M.M. Silta, Inc. v. Cleveland Cliffs, Inc.

• Decision Date: 16 July 2009
• Docket Number: No. 08-2620.,08-2620.
• Citation: 572 F.3d 532
• Parties: M.M. SILTA, INC., Plaintiff/Appellee, v. CLEVELAND CLIFFS, INC.; Cliffs Mining Company, Defendants, Cliffs Erie, L.L.C., Defendant/Appellant, John Does, Number 1 through 5, Defendants.
• Court: U.S. Court of Appeals — Eighth Circuit

572 F.3d 532

M.M. SILTA, INC., Plaintiff/Appellee, v. CLEVELAND CLIFFS, INC.; Cliffs Mining Company, Defendants Cliffs Erie, L.L.C., Defendant/Appellant John Does, Number 1 through 5, Defendants.

No. 08-2620.

United States Court of Appeals, Eighth Circuit.

Submitted: March 11, 2009.

Filed: July 16, 2009.

Louis A. Chaiten, argued, Jeffery D. Ubersax, Peter G. Pattakos, on the brief, Cleveland, OH, for appellant.

Kyle E. Hart, argued, Kristine Kroenke, on the brief, Minneapolis, MN, for appellee.

Before WOLLMAN, BRIGHT, and COLLOTON, Circuit Judges.

WOLLMAN, Circuit Judge.

M.M. Silta, Inc. (Silta)¹ brought this breach of contract action against Cliffs Erie, L.L.C. (Cliffs), alleging that Cliffs failed to perform its obligations under two agreements stemming from reclamation of a Minnesota taconite mine.² A jury returned a verdict for Silta on one of its contract claims, and Cliffs appeals, arguing that the district court³ submitted an erroneous jury instruction, that the contract was invalid, and that the damage award was disproportionate as a matter of law. We affirm.

I.

Cliffs is a wholly owned subsidiary of Cleveland-Cliffs, Inc., an international iron ore producer operating mines in Michigan, Minnesota, and eastern Canada. In early 2002, Cliffs began liquidating the assets of a Hoyt Lakes, Minnesota, mine that it had purchased from a bankrupt competitor. The liquidation was a massive undertaking, involving the sale of thousands of pieces of equipment scattered across the more than 30,000 acre mine.

Stephen DeVaney was charged with selling the equipment on Cliffs' behalf. DeVaney had thirty years of experience in the mining industry and had served as the manager of purchasing at the Hoyt Lakes mine when the facility was operational. DeVaney later explained that his goal was to sell anything for which he could find a buyer, and he often sold at prices far below market value.

Melvin Silta, the owner and primary employee of M.M. Silta, Inc., was a frequent customer of DeVaney's. Between 2002 and 2006, Silta purchased hundreds of items from the mine, paying approximately $3.5 million. Silta operated a salvage business, wherein he would purchase equipment and resell it for a profit. Often he would have third-party buyers lined up before he bought the equipment from Cliffs. If the equipment could not be sold in operable condition, Silta would dismantle it and sell it as scrap metal. DeVaney and Silta had a good working relationship, and DeVaney would sometimes consult Silta about the value of an item he intended to sell.

The transaction giving rise to this appeal occurred in June 2004. Silta approached DeVaney and proposed purchasing 248 industrial circuit breakers that were located throughout the mine and used for operating high voltage machinery. The discussion of the sale was brief. Neither party knew exactly what the breakers were worth, and both DeVaney and Silta were under the impression that the breakers contained asbestos that needed to be abated. Silta offered ten dollars for each of the 248 breakers, and DeVaney immediately accepted without making a counteroffer or conducting any inquiry regarding the breakers' resale value. Silta later stated that although he did not know the value of the breakers, he was sure he would not lose money at that price. DeVaney, on the other hand, explained that he was happy to have someone else take care of the asbestos issue. Silta wrote Cliffs a check for $2,480 and DeVaney typed a sales invoice stating that Silta had purchased 248 "MS 13 Asbestos containing breakers." The invoice also stated that "[p]ayment or terms for payment must be completed within 30 days of the Invoice date or the Sales Order will be voided."

