Kemper/Prime Indus v. Montgomery Watson ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 05-1144
KEMPER/PRIME INDUSTRIAL PARTNERS,
Plaintiff-Appellant,
v.
MONTGOMERY WATSON AMERICAS, INC.,
Defendant-Appellee,
and
T HE PRIME GROUP, INC.,
Third-Party Defendant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 4278—Ronald A. Guzman, Judge.
ARGUED NOVEMBER 27, 2006—DECIDED J UNE 12, 2007*
Before BAUER, WOOD, and EVANS, Circuit Judges.
WOOD, Circuit Judge. This case concerns who is
responsible for certain environmental clean-up costs.
*
This opinion is being released in typescript. A printed
version will follow.
2 No. 05-1144
Kemper/Prime Industrial Partners (“Kemper/Prime”), the
plaintiff, claims that an environmental assessment of a
parcel of land performed by Warzyn, Inc., the predecessor of
defendant Montgomery Watson Americas, Inc.
(“Montgomery”), was deficient insofar as it failed to reveal
to Kemper/Prime the full extent of contamination and
clean-up costs. The property in question was called the
Chicago Enterprise Center (“the Property”), which
Kemper/Prime purchased after receiving Warzyn’s report
in 1990. Later, when it decided to refinance the Property in
1996, Kemper/Prime conducted another environmental
assessment of the land. The new assessor discovered
contamination that was present in 1990 but that Warzyn
had not detected. Kemper/Prime sued Montgomery,
Warzyn’s successor, claiming negligent misrepresentation
on Warzyn’s part, but the district court ruled that its
evidence of damages was insufficient and dismissed the case
with prejudice. We affirm.
I
In February 1990, an entity called the Prime Group, not
to be confused with plaintiff Kemper/Prime, hired Warzyn
to conduct an environmental assessment of the Property,
a 120-acre stretch of industrial land in south Chicago, to
determine whether the Property had unknown
environmental hazards or problems. Warzyn understood
that the Property would soon be bought by a new
partnership to be known as Kemper/Prime, which was
created to make that purchase by partners in the Prime
Group. As planned, Kemper/Prime purchased the Property
after Warzyn issued its final reports in June of 1990.
As part of its assessment, Warzyn conducted a four-
month evaluation of the Property, including a site visit, an
historical records search, a review of previous reports about
the Property, an investigation of information from state
and federal sources relevant to the Property, soil testing,
soil boring, installation of monitoring wells, analyses of
decontamination procedures, water level measurements,
No. 05-1144 3
ground water sampling, PCB wipe sampling procedures and
other field testing. Warzyn concluded that there were still
unreviewed areas in the Property, but based on the scope of
the work that the Prime Group had commissioned, it did
not investigate these additional areas.
Warzyn published two reports for the Prime Group in
June of 1990. The reports identified some contamination,
focusing in particular on two sections of land (identified as
SB17 and SB8) within the Property that were part of a
“major area of concern” south of Building S. The Prime
Group had expected Warzyn to retrieve Sanborn Fire Maps
for the Property, but Warzyn reported that such maps were
unavailable. At some point after Warzyn’s assessment, the
parties learned that this was incorrect, and that Sanborn
Maps were available for the years 1897, 1913, 1947, 1950,
1976, and 1987. The Sanborn Maps for 1947 and 1950
showed 26 underground storage tanks on the Property. The
later two Sanborn Maps showed none of these tanks.
After issuing its reports, Warzyn sent a short letter to the
Prime Group noting that Warzyn had “developed a proposal
to quantify the extent of contamination identified.” Neither
the reports nor the letter stated that Warzyn had taken the
n ext step and quantified the full environmental remediation
costs for the Property. Instead, the reports and the letter
identify some costs for cleaning up some of the identified
contamination. In context, it appears that the costs may
relate to the “major area of concern” near Building S,
because the cost discussion follows immediately after the
discussion of the Building S area. That area is not a part of
the Property at issue in this litigation.
