MAINE RUBBER INTERNATIONAL v. ENVIRONMENTAL MANAGEMENT GROUP

2004 | Cited 0 times | D. Maine | June 14, 2004

ORDER ON DEPENDANT'S MOTION FOR JUDGMENT AS A MATTER OP LAW ON DAMAGES AND PLAINTIFF'S MOTION TO ALTER AND AMEND JUDGMENT

The primary issue on this motion for judgment as a matter of law afterthe jury's verdict is whether sufficient evidence was produced at trialto show that lost profits and out-of-pocket expenses were a reasonablyforeseeable result of a breached contract to assess environmentalconditions on real estate. I conclude that there was insufficientevidence to show that the parties contemplated lost profits as possibledamages for breach at the time they entered the contract, but thatout-of-pocket expenses the plaintiff paid to third parties in preparationfor the move to the property were reasonably foreseeable damages, notspeculative, and not against the weight of the evidence. I therefore GRANTIN PART AND DENY IN PART the defendant's Renewed Motion for Judgment as aMatter of Law. I DENY the defendant's Motion for a New Trial on damages. I GRANT the plaintiffsmotion to include prejudgment interest.

FACTS

In entertaining a motion for judgment as a matter of law, I review allthe evidence in the record, and consider the evidence in a light mostfavorable to the nonmoving party (here, Maine Rubber), disregarding allevidence favorable to the moving party (here, EMG) that the jury was notrequired to believe. See, e.g., Reeves v. Sanderson Plumbing Prods.,Inc., 530 U.S. 133, 150-51 (2000).

Maine Rubber International ("Maine Rubber") contracted withEnvironmental Management Group, Inc. ("EMG") to perform a Phase IEnvironmental Site Assessment on property Maine Rubber had contracted topurchase (the DuraStone property). Maine Rubber planned to relocate itstire manufacturing business to the DuraStone location. EMG'senvironmental site assessment came up clean, and Maine Rubber waived theenvironmental condition in its purchase and sale contract withDuraStone. Over six months later, the United States EnvironmentalProtection Agency and the Maine Department of Environmental Protectionfound environmental hazards on the property. As a result, Maine Rubberterminated its contract to buy the DuraStone property. It proceeded withan expedited move to another location in Gorham, Maine, whereas it hadplanned on an orderly, phased, move to DuraStone. As a result, MaineRubber lost profits and lost the benefit of expenditures it made in connection with the aborted move.

The jury found that EMG breached its environmental services contractwith Maine Rubber. As a result of the breach, the jury awarded MaineRubber a $1,900 refund of the contract price paid to EMG, $211,625.51 forexpenditures Maine Rubber paid to third parties working in anticipationof the DuraStone move, and lost profits in the amount of $486,600. JuryVerdict Form (Docket Item 168).

EMG now moves for a renewed judgment as a matter of law underFed.R.Civ.P. 50(b) to reject the jury awards of lost profits and thirdparty expenditures, and requests a new trial on damages. Maine Rubbermoves to amend the judgment to add prejudgment interest.

ANALYSIS

(A) Procedural Posture

Maine Rubber argues that EMG waived its damage arguments by failing tomove for judgment as a matter of law at the close of all the evidence:"it merely renewed the motions it made after Maine Rubber rested. Thesemotions did not request judgment as a matter of law or otherwisechallenge the sufficiency of the evidence." Pl.'s Mem. in Opp'n to Def.'sMot. for J. as a Matter of Law ("Pl.'s Mem. in Opp'n") at 2 (Docket Item184). Maine Rubber argues that all EMG did at the close of Maine Rubber'scase in chief was to renew motions in limine and to exclude evidence ofdamages. I reject the argument. It was clear to everyone what relief EMG was seeking at the close of Maine Rubber's case-in-chiefand at the close of all the evidence. When I invited motions at the endof the plaintiff's case — in-chief, EMG moved to "exclude" certainpremium tire damages. Tr. of Proceedings at 2 (Docket Item 174). MaineRubber understood that EMG was requesting judgment as a matter of law onthat topic because its lawyer responded "We didn't present any evidenceon that." Id. EMG then went on to move to "exclude" employee costs and to"exclude" lost revenue and lost profits and speculative damages. Id. Withthe exception of the lost revenue and lost profits, I denied the motionwithout waiting for Maine Rubber's response. Id. at 3. As to lost revenueand lost profits, I stated: Let me hear from plaintiffs counsel, however, on the lost revenue and lost profit claim. I'm concerned there about the issue of special consequential damages as the Maine Law Court recognizes them and the question of whether special circumstances are brought to the attention of contracting parties as to how these fit within that.Id. If there was any doubt about the nature of the motion, it should havebeen resolved by the next exchange between me and Maine Rubber's lawyer.He stated: "That had been briefed of course last week, Your Honor, or twoweeks ago [when it was a motion in limine], I'll try not to repeat that."Id. I responded "Now in terms of the evidence," making clear that thequestion was whether there was sufficient evidence to go to the jury.Id. He understood that was the nature of the inquiry, because heconcluded his remarks as follows: And I might add, the question of course is whether there are issues raised for the jury, obviously, and I think that does generate issues that a reasonable jury could find those damages are attributable to EMG.

