Whenever a party enters into a contract with another party, he/she is agreeing to the terms and conditions set out in that contract. However, the assumption is that if one of the party fails to abide by the terms of the contract, that the other party may terminate the contract. Yet in order to justifiably terminate the contract and incur not penalties there needs to be a valid breach of contract. Whether or not there was in fact a breach of contract was the subject of the Chicago case of Paper Recovery, Inc. v. Segerdahl Corp., Segerdahl Graphics Inc., Marcells Paper & Metal Inc., 07L-3762.
The case centered on the written contracts between Paper Recovery, Inc. and Segerdahl Corporation and Segerdahl Graphics. Segerdahl had contracted Paper Recovery to dispose of its paper waste products. Under the terms of this contract, Paper Recovery would act as the go-between for Segerdahl and paper recycling plants.
Paper disposal companies, such as Paper Recovery, collect and separate the various types of paper waste and then make their money by selling that paper to recycling plants. The amount the recycling plants pay for the different types of paper depends on the paper’s grade, which refers to the quality of the paper product. For example, cardboard yields more per recycled ton than newspapers; therefore, recycling plants will pay more for cardboard than newspapers.
Given the difference in price for the various paper waste products, it is important for Paper Recovery to keep track of just how much paper they are collecting from Segerdahl. However, given the large volume of paper waste produced by Segerdahl, it is impractical for Paper Recovery to document this itself. Instead, Segerdahl tracks and reports the grade and quantity of its waste paper products to Paper Recovery. Typically, these reports are taken on blind faith, with the paper disposal company relying on the submitted numbers.
However, during the course of Paper Recovery’s contract with Segerdahl, it began to question the accuracy of the reported paper waste. As a result, Paper Recovery began the laborious process of grading the paper waste itself. However, Segerdahl contended that it had the exclusive right to grade its paper waste. It accused Paper Recovery of breaching its contract both by questioning Segerdahl’s reports and by grading the paper waste itself. As a result of this supposed breach, Segerdahl terminated its contract with Paper Recovery.
Paper Recovery then filed a lawsuit against Segerdahl, claiming that it had incorrectly terminated their contract. The original contracts between Paper Recovery and Segerdahl Corp. and Segerdahl Graphcis had been entered into on October 2006. Both contracts expired on December 31, 2010 and both contracts stated that they could not be terminated prior to that date. Yet Segerdahl had terminated the contracts on April 5, 2007, over three years before the contracts were set to run. As a result of the early termination, Paper Recovery claimed it had lost between $6.1 and $6.8 million in profits.
In its defense, Segerdahl argued that it was shielded from liability because Paper Recovery had breached its contract by adjusting Segerdahl’s reported waste paper grading. However, at trial, Segerdhal’s Vice-President, Gary Gardner, admitted he had lied to Paper Recovery about Segerdahl’s paper grading on a daily basis in order to “get their attention.” So in essence, Segerdahl’s argument was that Paper Recovery did not have the right to question its waste paper reports, even though those reports were in fact false. The jury obviously did not agree with this defense and awarded Paper Recovery $3.25 million in damages for Segerdahl’s early termination of its contracts.
Paper Recovery had also brought a lawsuit against one of its main competitors, Marcells Paper & Metal, for tortiously interfering with the Segerdahl contracts. Marcells had been a vendor for Segerdahl before Paper Recovery became the company’s waste recycler. Marcells began consulting Segerdahl around the same time that Paper Recovery’s contracts began and then took over as Segerdahl’s recycler when the company terminated its contracts with Paper Recovery.
While Marcells’s close relationship with Segerdahl certainly seems suspicious, the jury found Marcells not guilty of any wrongdoing. It found that Segerdahl was solely responsible for its decision to terminate its contract with Paper Recovery. As a result of this poor business decision, Segerdahl Corp. is now liable for $3.055 million while Segerdahl Graphics is liable for $195,000.
Kreisman Law Offices has been handling commercial litigation matters for more than 35 years in and around Chicago, Cook County, and surrounding areas, including Rosemont, Harwood Heights, Naperville, Westmont, and Schaumburg.
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