Between 1993 and 1996, two other environmental
assessment were done on the Property – one by Dunn
Corporation in 1993 and one by Carlson Environmental,
Inc., in 1996. Also during this time, Kemper/Prime
subdivided and sold significant sections of the Property.
Taken together, these sales yielded millions of dollars in
profits for Kemper/Prime.
4 No. 05-1144
Kemper/Prime was nevertheless displeased to learn that
the property had more environmental contamination than
it had been led to believe before its initial purchase. In 1997,
Kemper/Prime sued Montgomery. Then in 1999, several of
the entities that had purchased sections of the Property
joined the suit as plaintiffs. Also in 1999, Montgomery filed
a third-party claim against the Prime Group pursuant to an
indemnification provision in the 1990 agreement between
the Prime Group and Warzyn. In 2003, the district court
dismissed the claims brought by the 1999 plaintiffs. No
claims have been filed between Kemper/Prime and the
Prime Group. (This is important because a defendant’s
impleader under Fed. R. Civ. P. 14 of a party that is not
diverse from the plaintiff does not destroy jurisdiction. See
28 U.S.C. § 1367(b).)
Although Kemper/Prime filed its complaint against
Montgomery in 1997, the litigation dragged on for several
years. In 2003, Montgomery made two motions in limine
about the standard of damages the district court should
employ, questioning whether Kemper/Prime would be able
to satisfy its burden of proof under the appropriate
standard. The district court expressed “serious doubts
about the ability of ... Kemper/Prime ... to provide evidence
of damages.” Kemper/Prime then filed a “Memorandum Of
Evidence On Damages That It Will Present At Trial.” After
Montgomery filed a responsive brief, the district court
concluded that “Plaintiff cannot offer proof of all necessary
parameters of the damages calculation, and [therefore]
Plaintiff is barred from presenting evidence of damages at
trial” and dismissed the case with prejudice, in substance
granting summary judgment in Montgomery’s favor.
Kemper/Prime appeals its dismissal to this court. We note
that Montgomery’s claim for indemnification against Prime
Group is still pending in the district court, which would
ordinarily mean that the judgment is not yet final in this
case for purposes of 28 U.S.C. § 1291. Here, however, the
court issued an order under Fed. R. Civ. P. 54(b) certifying
that all claims between Kemper/Prime and Montgomery
No. 05-1144 5
were resolved and there was no just reason for delay for
purposes of appeal. Our appellate jurisdiction is therefore
secure.
II
Because the district court’s jurisdiction was based on
diversity of citizenship, 28 U.S.C. § 1332(a), we look to state
law (here, that of Illinois) for the rules of decision. See 28
U.S.C. § 1652; McClain v. Owens-Corning Fiberglas Corp.,
139 F.3d 1124, 1126 (7th Cir. 1998) (specifically addressing
question whether evidence supports an award of damages).
The Illinois Supreme Court allows suits alleging negligent
misrepresentation “where [the defendant] is in the business
of supplying information for the guidance of others in their
business transactions.” Brogan v. Mitchell Int’l, 692 N.E.2d
276, 278 (Ill. 1998); Moorman Mfg. Co. v. National Tank Co.,
435 N.E.2d 443, 452 (Ill. 1982). A plaintiff alleging negligent
misrepresentation must prove that (1) the defendant made
“a false statement of material fact,” (2) the defendant had
the “intention to induce the other party to act,” (3) the
plaintiff relied “on the truth of the statements,” (4)
“damage to the other party resulting from such reliance,”
and (5) the “defendant owes a duty to the plaintiff to
communicate accurate information.” Board of Education v.
A, C & S, Inc., 46 N.E.2d 580, 591 (Ill. 1989). At issue in this
appeal is the fourth element, “damage ... resulting from
such reliance.”
The Illinois state courts have not adopted a particular
approach to damages for negligent misrepresentation cases.
Montgomery argued before the district court that the
proper measure of damages here is the diminution of value
of the land at issue, while Kemper/Prime asked the district
court to adopt the damages standard set forth in § 552B of
the Second Restatement of Torts. The district court agreed
with Kemper/Prime and looked to § 552B for its standard.
