Babcock & Wilcox Power Generation Group, Inc. v. Cormetech, Inc.
Revised Memorandum Opinion and Order re 120 . Cormetech's Motion for Summary Judgment (Doc. 98 ) is GRANTED because B&W's breach of warranty claims are time-barred and its evidence does not show that there exists a genuine issue of material fact regarding its claim for indemnification. See Order for details. Magistrate Judge Kathleen B. Burke on 3/10/2016. (D,I)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
BABCOCK & WILCOX COMPANY,
CASE NO. 5:14CV514
KATHLEEN B. BURKE
MEMORANDUM OPINION & ORDER
In December 2005, Plaintiff Babcock & Wilcox Company (“B&W”) obtained a contract
from Kansas City Power & Light Company (“KCP&L”) to design and construct a Selective
Catalyst Reduction (“SCR”) system to control emissions from one of KCP&L’s coal-burning
power stations in La Cygne, Kansas. Complaint, Doc. 1, p. 3, ¶8. Thereafter, B&W issued a
purchase order to Defendant Cormetech, Inc. (“Cormetech”) to obtain catalyst modules to be
used in the SCR. Id. ¶¶7, 9-10. Cormetech guaranteed that the catalyst it supplied would not
need to be replaced for 24,000 operating hours. However, the catalyst reached the end of its
useful life well before the guaranteed number of hours. Id., p. 4, ¶14. KCP&L made claims
against B&W and B&W paid KCP&L $3.5 million pursuant to a settlement reached in
mediation. Id., ¶16. In this diversity action, 1 B&W seeks to recover the settlement amount from
Cormetech, asserting two claims: breach of warranty and indemnification. 2
Cormetech has filed a Motion for Summary Judgment (the “Motion”) pursuant to Fed. R.
Civ. P. 56 arguing that B&W’s claims are time-barred and that the claims also fail because B&W
This is a refiled case. B&W originally sued Cormetech in this Court on August 3, 2012. Case No. 5:12-cv-2003.
In anticipation of settlement discussions with KCP&L, B&W entered into a tolling agreement with Cormetech in
January 2013 and dismissed Case No. 5:12-cv-2003 without prejudice. Doc. 17-2; Case No. 5:12-cv-2003, Docs. 8,
B&W also seeks its costs and expenses incurred in addressing and settling KCP&L’s claims. Doc. 1, p. 6.
has no evidence of a defect in the catalyst. Doc. 98. B&W filed a brief in opposition (Doc. 114)
and Cormetech filed a reply (Doc. 117). 3
The Court GRANTS Cormetech’s Motion. B&W’s breach of warranty claim is timebarred and there is no genuine issue of material fact that would allow B&W to recover on its
contractual indemnity claim. The contract’s indemnity provision requires B&W to prove that its
settlement loss was caused by a defect or an act or omission attributable to Cormetech. As more
fully set forth below, B&W has pointed to no evidence of such a defect or act or omission and
B&W’s expert testified that no catalyst would have worked given the conditions that existed at
the relevant time at KCP&L’s LaCygne power station.
B&W, a Delaware corporation having its principal place of business in Ohio, is in the
business of designing, manufacturing, and constructing power generation facilities and emissions
control equipment and services, including SCR systems, for power companies such as KCP&L.
Doc. 1, pp. 1-3, ¶¶2, 6. Cormetech, a Delaware corporation with its principal place of business
in North Carolina, manufactures catalysts for SCR systems. Id., pp. 2-3, ¶2, 7.
In its Motion, Cormetech provides the following summary of the purpose and operation
of an SCR:
An SCR is designed to reduce emission of nitrogen oxides (“NOx”), an
undesirable component of the flue gas that results from burning coal in a power
plant. When a power plant’s turbine burns coal, it collects all the gases from the
burning process and expels them through a large system of ductwork. The
ductwork leads the flue gas into the SCR, which is roughly the size of a three
story home. The “floors” of this home are  comprised of honey-combed catalyst
material. The flue gas enters the SCR from the top, and a mist of ammonia is
added. As the gas-ammonia mix makes it way down through the “floors,” a
chemical reaction occurs. The gas-ammonia mix passes over the surface of the
The parties submitted both sealed and redacted versions of their summary judgment filings. The Court hereinafter
refers to the sealed versions when discussing the parties’ filings.
catalyst and the resulting reaction produces nitrogen and water, reducing the
output of NOx significantly. Under any circumstance, the catalyst has limited
useful life and must be changed out at regular intervals.
Doc. 98-1, pp. 1-2. In his report, B&W’s expert, Dr. Stephen Niksa (“Niksa”) agrees with this
description of an SCR system (114-17, p. 4 ) and states, “Even under the best of circumstances,
the active sites on SCR catalysts are slowly taken out of service by poisons and masking agents. .
. . Such processes are said to deactivate the catalyst . . . .” Id., p. 6. For that reason, SCRs are
designed to facilitate the periodic replacement of catalyst modules. See Doc. 103-3, pp. 46-47
(Deposition of Mark Rohner, B&W’s purchasing agent).
In December 2005, B&W entered into a contract with KCP&L for the design and
construction of an SCR system at KCP&L’s power station in La Cygne. Doc. 1, p. 3, ¶8. B&W
thereafter provided design specifications to Cormetech for the catalyst modules to be used in the
SCR system at the La Cygne plant and later contracted with Cormetech to purchase the catalyst.
Id., ¶9. On the basis of the parties’ assumptions as to, inter alia, the type of fuel KCP&L would
use at the power station, Cormetech made certain guarantees regarding the catalyst, including
that the ammonia slip (aka “NH3 slip”) 4 would not surpass 2 parts per million (“ppm”) and that
the catalyst would last for 24,000 operating hours. See, e.g., Doc. 114-4, p. 6 (B&W’s Technical
Specifications setting forth the ammonia slip level); Doc. 114-6, p. 3 (Cormetech’s Performance
Guarantee Language describing the catalyst life expectancy of 24,000 operating hours); Doc.
114-17, pp. 4-5 (Niksa’s report).
