[Cite as E. Liverpool v. Buckeye Water Dist., 2010-Ohio-3170.]
                          STATE OF OHIO, COLUMBIANA COUNTY
                              IN THE COURT OF APPEALS
                                  SEVENTH DISTRICT


THE CITY OF EAST LIVERPOOL                         )       CASE NO. 08 CO 19
                                                   )
        PLAINTIFF-APPELLEE                         )
                                                   )
VS.                                                )       OPINION
                                                   )
BUCKEYE WATER DISTRICT, et al.                     )
                                                   )
        DEFENDANTS-APPELLANTS                      )

CHARACTER OF PROCEEDINGS:                                  Civil Appeal from the Court of Common
                                                           Pleas of Columbiana County, Ohio
                                                           Case No. 05-CV-502

JUDGMENT:                                                  Affirmed in part. Modified.

APPEARANCES:
For Plaintiff-Appellee:                                    Atty. Charles L. Payne
                                                           Law Director – City of East Liverpool
                                                           617 S. Clair Avenue
                                                           East Liverpool, Ohio 43920

                                                           Atty. Thomas W. Connors
                                                           Atty. James M. Wherley, Jr.
                                                           Black, McCuskey, Souers & Arbaugh
                                                           220 Market Street, Suite 1000
                                                           Canton, Ohio 44702

For Defendants-Appellants:                                 Atty. Dennis M. O’Toole
                                                           Stumphauzer, O’Toole, McLaughlin
                                                             McGlamery & Loughman Co., LPA
                                                           5455 Detroit Road
                                                           Sheffield Village, Ohio 44054

                                                           Atty. Frederick C. Emmerling
                                                           114 W. Sixth Street
                                                           P.O. Box 25
                                                           East Liverpool, Ohio 43920

JUDGES:
Hon. Cheryl L. Waite
                                                                                      -2-

Hon. Gene Donofrio
Hon. Mary DeGenaro
                                                 Dated: June 21, 2010

WAITE, J.

       {¶1}   Appellants Buckeye Water District (“BWD”) and the Board of

Commissioners of Columbiana County (“Commissioners”) have filed an appeal of a

$9.7 million judgment against them regarding the breach of a water service

agreement (the “Agreement”).      The Appellee is the City of East Liverpool (“East

Liverpool”). Commissioners entered into the 30-year Agreement in 1995, agreeing to

purchase a minimum of 235,000 gallons of water per day from East Liverpool. The

Agreement was later assigned to BWD. Appellants failed to pay the amount required

under the Agreement starting in 2004, and eventually notified East Liverpool that they

were repudiating the Agreement due to various alleged breaches of the Agreement

by East Liverpool. East Liverpool filed a breach of contract complaint in 2005. The

case was heard at a bench trial ending in September, 2007, in the Columbiana

County Court of Common Pleas.         Two of the main issues at trial were whether

Appellants were justified in repudiating the contract because: (1) East Liverpool did

not provide the proper quantity and pressure of water called for in the contract; and

(2) East Liverpool failed to provide safe potable drinking water, particularly water that

was free from trihalomethanes (“THMs”). THMs are a byproduct of the chlorination

process, and the Ohio Environmental Protection Agency (“OEPA”) limits the amount

of THMs that may occur in drinking water. Appellants claimed that their water was

contaminated with THMs.
                                                                                      -3-

      {¶2}   After trial concluded on September 6, 2007, the trial court required the

parties to prepare post-trial memoranda. Appellants filed proposed findings of fact

and conclusions of law. BWD asserted that East Liverpool had been cited 13 times

by the OEPA, and that these citations constituted a breach of the contract. East

Liverpool subsequently filed its own findings of fact and conclusions of law.

      {¶3}   In February of 2008, the trial court found in favor of East Liverpool on all

issues. The court noted that in Appellants’ proposed findings of fact and conclusions

of law they had abandoned their prior arguments regarding the level of THMs in the

water, and instead focused on various citations that had been issued by the OEPA.

The court found that the OEPA citations were for failure to monitor and not for actual

contamination of East Liverpool’s water supply. The court held that receipt of the

citations did not amount to a breach of the Agreement. The court also determined

that East Liverpool maintained sufficient volume and pressure over the course of the

Agreement.    The court awarded $1,480,963.91 in damages for the period from

August, 2004, to December of 2007.         It also awarded $8,233,082.46 for future

damages starting from January of 2008 and continuing for the remaining 18 years of

the contract based on the contract price of $5.64 per 1000 gallons, and further based

on the minimum contractual amount of 235,000 gallons per day. The total award was

$9,714,046.37.    The court did not perform any calculation to reduce the future

damages award to present value.

      {¶4}   Appellants argue on appeal that the verdict does not comport with the

weight of the evidence.    Appellants contend that the evidence presented at trial

shows that the water pressure was insufficient and that there were elevated levels of
                                                                                      -4-

THMs.     Appellants assert that both of these facts constitute breaches of the

Agreement and should have allowed them to repudiate the Agreement. Appellants’

arguments are not persuasive. The record reflects that the water pressure met the

contractual requirements and that the water delivered to Appellants was not

contaminated.

        {¶5}   Appellants also argue that political entities such as East Liverpool and

BWD cannot sue or be sued for lost profits when a water supply agreement is

breached. We have found no legal support for this conclusion.

        {¶6}   The remainder of Appellants’ arguments deal with the court’s

calculation of damages. Appellants allege that the profit margin East Liverpool was

receiving from the contract was excessive, but this is not borne out by the record.

Appellants contend that the award for future damages was speculative, even though

the damages were calculated by simply taking the current contract price for the

water, less costs avoided, and multiplied by the remaining years of the contract. We

do find merit, though, in Appellants’ final argument regarding the trial court’s decision

not to reduce future damages to present value. The Ohio Supreme Court has held

that future damages must be reduced to present value. Galayda v. Lake Hosp. Sys.,

Inc. (1994), 71 Ohio St.3d 421, 425, 644 N.E.2d 298. The record reflects that the trial

court considered the discount rate for reducing the future award to present value, but

offset this value with presumed inflationary rate hikes that East Liverpool would have

been permitted to make over the course of the Agreement had Appellants not

breached the Agreement. Although there may be circumstances when an offset for

inflation might apply, the facts of this case do not present such circumstances. Given
                                                                                  -5-

the extreme length of the water supply contract, the fact that East Liverpool’s water

rates were already inflated by rate increases instituted after the dispute with

Appellants arose, the clear directive by the Ohio Supreme Court, and a number of

other factors, we conclude that the trial court should have reduced the future

damages award to present value. East Liverpool proposed a discount rate of 5.08%

to reduce the award to present value, and this is the rate that should have been

applied. The trial court judgment is hereby modified to reflect the application of a

5.08% discount rate. The damages award is reduced to $4,842,752.99 to reflect that

future damages have been reduced to present value.

