Golden Reward Min. Co. v. Jervis B. Webb Co.

• Decision Date: 04 September 1991
• Docket Number: No. Civ. 90-5130.,Civ. 90-5130.
• Citation: 772 F. Supp. 1118
• Parties: The GOLDEN REWARD MINING COMPANY, a joint venture comprised of United Coin Mines Limited, an Ontario, Canada corporation, Moruya Gold Mines of North America, Inc., a Nevada corporation, and Helix Mining Inc., a Delaware corporation, Plaintiffs, v. JERVIS B. WEBB COMPANY, a Michigan corporation, Defendant.
• Court: U.S. District Court — District of South Dakota

772 F. Supp. 1118

The GOLDEN REWARD MINING COMPANY, a joint venture comprised of United Coin Mines Limited, an Ontario, Canada corporation, Moruya Gold Mines of North America, Inc., a Nevada corporation, and Helix Mining Inc., a Delaware corporation, Plaintiffs, v. JERVIS B. WEBB COMPANY, a Michigan corporation, Defendant.

No. Civ. 90-5130.

United States District Court, D. South Dakota, W.D.

September 4, 1991.

Gregory A. Eiesland, Rapid City, S.D., Max Main, Belle Fourche, S.D., for plaintiffs.

Jerry C. Rachetto, Deadwood, S.D., James R. Buschmann, Detroit, Mich., Roger A. Tellinghuisen, Lead, S.D., for defendant.

MEMORANDUM OPINION AND ORDER

BOGUE, Senior District Judge.

Facts

On December 27, 1990, Golden Reward Mining Company filed a Complaint in three counts against the Jervis Webb Construction Company of Detroit, Michigan. The Complaint included counts in Negligence, Strict Liability, and Breach of Contract.

Initially, Webb delivered to Golden Reward — sometime in August 1989 — a mobile reclaimer, pursuant to the terms of a contract, to be used in Golden Reward's heapleach mining process.¹ The reclaimer apparently was designed to perform spent-ore reclamation at a certain tonnage level, a level which Golden Reward alleges the reclaimer never reached. Golden Reward sought nearly identical damages under each count of the Complaint: economic loss and consequential damages. Because there was no personal injury — and because South Dakota does not recognize recovery of economic loss under theories of negligence and strict liability² — this Court on April 19, 1991, dismissed at Summary Judgment Count I (Negligence) and Count II (Strict Liability) of Golden Reward's Complaint. Golden Reward's breach of contract claim is the only remaining theory of recovery.

Procedure

Following this Court's order dismissing the first two counts of Golden Reward's Complaint, Webb petitioned this Court to reconsider its decision to allow Golden Reward to proceed with the breach of contract claim (Count III). In short, Webb argues that Golden Reward cannot recover consequential damages because such damages are specifically prohibited under the terms and conditions of the contract.³

Webb's petition for reconsideration reactivates Webb's earlier motion for summary judgment. Under Rule 56 of the Federal Rules of Civil Procedure, a movant is entitled to relief at summary judgment only if he can "show that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law." Jane Doe A v. Special School Dist. of St. Louis County, 682 F.Supp. 451 (E.D.Mo. 1988), citing Poller v. Columbia Broadcasting, Inc., 368 U.S. 464, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962).

In determining whether judgment should issue, the facts and inferences from those facts are viewed in the light most favorable to the nonmoving party and the burden is placed on the moving party to establish both the absence of a genuine issue of material fact and that such party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356-57, 89 L.Ed.2d 538 (1986). Once the moving party has met this burden, the nonmoving party may not rest on the allegations in the pleadings, but by affidavit or other evidence must set forth specific facts showing that a genuine issue of material fact exists, this Court views the evidence presented based upon which party has the burden of proof within the underlying substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986).

Recently, the Supreme Court noted that "summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to `secure the just, speedy, and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986). Therefore, the nonmoving party "must do more than show that there is some metaphysical doubt as to the material facts," Matsushita, 106 S.Ct. at 1356, and "where the record as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" Id.

