E. Liverpool v. Buckeye Water Dist.

[Cite as E. Liverpool v. Buckeye Water Dist., 2010-Ohio-3170.]
STATE OF OHIO, COLUMBIANA COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
THE CITY OF EAST LIVERPOOL ) CASE NO. 08 CO 19)
PLAINTIFF-APPELLEE )
)
VS. ) OPINION
)
BUCKEYE WATER DISTRICT, et al. )
)
DEFENDANTS-APPELLANTS )
CHARACTER OF PROCEEDINGS: Civil Appeal from the Court of Common
Pleas of Columbiana County, Ohio
Case No. 05-CV-502
JUDGMENT: Affirmed in part. Modified.
APPEARANCES:
For Plaintiff-Appellee: Atty. Charles L. Payne
Law Director – City of East Liverpool
617 S. Clair Avenue
East Liverpool, Ohio 43920
Atty. Thomas W. Connors
Atty. James M. Wherley, Jr.
Black, McCuskey, Souers & Arbaugh
220 Market Street, Suite 1000
Canton, Ohio 44702
For Defendants-Appellants: Atty. Dennis M. O’Toole
Stumphauzer, O’Toole, McLaughlin
McGlamery & Loughman Co., LPA
5455 Detroit Road
Sheffield Village, Ohio 44054
Atty. Frederick C. Emmerling
114 W. Sixth Street
P.O. Box 25
East Liverpool, Ohio 43920
JUDGES:
Hon. Cheryl L. Waite
-2-
Hon. Gene Donofrio
Hon. Mary DeGenaro
Dated: June 21, 2010
WAITE, J.
{¶1} Appellants Buckeye Water District (“BWD”) and the Board of
Commissioners of Columbiana County (“Commissioners”) have filed an appeal of a
$9.7 million judgment against them regarding the breach of a water service
agreement (the “Agreement”). The Appellee is the City of East Liverpool (“East
Liverpool”). Commissioners entered into the 30-year Agreement in 1995, agreeing to
purchase a minimum of 235,000 gallons of water per day from East Liverpool. The
Agreement was later assigned to BWD. Appellants failed to pay the amount required
under the Agreement starting in 2004, and eventually notified East Liverpool that they
were repudiating the Agreement due to various alleged breaches of the Agreement
by East Liverpool. East Liverpool filed a breach of contract complaint in 2005. The
case was heard at a bench trial ending in September, 2007, in the Columbiana
County Court of Common Pleas. Two of the main issues at trial were whether
Appellants were justified in repudiating the contract because: (1) East Liverpool did
not provide the proper quantity and pressure of water called for in the contract; and
(2) East Liverpool failed to provide safe potable drinking water, particularly water that
was free from trihalomethanes (“THMs”). THMs are a byproduct of the chlorination
process, and the Ohio Environmental Protection Agency (“OEPA”) limits the amount
of THMs that may occur in drinking water. Appellants claimed that their water was
contaminated with THMs.
-3-
{¶2} After trial concluded on September 6, 2007, the trial court required the
parties to prepare post-trial memoranda. Appellants filed proposed findings of fact
and conclusions of law. BWD asserted that East Liverpool had been cited 13 times
by the OEPA, and that these citations constituted a breach of the contract. East
Liverpool subsequently filed its own findings of fact and conclusions of law.
{¶3} In February of 2008, the trial court found in favor of East Liverpool on all
issues. The court noted that in Appellants’ proposed findings of fact and conclusions
of law they had abandoned their prior arguments regarding the level of THMs in the
water, and instead focused on various citations that had been issued by the OEPA.
The court found that the OEPA citations were for failure to monitor and not for actual
contamination of East Liverpool’s water supply. The court held that receipt of the
citations did not amount to a breach of the Agreement. The court also determined
that East Liverpool maintained sufficient volume and pressure over the course of the
Agreement. The court awarded $1,480,963.91 in damages for the period from
August, 2004, to December of 2007. It also awarded $8,233,082.46 for future
damages starting from January of 2008 and continuing for the remaining 18 years of
the contract based on the contract price of $5.64 per 1000 gallons, and further based
on the minimum contractual amount of 235,000 gallons per day. The total award was
$9,714,046.37. The court did not perform any calculation to reduce the future
damages award to present value.
{¶4} Appellants argue on appeal that the verdict does not comport with the
weight of the evidence. Appellants contend that the evidence presented at trial
shows that the water pressure was insufficient and that there were elevated levels of
-4-
THMs. Appellants assert that both of these facts constitute breaches of the
Agreement and should have allowed them to repudiate the Agreement. Appellants’
arguments are not persuasive. The record reflects that the water pressure met the
contractual requirements and that the water delivered to Appellants was not
contaminated.
{¶5} Appellants also argue that political entities such as East Liverpool and
BWD cannot sue or be sued for lost profits when a water supply agreement is
breached. We have found no legal support for this conclusion.
{¶6} The remainder of Appellants’ arguments deal with the court’s
calculation of damages. Appellants allege that the profit margin East Liverpool was
receiving from the contract was excessive, but this is not borne out by the record.
Appellants contend that the award for future damages was speculative, even though
the damages were calculated by simply taking the current contract price for the
water, less costs avoided, and multiplied by the remaining years of the contract. We
do find merit, though, in Appellants’ final argument regarding the trial court’s decision
not to reduce future damages to present value. The Ohio Supreme Court has held
that future damages must be reduced to present value. Galayda v. Lake Hosp. Sys.,
Inc. (1994), 71 Ohio St.3d 421, 425, 644 N.E.2d 298. The record reflects that the trial
court considered the discount rate for reducing the future award to present value, but
offset this value with presumed inflationary rate hikes that East Liverpool would have
been permitted to make over the course of the Agreement had Appellants not
breached the Agreement. Although there may be circumstances when an offset for
inflation might apply, the facts of this case do not present such circumstances. Given
-5-
the extreme length of the water supply contract, the fact that East Liverpool’s water
rates were already inflated by rate increases instituted after the dispute with
Appellants arose, the clear directive by the Ohio Supreme Court, and a number of
other factors, we conclude that the trial court should have reduced the future
damages award to present value. East Liverpool proposed a discount rate of 5.08%
to reduce the award to present value, and this is the rate that should have been
applied. The trial court judgment is hereby modified to reflect the application of a
5.08% discount rate. The damages award is reduced to $4,842,752.99 to reflect that
future damages have been reduced to present value.
