C.L. Maddox, Inc. v. Benham Group, Inc.

Decision Date03 July 1996
Docket Number95-1992,Nos. 95-1824,s. 95-1824
Citation88 F.3d 592
Parties44 Fed. R. Evid. Serv. 1413 C.L. MADDOX, INC., a Delaware Corporation, Appellee, v. The BENHAM GROUP, INC., an Oklahoma Corporation, Appellant, Dynalogic Engineering, Inc., a Michigan Corporation, Defendant. C.L. MADDOX, INC., a Delaware Corporation, Appellant, v. The BENHAM GROUP, an Oklahoma Corporation; Dynalogic Engineering, Inc., a Michigan Corporation, Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

Richard A. Ahrens, St. Louis, MO, argued (Robert S. Allen and John M. Hessell, on the brief), for appellant.

Thomas M. Blumenthal, St. Louis, MO, argued (Daniel P. Card, II, on the brief), for appellee.

Before MAGILL, HEANEY, and MURPHY, Circuit Judges.

MAGILL, Circuit Judge.

In this complicated breach of contract action in which the jury awarded $5 million to C.L. Maddox, Inc. (Maddox), The Benham Group, Inc. (Benham) appeals several rulings made by the district court during trial. Maddox cross-appeals the district court's $1,467,000 reduction in the damages award to Maddox. We affirm in part and reverse in part.

I. BACKGROUND

The dispute between the parties has its origins in the extensive and expensive remodeling of a coal processing system at an electrical power plant in Joppa, Illinois. The owner of the plant, Electric Energy, Inc. (EEI), contracted with Maddox to serve as the general contractor for the project. Maddox subcontracted with Benham to perform the engineering work and with Dynalogic Engineering, Inc. (Dynalogic) to provide the necessary computer hardware and software.

The project did not go well, and Maddox was forced to sue Benham and Dynalogic for breach of contract. In its complaint, filed January 24, 1992, Maddox alleged that Benham and Dynalogic breached their respective contracts, and that they made fraudulent and negligent misrepresentations. 1 Maddox sued Benham for $5,151,085. This figure included $2,746,717.98 for damages resulting from errors by Benham in furnishing information for Maddox to use in bidding on the project; $1,137,000, constituting the amount spent by EEI to repair or replace equipment that Maddox had supplied on the project; and $1,267,367.02 for a breach of Subcontract p 2.1.6, requiring that Benham would guard against defects and deficiencies in the work of Maddox. Maddox also sued Dynalogic for $330,000, the cost to EEI to replace the computer control system. Benham and Dynalogic each counterclaimed against Maddox for monies that they alleged were due them on their respective contracts.

The project began in March 1990, when EEI started soliciting bids. Jack Craig, a marketing agent for both Maddox and Benham, responded to the solicitation. In April and May of 1990, Maddox submitted several preliminary design/build 2 proposals to EEI. Each proposal increased in cost and complexity to meet changing requests made by EEI. The proposals were the combined product of Craig, Mike Dover (Maddox's project manager), and Benham personnel. EEI reviewed the proposals and approved the design concept.

To assist it in preparing its formal proposal, Maddox entered into an oral agreement with Benham on June 1, 1990, under which Benham would complete the drawings and specifications necessary for the bid and provide Maddox with equipment lists and with quantity information. Benham was to receive $58,200 for this work. The terms of this oral contract were memorialized by Clete Schierman, Benham's project manager, who had prepared a chronology of the project and noted that, on June 1,

EEI approves $58,200 for TBG [Benham] to begin in-depth study of equipment layouts, equipment sizing and to supply necessary information and assistance for CLM [Maddox] to prepare a final construction cost (lump sum) for the project. TBG [Benham] is to develop a final lump sum engineering cost.

Appellant's App. at 206. This chronology was offered at trial as Plaintiff's Exhibit 24.

Maddox relied heavily on the estimates provided by Benham. Curt Maddox, president of Maddox, Inc., testified that the only way Maddox would have bid on the project was to rely on the estimates of Benham because Benham possessed all of the design information. Dover testified that in preparing the bid, he had to rely on the material quantity estimates provided by Benham. On the basis of this information, Maddox submitted a formal proposal on July 5, and EEI issued a letter of intent to Maddox. The final contract, signed on September 28, was for a fixed price of $10,326,881.

