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regarding established business
Summary of this case from Russell v. Allianz Life Ins. Co. of N. Am.Opinion
No. C1-02-1652.
Filed: April 22, 2003.
Appeal from the District Court, Hubbard County, File No. CX99836.
Mark Thomason, Thomason Law Office, (for respondent).
James B. Wallace, Robert D. Tiffany, Wallace Tiffany, (for appellant).
Considered and decided by Kalitowski, Presiding Judge, Minge, Judge, and Hudson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
On appeal from an order denying his posttrial motion for amended findings or a new trial on his breach-of-contract action, appellant Richard Augeson challenges the district court's calculation of damages and its determination that he is not entitled to costs and disbursements. Because the district court did not abuse its discretion in calculating damages or in denying Augeson costs and disbursements, we affirm.
FACTS
In April 1999, respondents Robert and Dawn Haff entered into a six-month employment contract with appellant Richard Augeson. Augeson owned Hubbard Concrete Pumping, Inc., a newly established business. The contract was to run from May 1999 until November 1999, and it guaranteed the Haffs a weekly salary of $1,100 and up to $200 per month in health-insurance premiums. The parties agreed that Dawn Haff would be responsible for office work and Robert Haff would be responsible for maintaining and operating the cement-pumping truck and for "keeping busy" during "off time."
On September 16, six weeks before the contract expired, the Haffs terminated their employment following a dispute about unpaid wages. They then initiated this action in conciliation court to recover unpaid wages and health-insurance benefits. The conciliation court awarded the Haffs $1,443. Augeson then removed the case to district court, and he counterclaimed for lost profits, claiming that Robert Haff had breached the contract by failing to operate the truck and to "keep busy" during "off time."
After a bench trial, the court awarded Dawn Haff damages and dismissed Robert Haff's claim. The court also dismissed Augeson's counterclaim, reasoning that the contract was unenforceable and that the Haffs' employment was, therefore, at will.
On appeal, this court affirmed both Dawn Haff's award as modified and the dismissal of Robert Haff's claim. Haff v. Augeson, No. C8-01-1556, 2002 WL 378172 (Minn.App. Mar. 12, 2002). But it reversed the dismissal of Augeson's counterclaim, holding that the contract was enforceable and that Robert Haff breached the contract by terminating his employment before the six-month term expired. Id. at *2. The court remanded with instructions that the district court determine (1) whether Robert Haff's breach caused Augeson damage, (2) whether Augeson made reasonable efforts to find another operator, and (3) whether Augeson incurred damage as a result of the breach. Id.
On remand, the district court made no findings on causation or the reasonableness of Augeson's efforts to find another operator. The court merely calculated lost-profits damages using the company's average monthly income before the breach as the basis for projections. The court concluded that the business would have operated at a loss after the breach and dismissed the counterclaim. The court recognized that its estimates were "somewhat speculative" because the business was new, but noted that it had relied on "the best evidence available."
Augeson moved for amended findings and conclusions of law or, alternatively, for a new trial, claiming that the estimated average monthly income was too low. Augeson also claimed that he was entitled to costs and disbursements under Minn.R.Gen.Pract. 524(c)(4). The court denied the motion, reasoning that its calculations were reasonable and that neither party was entitled to costs and disbursements. This appeal followed.
DECISION I
Augeson first argues that the district court abused its discretion by using the company's average monthly income before the breach as the basis for estimating anticipated lost profits. Augeson claims that the court should have instead relied on income the company would have received but for the breach. We disagree.
Because a determination of lost profits depends on the circumstances of each case, district courts have broad authority in estimating lost profits. See Cardinal Consulting Co. v. Circo Resorts, Inc., 297 N.W.2d 260, 267 (Minn. 1980); Olson, Clough Straumann, CPA's v. Trayne Props., Inc., 392 N.W.2d 2, 5 (Minn.App. 1986) (stating that calculation of lost-profits damages "usually should be left for the judgment of the trial court").
