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Union Oil Company Of California v. John Brown E&C

August 5, 1997

UNION OIL COMPANY OF CALIFORNIA, A CALIFORNIA CORPORATION, PLAINTIFF-APPELLANT, CROSS-APPELLEE,

v.

JOHN BROWN E&C, A DIVISION OF JOHN BROWN, INCORPORATED, A DELAWARE CORPORATION, DEFENDANT-APPELLEE, CROSS-APPELLANT.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94 C 4424 Edward A. Bobrick, Magistrate Judge.

Before BAUER, CUDAHY, and MANION, Circuit Judges.

MANION, Circuit Judge.

ARGUED APRIL 1, 1997

DECIDED AUGUST 5, 1997

Union Oil Company of California ("Unocal") sued John Brown E & C, Inc. ("John Brown") for breach of contract, and various tort law claims. All counts were dismissed except for the breach of contract claim. After the parties consented to proceed before a magistrate judge, John Brown moved for partial summary judgment, arguing that even if it had breached the contract, a limitation of damages clause capped Unocal's damages at $332,000. Unocal objected, contending that because John Brown was grossly negligent, the clause did not apply. The magistrate judge rejected Unocal's position and granted John Brown partial summary judgment, capping any damages at $332,000.

Unocal, not wishing to continue with the litigation if damages were so limited, entered into a stipulation with John Brown conditionally settling the case; the agreement provided that if this court affirms the magistrate judge's conclusion that damages are limited, the parties will go their own ways, but if we reverse, they will continue to litigate the breach of contract count. Based on the partial summary judgment and the stipulation, the magistrate judge entered a purported final order. However, because this order is not final, we dismiss for lack of subject matter jurisdiction.

I. Facts

In April 1989, Unocal and John Brown entered into a "Cost Reimbursable Contract for Engineering, Design, Procurement, and Construction of Unocal's Midwest Polymer Plant" (the "contract"). Pursuant to the contract, John Brown agreed to perform certain engineering, design, and construction management tasks, to procure equipment and materials, and to oversee the installation and construction of a polymer plant for Unocal in Kankakee, Illinois. The contract did not specify a budget or fixed price for the completion of the project, or a definite deadline; rather it estimated total costs at $46.8 million and provided that "[m]echanical completion is scheduled for October 1, 1990." This was later changed to December 1, 1990. The contract also provided that John Brown would receive a fee equal to 1.5% of its reimbursable home office costs, field construction costs and the cost of bulk material permanently incorporated into the Kankakee plant.

Sometime before September 1990, John Brown represented to Unocal that the project was coming in at the forecasted $46.8 million and that it would meet the revised December 1, 1990 completion date. However, in a subsequent "Authority for Expenditure" dated August 31, 1989, John Brown estimated the total cost of completion at $48.7 million. Unocal approved this revised cost. John Brown later changed the cost to approximately $54 million and changed the completion date from December 1, 1990 to March 15, 1991. According to Unocal, it never approved the revised $54 million cost estimate submitted by John Brown. But, Unocal explains, in the interest of having the plant completed, it paid John Brown for expenditures that it submitted, even those exceeding the $48.7 million authorized. Because of the delays and cost overruns, John Brown agreed it would limit its fee to $415,000, instead of 1.5% of certain contract costs. The plant was finally completed in July 1991.

After the completion of the plant, Unocal filed suit against John Brown in federal court based on diversity jurisdiction. Unocal's complaint alleged five counts: breach of contract; negligent misrepresentation; gross negligence; negligence; and breach of an implied covenant of good faith and fair dealing. John Brown moved to dismiss the negligent misrepresentation, negligence, and gross negligence counts, arguing that those tort counts were barred by the economic loss doctrine, which precludes recovery of purely economic losses in tort. Relying on Moorman Manufacturing Company v. National Tank Company, 435 N.E.2d 443 (Ill. 1982), the district court granted John Brown's motion and dismissed those counts. The parties then consented to proceed before a magistrate judge. John Brown moved for judgment on the pleadings on the breach of implied covenant of good faith and fair dealing count. The magistrate judge granted John Brown's motion, holding that Unocal's claim failed under California law because Unocal had failed to allege the existence of a "special relationship" between the parties.

That left only Unocal's breach of contract claim. John Brown moved for summary judgment on this claim, arguing that any damages that Unocal could recover under the contract were limited to 80% of its fee, based on section 9.16 of the contract, which contained various limitation of damage provisions. Unocal, of course, maintained that it should be able to recover the full amount of its loss resulting from the breach -- over $8 million. The magistrate judge agreed with John Brown, concluding that total damages were capped at 80% of Brown's total fee of $415,000, or $332,000, and entered partial summary judgment in favor of John Brown.

Because the magistrate judge's ruling limited damages to a relatively small amount, instead of proceeding on the merits of the breach of contract claim, Unocal and Brown entered into negotiations. The result was a stipulation. Because of the significance of the stipulation to our decision, we quote it in its entirety:

It is hereby stipulated by and between Union Oil Company of California (Unocal), plaintiff herein, and John Brown E & C, a division of John Brown, Inc. ...


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