Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_04-cv-04436/USCOURTS-cand-5_04-cv-04436-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

Columbia Energy, L.L.C.,

Plaintiff(s),

 v.

Sargent & Lundy, L.L.C., et al,

Defendant(s).

 /

NO. C 04-04436 JW 

ORDER DENYING DEFENDANT

SECURITY INSURANCE'S MOTION TO

DISMISS OR, ALTERNATIVELY,

MOTION TO SEVER AND STAY

I. INTRODUCTION

This lawsuit arises out of the construction of a power plant located in Columbia, South

Carolina. (Complaint, Docket Item No. 1, ¶ 1.) Plaintiff Columbia Energy, L.L.C. ("Columbia") is the

owner and operator of the facility; Defendant Sargent & Lundy, L.L.C. ("S&L") is the engineer that

designed the facility; and Defendant Security Insurance Company of Hartford ("Security") is the

insurer that issued S&L a $10 million, project-specific professional liability insurance policy. 

(Complaint ¶ 1.) Columbia filed this lawsuit against S&L and Security, alleging that S&L committed

numerous errors and omissions. Presently before this Court is Security's Motion to Dismiss or for

Judgment on the Pleadings, or, Alternatively, to Sever and Stay the Insurance Coverage Claim

(hereinafter "Security's Motion"). (See Security's Motion, Docket Item No. 19.) This Court finds it

appropriate, pursuant to Civil L.R. 7-1(b), to take Security's Motion under submission, without oral

argument, for decision based upon the papers filed by the parties. For the reasons set forth below, this

Case 5:04-cv-04436-JW Document 40 Filed 05/12/05 Page 1 of 6
United States District Court

For the Northern District of California

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Court denies Security's Motion.

II. BACKGROUND

Columbia owns and operates a "nominal 630 megawatt combined cycle power generation

facility located in Columbia, South Carolina." (Complaint ¶ 1.) S&L is the engineering company that

designed the facility. (Complaint ¶ 1.) Columbia required S&L to procure a project-specific

insurance policy worth up to $10 million to cover any of S&L's professional liability. (Complaint ¶

1.) Security issued S&L that policy. (Complaint ¶ 1.) 

Columbia alleges that, "S&L committed numerous errors and omissions and its Work under the

Contract failed, in numerous regards and ways, to conform to the Standard of Care specified in the

Contract and to the legal standard of care imposed upon an engineer, like S&L, that specializes in the

engineering and design of power plants . . . ." (Complaint ¶ 19.) Columbia divides S&L's errors and

omissions into four categories: (i) violations of safety, building and other applicable laws and codes;

(ii) unreasonably inefficient and/or unduly complex designs; (iii) failures to provide necessary access

for safety, operations and maintenance of the facility; and (iv) other errors and omissions. (Complaint

¶ 20.) Columbia cites a number of specific examples to support its claims: S&L's vent stack relief

valves were placed near walkways, which presented safety hazards for plant personnel (Complaint ¶

21(a)); S&L's supply cables were undersized and failed to comply with National Electric Code

requirements (Complaint ¶ 21(b)); S&L's blowdown tanks and associated sumps were undersized

(Complaint ¶ 22(a)); S&L's design for the circulating water pipe layout was unreasonably long and

needlessly complex (Complaint ¶ 22(b)); S&L's design for the fuel oil piping system was extremely

inefficient and unreasonable (Complaint ¶ 22(c)); and S&L's failure to coordinate between

aboveground and underground piping and equipment systems (Complaint ¶ 22(d)). (See also

Complaint ¶¶ 23-25.)

In all, Columbia asserts four state-law based claims against S&L and Security. (See

Complaint ¶¶ 31-58.) Columbia asserts its First, Second, and Third Claims for Relief against S&L for

Breach of Contract, Negligence, and Indemnification, respectively. (See Complaint ¶¶ 31-48.) 

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United States District Court

For the Northern District of California

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Columbia asserts its Fourth Claim for Relief against Security as a third-party beneficiary of the $10

million professional liability insurance policy that Security issued to S&L. (See Complaint ¶¶ 49-58.) 

Security moves to dismiss Columbia's Fourth Claim for Relief, arguing that, under California contract

principles and under California's Insurance Code, Columbia's Fourth Claim for Relief fails to state a

claim. (See Security's Motion at 4:5-8:2.)

III. STANDARDS

A FED. R. CIV. P. 12(b)(6) (Rule 12(b)(6)) motion to dismiss tests the legal sufficiency of a

complaint. De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). Accordingly, any defects must

appear on the complaint's face. "[T]he court cannot consider material outside the complaint (e.g.,

facts presented in briefs, affidavits or discovery materials)." WILLIAM W. SCHWARZER, A. WALLACE

TASHIMA, JAMES M. WAGSTAFFE, FEDERAL CIVIL PROCEDURE BEFORE TRIAL § 9:211 (2004) (citing

Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir. 2001)). 

In addition, all allegations of material fact in the complaint must be accepted as true and

construed in the light most favorable to the plaintiff. See Enesco Corp. v. Price/Costco Inc., 146 F.3d

1083, 1085 (9th Cir. 1998) (citing Argabright v. United States, 35 F.3d 472, 474 (9th Cir. 1994)). 

