Legal Lode: Sorted Out

When we left the legal battle between Firstar Fiber Inc. (Firstar) and Karl W. Schmidt &Associates (KWS), the two firms were in the midst of a jury trial stemming from equipment failures at a Omaha, Neb., materials recovery facility operated by Firstar ("Out of Sorts," Waste Age, June 2010).

By declining to purchase an entire recycling system from KWS, Firstar knowingly lost an opportunity to have KWS assume full responsibility for the system — that is, installing and integrating the parts, troubleshooting, training workers, and completing a punch list. The jury heard testimony on the industry standard: a company does not take responsibility for a system pieced together using parts from different suppliers nor does it provide blueprint drawings.

Firstar offered evidence of the problems and deficiencies it encountered with KWS equipment and of KWS's failure to correct these matters to Firstar's satisfaction. Several experts testified about various deficiencies in the system that adversely affected productivity. One expert faulted the equipment installation. Another noted that the contract did not contain many items he would expect to see in the proper system, and that he would have urged Firstar to buy equipment that KWS had offered but which Firstar had declined to purchase.

Although the jury saw no problems with the baler line contract, it found that KWS had breached the equipment contract resulting in damages to Firstar amounting to $1,500. On KWS's counterclaim for nonpayment, the jury found that KWS was entitled to the unpaid balance of $97,000. Deducting the damages for the KWS breach, the trial judge entered judgment against Firstar and the bonding company for $95,500 and awarded KWS attorney fees in the amount of $197,400.

On appeal, Firstar argued that the evidence did not support the jury verdict, the damages award was excessive, and the trial judge was wrong in awarding attorney fees. The Nebraska Court of Appeals disagreed, affirming the verdict and finding no error in the trial court's decision to make Firstar reimburse KWS's attorney fees.

Generally, appellate courts do not overturn jury verdicts if the record contains any reliable evidence to support the winning side. The jury's function is to resolve disputed evidence and determine the significance and credibility of testimony. In short, where the evidence is conflicting or where reasonable minds can reach different conclusions, the jury has broad leeway in deciding the facts.

After reviewing the trial record, the court of appeals found that it supported the jury's verdict that both parties had breached the equipment contract, giving judgment in full to KWS on its counterclaim for the withheld payment and judgment to Firstar.

"Firstar admits that it withheld payment … to cover its … damages due to KWS … failing to supply integrated equipment," the opinion noted. "The jury apparently rejected this argument by finding that Firstar breached the contract by its failure to pay the remaining sums due, and we cannot say this conclusion is clearly wrong. The jury did find that KWS breached the contract in some fashion, awarding Firstar damages of $1,500."

As for the attorney fees awarded to KWS, the appeals court cited a state statute which provides that a beneficiary of an insurance policy, upon entry of a judgment against an insurer, including a surety, may recover an attorney fee besides the amount the amount of the award. One of KWS's attorneys provided an affidavit detailing the work provided by members of the firm throughout the case. Firstar argued that most of the attorney time was spent defending the breach of contract claims and considerably fewer hours on recovering the unpaid balance due.

"Firstar points to no evidence that the representations made … with regard to time, fees and costs … are in any way inaccurate," the court said. The "claims were so intertwined that it is impossible to separate the fees incurred by KWS for defending the action from those spent to recover on the counterclaim."

Firstar Fiber, Inc. v. Karl W. Schmidt & Assoc., Inc., No. A-08-1315 (Neb.App., Mar. 16, 2010)

Barry Shanoff is a Rockville, Md., attorney and general counsel of the Solid Waste Association of North America.

The legal editor welcomes comments from readers. Contact Barry Shanoff via e-mail: [email protected].

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