Supreme Court of Ohio Sua Sponte Dismisses Certified Question from Federal Court in Breach of Contract Case.

On June 16, 2016, in Am. Mun. Power, Inc. v. Bechtel Power Corp. Slip Opinion No. 2016-Ohio-3431, the Supreme Court of Ohio declined, sua sponte, by a vote of 5-2, to answer a certified question from federal court after it had previously agreed to answer it, and had heard oral argument in the case on October 27, 2015. The certified question was whether reckless conduct by the breaching party, as defined in Anderson v. Massillon,  renders a contractual limitation of liability clause unenforceable.

Case Background

American Municipal Power, Inc. (AMP), a wholesale supplier for municipal power systems, sought to develop and construct a coal-fired power generating plant in Meigs County. It hired Bechtel Power Corporation (Bechtel) in January 2009 to engineer and construct the plant. The project was to be completed in November of 2009.

The thousand page contract ultimately signed by AMP and Bechtel required Bechtel to timely identify cost and scheduling concerns that might impact the project’s cost estimate, and to “trend” similar construction projects that might impact the project’s cost estimate. The contract also contained a provision limiting liability to $500,000.

AMP proceeded to enter into contracts on behalf of its member communities totaling $400 million. In October of 2009, Bechtel advised AMP that the cost of the project would be over $1 billion more than Bechtel’s estimates. AMP cancelled the project and incurred substantial penalties as a result.

In February 2011, AMP filed suit against Bechtel in the U.S. District Court, Southern District of Ohio, Eastern Division, alleging that Bechtel materially breached their contract by failing to fulfill its obligations under the contract’s trend provision.  It alleged that Bechtel had cost AMP and its member communities in excess of $97 million.

Bechtel moved for partial summary judgment to enforce the limitation of liability clause. AMP argued that limitation of liability clauses can be rendered unenforceable by conduct that is willful, wanton, or reckless, and Bechtel’s conduct was at least reckless, as that term had been defined by the Supreme Court of Ohio in Anderson v. Massillon.

U.S. District Court Judge Michael Watson granted Bechtel’s motion on the enforceability of the limitation of liability clause, finding that reckless conduct was inadequate to meet the standard in Ohio to set aside a contractual limitation of liability provision. But the court agreed to certify that question to the Supreme Court of Ohio–whether reckless conduct is sufficient to set aside a limitation of liability clause–before proceeding with a trial on the issues of breach of contract, causation, and damages.

Read the oral argument preview of the case here and an analysis of the oral argument here.

The Vote

Chief Justice O’Connor and Justices Pfeifer, O’Donnell, O’Neill and Lanzinger voted not to answer the certified question and to dismiss the case.  Justices Kennedy and French dissented. Interestingly, Justices Pfeifer, O’Donnell, Lanzinger and Kennedy voted to answer the certified question in the first place, with Chief Justice O’Connor, and Justices O’Neill and French dissenting.

Now What?

The case goes back to Judge Watson, where the parties presumably will resume their arguments where they left off.

Concluding Observations

It was very clear at oral argument that Chief Justice O’Connor and Justices Pfeifer and O’Donnell were very uncomfortable about the lack of context in this case, and in trying to decide such an important matter in what Pfeifer described as the absence of the big picture.  He commented at one point that the court was being asked to answer a “kind of law school question without knowing the competing factors that are miles in length.” The Chief also asked whether the certified question would be answered more appropriately in a case that came to the court directly in an actual dispute through the regular appellate process rather than something she described as one that “isn’t our fight.”

After the argument, I predicted a win for Bechtel, in one of two ways. Here’s what I wrote-

“Either the court is going to tell Judge Watson it has decided not to answer the question, or as Chief Justice O’Connor suggested in a line of questioning to both sides, the court is not going to expand the bases on which a limitation of liability clause can be found to be unenforceable in a case in which state court has no stake, because there is no actual case in controversy that has percolated its way up through the normal appellate process. In other words, as several of the justices noted in various ways, the case is in front of the court with no context.”

 

This entry was posted in Contracts, Damages, Ohio Supreme Court Watch. Bookmark the permalink.