History of the Case
{¶7} East Liverpool and the Commissioners entered into a written “Water
Service Agreement” on December 15, 1995. The Agreement was for 30 years,
terminating on December 31, 2025. The initial purpose of the Agreement was to
supply water to customers in Wellsville and Calcutta, Ohio. East Liverpool agreed to
provide up to 1,000,000 gallons of water per day to the Commissioners. The first
500,000 gallons per day would be made available immediately, and the remaining
amount would be available following water treatment plant modifications or OEPA
approval. The Commissioners agreed to pay $3.03 per 1000 gallons for the first
235,000 per day, and $1.70 per 1000 gallons for any additional amounts. The
Commissioners agreed to purchase at least 235,000 gallons per day for the duration
of the Agreement, and there were no restrictions on how the water could be resold.
The Agreement allowed East Liverpool to raise the rate it charged the
-6-
Commissioners for water. By May of 2005, this rate had risen to $5.64 per 1000
gallons.
{¶8} The Agreement required East Liverpool to provide water at “the present
volume and pressure,” and the delivery point was to be measured “at a point 113 feet
beyond the valve at the Corporation line on Cartwright Street or other points
agreeable to both parties.” (12/15/95 Agreement, p. 3, ¶5.) Cartwright Street is a
short distance south of the primary water tank used by Appellants to store and
redistribute the water it purchased from East Liverpool under the Agreement. The
delivery point in the Agreement is prior to the point where the water enters the tank.
{¶9} The Agreement provided that the Commissioners would only be billed
for the actual amount of water used by its customers. It also provided that the water
that could not be accounted for by the county could not exceed 20% of the usage
shown on the master water meters.
{¶10} On April 29, 1996, the Commissioners assigned the performance of the
Agreement to BWD. East Liverpool was not involved in this assignment.
{¶11} From 1995 through 2004, BWD expanded its customer base, which led
to an increase in the volume of water being drawn from the East Liverpool water
system. In 1996, BWD used 235,000 gallons per day. By 2004, this amount
increased to 400,000 gallons per day.
{¶12} In 2002, representatives of BWD notified East Liverpool that there was
a problem with the pressure of the water. East Liverpool responded that it was
continuing to supply the pressure and volume as agreed in 1995. At the same time
-7-
BWD began complaining about the water pressure, it was making plans to build its
own water treatment plant to supply up to 4 million gallons per day to its customers.
{¶13} On March 21, 2003, BWD served notice that it considered East
Liverpool to be in breach of the Agreement for three reasons. The first was alleged
inadequate pressure and volume. The second was failure to supply safe potable
water, primarily due to the existence of THMs in the water. The third reason for
declaring a breach was failure to evenly distribute the water supply.
{¶14} On September 24, 2003, BWD notified East Liverpool that it would have
alternate supplies of water available on April 1, 2004. BWD began lowering its
consumption of water under the Agreement in 2004. After April 1, 2004, BWD began
paying East Liverpool only for the amounts of water it was using, even though the
amount was below the minimum amount of 235,000 gallons per day established in
the Agreement. BWD eventually stopped using any water from East Liverpool by
early 2006.
{¶15} East Liverpool filed a breach of contract complaint in the Columbiana
County Court of Common Pleas on May 19, 2005. The defendants were the
Commissioners and BWD. The trial of the case took place, on and off, over a period
of four months, starting on May 2, 2007, and concluding on September 6, 2007. East
Liverpool called the following witnesses: Robert Disch, East Liverpool Utilities
Director; Charles Allison, board member of BWD; Ronald Huprich, project engineer
for East Liverpool; Steven Polen, BWD Manager; David Stewart, consulting engineer;
Alfred DeAngelis, BWD District Manager; Bert Dawson, Columbiana County
Engineer; William Butler, former East Liverpool Treasurer; and Timothy Clark, East
-8-
Liverpool Water Department Superintendent. Appellants called many of these same
witnesses, along with Charles Bibi, trustee of BWD; Roy Dray, former BWD interim
director and board member; John Pierko, consultant for BWD; David Frank, civil
engineer; and expert witness Beth Darnell, plant manager for the Avon Lake water
plant. Hundreds of exhibits were presented during trial. The combined exhibit lists of
the parties encompasses 39 pages.
{¶16} The following evidence was established at trial. The parties do not
dispute that East Liverpool and the Commissioners entered into a 30-year water
service agreement on December 15, 1995. The Agreement is to terminate on
December 31, 2025. The agreement was modified slightly in writing on April 9, 1996.
The terms of this modification are not part of the dispute between the parties. On
April 29, 1996, the Commissioners assigned the performance of the Agreement to
BWD. East Liverpool was not part of this assignment, and there does not appear to
be any dispute that the Commissioners and BWD are jointly liable for any breach of
the Agreement. The initial water rate was $3.03 per 1000 gallons for the first 235,000
gallons used.
{¶17} In January 2002, BWD Director Steven Polen had discussions with East
Liverpool regarding levels of THMs in the water. The OEPA had notified the parties
in 2000 that THM regulations were going to becoming more strict, and that a new
standard of 80 parts per billion would be applied starting in January of 2004. The
prior standard was 100 parts per billion. Records introduced at trial indicated that
East Liverpool was in compliance with THM requirements prior to January, 2004, and
-9-
that after the new regulation took effect, it kept its THM level below 80 parts per
billion.
{¶18} On May 16, 2002, BWD approved the building of a new 4 million gallon
per day water treatment plant. Charles Allison, a board member of BWD, raised
concerns about authorizing the new plant because of the prior obligations under the
East Liverpool water Agreement. He informed the board that, although he hoped the
East Liverpool Agreement could be broken, there were no guarantees. (Tr., Vol. 1, p.
136.)
{¶19} On July 22, 2002, BWD wrote to East Liverpool complaining that there
were problems with the water pressure at the Oakmont tank. East Liverpool’s Utility
Director, Robert Disch, examined the situation and determined that pressure was
being maintained pursuant to the Agreement. He informed BWD that they had the
option under the Agreement to build a direct tap-in line to East Liverpool’s water
treatment plant, and thereby could pump and control their own water supply as
needed. This would be at BWD’s expense. BWD declined to utilize this option in the
Agreement. Various exhibits were introduced at trial establishing that the water
pressure both before and after the execution date of the Agreement was being
maintained at 46-49 psi.
{¶20} On March 21, 2003, BWD sent a letter to East Liverpool claiming that
the city failed to provide a safe water supply by having elevated levels of THMs in the
water, and that East Liverpool had breached the Agreement. Subsequently, BWD
began reducing the amount of water drawn from East Liverpool, and began paying
only for the water they used even if it was less than the minimum usage of 235,000
-10-
gallons per day as required by the Agreement. East Liverpool attempted to address
BWD’s concerns about the quality of the water and the increasing water needs of the
district, but when it became clear that BWD intended to stop purchasing any water
from East Liverpool, a breach of contract complaint was filed.
