In the

United States Court of Appeals

for the Fifth Circuit

_______________

m 01-41269

_______________

DOOR CONTROL SERVICES, INC.,

Plaintiff-Counter-Defendant-AppelleeCross-Appellant,

VERSUS

BESAM AUTOMATED ENTRANCE SYSTEMS, INC.,

Defendant-Third-Party Plaintiff-Counter

Claimant-Appellant-Cross-Appellee.

_________________________

Appeal from the United States District Court

for the Eastern District of Texas

m 6:00-CV-293

_________________________

February 5, 2003
2

Before JONES, SMITH, and SILER,

*

Circuit Judges.**

JERRY E. SMITH, Circuit Judge:

Besam Automated Entrance Systems, Inc.

(“Besam”), appeals a jury award of $6,000,-

000 to Door Control Services, Inc. (Door

Control”), for fraud. Door Control cross-appeals a judgment as a matter of law (“j.m.l.”)

on its claims of breach of contract, breach of

duty of good faith and fair dealing, and tortious interference with contractual relations.

We affirm in part, reverse in part, and remand

for further proceedings. 

I.

A.

Besam manufactures a line of commercial

automatic doors that are sold and serviced by

independent distributors. From 1983 to 2000,

Door Control was Besam’s distributor for the

north/east/central Texasregion, which included the Dallas and Fort Worth markets. After

1986, theirlegalrelationship was controlled by

a written agreement (the “Distributorship

Agreement”); Door Control claims the agreement has been orally modified over the years.

In 1999, the Houston area distributor of

Besamdoorsfaced seriousfinancialdifficulties

and could not meet installation deadlines for

several large clients; Door Control helped Besam meet those installation deadlines and

claims that, in return, Besam orally agreed to

grant it a distributorship for the Houston and

San Antonio areas. Door Control took out a

loan to finance its expansion into those markets.

In February or March 2000, Besam informed Door Control that it would directly

distribute and service its doors in the Houston

area. Besam later asked Door Control to stop

servicing clients in the area, but Door Control

refused. Besam then terminated Door Control’s north/east/central Texas distributorship.

Lacking a major door line to sell, Door Control suffered a decline in business.

B.

Door Control sued Besam in Texas state

court alleging, inter alia, breach of contract,

breach of the duty of good faith and fair dealing, fraud, and tortious interference. Besam

removed the case to federal court based on diversity jurisdiction and asserted counterclaims.

The case proceeded to trial, and Besammoved

for j.m.l. at the close of Door Control’s presentation of evidence. The district court

granted j.m.l. on all claims except fraud, on

which the jury awarded $6,000,000 in lost

profits and $400,000 in reliance damages.1

II.

Besam contends it is entitled to j.m.l. with

respect to lost profits because the record contains insufficient evidence to support the verdict, in light of the fact that Door Control’s

damages expert testified as to lost gross profits, rather than lost net profits as required under Texas law. Door Control argues that because the jury was properly instructed that it *

Judge of the United States Court of Appeals

for the Sixth Circuit, sitting by designation.

** Pursuant to 5TH CIR. R. 47.5, the court has

determined that this opinion should not be published and is not precedent except under the limited

circumstances set forth in 5TH CIR. R. 47.5.4.

1 Besam was awarded $360,711 on its counterclaim for Door Control’s failure to pay money due

under the Distributorship Agreement.
3

was to award net profits,2it was allowed to

consider other evidence that supported the

amount awarded.

A.

We review de novo a ruling on a motion for

j.m.l. “whether based upon an interpretation of

Texaslaw or based upon the sufficiency of the

evidence.” Info. Communication Corp. v.

Unisys Corp., 181 F.3d 629, 633 (5th Cir.

1999). We review the record as a whole and

draw all reasonable inferences in favor of the

non- moving party. Phillips v. Monroe County, 311 F.3d 369, 373 (5th Cir. 2002). In an

action tried to a jury, a motion for j.m.l. challenges the legal sufficiency of the evidence

supporting the verdict. Cozzo v. Tangipahoa

Parish Council-President Gov’t, 279 F.3d

273, 280 (5thCir. 2002). Thus, the “‘standard

of review with respect to a jury verdict is especially deferential.’” Id. (quoting Brown v.

Bryan County, Okla., 219 F.3d 450, 456 (5th

Cir. 2000)).

B.

In Texas, the proper measure of damages

for lost profits is lost net profits. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83

n.1 (Tex. 1992). “[T]he injured party must do

more than show that it suffered some lost profits.” Helena Chem. Co. v. Wilkins, 47

S.W.3d 486, 504 (Tex. 2001). Recovery must

be “predicated on one complete calculation,”

and “opinions or estimates of lost profits must

be based on objective facts, figures, or data

from which the amount of lost profits may be

ascertained.” Szczepanik v. First S. Trust Co.,

883 S.W.2d 648, 649 (Tex. 1994).

The plaintiffis not required to calculate lost

profits precisely; rather, “it is sufficient that

there be data from which they may be ascertained with a reasonable degree of certainty

and exactness.” Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, at

279 (Tex. 1994) (quoting Southwest Battery

Corp. v. Owen, 115 S.W.2d 1097, 1098 (Tex.

