Savage Industries, Inc., Plaintiff-Counter-Defendant-Appellee v. American Pulverizer Company, Defendant-Counter-Claimant-Appellant, Chris Griesedieck, Defendant-Counter-Claimant

Citations: 103 F.3d 145; 1996 WL 726889; 1996 U.S. App. LEXIS 35802Docket: 95-4159

Court: Court of Appeals for the Tenth Circuit; December 17, 1996; Federal Appellate Court

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Savage Industries, Inc. filed a lawsuit against American Pulverizer Company for negligent misrepresentation, breach of warranty, breach of contract, and equitable estoppel. The district court granted summary judgment in favor of Savage Industries regarding American Pulverizer's liability for breach of contract, leading to a bench trial focused on damages. The court awarded Savage Industries $499,296.26 after issuing detailed findings and conclusions. 

American Pulverizer's attempt to amend these findings was denied, prompting an appeal. The factual background reveals that in June 1991, Savage Industries contracted with Charles T. Main, Inc. to build a waste coal handling system for the Sunnyside Cogeneration Project, requiring a specific coal size. American Pulverizer sold Savage Industries a double roll crusher intended for this project; however, it underperformed, producing oversized material unsuitable for fuel. 

To address this, Savage Industries and American Pulverizer agreed to implement a "Closed Loop System" in August 1993, but this system proved inadequate. They subsequently executed a new agreement in October 1993 for the installation of the "Zeigler System," which required American Pulverizer to refurbish the double roll crusher to meet original equipment manufacturer (OEM) standards. Shortly after this contract, American Pulverizer informed Savage Industries of its financial inability to fulfill the contractual obligations and ultimately failed to refurbish the crusher as required.

Savage Industries fulfilled its contractual obligation to Charles T. Main, Inc. by seeking a cost-effective replacement for the double roll crusher in the Zeigler system. They ultimately purchased a Canica vertical impact crusher, which met the Sunnyside Facility's output requirements at a lower cost, requiring fewer new conveyors and screens. During the transition from February to May 1994, Savage Industries rented a temporary crusher from Canica while modifications were made for the new equipment, which was permanently installed in May 1994.

Although the Zeigler System was designed for a closed-loop operation to recirculate oversized products, Savage Industries opted not to install a CV-111 conveyor initially due to cost concerns. Instead, oversized materials were stockpiled and managed by hiring additional workers and operating equipment in two shifts. The CV-111 conveyor was approved for capital funding in June 1995 but had not been purchased by the time of trial.

In June 1995, a district court trial awarded Savage Industries $499,296.26 in damages, which included $62,330.00 for the CV-111 conveyor and $116,484.93 for additional operating expenses incurred from November 1993 to May 1994. American Pulverizer appealed, contesting the damages awarded for both the CV-111 conveyor and additional operating expenses, raising three main issues: whether the district court misapplied Utah law regarding the CV-111 conveyor award, whether there was sufficient evidence to support the CV-111 conveyor award, and whether the award for additional operating expenses was supported by sufficient evidence.

The appeal was reviewed, and it was determined that American Pulverizer's arguments lacked merit. The review process distinguished between a challenge to the computation of damages and a challenge to the law applied in determining those damages. The court applied a de novo standard for reviewing the legal application and a clearly erroneous standard for reviewing the sufficiency of the evidence.

American Pulverizer argues that the trial court misapplied Utah law by allowing Savage Industries to recover damages for both the Canica System and the CV-111 conveyor. American Pulverizer asserts that under Utah's Uniform Commercial Code, a buyer must choose between recovering costs incurred in covering or damages for non-delivery based on the benefit of the bargain. Since Savage Industries opted for "cover" by acquiring the Canica System, American Pulverizer claims it should only recover the costs associated with this system.

Conversely, Savage Industries contends that it is entitled to recover damages for the CV-111 conveyor because its acquisition of the Canica System constituted a "partial cover." The Canica System lacked a crucial closing loop conveyor, making it insufficient as a complete substitute. Under Utah law, when a seller fails to deliver, a buyer may either seek cover damages or recover economic losses, but cannot receive damages for both if they have fully covered. The remedies are designed to place the aggrieved party in the position they would have been in had the contract been fulfilled.

American Pulverizer has not cited relevant Utah case law to support its position, and the review of case law indicates a lack of direct precedent on whether buyers can recover "benefit of the bargain" damages after partial covering. The document references cases from other jurisdictions, such as Mann, Parker Lumber Co. v. Wel-Dri, where the court ruled that a buyer does not need to cover every aspect of a contract to recover damages for a breach. Similarly, in Interior Elevator Co. v. Limmeroth, the court acknowledged that partial delivery does not negate the buyer's right to seek damages for the undelivered portion of the contract.

The plaintiff fulfilled its contract with a third-party and subsequently sued the defendant. The trial court denied recovery for 801 bushels not covered by the plaintiff. However, the Oregon Supreme Court reversed this decision, referencing Comment 5 to U.C.C. 2-713, which allows partial coverage for recovery. The court stated that the plaintiff's partial coverage met its contractual obligations, entitling it to recover reasonable cover costs and damages for the unfulfilled bushels. The ruling emphasized that not covering the entire amount does not preclude recovery under ORS 72.7130. 

Similarly, Savage Industries, which partially covered its obligations after American Pulverizer's repudiation, is entitled to recover the economic value of the CV-111 conveyor it needed, in line with Utah law and U.C.C. principles. The court noted that a strict interpretation that limits recovery to full coverage would unfairly burden parties required to fulfill third-party contracts. 

