### IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 17

- 60298

STEEL DYNAMICS COLUMBUS, L.L.C.,
Plaintiff

- Appellant Cross

- Appellee

v. ALTECH ENVIRONMENT USA CORPORATION,
Defendant

- Appellee Cross

- Appellant

Appeal s from the United States District Court for the Northern District of Mississippi USDC No. 1:14

- CV

- 124

Before REAVLEY, JONES, and GRAVES, Circuit Judges

. PER CURIAM: * This case is about a buyer’s burden to prove damages under Mississippi ’s enactment of the Uniform Commercial Code. Steel Dynamics Columbus, L.L.C., purchased two pollution monitoring systems from Altech Environment USA Corp. The systems did not function as expected and Steel sued

. After a bench trial, the district court found that Altech breached its express warranty to Steel. The district court awarded some incidental damages

* Pursuant to 5 TH C IR . R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5 TH C IR . R. 47.5.4. United States Court of Appeals Fifth Circuit 

### FILED May 18, 2018 Lyle W. Cayce Clerk Case: 17-60298 Document: 00514478140 Page: 1 Date Filed: 05/18/2018No. 17

- 60298

2 but also found that Steel failed to prove its direct damages and attorneys’ fees. S teel appealed the denial of its direct damages and attorneys’ fees. Al tech

cross - appealed Steel’s award of incidental damages, arguing th e district court should have enforced a contractual limitation on their recovery

. W e affirm. I. BACKGROUND As its name implies, Steel operates a steel mill in Columbus, Mississippi. The plant is regulated by the Mississippi Department of Environmental Quality (MDEQ) . The MDEQ issued Steel a “Title V” permit under the Clean Air Act. 42 U.S.C. § 7401 et seq

. To comply with the permit, Steel contracted with Altech for the purchase and installatio n of two continuous emissions monitoring systems , or “CEMS

. ” The two systems cost $447,610.20. T hree provisions of the parties’ contract are relevant on appeal. First, Altech warranted the CEMS “shall be of good quality and free from defects, latent and patent, in design, materials and workmanship; [and] . . . shall be suitable and sufficient for their specified purpose.” Before trial, the parties stip ulated that Altech “ understood that [Steel] intended to use the CEMS units to monitor emissions in compliance with the Title V permit.” Second, the contract provided , “If [Altech] breaches its warranty . . . [Altech] shall, at its option, repair and/or replace . . . a ny of the Goods which breach this Warranty.” T he “exclusive” remedy for breach of warranty was repair or replacement

. Third, the contract limited damages : “[I]n no event shall [Altech] be liable for special, indirect, incidental, consequential, or punitive damages whether attributable to contract, warranty, tort (including negligence), strict liability or otherwise.” Altech installed the units in January and July o f 2011 , but the y never function ed properly

. In June of 2013 , t he MDEQ issued Steel a Notice of Violation (NOV) for both the inadequate CEMS and the failure to report malfunctions. Following the NOV , Steel self

- reported 11 other violations , and Case: 17-60298 Document: 00514478140 Page: 2 Date Filed: 05/18/2018No. 17

- 60298

3 the MDEQ assessed a fine of $135,000

. With the existing CEMS still unable to function properly , Steel contracted with a third party to install a different CEMS. Steel received over $23,000 in credit from the third party for equipment initially provided by Altech. Steel sued Altech for breach of express warranty (among other things) and sought damages for: (1) the full purchase price of the Altech CEMS (direct damages) ; (2) incidental costs sunk while trying to fix the Altech CEMS (incidental damages) ; (3) the $135,000 fine; and (4) attorneys’ fees incurred in dealing with environmental r egulatory issues (consequential damages)

. 1 Following a three

- day bench trial, the district court found that the “recurrent malfunctions” of Altech’s CEMS rendered them “unsuitable and insufficient for the specified purpose, ” in breach of the contract’s exp ress warranty. The district court found , however, that Steel could not recover its direct damages because it failed to prove the value of the CEMS as received. Further, the district court denied Steel its attorneys ’ fees, finding that Steel failed to attribute its fees or the fine to Altech’s breach. Ultimately, the court awarded Steel $83,320.27 in incidental damages for S teel’s efforts to fix the CEMS. Steel appealed only from the district court’s denial of direct damages (the purchase price) and attorney s ’ fees. Altech cross - appealed , arguing that the district court should have enforced the contract ’s limitation on consequential and incidental damages. 2 II. DISCUSSION A. Standard of Review