Niksa’s report provides the following information about the catalyst supplied by
Cormetech for the LaCygne power station:
The catalyst was provided in the form of hundreds of modules, which are
rectangular blocks with internal honeycomb walls that form numerous square
channels along the length of each block. The modules are closely stacked into
B&W’s expert report describes ammonia slip as “trace amounts of unconverted [ammonia]” that are always
contained in SCR effluent (although the amounts may vary). Doc. 114-17, pp. 4-5.
scaled layers that process all the flue gas that enters the SCR. The SCR at La
Cygne has two identical SCRs installed side-by-side that each process about half
of the flue gas stream.
Doc. 114-17, p. 4.
KCP&L began operating the SCR at the La Cygne plant in April 2007. Doc. 1, p. 4, ¶13.
B&W conducted an Initial Performance Test in June 2007 at 1,200-1,500 hours of operation,
which revealed that the ammonia slip was at a higher level than expected. 5 Doc. 114-17, p. 7;
Doc. 98-15, p. 3. In other words, more ammonia was being emitted from the SCR than expected,
albeit still within the guaranteed limits. The catalyst was otherwise operating to reduce the
emission of NOx as expected. 6 Doc. 114, p. 7; Doc. 98-1, p. 4; Doc. 114-17, pp. 4-5, 7-8; Doc.
114-18, p. 5, ¶20.
B&W’s expert report explains the significance of rising levels of ammonia slip:
As the NO reduction rate diminishes, the [ammonia] slip increases. This
inverse proportionality explains why monitoring [ammonia] slip is widely
regarded as the most reliable means to assess the extent of catalyst
deactivation . . . .
Doc.114-17, p. 6.
On October 8, 2007, Cormetech reported to B&W the results of its analysis of catalyst
samples extracted from the SCR at “approximately 3000 hours of field service.” 7 Doc. 114-9, p.
2. Such testing provides even “more conclusive evidence” regarding the degree of catalyst
deactivation than measuring ammonia slip, according to B&W’s expert report. Doc. 114-17, p.
8. This testing showed that the catalyst had already reached 50% of its useful life. Id., p. 9.
It is not clear from the record whether the Initial Performance Test was done at 1,200 hours, 1,500 hours, or
includes data taken at both periods (see Doc. 114-17, p. 7 (Niksa’s report); Doc. 98-15, p. 3 (letter from B&W to
Cormetech referring to testing done at 1,500 hours). The Court recites the date of the testing as stated by B&W’s
expert in his report and notes that the distinction is not material to the outcome of this case.
The Initial Performance Test revealed NH3 levels of 1.4 and 1.6 ppm nearing, but not exceeding, the guaranteed
level of 2 ppm. Doc. 114-17, pp. 7-8 (Niksa’s expert report).
Niksa’s report indicates that this testing was done at 2,880 hours. Doc. 114-17, p. 8.
Slightly more than one year after the Initial Performance Test, on August 5, 2008,
KCP&L reported to B&W that its testing showed that the catalyst was then at the end of its
useful life and that the ammonia slip was well beyond the guaranteed level. Doc. 1, p. 4, ¶14;
Doc. 114-12, p. 4. KCP&L’s testing was conducted at 8,000 hours and, as noted above, the
catalyst had been expected, and was guaranteed, to last 24,000 hours. Doc. 1, p. 4, ¶14; Doc.
114-12, p. 4.
Thereafter, B&W and Cormetech, per their contract, undertook a root cause evaluation to
determine why the catalyst failed to meet its expected life term and ammonia slip guarantee.
Doc. 98-2, p. 4. On February 7, 2009, B&W issued a report, the Root Cause Analysis (“RCA”),
summarizing its findings and conclusions. Doc. 98-2. The RCA determined that there were
seven factors that contributed to the early deactivation of the catalyst, none of which was
attributable to Cormetech:
1. Fuels Burned
Conclusion: It is B&W’s belief that burning fuels outside the specified range
has led to increased catalyst deactivation.
2. Ash Loading – Isokinetic Test Results
Conclusion: It is B&W’s belief that the catalyst is seeing higher ash loading
than it was designed and specified for and thus has experienced increased
3. Sonic Horn Operation
Conclusion: It is B&W’s belief that the inoperable sonic horns as detailed in
Appendix C and as noted above have allowed ash to accumulate on the
catalyst and led to increased catalyst deactivation.
4. Tube Leaks
Conclusion: It is B&W’s belief that severe tube leaks and continued unit
operation with these tube leaks has led to conditions which negatively affect
5. Operation Conditions
Conclusion: It is B&W’s belief that KCP&L’s continued operation of the
SCR, without removal of the ash from the catalyst, caused increased catalyst
6. Catalyst Cleaning Procedures
Conclusion: It is B&W's belief that KCP&L’s continued operation of the
SCR, without removal of the ash from the catalyst, caused increased catalyst
7. Unit Operations
Conclusion: It is B&W’s belief that poor combustion as evidence by higher
than average LOI and the instances of carburization, led to increased ash
loading to catalyst and perhaps increased the risk of phosphorous poisoning,
and in turn led to increased catalyst deactivation.
Doc. 98-2, p. 6-10 (emphasis in original). 8
Significantly, B&W’s RCA found that Cormetech had properly sized the catalyst (id., p.
10) and, in its overall conclusion, stated:
B&W feels confident that sufficient catalyst was supplied for this unit to
meet all performance guarantees, if the unit had been operated as intended.
Id., p. 11.
After KCP&L determined in 2008 that the catalyst was at the end of its useful life, it
contracted directly with Cormetech to obtain replacement catalyst. That catalyst also failed
before the end of its expected life. Doc. 114-17, p. 11. Ultimately, according to B&W’s expert
report, the phosphorus poisoning problem that allegedly caused the early deactivation of both the
original and replacement catalyst “could only be eliminated by replacing the cyclone burners [in
the power station’s furnace] that were in place while both of Cormetech’s catalyst installations
were completely deactivated.” Doc. 114-17, p. 16.
“LOI” stands for Loss on Ignition. The LOI is caused by poor combustion and reflects how much unburned carbon
leaves the furnace. Doc. 102-2, p. 129; Doc. 101-1, p. 85; Doc. 104-4, p. 164.
KCP&L made a commercial claim against B&W for about $60 million based on the
unsatisfactory performance of the SCR, which resulted in a mediation pursuant to which the
claim was settled by B&W for $3.5 million. Doc. 98-3, pp. 5-6.
