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Public Service Co. v. Bath Iron Works Corp.

September 9, 1985

PUBLIC SERVICE COMPANY OF INDIANA, INC., AND RILEY STOKER CORPORATION, PLAINTIFFS-APPELLANTS, CROSS-APPELLEES,
v.
BATH IRON WORKS CORPORATION, DEFENDANT-APPELLEE, CROSS-APPELLANT



Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 82 C 1680 - John C. Shabaz, Judge.

Author: Cudahy

Before CUDAHY and POSNER, Circuit Judges, and BROWN, Senior District Judge.*fn*

CUDAHY, Circuit Judge.

This case concerns the August 1980 failure of a weld on piece of equipment known a "conical head," which was designed by Riley Stoker Corporation ("Riley"), fabricated by Bath Iron Works Corporation ("Bath") and purchased and installed by Public Service Company of Indiana, Inc. ("PSI"). Defendant Bath appeals a jury verdict against it and in favor of plaintiffs PSI and Riley, primarily on the basis that the trial court erroneously excluded evidence material to its defense. The parties also raise various claims of error relating to damages and prejudgment interest. We agree that Bath's proffered evidence was improperly excluded, and reverse.

I.

The conical head that is the subject of this suit is a component part of a coal pulverizing mill located at PSI's Gallagher Station in New Albany, Indiana. Each mill is a 13 foot cylinder, 9 feet in diameter, which is rotated by a shaft fitted into a hut at one end (the head) of the barrel. That head can be either conical or flat. As the cylinder rotates, steel balls crush the coal, which is then blown into the duct work attached to a boiler. PSI has twelve such mills at Gallagher station. Six of those mills, connected with generating units 3 and 4, have been operating successfully since the late 1950's with conical head, which were designed by Riley and fabricated by Riley's sister corporation, Riley Cornwells. The other six mills were originally built with flat head. Because the mills built with flat heads had proven inferior to those with conical heads, PSI decided in 1978 to replace the flat heads with conical heads, and requested a price quotation from Riley. Riley located the plans that had been used in the 1950's to fabricate the conical heads (the "1950's plans") and sent these to Bath, which prepared a bid for the work. Riley then sent a quote to PSI, which ordered two conical heads from Riley, which Riley in turn ordered from Bath.

Bath subsequently said it could not fabricate the heads on the basis of the 1950's plans because those plans lacked sufficient detail. Riley then drafted new plans (the "1979 plans") based on the 1950's plans, and sent them to Bath. The 1979 plans included dimensional detail and instructional notes for Bath's use. Later, PSI ordered two more conical heads from Riley, which Riley in turn ordered from Bath.

After a delay of about six months, Bath completed manufacture of the first two conical heads in October 1979, and after inspection by Riley and PSI representatives, one of the heads ("head no 1") was installed by PSI in its coal pulverizing mill 1B. That head failed in service in August 1980, as the result of a 360 degree circular crack through the plate of the cone at the toe of the weld connecting the cone to the hub of the head. That failure is the subject of PSI's claim against Bath. After the failure, both PSI and Riley hired experts to determine the cause, and in conjunction with that investigation the 1950's heads were examined. The experts apparently concluded that the cause of the failure was insufficient weld metal and improper finish of the weld at the cone-to-hub connection. At trial, Bath conceded that the size of the weld was smaller than the specifications on the 1979 plans required. The question whether the weld was improperly finished was disputed.

Over plaintiffs' objection, the trial court admitted certain evidence on the issue of causation. In this connection, the investigation of the failure of the conical head installed in Mill 1B included an analysis of the three other conical heads fabricated by Bath which had not yet been installed. Riley's expert, Teledyne, concluded that it would be possible to repair the three remaining heads by building up and smoothly blending the weld in accordance with Riley's design. Riley prepared a written rebuild procedure, approved by PSI, which specifically required that the weld should be finished by grinding. Bath repaired one of the heads ("head no.2"), and PSI and Riley retained an outside firm to repair another one ("head no.3"). Riley's claim against Bath is for the expenses incurred in having head no.3 repaired. Riley and PSI inspected and approved both rebuilt heads, and these were installed. Both rebuilt heads failed in service, although these failures apparently were not as severe as the first one had been, and the heads were still operational at the time of trial. The fourth head was returned to Bath.

PSI brought claims against Bath in negligence and strict liability and sought various items of damages resulting from the failure of the first conical head. Riley's case against Bath was founded solely on breach of contract, and Bath counterclaimed against Riley to recover monies due for the other heads. Bath's affirmative defenses included incurred risk, contributory negligence, estoppel, waiver and inspection and acceptance. The action was bifurcated by the trial court and tried before a jury, which found in favor of PSI and Riley. After the damages phase of the trial, the jury awarded PSI $2,438,080.20 in damages to Riley in the amount of $70,225.09. The trial court awarded PSI $83,205.46 in prejudgment interest, but denied Riley prejudgment interest. Facts relating to the parties' contentions on damages and interest will be set forth later in this opinion where relevant.