Nineteen months elapsed between the time of the sale and Silta's first attempt to move the breakers. Throughout that time, Silta was continuously present at the mine, performing a variety of tasks and purchasing other equipment. The breakers remained undisturbed and unnoticed until January 2006, when DeVaney told Silta to remove his equipment from the mine because of an impending sale of the property to a third party, PolyMet Mining, Corp. (PolyMet). Later that month, Silta presented his sales invoice and attempted to move the breakers, but Cliffs told Silta that the breakers had been sold to PolyMet, along with a mining facility that Polymet had purchased. Cliffs thereafter sent Silta a $2,480 refund check, which Silta refused, insisting that he wanted the breakers. Cliffs continued to reject Silta's claim, arguing that he had abandoned the breakers by not removing them at an earlier date. Silta subsequently learned that eighty-four of the breakers were on property that PolyMet had not purchased, and he filed a notice of lis pendens to prevent Cliffs from disposing of those breakers. Notwithstanding this notice, Cliffs sold the remaining breakers (as part of a sale of the facility in which they were housed) to another company that eventually scrapped the breakers for recycling.

By the time the case went to trial, both Silta and Cliffs had discovered that the breakers contained only a small quantity of non-friable asbestos that did not require abatement. In addition, Silta introduced evidence that the breakers had substantial value. He cited several trade journals indicating that similar breakers sold for between $23,000 and $65,000 each, and he pointed to the fact that PolyMet was apparently using the breakers to operate mining equipment at the Hoyt Lakes facility. A former Cliffs electrician who had worked at the mine for thirty-five years testified that the breakers were in excellent condition and could command a price of $24,000 to $32,000 apiece.

Cliffs countered that Silta had abandoned the breakers by leaving them on Cliffs' property for nineteen months. Alternatively, Cliffs argued that Silta's failure to abate the asbestos or remove the breakers was a material breach of contract that excused its own performance. Cliffs also maintained that, if it had breached the agreement, the proper measure of Silta's damages was the scrap value of the breakers—approximately $500 per breaker—because the parties had not contemplated that the breakers might be resold. The jury concluded that Cliffs had breached the contract, and it awarded Silta $27,500 for each of the 248 breakers. The district court denied Cliffs' post-trial motion for judgment as a matter of law, a new trial, or remittitur; and it added prejudgment interest of $509,166.25, for a total judgment of $7,329,166.25.

II.

Cliffs first argues that the district court erred by submitting a jury instruction that incorrectly explained its material breach defense. We review the district court's ruling on a jury instruction for abuse of discretion. Bass v. Flying J, Inc., 500 F.3d 736, 739 (8th Cir.2007). The focus of our analysis is "whether the instructions, taken as a whole and viewed in light of the evidence and applicable law, fairly and adequately submitted the issues in the case to the jury." Id. (quoting Wilson v. City of Des Moines, 442 F.3d 637, 644 (8th Cir.2006)). We will reverse only if an instructional error has affected a party's substantial rights. Id.

Instruction No. 20 explained the law governing Cliffs' material breach defense as follows:

As a general rule, a material breach of contract by one party excuses performance by the other. A breach of contract is material if it frustrates a fundamental purpose of the contract. Materiality is determined by many factors: 1) the extent to which the injured party will be deprived of the benefit which he reasonably expected; 2) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; 3) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; 4) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; and 5) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. Termination of a contract usually requires that reasonable notification be received by the other party.

Both parties agree that Minnesota law governs this case and that, setting aside the final sentence, the instruction correctly stated the law. Cliffs argues, however, that the language in the last sentence improperly conflates two distinct concepts— termination of a contract and prior breach as a justification for nonperformance.

Cliffs objected to the addition of the termination language on the ground that it was not arguing that the contract had been terminated, but rather that Silta had either materially breached the agreement or abandoned the breakers.⁴ Silta contends that the termination language was supported by Minn.Stat. section 336.2-309(3), which provides that termination of a contract by one party "requires that reasonable notification be received by the other party." But the termination discussed in that statute is defined elsewhere as an act that "occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach." Id. § 336.2-106(3). A party may terminate a contract even when the other party has not breached, a distinction making notice particularly important. See Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923, 933 (8th Cir. 1999) (citing Int'l Therapeutics, Inc. v. McGraw-Edison Co., 721 F.2d 488, 492 (5th Cir.1983)); cf. Mott Equity Elevator v. Svihovec, 236 N.W.2d 900, 908-09 (N.D. 1975) (addressing the same UCC provisions and concluding that notice is not required when a contract is justifiably canceled rather than terminated). The fact that notice may be required for termination, therefore, does not establish that it was necessary here.

Cliffs argued that its...