                                History of the Case

      {¶7}   East Liverpool and the Commissioners entered into a written “Water

Service Agreement” on December 15, 1995.         The Agreement was for 30 years,

terminating on December 31, 2025. The initial purpose of the Agreement was to

supply water to customers in Wellsville and Calcutta, Ohio. East Liverpool agreed to

provide up to 1,000,000 gallons of water per day to the Commissioners. The first

500,000 gallons per day would be made available immediately, and the remaining

amount would be available following water treatment plant modifications or OEPA

approval. The Commissioners agreed to pay $3.03 per 1000 gallons for the first

235,000 per day, and $1.70 per 1000 gallons for any additional amounts.          The

Commissioners agreed to purchase at least 235,000 gallons per day for the duration

of the Agreement, and there were no restrictions on how the water could be resold.

The Agreement allowed East Liverpool to raise the rate it charged the
                                                                                     -6-

Commissioners for water. By May of 2005, this rate had risen to $5.64 per 1000

gallons.

      {¶8}   The Agreement required East Liverpool to provide water at “the present

volume and pressure,” and the delivery point was to be measured “at a point 113 feet

beyond the valve at the Corporation line on Cartwright Street or other points

agreeable to both parties.” (12/15/95 Agreement, p. 3, ¶5.) Cartwright Street is a

short distance south of the primary water tank used by Appellants to store and

redistribute the water it purchased from East Liverpool under the Agreement. The

delivery point in the Agreement is prior to the point where the water enters the tank.

      {¶9}   The Agreement provided that the Commissioners would only be billed

for the actual amount of water used by its customers. It also provided that the water

that could not be accounted for by the county could not exceed 20% of the usage

shown on the master water meters.

      {¶10} On April 29, 1996, the Commissioners assigned the performance of the

Agreement to BWD. East Liverpool was not involved in this assignment.

      {¶11} From 1995 through 2004, BWD expanded its customer base, which led

to an increase in the volume of water being drawn from the East Liverpool water

system.    In 1996, BWD used 235,000 gallons per day.           By 2004, this amount

increased to 400,000 gallons per day.

      {¶12} In 2002, representatives of BWD notified East Liverpool that there was

a problem with the pressure of the water. East Liverpool responded that it was

continuing to supply the pressure and volume as agreed in 1995. At the same time
                                                                                    -7-

BWD began complaining about the water pressure, it was making plans to build its

own water treatment plant to supply up to 4 million gallons per day to its customers.

      {¶13} On March 21, 2003, BWD served notice that it considered East

Liverpool to be in breach of the Agreement for three reasons. The first was alleged

inadequate pressure and volume. The second was failure to supply safe potable

water, primarily due to the existence of THMs in the water. The third reason for

declaring a breach was failure to evenly distribute the water supply.

      {¶14} On September 24, 2003, BWD notified East Liverpool that it would have

alternate supplies of water available on April 1, 2004.      BWD began lowering its

consumption of water under the Agreement in 2004. After April 1, 2004, BWD began

paying East Liverpool only for the amounts of water it was using, even though the

amount was below the minimum amount of 235,000 gallons per day established in

the Agreement. BWD eventually stopped using any water from East Liverpool by

early 2006.

      {¶15} East Liverpool filed a breach of contract complaint in the Columbiana

County Court of Common Pleas on May 19, 2005.              The defendants were the

Commissioners and BWD. The trial of the case took place, on and off, over a period

of four months, starting on May 2, 2007, and concluding on September 6, 2007. East

Liverpool called the following witnesses:      Robert Disch, East Liverpool Utilities

Director; Charles Allison, board member of BWD; Ronald Huprich, project engineer

for East Liverpool; Steven Polen, BWD Manager; David Stewart, consulting engineer;

Alfred DeAngelis, BWD District Manager; Bert Dawson, Columbiana County

Engineer; William Butler, former East Liverpool Treasurer; and Timothy Clark, East
                                                                                   -8-

Liverpool Water Department Superintendent. Appellants called many of these same

witnesses, along with Charles Bibi, trustee of BWD; Roy Dray, former BWD interim

director and board member; John Pierko, consultant for BWD; David Frank, civil

engineer; and expert witness Beth Darnell, plant manager for the Avon Lake water

plant. Hundreds of exhibits were presented during trial. The combined exhibit lists of

the parties encompasses 39 pages.

      {¶16} The following evidence was established at trial. The parties do not

dispute that East Liverpool and the Commissioners entered into a 30-year water

service agreement on December 15, 1995.         The Agreement is to terminate on

December 31, 2025. The agreement was modified slightly in writing on April 9, 1996.

The terms of this modification are not part of the dispute between the parties. On

April 29, 1996, the Commissioners assigned the performance of the Agreement to

BWD. East Liverpool was not part of this assignment, and there does not appear to

be any dispute that the Commissioners and BWD are jointly liable for any breach of

the Agreement. The initial water rate was $3.03 per 1000 gallons for the first 235,000

gallons used.

      {¶17} In January 2002, BWD Director Steven Polen had discussions with East

Liverpool regarding levels of THMs in the water. The OEPA had notified the parties

in 2000 that THM regulations were going to becoming more strict, and that a new

standard of 80 parts per billion would be applied starting in January of 2004. The

prior standard was 100 parts per billion. Records introduced at trial indicated that

East Liverpool was in compliance with THM requirements prior to January, 2004, and
                                                                                    -9-

that after the new regulation took effect, it kept its THM level below 80 parts per

billion.

           {¶18} On May 16, 2002, BWD approved the building of a new 4 million gallon

per day water treatment plant. Charles Allison, a board member of BWD, raised

concerns about authorizing the new plant because of the prior obligations under the

East Liverpool water Agreement. He informed the board that, although he hoped the

East Liverpool Agreement could be broken, there were no guarantees. (Tr., Vol. 1, p.

136.)

           {¶19} On July 22, 2002, BWD wrote to East Liverpool complaining that there

were problems with the water pressure at the Oakmont tank. East Liverpool’s Utility

Director, Robert Disch, examined the situation and determined that pressure was

being maintained pursuant to the Agreement. He informed BWD that they had the

option under the Agreement to build a direct tap-in line to East Liverpool’s water

treatment plant, and thereby could pump and control their own water supply as

needed. This would be at BWD’s expense. BWD declined to utilize this option in the

Agreement.       Various exhibits were introduced at trial establishing that the water

pressure both before and after the execution date of the Agreement was being

maintained at 46-49 psi.

           {¶20} On March 21, 2003, BWD sent a letter to East Liverpool claiming that

the city failed to provide a safe water supply by having elevated levels of THMs in the

water, and that East Liverpool had breached the Agreement. Subsequently, BWD

began reducing the amount of water drawn from East Liverpool, and began paying

only for the water they used even if it was less than the minimum usage of 235,000
                                                                                  -10-

gallons per day as required by the Agreement. East Liverpool attempted to address

BWD’s concerns about the quality of the water and the increasing water needs of the

district, but when it became clear that BWD intended to stop purchasing any water

from East Liverpool, a breach of contract complaint was filed.