In mid-September of 1990, Maddox and Benham entered into a written subcontract for much of the design work on the project. This contract was retroactively dated "as of June 1, 1990," and it provided that Benham would perform its design work by January 2, 1991. Article 2 of the agreement described the "Basic Services" that Benham was to perform for a fixed price of $616,050. Under p 2.1.6 of Article 2, Benham agreed that it would keep Maddox "informed of the progress and quality of the Work, and shall endeavor to guard [Maddox] against defects and deficiencies in the Work of [Maddox]." Appellant's App. at 184. The Basic Services further included the preparation of construction drawings, but did not include the compilation or preparation of bidding information. Rather, p 3.4 of the contract provided that Maddox "shall furnish all cost estimating services required for the Project." Appellant's App. at 186. The contract contained a strict integration clause, providing that all prior agreements were superseded. Subcontract p 7.5.1.

Benham suggested that Dynalogic design a separate part of the computer control system to be used at EEI. In August, Dynalogic submitted a separate additional proposal to Maddox to design part of this system. The proposal was accepted by Maddox in a November 29, 1990 purchase order for $82,750.

From the start of the project, Maddox experienced problems with Benham. Benham was late in producing drawings; the drawings actually produced were often insufficient; and Benham underestimated the amount of work actually required to complete the final design. Dover testified that there were delays in getting drawings for the fabrication work. Jack Jenkins, Maddox's electrical supervisor, testified that prints for the electrical components of the project were not available, requiring that he lay much of the wiring for the project without plans, entailing a greater cost. 3

Benham countered that not all of the delay problems were Benham's fault. On cross-examination, Dover conceded that some of the delays in drawings were caused by EEI's continued alteration of the project. Other delays were caused by Maddox, which often failed to timely submit to Benham vendor-prepared drawings after purchasing equipment. Further, Maddox was not always timely in its approval of Benham's drawings, which only further delayed the submission of the drawings to EEI.

At trial, Maddox introduced evidence of Benham's project errors and design deficiencies. 4 Maddox called an expert witness, Douglas Waring, to testify as to these errors. After examining numerous depositions and documents from the project and visiting the project site, Waring concluded that: Benham underestimated the project's engineering requirements; that the project objectives were not properly defined; that Benham failed to properly schedule their work to allow Maddox to meet the construction schedule; that the project was understaffed by Benham; that Benham's drawings were lacking in the knowledge of materials handling; that Benham underestimated the number of drawings that the project would require; and that although Benham assumed the total engineering function on the job, there was no evidence of experience by Benham in handling very large material handling projects.

To counter Waring's testimony, Benham put on an expert witness, Don Samples, who testified that Benham's drawings met applicable standards. He contradicted Maddox's design deficiency claims. Benham also offered Defendant's Exhibit J-13, which was a thorough written response to the items contained in Plaintiff's Exhibit 163.

Maddox and EEI also experienced problems with Dynalogic. Dean Bafford, a senior engineer at EEI, testified that EEI had no confidence in the computerized control system built by Dynalogic, and it felt that Dynalogic never produced a product for the project that was dependable. Further, Bafford noted that EEI found numerous deficiencies in the software supplied by Dynalogic, but the problem was never corrected by Dynalogic. The system never operated correctly, and EEI eventually had to replace the entire computer control system. The replacement cost for the system was $330,000.

In addition to the evidence introduced at trial on whether Benham and Dynalogic breached their contracts, Maddox introduced evidence of its estimated damages. This evidence was strenuously objected to at trial by Benham as being hearsay and without foundation.

At trial, Maddox set out how it arrived at the $2,746,717.98 figure for damages due to bidding errors, engineering errors, and time delays. See Plaintiff's Revised Exhibit 135, reprinted in Appellee's App. at 681. In preparing this exhibit, Curt Maddox took information from corporate records and calculated the total man-hours, labor, equipment, and materials expended on the project. The exhibit set forth in detail how each figure was determined. Once these calculations were made, Maddox then calculated the difference between the amount actually expended by Maddox for the project and the bid amount made by Maddox when it relied upon the estimates given to it by Benham.

Maddox also sought to introduce at trial evidence that it was liable to EEI for $1,467,000, the amount it cost EEI to replace or repair the defective equipment supplied under the contract. Bafford testified extensively as to the problems with the finished system and the cost to EEI to fix or...

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