II. Legal Standard
Under Federal Rule of Civil Procedure 56(a), a “court shall grant summary judgment if
the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. Pro. 56(a). The movant “bears the initial
responsibility of informing the district court of the basis for its motion, and identifying those
portions of the pleadings, depositions, answers to interrogatories, and admissions on file,
together with affidavits, if any, which it believes demonstrates the absence of a genuine issue of
material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotations omitted).
Once the moving party has met its burden, the non-moving party “must present
affirmative evidence in order to defeat a properly supported motion for summary judgment.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986). “[A] party opposing a properly
supported motion for summary judgment may not rest upon mere allegation or denials of his
pleading, but must set forth specific facts showing that there is a genuine issue for trial.” Id. at
256; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (“When the
moving party has carried its burden under Rule 56(c), its opponent must do more than simply
show that there is some metaphysical doubt as to the material facts.”). “[T]he mere existence of
some alleged factual dispute between the parties will not defeat an otherwise properly supported
motion for summary judgment; the requirement is that there be no genuine issue of material
fact.” Anderson, 477 U.S. at 247–48 (emphasis in original). “Only disputes over facts that
might affect the outcome of the suit under the governing law will properly preclude the entry of
summary judgment.” Id. at 248.
A. Ohio’s UCC statute of limitations bars B&W’s breach of warranty claim.
Cormetech asserts that the catalyst is a “good.” Sales of goods are governed by chapter 2
of the Uniform Commercial Code, adopted in Ohio as Ohio Rev. Code Ch. 1302. 9 Cormetech
argues that B&W’s claims are time-barred under the UCC’s four-year statute of limitations, set
forth in R.C § 1302.98. 10 Doc. 98-1, pp. 13-16. B&W contends that the catalyst is not a “good”
subject to the UCC and that, therefore, the fifteen-year limitations period found in R.C. §
2305.06 applies to its claims. 11 Doc. 114, p. 13. B&W further argues that, even if the UCC’s
four-year limitations period applies, a genuine issue of material fact exists as to when the
limitations period began to run, precluding summary judgment. Doc. 114, pp. 8-20.
1. The catalyst is a good and the UCC applies to B&W’s breach of warranty
a. The catalyst is a good.
A “good” is defined as:
all things (including specially manufactured goods) which are movable at the time
of identification to the contract for sale . . . . “Goods” also includes . . . other
identified things attached to realty as described in section 1302.03 of the Revised
R.C. 1302.01(A)(8); UCC § 2-105.
Section 1302.03, referenced in R.C. § 1302.01(A)(8) provides, in pertinent part,
(A) A contract for the sale of minerals or the like, including oil and gas, or a
structure or its materials to be removed from realty is a contract for the sale of
goods within sections 1302.01 to 1302.98 of the Revised Code, if they are to be
severed by the seller . . . .
The parties’ briefs assume that Ohio law governs their contract.
R.C. § 1302.98 adopts UCC § 2-725.
R.C. § 2305.06 applies to contracts in writing not subject to the UCC. The statute was amended in June 2012 to
change the statute of limitations from 15 to 8 years. See 2012 Ohio Law File 135 (Sub. S.B. 224).
(B) A contract for the sale apart from the land of growing crops or other things
attached to realty and capable of severance without material harm thereto but not
described in division (A) of this section . . . is a contract for the sale of goods
within sections 1302.01 to 1302.98 of the Revised Code, whether the subject
matter is to be severed by the buyer or by the seller even though it forms part of
the realty at the time of contracting, and the parties can by identification effect a
present sale before severance.
Id.; UCC § 2-107.
Under these provisions, the catalyst is a “good” subject to the UCC. The catalyst was
movable at the time it was identified to the contract. It was meant to be installed and removed
from the SCR. See Docs. 98-6, p. 8 (deposition of Scott Hiedeman, KCP&L air quality control
engineer, agreeing that a catalyst is not permanently affixed to the SCR and is designed to be
removed periodically); 117-1, pp. 2-4 (deposition of Jason Chitwood, B&W process engineer,
agreeing that catalyst layers are designed in a modular fashion and are removable). The catalyst
is capable of severance from the SCR without material harm. See id. (Chitwood agreeing that
the SCR contains doors, rails and other apparatus to facilitate the removal of catalyst blocks).
B&W’s case law, cited in a footnote in its opposition brief, is not persuasive because
none of the cases involved a part intended to be installed and uninstalled in a structure designed
to accommodate the replacement of such parts. See Doc. 114, p. 9, n. 4 (citing Weiss v. MI
Home Prods., Inc., 877 N.E.2d 442 (Ill. App. Ct. 2007) (homeowner sued alleging faulty
windows; the court found that windows, once annexed to a home, become part of the real estate
and are no longer goods); Kennedy v. Vacation Internationale, Ltd., 841 F.Supp. 986, 990 (D.HI.
1994) (tile affixed to a lanai is not a good because it is not capable of severance without material
harm to the realty); Keck v. Dryvit Sys., Inc., 830 So.2d 1, 8-9 (Ala. 2002) (homeowners sued
alleging that the exterior insulation finishing system feature of their home was a good; the court
found that the system was not a good because it could not be detached from the house without
causing damage but instead was an integral part of the structure of the home); Loyd v. Ewald,
1988 WL 37484, * 2 (Oh. Ct. App. Apr. 6, 1988) (in-ground swimming pool was not a good
because it was incapable of severance without causing material harm to the realty)).
b. Applying the predominant purpose test, the contract between B&W
and Cormetech was one for the sale of goods.
B&W argues that, even if the catalyst was a good, the UCC does not apply because its
contract with Cormetech was a mixed contract for goods and services, the predominant purpose
of which was the purchase of services, not goods. Doc. 114, pp. 9-10. In support of its argument
it cites C.J. Mahan Constr. Co. v. Valspar Corp, 30 Fed. App’x 381 (6th Cir. 2002).
When a contract is a mixed contract for goods and services, Ohio courts use the
predominant purpose test to determine whether the contract is for the sale of goods or services; if
the contract is for services the UCC does not apply. Id. at 383 (citing Allied Indus. Serv. Corp. v.
Kasle Iron & Metals, Inc., 405 N.E.2d 307, 310 (Ohio 1977)). In Mecanique C.N.C., Inc. v.
