assigned to a successor contractor at the INL facility. Id.

Sometime in 2005, Battelle was awarded the government contract to oversee the INL. In August 2005, Bechtel's rights and obligations under the BPO were assigned to Battelle in Amendment No. 3 to the BPO, effective February 1, 2005. Derbidge Affidavit, Ex. D (docket No. 22-7). Amendment No. 3 states that "all other terms [of the BPO] remain in full force and effect." Id.

In January of 2006, the parties entered into a separate agreement, Contract No. 0051296, to address accounting and tracking issues related to USW-owned cylinders. Derbidge Affidavit, Ex. E (Docket No. 22-8). In this agreement, Battelle agreed to reimburse USW for the replacement costs associated with 144 unaccounted for gas cylinders for which USW was charging rent. Id. USW had records of the cylinders being delivered but not returned. Sandra Sargent Deposition, Ex. SS2 (Docket No. 29). After performing an extensive inventory in search of the cylinders, Battelle determined that it was paying demurrage charges on 144 missing cylinders that it concluded "INL either excessed or scrapped... not realizing they were not government-owned cylinders." Id.

In June 2007, the parties executed Amendment No. 6 to the BPO. Derbidge Affidavit, Ex. H (Docket No. 22-11). Amendment No. 6 extended Battelle's option to extend the performance period under the contract for two months; changed the contract completion date from June 30, 2007 to August 31, 2007; and incorporated revised Attachments A and B. Id.

The BPO terminated on its own terms on August 31, 2007. See Derbidge Affidavit, ¶ 10 (Docket No. 22-3). When the BPO terminated, Battelle requested that USW return all DOE cylinders in its possession so that the DOE cylinders could be provided to Norco, Battelle's new compressed gas supplier. Mason Sullivan Deposition, 84:18-23 (Docket No.22-13). USW refused to relinquish control over some portion of the DOE cylinders, because they had been filled with compressed gas. Travis Aldous Deposition, 102:4-11 (Docket No. 22-14). Battelle refused to pay for this gas on the basis that it was not subject to a release. Id.

On December 18, 2008, USW filed the instant action asserting claims for breach of contract, unjust enrichment, conversion, reliance, and temporary restraining order/preliminary injunction. Complaint (Docket No. 1). According to USW, Battelle is required, either under tort or contract theories of liability, to pay for the gas prefilled in the DOE cylinders and for a large number of USW cylinders delivered to Battelle in the course of contract performance and not returned.

On February 20, 2009, Battelle filed an Answer, Counterclaim and Jury Demand (Docket No. 6). The Counterclaim includes three separate breach of contract actions: (1) failure to utilize government-owned cylinders; (2) failure to return government-owned cylinders; and (3) overcharging rent on USW cylinders. Id. Battelle also seeks injunctive relief requiring USW to return all DOE cylinders. Id.

II. SUMMARY JUDGMENT STANDARD

One of the principal purposes of the summary judgment "is to isolate and dispose of factually unsupported claims...." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). It is "not a disfavored procedural shortcut," but is instead the "principal tool[ ] by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources." Id. at 327. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (en banc). To carry this burden, the moving party need not introduce any affirmative evidence (such as affidavits or deposition excerpts) but may simply point out the absence of evidence to support the nonmoving party's case. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir. 2000).

This shifts the burden to the non-moving party to produce evidence sufficient to support a jury verdict in her favor. Id. at 256-57. The non-moving party must go beyond the pleadings and show "by her affidavits, or by the depositions, answers to interrogatories, or admissions on file" that a genuine issue of material fact exists. Celotex, 477 U.S. at 324. Only admissible evidence may be considered in ruling on a motion for summary judgment. Orr v. Bank of America, 285 F.3d 764, 773 (9th Cir. 2002); see also Fed. R. Civ. P. 56(e).

III. ANALYSIS

Battelle has moved for summary judgment on all of Plaintiff's claims, except the breach of contract claim. Defendant's Motion for Partial Summary Judgment (Docket No. 22). According to Battelle, the parties' rights and duties are defined exclusively in the integrated BPO contract. In addition, Battelle has moved for judgment on two of its own breach of contract claims, specifically its claims that USW breached the parties' contract by failing to utilize government-owned cylinders during the course of contract performance and failing to return government-owned cylinders upon contract termination.

