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CHEMICAL WASTE MGMT. v. SIMS

August 15, 1996

CHEMICAL WASTE MANAGEMENT, INC., Plaintiff,
v.
JAMES R. SIMS; JAMES T. McVEY; ADAM J. LIFF; JAN LIFF; JUDY LIFF, custodian for Zachary Liff; JUDY LIFF, custodian for Terence Liff; DARREN LIFF; DANIEL LIFF; JAMES C. BOW; ABE FREEMAN; ELIZABETH BAISLEY; GARY BAISLEY; KIM BAISLEY-WYATT; and MIKE SCHWEITZER, Defendants.



The opinion of the court was delivered by: BUCKLO

 Chemical Waste Management, Inc. ("Chem-Waste") has brought suit against the "Former Shareholders" of Diversified Scientific Services, Inc. ("DSSI") for breach of contract. The Former Shareholders have moved for summary judgment or, in the alternative, partial summary judgment. For the reasons stated below, their motion is denied.

 Background

 DSSI operates a plant treating liquid scintillation materials in Kingston, Tennessee ("the Facility"). Few companies possess the technical capability and government permits necessary to process this "mixed liquid waste," which is frequently radioactive and hazardous, and because there is a lengthy application process to obtain the appropriate permits, entering the field requires a considerable investment of time and resources. Chem-Waste wanted to capture part of this potentially lucrative market, and so in 1991 it signed an agreement with the Former Shareholders to purchase all of DSSI's outstanding stock from them ("the Stock Purchase Agreement"). In exchange for the DSSI stock, Chem-Waste paid the Former Shareholders approximately $ 4.5 million in cash and executed a promissory note for $ 650,000. Chem-Waste says that it also provided additional consideration for the stock by assuming various debts of DSSI, which amounted to nearly $ 3.5 million, but the Former Shareholders maintain that Chem-Waste was not obligated to assume those debts under the Stock Purchase Agreement.

  In the Stock Purchase Agreement, the Former Shareholders provided various warranties related to the Facility's physical condition and DSSI's compliance with environmental regulations, and agreed to indemnify Chem-Waste in the event of any breach of those warranties. *fn1" Chem-Waste alleges that those warranties were breached and consequently it has had to spend $ 11 million to repair the Facility. Chem-Waste has brought this suit against the Former Shareholders for breach of contract seeking to recover those repair costs. *fn2" The Former Shareholders have now moved for summary judgment, arguing that Chem-Waste cannot recover those repairs costs as damages.

 The court may award summary judgment to the moving party only when there is no genuine issue of material fact and that party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). A genuine issue of material fact exists when a reasonable jury could return a verdict for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). In considering the motion, all reasonable inferences must be drawn in favor of the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970).

 Damages

 The Former Shareholders first argue that they are entitled to summary judgment because Chem-Waste cannot prove any damages for which it may legally recover. The Former Shareholders ask me to analogize Chem-Waste's suit for breach of contract to cases in which plaintiffs have sued for securities fraud, because Chem-Waste purchased DSSI stock. In suits for securities fraud, the plaintiff may only recover the difference between the price of the stock and its actual value if the truth were known. See, e.g., Pommer v. Medtest Corp., 961 F.2d 620, 628 (7th Cir. 1992). The Former Shareholders argue that Chem-Waste should also be so limited. Because Chem-Waste has not alleged that the value of its DSSI stock has fallen or brought forth any evidence of a diminution in value of the stock, the Former Shareholders argue that Chem-Waste has no recoverable damages.

 Chem-Waste responds by arguing that this case is not analogous to securities fraud cases because this suit is for breach of contract. It says that the mere fact that the transaction underlying this case involves the sale of stock does not transform this suit into one for securities fraud. Chem-Waste notes that unlike the defendants in securities fraud cases, the Former Shareholders agreed to indemnify Chem-Waste if certain warranties were breached. Chem-Waste argues that it should therefore not be bound by the securities fraud measure of damages.

 Both sides point to Astor Chauffeured Limousine Co. v. Runnfeldt Investment Corp., 910 F.2d 1540 (7th Cir. 1990), in support of their argument. In Astor, the plaintiff purchased all the outstanding stock in a limousine company and subsequently sued the former shareholders for securities fraud. The plaintiff sought damages for the diminution in value of the stock and for lost profits, but the Seventh Circuit held that because the suit was for securities fraud the plaintiff could only recover the diminution in value of the stock. According to the Seventh Circuit, the plaintiff could not recover lost profits because "[the plaintiff] cast this as a securities transaction, and it gets the securities measure of damages." Id. at 1552. The Former Shareholders argue that because the parties structured the acquisition of DSSI as a stock purchase, Chem-Waste is similarly limited. Chem-Waste responds that the court in Astor ruled the way it did, not because the underlying transaction was a stock purchase, but because the plaintiff in Astor chose to file suit under Rule 10b-5 in order to get into federal court.

 I agree with Chem-Waste that Astor does not control in this case. In Astor, the court focused on the fact that the plaintiff had used the characterization of the transaction as a stock purchase "as entree to federal court," and refused to allow the plaintiff to recharacterize the transaction as an asset purchase to claim additional damages. Id. The court stated that "one characterization of the transaction is plenty, and [the plaintiff] must take the bitter with the sweet." Id. In contrast, here Chem-Waste chose, from the beginning, to characterize its contract with the Former Shareholders as one for the sale of property (albeit stock) and file suit for breach of contract. *fn3" Thus Astor does not dictate that I limit Chem-Waste's damages exclusively to those damages available in a securities fraud suit.

 In Delaware, *fn4" a plaintiff suing for breach of contract generally may recover "what is necessary to put it in as good a position as it would have occupied had there been full performance of the contract." American General Corp. v. Continental Airlines Corp., 622 A.2d 1, 8 (Del. Ch.), aff'd, 620 A.2d 856 (Del. 1992). Thus Chem-Waste is not limited to recovering only the diminution in value of the DSSI stock, and so the Former Shareholders are not entitled to summary judgment. *fn5"

 The Former Shareholders alternatively argue that the damages Chem-Waste seeks are limited by the doctrine of economic waste. As an initial matter, I note that the Former Shareholders do not explain how partial summary judgment would be procedurally appropriate in this case with respect to the issue of damages. Summary judgment may be granted only for claims, not issues. See, e.g., Ambre v. Joe Madden Ford, 881 F. Supp. 1187, 1193 (N.D. Ill. 1995) ("An order granting summary judgment must dispose of an entire claim as opposed to a single portion of the claim.") (citing Commonwealth Ins. Co. of N.Y. v. O. Henry Tent & Awning Co., 266 F.2d 200, 201 (7th Cir. 1959)). Because the parties have briefed the issue, however, I will treat the request for partial summary judgment as a motion in limine and consider whether, as a matter of law, Chem-Waste's damages should be capped.

 The Former Shareholders argue that because Chem-Waste paid only $ 5.1 million for DSSI stock, it should not have spent (and should not be allowed to recover) $ 11 million in repair costs. They say that spending $ 11 million to repair the Facility constitutes economic waste because that amount is disproportionate to the diminution in value of the Facility. Delaware courts appear to recognize two separate principles which may indeed limit Chem-Waste's damages. First, Delaware courts allow plaintiffs in breach of warranty cases to recover the "reasonable cost of remedying the defects if that cost is not clearly disproportionate to the probable loss in value." Council of Unit ...


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