{¶21} After trial, the court ordered the parties to file post-trial memoranda. On
December 7, 2007, Appellants filed proposed findings of fact and conclusions of law,
and filed an amendment on December 11, 2007. East Liverpool filed its own
proposed findings of fact and conclusions of law on December 21, 2007. The parties
both followed up with reply memoranda. The trial court entered its judgment on
February 13, 2008, borrowing liberally from East Liverpool’s proposed findings of fact
and conclusions of law. The court found that East Liverpool maintained appropriate
volume and pressure of water during the course of the Agreement. The court
rejected Appellants’ contention that East Liverpool was required to maintain pressure
of at least 49 psi at the meter leaving the Oakmont tank. The court found no
evidence that the water being sold to Appellants was ever contaminated or unsafe,
although it acknowledged that there was one incident when the water pressure briefly
dropped below 20 psi. The court found that Appellants had dropped their claims
regarding THM contamination. The court determined that Appellants were
maintaining only their breach of contract claim based on the OEPA citations given to
East Liverpool during the term of the Agreement. The court found that these
violations were for failure to monitor and were not due to actual unsafe or
contaminated conditions, and therefore, that the OEPA citations could not be used as
the basis for breach of contract claims. The court also reviewed a number of
-11-
complaints regarding lack of communication between East Liverpool and Appellants.
The court found that Appellants decided in 2002 to build a new water treatment plant,
and based on that decision, did not want to continue paying for water from East
Liverpool. The court found that Appellants received approval from OEPA to install an
emergency booster pumping station, but failed to inform OEPA that they would be
using this station on a regular basis to avoid purchasing water from East Liverpool.
The court found that Appellants terminated the Agreement on the same day that the
new booster pumping station was scheduled to go online. The court found that the
reasons given by Appellants for terminating the Agreement were pretexual, and
determined that many of Appellants’ witnesses were evasive, vague and less than
credible.
{¶22} The court calculated damages based on the contract amount of
235,000 gallons per day at a rate of $5.13 per 1000 gallons prior to May of 2005, and
$5.64 per gallon after May, 2005. The court deducted electrical and chemical costs
avoided by East Liverpool. The court did not deduct any amount for labor costs
avoided. The court determined that East Liverpool’s lower labor costs were not a
result of the breach but due to the installation of labor-saving equipment. The court
awarded damages in three parts. The court awarded past damages from August of
2004 to March of 2007 in the amount of $1,136,352.39. The court awarded future
damages from April of 2007 to December of 2007 in the amount of $344,611.52. The
court awarded future damages from January of 2008 to December of 2025 in the
amount of $8,233,082.46. These figures were taken from Plaintiff’s exhibit 97. The
court did not apply the present value discount of 5.08%, also found on Plaintiff’s
-12-
exhibit 97, because it concluded that the discount would be offset by East Liverpool’s
right to increase its rates from year to year. The total judgment awarded was
$9,714,046.37. A motion for prejudgment interest remained pending, and the court
denied the motion on April 30, 2008. This timely appeal followed.
ASSIGNMENT OF ERROR NO. 1
{¶23} “THE TRIAL COURT ERRED IN FINDING THAT THE DEFENDANT-
APPELLANT WRONGFULLY REPUDIATED THE CONTRACT HEREIN.”
{¶24} Appellants are actually arguing two basic errors under this assignment
of error. The first is based on the trial court’s interpretation of a number of aspects of
paragraph 5 of the Agreement, which states:
{¶25} “5. The City will deliver the water to the County at a point 113 feet
beyond the valve at the Corporation line on Cartwright Street or other points
agreeable to both parties. The City will continue to maintain the availability of the
present volume and pressure of the water at Cartwright Street.” (12/15/95
Agreement, p. 3, ¶5.)
{¶26} Appellants maintained throughout this case that the delivery point for
determining “present volume and pressure” was the meter exiting their water tank on
Oakmont Avenue, rather than the meter going into the tank. This is obviously
different than the delivery point established in the Agreement, which places the point
of delivery as 113 feet beyond the valve at the East Liverpool city line at Cartwright
Street. This point is before the water enters the tank on Oakmont Avenue. The tank
on Oakmont Avenue was a gravity feed tank, meaning that the only force creating
water pressure in the tank was the force of gravity. The water meter closest to the
-13-
delivery point specified in the Agreement was located just before the water entered
the Oakmont tank. Appellants would have us define the “delivery point” as the exit
point of the tank, because the water pressure exiting the tank was less than the
pressure of the water entering the tank. The water entering the tank was consistently
between 46 and 49 psi. The water exiting the tank was closer to 40 psi. It appears
that Appellants controlled the water pressure exiting the tank by controlling how much
water they released from the tank to their customers, but it has been their belief that
East Liverpool was somehow responsible for the lowered pressure at the point where
the water exited the tank.
{¶27} It is clear that the Agreement enabled the parties to redefine the
delivery point to be at “points agreeable to both parties.” Appellants contend that
they had an unwritten agreement, or modification of the agreement, that set a
different delivery point for the water. They contend that this alternate delivery point
did not maintain a pressure of 49 psi and could not keep the Oakmont tank full of
water. Appellants have assumed that the parties also agreed to a water pressure of
at least 49 psi at this modified delivery point, but this number is not actually found in
the Agreement. Appellants’ assumption that East Liverpool promised to maintain a
pressure of 49 psi is not based on the Agreement, but rather, on supposed
assertions and comments made prior to the execution of the Agreement. The
Agreement required East Liverpool to keep the pressure at the “present volume and
pressure of water,” meaning the volume and pressure at the time the contract was
signed and executed in December of 1995. According to East Liverpool records, in
1995 this pressure ranged from 46 to 49 psi at the point of entry into the tank. The
-14-
records of both East Liverpool and BWD show that the water pressure entering the
tank was maintained at or above 46-49 psi after 1995 as well.
{¶28} Appellants contend that the trial court should have made the following
findings of fact and conclusions of law:
{¶29} 1. The contract was not an integrated agreement, and any statements,
assertions, or assurances made prior to the signing of the Agreement were not
superseded by the terms of the written agreement.
{¶30} 2. That East Liverpool made assurances about water pressure prior to
executing the contract, and these prior assurances are enforceable.
{¶31} 3. The parties agreed that East Liverpool was to measure the water
pressure at the point where the water exited the Oakmont tank.
{¶32} 4. The water pressure required by the contract was “present volume
and pressure,” which was at least 49 psi at the time the contract was executed.
{¶33} 5. The clause requiring written modifications of the contract is not
enforceable.
{¶34} 6. The parties orally agreed to modify the delivery point.
{¶35} Appellants must successfully establish that the trial court erred as to
each of these six factual and legal conclusions in order to establish reversible error
on appeal. We do not find any error in these matters.