A. Analysis of USW's Non-Contract Claims

USW makes unjust enrichment and conversion claims against Battelle on the basis that it provided Battelle with USW cylinders during the course of contract performance and Battelle has not returned these cylinders to USW. Complaint, p. 7 (Docket No. 1). USW also makes a reliance claim, arguing that it pre-filled DOE cylinders with Battelle's knowledge in order to perform its obligations under the contract, and therefore should be compensated for the reasonable market and contract value of the gas product in those cylinders. Id. at pp. 10-11. As discussed more fully below, summary judgment is warranted on the unjust enrichment claim; however, there are material disputes of fact that preclude summary judgment on the conversion and reliance claims.

1. Unjust Enrichment

"The substance of an action for unjust enrichment lies in a promise, implied by law, that a party will render to the person entitled thereto that which in equity and good conscience belongs to the latter." Great- Plains Equipment, Inc. v. Northwest Pipeline Corp., 132 Idaho 754, 979 P. 2d 627 (1999) (italics in original) (quoting Smith v. Smith, 95 Idaho 477, 511 P.2d 294 (1973)). Unjust enrichment allows recovery where the defendant has received a benefit from the plaintiff that would be inequitable for the defendant to retain without compensating the plaintiff for the value of the benefit. Vanderford Co., Inc. v. Knudson, 144 Idaho 547, 557, 165 P.3d 261, 271 (2007). "[U]njust enrichment consists of three elements: (1) there was a benefit conferred upon the defendant by the plaintiff; (2) appreciation by the defendant of such benefit; and (3) acceptance of the benefit under circumstances that would be inequitable for the defendant to retain the benefit without payment to the plaintiff for the value thereof." Id. at 558, 165 P.3d at 272 (citing Aberdeen-Springfield Canal Co. v. Peiper, 133 Idaho 82, 88, 982 P.2d 917, 923 (1999). Unjust enrichment does not apply "where there is an enforceable express contract between the parties which covers the same subject matter." Id.

Battelle moves for summary judgment on Plaintiff's unjust enrichment claim on the basis that the parties have an express written contract. Memorandum in Support of Summary Judgment, p. 15 (Docket No. 22-1). In opposition, USW argues that the unjust enrichment claim should proceed, because the contract should be voided on the basis that it is procedurally and substantively unconscionable. Responsive Brief, pp. 4-5 (Docket No. 26).

As a preliminary matter, the undisputed facts reflect that the BPO speaks to "same subject matter" as the unjust enrichment claim. While there is no precisely-tailored provision in the BPO that directly speaks to the issue of the USW cylinders used during the contract and allegedly not returned, the contract does speak directly to the issue of industrial gas supplies, cylinder delivery and rental fees. Because there is an express contract dealing with the essential subject matter of the relationship between the parties, a claim for unjust enrichment cannot apply unless the contract is otherwise unenforceable.*fn1

USW argues that the BPO is unenforceable because it is unconscionable. Whether a contractual term is unconscionable is a question of law. Bakker v. Thunder Spring-Wareham, LLC, 141 Idaho 185, 192, 108 P.3d 332, 339 (2005). "For a contract or contractual provision to be voided as unconscionable, it must be both procedurally and substantively unconscionable." Lovey v. Regence BlueShield of Idaho, 139 Idaho 37, 42, 72 P.3d 877, 882 (2003) (citing Walker v. American Cyanamid Co., 130 Idaho 824, 948 P.2d 1123 (1997)).

Procedural unconscionability relates to the bargaining process and is typically indicated by either lack of voluntariness or lack of knowledge:

Lack of voluntariness can be shown by factors such as the use of high-pressure tactics, coercion, oppression or threats short of duress... or by great imbalance on the parties' bargaining power with the stronger party's terms being nonnegotiable and the weaker party being prevented by market factors, timing, or other pressures from being able to contract with another party on more favorable terms or to refrain from contracting at all.... Lack of knowledge can be shown by lack of understanding regarding the contract terms arising from the use of inconspicuous print, ambiguous wording, or complex legalistic language...; ...


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