      {¶21} After trial, the court ordered the parties to file post-trial memoranda. On

December 7, 2007, Appellants filed proposed findings of fact and conclusions of law,

and filed an amendment on December 11, 2007.            East Liverpool filed its own

proposed findings of fact and conclusions of law on December 21, 2007. The parties

both followed up with reply memoranda. The trial court entered its judgment on

February 13, 2008, borrowing liberally from East Liverpool’s proposed findings of fact

and conclusions of law. The court found that East Liverpool maintained appropriate

volume and pressure of water during the course of the Agreement.            The court

rejected Appellants’ contention that East Liverpool was required to maintain pressure

of at least 49 psi at the meter leaving the Oakmont tank.        The court found no

evidence that the water being sold to Appellants was ever contaminated or unsafe,

although it acknowledged that there was one incident when the water pressure briefly

dropped below 20 psi. The court found that Appellants had dropped their claims

regarding THM contamination.         The court determined that Appellants were

maintaining only their breach of contract claim based on the OEPA citations given to

East Liverpool during the term of the Agreement.         The court found that these

violations were for failure to monitor and were not due to actual unsafe or

contaminated conditions, and therefore, that the OEPA citations could not be used as

the basis for breach of contract claims.     The court also reviewed a number of
                                                                                -11-

complaints regarding lack of communication between East Liverpool and Appellants.

The court found that Appellants decided in 2002 to build a new water treatment plant,

and based on that decision, did not want to continue paying for water from East

Liverpool. The court found that Appellants received approval from OEPA to install an

emergency booster pumping station, but failed to inform OEPA that they would be

using this station on a regular basis to avoid purchasing water from East Liverpool.

The court found that Appellants terminated the Agreement on the same day that the

new booster pumping station was scheduled to go online. The court found that the

reasons given by Appellants for terminating the Agreement were pretexual, and

determined that many of Appellants’ witnesses were evasive, vague and less than

credible.

       {¶22} The court calculated damages based on the contract amount of

235,000 gallons per day at a rate of $5.13 per 1000 gallons prior to May of 2005, and

$5.64 per gallon after May, 2005. The court deducted electrical and chemical costs

avoided by East Liverpool. The court did not deduct any amount for labor costs

avoided. The court determined that East Liverpool’s lower labor costs were not a

result of the breach but due to the installation of labor-saving equipment. The court

awarded damages in three parts. The court awarded past damages from August of

2004 to March of 2007 in the amount of $1,136,352.39. The court awarded future

damages from April of 2007 to December of 2007 in the amount of $344,611.52. The

court awarded future damages from January of 2008 to December of 2025 in the

amount of $8,233,082.46. These figures were taken from Plaintiff’s exhibit 97. The

court did not apply the present value discount of 5.08%, also found on Plaintiff’s
                                                                                     -12-

exhibit 97, because it concluded that the discount would be offset by East Liverpool’s

right to increase its rates from year to year.       The total judgment awarded was

$9,714,046.37. A motion for prejudgment interest remained pending, and the court

denied the motion on April 30, 2008. This timely appeal followed.

                           ASSIGNMENT OF ERROR NO. 1

       {¶23} “THE TRIAL COURT ERRED IN FINDING THAT THE DEFENDANT-

APPELLANT WRONGFULLY REPUDIATED THE CONTRACT HEREIN.”

       {¶24} Appellants are actually arguing two basic errors under this assignment

of error. The first is based on the trial court’s interpretation of a number of aspects of

paragraph 5 of the Agreement, which states:

       {¶25} “5. The City will deliver the water to the County at a point 113 feet

beyond the valve at the Corporation line on Cartwright Street or other points

agreeable to both parties. The City will continue to maintain the availability of the

present volume and pressure of the water at Cartwright Street.”                (12/15/95

Agreement, p. 3, ¶5.)

       {¶26} Appellants maintained throughout this case that the delivery point for

determining “present volume and pressure” was the meter exiting their water tank on

Oakmont Avenue, rather than the meter going into the tank.             This is obviously

different than the delivery point established in the Agreement, which places the point

of delivery as 113 feet beyond the valve at the East Liverpool city line at Cartwright

Street. This point is before the water enters the tank on Oakmont Avenue. The tank

on Oakmont Avenue was a gravity feed tank, meaning that the only force creating

water pressure in the tank was the force of gravity. The water meter closest to the
                                                                                    -13-

delivery point specified in the Agreement was located just before the water entered

the Oakmont tank. Appellants would have us define the “delivery point” as the exit

point of the tank, because the water pressure exiting the tank was less than the

pressure of the water entering the tank. The water entering the tank was consistently

between 46 and 49 psi. The water exiting the tank was closer to 40 psi. It appears

that Appellants controlled the water pressure exiting the tank by controlling how much

water they released from the tank to their customers, but it has been their belief that

East Liverpool was somehow responsible for the lowered pressure at the point where

the water exited the tank.

       {¶27} It is clear that the Agreement enabled the parties to redefine the

delivery point to be at “points agreeable to both parties.” Appellants contend that

they had an unwritten agreement, or modification of the agreement, that set a

different delivery point for the water. They contend that this alternate delivery point

did not maintain a pressure of 49 psi and could not keep the Oakmont tank full of

water. Appellants have assumed that the parties also agreed to a water pressure of

at least 49 psi at this modified delivery point, but this number is not actually found in

the Agreement. Appellants’ assumption that East Liverpool promised to maintain a

pressure of 49 psi is not based on the Agreement, but rather, on supposed

assertions and comments made prior to the execution of the Agreement.               The

Agreement required East Liverpool to keep the pressure at the “present volume and

pressure of water,” meaning the volume and pressure at the time the contract was

signed and executed in December of 1995. According to East Liverpool records, in

1995 this pressure ranged from 46 to 49 psi at the point of entry into the tank. The
                                                                                  -14-

records of both East Liverpool and BWD show that the water pressure entering the

tank was maintained at or above 46-49 psi after 1995 as well.

       {¶28} Appellants contend that the trial court should have made the following

findings of fact and conclusions of law:

       {¶29} 1. The contract was not an integrated agreement, and any statements,

assertions, or assurances made prior to the signing of the Agreement were not

superseded by the terms of the written agreement.

       {¶30} 2. That East Liverpool made assurances about water pressure prior to

executing the contract, and these prior assurances are enforceable.

       {¶31} 3. The parties agreed that East Liverpool was to measure the water

pressure at the point where the water exited the Oakmont tank.

       {¶32} 4. The water pressure required by the contract was “present volume

and pressure,” which was at least 49 psi at the time the contract was executed.

       {¶33} 5.   The clause requiring written modifications of the contract is not

enforceable.

