II.
In his first four issues,
Mood asserts the trial court erred in disregarding the jury's answers to questions 3, 5, and 6. A trial court may disregard a
jury finding that has no support in the evidence. See Tex. R. Civ. P.
301; Tiller v. McLure, 121 S.W.3d 709, 713 (Tex. 2003). In determining
whether there is no evidence to support the jury verdict, we examine the
evidence in the light most favorable to the verdict, crediting favorable
evidence if reasonable jurors could have done so and disregarding contrary
evidence unless reasonable jurors could not have done so. City of Keller v.
Wilson, 168 S.W.3d 802, 827 (Tex. 2005).
In response to question
3, the jury awarded Mood $30,000 in lost profits for Kronos's actions in selling Central Gyros brand products to Dan's, a
breach of the distributorship agreement to which Kronos stipulated at the
beginning of trial. Mood does not dispute that there was no expert testimony or
other evidence that provided a definite lost profit figure or a specific
calculation for this breach. Rather, Mood contends the following evidence
enabled the jury to derive its own calculation for lost profits and arrive at
the $30,000 figure: (1) invoices dated August 2003 through March 2005 from
Kronos to Dan's, (2) evidence that Mood averaged about $255,762 per year in
gross sales to Dan's, (3) Mood's general assertion that he usually operated on a
gross profit margin of twenty percent, and (4) Mood's expert witness's
acknowledgment that Mood told him eighty percent of his sales were from Central
Gyros brand products.
The invoices from Kronos
to Dan's do not support the jury figure as there was no evidence that Mood and Kronos were selling the same Central Gyros
brand items to Dan's at the same volume or at the same pricing scale. In any
event, Kronos's gross sales to Dan's, as reflected in the invoices, are no
evidence of Mood's lost profits from Kronos's admitted breach. Mood's reliance
on the $255,762 annual sales figure to Dan's is similarly misplaced. Kronos's
counsel mentioned this figure during his cross-examination of Mood's damages
expert Harrison Payne. Apparently, counsel's staff derived the figure from
Mood's invoices to Dan's that Mood provided to Kronos. Payne acknowledged he had
not reviewed these invoices. Counsel simply asked Payne to assume the $255,762
figure was correct for a hypothetical question that followed. Thus, this figure
was no evidence to support the jury's lost profit award in question
3.
Finally, Mood's general
statement that the company operated on a twenty percent gross margin from 1990 through 2004 and evidence that eighty
percent of his overall sales came from Central Gyros brand products do not
support the jury award because there was no evidence that Mood's sales to Dan's
were similar to his overall sales percentages for Central brand products or that
his gross margin on Central brand products to Dan's, or anyone one else, was
twenty percent. Thus, there was no evidence from which the jury could calculate
Mood's lost profits as a result of Kronos's sale of Central brand products to
Dan's. See Holt Atherton Indus. v. Heine, 835 S.W.2d 80, 85 (Tex. 1992).
Because there is no evidence to support the jury's $30,000 award, the trial
court did not err in disregarding the jury's answer to question number
3.
Mood also challenges the
trial court's ruling disregarding the jury's $550,000 award in question 5 for Kronos's failure to comply with the
distributorship agreement's sixty-day notice provision. Question 5 instructed
the jury to consider as the only element of damages lost profits that were the
natural, probable, and foreseeable consequence of Kronos's failure to give
notice.
Generally, the measure of
damages for breach of contract is that which restores the injured party to the economic position he would have enjoyed if the
contract had been performed. Sava Gumarska v. Advanced Polymer Sciences,
Inc., 128 S.W.3d 304, 317 n.6 (Tex. App.-Dallas 2004, no pet.). This
measure may include reasonably certain lost profits. See Cmty. Dev. Serv.,
Inc. v. Replacement Parts Mfg., Inc., 679 S.W.2d 721, 725 (Tex. App.-Houston
[1st Dist.] 1984, no writ.) Lost profits are damages for the loss of net income
to a business. Miga v. Jensen, 96 S.W.3d 207, 213 (Tex. 2002). Lost
profits may be in the form of direct damages, that is, profits lost on the
contract itself, or in the form of consequential damages, such as profits lost
on other contracts or relationships resulting from the breach. See
Continental Holdings, Ltd. v. Leahy, 132 S.W.3d 471, 475 (Tex. App.-Eastland
2003, no pet.). But regardless of whether the lost profits are characterized as
direct or consequential damages, the amount of the loss must be shown by
competent evidence with reasonable certainty, be based on objective facts,
figures, or data, and be predicated on one complete calculation. See
Holt, 835 S.W.2d at 84. The injured party must do more than show that they
suffered some lost profits. See Szczepanik v. First Southern Trust Co.,
883 S.W.2d 648, 649 (Tex. 1994). Finally, consequential damages may not be
recovered unless they are foreseeable and traceable to the wrongful act and
result from it. See Stuart v. Bayless, 964 S.W.2d 920, 921 (Tex.
1998).