Durr Envtl., Inc., 304 F.Supp.2d 971 (S.D.Ohio 2004), the District Court for the Southern
District of Ohio applied Ohio’s predominant purpose test to a contract for the fabrication and
installation of ductwork and related equipment for an SCR system. The court considered
“whether the predominant factor and purpose of the contract is the rendition of service, with
goods incidentally involved, or whether the contract is for the sale of goods, with labor
incidentally involved.” Id. at 976 (quoting Allied Indus., 405 N.E.2d at 310). Whether a contract
“predominantly involves goods or services is ordinarily a question of fact for the jury[,]” but
only “if there is a true factual dispute, not if the division between goods and services merely
involves a close call.” Id. at 976-977 (internal citation omitted). In other words, “where ‘there
are no disputed facts that raise issues to be decided by the jury, it is proper for the trial court to
rule as a matter of law on whether the contract is covered by Article Two [of the UCC].’” Id.,
quoting Valleaire Golf Club, Inc. v. Conrad, 2003 WL 22900451, at *1-2 (Oh. Ct. App. Dec. 10,
2003). See also Action Grp., Inc. v. NanoStatics Corp, 2013 WL 6708395, *8 (Oh. Ct. App.
Dec. 17, 2013); Tekfor, Inc. v. SMS Meer Serv., Inc., 2014 WL 5456525, *4-5 (N.D.Oh. Oct. 27,
2014). The burden of proving that a contract is predominantly for the purchase of goods is on
the party asserting that the contract is governed by the UCC. Id.
B&W and Cormetech do not dispute the facts surrounding the contract. Accordingly, the
Court must determine, as a matter of law, whether the predominant purpose of the contract
between B&W and Cormetech was for the sale of goods or services. Mecanique, 304 F.Supp.2d
at 977 (finding, as a matter of law, that the contract for the fabrication and installation of
ductwork and related equipment for an SCR system was governed by the UCC because it was
predominantly for the sale of goods).
The Court finds the factors enumerated in Boardman Steel Fabricators, Ltd. v. Andritz,
Inc., 2015 WL 5304293, *4 (E.D.Ky. Sept. 9, 2015), to be a useful guide when performing the
predominant purpose test: a court considers (1) the language of the contract; (2) the payment
terms; (3) the mobility of the goods; (4) the value of the goods and services; and (5) the business
of the seller. Id. (citing BMC Indus., Inc. v. Barth Indus., Inc., 160 F.3d 1322 (11th Cir. 1998);
Fab–Tech, Inc. v. E.I. DuPont De Nemours & Co., 311 Fed. App’x 443, 445 (2d Cir. 2009)). 12
Here, the catalyst was movable; it was fabricated offsite and transported to the plant in La
Cygne. The language of the contract and the value of the goods also indicate that the
predominant purpose was for the sale of goods. For example, Cormetech’s Proposal is “for the
supply of SCR catalyst.” Doc. 114-1, p. 2 (Proposal). The “Scope of Supply” included a
See also Heidtman Steel Prods., Inc. v. Compuware Corp., 2000 WL 621144, *5 (N.D.Oh. Feb. 15, 2000)
(applying Michigan law and setting forth factors to examine for the predominant purpose test: the language of the
contract, the nature of the business of the supplier, the price or value allocation, and the issues involved in the
catalyst, performance warranties, drawings, installation procedures, and an operations and
maintenance manual. Id., p. 5. The cost of these items was $4,481,000. Id. B&W’s Purchase
Order referenced Cormetech’s Proposal and the purchase price: $4,481,000. Doc. 114-3, p. 2
(Purchase Order). Eighty percent (80%) of the purchase price was to be paid upon “completion
of catalyst production”; 10% was due upon delivery of the catalyst to the jobsite; and 10% was
due upon acceptance of the catalyst. Doc. 114-1, p. 6.
Mark Rohner, B&W’s purchasing agent, testified that his job was to purchase equipment,
not services. Doc. 103-3, p. 44. The Purchase Order he generated for the Cormetech catalyst was
for the purchase of “equipment.” Id. at 36-37, 39. He signified this by using the letters “EQ” in
the Charge Number on the face of the Purchase Order. Id. Moreover, the term “Purchase Order”
is “almost exclusively used for transactions in goods.” Boardman Steel, 2015 WL 5304293, at
*5 (quoting BMC Indus., 160 F.3d at 1331). Thus, the primary item offered and paid for was the
catalyst, not services.
The Purchase Order described the “Field Services” to be performed by Cormetech as
consisting of “on-site supervision or installation, refurbishment, performance testing, and other
field service work,” which were to be billed only when services were required. Doc. 114-1, p. 6.
The cost of services began at $950 per person per day, exclusive of overtime, holiday rates and
transportation costs. Id. These Field Service charges are very small compared to the $4,481,000
purchase price for the catalyst itself. See Tekfor, 2014 WL 5456525, *5 (contract was a service
repair contract because 75% of the invoiced amount was for services, not parts); Boardman Steel,
2015 WL 5304293, *5 (price for “field assistance” billed at $1,000 per day and extra design
costs approaching one million dollars “are still a drop-in-the-bucket compared to the costs of the
fabricated steel” contracted for, $5,317,750). B&W’s Technical Specifications contain a
provision that states, “In the event site service is required, [Cormetech] shall furnish a qualified
representative for such service at the stipulated per diem rate in [Cormetech’s] proposal.” Doc.
114-4, p. 4. The language, “In the event site service is required,” is inconsistent with a contract
predominantly for services.
Finally, regarding the business of the seller, B&W, in its Complaint, describes Cormetech
as a manufacturer: “Cormetech manufactures catalyst for [SCR] systems for companies
operating in the power generation industry.” Doc. 1, p. 3, ¶7. The Complaint also indicates that
what B&W purchased from Cormetech was “catalyst modules.” Id., ¶¶9-10. See Action Grp.,
2013 WL 6708395, at *8 (when applying the predominant purpose test, a court may look to the
complaint to determine how the parties characterize their dealings). In sum, an analysis of the
factors set forth in Boardman Steel overwhelmingly supports a finding that the predominant
purpose of the contract between B&W and Cormetech was the sale of goods.