       {¶34} 6. The parties orally agreed to modify the delivery point.

       {¶35} Appellants must successfully establish that the trial court erred as to

each of these six factual and legal conclusions in order to establish reversible error

on appeal. We do not find any error in these matters.

       {¶36} First, the contract is, by its own terms, clearly an integrated contract.

Paragraph 11 of the contract states:
                                                                                  -15-

      {¶37} “This agreement shall supersede any and all prior agreements and

understandings between the parties hereto, to the full extent as if there had been no

such agreements or understandings.”

      {¶38} There is always a presumption that a written contract is an integration

of the parties’ complete agreement. This presumption is strongest when there is an

integration clause included in the contract itself. Fontbank Inc. v. CompuServe, Inc.

(2000), 138 Ohio App.3d 801, 808, 742 N.E.2d 674.

      {¶39} Further, when the language of the written instrument is clear and

unambiguous, the interpretation of the instrument is a matter of law. Davis v. Loopco

Indus., Inc. (1993), 66 Ohio St.3d 64, 66, 609 N.E.2d 144.

      {¶40} The basic principles of contract integration and the intent of the parties

subject to a written agreement have been repeated many times by the courts:

      {¶41} “In construing any written instrument, the primary and paramount

objective is to ascertain the intent of the parties. The general rule is that contracts

should be construed so as to give effect to the intention of the parties. Employers'

Liability Assurance Corp. v. Roehm (1919), 99 Ohio St. 343, 124 N.E. 223, 7 A.L.R.

182, syllabus; Skivolocki v. East Ohio Gas Co. (1974), 38 Ohio St.2d 244, 67 O.O.2d

321, 313 N.E.2d 374, paragraph one of the syllabus. Where the parties, following

negotiations, make mutual promises which thereafter are integrated into an

unambiguous written contract, duly signed by them, courts will give effect to the

parties' expressed intentions. Henderson-Achert Lithographic Co. v. John Shillito Co.

(1901), 64 Ohio St. 236, 252, 60 N.E. 295, 298. See, also, Charles A. Burton, Inc. v.

Durkee (1952), 158 Ohio St. 313, 49 O.O. 174, 109 N.E.2d 265. Intentions not
                                                                                       -16-

expressed in the writing are deemed to have no existence and may not be shown by

parol evidence. See Charles A. Burton, Inc., supra, at paragraph two of the syllabus;

Steel Sanitary Co. v. Pangborn Corp. (1930), 38 Ohio App. 65, 70, 9 Ohio Law Abs.

6, 8, 175 N.E. 615, 616-617. There can be no implied covenant in a contract in

relation to any matter that is specifically covered by the written terms of the contract.

Kachelmacher v. Laird (1915), 92 Ohio St. 324, 110 N.E. 933, paragraph one of the

syllabus.” Aultman Hosp. Assn. v. Comm. Mut. Ins. Co. (1989), 46 Ohio St.3d 51,

53-54, 544 N.E.2d 920.

          {¶42} Second, Appellants have failed to establish that the contract included

oral assurances about water pressure supposedly made prior to the execution of the

written agreement. Strangely, Appellants are attempting to rely on a letter from their

own consultant, MS Consultants, Inc., from November 15, 1995 (prior to the

execution of the Agreement) stating that East Liverpool could provide water pressure

at 49 psi. There simply is no evidence in the record that this letter was incorporated

into the Agreement or that East Liverpool bound itself by the terms of Appellants’

letter.

          {¶43} Third, the contract clearly establishes the delivery point of the water at a

location prior to the spot where the water enters the Oakmont tank. East Liverpool

provided documentary and oral evidence that the water pressure at the delivery point,

with a few minor exceptions (due to water main breaks and road repairs), was kept

between 46 psi and 49 psi both prior to and after the execution of the Agreement.

Therefore, we can only conclude that East Liverpool complied with the terms of the

Agreement.
                                                                                   -17-

       {¶44} Fourth, Appellants have failed to establish that the parties orally

modified the delivery point, or that the parties were permitted to orally modify some

other part of the Agreement. Paragraph 12 of the Agreement states:

       {¶45} “This agreement may be modified or amended by written instrument

executed in the same manner as this instrument.”

       {¶46} Appellants argue that the use of the word “may” in paragraph 12

permits written modification, but does not require modifications to be in writing.

Appellants argue that other types of modification, such as oral modifications or

modifications indicated by the conduct of the parties, are still permitted.

       {¶47} Appellants have found only one case supporting their conclusion, an

unreported federal district case from California.           Flores v. Jewels Mktg. &

Agribusiness (E.D.Cal.2007), 2007 U.S. Dist. LEXIS 53127. There are no cases in

Ohio reviewing the precise language used in the modification clause in this appeal.

Normally, the principle of expressio unius est exclusio alterius would apply, which

means that the expression in a contract of one or more things of a class implies

exclusion of all others not expressed. Uram v. Uram (1989), 65 Ohio App.3d 96, 98,

582 N.E.2d 1060. Thus, the expression that the contract may be modified in writing

implies the exclusion of all other types of modification.

       {¶48} Even if the contract could be modified orally, whether such a

modification had occurred would present a factual matter for the court to decide. In

essence, Appellants are challenging the manifest weight of the evidence, because

they disagree with the court’s factual findings that the parties did not agree to modify

the point of delivery. A reviewing court employs a very deferential standard when
                                                                                   -18-

reviewing the manifest weight of the evidence and generally defers to the factual

findings made by the trier of fact. Pioneer Gazebo, Inc. v. Buckeye Barns, Inc., 169

Ohio App.3d 667, 2006-Ohio-6672, 864 N.E.2d 147, ¶6. That is because the trier of

fact is in the best position to analyze witnesses and determine their credibility.

Seasons Coal Co. v. Cleveland (1984), 10 Ohio St.3d 77, 80, 461 N.E.2d 1273. A

judgment based upon some competent, credible evidence that speaks to all of the

material elements of the case will not be reversed as being against the manifest

weight of the evidence. C.E. Morris Co. v. Foley Const. Co. (1978), 54 Ohio St.2d

279, 376 N.E.2d 578, syllabus. It is apparent that the trial court did not believe

Appellants’ evidence regarding a supposed oral modification of the Agreement, and

we defer to the trial court’s conclusions in this matter.

       {¶49} Appellants further attempted to prove that there was some type of

industry standard defining the typical delivery point of water under a water service

agreement.     Once again, the court did not believe Appellants’ witnesses (and

specifically stated it did not in its judgment entry) and did not rely on evidence of an

industry standard to establish the delivery point of the water. Therefore, even if

Appellants are correct that the Agreement could be orally modified, the evidence did

not support that such a modification took place.

