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SPANG & COMPANY v. UNITED STATES STEEL CORPORATION (07/12/88)

decided: July 12, 1988.

SPANG & COMPANY, APPELLANT,
v.
UNITED STATES STEEL CORPORATION, APPELLEE



Appeal from the October 7, 1986 Order of the Superior Court at No. 568 Pittsburgh, 1985 Reversing the April 16, 1985 Order as Revised by Order Dated July 1, 1985 by the Court of Common Pleas of Butler County, Civil Division, at A.D. 82-515, Nix, C.j., and Larsen, Flaherty, McDermott, Zappala, Papadakos and Stout, JJ. Papadakos, J., filed a dissenting opinion in which Nix, C.j., and Flaherty, J., joined.

Author: Larsen

[ 519 Pa. Page 16]

OPINION OF THE COURT

The issue presented is whether a trial court, sitting as fact-finder in a non-jury trial for breach of contract, may order a new trial limited to the issue of damages after initially entering a verdict for defendant on the grounds that, although defendant breached the contract which caused substantial damage to the plaintiff, plaintiff failed to prove the amount of damages with a reasonable degree of certainty to permit computation of a damage award. We answer that question in the affirmative. The essential facts are as follows.

Appellee, United States Steel Corporation (USS), is a Delaware corporation which, at all times relevant to this appeal, operated steelmaking facilities at its Lorain Works in Lorain, Ohio. USS manufactured steel products at the Lorain Works by the open-hearth method until 1971 and by the basic oxygen process method thereafter. Both methods produce slag, a mixture of metallic and non-metallic material, as a necessary by-product. Prior to September, 1961,

[ 519 Pa. Page 17]

USS dumped its Lorain Works' slag at the East Fill dump site on its premises.

Spang & Company (Spang) is a Pennsylvania corporation with its principal place of business in Butler, Pennsylvania. Spang is successor in interest by merger to its former wholly owned subsidiary, Ferroslag Process Corporation. Spang developed and patented a commercially viable process for crushing and separating slag into metallic and non-metallic components. Recovered metal scrap can be reused in the steelmaking process or sold to third parties, and the non-metallic slag residue ("processed slag") can be used and sold to third parties for use as aggregate, ballast and other construction purposes.

USS and Spang (through Ferroslag) entered into a contract in June, 1960, which, through extensions and with various modifications, lasted until termination on February 28, 1982. Pursuant to contract, Spang built and operated a processing plant at the Lorain Work's East Fill site which processed slag both from current steelmaking operations and from mining slag previously dumped in the East Fill, which had been, to a limited extent, processed by other contractors. In 1962, the contract was amended to provide for erection of a screening plant to "size" the processed slag to certain specifications and to load and weigh processed slag for sale to third parties.

USS paid Spang upon delivery for the metal scrap recovered from the unprocessed slag, but the contract provided that USS would pay Spang for the non-metallic processed slag only upon sale by USS to third parties. During the 1961-1982 period, Spang's operating records indicate it processed 7,731,468 tons of crushed and sized non-metallic slag, of which USS sold 5,849,378 tons to its customers. Some of the unsold processed slag was placed in a "buffer strip" at the Lorain Works to help keep down dust and noise that had been annoying residents of a nearby municipality. Other such slag was used for roadways and other construction purposes on the site.

[ 519 Pa. Page 18]

Spang was obligated to remove all structures and equipment from USS's premises upon termination of the contract. However, until 1969 no provision had been made for any payment to be made on processed slag unsold and remaining in USS's inventory upon termination of the contract. In 1969, the following clause was added which, in substantially similar form through subsequent amendments, remained part of the contract throughout:

In the event of termination of this Agreement for any reason, Contractor [Spang] shall be entitled to payment for all scrap and/or slag prepared and ready for delivery to Owner [USS] and accepted by Owner. . . .

In 1981, USS decided not to renew its current contract with Spang, and notified Spang of its intent to terminate. However, the corporations extended the contract through February 28, 1982. A letter of October 23, 1981 from Spang to USS confirmed the terms of the extension agreement, and set "unit prices" for newly invoiced items in "the customary way," except for a "30% surcharge" which would be refunded in the event USS executed an additional five year contract with Spang. This letter further specified:

Products in Inventory

In the event that Ferroslag [Spang] is not awarded the new slag processing contract, the total value of all products in inventory will become immediately due and payable. The value of the inventoried products will be determined by multiplying the amount of products in tons by the then current unit price plus the surcharge. The most significant product in inventory is specification and non-specification sized slag at the East Fill. There are approximately 480,000 tons.

On November 11, 1981, Spang sent a follow-up letter to USS instructing USS to "delete the phrase plus the surcharge from the second sentence" in its letter of October 23, 1981, which phrase was included by error. Spang's intention was "that the surcharge apply only to those items which are associated with our current operations," not to "products in inventory" (i.e., not to previously processed but

[ 519 Pa. Page 19]

    unsold non-metallic slag). By letter of December 14, 1981, USS confirmed the extension of the contract through February 28, 1982, stating: "The extension was issued in accordance with verbal agreements as confirmed in your letters of October 23, 1981 and November 11, 1981."

Upon termination at the end of February, 1982, Spang vacated the Lorain Works premises, and sent to USS an invoice for $4,176,358.00 allegedly owed Spang, based on 1,882,090 tons of processed but unsold slag allegedly remaining in USS's possession at $2.219 per ton, the current unit price for non-specification slag.

USS did not pay Spang the invoiced claim for processed slag in inventory and, in fact, declined to make any payments for any of the processed slag in inventory. On September 2, 1982, Spang filed a complaint in assumpsit for $4,176,358.00 plus interest in the Court of Common Pleas of Butler County. A non-jury trial before the Honorable George P. Kiester began in June 1984.

The principle issue at trial was whether Spang had suffered any damages, and if so, how much damage. Spang introduced business records of its operating figures for the contractual period in question. These figures showed the amount of processed non-metallic slag that Spang had delivered to USS during the course of the contract (7,731,468 tons). From that figure, Spang subtracted the processed non-metallic slag that USS had sold to third parties during the course of the contract (5,849,378 tons) to arrive at the tonnage of 1,882,090 which Spang claimed remained in inventory at the Lorain Works. This processed slag included the 480,000 tons identified as remaining in the East Fill site, plus the slag placed in the buffer strip and on roads and for other uses throughout the site.

USS did not offer its own affirmative evidence as to processed slag in inventory, but it challenged Spang's calculation of 1,882,090 tons as inaccurate, based on testimony that previously processed slag could be, and in fact was, rescreened to make a certain sized slag product, and this reprocessed slag, although it would be counted again in

[ 519 Pa. Page 20]

Spang's operating figures, would not be available twice in inventory (i.e., it would only be available for sale one time, no matter how many times it was reprocessed). USS also challenged the figure of $2.219 per unit (ton) of processed slag as inaccurate, because Spang would save certain unspecified costs of loading and weighing which normally accompanied sale of processed slag to USS's customers.

After hearing and weighing the evidence, and making fifty-three findings of fact setting forth most of the above, the trial court entered, inter alia, the following conclusions of law:

1. Spang had the burden of proving its cause of action and the damages sustained by a preponderance of the evidence.

5. Spang has proved by competent evidence that USS is obligated to pay Spang for all slag processed from 1961 to 1982 by Spang at the Lorain Plant, stockpiled on the property of ...


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