Cole Energy Development Co. v. Ingersoll-Rand Co.

• Decision Date: 01 November 1993
• Docket Number: INGERSOLL-RAND,No. 92-3944,92-3944
• Citation: 8 F.3d 607
• Parties: COLE ENERGY DEVELOPMENT COMPANY, Plaintiff-Appellant, v.COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 607

8 F.3d 607

COLE ENERGY DEVELOPMENT COMPANY, Plaintiff-Appellant, v. INGERSOLL-RAND COMPANY, Defendant-Appellee.

No. 92-3944.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 17, 1993.

Decided Nov. 1, 1993.

Harold M. Olsen, Olsen & Olsen, Springfield, IL (argued), for plaintiff-appellant.

Michael J. Roberts (argued), Ralph M. Reisinger, Michael T. Small, Grand Rapids, MI, for defendant-appellee.

Before POSNER, Chief Judge, CUMMINGS, Circuit Judge, and ZAGEL, District Judge. ^*

POSNER, Chief Judge.

This diversity breach of contract suit is before us for the second time; this time the question is whether the district judge disobeyed the directions in our first decision (reported at 913 F.2d 1194 (7th Cir.1990)), which remanded for a trial on damages. The plaintiff, Cole, a producer of natural gas, had leased gas compressors from the defendant, Ingersoll-Rand, to increase Cole's production of gas. According to Cole, the compressors failed to operate as warranted. A bench trial on liability consumed nine days, at the end of which the judge ruled that Ingersoll-Rand had breached its warranty to Cole. But rather than enter findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a), the judge told the parties to try to settle the damages phase of the case and, failing that, to submit their damages proofs by way of affidavit. Settlement negotiations did fail, the parties submitted the required affidavits, and the judge awarded $17,000 (in round numbers) in damages. Cole appealed, and a different panel of this court reversed, concluding that the district judge had "erred in denying the parties a trial on damages and in calculating the amount of the damages to be awarded to Cole." 913 F.2d at 1196. In a portion of the opinion introduced by the soothing sentence "Some comments on the damage determination may be useful to the [district] court and to the parties," id. at 1201, the panel identified a number of errors in the district judge's calculation of Cole's damages. Cole had claimed two types of damages. The first was the additional expense (payroll and the like) that Cole had incurred because the failure of the compressors to perform as warranted caused delays in the production of natural gas from Cole's field. Besides these "incidental damages" (basically the out-of-pocket expenses occasioned by the breach), Cole claimed a diminution in profit as a result of the delays--"consequential damages" (all other losses caused by the breach). See UCC § 2-715, held applicable to leases, by analogy, in Walter E. Heller & Co. v. Convalescent Home, 49 Ill.App.3d 213, 8 Ill.Dec. 823, 827, 365 N.E.2d 1285, 1289 (1977), and Dillman & Associates, Inc. v. Capitol Leasing Co., 110 Ill.App.3d 335, 66 Ill.Dec. 39, 44, 442 N.E.2d 311, 316 (1982). The judge had cut down Cole's incidental damages by 75 percent on the ground that Cole was only a 25 percent owner of the gas field, but the panel held that as the sole lessee Cole was entitled to 100 percent of any damages awarded. The judge had rejected Cole's claim for consequential damages in its entirety on the ground that the plaintiff was seeking prejudgment interest on a nonliquidated claim. Not so, the panel ruled. A profit delayed is, because of the time value of money, a profit diminished, and the diminution is itself a lost profit, not prejudgment interest. Among other errors noted by the panel, the judge had ignored Cole's claim to the return of the payments that it had made under the lease, plus interest; the breach of warranty entitled it to rescind the lease and recover the payments. The opinion ends: "The case is Reversed and Remanded for the entry of written findings on the liability phase and for trial on the damages phase." 913 F.2d at 1204.