       {¶50} Appellants’ other main argument on appeal is that East Liverpool failed

to provide safe water, and thus breached the contract. Appellants argue that the

water contained unsafe levels of THMs, which are carcinogens. They contend that

unsafe levels of THMs were not an issue when the Agreement was executed in 1995.

It is unclear when the OEPA began requiring THM levels below 100 parts per billion,
                                                                                   -19-

but this level was maintained by East Liverpool prior to the more stringent standards

enacted by the OEPA in 2004. Appellants do not appear to contest the fact that East

Liverpool generally met the THM safety standards in its own water supply during the

course of the Agreement.       Appellants’ argument at trial was primarily that East

Liverpool’s water needed to be treated again with chlorine once it entered the

Oakmont tank, and it was this re-chlorination that caused Appellants’ water system to

have very high levels of THMs, particularly by the time the water reached the furthest

areas of the BWD water system.           Based on these circumstances, Appellants

attempted to attribute the high THM levels to East Liverpool.

         {¶51} Appellants attempt to establish reversible error regarding THM levels by

referring to a number of facts they believe were proven at trial.       In the factual

summary of their brief, Appellants assume that the following facts were proven at

trial:   1) the quality of the water that reached the Oakmont tank was poor and

required BWD to re-chlorinate the water; 2) East Liverpool was responsible for the

quality of BWD’s water as it exited the Oakmont tank; 3) East Liverpool failed to

communicate with Appellants regarding plans to meet new OEPA standards; 4) East

Liverpool’s records did not adequately reflect true THM levels in the water system; 5)

East Liverpool failed to properly monitor its water, and was cited 13 times by the

OEPA for failure to monitor; and 6) the OEPA citations themselves constituted a

breach of contract.

         {¶52} Appellants do not apply these facts to any recognizable argument in

their brief. It appears that Appellants are continuing on appeal a line of argument

raised at trial about water quality and THM levels, even though this analysis was not
                                                                                    -20-

properly included in Appellants’ proposed findings of fact and conclusions of law as

submitted to the trial court. We agree with the trial court that Appellants’ proposed

findings and fact and conclusions of law rely on OEPA citations alone, rather than

THM levels, to establish East Liverpool’s alleged breach of contract. We also agree

that the OEPA did not cite East Liverpool for poor water quality, but rather, for failure

to consistently monitor, and that such citations in and of themselves do not indicate

the quality of the water.       The record reflects that Appellants’ own expert, Beth

Darnell, agreed that East Liverpool satisfied the OEPA standards for THMs both

before and after the regulatory changes in 2004. (Tr., Vol. 5, pp. 275-276.) Since

neither the OEPA citations, nor the specific evidence in the record about THMs,

prove that the water as delivered to Appellants had excessive THM levels, there is no

basis for concluding that East Liverpool breached the contract due to contamination

by THMs. Finally, as we have already mentioned, the trial court was not inclined to

believe much of Appellant’s evidence, and we, as a reviewing court, generally defer

to the factual findings of the trier of fact.

       {¶53} Appellants’ arguments are not convincing, and their first assignment of

error is overruled.

                          ASSIGNMENTS OF ERROR NO. 2 & 3

       {¶54} “THE TRIAL COURT ERRED IN FINDING LOST PROFIT DAMAGES

AGAINST DEFENDANT-APPELLANT BUCKEYE WATER DISTRICT.”

       {¶55} “THE TRIAL COURT ERRED IN AWARDING FUTURE LOST

PROFITS IN THE AMOUNT OF $8,233,082.46.”
                                                                                       -21-

       {¶56} These two assignments of error both deal with the question of damages

for lost profits, and will be treated together.

       {¶57} Appellants first argue that one political subdivision cannot sue another

political subdivision for lost profits. This is a purely legal question that is reviewed de

novo on appeal. Ohio Bell Tel. Co. v. Pub. Util. Comm. (1992), 64 Ohio St.3d 145,

147, 593 N.E.2d 286.

       {¶58} It is a fairly common occurrence for one political entity to sue another

political entity over a dispute regarding water. Hudson v. Summit Cty., 97 Ohio St.3d

296, 2002-Ohio-6507, 779 N.E.2d 758; Richmond Hts. v. Cleveland (1995), 107 Ohio

App.3d 378, 668 N.E.2d 991; Bd. of Cty. Commrs. of Wood Cty. v. City of Toledo

(Sept. 24, 1993), 6th Dist. No. 92WD086; City of Middletown v. Bd. of Cty. Commrs.

of Butler County (Sept. 16, 1992), 12th Dist. No. CA 91-06-113; Village of Plymouth

v. City of Willard (1988), 47 Ohio App.3d 46, 546 N.E.2d 1372. This Court itself has

had a number of cases involving one political subdivision suing another political

subdivision in order to obtain the full benefit of the bargain in a water contract

dispute. See, e.g., Jefferson Cty. Bd. of Commrs. v. Smithfield, 7th Dist. No. 05-JE-

38, 2006-Ohio-6242; Steubenville v. Wintersville, 168 Ohio App.3d 430, 2006-Ohio-

4381, 860 N.E.2d 797.        Furthermore, the Ohio Supreme Court has affirmed the

principle that a municipality is entitled to recover the full benefit of its bargain when it

enters into water contracts outside the municipality and when that contract is later

breached. Fairway Manor, Inc. v. Bd. of Commrs. of Summit Cty. (1988), 36 Ohio

St.3d 85, 90, 521 N.E.2d 818.
                                                                                   -22-

       {¶59} In none of these cases has it ever been questioned that the political

subdivision was entitled to the full benefit of its bargain, whether or not that bargain

included some measure of profit. For example, in the Smithfield case, Jefferson

County was suing the Village of Smithfield for the full amount of the agreed upon

water rate because Smithfield had simply stopped paying for the water. Smithfield

had agreed to pay $3.00 per 1000 gallons under an oral agreement with Jefferson

County. At trial, the Village of Smithfield argued that the rate was only $2.00 per

1000 gallons, but the trial court held in favor of Jefferson County and awarded

damages of $267,354.24 plus interest.        We upheld the judgment of trial court,

agreeing that Jefferson County was entitled to the full benefit of its bargain of $3.00

per 1000 gallons, even though the water supply agreement had not been reduced to

writing.

       {¶60} Appellants have pointed to one case to support their view that a political

entity cannot obtain lost profit damages from another political entity. In Cementech,

Inc. v. City of Fairlawn, 109 Ohio St.3d 475, 2006-Ohio-2991, 849 N.E.2d 24, an

unsuccessful bidder for a road construction contract sued the City of Fairlawn for

injunctive relief and damages for improperly disqualifying its bid.     The trial court

denied injunctive relief and the contract was awarded to the lowest bidder. The trial

court determined before trial that Cementech could recover its cost of bid

preparations, but nothing more, should it prevail on its claims of violations of the

competitive bidding process. The jury found in favor of Cementech but only awarded

the cost of bid preparations as damages.        The Ninth District Court of Appeals

reversed the trial court and allowed Cementech to receive additional damages for lost
                                                                                     -23-

profits. The case then proceeded to the Ohio Supreme Court as a conflict case on

the following question: “Does the availability of injunctive relief if timely filed but

denied preclude an award of lost profits in a municipal contract case?” Id. at ¶8.

