Kemper/Prime vs. Montgomery Watson: Inadequate Contamination Cost Disclosure, Study Guides, Projects, Research of Law

Download Kemper/Prime vs. Montgomery Watson: Inadequate Contamination Cost Disclosure and more Study Guides, Projects, Research Law in PDF only on Docsity! 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, v. THE 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 JUNE 12, 2007 PUBLISHED JUNE 19, 2007 ____________ Before BAUER, WOOD, and EVANS, Circuit Judges. WOOD, Circuit Judge. This case concerns who is respon- sible for certain environmental clean-up costs. 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 defen- dant Montgomery Watson Americas, Inc. (“Montgomery”), was deficient insofar as it failed to reveal to Kemper/Prime 2 No. 05-1144 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 environ- mental 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, ground water sampling, PCB wipe sam- pling procedures and other field testing. Warzyn concluded No. 05-1144 5 against the 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 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 the question of 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 misrepresen- tation must prove (1) the defendant made “a false state- ment 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 Educ. v. A, C & S, Inc., 546 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 6 No. 05-1144 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 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 [Indi- ana Supreme Court] adopted § 552 of the Restatement (describing the elements of the tort of negligent misrepre- sentation), 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, consis- tently with many others, adopted § 552B and its commen- tary as the proper standard of damages, including that section’s limitation of damages in negligent misrepresenta- tion 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: No. 05-1144 7 Damages for Negligent Misrepresentation (1) The damages recoverable for a negligent misrepre- sentation 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 (b) pecuniary loss suffered otherwise as a consequence of the plaintiff ’s reliance upon the misrepresenta- tion. (2) the damages recoverable for a negligent misrepre- sentation do not include the benefit of the plain- tiff ’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 contamina- tion listed in the 1990 Report, and (2) the total cost of remediating the contamination that existed on the Prop- erty 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 of § 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. 10 No. 05-1144 “developed a proposal to quantify the extent of contamina- tion 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 con- cern” 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 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 contami- nation, 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 conten- tion, 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. No. 05-1144 11 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 submis- sions 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 evi- dence 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 for cleaning up contami- nated 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 esti- mates 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 insuffi- cient 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 12 No. 05-1144 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 adjust- ments 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 subse- quent 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 alterna- tive basis for affirming the district court’s opinion. Mont- gomery 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 misrepresentation 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