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Penncro Assocs. v. Sprint Spectrum, L.P. - 499 F.3d 1151 (10th Cir. 2007)

Rule:

Direct damages refer to those which the party lost from a contract itself-in other words, the benefit of the bargain-while consequential damages refer to economic harm beyond the immediate scope of the contract. Lost profits, under appropriate circumstances, can be recoverable as a component of either (and both) direct and consequential damages.

Facts:

Defendant Sprint Spectrum, L.P., does not dispute that it breached its contract with its former bill collector, plaintiff Penncro Associates, Inc. Still, it offers two reasons why, in its view, the district court's judgment for Penncro in excess of $17 million should be reversed. First, Sprint argues that the parties' agreement precludes the sort of damages Penncro seeks. In their contract, the parties agreed to forego "consequential damages," and Sprint urges the Court to find that the term, as defined by the parties's agreement, includes any and all "lost profits" -- whether flowing directly or consequentially from Sprint's breach. Because all of Penncro's claimed damages are lost profits, Sprint argues the district court's judgment is fatally flawed. Secondly, and alternatively, Sprint contends that Penncro's damages should be calculated on the basis of the work it was ready and able to perform, rather than on the basis of a fixed monthly fee, as the district court found. For its part, Penncro cross-appeals, arguing that it is entitled to an additional $ 6.5 million in damages. Penncro submits that the district court erred when it found that the company was able, by taking on new work after Sprint's breach, to avoid losses in this amount.

Issue:

Was there evidence that Sprint's and Penncro's definition of the term consequential damages was designed to embrace (and thus foreclose the award of) profits lost as a direct result of Sprint's breach?

Answer:

No

Conclusion:

The federal court of appeals affirmed. While parties could define their terms as they pleased, the court of appeals found no evidence that the parties' definition of the term consequential damages was designed to embrace (and thus foreclose the award of ) profits lost as a direct result of the company's breach. Likewise, the plain and unambiguous language of the agreement obliged Penncro to provide Sprint with a fixed amount of available labor capacity, and it required Sprint to pay for that capacity, whether utilized or not. Finally, there was no clear error in the district court's finding that Penncro, not a lost volume seller, managed to avoid a modicum of the losses that the breach imposed.

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