Damages for lost profits are recoverable only when the loss is a natural and probable consequence of the breach and the amount of loss is ascertainable to a reasonable degree of certainty. Faust v. Parrott, 270 N.W.2d 117, 121 (Minn. 1978); N. States Power Co. v. Lyon Food Prods., Inc., 304 Minn. 196, 203, 229 N.W.2d 521, 525 (1975). Although the law does not require mathematical certainty in the proof and calculation of lost profits, it requires evidence of definite profits grounded on a reasonable factual basis. See Cardinal Consulting, 297 N.W.2d at 267; Leoni v. Bemis Co., Inc., 255 N.W.2d 824, 826 (Minn. 1977). Damages that are remote, speculative, or conjectural are not recoverable as a matter of law. Busch v. Busch Constr. Co., 262 N.W.2d 377, 399 (Minn. 1977).
The method of proving lost prospective profits for breach of contract depends on the circumstances of a particular case. Cardinal Consulting, 297 N.W.2d at 267. In cases involving an established business, courts may estimate lost profits by comparing plaintiff's revenue before and after the breach. See, e.g., Goebel v. Hough, 26 Minn. 252, 256, 2 N.W. 847, 849 (1879) (stating that when operations of established business are interrupted, proper measure of damages is determined by diminution in value caused by interruption); see also Lewis v. Mobil Oil Corp., 438 F.2d 500, 511 (8th Cir. 1971) (stating that "[p]ast profits of an established business may be utilized to prove lost profits as an element of damages" (citation omitted)).
In cases involving a new business, courts may also rely on past performance in estimating lost-profits damages. Spinett, Inc. v. Peoples Natural Gas Co., 385 N.W.2d 834, 839 (Minn.App. 1986) (stating that lost profits may be estimated on basis of new company's past performance and future success); see also Charles T. McCormick, Handbook on the Law of Damages 107-08 (1935) (suggesting that new enterprise's past record of profits provides adequate basis for evaluating lost profits where record shows strong chance of success). Although proving lost profits for a new business is inherently more difficult than proving lost profits for an established business, the difficulty of proving lost profits "will not preclude recovery so long as there is proof of a reasonable basis upon which to approximate the amount." Leoni, 255 N.W.2d at 826 (relying on proof of national profits in determining amount of lost profits in California); see also Unique Sys. Inc. v. Zotos Int'l, Inc., 622 F.2d 373, 378-79 (8th Cir. 1980) (relying on proof that parties contemplated a fixed profit margin for plaintiff); Cardinal Consulting, 297 N.W.2d at 267 (relying on plaintiff's skill and expertise and proven existence of a market for plaintiff's business). The question for new businesses is whether damages are made reasonably certain by proof of facts that enable a rational estimate of their amount. See Leoni, 255 N.W.2d at 826; Robert L. Dunn, Recovery of Damages for Lost Profits 365 (5th ed. 1998) (stating that whether new business may recover lost profits raises evidentiary question regarding whether history of business is adequate to project future lost profits).
Augeson argues that the district court abused its discretion by relying on the company's average monthly income in estimating lost profits. But the law requires only a reliable basis upon which to estimate prospective profits. Dunn, supra, at 391 (noting that courts have tended to sustain lost-profits awards "[a]s long as the approach is rational and the trier of fact is given a basis upon which to assess the evidence"). A new company's average monthly income provides a reliable and sufficiently certain basis upon which to estimate prospective lost profits. Spinett, 385 N.W.2d at 839 (stating that five-month-old company's past performance and future success afforded reasonable basis for estimating lost profits); cf. Village of Elbow Lake v. Otter Tail Power Co., 281 Minn. 43, 46, 160 N.W.2d 571, 574 (1968) (holding that proof of lost profits was too speculative because plaintiff was newly constructed plant with no experience on which to base projected profits).
