Lepi Enterprises, Inc. v. National Environmental Service Corp.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-3609
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Lepi Enterprises, Inc., *
an Ohio corporation, *
*
Appellee, *
*
v. * Appeal from the United States
* District Court for the Eastern
National Environmental Service * District of Missouri.
Corp., an Indiana corporation, *
d/b/a NES Corporation; *
The Insurance Company of the *
State of Pennsylvania, *
*
Appellants. *
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Submitted: October 13, 2005
Filed: March 8, 2006
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Before ARNOLD, MURPHY, and GRUENDER, Circuit Judges.
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ARNOLD, Circuit Judge.
National Environmental Service Corporation and the Insurance Company of
Pennsylvania (ICP) appeal the district court's judgment and award of damages against
them and in favor of Lepi Enterprises, Inc. The jury awarded Lepi $815,800 for
damages stemming from National's breach of its contract with Lepi; that contract was
covered by a payment bond that ICP had issued on National's behalf. The district
court also awarded prejudgment interest on this sum from the date that the contract
was terminated. We affirm the judgment for damages in full, but affirm the award of
prejudgment interest only with respect to $565,547 of the damages.
I.
This suit arose from the demolition of the Darst-Webbe housing project in
St. Louis, Missouri. The St. Louis Housing Authority contracted with National to
demolish the buildings, but before this could be accomplished asbestos in the
buildings had to be removed. National subcontracted with Lepi to remove the
asbestos. The Housing Authority hired a third-party consultant, REACT
Environmental Engineers, to identify the areas where asbestos was present and to
inspect the buildings before demolition to ensure that all the asbestos had been
removed.
Lepi removed the asbestos in three buildings, and REACT approved its work.
An inspector from the Occupational Safety and Health Administration (OSHA) then
investigated Lepi's work practices and posted a so-called "Notice of Imminent
Danger" based on the inspector's belief that Lepi had violated OSHA regulations and
exposed its workers to asbestos. Removal and demolition then ceased. REACT wrote
to OSHA to express its view that Lepi had not violated any OSHA regulations. After
asbestos was found lying openly in the buildings from which asbestos had supposedly
been removed, the Housing Authority fired REACT and hired Environmental
Operations, Inc. (EOI) to take its place. At trial, a contractor that later replaced Lepi
produced a tape-recorded conversation in which a National labor superintendent
admitted that he knew that a National employee had planted asbestos in the buildings
that Lepi had previously abated.
Lepi met with OSHA and formulated a work plan to address the supposed
violations, but EOI, acting for the Housing Authority, requested that Lepi adhere to
a higher standard and follow more stringent procedures. Once EOI approved Lepi's
work plan, asbestos removal began again. During the three days between the restart
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of removal and National's termination of Lepi, however, the EOI inspector
documented Lepi as engaging repeatedly in unsafe work practices in violation of
Environmental Protection Agency (EPA) and OSHA regulations, including one
incident involving the dry sweeping of asbestos. Due to the extended delay resulting
from the previous shutdown, National had already contracted with Spirco, another
asbestos abatement firm, to remove asbestos from some of the buildings that Lepi was
supposed to work on. After receiving evidence of Lepi's failure to follow EPA and
OSHA regulations, National terminated Lepi's contract. Asbestos removal on the
Darst-Webbe projects was completed by Spirco and another firm. This included
removal of asbestos not identified in REACT's original survey, which required, in
part, excavating contaminated soil. Lepi sued National for wrongful termination of
the agreement and sued ICP for compensation under the payment bond. The parties
agree that if a judgment is entered against National, a judgment in the same amount
should be imposed against ICP.
II.
At trial, Lepi's owner, James Lepi, testified that Lepi had suffered damages in
the amount of $622,101, plus interest, for services performed. This figure is the sum
of job costs and overhead ($565,547) and a standard ten-percent profit margin
($56,554). Mr. Lepi also testified that his company was entitled to the lost profits that
it would have received had the full contract price been paid: This amounted to
$29,489, a ten-percent profit margin on the difference between the contract price of
$917,000 and the damages of $622,101. Lepi's owner further testified that his
company was entitled to at least $63,300 in lost profits on change orders necessary to
remove asbestos not identified in REACT's first survey of the property. According
to Mr. Lepi, the change orders and supplemental work show the "opportunities Lepi
Enterprises would have had" absent the wrongful termination. Lepi's construction-
contract expert, Stuart Bartholomew, testified that while "custom and practice in the
industry" indicated that the change orders and supplemental assignments, such as the
soil removal and work done at EOI's request after Lepi left the job site, did not fall
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within the original contract between Lepi and National, it was not "improper" to
include anticipated profits on change orders and supplemental work in the damage
calculation.
The jury found that National breached its contract with Lepi and awarded Lepi
$815,800 in damages against National and ICP. The defendants moved for judgment
as a matter of law, remittitur or a new trial, or amendment of the judgment. The
district court denied their motion and awarded Lepi prejudgment interest at a rate of
nine percent on the entire jury award, calculated from the date that National
terminated the contract to the date of the judgment.
III.
National and ICP appeal the denial of their motion for judgment as a matter of
law, contending that Lepi did not prove that it had substantially performed its
contractual obligations to National and thus a reasonable jury could not have found
that National's termination of Lepi was wrongful. A failure of one party substantially
to perform its contractual obligations may excuse the other party's performance. See
Daugherty v. Bruce Realty & Dev. Co., 892 S.W.2d 332, 335-36 (Mo. Ct. App. 1995).
Here, although National presented some evidence that Lepi violated EPA and OSHA
regulations, the witnesses disagreed as to whether these infractions actually occurred
and whether, if they had occurred, they were substantial. Given the need to assess
credibility in this matter and the debate over the number and seriousness of the
supposed violations, it was proper for the district court to deny National's motion.
IV.
The defendants also argue that the evidence did not support the jury's award of
$815,800 in damages. The $622,101 in damages for the services that Lepi performed
is undisputed. The jury apparently awarded additional damages for lost profits based
both on the contract price and on Lepi's evidence that it would have profited from
change orders that became necessary to supplement the original contract. This
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additional work included $2.25 million to remove asbestos from the buildings and
$1,088,000 to remove contaminated soil. "While an estimate of prospective or
anticipated profits must rest upon more than mere speculation, uncertainty as to the
amount of profits that would have been made does not prevent a recovery. The
claimant must establish the fact of damages with reasonable certainty, but it is not
always possible to establish the amount of damages with the same degree of
certainty." Ameristar Jet Charter, Inc. v. Dodson Int'l Parts, Inc., 155 S.W.3d 50, 54-
55 (Mo. 2005) (internal quotation and citation omitted). Since there was evidence that
a firm in Lepi's position would have successfully bid on the change orders associated
with the original job, a reasonable jury could have concluded that it was reasonably
certain that Lepi would have reaped profits on those change orders in some reasonable
amount. The record therefore supports the damage award of $815,800.
V.
Finally, National and ICP appeal the district court's decision to require payment
of nine percent in prejudgment interest on the entire jury award from the date that
National terminated Lepi's contract until the date of entry of the judgment. Because
"[p]rejudgment interest is not allowed on lost profits," American Laminates, Inc. v.
J.S. Latta Co., 980 S.W.2d 12, 25 (Mo. Ct. App. 1998), the district court should have
awarded interest only on the $565,547 that the jury awarded as damages for job costs
and overhead.
We therefore remand the case to the district court for a recalculation of the
amount of the judgment in accordance with the principles outlined in this opinion.
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