II.

Stated simply, the plaintiffs' theory at trial was that Bath's failure to comply with the plans provided by Riley resulted in defects in the welds in the conical heads. Although PSI's claims sounded in tort, and Riley's in contract, both parties' essential contention was that Bath's deviation from the Riley plans was the sole cause of the failure of the heads. In particular, plaintiffs presented a great deal of evidence tending to show that Riley's 1979 plans required leg lengths and a type of blended finish which, if followed, would have produced a satisfactory product, but that Bath failed to follow those plans. Evidence was presented under pressure to complete the project quickly and, as the result of that pressure, did not take necessary steps to complete the head correctly. As noted, Bath acknowledged that it had made the cone-to-hub weld too small, thus deviating from the 1979 plans. It claimed that the 1979 plans had only specified an "as-welded finish," rather than a blended finish, however, and that the as-welded finish was the actual cause of the failure. Bath urged this alternative theory of causation as a complete defense to both PSI's tort and Riley's contract claims.

In order to prove this theory, Bath intended to demonstrate the following propositions. First, Bath wanted to show that PSI's and Riley's objective in 1979 was to design and have manufactured conical heads that would be identical to the conical heads that Riley had designed for PSI in the 1950's design and that 1950's heads, to show that Riley's 1979 plans did not in fact duplicate the 1950's heads. Next, Bath intended to show that the head that were rebuilt (one by Bath, and one by another manufacturer) to conform to the 1979 plans both failed at the same critical weld, despite the fact that once rebuilt they complied with the specifications of the rebuild procedure. Once again, Bath wanted to produce evidence about the 1950's heads in order to demonstrate the "design deficiencies" in the subsequent 1979 plans and rebuild procedure -- i.e., that the later plans did not provide the correct specifications necessary to duplicate the 1950's heads.

Bath was allowed to demonstrate several of these propositions, but was foreclosed at various points from providing evidence about certain features of the 1950's head, primarily because the trial court viewed this evidence as irrelevant. Without such evidence, Bath contents that the jury was left with erroneous impression that the 1979 plans did (at least more or less) duplicate the 1950's plans, and so was bound to reject Bath's theory that the difference between the plans, rather than Bath's deviation from the 1979 plans, actually caused the head to fail. Moreover, Bath argues that it was clear that evidence about the 1950 heads would not be admissible until midway through trial (even though it had allowed Bath to present its theories about this evidence during opening argument) thus unfairly foiling Bath's trial strategy. Finally, Bath contends that the trial court made many inconsistent rulings regarding the 1950's heads evidence, effectively allowing plaintiffs to present their version on the point but preventing Bath from contradicting it.

The next type of evidence that Bath contends was erroneously excluded concerned events that took place after the second and third head had been rebuilt, and had failed in service. Following the second and third failures, Riley again conducted a field inspection of the 1950's heads. Based on measurements made during the field inspection, PSI and Riley prepared new plans for the conical heads (the "1983 plans"). Bath's position was that the 1983 plans finally achieved the plaintiffs' initial intention to duplicate the 1950's heads. Bath wanted to use this evidence to argue that PSI and Riley recognized the real cause of the 1979 failure and, in 1983, finally corrected the design deficiencies that had been present in the 1979 plans. Bath believed that such evidence would support its theory that, had Riley prepared adequate plans in 1979, Bath would have produced heads that were identical to the 1950's heads and that failure at issue would never have occurred. The trial court granted plaintiffs' pre-trial motion in limine to exclude this evidence about the 1983 plans.

The trial court excluded both the evidence about the 1950's heads and the evidence about the 1983 plans primarily on the basis that this evidence was irrelevant, and also because in its view such evidence would have led to confusing the issues and misleading the jury. Because decisions regarding the admission and exclusion of evidence are peculiarly within the competence of the district court, we will not reverse such a determination on appeal unless it constituted a clear abuse of discretion. See United States v. Micklus, 581 F.2d 612, 617 (7th Cir. 1978). Moreover, Bath has the burden on this appeal to show that its substantial rights have been prejudiced by the exclusion of the proffered evidence. See Ellis v. City of Chicago, 667 F.2d 606, 611 (7th Cir. 1981). Under these standards, we evaluate each of Bath's arguments in turn.

III.

A. Evidence about the 1950's design and ...


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