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Edmunds v. Sanders - 2 S.W.3d 697 (Tex. App. 1999)

Rule:

Recovery for lost profits does not require that the loss be susceptible of exact calculation, however, the injured party must do more than show that they suffered some lost profits. The amount of the loss must be shown by competent evidence with reasonable certainty. What constitutes reasonably certain evidence of lost profits is a fact intensive determination. As a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained. A plaintiff must demonstrate one complete calculation of lost profits. Moreover, to recover lost profits, a party must show either a history of profitability or the actual existence of future contracts from which lost profits can be calculated with reasonable certainty. The correct measure of damages for lost profits is net profits. 

Facts:

Anthony Hilary Foster ("Foster") performed tool-and-die work in Mississippi. He had been in such business for about 25 years. In 1987, Foster approached Bill Sanders ("Sanders"), Appellee, who operated a tool-and-die and plastic injection molding business in Destin, Florida, to discuss opening such a business in El Paso. Sanders was the owner and operator of a successful tool-and-die and plastic injection molding business in Florida. Sanders, seeing the potential of such a venture, traveled to El Paso for the purpose of setting up the business and finding a location for the shop. On December 8, 1987, he leased a location at the Gateway Business Park on Gateway East. The space was leased from Commerce Gateway Partners, Ltd. Ted Edmunds and his father, Ed Edmunds, Jr. Appellants, were the property managers for Commerce Gateway Partners, Ltd. Ted Edmunds negotiated the lease with Sanders and Ed Edmunds, Jr. executed the lease. 

On January 5, 1988, Foster and Sanders entered into a written agreement regarding their venture. The agreement required Sanders to provide equipment and financing for the business, while Foster was to move to El Paso and run the business. Sanders and Foster dispute whether the agreement, which contained several blank spaces, accurately reflects the arrangement between them. The agreement does not contain any final resolution for Foster's participation in the business which includes the amount of money Foster was required to invest in the business in order to obtain an eventual ownership interest. Sanders testified that Foster really had no funds to invest, which was a primary reason why no final agreement was reached.

The record shows that within a few months, Sanders became dissatisfied with the performance of the business although the tool-and-die and plastic injection molding business is said to be a profitable enterprise if properly managed. In September of 1988, Sanders concluded that he could not sustain any more losses in the El Paso business. Although he told Foster he would shut down the business if it did not improve, Sanders had no intention of closing his business or walking away from his substantial investment. If Foster was unable to properly manage their business, it was Sanders' intention to come to El Paso and run the shop himself until such a time that he was able to hire another manager for the business. In January 1989, Foster filed a lawsuit against Sanders seeking only specific performance regarding the original agreement with Sanders. At his deposition in April 1989, Sanders indicated that he would make no more capital contributions to the business, that he wanted his equipment returned, and that he wanted no further relationship with Foster. The case went to trial on Sanders' claims against Ed Edmunds, Jr., Ted Edmunds, and Foster Mold, Inc. for "conversion of business," temporary conversion of equipment, tortious interference with his prospective contracts with customers, and tortious interference by the appellants with his contract with Foster. The jury found that all appellants had converted Sanders' business as well as his equipment on October 20, 1988, and had tortiously interfered with Sanders prospective customer contracts and with his contract with Foster. The jury awarded $13,500 for the temporary conversion of equipment and $58,156 for conversion of the business. The jury assessed $432,206 as Sanders' lost profits, proximately caused by interference with prospective  contracts, and found that Sanders suffered no damages resulting from tortious interference with his contract with Foster. The jury further found that all of the Appellants had committed both conversion torts with malice, and imposed exemplary damages in the second phase of the trial totaling $1,050,000. Appellants sought review.

Issue:

Was the evidence legally insufficient to support the jury's award of $432,206 in lost profit damages?

Answer:

Yes.

Conclusion:

The appellants contend that the evidence was legally insufficient to support the jury's award of $432,206 in lost profit damages for Sanders's tortious interference claims. Legal sufficiency review in this instance required the court to determine the sufficiency of lost profit evidence since Sanders requested tortious interference damages based on lost profit. Recovery for lost profits does not require that the loss be susceptible of exact calculation, however, the injured party must do more than show that they suffered some lost profits.

In this case, Sanders based his lost profits evidence neither on a history of profitability nor on a showing of future contracts. Moreover, Sanders's evidence was not based on a calculation of net profits. Instead, Sanders's expert based his lost profit calculation on average percentage profits for similar businesses as shown in the Robert Morris and Associates and Prentice Hall manuals. These manuals, the expert explained, provide bench marks for profit a company should return expressed as a percentage of the value of the company's assets. The manuals base their calculations on financial information provided by a large number of subscriber companies. Based on the success of Sanders's tool and die business in Florida, the expert assumed that had Sanders continued in the El Paso business, it would have realized a profits in the top 25% of similar business as reported in the manuals. The expert multiplied the percentage suggested for top performing businesses in the manuals by the total assets of the El Paso business in order to arrive at a projected profit for a hypothetical business headed by Sanders for each year from 1990 through 1993. These calculations yielded a total projected profit of $540, 413. Since according to Sanders's side of the story Sanders should have owned one half of the business, the expert opined that Sanders lost approximately $270,000 in profit.

Under cross examination, the expert readily admitted that his calculation was a "yardstick" comparison measurement to comparable companies in comparable industries, not a projection of lost net profits based on projected revenues minus projected operating expenses for this particular business. Although the expert's calculation may have been a valid profitability projection from an accounting prospective, it was not founded on a history of the business's profitability or on the existence of future contracts as required to show lost profit damages in the context of a lawsuit. Accordingly, there is no evidence of the correct legal measure of damages found in this record. The court reversed the trial court's judgment for actual and exemplary damages, as there was insufficient evidence to support the jury's finding that appellants were liable for conversion of business and appellee's tortious interference claims.

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