Union Oil Co. of California v. John Brown E&C

• Decision Date: 05 August 1997
• Docket Number: Nos. 96-2782,96-2840,s. 96-2782
• Citation: 121 F.3d 305
• Parties: UNION OIL COMPANY OF CALIFORNIA, a California corporation, Plaintiff-Appellant, Cross-Appellee, v. JOHN BROWN E & C, A DIVISION OF JOHN BROWN, INCORPORATED, a Delaware corporation, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 305

121 F.3d 305

UNION OIL COMPANY OF CALIFORNIA, a California corporation Plaintiff-Appellant, Cross-Appellee, v. JOHN BROWN E & C, A DIVISION OF JOHN BROWN, INCORPORATED, a Delaware corporation, Defendant-Appellee, Cross-Appellant.

Nos. 96-2782, 96-2840.

United States Court of Appeals Seventh Circuit.

Argued April 1, 1997.

Decided Aug. 5, 1997.

Steven R. McMannon, Douglas C. Crone (argued), Tribler, Orpett, Palmer & Crone, Chicago, IL, for Plaintiff-Appellant, Cross-Appellee.

Diane I. Jennings (argued), William T. Weaver, Stephanie A. Burris, Lord, Bissell & Brook, Chicago, IL, for Defendant-Appellee, Cross-Appellant.

Before BAUER, CUDAHY, and MANION, Circuit Judges.

MANION, Circuit Judge.

Union Oil Company of California ("Unocal") sued John Brown E & C, Inc. ("John Brown") for breach of contract, and various tort law claims. All counts were dismissed except for the breach of contract claim. After the parties consented to proceed before a magistrate judge, John Brown moved for partial summary judgment, arguing that even if it had breached the contract, a limitation of damages clause capped Unocal's damages at $332,000. Unocal objected, contending that because John Brown was grossly negligent, the clause did not apply. The magistrate judge rejected Unocal's position and granted John Brown partial summary judgment, capping any damages at $332,000.

Unocal, not wishing to continue with the litigation if damages were so limited, entered into a stipulation with John Brown conditionally settling the case; the agreement provided that if this court affirms the magistrate judge's conclusion that damages are limited, the parties will go their own ways, but if we reverse, they will continue to litigate the breach of contract count. Based on the partial summary judgment and the stipulation, the magistrate judge entered a purported final order. However, because this order is not final, we dismiss for lack of subject matter jurisdiction.

I. Facts

In April 1989, Unocal and John Brown entered into a "Cost Reimbursable Contract for Engineering, Design, Procurement, and Construction of Unocal's Midwest Polymer Plant" (the "contract"). Pursuant to the contract, John Brown agreed to perform certain engineering, design, and construction management tasks, to procure equipment and materials, and to oversee the installation and construction of a polymer plant for Unocal in Kankakee, Illinois. The contract did not specify a budget or fixed price for the completion of the project, or a definite deadline; rather it estimated total costs at $46.8 million and provided that "[m]echanical completion is scheduled for October 1, 1990." This was later changed to December 1, 1990. The contract also provided that John Brown would receive a fee equal to 1.5% of its reimbursable home office costs, field construction costs and the cost of bulk material permanently incorporated into the Kankakee plant.

Sometime before September 1990, John Brown represented to Unocal that the project was coming in at the forecasted $46.8 million and that it would meet the revised December 1, 1990 completion date. However, in a subsequent "Authority for Expenditure" dated August 31, 1989, John Brown estimated the total cost of completion at $48.7 million. Unocal approved this revised cost. John Brown later changed the cost to approximately $54 million and changed the completion date from December 1, 1990 to March 15, 1991. According to Unocal, it never approved the revised $54 million cost estimate submitted by John Brown. But, Unocal explains, in the interest of having the plant completed, it paid John Brown for expenditures that it submitted, even those exceeding the $48.7 million authorized. Because of the delays and cost overruns, John Brown agreed it would limit its fee to $415,000, instead of 1.5% of certain contract costs. The plant was finally completed in July 1991.

After the completion of the plant, Unocal filed suit against John Brown in federal court based on diversity jurisdiction. Unocal's complaint alleged five counts: breach of contract; negligent misrepresentation; gross negligence; negligence; and breach of an implied covenant of good faith and fair dealing. John Brown moved to dismiss the negligent misrepresentation, negligence, and gross negligence counts, arguing that those tort counts were barred by the economic loss doctrine, which precludes recovery of purely economic losses in tort. Relying on Moorman Manufacturing Company v. National Tank Company, 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982), the district court granted John Brown's motion and dismissed those counts. The parties then consented to proceed before a magistrate judge. John Brown moved for judgment on the pleadings on the breach of implied covenant of good faith and fair dealing count. The magistrate judge granted John Brown's motion, holding that Unocal's claim failed under California law because Unocal had failed to allege the existence of a "special relationship" between the parties.