This court faced a similar lack of standards for damages
6 No. 05-1144
in a diversity action in Trytko v. Hubbell, Inc., 28 F.3d 715,
721-24 (7th Cir. 1994). In Trytko, the plaintiff brought a
negligent misrepresentation action under Indiana law. Id.
at 718. The Trytko court noted that “[a]lthough the
[Indiana Supreme Court] adopted § 552 of the Restatement
(describing the elements of the tort of negligent
misrepresentation), no Indiana court has discussed or
adopted § 552B’s view of damages. Nevertheless, the
Restatement, in its stature, seems an appropriate starting
point for our discussion.” Id. at 721-24. The Trytko court,
consistently with many others, adopted § 552B and its
commentary as the proper standard of damages, including
that section’s limitation of damages in negligent
misrepresentation cases to reliance damages only, not
expectancy damages. Id. at 724 (citing § 552B(2)). See also
Becker v. PaineWebber, Inc., 962 F.2d 524, 527 (5th Cir.
1992); Cunha v. Ward Foods, Inc., 804 F.2d 1418, 1426 (9th
Cir. 1986); Battenfeld of Am. Holding Co. v. Baird, Kurtz &
Dobson, 60 F. Supp. 2d 1189, 1202 (E.D. Pa. 1999); Rosales
v. AT&T Information Systems, Inc., 702 F. Supp. 1489, 1501
(D. Colo. 1988); First Interstate Bank of Gallup v. Foutz, 764
P.2d 1307, 1310 (N.M. 1988); Law Offices of L.J. Stockler v.
Rose, 436 N.W.2d 70, 85-86 (Mich. Ct. App. 1989).
We agree with the district court that if Illinois courts
were to address the issue of standard of damages in a
negligent misrepresentation action, they likely would adopt
§ 552B as their standard. Section 552B reads:
Damages for Negligent Misrepresentation
(1) The damages recoverable for a negligent
misrepresentation are those necessary to
compensate the plaintiff for the pecuniary loss
to him of which the misrepresentation is a legal
cause, including
(a) the difference between the value of what he has
received in the transaction and its purchase
price or other value given for it; and
No. 05-1144 7
(b) pecuniary loss suffered otherwise as a
consequence of the plaintiff’s reliance upon the
misrepresentation.
(2) the damages recoverable for a negligent
misrepresentation do not include the benefit of
the plaintiff’s contract with the defendant.
Relying on § 552B, the district court concluded that in
order to prove damages, Kemper/Prime needed to “offer
evidence of (1) the cost of remediating the contamination
listed in the 1990 Report, and (2) the total cost of
remediating the contamination that existed on the Property
at the time of the 1990 Report.” This evidence could satisfy
either § 552B(1)(a) or (b) because it would either show the
extent to which Kemper/Prime overpaid for the Property or
the additional costs Kemper/Prime was forced to incur
because of its reliance on Warzyn’s reports. In fact, this
interpretation § 552B was generous to the plaintiff, as §
552B can be read more narrowly. Indeed, Montomgery
contends that the district court’s approach to pecuniary
loss is “expansive.” Because Kemper/Prime’s evidence of
damages does not satisfy even the district court’s standard,
however, we do not need to consider further whether Illinois
would adopt a narrower reading of § 552B. Instead we move
directly to the district court’s conclusion that
Kemper/Prime failed to raise a genuine issue of fact on
allowable damages.
III
Illinois law requires that the plaintiff’s “evidence shall
with a fair degree of probability tend to establish a basis for
the assessment of damages.” Schatz v. Abbott Laboratories,
Inc., 281 N.E.2d 323, 326 (Ill. 1972). If it meets that
standard (which we understand for purposes of a federal
diversity case to mean evidence that, if believed by a trier of
fact, would suffice to show damages), it need not be exact.
Here, Kemper/Prime needed to proffer evidence of (1) the
cost of remediating the contamination listed in the 1990
Report, and (2) the total cost of remediating the
8 No. 05-1144
contamination that existed on the Property at the time of
the 1990 Report.