{¶36} First, the contract is, by its own terms, clearly an integrated contract.
Paragraph 11 of the contract states:
-15-
{¶37} “This agreement shall supersede any and all prior agreements and
understandings between the parties hereto, to the full extent as if there had been no
such agreements or understandings.”
{¶38} There is always a presumption that a written contract is an integration
of the parties’ complete agreement. This presumption is strongest when there is an
integration clause included in the contract itself. Fontbank Inc. v. CompuServe, Inc.
(2000), 138 Ohio App.3d 801, 808, 742 N.E.2d 674.
{¶39} Further, when the language of the written instrument is clear and
unambiguous, the interpretation of the instrument is a matter of law. Davis v. Loopco
Indus., Inc. (1993), 66 Ohio St.3d 64, 66, 609 N.E.2d 144.
{¶40} The basic principles of contract integration and the intent of the parties
subject to a written agreement have been repeated many times by the courts:
{¶41} “In construing any written instrument, the primary and paramount
objective is to ascertain the intent of the parties. The general rule is that contracts
should be construed so as to give effect to the intention of the parties. Employers'
Liability Assurance Corp. v. Roehm (1919), 99 Ohio St. 343, 124 N.E. 223, 7 A.L.R.
182, syllabus; Skivolocki v. East Ohio Gas Co. (1974), 38 Ohio St.2d 244, 67 O.O.2d
321, 313 N.E.2d 374, paragraph one of the syllabus. Where the parties, following
negotiations, make mutual promises which thereafter are integrated into an
unambiguous written contract, duly signed by them, courts will give effect to the
parties' expressed intentions. Henderson-Achert Lithographic Co. v. John Shillito Co.
(1901), 64 Ohio St. 236, 252, 60 N.E. 295, 298. See, also, Charles A. Burton, Inc. v.
Durkee (1952), 158 Ohio St. 313, 49 O.O. 174, 109 N.E.2d 265. Intentions not
-16-
expressed in the writing are deemed to have no existence and may not be shown by
parol evidence. See Charles A. Burton, Inc., supra, at paragraph two of the syllabus;
Steel Sanitary Co. v. Pangborn Corp. (1930), 38 Ohio App. 65, 70, 9 Ohio Law Abs.
6, 8, 175 N.E. 615, 616-617. There can be no implied covenant in a contract in
relation to any matter that is specifically covered by the written terms of the contract.
Kachelmacher v. Laird (1915), 92 Ohio St. 324, 110 N.E. 933, paragraph one of the
syllabus.” Aultman Hosp. Assn. v. Comm. Mut. Ins. Co. (1989), 46 Ohio St.3d 51,
53-54, 544 N.E.2d 920.
{¶42} Second, Appellants have failed to establish that the contract included
oral assurances about water pressure supposedly made prior to the execution of the
written agreement. Strangely, Appellants are attempting to rely on a letter from their
own consultant, MS Consultants, Inc., from November 15, 1995 (prior to the
execution of the Agreement) stating that East Liverpool could provide water pressure
at 49 psi. There simply is no evidence in the record that this letter was incorporated
into the Agreement or that East Liverpool bound itself by the terms of Appellants’
letter.
{¶43} Third, the contract clearly establishes the delivery point of the water at a
location prior to the spot where the water enters the Oakmont tank. East Liverpool
provided documentary and oral evidence that the water pressure at the delivery point,
with a few minor exceptions (due to water main breaks and road repairs), was kept
between 46 psi and 49 psi both prior to and after the execution of the Agreement.
Therefore, we can only conclude that East Liverpool complied with the terms of the
Agreement.
-17-
{¶44} Fourth, Appellants have failed to establish that the parties orally
modified the delivery point, or that the parties were permitted to orally modify some
other part of the Agreement. Paragraph 12 of the Agreement states:
{¶45} “This agreement may be modified or amended by written instrument
executed in the same manner as this instrument.”
{¶46} Appellants argue that the use of the word “may” in paragraph 12
permits written modification, but does not require modifications to be in writing.
Appellants argue that other types of modification, such as oral modifications or
modifications indicated by the conduct of the parties, are still permitted.
{¶47} Appellants have found only one case supporting their conclusion, an
unreported federal district case from California. Flores v. Jewels Mktg. &
Agribusiness (E.D.Cal.2007), 2007 U.S. Dist. LEXIS 53127. There are no cases in
Ohio reviewing the precise language used in the modification clause in this appeal.
Normally, the principle of expressio unius est exclusio alterius would apply, which
means that the expression in a contract of one or more things of a class implies
exclusion of all others not expressed. Uram v. Uram (1989), 65 Ohio App.3d 96, 98,
582 N.E.2d 1060. Thus, the expression that the contract may be modified in writing
implies the exclusion of all other types of modification.
{¶48} Even if the contract could be modified orally, whether such a
modification had occurred would present a factual matter for the court to decide. In
essence, Appellants are challenging the manifest weight of the evidence, because
they disagree with the court’s factual findings that the parties did not agree to modify
the point of delivery. A reviewing court employs a very deferential standard when
-18-
reviewing the manifest weight of the evidence and generally defers to the factual
findings made by the trier of fact. Pioneer Gazebo, Inc. v. Buckeye Barns, Inc., 169
Ohio App.3d 667, 2006-Ohio-6672, 864 N.E.2d 147, ¶6. That is because the trier of
fact is in the best position to analyze witnesses and determine their credibility.
Seasons Coal Co. v. Cleveland (1984), 10 Ohio St.3d 77, 80, 461 N.E.2d 1273. A
judgment based upon some competent, credible evidence that speaks to all of the
material elements of the case will not be reversed as being against the manifest
weight of the evidence. C.E. Morris Co. v. Foley Const. Co. (1978), 54 Ohio St.2d
279, 376 N.E.2d 578, syllabus. It is apparent that the trial court did not believe
Appellants’ evidence regarding a supposed oral modification of the Agreement, and
we defer to the trial court’s conclusions in this matter.
{¶49} Appellants further attempted to prove that there was some type of
industry standard defining the typical delivery point of water under a water service
agreement. Once again, the court did not believe Appellants’ witnesses (and
specifically stated it did not in its judgment entry) and did not rely on evidence of an
industry standard to establish the delivery point of the water. Therefore, even if
Appellants are correct that the Agreement could be orally modified, the evidence did
not support that such a modification took place.
{¶50} Appellants’ other main argument on appeal is that East Liverpool failed
to provide safe water, and thus breached the contract. Appellants argue that the
water contained unsafe levels of THMs, which are carcinogens. They contend that
unsafe levels of THMs were not an issue when the Agreement was executed in 1995.
