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.
Thus Astor does not dictate that I limit Chem-Waste's damages exclusively to those damages available in a securities fraud suit.
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.
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 Owners of Sea Colony East v. Carl M. Freeman Associates, Inc., 564 A.2d 357, 361 (Del. Super. Ct. 1989) (applying RESTATEMENT (SECOND) OF CONTRACTS § 348(2)(b) (1981)).
Second, Delaware courts may award only the diminution in value when the cost to repair the asset constitutes economic waste. Shipman v. Hudson, 1995 Del. Super. LEXIS 586, No. CIV. A. 88 C-JN32, 1995 WL 109009, at *5 (Del. Super. Ct. 1995). "Economic waste exists when the repairs will result in 'undue loss or expenses . . . an expenditure for reconstruction disproportionate to the end to be obtained.'" Council of Unit Owners, 564 A.2d at 362 (citing CHARLES T. MCCORMICK, HANDBOOK ON THE LAW OF DAMAGES § 168 at 648 (1st ed. 1935)). The brief from the Former Shareholders does not distinguish these two potential limits on Chem-Waste's damages, but refers to them both simply as economic waste. Because both principles rest on the same analysis (comparing the diminution in value of the Facility to the amount required to repair it), to resolve this motion I need not distinguish between the two doctrines either.
The first question to consider is whether the doctrine of economic waste applies to this case. Several factors limit the usefulness of the doctrine of economic waste here. First, the Former Shareholders support their argument with two Delaware cases, both of which involved construction defects.
As Chem-Waste points out, this case is not about a simple construction defect in a building, but about warranties regarding environmental compliance for a highly specialized physical plant. Generally, economic waste precludes awarding the cost to repair an asset where the cost of obtaining a replacement would prove less expensive. For example, it makes little sense to fix a $ 4,000 car crushed in an accident if repairing the car would cost $ 10,000. Because it is more efficient to purchase a similar car for $ 4,000, the court would award only $ 4,000 in damages to the plaintiff. See Zazu Designs v. L'Oreal, 979 F.2d 499, 506 (7th Cir. 1992) (using this example to show that "expenses for repair cannot be justified when they exceed the value of the asset"). The economic waste doctrine, however, rests on the assumption that it is possible to replace the asset rather than repair it. Here, unlike the buyer of a new car, it is not clear that Chem-Waste could simply abandon DSSI in favor of another company because so few companies have the equipment and government permits necessary to process liquid scintillation materials.
Additionally, Chem-Waste claims that the repairs were reasonable because the repairs were made in stages over a period of "several years" as Chem-Waste gradually discovered the defects in the Facility. While a single decision to spend $ 11 million to repair the Facility should perhaps be judged for its economic sense, a series of separate decisions to spend a total of $ 11 million to repair the Facility should not necessarily be subject to a similar scrutiny. I agree with Chem-Waste that these factors may weigh against applying the economic waste doctrine here. In denying the Former Shareholders' motion, however, I do not hold that a jury would not be entitled to limit the damages sought by Chem-Waste if the repair costs were unreasonable -- with this opinion I hold only that I cannot, as a matter of law, say that Chem-Waste is not entitled to recover its repair costs.
Elaine E. Bucklo
United States District Judge
Dated: August 15, 1996