Additionally, American Pulverizer challenged the sufficiency of evidence for the damages awarded for the CV-111 conveyor, arguing Savage Industries had not purchased it nor had definite plans to do so. However, the court concluded that Savage Industries provided enough evidence for recovery, referencing a precedent where a buyer was entitled to damages for equipment not yet purchased. The conclusion supports the notion that an aggrieved buyer does not need to cover all contractual parts to recover damages.

The Seventh Circuit in *Continental Sand, Gravel, Inc. v. K. K Sand, Gravel, Inc.* ruled that under U.C.C. 2-712, damages based on repair costs are recoverable even if the repairs are not executed, as the market value of the goods is diminished by the amount that would have been added through repair. Similarly, Savage Industries can recover damages for the economic value of the CV-111 conveyor despite not purchasing it, as evidence showed a contract for a closed-loop Zeigler System for material processing was breached by American Pulverizer. The court affirmed an award of $62,330 for the CV-111 conveyor.

Additionally, the district court awarded Savage Industries $116,484.93 for extra operating costs incurred due to American Pulverizer's failure to refurbish the double roll crusher by the agreed deadline. American Pulverizer disputed this award, claiming Savage Industries did not prove the costs resulted from its breach. However, it was established that damages must be directly linked to the breach. The contract specified that the closed-loop Zeigler System would prevent the need for a front-end loader to manage oversized material, and American Pulverizer failed to refurbish the crusher as promised. Testimony indicated that Savage Industries faced a backlog of oversized material, necessitating additional labor and equipment to manage the situation. The court found sufficient evidence of the causal link between the breach and the additional costs incurred.

Mr. Reddington testified that Savage Industries incurred additional operating expenses due to American Pulverizer's failure to meet its contractual obligation to bring the double roll crusher to O.E.M. standards by November 8, 1993. The trial court could reasonably conclude that this breach directly caused Savage Industries' extra costs. Had American Pulverizer fulfilled the contract, the Zeigler System would have been installed, enabling the production of 175 tons per hour while efficiently managing oversized material, thus eliminating the need for a front-end loader to handle excess product. Instead, Savage Industries accumulated significant oversized material, leading to additional labor and equipment costs.

The district court's decision to award Savage Industries damages for these additional expenses was upheld, including $62,330 for the CV-111 conveyor and $116,484.93 for operating costs. However, Senior Circuit Judge Godbold concurred in part and dissented in part regarding the conveyor damages, suggesting reversal or remand as it had not yet been purchased. The case history involved several phases: the initial installation of an unsatisfactory double-roll crusher, a proposed closed loop system that was deemed inadequate, the agreement to install the Zeigler system, and ultimately, Savage’s purchase of a Canica crusher that proved to be a cost-effective alternative. The recirculation system implemented by Savage successfully managed oversized material with fewer components than the Zeigler system. Following the installation of the Canica in May 1994, Savage claimed no further damages related to excess material handling.

Plaintiff's economic loss after May 1994 is unclear; the $62,330 claimed is for a new conveyor to create a closed loop system. While the court agrees on the conveyor's value for achieving that design, it questions the entitlement to components of the closed loop system since the parties recognized its inadequacy and opted for the Zeigler system instead. The installed recirculating system, which includes the Canica crusher, meets output requirements and does not show quality deficiencies after May 1994. The plaintiff did not demonstrate that the installed system was inferior in performance, longevity, or repair costs compared to the abandoned closed loop system. The court indicates that awarding damages for a conveyor linked to a design that was deemed insufficient is illogical. Although the recirculating system initially produced oversized material, the plaintiff has been compensated for that issue prior to May 1994, and no additional damages were claimed afterward, as the Canica crusher reportedly met expectations. The court finds the $62,330 award unsupported due to inadequate district court findings, which appear to be clerical errors. It further states that the plaintiff only partially covered the breach, thus justifying the balance claim. The case differs from previous rulings in that a functional substitute system exists, and the plaintiff is not obligated to purchase replacements for all contract parts if the substitute performs adequately.

In the case of Interior Elevator, the seller breached a contract to supply 125,801 bushels of wheat, delivering fewer than contracted. The purchaser covered by sourcing 125,000 bushels for a third party but sought recovery for the 801 bushels that were not covered. The district court denied this recovery, but the court of appeals reversed the decision, stating that partial coverage did not preclude recovery for the specific economic loss of the 801 bushels.

Furthermore, there is a discussion regarding the damages related to a conveyor that had not been purchased. The author suggests reversing the $62,330 award for this conveyor or remanding the issue for further clarification, as the district court's prior findings were ambiguous. The court also notes that this ruling is not binding precedent except under specific legal doctrines and generally discourages citation of such orders unless under particular rules.

The document mentions the Closed Loop System and the Zeigler System, both designed to optimize coal processing, with differing requirements for conveyors and screens. The district court had not specifically addressed the damages for the CV-111 conveyor in its findings but indicated in its conclusions that Savage Industries was entitled to that amount, which the author views as a clerical error.

Additionally, the document references Oregon and Utah statutes on cover, indicating their similarity. Savage Industries argues it does not require the additional conveyors it proposed to purchase, as its alternative system met the necessary requirements with fewer conveyors. However, it remains unclear why Savage did not fulfill the original contract's requirement for five conveyors despite relocating and refurbishing existing equipment.