In support of its argument that the contract was predominantly for services, B&W points
out the following: (1) the Purchase Order references final inspection to be made by Cormetech
after installation; (2) Cormetech was responsible for catalyst testing after installation; and (3) the
Purchase Order incorporates additional documents that describe services to be performed by
Cormetech, including a warranty clause that references services and a warranty guarantee that
required Cormetech and B&W to undertake a root cause analysis and perform repairs to the
catalyst in the event of a breach. Doc. 114, pp. 11-12.
The evidence cited by B&W does not support a conclusion that the predominant purpose
of the contract was the purchase of services. Taking B&W’s arguments in turn: the fact that the
Purchase Order referenced a final inspection by Cormetech of its own catalyst (Doc. 114-3, p. 6)
does not render the sale of the catalyst one for services. It is not unusual for a manufacturer to
inspect its own product. Indeed, in Mecanique, the court observed, “virtually all commercial
goods involve some type of service, ‘whether design, assembly, installation, or manufacture.’”
304 F.Supp.2d 971 at 977 (quoting Neibarger v. Universal Coops., 486 N.W.2d 612, 622 (Mich.
1992)). As for testing, B&W cites Home Ins. Co. v. Detroit Fire Extinguisher Co., 538 N.W.2d
424, 427-428 (Mich. Ct. App. 1995) in support of its claim that a contract requiring regular
testing and service after installation is predominately one for services. Doc. 114, p. 11. Home
Ins. Co. is distinguishable for two reasons. First, there appeared to be disputed issues of fact that
the state court of appeals found precluded the trial court from ruling on the predominant purpose
as a matter of law; second, the seller in that case contracted to engineer, design, manufacture, and
install a fire extinguisher system in a manufacturing plant. Home Ins. Co., 538 N.W.2d at 426428. Here, Cormetech, the seller, supplied the catalyst to be used in the SCR system that B&W,
the buyer, engineered, designed and installed at the power plant. Thus, although the contract
between B&W and Cormetech provided that Cormetech would perform additional testing of its
catalyst, the Court does not find that such testing made the contract primarily one for services.
Finally, the fact that the warranty provisions required Cormetech, in the event of a breach, to
perform a root cause analysis and, if appropriate, make repairs, is not indicative of a service
contract but merely describes a remedy in the case of a breach.
Other cases B&W relies upon in support of its position (Doc. 114, p. 12, n. 8) are also
unpersuasive. In Allied Indus., the defendant had a scrap iron processing plant that was noncompliant with air pollution standards. 405 N.E.2d at 144-145. Defendant hired the plaintiff to
design a pollution control system and recommend equipment to use for this purpose. Id. at 145.
The court applied the predominant purpose test and held that the contract was predominantly for
services because the plaintiff designed and installed pre-purchased goods and acted, in effect, as
the defendant’s agent. Id. at 147. The role of the plaintiff in Allied Indus. most closely
resembles the role of B&W, not Cormetech, in this case. It was B&W that contracted with
KCP&L to design and build the SCR using component parts purchased from manufacturers like
In Ankle & Foot Care Ctrs, 164 F.Supp.2d 953, 956-957, 959-960 (N.D.Ohio 2001), the
court found that there were disputed issues of fact regarding a contract for medical billing
software. The defendant provided and installed the software (onto computers that the plaintiff
purchased from a separate supplier) and trained the plaintiff’s staff on how to use the software.
In Franklin Publ’ns, Inc. v. General Nutrition Corp., 2007 WL 2071914 (S.D.Ohio July 13,
2007), the plaintiff, a magazine publisher, entered into agreements with the defendant, a seller of
nutritional products, whereby the defendant would supply the plaintiff with names and mailing
addresses of members of its discount club and the plaintiff would distribute to those members
copies of two of its magazines. Id. at *1. The court determined that the contracts were
predominantly ones for services because, most significantly, the contracts provided the defendant
with free advertising space in the plaintiff’s magazines and the ability to purchase additional
advertising at a reduced rate. Id. at *5. The court explained that a contract for advertising is a
contract for services, not goods. Id. And in C.J. Mahan Constr. Co, the court stated, “It is
nonsensical to suggest that the provision of free technical support and advice makes the
provision of services the predominate purpose of a contract for the sale of thousands of gallons
of paint.” 30 Fed. App’x at 383. These cases do not persuade the Court that the contract
between B&W and Cormetech was predominately one for services. The contract was
predominantly one for the purchase of goods. Accordingly, the UCC governs B&W’s breach of
2. The UCC four-year statute of limitations began to run in 2007;
B&W’s breach of warranty claim filed in 2012 is time-barred.
The statute of limitations begins to run on a breach of warranty claim “when the breach is
or should have been discovered.” R.C. § 1302.98(B); UCC § 2-725(2). Cormetech argues that
B&W should have discovered that the catalyst would not reach its guaranteed life no later than
August 21, 2007, as evidenced by an email and attached letter sent by B&W notifying
Cormetech of the likely early failure of the catalyst. Doc. 98-1, pp. 16-17. B&W disagrees; it
asserts that the limitations period began to run in September 2008, when it received notice from
KCP&L “of performance warranty issues,” i.e., that the catalyst “did not (or would not) meet the
performance guarantees.” Doc. 114, p. 16.
In his August 21, 2007, correspondence, B&W’s Rohner stated,
The attached letter is to notify Cormetech of the potential performance failure
your [sic] catalyst at the La Cygne jobsite.
Doc. 98-15, p. 2. The attached letter, addressed to Cormetech and also dated August 21, 2007,
advised, in pertinent part,
As Cormetech is aware, B&W has conducted SCR-System testing at the La
Cygne jobsite. Test results have been forwarded to your Jeremy Freeman for
review and comment.
The tests were conducted at approximately the 1,500 hour mark in boiler
operation. B&W’s analysis of the test results, which include input from
Cormetech, indicates that the Cormetech catalyst is failing to perform at expected
values at the beginning of its active life.
Therefore this letter serves to put Cormetech on notice that, based on the results,
B&W has reason to believe that the catalyst will not reach the end of life
B&W would like to work with Cormetech to determine the reasons for advanced
deactivation. . . .
Doc. 98-15, p. 3 9 (emphasis supplied).