Conley v. Gibson, 355 U.S. 41 (1957), sets forth the strict standard for granting a Rule 12(b)(6)

motion to dismiss. A Rule 12(b)(6) motion to dismiss must not be granted "unless it appears beyond

doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to

relief." Id. at 45-46. As the Ninth Circuit has observed, "The [Rule 12(b)(6)] motion to dismiss for

failure to state a claim is viewed with disfavor and is rarely granted." Gilligan v. Jamco Develop.

Corp., 108 F.3d 246, 249 (9th Cir. 1997). 

IV. DISCUSSION

This Court has jurisdiction over this lawsuit pursuant to 28 U.S.C. § 1332(a)(1) (diversity of

citizenship). Columbia is a Delaware limited liability company with its principal place of business in

South Carolina. (Complaint ¶ 2.) S&L is an Illinois limited liability company with its principal place

of business in Illinois. (Complaint ¶ 4.) Security is a Connecticut corporation with its principal place

Case 5:04-cv-04436-JW Document 40 Filed 05/12/05 Page 3 of 6
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For the Northern District of California

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of business in Connecticut. (Complaint ¶ 6.) The amount in controversy is over $75,000. (Complaint

¶¶ 7, 38, 48, 58.) 

Security premises its Motion upon the fact that California law applies to Columbia's Fourth

Claim for Relief. Notably, Security exclusively cites California caselaw and California statutory law

to support its Motion. (See Security's Motion at 4:14-8:2.) However, it is not clear that California

law necessarily applies to Columbia's Fourth Claim for Relief. In fact, Columbia explicitly points this

out: "In its Motion, Security presumes--without any analysis or supporting legal authorities--that

California law applies. Columbia does not concede that California law is applicable to Columbia's

claims against Security. . . . California, Illinois or South Carolina law may be deemed applicable." 

(Columbia's Opposition to Security's Motion, Docket Item No. 26, at 3:21-24.) Thus, it is unclear

exactly which state's law should be applied to Columbia's Fourth Claim for Relief.

Under Erie R.R. v. Tompkins, 304 U.S. 64 (1938), federal courts exercising diversity

jurisdiction must apply the "substantive" law of the state in which they are located. Under Klaxon v.

Stentor Elec. Mfg. Co., 313 U.S. 487 (1941), choice of law rules are "substantive." Thus, this Court,

as a federal district court in the Northern District of California, must apply California's choice of law

rules. However, simply because this Court must apply California's choice of law rules does not mean

that this Court must ultimately choose to apply California law. A California court, applying

California's choice of law rules, could very well choose to apply the law of another state. 

Thus, although this Court has read Security's Motion, Columbia's Opposition, and Security's

Reply and has given them serious consideration, this Court denies Security's Motion as premature. 

This Court prefers to determine firstly which state's law applies to Columbia's Fourth Claim for

Relief. Accordingly, this Court invites either party to file a motion for partial summary judgment on

the narrow issue of which state's law should apply to Columbia's Fourth Claim for Relief. Once this

Court chooses a law to apply to Columbia's Fourth Claim for Relief, Security may then file a (or refile its) Motion to Dismiss. Since this Court's ultimate choice of law may impact the viability of

Columbia's Fourth Claim for Relief, this Court also denies Security's Alternative Motion to Sever and

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United States District Court

For the Northern District of California

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Stay Columbia's Fourth Claim for Relief without prejudice to its being re-raised after this Court has

chosen a state's law to apply. (See Security's Motion at 10:17-19 ("Security has alternatively moved .

. . for an order severing and staying Columbia's claims against it until Columbia's claims against S&L

are finally adjudicated").) 

V. CONCLUSION

For the reasons set forth above, this Court denies Security's Motion as premature. Security

may re-file its Motion--or another Motion to Dismiss entirely--after this Court has first determined

which state's law should apply to Columbia's Fourth Claim for Relief. This Court invites either party

to file a Motion for Partial Summary Judgment on the narrow issue of which state's law should apply

to Columbia's Fourth Claim for Relief.

Dated: May 12, 2005

04cv4436mtd

/s/James Ware 

JAMES WARE

United States District Judge

Case 5:04-cv-04436-JW Document 40 Filed 05/12/05 Page 5 of 6
United States District Court

For the Northern District of California

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THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN DELIVERED TO:

David A. Ericksen dae@severson.com

Dylan B. Carp dcarp@klng.com

Jonathan M. Cohen jcohen@kl.com

Peter Charles Lyon pcl@severson.com

Peter Charles Lyon pcl@severson.com

Peter Charles Lyon pcl@severson.com

THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN MAILED TO:

Eric D. Stubenvoll

Meckler, Bulger & Tilson

123 North Wacker Drive, Suite 1800

Chicago, IL 60606

Janet R. Davis

Meckler, Bulger & Tilson

123 N. Wacker Drive Ste. 1800

Chicago, IL 60606

Joseph L. Luciana

535 Smithfield Street

Pittsburgh, PA 15222-2312

Ronald J. Chleboski

535 Smithfield Street

Pittsburgh, PA 15222-2312

Dated: May 12, 2005 Richard W. Wieking, Clerk

By:/s/JWchambers 

Ronald L. Davis

Courtroom Deputy

Case 5:04-cv-04436-JW Document 40 Filed 05/12/05 Page 6 of 6