Plaintiff’s Coal Gasification Claims Go Up in Smoke, $13 Million Verdict on Defendant’s Counterclaim Remains

In MidAmerica C2L Inc. v. Siemens Energy Inc., 25 F.4th 1312 (11th Cir. Feb. 15, 2022), the Eleventh Circuit rejected an appeal from a $13.2 million verdict for the defendant in a lawsuit over coal gasification equipment. In an opinion written by Judge Barbara Lagoa and joined by Judges Newsom and Branch, the court affirmed, holding that the district court did not err by (a) excluding certain expert testimony; (b) entering summary judgment against each of the plaintiff’s claims; (c) denying the plaintiff’s repeated attempts to amend its complaint; and (d) denying the plaintiff’s motion for new trial.

As the court acknowledged, the facts underlying the dispute created a “perfect storm for litigation.” In 2007, Secure Energy, Inc. purchased equipment from Siemens Energy Inc. with the goal of opening a coal gasification plant. The parties entered into a payment plan with Siemens agreeing to provide updates and repairs to the gasification reactors. Soon enough, in 2009, the price of natural gas fell and Secure had to change its business plan and could not make its payments to Siemens. Meanwhile, another of Siemens’s customers discovered problems with Siemens’s gasification equipment in 2010, and Siemens started to implement substantial modifications to its gasifiers in 2012. But because Secure was never able to get its gasification plant up and running, Siemens did not notify Secure of the problems (much less fix Secure’s equipment). Siemens decided to exit the gasification market in 2015, but promised to support its existing project with Secure.

After learning of Siemens’s departure from the gasification market, Secure, which had never used or even opened its gasification equipment, sued Siemens in 2016 on claims of fraud and breach of contract. Siemens filed a counterclaim for amounts Secure owed Siemens on the contract. After summary judgment, only Siemens’s counterclaim survived, and a jury awarded Siemens $13,200,395.50. Secure appealed; the Eleventh Circuit affirmed.

On appeal, Secure argued that the district court erred in excluding Secure’s expert under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The court disagreed, finding that Secure’s expert failed to link his methodology to his conclusions. Secure’s expert reasoned that because another of Siemens’s customers received nearly identical equipment, and that other equipment had problems, then Secure’s equipment would also experience problems—if Secure were to ever open and actually use the equipment. Because the expert “provided nothing but his word and own ipse dixit,” the district court did not abuse its discretion in excluding the testimony. The Eleventh Circuit similarly affirmed the district court’s exclusion of Secure’s expert’s testimony regarding the value of the equipment, because it was based exclusively on the expert’s unsupported conclusion that the equipment was defective.

Secure also appealed from the district court’s grant of summary judgment in Siemens’s favor on each of Secure’s claims. Applying Florida law, the Eleventh Circuit found that the district court’s reason for granting summary judgment was incorrect. The district court based its order solely on the theory that Secure needed expert testimony to prove its design defect claims, but Secure’s expert was excluded. The Eleventh Circuit, however, cited Lucas v. Firestone Tire & Rubber Co., 458 F.2d 495, 497 (5th Cir. 1972), holding that plaintiffs may prove a product malfunction or a defect by direct or circumstantial evidence, not just by expert witness testimony. With that correction, the Eleventh Circuit then affirmed the district court’s summary judgment ruling on other grounds. For Secure’s anticipatory repudiation claim, (1) Secure could not prove causation between Siemens’s exit from the gasification market and Secure’s alleged damages; and (2) Secure could not prove that it was ready, willing, and able to perform. For Secure’s breach of implied warranty claim, the contract contained a disclaimer of any implied warranties. Summary judgment was also proper on Secure’s two fraud claims under Florida’s independent-tort doctrine because those claims simply restated Secure’s contract and breach of warranty claims. Secure’s final claim for rescission based on lack of consideration failed because Florida does not recognize such a claim, and in any event, Secure failed to show that equitable relief was warranted because legal relief would be insufficient.

Next, the court concluded that the district court did not abuse its discretion in denying Secure’s three attempts to amend its complaint long after the deadline to amend pleadings had passed. Secure had sought leave to amend to add new factual allegations and legal theories of recovery, based in part on having finally completed its review of Siemens’s large document production. But Secure failed to show the “good cause” required under Rule 15, when leave to amend is sought after the deadline set in the district court’s scheduling order. See Fed. R. Civ. P. 16(b); Sosa v. Airprint Sys., Inc., 133 F.3d 1417, 1419 (11th Cir. 1998). Citing to the Sosa case, the court explained that to satisfy Rule 16, “a litigant must show that it could not meet the scheduling order ‘despite the diligence of the’ litigant.” But Secure’s grievance, according to the Eleventh Circuit, did not relate to unascertainable facts; Secure simply took too long to conduct discovery.

Finally, the court held that the district court did not err in granting Seimens’s motion in limine and excluding any evidence Secure sought to present regarding Secure’s new (and not previously pled) theory that Siemens breached the contract by failing to inform Secure of available improvements to the gasification equipment and technology. The Eleventh Circuit held that the district court did not err because Secure’s only affirmative theory of breach of contract throughout the entire litigation was premised on anticipatory repudiation, so Siemens did not have sufficient notice of Secure’s new theory. The district court was also correct that Secure’s defense was “legally inadequate, and therefore irrelevant.” Although New York law (which governed the contract claims in the case) allows breach of contract to be raised as an affirmative defense, a party’s performance under a contract is only excused when the other party materially breaches. And Siemens’s alleged breach, by not providing notice of the improvements sooner than it did, was not material to the contract. The contract had no time limitation on when to provide notice of improvements and, in any event, Secure had notice of available improvements before Secure breached the contract by failing to tender payments.

Posted by Ben Reed.

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