Graham Constr. Servs., Inc. v. Hammer & Steel Inc.

• Decision Date: 23 July 2014
• Docket Number: 13–1906.,Nos. 13–1843,s. 13–1843
• Citation: 755 F.3d 611
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: GRAHAM CONSTRUCTION SERVICES, INC., Plaintiff–Appellee v. HAMMER & STEEL INC., Defendant–Appellant. Graham Construction Services, Inc., Plaintiff–Appellant v. Hammer & Steel Inc., Defendant–Appellee.

755 F.3d 611

GRAHAM CONSTRUCTION SERVICES, INC., Plaintiff–Appellee

v.HAMMER & STEEL INC., Defendant–Appellant.

Graham Construction Services, Inc., Plaintiff–Appellant

v.Hammer & Steel Inc., Defendant–Appellee.

Nos. 13–1843, 13–1906.

United States Court of Appeals, Eighth Circuit.

Submitted: Jan. 14, 2014.

Filed: June 13, 2014.

Rehearing and Rehearing En Banc Denied July 23, 2014.

Jane Laurel Volz, argued, Prior Lake, MN (David M. Duree, O'Fallon, IL, on the brief), for appellant.

Matthew T. Collins, argued, Minneapolis, MN (James F. Bennett, John D. Comerford, Saint Louis, MO, Nathan R. Sellers, of Minneapolis, MN, on the brief), for appellee.

Before GRUENDER, BRIGHT, and MELLOY, Circuit Judges.

BRIGHT, Circuit Judge.

This dispute arose between the lessor of drilling equipment, Hammer & Steel, Inc. (H & S), and its lessee, Graham Construction Services, Inc. (Graham), over the lease of drilling equipment for the construction of an underground water shaft. As a result of the unsatisfactory performance of the equipment, Graham brought several claims for damages against H & S. H & S filed counterclaims seeking certain damages not paid under the lease, as well as the value of an auger that was lost during the drilling process. The jury awarded Graham $420,194.40 in economic losses on its negligent misrepresentation claim. As to the counterclaims, the jury awarded H & S $197,238 for breach of contract plus an award made by the district court of an additional $52,387 for the value of the lost auger. H & S appeals the jury's award to Graham on the ground that it is barred by the economic loss doctrine. Graham appeals the district court's award of the value of the auger as well as the district court's refusal to submit Graham's defenses to the jury. Having jurisdiction under 28 U.S.C. § 1291, we (1) vacate the jury award of $420,194.40 for negligent misrepresentation in favor of Graham and enter judgment in favor of H & S on that claim and (2) vacate both the jury award of $197,238 in favor of H & S on its breach of contract claim and the district court's award of $52,387 in favor of H & S for loss of the auger and remand for a new trial on damages as to those claims.

I. Background

Graham is a contractor located in Eagan, Minnesota. In August 2009, Graham obtained information to bid for the construction of a raw water intake structure (“the project”) for the city of Parshall, North Dakota. The project required the construction of an underground shaft for a water storage unit, which in turn required drilling a 96–foot–deep, 14–foot–wide shaft and lining it with concrete.

If Graham received the bid, it intended to execute the drilling itself. However, because Graham did not have the requisite equipment, Graham's senior project manager, Quint McDermand, contacted Todd Maxa, a salesperson for H & S, about leasing drilling equipment. According to McDermand, Maxa represented that H & S “could provide a drill rig to do the job.” Although Graham did not win the bid, it subcontracted with the winning bidder to perform the project for a reduced price. Graham's subcontract was based on its original estimate of the project cost, which took into account the price that H & S had provided for leasing the equipment.

In September 2009, Graham met with an engineer to design a drill platform at the project site. Maxa attended the meeting to provide information regarding the drill that Graham had selected—the SANY SR 250. Soon thereafter, H & S sent Graham the rental agreement for the SANY SR 250 drill and a 60–inch auger. McDermand later testified that he signed the lease agreement but did not read the fine print because he was confident that H & S was providing appropriate equipment for the project. The agreement included clauses under which Graham “acknowledge[d] that [it] has selected the equipment ... based entirely and solely on [its] judgment” and agreed that it “is not relying on [H & S] regarding proper use of this equipment or installation or removal techniques.”

Graham encountered several obstacles during the drilling process. In January 2010, a component of the drill called the “Kelly bar” broke, resulting in the 60–inch auger falling to the bottom of the shaft. Despite this setback, H & S confirmed that the drill was “more than enough machine” to complete the project. The Kelly bar broke on two more occasions while Graham attempted to recover the auger from the bottom of the shaft. After the third break in July 2010, McDermand sent Maxa an email stating his understanding that the Kelly bar could not withstand the torques and pressures required to drill the shaft. H & S arranged for the removal of the drill from the project site. Graham was forced to abandon the shaft, locate a replacement drill rig, and redrill a new shaft.