1 Importantly, Steel did not seek attorneys’ fees under a fee

- shifting statute. Inste ad, Steel characterized its fees as consequential damages

. 2 Altech als o asserts two conditional issues in its cross - appeal

. Because we affirm the district court’s judgment , we do not address those conditional issues. Case: 17-60298 Document: 00514478140 Page: 3 Date Filed: 05/18/2018No. 17

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4 Following a bench trial, “findings of fact are reviewed for clear error and legal issues are reviewed de novo .” In re Mid

- S. Towing Co. , 418 F.3d 526, 531 (5th Cir. 2005). “A finding is clearly erroneous if it is without substantial evidence to support it, the court misinterpreted the effect of the evidence, or this court is convinced that the findings are against the preponderance of credible testimony.” Be cker v. Tidewater, Inc. , 586 F.3d 358, 365 (5th Cir. 2009). B. The Purchase Price The general measure of damages for breach of warranty is “the difference at the time and place of acceptance between the value of the goods accepted and the value they would hav e had if they had been as warranted. ” M ISS

. C ODE A NN

. § 75

- 2

- 714(2). This requires proof of the value as warranted and as accepted. See § 75

- 2

- 714(2). The burden of proof is on the buyer seeking damages. Gast v. Roger s - Ding u s Chevrolet , 585 So. 2d 725, 731 (Miss. 1991) (“This burden cannot be met by mere conjecture or inferences unsupported by adequate evidence. ”). The district court found that it was “far from clear that the CEMS were worthless.” However, Steel asserts that it proved the CEMS were worthles s as accepted because they were unrepairable. Steel relies on Fedders Corp. v. Boatright , 493 So. 2d 301 (Miss. 1986) , to argue that, under Mississippi law, proof that a good is unrepairable constitutes proof of wort hless ness at the time of acceptance

. Such an argument is contrary to the language of Fedders

. Fedders dealt with a broken heating system. Id. at 303. There, the court stated, “If the heat pump could not be repaired and was worthless, the [plaintiff] under § 75

- 2

- 714 would have been entitled to a refund of the purchase price.” Id. at 309. Contrary to Steel’s assertion, “could not be repaired and was worthless” is not the same as “ the goods were worthless because they could not be repaired. ” (emphasis added). While it is true that an unrepairab le Case: 17-60298 Document: 00514478140 Page: 4 Date Filed: 05/18/2018No. 17

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5 good may also be worthless, it does not follow that such a good is always worthless. Mississippi law makes clear just who bears the burden to prove worthlessness

. In Gast v. Rogers

- Dingus Chevrolet , 585 So. 2d 725 (Miss. 1991) , the Supreme Court of Miss issippi required a buyer to show proof of the value of the goods as accepted, especially where the buyer reta ined some value

. The Gasts purchase d a car that required constant repairs and even caught fire

. Id. at 727

– 28. After trying to trade in the car, the Gasts gave it to the bank

–– which reduced their outstanding loan. Id. at 727. The Gasts sued the dealer for breach of an implied warranty. Id. at 727. The jury awarded damages , but the trial court set aside the award fo r , among other things, failure to prove damages

. Id. On appeal, the Gasts argued

“ evidence establishing the purchase price paid for the vehicle, and inferences from the evidence

. . . support [ed] their theory that the defective vehicle was essentially valueless.” Id. 730

– 31. The Supreme Court of Mississippi found the approach “flawed,” explaining : The [buyer] offered no evidence to show either the amount received by the bank from the sale of the vehicle and applied for the benefit of the [buyer] to the ir note, or the value of the vehicle at the time of its sale. This is not sufficient to support an award of damages under § 75

- 2

- 714. Id. at 730. Thus, a buyer must prove the value as accepted and cannot do so by relying on “inferences from the evidence ” that the good is “ essentially valueless

. ” See id

. ( “Having failed to submit requisite proof of damages, no recovery was permissible under 75

- 2

- 714.”)