On deposition, Rohner agreed that, at the time he sent the August 21, 2007, letter, B&W
“was aware that there was a problem potentially with the catalyst at La Cygne.” Doc. 98-13, p. 9
And, referring to the June 2007 test results that were addressed in Rohner’s letter, B&W’s expert
report states that “accelerated deactivation of the catalyst was clearly apparent in the muchgreater-than-expected [ammonia] slip after 1,200 hrs on-stream . . . .” Doc. 114-17, p. 11. Thus,
the Initial Performance Test performed in June 2007 and the Rohner correspondence describing
the results of that test serve to show that B&W knew, on or before August 21, 2007, that the
catalyst was deactivating early and would not likely reach its end of life guarantees.
B&W argues that it only learned the catalyst would not meet its expected guarantees in
2008, at or shortly before the date KCP&L notified B&W that the catalyst had reached the end of
its life. B&W cites representations that Cormetech made to it after the August 2007
correspondence indicating that the catalyst had not failed to meet its guarantees at that time and
that additional testing was necessary. Doc. 114, p. 19 (citing Doc. 114-9 (letter from Cormetech
to B&W dated October 8, 2007)). Rather than support B&W’s contention, the October 2007
letter only serves to bolster Cormetech’s position. The letter explicitly states that the catalyst
was deactivating more quickly than expected. See Doc. 114-9, p. 2 (“Measured SCR catalyst
performance is above the design performance threshold for the La Cygne facility, but is below
the expected performance for the SCR catalyst at the La Cygne facility for the operational hours
accumulated by the SCR at the time the catalyst elements were removed.”).
B&W’s expert, Niksa, states in his report that the Initial Performance Test (the basis for
B&W’s August 21, 2007 letter) “indicates much faster catalyst deactivation than Cormetech
anticipated” and that the catalyst “would not meet Cormetech’s written guarantees . . . .” Doc.
114-17, p. 8. Niksa states that the testing of catalyst samples reported by Cormetech to B&W in
early October 2007 was even “more conclusive” and “confirm[ed] the indication of excessive
deactivation . . . .” Indeed, Niksa stated that the testing reported in October indicated “a loss of
50% of the service life” of the catalyst after only 2,880 hours of operation, i.e., at only 12% of
the guaranteed life of 24,000 hours. Id., p. 9. That Cormetech recommended additional testing
to pinpoint the exact cause of the premature catalyst deactivation does not change the fact that
B&W knew of the excessive early deactivation.
Next, B&W identifies specific performance guarantees, including NOx reduction,
ammonia slip emissions, and the catalyst operational life, that it asserts it only learned would not
be met in September 2008. Doc. 114, p. 16; Doc. 114-4, p. 13. However, based on the elevated
ammonia slip levels and excessive deactivation that B&W knew of in August and October 2007,
it should have known that the catalyst would not meet its end of life guarantees and, without a
working catalyst, NOx emissions would not be reduced as guaranteed.
B&W submits that it did not know and could not have known “of these performance
breaches until September, 2008, when it received notice from KCP&L . . . that the catalyst would
not reach the end of its 24,000 hour catalytic life guarantee.” Doc. 114, p. 16. The Court
disagrees. The 2008 letter from KCP&L to B&W notified B&W that the catalyst had actually
reached the end of its useful life. Doc. 1, p. 4, ¶14; Doc. 114, p. 16. It stated, “This letter serves
as Notice that the SCR does not meet the warranties and Performance Guarantees specified in the
Contract” and referenced an increased ammonia slip. Doc. 114-12, p. 2. However, this was not
B&W’s first notice of the accelerated catalyst deactivation. As set forth above, its August 2007
letter to Cormetech, drafted by Rohner, discussed its Initial Performance Test results confirming
an elevated ammonia slip and indicated that, based on the test results, B&W “has reason to
believe that the catalyst will not reach the end of life guarantees.” Doc. 98-15, p. 3; see also
Doc. 114-17, p. 8 (Niksa’s expert report: “Ammonia slip is the best indirect indication of a
catalyst deactivation rate for SCRs on-stream.”). In October 2007, Cormetech informed B&W of
test data that showed the catalyst had already reached 50% of its useful life at only 2,880 hours.
Doc. 144-17, p. 9.
Given these facts, the date that KCP&L informed B&W that the catalyst had actually
reached the end of its useful life and that KCP&L intended to assert its own remedies under its
contract with B&W is not the date B&W first knew or should have known that the catalyst
would not achieve its guaranteed life. See Miles v. Kohli & Kaliher Assocs., Ltd., 917 F.2d 235,
239, 256 (6th Cir. 1990) (Under R.C. § 1302.98, the statute of limitations on a breach of
warranty claim for the construction of a bridge began to run when the steel company’s product
manager visited the bridge site, identified there was a problem with the bridge that could lead to
the eventual collapse of the bridge, and informed the county authority of his finding; not when
the bridge actually collapsed).
Because the four-year statute of limitations began to run in 2007, by October 2007 at the
latest, it expired no later than October 2011, ten months before B&W filed its first complaint in
August 2012. B&W’s breach of warranty claim is therefore time-barred.
B. B&W’s indemnification claim fails because it has not identified a genuine
issue of material fact in support of that claim.
The parties’ Standard Terms and Conditions contain the following indemnification
Seller shall defend and indemnify Buyer against all damages, liabilities, claims, losses
and expenses (including attorney’s fees) arising out of, or resulting in any way from any
defect in the goods or services purchased hereunder or from any act or omission of Seller,
its agents, employees or subcontractors.
Docs. 117-2, p. 3, ¶4; 114-5, p. 4, ¶4.
Cormetech argues that B&W’s indemnity claim is governed by the UCC and is barred by
the four-year statute of limitations for the same reason its breach of warranty claim is barred.
Doc. 98-1, pp. 17-18. B&W contends that a claim for indemnification is separate from a breach
of contract claim and that it does not, therefore, fall under the UCC. Doc. 114, p. 13. The
parties agree that Ohio has not decided whether an indemnification claim arising from a sale of
goods is governed by the UCC. B&W argues that the majority of jurisdictions that have decided
the issue have found that an indemnification claim is not governed by the UCC. Doc. 114, p. 14;
Doc. 117, p. 10. Although B&W appears to have the stronger argument, the Court need not
decide this issue because, even if B&W’s indemnification claim is not time-barred, it fails on the
On the merits of the claim, Cormetech contends that, in order to prevail, B&W must
prove that there was a defect in the catalyst that caused its settlement loss, 13 which B&W cannot
do. Doc. 98-1, p. 19; Doc. 117, p. 12. Cormetech submits that there is no evidence that its
catalyst was defective (Doc. 98-1, pp. 10-12) and cites the RCA, quoted above, in support. 14 In
response, B&W argues: (1) that its indemnity claim “arises from more than just mere defects in
the catalyst or services provided by Cormetech”; and (2) that circumstantial evidence
demonstrates that the catalyst was defective. Id., pp. 22-23. The Court considers both of
1. B&W’s indemnity claim is separate from its warranty claim; it must prove
a defect or an act or omission.