       {¶61} Before discussing the reasoning or disposition of the Cementech case,

it should already be clear that it is inapposite to the instant appeal.        First, the

Cementech case involved a private contractor suing a political subdivision, not two

political subdivisions in a contract dispute with each other.        Second, the case

involved the very specific area of law surrounding competitive bidding for government

contracts, which has nothing to do with the facts of the instant appeal. Third, the

question under review was whether the remedy of injunctive relief was an adequate

remedy for the contractor whose bid had been wrongly rejected. The Supreme Court

determined that injunctive relief was the only relief available to a wronged bidder to

insure that public contracts are awarded fairly and according to law. Id. at ¶10. The

instant appeal has nothing to do with injunctive relief or the availability of injunctive

relief as an alternative or adequate remedy.

       {¶62} Cementech held that the bidder could not recover lost profit damages

after it had failed to appeal the denial of its motion for injunctive relief. The Court

rejected the idea that denying lost profit damages would allow government entities to

ignore state and local laws governing competitive bidding. The Court reasoned that

forcing municipalities and governmental entities to pay lost profit damages to

unsuccessful bidders would, in effect, punish the citizens and the general public, and

those were the people who were supposed to be protected by the competitive

bidding laws in the first place. Id. at ¶12. The final holding of the case is as follows:
                                                                                   -24-

“[W]e hold that when a municipality violates competitive-bidding laws in awarding a

competitively bid project, the rejected bidder cannot recover its lost profits as

damages.” Id. at ¶14.

       {¶63} Cementech has little or no application to the instant appeal.         East

Liverpool is not a private entity suing a government entity. This case involves two

public entities in a dispute over a long-term water contract. Appellants are rightfully

concerned about protecting the rights of the citizens who are affected by the

implementation, interpretation, and breach of the water supply Agreement. We must

also keep in mind that it is not only BWD’s customers that are affected by this case.

The rights of the citizens of East Liverpool should also be taken into account. East

Liverpool’s citizens have an interest in recovering the value of the water contract duly

authorized by its elected officials. There is no particular reason why the interests of

the citizens represented by the Board of County Commissioners or by BWD should

take precedence over the interests of the citizens of East Liverpool. The Cementech

case, a dispute between a private contractor and a government entity, presents no

dispositive principles of law that can be applied to the instant appeal.

       {¶64} Appellants continue their argument with the notion that the parties did

not contemplate damages in the form of lost profits. This argument is not persuasive.

Nothing in the Agreement precludes East Liverpool from being awarded any type of

damages that would normally arise in a breach of contract case. “Damages for a

breach of contract are those which are the natural or probable consequence of the

breach of contract or damages resulting from the breach that were within the

contemplation of both parties at the time of the making of the contract.” The Toledo
                                                                                     -25-

Group, Inc. v. Benton Industries, Inc. (1993), 87 Ohio App.3d 798, 806, 623 N.E.2d

205.

       {¶65} Unless the contract dictates otherwise, the non-breaching party is

entitled to recover as damages, “the contract price for full performance reduced only

by the amount that defendant's breach saved plaintiff, i.e., the value to plaintiff of the

relief from full performance.” Channel Dry, Inc. v. Haver (1990), 70 Ohio App.3d 197,

203, 590 N.E.2d 868. The amount of the non-breaching party’s cost savings to be

deducted from the contract price does not include that party’s ongoing and fixed

overhead costs. Digital & Analog Design Corp. v. North Supply Co. (1989), 44 Ohio

St.3d 36, 40-41, 540 N.E.2d 1358. “[W]here there would have been no additional

costs to the party to generate those profits which he lost, or where he was in fact not

relieved from the particular costs which constituted his ongoing and fixed overhead

costs, then he need only assert and prove such circumstances.” Id. at 41.

       {¶66} Since the law of Ohio is that a party may recover the full benefit of the

bargain, less costs saved from being relieved of performance, that law became part

of the underlying assumptions of the Agreement. Therefore, there is no basis for

Appellants to argue that lost profits were not contemplated by the parties when they

signed the agreement. The parties contemplated that ordinary contract law would

govern the interpretation of the Agreement, and ordinary contract law allows for lost

profits.

       {¶67} Appellants also challenge the trial court’s factual determinations as to

what expenses should have been deducted from the contract price to determine

damages. Appellants contend that East Liverpool’s expenses must have been much
                                                                                      -26-

greater than the amounts submitted by East Liverpool. It is clear from the record that

the trial judge was not inclined to believe Appellants’ evidence of costs saved due to

the breach. The trial court specifically noted, “the lack of credibility displayed by

many of the Water District’s witnesses.” (Emphasis omitted.) (2/13/08 J.E., p. 11.)

       {¶68} East Liverpool provided evidence that it saved electrical and chemical

costs of $79,585.48 for the period between July of 2004 and December of 2007.

This amount was deducted from the damages award. East Liverpool also calculated

that $28,377.53 should be deducted each year of future damages for these same

saved expenses. These costs were also deducted. Appellants claim that the court

should also have deducted an additional $289,343.98 annually because of reduced

labor costs due to layoffs. Appellants contend that these layoffs were due to their

beach of contract. The court determined that East Liverpool had installed a gear

switch to automate the work done by the laborers who had been laid off. The court

attributed the layoffs as due to automation upgrades and not due to Appellants’

breach of the contract. The record supports the calculations and deductions taken by

the trial court, and there is no basis for overturning the court’s factual determinations.

       {¶69} Appellants mention in passing that the Agreement entitled them to a

20% discount in any future damages award because the Agreement allows them to

deduct up to 20% of unbilled water as lost water. This statement is not quite correct.

Although the Agreement does allow for a deduction of up to 20% in water that

registered at the main water meter but was not actually billed to Appellants’

customers, i.e., lost water, that provision does not negate the requirement that

Appellants purchase at least 235,000 gallons of water per day. As is shown by
                                                                                     -27-

attachment “A” to the Agreement, the 20% deduction only applied after Appellants

had met their 235,000 gallon daily minimum. Since the damage award is only for the

minimum 235,000 gallons per day, the 20% deduction would not apply.

       {¶70} Appellants present us with a series of calculations and conclude that

East Liverpool had an annual savings of $192,067.73. Appellants contend that this

amount should also have been deducted from the damage award. This figure is

supposedly derived from testimony given by Robert Disch, the East Liverpool Utilities

Director. It is difficult to decipher the assumptions built into Appellants’ calculations.

