Royster Co. v. Union Carbide Corp.
| Decision Date | 26 July 1984 |
| Docket Number | No. 83-3405,83-3405 |
| Citation | 737 F.2d 941 |
| Parties | ROYSTER COMPANY, a Virginia Corporation, Plaintiff-Appellee, Cross-Appellant, v. UNION CARBIDE CORPORATION, a New York Corporation, Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Edward C. Adkins, Tampa, Fla., William Krohley, Kelley, Drye & Warren, New York City, for defendant-appellant, cross-appellee.
Guy R. Friddell III, Norfolk, Va., Julian Clarkson, Tampa, Fla., for plaintiff-appellee, cross-appellant.
Appeals from the United States District Court for the Middle District of Florida.
Before KRAVITCH and HATCHETT, Circuit Judges, and TUTTLE, Senior Circuit Judge.
Union Carbide Corporation ("Carbide") appeals from a substantial judgment, following a non-jury trial in this diversity breach of contract action.
The case commenced in June 1977 by Royster against Williams Brothers Waste Control and its affiliates ("Williams"). Carbide was joined as a defendant in January 1979. A non-jury trial commenced on April 13, 1981, after extensive discovery. After two weeks of trial, Williams settled for $1,250,000. The trial proceeded with regard to issues between Royster and Carbide. It lasted 37 days and produced 7,404 pages of testimony and 547 trial exhibits.
On June 2, 1982, the district court entered a 77 page order finding Carbide liable for $4,286,629 for breach of contract. On February 4, 1983 the district court, having for the first time considered the Williams settlement, reduced Royster's recovery against Carbide by the amount of that settlement, and entered a judgment against Carbide for $3,036,629 plus prejudgment interest from June 2, 1982, the date of its first order.
The essential facts, largely undisputed, may be stated briefly as follows. Royster owns and operates a phosphate manufacturing plant. The plant's products are used as fertilizer. To produce phosphate, one must first make sulphuric acid, a process which historically emitted large quantities of sulphur dioxide (SO2 ) into the atmosphere. In 1970, state and federal law imposed limitations upon those emissions.
In its effort to comply with those requirements, Royster entered into separate but simultaneous contracts with Carbide and Williams on June 14, 1974. These were, of course, both written contracts. Carbide was to provide its "process design" for an SO2 abatement system (known as a PuraSiv S System) and Williams was to produce an "auxiliary" or working, mechanical design and build the facility as an adjunct to Royster's sulphuric acid plant. Actual construction began in January 1975, but because of numerous delays, the system was not completed until January 1976. Even after the "startup," however, the system experienced a number of failures and was not brought "on line" until the end of May 1977. Additional difficulties occurred and plagued the unit until it was completely abandoned and replaced by another system in September 1978. Whenever the PuraSiv S Unit was "down" during that period it was also necessary to cease operating the sulphuric acid plant. The major difficulties of which Royster complained in its action were: 1) the excessive corrosion and breakdown of some of the internal components of the system caused by an accumulation of NOx (oxides of nitrogen) in the circulating sulphuric acid; 2) other breakdowns in a piece of equipment known as the B-1 blower; and 3) a forced reduction in the production rate of the sulphuric acid plant due to the inability of the PuraSiv S Unit to accommodate the effect of the recycled SO2 on the acid plant tailgas.
The appellant, without seriously disputing the existence of the defects and the ultimate failure of the system, responds that under the contract with Royster, it had no responsibility with respect to these matters. Further, it contends that if it did, there was a maximum amount for which it would be liable in the event of a complete failure of the system, which amount was greatly exceeded in the damages awarded by the trial court. Carbide also complains of the elements of damage awarded and the inclusion of prejudgment interest for a period of some seven months between the time the court announced the total amount of damages to which Royster was entitled and the final judgment by which the trial court required that Royster's damages be reduced by the amount of its settlement with Williams Brothers.
As stated by appellant, the issues which it presents are as follows:
1. Did the district court misconstrue Union Carbide's agreement with Royster and thereby impose duties upon Union Carbide which went far beyond its contractual undertakings?
2. Did the district court err by not enforcing the express limitations on liability contained in the agreement, limiting Union Carbide's maximum liability to the contract price of $327,500?