Augeson claims that the court should have estimated prospective lost profits based on income the company would have received but for the breach. Augeson offered evidence that there was a market for his company's services and that he was unable to accept several jobs because he did not have an operator for the truck. Accordingly, the court could have estimated lost profits based on income the company would have received but for the breach. But on this record, profits based on prospective lost jobs are too uncertain because the evidence does not clearly establish either that Hubbard Concrete Pumping would have secured those jobs or that it would have completed them before November 1999, the end of the contract term. By contrast, the company's billing invoices provide reliable data of past business from which the court reasonably inferred the amount of profits Augeson would have realized but for the breach. The court did not abuse its discretion, therefore, in using the company's average monthly income as the basis for estimating anticipated lost profits.
Alternatively, Augeson argues that because the month of May was the first month of operations, the court should not have included the company's May earnings in its calculation of the company's average monthly income before the breach. Augeson notes that although the contract started in May, the company only performed two jobs, both at the end of May, earning a total of $882.12. Therefore, Augeson claims that May does not accurately reflect the company's income, and the court should have averaged only the July, August, and September earnings. The district court, however, determined that the May and June earnings should be included in the calculation of the company's average monthly income. We cannot say this was an abuse of the district court's broad discretion.
Augeson next argues that in calculating net profits the court overestimated the company's expenses. The court estimated $6,600 in expenses. Wages alone would have been $6,600 (the Haffs' $1,100 weekly salary times six weeks). If anything, therefore, the court's estimate was too low because it omitted the cost of product and other costs of doing business. See Wilhelm Lubrication Co. v. Brattrud, 197 Minn. 626, 632, 268 N.W. 634, 636 (1936) (recognizing that expenses and overhead may be included in the calculation of damages). Augeson's objection to the inclusion of Dawn Haff's salary in the calculation of expenses has no merit. She was part of the contract he sought to enforce. If Augeson is to have damages for loss of profit because the Haffs did not work, he at least must include their wages in his cost of doing business. In any event, there is no reason to believe that Augeson could have operated the business without an office assistant. The court's estimate was, therefore, reasonable and within its discretion.
Last, Augeson argues that the district court abused its discretion in denying his request for $3,060 in damages for lost services resulting from Robert Haff's refusal to "keep busy" during "off time." The district court denied damages on the ground that the contract did not define the terms "keep busy" and "off time." Whether or not the contract defined the terms, however, Augeson submitted no evidence to substantiate his claim that during the post-breach period Robert Haff was contractually obligated to work for him a total of 17 days on tasks other than operating the truck. Because the evidence does not support a reliable inference of damages for lost services, the district court did not abuse its discretion in denying Augeson's claim.
II
Augeson next argues that the court erred in denying his request for costs under Minn.R.Gen.Pract. 524. We disagree.
We review a decision to award or deny costs under an abuse-of-discretion standard. Benigni v. County of St. Louis, 585 N.W.2d 51, 54 (Minn. 1998). A party who removes an action from conciliation court to district court is entitled to recover costs from the opposing party if it prevails in district court. Minn.R.Gen.Pract. 524(b). A removing party prevails in district court if it
recovers at least $500.00 or 50% of the amount * * * the removing party requested on removal, whichever is less, when the removing party was denied any recovery in conciliation court.
Id., 524(c)(1). A removing party also prevails if
the amount * * * that the opposing party recovers from the removing party in district court is reduced from the amount * * * the opposing party recovered in conciliation court by at least $500.00 or 50 percent, whichever is less.
Id. 524(c)(4).
The court denied Augeson's claim for costs, reasoning that although the amount the Haffs recovered in conciliation court was reduced by more than $500 in district court, Augeson did not prevail on his counterclaim and was not, therefore, a prevailing party. District courts have discretion to determine which party, if any, qualifies as a prevailing party. Benigni, 585 N.W.2d at 54 (affirming determination that party whose claims were dismissed was not a prevailing party even though party's property-tax assessment was reduced). Because Augeson did not prevail on his counterclaim, we conclude that the district court did not abuse its discretion in concluding that neither party prevailed, even though the amount the Haffs recovered in conciliation court was reduced by more than $500.