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Industrial Dredging and Engineering Corp. v. Southern Indiana Gas and Electric Co.

decided: February 22, 1988.


Appeal from the United States District Court for the Southern District of Indiana, Evansville Division, No. 84 C 64 -- Gene E. Brooks, Judge.

Cudahy, Easterbrook and Kanne, Circuit Judges.

Author: Cudahy

CUDAHY, Circuit Judge.

The plaintiff in this diversity case seeks to recover, in quantum meruit, money it could not recover under a dredging contract between the parties. The district court rejected plaintiffs arguments and entered judgment for the defendant. We affirm.


Plaintiff Industrial Dredging and Engineering Corporation ("Industrial") is a Minnesota corporation with its principal place of business in Anoka, Minnesota. Defendant Southern Indiana Gas and Electric Company ("SIGECO") is an Indiana corporation with its principal place of business in Evansville. The amount in controversy exceeds $10,000.

Some background is helpful in understanding this case. When coal is used to generate electricity at SIGECO's Gulley Station facility, coal ash is a by-product of the process. SIGECO mixes the ash with water and pumps the resulting slurry into one of the ash ponds on the premises. Over time the pond fills with ash and periodically the ash must be removed. Removal is accomplished by dredging the pond using one of two methods. One dredging method utilizes a bucket wheel agitation device, which dislodges ash from the pond floor, bringing it into the suction stream of a vacuum nozzle. The slurry is sucked through a pipe to the shore, where it can be transported elsewhere. This method allows for removal of a greater total quantity of ash than the alternative method not using agitation

In April 1983, Industrial contracted to dredge the West Ash Pond at Gulley Station. The contract called for removal of at least 700,000 cubic yards of ash by use of the agitation dredging method. Industrial's bid proposal acknowledged that the northern one third of the pond might be undredgeable due to submerged debris. It was not possible to determine the nature and extent of debris because the rubble was concealed under a layer of ash. With that knowledge, Industrial and SIGECO executed a contract containing the following clause:

Familiarization With Site: The Contractor [Industrial] agrees that he has examined all the available records and has made a field examination of the site and right-of-way; that he has informed himself about the subsurface conditions and surface and subsurface water conditions to be encountered, the character of equipment and facilities needed for the prosecution of the work, the location and suitability of all construction materials, the quantities in the various sections of the work, the local labor conditions and all other matters in connection with the work and services to be performed under the contract.

Any records of subsurface condition, water records or other observations which may have been made by the Owner have been made with reasonable care and accuracy. Such records may be made available to the Contractor for his information, but there is no expressed or implied guaranty as to the accuracy of the records or any interpretation of them. The Contractor recognizes this, and agrees that he has formed his own opinion of the character of materials to be excavated from an inspection of the ground and has put his own interpretation on records.

The Contractor further agrees that the Contract Prices are based on his own knowledge and judgment of the conditions and hazards involved, and not upon any representation of the Owner.

Appellee's Appendix at 34-35. This clause effectively places the risk of undiscovered hazards on Industrial. That allocation of risk is not surprising given the fact that Industrial had dredged numerous other ponds, including the East Ash Pond at Culley Station. Industrial held itself out as a dredging expert and set its price based on its evaluation of the site conditions.

Unfortunately for Industrial, the project proved more difficult than anticipated. After removing some of the ash, Industrial ran into large amounts of debris. The debris, primarily timber and construction materials, caused numerous equipment breakdowns, delaying completion of the task and increasing the cost. By the end of August 1983, Industrial had removed almost 600,000 cubic yards of ash, receiving $659,693.70 in payments, minus a retainage to ensure payment of suppliers. On August 31, the parties executed a "Change Order," allowing for higher payments when Industrial encountered debris. Industrial completed the project under the change order removing another 135,000 cubic yards of ash for a total of 719,372 cubic yards, above the contract requirement of 700,000 cubic yards. The total paid by SIGECO was approximately one million dollars, excluding the retainage, which was eventually paid to Industrial's suppliers under a court order.

Industrial wants more money. Since SIGECO paid in full under the contract, Industrial brought this action under Indiana law seeking recovery in quantum meruit. The contractor asked for another $1.4 million in damages. After trial, Judge Brooks found for SIGECO holding that the express contract precluded quantum meruit recovery and that plaintiff's other arguments in that court, fraud or negligent misrepresentation and duress, were not pleaded and were ...

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