It is unclear when the OEPA began requiring THM levels below 100 parts per billion,
-19-
but this level was maintained by East Liverpool prior to the more stringent standards
enacted by the OEPA in 2004. Appellants do not appear to contest the fact that East
Liverpool generally met the THM safety standards in its own water supply during the
course of the Agreement. Appellants’ argument at trial was primarily that East
Liverpool’s water needed to be treated again with chlorine once it entered the
Oakmont tank, and it was this re-chlorination that caused Appellants’ water system to
have very high levels of THMs, particularly by the time the water reached the furthest
areas of the BWD water system. Based on these circumstances, Appellants
attempted to attribute the high THM levels to East Liverpool.
{¶51} Appellants attempt to establish reversible error regarding THM levels by
referring to a number of facts they believe were proven at trial. In the factual
summary of their brief, Appellants assume that the following facts were proven at
trial: 1) the quality of the water that reached the Oakmont tank was poor and
required BWD to re-chlorinate the water; 2) East Liverpool was responsible for the
quality of BWD’s water as it exited the Oakmont tank; 3) East Liverpool failed to
communicate with Appellants regarding plans to meet new OEPA standards; 4) East
Liverpool’s records did not adequately reflect true THM levels in the water system; 5)
East Liverpool failed to properly monitor its water, and was cited 13 times by the
OEPA for failure to monitor; and 6) the OEPA citations themselves constituted a
breach of contract.
{¶52} Appellants do not apply these facts to any recognizable argument in
their brief. It appears that Appellants are continuing on appeal a line of argument
raised at trial about water quality and THM levels, even though this analysis was not
-20-
properly included in Appellants’ proposed findings of fact and conclusions of law as
submitted to the trial court. We agree with the trial court that Appellants’ proposed
findings and fact and conclusions of law rely on OEPA citations alone, rather than
THM levels, to establish East Liverpool’s alleged breach of contract. We also agree
that the OEPA did not cite East Liverpool for poor water quality, but rather, for failure
to consistently monitor, and that such citations in and of themselves do not indicate
the quality of the water. The record reflects that Appellants’ own expert, Beth
Darnell, agreed that East Liverpool satisfied the OEPA standards for THMs both
before and after the regulatory changes in 2004. (Tr., Vol. 5, pp. 275-276.) Since
neither the OEPA citations, nor the specific evidence in the record about THMs,
prove that the water as delivered to Appellants had excessive THM levels, there is no
basis for concluding that East Liverpool breached the contract due to contamination
by THMs. Finally, as we have already mentioned, the trial court was not inclined to
believe much of Appellant’s evidence, and we, as a reviewing court, generally defer
to the factual findings of the trier of fact.
{¶53} Appellants’ arguments are not convincing, and their first assignment of
error is overruled.
ASSIGNMENTS OF ERROR NO. 2 & 3
{¶54} “THE TRIAL COURT ERRED IN FINDING LOST PROFIT DAMAGES
AGAINST DEFENDANT-APPELLANT BUCKEYE WATER DISTRICT.”
{¶55} “THE TRIAL COURT ERRED IN AWARDING FUTURE LOST
PROFITS IN THE AMOUNT OF $8,233,082.46.”
-21-
{¶56} These two assignments of error both deal with the question of damages
for lost profits, and will be treated together.
{¶57} Appellants first argue that one political subdivision cannot sue another
political subdivision for lost profits. This is a purely legal question that is reviewed de
novo on appeal. Ohio Bell Tel. Co. v. Pub. Util. Comm. (1992), 64 Ohio St.3d 145,
147, 593 N.E.2d 286.
{¶58} It is a fairly common occurrence for one political entity to sue another
political entity over a dispute regarding water. Hudson v. Summit Cty., 97 Ohio St.3d
296, 2002-Ohio-6507, 779 N.E.2d 758; Richmond Hts. v. Cleveland (1995), 107 Ohio
App.3d 378, 668 N.E.2d 991; Bd. of Cty. Commrs. of Wood Cty. v. City of Toledo
(Sept. 24, 1993), 6th Dist. No. 92WD086; City of Middletown v. Bd. of Cty. Commrs.
of Butler County (Sept. 16, 1992), 12th Dist. No. CA 91-06-113; Village of Plymouth
v. City of Willard (1988), 47 Ohio App.3d 46, 546 N.E.2d 1372. This Court itself has
had a number of cases involving one political subdivision suing another political
subdivision in order to obtain the full benefit of the bargain in a water contract
dispute. See, e.g., Jefferson Cty. Bd. of Commrs. v. Smithfield, 7th Dist. No. 05-JE-
38, 2006-Ohio-6242; Steubenville v. Wintersville, 168 Ohio App.3d 430, 2006-Ohio-
4381, 860 N.E.2d 797. Furthermore, the Ohio Supreme Court has affirmed the
principle that a municipality is entitled to recover the full benefit of its bargain when it
enters into water contracts outside the municipality and when that contract is later
breached. Fairway Manor, Inc. v. Bd. of Commrs. of Summit Cty. (1988), 36 Ohio
St.3d 85, 90, 521 N.E.2d 818.
-22-
{¶59} In none of these cases has it ever been questioned that the political
subdivision was entitled to the full benefit of its bargain, whether or not that bargain
included some measure of profit. For example, in the Smithfield case, Jefferson
County was suing the Village of Smithfield for the full amount of the agreed upon
water rate because Smithfield had simply stopped paying for the water. Smithfield
had agreed to pay $3.00 per 1000 gallons under an oral agreement with Jefferson
County. At trial, the Village of Smithfield argued that the rate was only $2.00 per
1000 gallons, but the trial court held in favor of Jefferson County and awarded
damages of $267,354.24 plus interest. We upheld the judgment of trial court,
agreeing that Jefferson County was entitled to the full benefit of its bargain of $3.00
per 1000 gallons, even though the water supply agreement had not been reduced to
writing.
{¶60} Appellants have pointed to one case to support their view that a political
entity cannot obtain lost profit damages from another political entity. In Cementech,
Inc. v. City of Fairlawn, 109 Ohio St.3d 475, 2006-Ohio-2991, 849 N.E.2d 24, an
unsuccessful bidder for a road construction contract sued the City of Fairlawn for
injunctive relief and damages for improperly disqualifying its bid. The trial court
denied injunctive relief and the contract was awarded to the lowest bidder. The trial
court determined before trial that Cementech could recover its cost of bid
preparations, but nothing more, should it prevail on its claims of violations of the
competitive bidding process. The jury found in favor of Cementech but only awarded
the cost of bid preparations as damages. The Ninth District Court of Appeals
reversed the trial court and allowed Cementech to receive additional damages for lost
-23-
profits. The case then proceeded to the Ohio Supreme Court as a conflict case on
the following question: “Does the availability of injunctive relief if timely filed but
denied preclude an award of lost profits in a municipal contract case?” Id. at ¶8.