What is clear is that any factual underpinnings supporting Appellants’ calculations

were not accepted by the trial court. The trial court, as the trier of fact, examined

East Liverpool’s expenses and determined that electrical and chemical costs were

valid cost savings and should be deducted from the damages award.                    It is

inconsequential that Appellants believe that other facts were clearly established at

trial. The trial judge was the trier of fact, and the trial judge came to very different

factual conclusions than those proposed by Appellants. A reviewing court normally

defers to the factual findings of the trier of fact when there is some competent,

credible evidence to support those findings. C.E. Morris Co. v. Foley Const. Co.,

supra, 54 Ohio St.2d 279, 376 N.E.2d 578, syllabus. The extensive record of this

case, arising out of a lengthy trial spread out over four months, contains ample

evidence to support the trial court’s findings and verdict.

       {¶71} Appellants also argue that the rate East Liverpool was charging for

water was unconscionable. Appellants believe East Liverpool raised its rates by

23%, and then again by 10%, in retaliation for the expected loss of revenue from
                                                                                     -28-

BWD. As we will discuss below, Appellants are undoubtedly correct to some extent,

but this does not make the rate hikes unconscionable under the terms of the

Agreement. The Agreement does not require East Liverpool to explain or justify its

rate increases. The Agreement does not prohibit East Liverpool from adjusting its

rates based on changes in the overall volume of water that it is selling. The fact that

the rate being charged to BWD is the same rate being charged to East Liverpool’s

own residents also negates any claim of unconscionability. The Agreement allows

East Liverpool to raise its rates, and thus, rate increases are part of the benefit of the

bargain in this case.

         {¶72} Appellants also argue that lost profits are too speculative in this case to

be awarded. Lost profits must be demonstrated with reasonable certainty in a breach

of contract case, and speculative damages are not recoverable.               Gahanna v.

Eastgate Properties, Inc. (1988), 36 Ohio St.3d 65, 68, 521 N.E.2d 814. This case,

though, does not involve a calculation of speculative lost profits. This case is based

on a contract price for water that is defined in the contract. The volume of water is

defined. The price is defined, or at least calculable with relative ease. There is no

need to speculate about lost profits when the contract price is made explicit in the

contract.    East Liverpool has never attempted to recover speculative lost profit

damages. It has, from the beginning of this case, claimed as damages the contract

price for full performance, less costs saved, as defined in Channel Dry, Inc. v. Haver,

supra.
                                                                                   -29-

      {¶73} We have found no error in the award of lost profits damages or in the

calculations used to deduct East Liverpool’s cost savings arising from the breach.

Therefore, we overrule Appellants’ second assignment of error.

      {¶74} Appellants’ final argument is that the trial court should have taken future

inflation into account and should have reduced the future damages to present value.

Appellants assert that the trial court should not have considered East Liverpool’s right

to raise water rates from year to year as the determinative factor in offsetting the

discount rate with presumed future inflation. Appellants cite Galayda v. Lake Hosp.

Sys., Inc. (1994), 71 Ohio St.3d 421, 425, 644 N.E.2d 298, in support of their

argument.

      {¶75} We agree with Appellants that the future damages award should have

been reduced to current value. The Ohio Supreme Court, in Galayda, has held:

      {¶76} “In Ohio, a plaintiff is entitled to an award of damages to compensate

him for losses which he is reasonably certain to incur in the future. Pennsylvania Co.

v. Files (1901), 65 Ohio St. 403, 407, 62 N.E. 1047, 1047; Roberts v. Mut. Mfg. &

Supply Co. (1984), 16 Ohio App.3d 324, 16 OBR 355, 475 N.E.2d 797. Under the

common law of Ohio, future damages must be reduced to present value, and a

defendant is entitled to a jury instruction to that effect. Maus v. New York, Chicago &

St. Louis RR. Co. (1956), 165 Ohio St. 281, 59 O.O. 366, 135 N.E.2d 253, paragraph

one of the syllabus. Thus in Ohio, a jury is to return a verdict not in an amount

reflecting the actual damages it deems to be reasonably certain to occur in the future,

but rather in a reduced amount representing the present value of those actual

damages.” Galayda, supra, 71 Ohio St.3d at 425, 644 N.E.2d 298.
                                                                                    -30-

       {¶77} The purpose of reducing an award to present value is to fairly (rather

than excessively) compensate the prevailing party now for losses that are anticipated

to take place in future. “ ‘It is self-evident that a given sum of money in hand is worth

more than the like sum of money payable in the future.’ ” St. Louis Southwestern Ry.

Co. v. Dickerson (1985), 470 U.S. 409, 412, 105 S.Ct. 1347, quoting Chesapeake &

Ohio R. Co. v. Kelly (1916), 241 U.S. 485, 36 S.Ct. 630, 60 L.Ed. 1117. Failure to

account for the difference between the present and the future value of the money

being awarded is, in essence, awarding a court-sanctioned windfall to the plaintiff.

“[I]f the award is to compensate for a loss of profits projected over 10 years, the

amount should be that which, if invested for 10 years at appropriate (probably

conservative) rates of return, would produce the amount of the loss. An award today

of the amount that would be earned 10 years hence will give plaintiff more than is

necessary to make plaintiff whole.” R. Dunn, Recovery of Damages for Lost Profits

5th (1998) 501-502, Section 6.25.

       {¶78} The calculation of the present value of a future award is generally left to

the province of the trier of fact. Sahrbacker v. Lucerne Products, Inc. (1990), 52 Ohio

St.3d 179, 179, 556 N.E.2d 497. The failure of a party to present evidence of present

value does not remove the question from the trier of fact. Id. In this case, East

Liverpool proposed that the trial court apply a 5.08% discount rates based on the

current rates being earned on 10-year United States Treasury notes. The rate of

return on a 10-year Treasury note is considered to be a conservative, risk-free

discount rate for reducing future damages to current value. R. Dunn, Recovery of

Damages for Lost Profits 5th (2005 Supplement) 191, Section 6.25.
                                                                                   -31-

      {¶79} The trial court stated that it would not apply a present value discount

because this amount would be offset by East Liverpool’s contractual right to raise

water rates.   The trial court appears to be concluding that East Liverpool would

periodically raise its water rates over the remaining years of the Agreement to keep

up with general economic inflation, and that these increases would offset the effect of

applying a 5.08% discount rate to the future damages award. The trier of fact may

take into account the full effects of inflation when attempting to reduce a future award

to present value. Burlington Group, Inc. v. Chardon Lakes Inn Restaurant, Inc. (Mar.

24, 1995), 11th Dist. No. 94-G-1839.; see, also, Webster v. Oglebay Norton Co. (Jan.

26, 1995), 8th Dist. No. 65502. Nevertheless, there are a number of problems with

the trial court’s conclusion. First and foremost is the directive from the Ohio Supreme

Court in Galayda that future damages must be reduced to present value. Unless

there was some compelling reason to do otherwise, the trial court was bound to apply

the holding of an Ohio Supreme Court case that was directly on point regarding the

reduction of future damages to present value.

