US District Court in Texas Denies Summary Judgment to Contractor on Theory That Owner Waived Defect Claim, But Enforces Limitation of Consequential Damages

South Texas Electric Cooperative v. Dresser-Rand Company
2007 U.S. Dist. Lexis 66345 (S.D. Tex. Sept. 7, 2007)

Plaintiff, South Texas Electric Cooperative (“STEC”) contracted with Defendant, Dresser-Rand Company (“Dresser”) for the design and construction of a steam turbine unit. As part of the contract, Dresser was required to provide equipment, materials and field services free from defects in material and workmanship. Moreover, the equipment had to meet certain performance specifications.

When the steam turbine unit began operation, it immediately experienced excessive vibrations above specified levels. STEC contacted Dresser regarding the problems, seeking analysis and repair. Discussions between the parties lasted several years. STEC became dissatisfied that Dresser did not promptly fix the problem or provide an analytical report. As a result, STEC, with Dressers knowledge, retained another company to conduct a vibration analysis. STEC sent the vibration analysis report to Dresser, seeking comment and an action plan to remedy the problem. After two months, Dresser submitted an action plan to resolve the vibration issue. However, the problems were not corrected. Nevertheless, the parties proceeded to closeout the contract requirements. Almost a year later, Dresser sent STEC an end of warranty letter indicating when the warranty would expire as well as an email stating that Dresser was aware that there were still several outstanding issues that Dresser was addressing under the warranty. However, although Dresser had not corrected the problems, STEC made final payment.

More time passed without resolution of the problems. Approximately three years after the problems arose, STEC filed suit. Dresser moved for summary judgment on several grounds, which included contentions that (1) STEC waived its breach of contract and warranty claims because it accepted the steam turbine by making final payment, (2) STEC waived its claims by failing to demand repair or reimbursement for remedying the defects during the warranty, and (3) STEC did not comply with the contract’s notice requirements.

Examining the contract language, the Court determined that STEC did not intentionally or implicitly waive its claims by making final payment. Both the contract and the parties’ communications indicated that final payment did not constitute a waiver of claims with respect to defects. Likewise, in analyzing the issue of a potential waiver by failure to demand repair during the warranty period, the Court held that STEC’s initial notice and demand of repair to Dresser was sufficient to avoid any waiver. With respect to STEC’s failure to comply with the notice requirements of the contract in order to obtain reimbursement for cost of repairing the defective work, the Court held a genuine issue of material fact existed. While the Court denied summary judgment on these three issues, it granted partial summary judgment in Dresser’s favor on the basis of STEC’s contractual waiver of consequential damages.

Click here to view full opinion as PDF (provided with the permission of LexisNexis).

This entry was posted in Breach of Contract, Warranty and tagged , , . Bookmark the permalink.