{¶61} Before discussing the reasoning or disposition of the Cementech case,
it should already be clear that it is inapposite to the instant appeal. First, the
Cementech case involved a private contractor suing a political subdivision, not two
political subdivisions in a contract dispute with each other. Second, the case
involved the very specific area of law surrounding competitive bidding for government
contracts, which has nothing to do with the facts of the instant appeal. Third, the
question under review was whether the remedy of injunctive relief was an adequate
remedy for the contractor whose bid had been wrongly rejected. The Supreme Court
determined that injunctive relief was the only relief available to a wronged bidder to
insure that public contracts are awarded fairly and according to law. Id. at ¶10. The
instant appeal has nothing to do with injunctive relief or the availability of injunctive
relief as an alternative or adequate remedy.
{¶62} Cementech held that the bidder could not recover lost profit damages
after it had failed to appeal the denial of its motion for injunctive relief. The Court
rejected the idea that denying lost profit damages would allow government entities to
ignore state and local laws governing competitive bidding. The Court reasoned that
forcing municipalities and governmental entities to pay lost profit damages to
unsuccessful bidders would, in effect, punish the citizens and the general public, and
those were the people who were supposed to be protected by the competitive
bidding laws in the first place. Id. at ¶12. The final holding of the case is as follows:
-24-
“[W]e hold that when a municipality violates competitive-bidding laws in awarding a
competitively bid project, the rejected bidder cannot recover its lost profits as
damages.” Id. at ¶14.
{¶63} Cementech has little or no application to the instant appeal. East
Liverpool is not a private entity suing a government entity. This case involves two
public entities in a dispute over a long-term water contract. Appellants are rightfully
concerned about protecting the rights of the citizens who are affected by the
implementation, interpretation, and breach of the water supply Agreement. We must
also keep in mind that it is not only BWD’s customers that are affected by this case.
The rights of the citizens of East Liverpool should also be taken into account. East
Liverpool’s citizens have an interest in recovering the value of the water contract duly
authorized by its elected officials. There is no particular reason why the interests of
the citizens represented by the Board of County Commissioners or by BWD should
take precedence over the interests of the citizens of East Liverpool. The Cementech
case, a dispute between a private contractor and a government entity, presents no
dispositive principles of law that can be applied to the instant appeal.
{¶64} Appellants continue their argument with the notion that the parties did
not contemplate damages in the form of lost profits. This argument is not persuasive.
Nothing in the Agreement precludes East Liverpool from being awarded any type of
damages that would normally arise in a breach of contract case. “Damages for a
breach of contract are those which are the natural or probable consequence of the
breach of contract or damages resulting from the breach that were within the
contemplation of both parties at the time of the making of the contract.” The Toledo
-25-
Group, Inc. v. Benton Industries, Inc. (1993), 87 Ohio App.3d 798, 806, 623 N.E.2d
205.
{¶65} Unless the contract dictates otherwise, the non-breaching party is
entitled to recover as damages, “the contract price for full performance reduced only
by the amount that defendant's breach saved plaintiff, i.e., the value to plaintiff of the
relief from full performance.” Channel Dry, Inc. v. Haver (1990), 70 Ohio App.3d 197,
203, 590 N.E.2d 868. The amount of the non-breaching party’s cost savings to be
deducted from the contract price does not include that party’s ongoing and fixed
overhead costs. Digital & Analog Design Corp. v. North Supply Co. (1989), 44 Ohio
St.3d 36, 40-41, 540 N.E.2d 1358. “[W]here there would have been no additional
costs to the party to generate those profits which he lost, or where he was in fact not
relieved from the particular costs which constituted his ongoing and fixed overhead
costs, then he need only assert and prove such circumstances.” Id. at 41.
{¶66} Since the law of Ohio is that a party may recover the full benefit of the
bargain, less costs saved from being relieved of performance, that law became part
of the underlying assumptions of the Agreement. Therefore, there is no basis for
Appellants to argue that lost profits were not contemplated by the parties when they
signed the agreement. The parties contemplated that ordinary contract law would
govern the interpretation of the Agreement, and ordinary contract law allows for lost
profits.
{¶67} Appellants also challenge the trial court’s factual determinations as to
what expenses should have been deducted from the contract price to determine
damages. Appellants contend that East Liverpool’s expenses must have been much
-26-
greater than the amounts submitted by East Liverpool. It is clear from the record that
the trial judge was not inclined to believe Appellants’ evidence of costs saved due to
the breach. The trial court specifically noted, “the lack of credibility displayed by
many of the Water District’s witnesses.” (Emphasis omitted.) (2/13/08 J.E., p. 11.)
{¶68} East Liverpool provided evidence that it saved electrical and chemical
costs of $79,585.48 for the period between July of 2004 and December of 2007.
This amount was deducted from the damages award. East Liverpool also calculated
that $28,377.53 should be deducted each year of future damages for these same
saved expenses. These costs were also deducted. Appellants claim that the court
should also have deducted an additional $289,343.98 annually because of reduced
labor costs due to layoffs. Appellants contend that these layoffs were due to their
beach of contract. The court determined that East Liverpool had installed a gear
switch to automate the work done by the laborers who had been laid off. The court
attributed the layoffs as due to automation upgrades and not due to Appellants’
breach of the contract. The record supports the calculations and deductions taken by
the trial court, and there is no basis for overturning the court’s factual determinations.
{¶69} Appellants mention in passing that the Agreement entitled them to a
20% discount in any future damages award because the Agreement allows them to
deduct up to 20% of unbilled water as lost water. This statement is not quite correct.
Although the Agreement does allow for a deduction of up to 20% in water that
registered at the main water meter but was not actually billed to Appellants’
customers, i.e., lost water, that provision does not negate the requirement that
Appellants purchase at least 235,000 gallons of water per day. As is shown by
-27-
attachment “A” to the Agreement, the 20% deduction only applied after Appellants
had met their 235,000 gallon daily minimum. Since the damage award is only for the
minimum 235,000 gallons per day, the 20% deduction would not apply.
{¶70} Appellants present us with a series of calculations and conclude that
East Liverpool had an annual savings of $192,067.73. Appellants contend that this
amount should also have been deducted from the damage award. This figure is
supposedly derived from testimony given by Robert Disch, the East Liverpool Utilities
Director. It is difficult to decipher the assumptions built into Appellants’ calculations.