B&W’s first argument, that its indemnification claim “arises from more than just mere
defects in the catalysts or services provided by Cormetech” (Doc. 114, pp. 22-23), conflates its
The Settlement Agreement between B&W recites the early deactivation of the catalyst in its “Whereas” clauses
but otherwise sheds no light on the reasons for the settlement. Doc. 98-5, pp. 2-3. B&W invoked two privileges to
shield communications related to its mediation with KCP&L from discovery in this case: a federal common law
settlement privilege and the privilege found in Ohio’s Uniform Mediation Act. This Court earlier ruled on B&W’s
assertions of privilege, holding the federal common law settlement privilege inapplicable and the Ohio statutory
mediation privilege applicable. See Doc. 45.
As discussed above, the RCA concluded that the catalyst deactivated at an increased rate due to a number of
causes, none of them attributable to Cormetech. Id. pp. 4-5 (citing RAC, Doc. 98-2, at pp. 6-10). The RCA also
concluded, “B&W feels confident that sufficient catalyst was supplied [by Cormetech] for this unit to meet all
performance guarantees, if the unit had been operated as intended.” Doc. 98-2, p. 11.
breach of warranty and indemnification claims. It cites the performance warranties made by
Cormetech, including the warranty that the catalyst would last for 24,000 operating hours, and
attempts to tie the performance warranties to the “act or omission” language in the contract’s
indemnification provision. Id. In other words, B&W seeks to incorporate its claim for breach of
warranty into its indemnification claim. This it cannot do for at least two reasons.
First, this argument is flatly contradicted by other statements made by B&W in its brief.
In arguing against application of the UCC statute of limitations to its indemnity claim, it states,
“‘[I]ndemnity is a separate equitable cause of action” independent from warranty liability under
the UCC. Doc. 114, p. 14 (quoting Am. Premier Underwriters Inc. v. General Elec. Co., 866
F.Supp.2d 883, 916 (S.D.Ohio 2012)). B&W also states that it “negotiated [with Cormetech] an
indemnity provision wholly apart from the guarantees provided for in the Contract. In other
words, the indemnity provision provides separate obligations and protections.” Id., p. 21.
Accordingly, B&W may not now use its indemnification claim to circumvent the UCC’s time
bar under which its breach of warranty claim fails.
Second, B&W does not explain what “act or omission” on the part of Cormetech the
performance warranties implicate. See Portsmouth Ins. Agency v. Med. Mut. of Ohio, 934
N.E.2d 940, 944-945 (Oh. Ct. App. 2009) (courts look to the language in the indemnity
agreement to ascertain a party’s duty to indemnify; thus, to recover under an indemnity provision
for unauthorized acts, the indemnitee must show unauthorized acts); Orville Prods., Inc. v. MPI,
Inc., 1991 WL 10281, at *2 (Oh. Ct. App. Jan. 23, 1992). B&W does not identify an act or
omission by Cormetech that caused the performance guarantees not to be met. Nor does it even
show that the guarantees were not in fact met. For instance, although the contract guarantees the
life of the catalyst for 24,000 hours, this warranty is dependent upon the plant firing coal within
the specified analysis. The RCA indicates that the plant did not fire coal within the specified
analysis. See Doc. 98-2, p. 6 (RCA, explaining that over 30% of the coal samples provided for
testing contained an ash content over the maximum specification analysis and concluding, “It is
B&W’s belief that burning fuels outside the specified range has led to increased catalyst
deactivation.”); Doc. 114-14, p. 6 (deposition of Mark Low, B&W business development
manager and vice-president of service products, in which Low stated that, when KCP&L burned
fuel outside the specified range, it contributed to the deactivation of the catalyst).
B&W has not identified an act or omission by Cormetech that allegedly caused a breach
of the performance guarantees. Even if it is assumed that the performance guarantees were not
met, that alone would not show that there is a genuine issue of material fact regarding an “act or
omission” that would support B& W’s indemnification claim. Portsmouth Ins., 934 N.E.2d at
2. B&W has no evidence of a defect.
B&W’s second argument with respect to the merits of its indemnification claim is that
circumstantial evidence “clearly demonstrates that the catalyst was defective.” Doc. 114, p. 23.
The two items of circumstantial evidence it points to are: the 2007 Initial Performance Test; and
its expert evidence. Id., p. 24.
B&W contends that Ohio law permits a defect to be proven by circumstantial evidence
“‘[w]here direct evidence is unavailable” and “a preponderance of [the circumstantial] evidence
establishes that the loss was caused by a defect and not other possibilities, although not all other
possibilities need to be eliminated.’” Id., p. 23 (quoting State Farm Fire & Cas. Co. v. Chrysler
Corp., 523 N.E.2d 489 (Ohio 1998)).
B&W’s application of the law regarding circumstantial evidence to the facts of this case
is misplaced. The mere fact that B&W has no direct evidence does not mean such evidence is
unavailable; for example, B&W’s own report, the RCA, shows that the catalyst deactivation was
accelerated by operating issues at KCP&L’s plant. 15 The RCA and the early failure of the
second catalyst supplied by Cormetech, which was of a different size and pitch, 16 rule out sizing
and pitch as causes of the higher than expected ammonia slip. B&W now attempts to raise a
question of fact about the formulation of the catalyst, citing the depositions of its employees John
Monacelli, Low, and Chitwood. Id., p. 23, n. 6. This attempt is unsuccessful for two reasons.
First, those employees simply reasoned backwards from the fact that the catalyst failed earlier
than expected to engage in rank speculation that the catalyst may not have been formulated
properly. See Doc. 114-14, p. 10 (Low’s deposition in which he stated, “Because of the rapid
deactivation that we saw. . . . I believe that the formulation probably wasn’t optimum for the
conditions that were specified” but also testified that he had no idea what the problems with the
formulation could be); Doc. 114-15, p. 9 (Monacelli’s deposition in which he states that the
formulation of the catalyst is “Cormetech’s area of expertise and we do not know that”); Doc.