Decision

1. Sufficient Evidence in the Record

Under South Dakota law, "consequential damages may be limited or excluded by the warrantor unless the limitation or exclusion is unconscionable." S.D. Codified Laws Ann. § 57A-2-719(3).⁴ Furthermore, under § 57A-2-302(1),⁵ the issue of unconscionability is a matter of law to be determined by the trial court. Johnson v. John Deere, 306 N.W.2d 231, 236 (S.D.1981). As a threshold procedural issue, however, each party must be given a reasonable opportunity to present evidence "as to the contract's commercial setting, purpose and effect to aid the Court in making the determination." § 57A-2-302(2).⁶

Although this Court contemplated holding a formal hearing on the matter, such an approach is not required under § 57A-2-302(2). Each party must simply "be afforded a reasonable opportunity to present evidence." Herrick v. Monsanto Co., 874 F.2d 594, 597 (8th Cir.1989). As the Eighth Circuit concluded, citing 2 R. Anderson, Anderson on the Uniform Commercial Code § 2-302:95, at 476 (3d ed. 1982), "when all possible evidence is already in the record, a formal hearing on the issue of unconscionability is unnecessary." Id.

This Court is convinced that each party has been given more than adequate opportunity to make its record on this issue. Webb started the volley with a motion for reconsideration directed specifically at the issues of unconscionability and limitations on the recovery of consequential damages; Golden Reward responded with a resourceful argument proposing that consequential damages are recoverable in the absence of proof that excluding such consequential damages from the terms of the contract is unconscionable. See Hartzell v. Justus Co., Inc., 693 F.2d 770 (8th Cir.1982).

This Court then held a hearing on the issue of whether or not Golden Reward must prove, as a matter of law, that limiting the recovery of consequential damages was unconscionable. See Johnson, 306 N.W.2d at 238. At that hearing, each party discussed the genesis of the contract negotiations; the negotiations involved in reaching an agreement; the problems which ultimately arose; and Webb's response to the alleged untimely and frequent breakdowns of the reclaimer. Finally, this Court ordered Golden Reward and Webb to brief thoroughly four (4) separate issues related to consequential damages and unconscionability in light of the facts of this case. See Order, dated July 29, 1991. In response, each party filed both an initial brief and a response brief. Thus, both parties have provided this Court with enough evidence to ensure that neither party will be prejudiced in the absence of a hearing.⁷

2. Unconscionability and Consequential Damages

This Court is presented with a single issue: Is the clause in the contract between Golden Reward and Webb Construction Co. which, in the event of breach, prohibits Golden Reward from recovering consequential damages, unconscionable as a matter of law? Given the commercial nature of the parties and the circumstances surrounding creation of the contract, this Court finds that the clause prohibiting recovery of consequential damages is not unconscionable.

Resolution of this issue turns on the analysis of two sections of South Dakota's version of the Uniform Commercial Code, namely SDCL 57A-2-302,⁸ and SDCL 57A-2-719⁹. Thus, once a remedy provision within a contract "fails of its essential purpose, extra-contractual remedies may be had as provided in this title." See § 57A-2-719(2). The aggrieved party must prove, however, that the limitation on recovery of consequential damages contained in the contract is unconscionable before recovery of consequential damages is allowed.¹⁰ As (3) of § 57A-2-719 provides, "consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable." See 2-719(3).¹¹ By the terms of the contract, Golden Reward and Webb established that:

(1) The "repair and replacement" remedy provided in the agreement is the exclusive remedy. See Contract, and section 57A-2-719(1)(b).

(2) Consequential damages are excluded.¹²

Several issues are worth noting for purposes of clarification. First, we are discussing two separate, but necessarily related, legal issues. On the one hand, the contract between Webb and Golden Reward contains a provision which states, in effect, that the exclusive remedy available in the event of breach by Webb is "repair or replacement" of the defective component. In other words, if the reclaimer breaks down, Webb will fix it. Under South Dakota law, such a provision is entirely proper. As section 57A-2-719(1)(a) provides: "The agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter, as payment of the price or to repair and replacement of nonconforming goods or parts."¹³ emphasis added.

Second, not only does the contract contain an "exclusive remedy" provision, it also contains a "limitation of remedy" provision which prohibits recovery of consequential damages. This provision, like the "exclusive remedy" provision, is also proper under South Dakota law. As § 57A-2-719(3) states, "consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable." Thus, the real issue is not whether the "repair or replace" provision is (or was) unconscionable at the time the contract was created, but whether limiting consequential damages (and, in effect, limiting the scope of potential damages) was unconscionable at the time of the creation of the contract. See Johnson, 306 N.W.2d at 237-38.

As the South...