What is clear is that any factual underpinnings supporting Appellants’ calculations
were not accepted by the trial court. The trial court, as the trier of fact, examined
East Liverpool’s expenses and determined that electrical and chemical costs were
valid cost savings and should be deducted from the damages award. It is
inconsequential that Appellants believe that other facts were clearly established at
trial. The trial judge was the trier of fact, and the trial judge came to very different
factual conclusions than those proposed by Appellants. A reviewing court normally
defers to the factual findings of the trier of fact when there is some competent,
credible evidence to support those findings. C.E. Morris Co. v. Foley Const. Co.,
supra, 54 Ohio St.2d 279, 376 N.E.2d 578, syllabus. The extensive record of this
case, arising out of a lengthy trial spread out over four months, contains ample
evidence to support the trial court’s findings and verdict.
{¶71} Appellants also argue that the rate East Liverpool was charging for
water was unconscionable. Appellants believe East Liverpool raised its rates by
23%, and then again by 10%, in retaliation for the expected loss of revenue from
-28-
BWD. As we will discuss below, Appellants are undoubtedly correct to some extent,
but this does not make the rate hikes unconscionable under the terms of the
Agreement. The Agreement does not require East Liverpool to explain or justify its
rate increases. The Agreement does not prohibit East Liverpool from adjusting its
rates based on changes in the overall volume of water that it is selling. The fact that
the rate being charged to BWD is the same rate being charged to East Liverpool’s
own residents also negates any claim of unconscionability. The Agreement allows
East Liverpool to raise its rates, and thus, rate increases are part of the benefit of the
bargain in this case.
{¶72} Appellants also argue that lost profits are too speculative in this case to
be awarded. Lost profits must be demonstrated with reasonable certainty in a breach
of contract case, and speculative damages are not recoverable. Gahanna v.
Eastgate Properties, Inc. (1988), 36 Ohio St.3d 65, 68, 521 N.E.2d 814. This case,
though, does not involve a calculation of speculative lost profits. This case is based
on a contract price for water that is defined in the contract. The volume of water is
defined. The price is defined, or at least calculable with relative ease. There is no
need to speculate about lost profits when the contract price is made explicit in the
contract. East Liverpool has never attempted to recover speculative lost profit
damages. It has, from the beginning of this case, claimed as damages the contract
price for full performance, less costs saved, as defined in Channel Dry, Inc. v. Haver,
supra.
-29-
{¶73} We have found no error in the award of lost profits damages or in the
calculations used to deduct East Liverpool’s cost savings arising from the breach.
Therefore, we overrule Appellants’ second assignment of error.
{¶74} Appellants’ final argument is that the trial court should have taken future
inflation into account and should have reduced the future damages to present value.
Appellants assert that the trial court should not have considered East Liverpool’s right
to raise water rates from year to year as the determinative factor in offsetting the
discount rate with presumed future inflation. Appellants cite Galayda v. Lake Hosp.
Sys., Inc. (1994), 71 Ohio St.3d 421, 425, 644 N.E.2d 298, in support of their
argument.
{¶75} We agree with Appellants that the future damages award should have
been reduced to current value. The Ohio Supreme Court, in Galayda, has held:
{¶76} “In Ohio, a plaintiff is entitled to an award of damages to compensate
him for losses which he is reasonably certain to incur in the future. Pennsylvania Co.
v. Files (1901), 65 Ohio St. 403, 407, 62 N.E. 1047, 1047; Roberts v. Mut. Mfg. &
Supply Co. (1984), 16 Ohio App.3d 324, 16 OBR 355, 475 N.E.2d 797. Under the
common law of Ohio, future damages must be reduced to present value, and a
defendant is entitled to a jury instruction to that effect. Maus v. New York, Chicago &
St. Louis RR. Co. (1956), 165 Ohio St. 281, 59 O.O. 366, 135 N.E.2d 253, paragraph
one of the syllabus. Thus in Ohio, a jury is to return a verdict not in an amount
reflecting the actual damages it deems to be reasonably certain to occur in the future,
but rather in a reduced amount representing the present value of those actual
damages.” Galayda, supra, 71 Ohio St.3d at 425, 644 N.E.2d 298.
-30-
{¶77} The purpose of reducing an award to present value is to fairly (rather
than excessively) compensate the prevailing party now for losses that are anticipated
to take place in future. “ ‘It is self-evident that a given sum of money in hand is worth
more than the like sum of money payable in the future.’ ” St. Louis Southwestern Ry.
Co. v. Dickerson (1985), 470 U.S. 409, 412, 105 S.Ct. 1347, quoting Chesapeake &
Ohio R. Co. v. Kelly (1916), 241 U.S. 485, 36 S.Ct. 630, 60 L.Ed. 1117. Failure to
account for the difference between the present and the future value of the money
being awarded is, in essence, awarding a court-sanctioned windfall to the plaintiff.
“[I]f the award is to compensate for a loss of profits projected over 10 years, the
amount should be that which, if invested for 10 years at appropriate (probably
conservative) rates of return, would produce the amount of the loss. An award today
of the amount that would be earned 10 years hence will give plaintiff more than is
necessary to make plaintiff whole.” R. Dunn, Recovery of Damages for Lost Profits
5th (1998) 501-502, Section 6.25.
{¶78} The calculation of the present value of a future award is generally left to
the province of the trier of fact. Sahrbacker v. Lucerne Products, Inc. (1990), 52 Ohio
St.3d 179, 179, 556 N.E.2d 497. The failure of a party to present evidence of present
value does not remove the question from the trier of fact. Id. In this case, East
Liverpool proposed that the trial court apply a 5.08% discount rates based on the
current rates being earned on 10-year United States Treasury notes. The rate of
return on a 10-year Treasury note is considered to be a conservative, risk-free
discount rate for reducing future damages to current value. R. Dunn, Recovery of
Damages for Lost Profits 5th (2005 Supplement) 191, Section 6.25.
-31-
{¶79} The trial court stated that it would not apply a present value discount
because this amount would be offset by East Liverpool’s contractual right to raise
water rates. The trial court appears to be concluding that East Liverpool would
periodically raise its water rates over the remaining years of the Agreement to keep
up with general economic inflation, and that these increases would offset the effect of
applying a 5.08% discount rate to the future damages award. The trier of fact may
take into account the full effects of inflation when attempting to reduce a future award
to present value. Burlington Group, Inc. v. Chardon Lakes Inn Restaurant, Inc. (Mar.
24, 1995), 11th Dist. No. 94-G-1839.; see, also, Webster v. Oglebay Norton Co. (Jan.
26, 1995), 8th Dist. No. 65502. Nevertheless, there are a number of problems with
the trial court’s conclusion. First and foremost is the directive from the Ohio Supreme
Court in Galayda that future damages must be reduced to present value. Unless
there was some compelling reason to do otherwise, the trial court was bound to apply
the holding of an Ohio Supreme Court case that was directly on point regarding the
reduction of future damages to present value.