That left only Unocal's breach of contract claim. John Brown moved for summary judgment on this claim, arguing that any damages that Unocal could recover under the contract were limited to 80% of its fee, based on section 9.16 of the contract, which contained various limitation of damage provisions. Unocal, of course, maintained that it should be able to recover the full amount of its loss resulting from the breach--over $8 million. The magistrate judge agreed with John Brown, concluding that total damages were capped at 80% of Brown's total fee of $415,000, or $332,000, and entered partial summary judgment in favor of John Brown.

Because the magistrate judge's ruling limited damages to a relatively small amount, instead of proceeding on the merits of the breach of contract claim, Unocal and Brown entered into negotiations. The result was a stipulation. Because of the significance of the stipulation to our decision, we quote it in its entirety:

It is hereby stipulated by and between Union Oil Company of California (Unocal), plaintiff herein, and John Brown E & C, a division of John Brown, Inc. (John Brown), defendant herein, as follows:

1. John Brown's fee for the Kankakee Polymer Plant project was frozen by agreement at $415,000.

2. Unocal paid $302,000 of this fee to John Brown.

3. Unocal retained $113,000 of this fee.

4. John Brown agreed to waive and/or return this $415,000 fee to Unocal after Unocal expressed dissatisfaction with the project.

5. John Brown has failed to credit or return to Unocal $302,000 of this fee.

6. For the period covered by John Brown progress billings dated June 17, 1991 to November 26, 1991, John Brown billed Unocal for reimbursable costs in the amount of $490,000 in connection with the Kankakee project. Unocal withheld payment of this $490,000 to John Brown.

7. The trial court granted partial summary judgment on behalf of John Brown and held that Unocal's potential recovery in this lawsuit is limited by the contract to 80 percent of its fee.

8. The court also ruled that a question of fact existed as to whether John Brown reimbursed Unocal any or all of the fee.

9. Unocal disagrees with the trial court, and intends to appeal.

10. The parties desire to terminate the litigation in the trial court so as to discontinue incurring additional attorney's fees and expenses and to allow this matter to be taken up on appeal.

11. It is further stipulated and agreed as follows.

(a) Unocal agrees to completely offset its claim for reimbursement of the fee by John Brown's claim for reimbursement of its unpaid reimbursable costs, and likewise John Brown agrees to completely offset its claim for unpaid reimbursable costs by Unocal's claim for unreimbursed fees. The parties agree that the mutual offsets result in neither John Brown owing Unocal any money for reimbursement of its fee nor Unocal owing John Brown any money for its claimed unpaid reimbursable costs.

(b) The parties stipulate and agree that in the event the Seventh Circuit affirms the trial court's findings, neither side will attempt to collect from the other, either the unreimbursed fee allegedly owed to Unocal or the unpaid reimbursable costs allegedly owed to John Brown.

(c) In the event that the Seventh Circuit affirms the trial court's ruling, each side agrees to release, acquit and forever discharge the other from any and all claims for alleged unreimbursed fees or costs relating to the Kankakee Polymer Plan project.

(d) Notwithstanding (b) and (c) above, in the event that the Seventh Circuit reverses the trial court's ruling and remands this matter for further proceedings, then this Stipulation shall cease to have any effect whatsoever and cannot be used by either party in the trial court. Furthermore, in the event of a reversal in the Seventh Circuit, neither Unocal nor John Brown waive any of their rights or obligations, and further stipulate and agree that each party shall be entitled to attempt to collect or use as a set-off or recoupment, all provable amounts or damages, including both the alleged unreimbursed fee claimed by Unocal and the alleged unpaid reimbursable costs alleged by John Brown.

(e) It is further stipulated and agreed that the court may enter a final and appealable judgment.

The magistrate judge then ordered "[t]hat judgment is entered in this case resolving all outstanding issues and terminating this case pursuant to (1) the partial summary judgment entered on September 8, 1995, and (2) the terms and provisions set forth in the Stipulation of the parties dated May 30, 1996." The court also concluded that as a prevailing party John Brown was entitled to attorney's fees under the contract up to the date of the partial summary judgment order.

Both parties appeal. Unocal argues that the magistrate judge wrongfully determined that damages were limited under the contract and improperly awarded John Brown attorney's fees; John Brown contends that ...