On remand, Judge Mills made written findings on liability, but did not conduct a trial on damages. Instead he asked the parties to submit their proof of damages and on the basis of those submissions he recalculated Cole's net damages as--zero. Gone were the incidental damages, almost $70,000 in the judge's original damages ruling before he applied the 75 percent discount. Instead, the judge assessed consequential damages of $31,000--but then cut that figure, too, down by 75 percent because Cole was only a 25 percent owner of the gas field. He then offset against the resulting damages figure a larger amount in lease payments due and unpaid before Cole had notified Ingersoll-Rand that it was canceling the lease. Judge Mills's opinion contains no discussion of this court's opinion and no explanation of why he failed to conduct a trial on damages as he had been told to do and to correct the errors that this court had identified. Again Cole's request for the restitution of its lease payments was ignored.

The least controversial aspect of the law of the case doctrine requires a lower court judge to comply with the rulings made by higher courts in the same case. Sibbald v. United States, 37 U.S. (12 Pet.) 488, 492, 9 L.Ed. 1167 (1838); Johnson v. Burken, 930 F.2d 1202, 1207 (7th Cir.1991). The good sense of this requirement is obvious: without it, appellate review would be ineffectual. But the law of the case doctrine is not rigid even in this its most elementary application. If it is apparent that the higher court has committed a serious and demonstrable error, factual or legal--for example, the higher court might have based its decision entirely on a case that has since been overruled--in circumstances where correction by filing a petition for rehearing in the higher court would not have been feasible (the overruling might have occurred after the case was remanded), the lower court can correct it on remand. Vieux Carre Property Owners v. Brown, 948 F.2d 1436, 1442-43 (5th Cir.1991); United States v. Rivera-Martinez, 931 F.2d 148, 151 (1st Cir.1991). It is not bound by the higher court's dicta either. Gertz v. Robert Welch, Inc., 680 F.2d 527, 533 (7th Cir.1982); Coca-Cola Bottling Co. v. Coca-Cola Co., 988 F.2d 414, 429 (3d Cir.1993); Great Lakes Dredge & Dock Co. v. Tanker Robert Watt Miller, 957 F.2d 1575, 1578 (11th Cir.1992). But explicit rulings on issues that were before the higher court and explicit directives by that court to the lower court concerning proceedings on remand are not dicta. Harris v. Sentry Title Co., 806 F.2d 1278, 1280 n. 1 (5th Cir.1987) (per curiam); see also Colville Confederated Tribes v. Walton, 752 F.2d 397, 400-01 (9th Cir.1985). That the panel described its directives euphemistically as "comments" that might be useful to the district judge did not authorize the judge to ignore them.

Far from identifying any errors in the panel's opinion or paring dicta from holdings and suggestions from directives, Judge Mills did not so much as mention the opinion. It is true that Cole's briefs and other submissions in the district court as in this court have been prolix, confusing, and frequently belated and unresponsive. But the district court's award of zero damages was not based on waiver or imposed as a sanction, and so far as we can discern from a muddy record, Cole has a case for a substantial award of damages--more than zero, in any event--though much less than the $1.5 million or so that it seeks.

Cole paid more than $56,000--perhaps as much as $92,000--under the lease before canceling it because of the breach of warranty. The validity of the cancellation is no longer in question. So Cole is, prima facie at least, entitled to the return of these payments, with interest at 5 percent. Not 9 percent under 815 ILCS 205/4, as Cole argues; the applicable statute is 815 ILCS 205/2, interpreted in Art Press Ltd. v. Western Printing Machinery Co., 852 F.2d 276, 279 (7th Cir.1988), to be applicable to a case such as this. So the panel ruled in the previous opinion, and the ruling became the law of the case. No doubt Ingersoll-Rand could set off against this liability any damages it incurred as a result of a breach of contract committed by Cole, an issue not discussed in the previous opinion. But a setoff based on what is, so far as appears, a completely technical, harmless breach--delay in giving notice of cancellation, a delay that Ingersoll-Rand argues entitled it to continued rental payments until the notice was given even though it...