Payne, the damages
expert, provided the only testimony on the lost profits Mood sustained as a result of Kronos's failure to provide the sixty-day
notice. Payne indicated that Mood asked him to prepare an economic damages model
assuming the wrongful termination of the distributorship agreement. Using
financial data from previous tax returns, Payne created a damage model using
Mood's overall profits and growth rate from 1994 through 2002 to predict the
amount of profits Mood lost for the next ten years as a result of Kronos's
termination of the distributorship without the sixty-day notice. Specifically,
Payne relied on Mood's 2002 pre-tax net income at a six percent profit margin
for a starting point and applied a three percent annual growth rate to project
Mood's expected profits from 2004 through 2013 had the breach not occurred. To
predict profits through 2013 with the breach, Payne used a “discrete revenue
forecast” provided by Mood through 2010 with an annual growth rate of 3 percent
through 2013. Payne then applied a seventeen percent discount rate to the annual
figures. He noted the discount rate reflected a number of unknowns and
variables, including how many customers would have migrated with Mood had he
been given the sixty-day notice and the fact that not all of Mood's sales were
subject to the distributorship agreement. After subtracting the predicted
non-breach pre-tax income from the forecasted post- breach pre-tax income, Payne
opined that but for Kronos's wrongful termination without notice, Mood would
have earned about $1.1 million in profits from January 1, 2004 continuing
through 2014.
In the trial court and on
appeal, Kronos asserts the jury's $550,000 award must be disregarded because Mood's lost profits were limited, as a matter
of law, to sixty days in accordance with the notice of termination provision.
The company additionally argues that Payne's testimony was speculative and not
based on objective data. Finally, Kronos contends that because the only evidence
of lost profits was a projected ten-year calculation beginning in 2004, there
was no evidence to support an appropriate damage calculation that would have
been the amount of profits Mood lost during the sixty days immediately following
Kronos's termination of the agreement.
Mood concedes his direct damages
for breach of the notice provision are limited to profits he lost as Kronos's
sole distributor in the exclusive territory for the sixty-day notice period. He
argues, however, that his recovery of consequential damages in the form of lost
profits is not so limited. We agree with Mood that the termination notice period
itself does not necessarily set the limits of damages in this type of case. For
instance, a termination in violation of a notice provision could have a severe
impact on the continuation of a well-established business and might include the
loss of customer goodwill or damaged customer relationships. The damage evidence
here, however, does not support consequential damages in the form of lost
profits as awarded by the jury.
Payne's future lost
profits calculation was based on historical financial data and sales figures from the period when the distributorship
agreement was in place. It did not differentiate between profits lost as
Kronos's sole distributor in the exclusive territory during the sixty-day notice
period (direct damages) and those lost from other contracts or damaged business
relationships (consequential damages). Instead, Payne's lost profit analysis
simply predicted what profits would have been for the next ten years based on
what sales had been while the distribution contract was in effect and then
subtracted from that figure the amount of profits Mood anticipated after the
breach. Payne reduced the figures to present day value using a conservative
discount rate of seventeen percent. As such, his lost profits analysis
necessarily included lost sales resulting from the termination of the underlying
distribution agreement and was not limited to the lost profits resulting from
the inadequate notice. Put another way, his analysis did not specifically
address the economic impact of the summary termination of the distributorship
agreement. Payne assumed that Mood's profits would have continued as they had
been, even after the distribution agreement was terminated, so long as Mood had
the requisite sixty-day notice. This assumption, however, is nothing more than
speculation with no support in the evidence. He made no computations with
respect to consequential damages incurred at the time of breach, such as loss in
value of the business as a going concern due to customer goodwill. Because
Payne's lost profit analysis was based on figures that assumed ten years of
profits given the continuance of the distributorship agreement, his damage model
is no evidence of either direct or consequential lost profits that Mood suffered
as a result of Kronos's violation of the sixty-day notice provision.
Accordingly, the trial court did not err in disregarding the jury's lost profit
award.
In his fourth issue, Mood
asserts the trial court erred in disregarding the jury's answer to question 6, which awarded Mood attorney's fees.
Mood sought attorney's fees pursuant to chapter 38 of the Texas Civil Practice
and Remedies Code. Tex. Civ. Prac. & Rem. Code Ann. § 38.001 et seq. (Vernon
1997). Because Mood was not a prevailing party on any of his claims, he was not
entitled to recover attorney's fees. See Green Int'l, Inc. v. Solis, 951
S.W.2d 384, 390 (Tex. 1997). We resolve Mood's fourth issue against
him.
Our conclusion that
Mood's damage evidence was legally insufficient to support an award for Kronos's breach of the termination notice provision
makes it unnecessary to address Mood's fifth issue and Kronos's conditional
cross-issue, which address the propriety of the trial court's failure to
disregard the jury finding that Kronos breached the contract by failing to
provide the required sixty-day notice prior to termination.
We affirm the
trial court's judgment.
JOSEPH B.
MORRIS
JUSTICE
060111F.P05
File Date[11/28/2007]
File Name[060111F]
File
Locator[11/28/2007-060111F]