Court Revives CB&I Bid to Dismiss Westinghouse $2 Billion Claim

(Bloomberg) -- Westinghouse Electric Co. was dealt a setback in its bid to recover $2 billion from Chicago Bridge & Iron Co. NV stemming from cost overruns at unfinished nuclear reactors in South Carolina and Georgia.

A Delaware Supreme Court Tuesday said a lower court was wrong to dismiss CB&I’s claims that Westinghouse reneged on promises to wipe out its liabilities tied to the projects. Westinghouse purchased a unit of CB&I in 2015 that was building the nuclear plants for Southern Co. and Scana Corp. The dispute now goes back to the lower court.

Westinghouse, a unit of Toshiba Corp., filed for Chapter 11 bankruptcy in March undermining its Japanese parent’s bet on a nuclear renaissance that never materialized. Westinghouse has said it doesn’t want to continue building the nuclear units, the first U.S. reactors to receive construction approval in more than 30 years, which are years behind schedule and billions over budget.

The ruling “is a massive victory for CB&I in its ongoing legal dispute with Westinghouse,” Thomas Claps, an analyst at Susquehanna Financial Group, LLLP, said in a research note Tuesday. Westinghouse’s claim “should be greatly reduced” when the Chancery court reviews the case and sends it to an auditor, could issue a decision in late 2017 or early 2018, Claps wrote.

The court decision limits CB&I’s exposure to cost overruns from the plants to less than $100 million, Claps estimated. Shares of the Hague, Netherlands-based engineering services firm rose a record 38 percent to $19.88 in intraday trading in New York.

Closing Dispute

Spokeswoman Sarah Cassella said Westinghouse is reviewing the decision.

CB&I unit CB&I Stone & Webster Inc. was responsible for on-site construction of Westinghouse’s Vogtle and V.C. Summers reactors. When Westinghouse agreed to buy the unit in 2015, it assumed project operations and assets, including contracts in the U.S. and China. 

The decision, “vindicates our position that Westinghouse’s $2 billion claim was without merit under the agreement," CB&I’s Chief Executive Officer Philip K. Asherman, said in a statement. "CB&I looks forward to quickly resolving any remaining disputes between the parties, which we believe should be immaterial in light of the Court’s ruling."

As the deal closed, a dispute arose over how much the projects would cost to complete -- Westinghouse said it was owed $2.15 billion from CB&I, basing its claim on what Tuesday’s ruling called an “unusual” provision tied to CB&I’s accounting. The ruling found that most of Westinghouse’s arguments over the accounting shouldn’t apply.

“The Court of Chancery erred in interpreting the purchase agreement,” according to the ruling from Leo Strine and two other judges.

Accounting Arguments

"The decision appears to be positive for CB&I in that certain arguments made by Westinghouse regarding the accounting for the merger may not be heard by the auditor,” said Scott Levine, an analyst for Bloomberg Intelligence.

Westinghouse’s purchase of CB&I Stone & Webster Inc. accelerated the company’s losses in the 15 months leading up to its bankruptcy filing, Lisa Donahue, Westinghouse’s restructuring advisor, said in court papers.

The bankruptcy case is In re Westinghouse Electric Co., 17-10751, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Delaware case is 12585-VCL; Chicago Bridge & Iron Company N.V. vs Westinghouse Electric Company LLC et al.