{¶80} Second, there was no specific evidence admitted at trial designed to
establish a value for inflation with respect to future damages. The record contains
evidence reflecting the actual rate hikes instituted by East Liverpool in the past, but
there was no evidence that these rate hikes had anything to do with general
economic inflation or that they reflected anticipated future inflation. We are not
inclined to ignore or distinguish the holding of an Ohio Supreme Court case based on
a vague and unsupported assumption about future inflation rates.
-32-
{¶81} Third, it is generally accepted that the process of reducing future
damages to current value takes into account much more than the general effect of
inflation on the future value of money. The United States Supreme Court has
reasoned that: “[E]ven in an inflation-free economy the award of damages to replace
the lost stream of income cannot be computed simply by totaling up the sum of the
periodic payments. For the damages award is paid in a lump sum at the conclusion
of the litigation, and when it-or even a part of it-is invested, it will earn additional
money.” Jones & Laughlin Steel Corp. v. Pfeifer (1983), 462 U.S. 523, 536, 103
S.Ct. 2541, 76 L.Ed.2d 768. Thus, even if we assume that East Liverpool’s water
rates will keep up with inflation, the future damages award would still need to be
reduced to present value to account for the investment value of those dollars.
{¶82} Fourth, the trial court’s assumption that water rates would rise at an
inflationary rate equal to the proposed 5.08% discount rate fails to account for other
aspects of inflation. One would expect that inflation would also affect the expenses
East Liverpool incurs in obtaining, processing and delivering its water. These
expenses would normally be deducted from any future damages award. Inflation
would affect the wages of East Liverpool’s employees, the costs of capital
improvements, the costs of materials involved in processing the water passing
through East Liverpool’s water treatment system, etc. One would expect that the
inflationary effects of increased income from higher water rates would be offset by
these increased expenses, thereby eliminating the need to make any adjustment to
the discount rate at all due to inflation.
-33-
{¶83} Fifth, the record reveals that East Liverpool instituted substantial rate
hikes well after the conflict had arisen with Appellants and after they filed their
complaint. The dispute between the parties intensified in 2002 with Appellants’
various complaints about water pressure. The dispute came to a turning point on
March 21, 2003, when BWD served notice that it considered East Liverpool to be in
breach of the Agreement. Then, on September 24, 2003, BWD notified East
Liverpool that it was going to be using alternative sources for its water. As a result,
on November 20, 2003, East Liverpool raised the water rates from $4.18 to $5.13.
East Liverpool filed its contract complaint on May 19, 2005. It subsequently raised its
rates again May 31, 2005, from $5.13 to $5.64. Thus, from 2003 to 2005, East
Liverpool raised its rates by $1.46, constituting a 35% increase. These two major
rate increases took place after it became clear that Appellants did not intend to abide
by the terms of the Agreement and would no longer be purchasing water from East
Liverpool. Although we have concluded that the rate hikes were not unconscionable
or prohibited by the Agreement, they are integrally related to the dispute between the
parties and must be treated as a factor in computing damages. It would appear that
East Liverpool has already taken future inflation into account by drastically increasing
their rates prior to the resolution of this contract dispute.
{¶84} The long-term nature of the Agreement presents an additional reason to
reduce the award to present value. Future damages in long-term contracts present a
particular set of problems for the courts. “Most courts considering a claim of lost
profits damages arising from a long-term contract have reduced the term for which
damages may be recovered.” R. Dunn, Recovery of Damages for Lost Profits 5th
-34-
(1998) 488, Section 6.19. Perhaps the most extreme example of a plaintiff
attempting to receive long-term breach of contract damages can be found in Palmer
v. Connecticut Railway & Lighting Co. (1941), 311 U.S. 544, 61 S.Ct. 379, 85 L.Ed.
336. In Palmer, a lessor of railway property sought breach of contract damages for
969 years remaining on a 999-year lease. The plaintiff conceded at trial that any
evidence of value beyond 40 years would be “too uncertain.” Id. at 552, 61 S.Ct.
379, 85 L.Ed. 336. The plaintiff presented evidence that their damages over 40
years would be approximately $20 million. Id. This amount had been reduced to
present value by applying a four per cent discount rate. The United States Supreme
Court rejected the plaintiff’s calculations and only approved of damages of $4.4
million extending eight years into the future. No particular rationale was given as to
why eight years was an acceptable length for future damages as opposed to 20 or 30
or 40 years. It is interesting to note that the Palmer Court rejected long-term future
damages even with the application of a four per cent discount rate. In the instant
case, the trial court awarded future damages for the 18 remaining years of a 25-year
contract, and failed to apply a discount rate to reduce the future damages to present
value. This juxtaposition of long-term damages and failure to apply a discount rate is
a troublesome combination and reinforces our conclusion that we should strictly
follow the basic principle outlined in Galayda in this particular case and apply a
5.08% discount rate to the future damages award.
{¶85} Hence, we find merit in Appellants’ third assignment of error, and we
will modify the judgment to take into account a 5.08% discount rate.
-35-
{¶86} In conclusion, we find that Appellants have raised essentially two errors
on appeal. The first is a challenge to the trial court’s conclusion that East Liverpool
did not breach the water supply agreement. The record reflects that East Liverpool
provided adequate volume and pressure of water to the Oakmont water tank. The
record also reflects that East Liverpool delivered potable water to Appellants that met
OEPA standards. East Liverpool did not breach the Agreement, and thus, it was
entitled to receive damages for Appellants’ breach. The second challenge to the
judgment was the issue of the calculation of damages. Appellants did not establish
any error with respect to the expenses deducted from the damages award, or with
respect to the calculation of future damages. We do find reversible error in the trial
court’s decision not to apply a discount rate to reduce the future damages to present
value. Taking into account a variety of factors, including an express holding by the
Ohio Supreme Court in Galayda, the lack of evidence of future inflationary effects,
the failure to account for all aspects of inflation, the dramatic increases in East
Liverpool’s water rates starting in 2003, and the fact that the Agreement in question
was a long-term contract, we conclude that the trial court should have reduced the
future damages award to present value. East Liverpool proposed a discount rate of
5.08% to reduce the award to present value, and this is the rate that should have
been applied. The trial court’s judgment is hereby modified to reflect the application
of a 5.08% discount rate. Past net damages are affirmed in the amount of
$1,136,352.39. This includes damages for the period from August 2004 through
March 2007. Future net damages, after applying a 5.08% discount rate as described
in Plaintiff’s exhibit 97, are modified to $3,706,400.60. This includes the period from
-36-
April 2007 to December 2025. The total amount of the judgment is modified to
$4,842,752.99.
Donofrio, J., concurs.
DeGenaro, J., concurs.