114-16, p. 8 (Chitwood’s deposition in which he stated, “I don’t know how they formulate it. I
can’t speak to that. All I know is it didn’t make the catalyst life at the end of the day.”) 17
Speculation is not evidence. Lewis v. Philip Morris Inc., 355 F.3d 515, 533 (6th Cir. 2004) (nonmoving party must demonstrate sufficient probative evidence, not “mere speculation, conjecture,
or fantasy,” quoting Godfrey v. Pulitzer Publ’g. Co., 276 F.3d 405, 412 (8th Cir. 2002)). The
deposition testimony of Monacelli, Low, and Chitwood do not establish a genuine issue of
B&W states that Cormetech did not disclose the formulation of the catalyst. Doc. 114, p. 23, n. 16. However,
B&W does not state that testing could not have been done to determine the formulation.
See Doc. 114-14, pp. 8-9 (Low’s deposition stating that Cormetech’s replacement catalyst had more surface area,
volume, and a different pitch, but failed as quickly as the initial catalyst); Doc. Doc. 114-17, p. 11 (Niksa’s report
noting that, although the size of the second catalyst was modified, it deactivated at the same rate as the first
catalyst); Doc. 98-18, pp. 21-23 (Niksa’s deposition explaining that the failure of the replacement catalyst showed
that pitch was irrelevant in causing the failure).
Chitwood admitted that, in 2009 when he authored the RCA, he did not believe there was any problem or defect in
the catalyst and acknowledged that the RCA is full of reasons that were contributing factors in the early failure of
the catalyst. Doc. 102-2, pp. 169-187.
material fact regarding whether B&W’s settlement loss was caused by a defect in the catalyst,
nor do they support that there are no other possibilities.
Second, the speculation regarding a possible defect in the formulation of the catalyst is
entirely negated by the testimony of Niksa. Niksa’s report says that phosphorus poisoning of the
catalyst was the cause of its early deactivation. Doc. 114-17, p. 16. 18 The report states that
there was an “oversight by Cormetech” in its failure to recognize the potential for phosphorus
poisoning of the catalyst. Doc. 114-17, p. 15. However, when pressed during his deposition to
identify a defect in the catalyst, Niksa was unable to do so. See Doc. 98-18, pp. 13-14, 16, 18,
20-24. 19 His inability to identify a defect in the catalyst is consistent with the conclusion in his
report that the problem of phosphorus poisoning of the catalyst could only be solved by replacing
the cyclone burners in the boiler (furnace) at KCP&L’s power station:
... Scott Heideman, KCP&L’s air quality control engineer, said that the SCR problems
associated with P [phosphorus] poisoning were eliminated only after the cyclone burners
were replaced in the fall of 2010. Evidently, the contribution of P poisoning to the
excessive deactivation of Cormetech’s first and second catalyst installations was
predominant, and P poisoning could only be alleviated by replacing the cyclone burners,
which would have significantly diminished the extents of locally reducing zones
compared to those with the burners in place when the Cormetech catalysts were
deactivated at an excessive rate.
Doc. 114-17, p. 15 (emphasis supplied).
Finally, when asked to say what Cormetech could or should have done differently, Niksa
gave the following testimony:
Niska explained phosphorus poisoning in his report:
Poisons form chemical bonds between the site and the poison precursors that prevent the site from
performing its intended task. Masking agents coat the outer surface of the channel walls and,
especially, plug pores within the catalyst that often isolates underlying portions of the internal pore
system from the reactants for NO reduction. Such processes are said to deactivate the catalyst,
which means to diminish the rate of NO reduction per unit volume of catalyst.
Doc. 114-17, p. 6.
Niksa testified that he does not design catalysts; admitted that he did not know what amount of phosphorus
poisoning occurred at the La Cygne plant; and asserted that he does not have an understanding or opinion about
what causes phosphorus poisoning in an SCR. Doc. 98-18, pp. 3, 12, 14-16, 23.
By throwing up a flag saying that[,] given the potential for phosphorous deactivation in
this application, no catalyst is going to work. That’s what they should have done. That’s
exactly what they should have done.
Doc. 98-18, p. 24 (emphasis supplied).
The statement in Niksa’s report as to an “oversight by Cormetech,” when read in context
with the statement in the same report concluding that the phosphorus poisoning could only be
corrected by replacing the plant’s cyclone burners, does not establish a defect in the catalyst or in
the services provided by Cormetech; rather it is evidence that the cause of the phosphorus
poisoning was poor combustion caused by faulty burners. Niksa’s testimony that the only thing
Cormetech could have done differently was to throw up a flag that no catalyst would work
ignores the fact that it was B&W and KCP&L who determined, months before B&W issued its
Purchase Order to Cormetech, that an SCR system (by definition a catalyst-based system) would
be installed at the KCP&L power station. Cormetech was not asked to provide advice as to
whether an SCR system would be appropriate for the La Cygne power station; Cormetech was
asked to supply catalyst for an SCR system that B&W and KCP&L had already determined to
build. Niksa’s report and deposition are evidence of a defect in the cyclone burners and/or an act
or omission by KCP&L or B&W; they are not evidence of a defect in the catalyst or of an act or
omission by Cormetech.
In sum, the evidence cited by Cormetech shows that its catalyst was not defective and
B&W has offered no evidence that creates a genuine issue of material fact regarding a defect or
an act of omission by Cormetech. Accordingly, Cormetech is entitled to summary judgment on
B&W’s claim for indemnification. See Matsushita Elec. Indus. Co., 475 U.S. at 586 (“When the
moving party has carried its burden under Rule 56(c), its opponent must do more than simply
show that there is some metaphysical doubt as to the material facts.”).
For the reasons explained above, Cormetech’s Motion for Summary Judgment (Doc. 98)
is GRANTED because B&W’s breach of warranty claims are time-barred and its evidence does
not show that there exists a genuine issue of material fact regarding its claim for indemnification.
IT IS SO ORDERED.
Dated: March 10, 2016
Kathleen B. Burke
United States Magistrate Judge
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