PG&E Corporation v. AECOM Technical Services, Inc..

Background

The dispute arose from the Burney K2 Replacement Project, which involved replacing a natural-gas compressor unit and making other upgrades at a compressor station near Burney, California. AECOM acted as the project’s design-builder and prime contractor, and JH Kelly entered into a subcontract with AECOM for the construction work.

JH Kelly contended that the project changed from the work it had originally bid and that the changes created additional work and more difficult conditions. It also claimed that AECOM failed to follow the subcontract’s change-order requirements. AECOM denied those claims and asserted counterclaims against JH Kelly.

JH Kelly moved for partial summary judgment on three categories of issues: AECOM’s property-damage claims; AECOM’s claims for equitable indemnity and breach of the implied covenant of good faith and fair dealing; and JH Kelly’s alleged right to prejudgment interest under California Civil Code section 3287(a).

Property-Damage Claims

AECOM sought $4,883,851 for claims involving damage to three valves. The claims included a valve allegedly struck by a fuel truck operated by one of JH Kelly’s suppliers and two valves that allegedly leaked after construction debris entered gas pipelines. AECOM pursued the claims through indemnification theories after settling its claims with PG&E. The settlement included a $16,500,000 payment to AECOM and assigned AECOM rights related to certain backcharges. The settlement agreement identified $5,096,162 in alleged backcharges, among other matters, but did not state how much of the settlement amount was attributable specifically to the property-damage claims.

JH Kelly argued that AECOM’s claims were barred by a subrogation waiver in the subcontract. The court rejected that argument because JH Kelly had not adequately pleaded the defense. The answer mentioned waiver generally but did not provide facts identifying the subrogation-waiver defense. The court found that JH Kelly’s late disclosure, a few weeks before trial and after discovery had closed, prejudiced AECOM by preventing it from obtaining evidence about potentially relevant insurance coverage. The court therefore struck the subrogation-waiver defense under Federal Rules of Civil Procedure 16(f) and 37(b)(2)(A)(ii).

JH Kelly also argued that AECOM could not prove it suffered damages because the PG&E settlement was a lump-sum settlement without a specific allocation to the property-damage claims. The court concluded that the lack of an allocation was not necessarily fatal to AECOM’s indemnification claims. It could instead require the factfinder to determine the allocation before deciding indemnification. However, the court found that the current record did not resolve the factual questions about what AECOM gave up to settle those claims. It denied JH Kelly’s motion as to AECOM’s indemnification claims, without prejudice to JH Kelly raising the issue again after the parties presented their evidence at trial.

Implied-in-Law Claims

The court granted JH Kelly’s motion as to AECOM’s equitable-indemnity claim. The court held that the subcontract’s express indemnity provision controlled the parties’ indemnification duties and liability, so AECOM could not maintain a separate equitable-indemnity claim.

The court also granted JH Kelly’s motion as to AECOM’s claims for breach of the implied covenant of good faith and fair dealing. It found those claims duplicative of AECOM’s breach-of-contract claims.

Prejudgment Interest

JH Kelly sought summary judgment on its right to prejudgment interest under California Civil Code section 3287(a), while asking the court to leave the amount of interest for trial. AECOM argued that the request was premature because JH Kelly’s damages had not yet been determined. The court agreed, found JH Kelly’s piecemeal approach inefficient, and denied without prejudice JH Kelly’s motion for prejudgment interest.

Disposition

Judge Haywood S. Gilliam, Jr. granted in part and denied in part JH Kelly’s motion for partial summary judgment. The order struck JH Kelly’s subrogation-waiver defense, granted summary judgment on AECOM’s equitable-indemnity and implied-covenant claims, denied the motion as to AECOM’s property-damage indemnification claims without prejudice, and denied without prejudice the request for prejudgment interest.