Id. at 6. My ruling was: Given the status of the case, I am going to permit this issue to go to the jury. But I do have serious doubts about the foreseeability of the lost profit component of the damages. Let me explain that. Certainly there is evidence in the record that EMG knew that Maine Rubber was going to be buying this property and knew that evaluations were important for all the obvious reasons. The ordinary consequence of a failure by EMG, however, would be damages along the lines of cleanup costs, perhaps delay resulting in terms of closing, things of that sort. The idea that they should have expected lost profits to occur to Maine Rubber, I don't have a lot of confidence that there's evidence from which the jury could reach that conclusion. But I do conclude that the better course here is to permit the issue to go to the jury, to see first of all what the jury does. And so I'm going to deny the motion, but I do so expressing great reservations about the ability of the plaintiff to recover the lost profits as distinguished from the other type of consequential or incidental damages which are more in the nature of reliance and expenditures that Maine Rubber claims it made based upon the clean bill of health that it got from EMG and going forward with the contract, then to discover later that in fact, there were problems with the DuraStone site.Id. at 8.

It could not be clearer that the parties and I had treated the motionas the close of the plaintiff's case as a motion for judgment as a matteror law, whatever label EMG's lawyer had placed upon it. When EMG"renewed" its motions at the close of all the evidence and I made thesame ruling, everyone knew what had happened. And contrary to MaineRubber's suggestion, see Pl.'s Mem. in Opp'n at 3, the grounds for the motion were clear to everyone.

There was no procedural default and I proceed to the merits of themotion.

(B) Lost Profits

Special or consequential damages, like lost profits or relianceexpenditures, are generally not recoverable. Under Maine law such damagesare recoverable, however, if at the time the contract was formed theywere or should have been reasonably foreseeable or contemplated by bothparties as a probable result of a breach. See Williams v. Ubaldo,670 A.2d 913, 918 (Me. 1996) (citing Forbes v. Wells Beach Casino, Inc.,409 A.2d 646, 654 (Me. 1979); Susi v. Simonds, 147 Me. 189, 85 A.2d 178,190-91 (1951); Hadley v. Baxendale, 9 Exch. Rep. 341. (1854)); Rubin v.Matthews Int'l Corp., 503 A.2d 694, 696 (Me. 1986) (citing Winship v.Brewer School Comm., 390 A.2d 1089, 1095 (Me. 1978): Susi, 85 A.2d 178).See also Arthur Linton Corbin, 11 Corbin on Contracts § 1035, at 178(Interim ed. 2002).

Thus, under Fed R. Civ. P. 50, judgment as a matter of law depends uponwhether there was a "legally sufficient evidentiary basis" for a jury todetermine that these damages were reasonably foreseeable at the time thecontract was made. The only evidence as to the expectations of MaineRubber and EMG at the time the contract was formed came from thetestimony of Stuart Brown ("Brown"), former president and chief operatingofficer of Maine Rubber. Brown himself called EMG to order the Phase IEnvironmental Site Assessment. Everything EMG might reasonably have contemplated as a result of the breachspecific to Maine Rubber it would have learned from Brown. According toBrown's testimony, he told EMG who Maine Rubber was and what it did forbusiness. (There was no testimony by any EMG employee who recalledspeaking with Brown or knowing anything about Maine Rubber's potentialplans for moving to the DuraStone property.) Brown explained to EMG thatMaine Rubber had a loan with Fleet Financial and that Fleet referredMaine Rubber to EMG because Maine Rubber was contemplating purchasing theDuraStone property.

There was no testimony that Brown discussed with EMG the benefits oradvantages of the DuraStone property compared to Maine Rubber's existingfacility or any other potential site; no testimony that he told EMG aboutMaine Rubber's profit expectations at the new location; and no testimonythat he told EMG that Maine Rubber had a phased move plan designed toprevent production and profit losses as a result of the move.Additionally, the low contract price for performing the site assessment,$1,900, suggests that the parties never contemplated the risk ofliability for lost profits, here $486,600. Cf. Restatement (Second)Contracts § 351, cmt. f (1981).

EMG is in the business of performing environmental site assessmentswith corporate entities. A jury could reasonably conclude that EMG shouldbe generally aware that its customers have financial stakes in theproperties to be assessed. But lost profits are not the type of damagesthat the contracting parties would ordinarily expect as a result of a Phase I Environmental Assessmentthat failed to discover hazardous substances. Instead, as a result of aninadequate site assessment, the parties would reasonably expect expensesresulting from hazardous substances being on the property, i.e., futurecleanup costs on the site, fines for having toxins located on theproperty, bst resale value if the property was unusable, etc.

In the absence of any evidence that the parties contemplated MaineRubber's lost profits as a consequence of breach at the time the contractwas made or any evidence that lost profits would be generally expectedfor this type of breach, I conclude as a matter of law that MaineRubber's lost profits were not reasonably foreseeable as a result ofbreach at the time contract was made. They are therefore not recoverable.