3. Did the district court err by not applying well-established doctrines of avoidable consequences and proximate causation in assessing damages against Union Carbide?
4. Did the district court misapply Florida law in awarding damages for lost profits?
5. Did the district court err in awarding as damages the capitalized cost of the PuraSiv S Unit, less depreciation, as shown on Royster's books at the time it was abandoned?
6. Did the district court err in awarding consequential damages absent proof that such damages were the ordinary consequence of any breach of contract or contemplated by the parties at the time they entered into the agreement?
7. Did the district court err in awarding prejudgment interest to Royster?
8. Did the district court err by not enforcing the Absorbent Supply Agreement under which Royster owed Union Carbide $185,000 plus sales tax and interest thereon?
Under its heading "Statement of the Standards and Scope of Review," the appellant states that the issues numbered 1, 2, 3, 7, and 8 present claims that the district court committed legal error in construing the parties' agreement and in failing to apply correct principles of law in assessing Royster's damages. Considering the issues numbered 1, 2, and 3, therefore, it is clear that the appellant does not contest the findings of the trial court that specifically and elaborately set out numerous defects that appeared in the system, once it was installed. We, therefore, turn immediately to the written contract. The trial court based substantially all of its findings of facts as to the alleged breaches of contract on Sections 4(a) and 4(c) of the contract, which was in the form of a licensing agreement between Carbide and Royster. These two provisions read as follows:
(a) Licensee has provided Union Carbide in writing, a project definition for the PuraSiv S Unit which Union Carbide acknowledges to be in sufficient detail to permit Union Carbide to provide a PuraSiv S Process Design for the purpose of Licensee's Contractor preparing an Auxiliary Design and proposal to Licensee. Union Carbide has furnished to Licensee's Contractor, Williams Brothers Waste Control, Inc., the PuraSiv S Process Design for Licensee's plant together with such information as is necessary, in Union Carbide's judgment, for Licensee's Contractor to properly prepare the Auxiliary Design and the Operating Procedures Manual. Such PuraSiv S Process Design is identified by the signatures of authorized representatives of Union Carbide and Williams Brothers Waste Control, Inc., marked as Exhibit A, attached hereto and made a part hereof.... (emphasis added.) (c) If requested in writing by Licensee, Union Carbide shall review the Auxiliary Design ... for the PuraSiv S Unit and in such event as a part of its engineering services will furnish Licensee with comments pertaining to the conformity of the Auxiliary Design ... to meet the PuraSiv S Process Design. Comments regarding the Auxiliary Design will be furnished within thirty (30) days after receipt of the Auxiliary Design ... Union Carbide by furnishing such comments takes no responsibility for the Auxiliary Design ... The incorporation or failure to incorporate such comments by Licensee or Licensee's Contractor shall not relieve Union Carbide of its express warranty under paragraph 14. 1
As is obvious from the face of Section (a), the contract dealt with two designs. One was identified as PuraSiv S Process Design, a copy of which was attached to the contract. The other was the Auxiliary Design which, according to the terms of the contract, was to be prepared by licensee's contractor, Williams. The trial court construed the contract as providing for the furnishing by Carbide of the Process Design for Royster's plant "together with such information as is necessary, in Union Carbide's judgment, for licensee's contractor to properly prepare the Auxiliary Design and the Operating Procedures Manual." (emphasis added.)
The gist of Royster's complaint was that Carbide failed to furnish sufficient information to Williams to meet the requirements of the "together with" provision of the contract. Appellant takes the almost frivolous position that Section 4(a) required nothing more of Carbide than to prepare and supply to Royster the PuraSiv Process Design. As the trial court pointed out repeatedly during the trial, such construction would eliminate from the contract all of the underscored language quoted above.
The trial court then, based on extensive testimony of expert and other witnesses, found that Carbide had breached the contract (a) "by failing to furnish the Auxiliary Designer with information about NOx which the Auxiliary Designer needed to properly prepare the Auxiliary Design;" (b) "by failing to inform the Auxiliary Designer that a high efficiency mist eliminator would be required upstream of the B-101 blower, or that, absent reduction of the acid mist in the tailgas, special materials of construction would be necessary for the B-101 blower;" and (c) "By supplying specifications for the...
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