A
In order to meet this burden, Kemper/Prime pointed to
the 1990 Warzyn report, the testimony of an expert, Gary
Vajda, the testimony of one of its officers, James Martell,
the other Warzyn materials, a draft letter from Warzyn to
Martell on May 31, 1990, and a few lines of handwritten
notes following a conversation between Martell and Warzyn
on June 1, 1990. We agree with the district court that this
evidence does not “establish a basis for the assessment of
damages” with any degree of probability, let alone “with a
fair degree of probability.” First, Kemper/Prime has
identified no statement by Warzyn in the 1990 reports or in
any supporting documentation from Warzyn produced at
the time of the reports of the cost of remediation for the
Property. Second, Kemper/Prime identifies nothing in the
reports or other Warzyn documents from which a court
could infer the cost of remediation. Third, even if
Kemper/Prime could point to such a remediation cost,
Kemper/Prime has neither demonstrated how a court could
infer from that data what the cost of remediating only the
sections of the Property at issue in this litigation would be
or compare the cost of remedying the problems Warzyn
found on the relevant parcel to the cost of full remediation
in 1990, the second fact required by the district court.
Kemper/Prime contends that the affidavit by its expert
Gary Vajda concerning the standard of care in
environmental assessment reports is evidence of the cost of
remediating the contamination identified by Warzyn in
1990. Vajda stated that it is “the standard practice of
consultants performing this type of work to at least provide
a qualitative but more often a quantitative evaluation of the
potential liabilities... [and] it was not unusual to provide
order of magnitude costs (or cost ranges) that bracket the
potential liabilities.” (emphasis added). This statement is
far too vague, however, to support a claim that
No. 05-1144 9
Kemper/Prime was entitled to view the Warzyn reports as
a definitive statement of the costs of remediation, nor does
it demonstrate an industry standard practice that requires
cost estimates for all possible remediation.
Montgomery correctly states in its brief to this court that
there is no evidence that Warzyn made any statement to
Martell, Senior Vice President of the Prime Group and an
officer of Kemper/Prime and the Prime Group, or anyone
else, that the cost to remediate all the contamination on the
Property in 1990 was $300,000. Although Kemper/Prime
may have been technically correct when it told the district
court that Warzyn “failed to quantify the contamination for
locations where it found contamination,” a lack of
quantification is a far cry from a representation by Warzyn
that there were no remediation costs. Kemper/Prime’s
Evidence Memo to the district court stated that it “relied
on [Warzyn] to determine the potential environmental
concerns or liability at the Property,” not the costs of
remediating the Property. The short letter from Warzyn
drafted on May 31, 1990, states that Warzyn “developed a
proposal to quantify the extent of contamination
identified,” but again it does not state that Warzyn
quantified any of the remediation costs or that it was
expected to do so.
Even if Kemper/Prime had expected a full remediation
cost estimate, it could not reasonably have viewed the
$300,000 figure it references to be such an estimate. The
notes from the phone call and the short draft letter from
Warzyn, on which Kemper/Prime relies, refer specifically to
just two sections of land (labeled SB17 and SB8) within the
Property. These two sections of land were part of a larger
section that Warzyn labeled a “major area of concern”
south of Building S. We have doubts that this letter, with
the word “DRAFT” stamped in large print on every page,
could be considered relevant evidence of guaranteed
remediation costs. At best, the $300,000 is part of the
remediation costs implied by the contamination identified
in the reports. Yet not only were the costs for remediating
10 No. 05-1144
the rest of this problem area not discussed, but this portion
of the Property is not at issue in this litigation.
Warzyn’s comprehensive reports were issued in June
1990, just days after the draft letter was written. Taking
just one example, one of the reports notes the presence of
chromium at MW4 (a monitoring well used for the report).