(C) Reliance Expenditures

EMG argues that the jury's damages award for out-of-pocket expenses isspeculative, disproportionate to the contract price, and against theweight of the evidence.1 Under Maine law, speculative damages may notbe awarded. See, e.g., Carter v. Williams, 2002 ME 50, ¶ 9, 792 A.2d 1093(2002). The out-of-pocket expenses are certainly not speculative in thesense of being based upon conjecture; Maine Rubber presented at trialactual expenses it incurred in preparing for the DuraStone move. EMG argues that the amount isnevertheless speculative because Maine Rubber produced insufficientevidence at trial to show that in fact it would have terminated theDuraStone contract but for the EMG breach.

Proof that Maine Rubber would have terminated the contract earlier ifit learned of environmental problems sooner certainly would be sufficientto establish causation for the claim for lost reliance expenditures. Butthat was not Maine Rubber's case. Instead, Maine Rubber presentedevidence at trial that it learned of the environmental problems so latein the process that there was insufficient time to assess or cure thembefore the DuraStone closing date and therefore that it had little choicebut to rescind the DuraStone contract and move elsewhere under timepressure, thereby losing the value of the amounts it had spent on theDuraStone acquisition.2 In other words, Maine Rubber's premise wasnot that earlier knowledge would necessarily have led to contract termination, but that it would have provided Maine Rubber with time toassess the problems and cure them rather than be forced into an expeditedmove to a different location, forfeiting the value of what it had spenton the DuraStone site. Thus, Maine Rubber did provide sufficient evidencefrom which the jury could find that EMG's breach forced Maine Rubber toterminate the DuraStone contract and caused Maine Rubber to lose thebenefits of its out-of-pocket expenses. This conclusion also disposes ofEMG's weight of the evidence argument.

A contract price's lack of proportionality to the loss may indicatewhether such damages were foreseeable. See Restatement (Second) Contracts§ 351 cmt. f. But here the out-of-pocket expenses paid by Maine Rubber tothird parties on the aborted DuraStone move are exactly the type ofreliance costs one would expect a prospective purchaser to spend inpreparing to move to a new property. A defective Phase I assessment wouldobviously render many of these expenditures valueless when, like here,environmental hazards later were found on the property prior to closingand the land sale contract was terminated. Their value was lost to MaineRubber when it cancelled the DuraStone move. EMG has performed hundredsof site assessments for commercial and industrial companies for thepurpose of evaluating the environmental condition of prospectivemanufacturing sites. The evidence established that EMG knew that itsreports were relied upon in real estate decisions and transactions and thatthe accuracy of these reports was important and that it knew Maine Rubberwas obtaining this assessment with a view to acquiring the DuraStoneproperty. EMG should reasonably have foreseen that its clean bill ofhealth would lead to Maine Rubber making expenditures for engineeringcosts, legal fees, site plan consulting, site studies, public relations,geotechnical investigations and design work, and that those would bevalueless if Maine Rubber later had to abort the move because ofundiscovered environmental hazards.3

I therefore conclude that the jury's award of out-of-pocket relianceexpenditures to Maine Rubber was not speculative, not against the weightof evidence, and not disproportionate to the contract price in a way thatwould make such damages unforeseeable when the contract was made.

CONCLUSION

The defendant EMG's Renewed Motion for Judgment as a Matter of Law isGRANTED IN PART AND DENIED IN PART. The defendant EMG's Motion for NewTrial on damages is DENIED. The plaintiff Maine Rubber's motion to amendthe judgment to add prejudgment interest is GRANTED. The Clerk shallenter judgment for the plaintiff in the amount of Two Hundred ThirteenThousand Five Hundred Twenty-Five Dollars and Fifty-One Cents ($213,525.51), plus interest and costson Count II.

SO ORDERED.

1. EMG also argues that the jury awards for both lost profits andout-of-pocket expenses are inconsistent. This argument is moot in lightof my ruling as to lost profits.

2. In my earlier order ruling on a motion in limine to excludeevidence of damages, I did say that out-of-pocket expenses arerecoverable "[i]f the plaintiff can also establish that it would NOT haveincurred these expenses if the defendant had discovered the environmentalproblem during its Phase One survey and if it was reasonable not toremediate the hazard and go forward with the Durastone site." See Orderon Def.'s Mot. in Limine, at 2 (Mar. 31, 2004) (Docket Item 132). Itherefore denied the motion. The ruling did not prevent Maine Rubber fromarticulating an alternative theory of causation as to the reliancedamages. Here, the jury could have found that Maine Rubber terminated thecontract at the last minute because it was concerned about costs andconsequences that might not be rectified prior to closing, and that hadit known of the environmental hazards earlier, it could have proceeded ina deliberate way to resolve them so that its out-of-pocket expenses inreliance on EMG's representations would have not become worthless.

3. See generally 11 Corbin on Contracts § 1035 (dealing withexpenditures that "are made fruitless as an investment and become a `deadloss' by reason of the breach").

Back to top