. Here, t he district court found Steel did not prove that the CEMS were worthless at the time of acceptanc e. A review of the record supports this finding

. In fact, the ev idence shows Steel retained at least some value from the CEMS. Bryan Vogel, one of Steel’s engineers, testified Steel received $23,3 4 0 Case: 17-60298 Document: 00514478140 Page: 5 Date Filed: 05/18/2018No. 17

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6 in credit for components of the Altech CEMS. Thus, an awa rd of the full purchase price would not only relieve Steel of its burden, but would result in its unjust enrichment to the tune of at least $23, 3 4 0

. A buyer cannot meet its burden by only proving half of the equation; the value of the good as accepted must also be proven. See Gast , 585 So. 2d at 731. T he district court did not err by denying Steel its purchase price. C. Damages Limitation On cross - appeal Altech asserts the district court erred by not enforcing a contractual limitation on incidental damages. Because the damage limitation , if enforceable, would foreclose Steel’s recovery of attorneys’ fees, w e address it before discussing the fees

. Section 75

- 2

- 719 allows for the limitation of damages

. M ISS

. C ODE A NN

. § § 75

- 2

- 719 (1

– 4). But at the same time, “[w] here circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this co de.” M ISS

. C ODE A NN

. §§ 75

- 2

- 719 (2). As the comment to section 75

- 2

- 719 explains, “[W]here an apparently fair and reasonab le clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provisions in this Article.” M ISS

. C ODE

. A NN § 75

- 2

- 719 cmt. 1. In turn, t he Suprem e Court of Mississippi has declined to enforce a damage limitation when an exclusive repair or replace warranty fails of its essential purpose. Massey

- Ferguson, Inc. v. Evans , 406 So. 2d 15, 19 (Miss. 1981) (“[S]uch limitation of damages as allowed under s ection 75

- 2

- 719 presupposes that the warrantor has fulfilled his warranty.”). 3

3 Both parties point to c ontrasting cases applying same or similar provisions from other states

. See Reynolds Metal Co. v. Westinghouse Elec. Corp. , 758 F.2d 107 3 (5th. Cir

. 1985) (applying Texas law); Riley v. Ford Motor Co. , 442 F. 2d 670 (5th Cir. 1971) (applying Alabama law). Because Massey

- Ferguson interprets Mississippi law, it controls. S ee also Royal Lincoln

- Mercury Sales, Inc. v. Wallace , 415 So. 2d 1024, 1028 (Miss. 1982) (“ Such Case: 17-60298 Document: 00514478140 Page: 6 Date Filed: 05/18/2018No. 17

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7 Here, Altech provided an exclusive repair or replace warranty. The warranty failed of its essential purpose when Altech

— over the course of
years

— was continually unable to repai r the CEMS. Thus, the district court did not err in holding the limitation on consequential and incidental damages also failed

. See Massey

- Ferguson , 406 So. 2d at 19

– 20 (affirming recovery of consequential damages despite contractual exclusion). D. Attorneys’ Fees Steel appeals the district court’s denial of its $172,704.97 in attorneys’ fees. Steel asserts the fees are consequential damages incurred to address

“ environmental regulatory issues and the MDEQ fine caused by the defective Altech CEMS uni ts.” The district court concluded that because the MDEQ fine could have been the result of Steel’s reporting violations, attorneys’ fees incurred dealing with the MDEQ could not be traced to Altech’s breach. Damages must be reasonably certain. See Frierson v. Delta Outdoor, Inc. , 794 So. 2d 220, 225 (Miss. 2001) (“[D]amages may only be recovered when the evidence presented at trial ‘removes their quantum from the realm of speculation and conjecture and transports it through the twilight zone and into the da ylight of reasonable certainty.’” (quoting Wall v. Swilley , 562 So. 2d 1252, 1256 (Miss. 1990))). A party seeking to recover damages for breach of contract must “trace them directly to the breach of the contract and make them definite enough to comply with the governing rules of law.” Ammons v. Wilson & Co. , 170 So. 227, 229 (Miss. 1936).