MW4 appears to be within the area of the Property at issue
in this case. After noting the MW4 chromium, among other
findings, the report states “[a]dditional sampling would be
required to determine the extent of soil contamination, the
presence of additional inorganics, and the migratory nature
of compounds found.” This is one of many statements to
Kemper/Prime underscoring the limited scope of Warzyn’s
work. Kemper/Prime’s contention, then, that the
“Defendant left Martell with the impression that except for
the remedial estimate provided to Martell, there were no
other remedial costs” has no basis in the evidence that was
proffered.
Kemper/Prime could have used its expert to analyze the
Warzyn reports, take note of every measurable amount of
contamination identified, and calculate remediation costs
based on some industry standard cost, but it did not do so.
Without such additional materials, the district court was
left with no means of identifying or inferring the cost of
remediation from the Warzyn reports.
Finally, we are left with two insurmountable calculation
problems. Kemper/Prime has sold significant sections of the
Property since 1990; indeed, in post-argument submissions
the parties discussed the effect of Kemper/Prime’s sale of its
remaining holdings in October 2004. Any remediation costs
identified in the Warzyn reports would need to be reduced
by the costs associated with the sections of the Property no
longer owned by Kemper/Prime. This has not been done.
Second, there is no evidence that even the $300,000 figure,
nor any other figure, is what is called a Tier One
remediation cost, or that it was calibrated to any particular
standard of remediation. There are many such standards
No. 05-1144 11
for cleaning up contaminated land, depending on what the
planned use of the land is. As the district court noted, in
order to come up with a valid comparison of the cost of
remediating the problems that were identified with the cost
of remediating all problems that existed, both must be
calibrated to the same standard. Kemper/Prime offers only
Tier One evidence of the full cost of remediating the
contamination that existed in 1990. A court given these two
cost estimates would be left to compare them not knowing
if it was making an apples-to-apples comparison or an
apples-to-oranges comparison. That level of uncertainty is
insufficient to “establish a basis for the assessment of
damages” with any “degree of probability.”
Therefore, we are led to the same conclusion as the
district court: Kemper/Prime has not shown a genuine issue
of material fact for the remediation costs for the
contamination listed in the 1990 Warzyn reports.
B
Kemper/Prime’s evidence of the total cost of remediating
all of the contamination that existed on the Property at the
time of the 1990 reports is equally flawed. Again,
Kemper/Prime’s cost estimates do not make any
adjustments for the sections of the Property it no longer
owns. Moreover, Kemper/Prime’s cost estimates are
calculated only for the Tier One standard. Beyond the
comparison problems to which these gaps give rise, it
appears from the record that the Tier One standard is not
normally used to remediate industrial properties. There is
nothing in the record to suggest that Kemper/Prime or any
subsequent owner of the Property wants to use it for non-
industrial use. Therefore, even if the estimates were
tailored to the correct sections of the Property, they would
still be unusable in this case. This evidence too therefore
fails to raise a triable fact issue.
IV
Montgomery also urges this court to accept an alternative
12 No. 05-1144
basis for affirming the district court’s opinion. Montgomery
contends that the district court’s interpretation of
pecuniary loss is too “expansive” because it includes
benefit-of-the-bargain damages, which are not available in
negligent misrepresentations actions. See Restatement
(Second) of Torts § 552B(2), Comment b (“[T]here is as a
general rule no liability for merely negligent conduct that
interferes with or frustrates a contract interest or an
expectancy of pecuniary advantage.”) Although we see the
logic of Montgomery’s argument, there is no need to
address its merits. Kemper/Prime’s evidence of damages
falls short under the more generous standard set forth by
the district court, and so it would inevitably fail under the
stricter standard Montgomery prefers. We cannot help but
n ote, however, that yet another Kemper/Prime entity, the
Prime Group Partners, has agreed to remediate all the
contamination and indemnify Kemper/Prime against
environmental liabilities at the Property. It also appears
that since this lawsuit began, Kemper/Prime has sold its
remaining interests in the Property for a profit. We are left
with a plaintiff that appears to have benefitted significantly
from the purchase of the Property, with no sign of any
pecuniary loss.
V
The district court gave Kemper/Prime every opportunity
to put forth evidence of its recoverable damages, but it
failed at every turn. We therefore AFFIRM the decision of the
district court.