In March 2012, Graham filed an amended complaint against H & S alleging various causes of action, including negligent misrepresentation. H & S filed counterclaims asserting (i) breach of contract, (ii) unjust enrichment, (iii) breach of express warranties, and (iv) a claim for delivery or the value of the lost auger. The parties tried the claims to a jury in January 2013. After the close of evidence, H & S moved for judgment as a matter of law (JMOL) under Fed.R.Civ.P. 50(a) on its counterclaim for breach of contract and on various claims brought by Graham, including negligent misrepresentation. With respect to the negligent misrepresentation claim, H & S argued, in relevant part, that Missouri's economic loss doctrine barred Graham's recovery on that claim. Graham also moved for JMOL on H & S's claims of unjust enrichment, breach of express warranties, and the value of the auger. The district court denied the motions.

The jury returned a verdict in favor of H & S for its breach of contract claim in the amount of $197,238 and in favor of Graham for its negligent misrepresentation claim in the amount of $420,194.40.

H & S subsequently filed a motion for post-verdict JMOL under Fed.R.Civ.P. 50(b) on Graham's negligent misrepresentation claim. H & S also moved for JMOL on its claim for the value of the auger. The district court granted judgment in favor of H & S on its claim for the value of the auger in the amount of $52,387, but denied H & S's motion for judgment on Graham's negligent misrepresentation claim.

Graham moved for post-verdict JMOL on three of the four counterclaims raised by H & S. As relevant to this appeal, Graham argued that H & S's claim for the value of the auger was barred by Graham's affirmative defense of unclean hands. Graham also argued that H & S was equitablyestopped from bringing its breach of contract claim. The district court denied the motions and entered judgments as noted above.

On appeal, H & S argues that the district court erred in denying its motion for JMOL on Graham's negligent misrepresentation claim.

On cross appeal, Graham raises three claims: (1) the defense of equitable estoppel bars any recovery on H & S's breach of contract claim; (2) the district court abused its discretion by failing to instruct the jury on Graham's defenses of estoppel and mitigation; and (3) the defense of unclean hands bars H & S's recovery on its claim for the value of the auger.

The parties agree that Missouri law governs this case.

II. DiscussionA. H & S's Appeal: Negligent Misrepresentation

On appeal, H & S argues that the district court erred in denying JMOL in its favor on Graham's negligent misrepresentation claim.

“We review de novo the district court's denial of a motion for judgment as a matter of law, using the same standards as the district court.” Howard v. Mo. Bone & Joint Ctr., Inc., 615 F.3d 991, 995 (8th Cir.2010). Judgment as a matter of law is appropriate when “a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue.” Fed.R.Civ.P. 50(a)(1).

H & S contends that Missouri's economic loss doctrine bars Graham from recovering under a negligent misrepresentation theory. H & S asserts that Graham's remedies are contractual in nature and limited to those available in the rental agreement. In contrast, Graham argues that Missouri courts permit recovery of economic losses under the tort of negligent misrepresentation.

The economic loss doctrine prohibits a party “from seeking to recover in tort for economic losses that are contractual in nature.” Autry Morlan Chevrolet Cadillac, Inc. v. RJF Agencies, Inc., 332 S.W.3d 184, 192 (Mo.Ct.App.2010). “[C]ontract law, and the law of warranty in particular, is better suited for dealing with purely economic loss in the commercial arena than tort law, because it permits the parties to specify the terms of their bargain and to thereby protect themselves from commercial risk.” Dakota Gasification Co. v. Pascoe Bldg. Sys., a Div. of Amcord, Inc., 91 F.3d 1094, 1098 (8th Cir.1996) (applying North Dakota law). Under Missouri law, “[r]ecovery in tort for pure economic damages are only limited to cases where there is personal injury, damage to property other than that sold, or destruction of the property sold due to some violent occurrence.” Captiva Lake Invs., LLC v. Ameristructure, Inc., No. ED 100569, 436 S.W.3d 619, 628, 2014 WL 1612643, at *7 (Mo.Ct.App. Apr. 22, 2014).

We conclude that the economic loss doctrine bars Graham's recovery on its negligent misrepresentation claim. Our recent decision in Dannix Painting, LLC v. Sherwin–Williams Co., 732 F.3d 902 (8th Cir.2013), requires this result. In that case, an employee from the Sherwin–Williams Company (SWC) recommended that Dannix Painting, LLC, (Dannix) use a particular product to paint buildings at the Eglin Air Force Base in Florida. Id. at 904. The paint delaminated on both interior and exterior surfaces resulting in financial loss to Dannix. Id. Dannix sued SWC, alleging that SWC negligently misrepresentedthat a particular type of paint...