Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-03609/USCOURTS-ca8-04-03609-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 04-3609

___________

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. *

___________

Submitted: October 13, 2005

Filed: March 8, 2006 

___________

Before ARNOLD, MURPHY, and GRUENDER, Circuit Judges.

___________

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

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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 constructioncontract 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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