P.A.L. Environmental Safety Corp. v. North American Dismantling Corp. Et Al., No. 19-11630, 2020 BL 198779 (E.D. Mich. May 28, 2020)

A Michigan federal court partially granted Consumers Energy Company’s (“CEC”) motion to dismiss P.A.L. Environmental Safety Corporation’s (“PAL”) complaint alleging numerous causes of action in connection with its suit against CEC and contractor North American Dismantling Corporation (“NADC”) for outstanding payment stemming from asbestos abatement work at a CEC-owned power plant in Essexville, Michigan (the “Power Plant”).

According to the decision, CEC, as owner, and NADC, as prime contractor, entered into a written contract whereby NADC agreed to abate, dismantle, and demolish the Power Plant.  In turn, NADC subcontracted with PAL to perform abatement of all asbestos containing material at the Power Plant.  While the subcontract price was $7,996,331, PAL alleged entitlement to an adjusted price of $23,841,833 in unpaid labor and materials for its asbestos abatement work.  Specifically, PAL alleges that it performed additional work not accounted for in the subcontract including fly ash and coal dust removal, refractory brick abatement, and extra asbestos removal.

While PAL’s complaint included numerous counts against Defendants NADC, CEC, and labor and material payment bond surety North American Specialty Insurance Company (“NASIC”), the opinion is most notable for its treatment of CEC’s motion to dismiss several counts against it including: (i) quasi-contractual claims; (ii) a third-party breach of contract claim; and (iii) a negligent misrepresentation claim.

Unjust Enrichment & Promissory Estoppel

CEC’s Fed. R. Civ. P. 12(b)(6) motion argued that PAL’s quasi-contractual claims for both unjust enrichment and promissory estoppel were barred by the presence of a written contract as “[t]here cannot be an express and implied contract covering the same subject matter at the same time.”  Campbell v. City of Troy, 42 Mich. App. 534, 537 (Mich. Ct. App. 1972).  PAL countered that in order for an express contract to bar equitable claims, it cannot just cover the same subject matter, but must also be “between the same parties.”  Morris Pumps v. Centerline Piping, Inc., 273 Mich. App. 187, 194-95 (Mich. Ct. App. 2006).

The Court reasoned that although two express contracts existed with respect to demolition of the Power Plant, there was no contractual privity between CEC and PAL.  Accordingly, the Court declined to dismiss the unjust enrichment and promissory estoppel claims because PAL had no express contract with CEC and no other avenue to recover from CEC outside of equitable remedies.

Third-Party Breach of Contract

PAL also alleged that as a third-party beneficiary of the contract between owner CEC and prime contractor NADC it was entitled to bring a breach of contract claim against CEC despite a lack of privity.  The Court first analyzed the contract to determine if a third-party beneficiary was intended, noting that “[a] third person cannot maintain an action on a simple contract merely because he or she would receive a benefit from its performance . . . ‘[t]hird party beneficiary status requires an express promise to act to the benefit of the third party; where no such promise exists, that third party cannot maintain an action for breach of the contract.’”  Kisiel v. Holz, 272 Mich. App. 168 , 171-72 (Mich. Ct. App. 2006) (quoting Dynamic Constr. Co. v. Barton Malow Co., 214 Mich. App. 425 , 543 (Mich. Ct. App. 1995)).

The Court concluded that not only did the contract not include a direct promise to PAL, it explicitly stated that the contract did not create any third-party beneficiaries:

2.8 Third Party Beneficiaries. Unless and except as may be specifically stated herein, nothing contained in this Contract shall create any contractual relationship, including but not limited to any third party beneficiary status, between or establish any rights or benefits in favor of, anyone other than the Owner and the Contractor.

Accordingly, the Court dismissed PAL’s claim concluding that any benefit PAL received from the contract between the owner and prime contractor was incidental, leaving it with no third-party rights to enforce.

Negligent Misrepresentation

PAL’s final claim against CEC alleged negligent misrepresentation with respect to two key pieces of information surrounding its scope of work:  (i) the amount of asbestos containing material PAL would be required to remove and (ii) fly ash/coal dust removal prior to PAL commencing work.

CEC moved to dismiss the claim as conclusory and barred by the parol evidence rule.  While the Court quickly concluded that PAL’s allegations of oral misrepresentation met the pleading threshold under Twombly and Iqbal, it engaged in a more protracted analysis of CEC’s argument that the claim was barred by the parol evidence rule and the integration clause in the contract between CEC and prime contractor NADC.  PAL argued that since it was not a party to the contract, the integration clause and the parol evidence rule did not apply to it.  The Court ultimately agreed, finding that an agreement between the parties is a necessary condition of the parol evidence rule.  Watkins & Son Pet Supplies v. Iams Co., 254 F.3d 607 , 612 (6th Cir. 2001); 70 A.L.R. 752 (2011) (“[w]hether the parol evidence rule applies depends upon whether there was an integration or a complete expression of the agreement of the parties.”).  Given that neither PAL nor CEC alleged the existence of an express contract between them, the Court found that the parol evidence rule did not bar CEC’s alleged misrepresentations to PAL.

To view the full text of the court’s decision, courtesy of Bloomberg law, click here.