      {¶80} Second, there was no specific evidence admitted at trial designed to

establish a value for inflation with respect to future damages. The record contains

evidence reflecting the actual rate hikes instituted by East Liverpool in the past, but

there was no evidence that these rate hikes had anything to do with general

economic inflation or that they reflected anticipated future inflation.    We are not

inclined to ignore or distinguish the holding of an Ohio Supreme Court case based on

a vague and unsupported assumption about future inflation rates.
                                                                                   -32-

       {¶81} Third, it is generally accepted that the process of reducing future

damages to current value takes into account much more than the general effect of

inflation on the future value of money.      The United States Supreme Court has

reasoned that: “[E]ven in an inflation-free economy the award of damages to replace

the lost stream of income cannot be computed simply by totaling up the sum of the

periodic payments. For the damages award is paid in a lump sum at the conclusion

of the litigation, and when it-or even a part of it-is invested, it will earn additional

money.” Jones & Laughlin Steel Corp. v. Pfeifer (1983), 462 U.S. 523, 536, 103

S.Ct. 2541, 76 L.Ed.2d 768. Thus, even if we assume that East Liverpool’s water

rates will keep up with inflation, the future damages award would still need to be

reduced to present value to account for the investment value of those dollars.

       {¶82} Fourth, the trial court’s assumption that water rates would rise at an

inflationary rate equal to the proposed 5.08% discount rate fails to account for other

aspects of inflation. One would expect that inflation would also affect the expenses

East Liverpool incurs in obtaining, processing and delivering its water.         These

expenses would normally be deducted from any future damages award. Inflation

would affect the wages of East Liverpool’s employees, the costs of capital

improvements, the costs of materials involved in processing the water passing

through East Liverpool’s water treatment system, etc. One would expect that the

inflationary effects of increased income from higher water rates would be offset by

these increased expenses, thereby eliminating the need to make any adjustment to

the discount rate at all due to inflation.
                                                                                   -33-

       {¶83} Fifth, the record reveals that East Liverpool instituted substantial rate

hikes well after the conflict had arisen with Appellants and after they filed their

complaint.   The dispute between the parties intensified in 2002 with Appellants’

various complaints about water pressure. The dispute came to a turning point on

March 21, 2003, when BWD served notice that it considered East Liverpool to be in

breach of the Agreement.         Then, on September 24, 2003, BWD notified East

Liverpool that it was going to be using alternative sources for its water. As a result,

on November 20, 2003, East Liverpool raised the water rates from $4.18 to $5.13.

East Liverpool filed its contract complaint on May 19, 2005. It subsequently raised its

rates again May 31, 2005, from $5.13 to $5.64. Thus, from 2003 to 2005, East

Liverpool raised its rates by $1.46, constituting a 35% increase. These two major

rate increases took place after it became clear that Appellants did not intend to abide

by the terms of the Agreement and would no longer be purchasing water from East

Liverpool. Although we have concluded that the rate hikes were not unconscionable

or prohibited by the Agreement, they are integrally related to the dispute between the

parties and must be treated as a factor in computing damages. It would appear that

East Liverpool has already taken future inflation into account by drastically increasing

their rates prior to the resolution of this contract dispute.

       {¶84} The long-term nature of the Agreement presents an additional reason to

reduce the award to present value. Future damages in long-term contracts present a

particular set of problems for the courts. “Most courts considering a claim of lost

profits damages arising from a long-term contract have reduced the term for which

damages may be recovered.” R. Dunn, Recovery of Damages for Lost Profits 5th
                                                                                 -34-

(1998) 488, Section 6.19.      Perhaps the most extreme example of a plaintiff

attempting to receive long-term breach of contract damages can be found in Palmer

v. Connecticut Railway & Lighting Co. (1941), 311 U.S. 544, 61 S.Ct. 379, 85 L.Ed.

336. In Palmer, a lessor of railway property sought breach of contract damages for

969 years remaining on a 999-year lease. The plaintiff conceded at trial that any

evidence of value beyond 40 years would be “too uncertain.” Id. at 552, 61 S.Ct.

379, 85 L.Ed. 336. The plaintiff presented evidence that their damages over 40

years would be approximately $20 million. Id. This amount had been reduced to

present value by applying a four per cent discount rate. The United States Supreme

Court rejected the plaintiff’s calculations and only approved of damages of $4.4

million extending eight years into the future. No particular rationale was given as to

why eight years was an acceptable length for future damages as opposed to 20 or 30

or 40 years. It is interesting to note that the Palmer Court rejected long-term future

damages even with the application of a four per cent discount rate. In the instant

case, the trial court awarded future damages for the 18 remaining years of a 25-year

contract, and failed to apply a discount rate to reduce the future damages to present

value. This juxtaposition of long-term damages and failure to apply a discount rate is

a troublesome combination and reinforces our conclusion that we should strictly

follow the basic principle outlined in Galayda in this particular case and apply a

5.08% discount rate to the future damages award.

      {¶85} Hence, we find merit in Appellants’ third assignment of error, and we

will modify the judgment to take into account a 5.08% discount rate.
                                                                                  -35-

      {¶86} In conclusion, we find that Appellants have raised essentially two errors

on appeal. The first is a challenge to the trial court’s conclusion that East Liverpool

did not breach the water supply agreement. The record reflects that East Liverpool

provided adequate volume and pressure of water to the Oakmont water tank. The

record also reflects that East Liverpool delivered potable water to Appellants that met

OEPA standards. East Liverpool did not breach the Agreement, and thus, it was

entitled to receive damages for Appellants’ breach. The second challenge to the

judgment was the issue of the calculation of damages. Appellants did not establish

any error with respect to the expenses deducted from the damages award, or with

respect to the calculation of future damages. We do find reversible error in the trial

court’s decision not to apply a discount rate to reduce the future damages to present

value. Taking into account a variety of factors, including an express holding by the

Ohio Supreme Court in Galayda, the lack of evidence of future inflationary effects,

the failure to account for all aspects of inflation, the dramatic increases in East

Liverpool’s water rates starting in 2003, and the fact that the Agreement in question

was a long-term contract, we conclude that the trial court should have reduced the

future damages award to present value. East Liverpool proposed a discount rate of

5.08% to reduce the award to present value, and this is the rate that should have

been applied. The trial court’s judgment is hereby modified to reflect the application

of a 5.08% discount rate.      Past net damages are affirmed in the amount of

$1,136,352.39. This includes damages for the period from August 2004 through

March 2007. Future net damages, after applying a 5.08% discount rate as described

in Plaintiff’s exhibit 97, are modified to $3,706,400.60. This includes the period from
                                                                        -36-

April 2007 to December 2025. The total amount of the judgment is modified to

$4,842,752.99.


Donofrio, J., concurs.

DeGenaro, J., concurs.
