Toshiba Pushes to Dismiss $820M Defect Suit Over Hydro Plant

Toshiba America Energy Systems Corp. (TAES), a U.S. unit of Toshiba Corp., is defending itself against allegations that it delivered defective work on a $560 million turbine upgrade at the Ludington Pumped Storage Plant in Michigan. The plaintiffs, Consumers Energy Co. and DTE Electric Co., filed a lawsuit in 2022 claiming the overhaul work performed by TAES was substandard, would not last as promised, and would require extensive ongoing maintenance. The utilities are seeking approximately $820 million in damages and prejudgment interest, significantly exceeding the original contract value.

The project began under a 2011 contract to extend the operational life of the hydroelectric plant, which secured a new 50-year license from the Federal Energy Regulatory Commission in 2019. According to the utilities, TAES’s work on the plant’s six turbines exhibited serious deficiencies—most notably cavitation erosion on critical components—which they argue undermines the reliability and longevity of the upgraded systems.

The Charges

Consumers and DTE allege that Toshiba breached its contract by delivering defective turbine components, including discharge rings in Units 2 and 4 that suffered from cavitation erosion. Cavitation, a destructive phenomenon in which vapor bubbles collapse within liquid flows, can cause severe wear and tear on mechanical components. The plaintiffs assert that these flaws will shorten the equipment's usable life and impose unexpected maintenance burdens, breaching Toshiba’s contractual obligations.

Toshiba, however, contends that many of the alleged defects were already identified during the project’s mandatory inspection phase and were known to Consumers and DTE before the utilities signed interim and final acceptance certificates for the turbines. Under the contract, Toshiba argues, once the utilities granted those certifications, they waived the right to bring future claims based on any defects identified at the time.

Toshiba's Defense

In a recently unsealed summary judgment motion, TAES has moved to dismiss the claims on contractual grounds, arguing that the utilities inspected the work, accepted it, and are now improperly seeking additional compensation. “For example, plaintiffs' most significant claim — relating to alleged cavitation erosion on discharge rings in Units 2 and 4 — must be dismissed as a matter of law because plaintiffs admit to discovering the cavitation erosion months before they granted [final acceptance] certificates on those units,” the motion states.

Toshiba also emphasizes that the cavitation warranty in the contract applies exclusively to turbine "runners," not discharge rings or other components. Since the plaintiffs have not alleged any impermissible cavitation on the runners themselves, Toshiba argues that the claims fall outside the scope of the contractual warranty. “The contract does not provide for any cavitation warranty on any other component besides the runners,” Toshiba wrote, noting that plaintiffs “allege damage only to the discharge rings, which are not covered by the Cavitation Warranty.”

Additionally, the company criticized the plaintiffs’ damages calculations, arguing that they seek compensation for future costs that have not yet been incurred and damages that exceed liability caps established in the original agreement. “While plaintiffs opportunistically seek a huge cash windfall through this action, their claims cannot be squared with the specific terms of the contract,” the company said.

The Law Firms Involved

Toshiba is represented by attorneys Christopher M. Curran, Eric Grannon, J. Frank Hogue, and Holly Tao of White & Case LLP, as well as Nicholas J. Ellis, Tony Tootell, and Kelsey Leiper Imam of Foley & Lardner LLP.

Consumers Energy and DTE Electric are represented by Terri L. Mascherin, Daniel J. Weiss, and Christopher Tompkins of Jenner & Block LLP, along with Patrick G. Seyferth and Derek J. Linkous of Bush Seyferth PLLC.

What’s Next?

The court will now consider Toshiba’s motion for summary judgment, which could significantly narrow the case or dismiss it outright. If the court rules in Toshiba’s favor, Consumers and DTE may be left with limited recourse to recover damages stemming from the turbine issues. However, if the motion is denied, the case could proceed to trial, potentially exposing Toshiba to substantial liability.

As of now, representatives from all parties have declined to comment on the litigation. The case, DTE Electric Co. et al. v. Toshiba American Energy Systems Corp. et al., is being heard in the U.S. District Court for the Eastern District of Michigan under case number 4:22-cv-10847.