repair and replacement warranty provides confidence and assurance to the buyer that he will se cure goods conforming to the contract, and a limitation of liability to the seller. If it fails, however, as a remedy in its essential purpose, then its function as a limitation of liability also fails. ”). Case: 17-60298 Document: 00514478140 Page: 7 Date Filed: 05/18/2018No. 17

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8 1. Trial Testimony Steel’s corporate representative, Anna Chappell, testified that , “[Steel] engaged a law firm . . . to help us navigate the violation, the penalties, and the subsequent agreed order .” (emphasis added )

. Chappell posited that the fees “were incurred as a direct result of the issue [ of the] Notice of Violation that was a result of the CEMS not functioning properly.” However, she admitted that the fines assessed by the MDEQ and the agreed order were not entirely related to the CEMS. In fact, the agreed order contained several reporting violations committed by Steel. Michael Caples, one of Steel’s attorneys , testified, “[T]he tasks that are part of [the bi lling records] are totally related to the CEMS unit and the nonoperating Notice of Violation of the CEMS unit.” He also testified that Steel self

- reported multiple violations to the MDEQ

. 4 2. Billing Records Steel argues that any entries not directly related to the CEMS were deducted from the $172,704.97 in fees it sought to recover

. Further, Steel says the district court ignored “Steel’s unchallenged, unrebutted testimony and evidence at trial that Steel meticulously subtracted from its invoices any attorneys ’ fees and costs unrelated to the CEMS units. ” Steel’s argument misses the point. The issue is not whether the fees are “related to” the CEMS or the NOV. The issue is whether the fees resulted from Altech’s breach. See M ISS

. C ODE A NN

. § 75

- 2

- 71 4 (1) (statin g a buyer may recover damages for the loss “resulting in the ordinary course of events from the seller’s breach ”)

4 Caples was not designated as an expert and the d istrict court disregarded his testimony that the MDEQ did not consider the self

- reported violations in choosing the fine amount. Steel did not appeal the ruling. Case: 17-60298 Document: 00514478140 Page: 8 Date Filed: 05/18/2018No. 17

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9 (emphasis added); § 75

- 2

- 71 5 (2) ( “ [C]onsequential damages resulting from the seller’s breach include . . . .”) (emphasis added). A review of t he record does not show that Steel ’ s attorneys’ fees resulted from Altech’s breach. For example, over 30 hours relate to Steel’s “ response ” to the MDEQ’s NOV

— of which a large portion is devoted to Steel self

- report ing its own violations. Further , there is an entry of 5.4 hours for “Review of stack testing data and information provided by A. Gurley as relates to NOV and other potential violations .” (emphasis added). The bills also contain multiple entries related to the agreed order, which Steel ( through Chappell) admitted was not wholly related to the CEMS. 5 Confronted with Caples ’s testimony , Chappell’s admission about the agreed o rder, and billing entries unrelated to Altech’s breach , t he district court was free to assign more weight to the entr ies and Chappell’s admission . Thus, the district court ’ s finding

— that Altech did not prove with reasonable certainty the fees resulted from Altech’s breach

— is supported by the evidence

. The district court did not commit clear error in denying recovery of A ltech’s attorneys’ fees. J udgment AFFIRMED.

5 E xamples of entr ies related to the agreed order include : (1) “ 0 1/22/14 GCR . . . conference with Ch ris Wells (MDEQ) re: disclosure of noncompliance issue related to non

reporting of September stack test and request of conference with MDEQ to work on issues associate d with Agreed Order ; ” (2) “ 04 / 04 /14 GCR . . . conference with Wells re: revision t o Agreed Order ;” and (3) “ 04/10/14 GCR . . . begin drafting SEP proposal and revision s to draft Agreed Order

. ” (emphasis added). Case: 17-60298 Document: 00514478140 Page: 9 Date Filed: 05/18/2018