1938)). Still, this burden is onerous, and

“Texas courts have not hesitated to direct verdicts where plaintiffs have failed to present evidence oflost profitsmeeting these standards.”

Info. Communication Corp., 181 F.3d at 633.

C.

Door Control contends that the jury properly used net profits as the measure of lost

profits. It argues that the jury could have taken the damage expert’s estimate of lost gross

profits of between $8,619,070.94 and $15,-

000,000 and reduced it to $6,000,000 by taking into account future expenses. Door Control reasons that these expenses were predictable, because financial statements from 1997

through the first quarter of 2001 were admitted into evidence, and Door Control’s controller explained that the financial statements

accuratelyrepresented Door Control’sincome

and expenses. 

In Fury Imports, Inc. v. Shakespeare Co.,

554 F.2d 1376, 1387 (5th Cir. 1977), which

applied New York law, we considered the evidence supporting lost profits damages awarded

to a distributor for the manufacturer’s breach

of contract. Evidence was presented showing

the amount of lost gross profits caused by the

manufacturer’s breach and resulting lost retail

sales. Though the plaintiff presented evidence

that there weremultiple categories of expenses

that would have increased in different ways

had the sales not been lost, there was no estimate of how each of these categories would

2 The district court defined net profits as “what

remains in the conduct of a business after deducting from its total receipts all of the expenses

incurred in carrying on the business.”
4

have varied with increased sales, nor even

what the overall effect on expenses might have

been. Instead, the jury was provided profitand-loss statements from previous years. We

concluded that these financial records did not

provide the jurywith sufficient evidence to calculate lost net profits, because the jury had no

way of extrapolating, from the past actual expenses, a prediction for how future expenses

would have increased. Absent proper guidance, there “wassimply no evidence at all asto

net, as distinguished from gross, profits.” Id.

The reasoning of Fury Imports is persuasive here. Although Door Control provided

the jury an estimate of lost gross profits, it

gave no similar guidance as to how future expenses would have varied. We have thoroughlyreviewed the financialrecords considered by

Door Control’s expert in estimating lost gross

profits. With each financial statement, gross

and net profits varied greatly and were not

correlated in any way that is readily apparent.

For example, from 1999 to 2000, gross

profits grew by about 30%, from $2,608,-

986.52 to $3,381,366, yet net profits fell

$120,786.30, a decrease of over 20% from the

previous year. Similarly, the fourth quarter of

1999 represented both the best quarter of the

year for gross profits and the worst quarter of

the year for net profits. This historical data is

insufficient to allow a jury to determine, with

reasonable certainly, how expenses would

have changed in future years.3

D.

Door Control contendsthat other evidence

supports the award. Its controller, Ricky

Northcutt, testified that, based on a year-end

comparison of net profitsfrom1999 and 2000,

Door Control experienced a decrease in net

profits of $120,000. He also stated that in the

first quarter of 2001, profits were down $483,-

000 compared to the first quarter of 2000.

Don Gilchrist, the owner of Door Control, testified that it would take five to ten years to return Door Control to the level of profitability

it experienced when it was Besam’s distributor

for the north/east/central Texas region. Door

Control contends that a jury could find that it

suffered $6,000,000 of lost net profits based

on the combined testimony of Northcutt and

Gilchrist, by projecting the two quarters of reduced net profit testified to by Northcutt over

the time period of injury testified to by Gilchrist.

The testimony of Northcutt and Gilchrist

does not combine to form a calculation that

demonstrates lost net profits with the reasonable certaintynecessaryto support an award of

damages. Evidence to establish profits must

not be uncertain or speculative. Tex. Instruments, 877 S.W.2d at 279. Northcutt testified

only that profits were lower than in the previous year; he did not state how large those pro3 Even were we to find that these past expenses

were competent evidence to predict future expenses, the records contain no information that even

arguably could support a verdict of $6,000,000.

From 1998 through 2000, net profits were 17% of

gross profits. Had the jury determined that 17% of

(continued...)

3

(...continued)

the lost gross profits were likely to have remained

as net profits after expenses, it could have employed the Door Control expert’s projected lost

gross profits and awarded between $1,500,000 and

$2,500,000. The best year on record yielded net

profitsthat were 22% of gross profits, which, if extrapolated, would lead to an estimate of lost net

profits of between $1,900,000 and $3,000,000.

The award of $6,000,000 is 40% to 70% of the

range of projected lost gross profits, a percentage

nowhere suggested by the financial records.
5

fits would have been absent Besam’s fraud,

nor did he even assert that this drop was attributable to Besam’s conduct. He also provided no evidence that could be used as the

basis for a projection of future net profits beyond the two quarters named. 

Gilchrist offered no support, based on objective facts or data, for his assertion that it

would take five to ten years for Door Control

to regain profitability.4 Gilchrist’s speculative

testimony is not competent evidence to support an award of lost profits. See Szczepanik,

883 S.W.2d at 650. On this record, there is no

evidence of lost profits damages, so the denial

of Besam’s motion for j.m.l. is reversed.5

III.

Door Control contends that the district

court erred in granting Besam’s motion for

j.m.l. on the breach of contract claim, because

Door Control presented sufficient evidence to

allow a reasonable jury to find that Besam’s

termination of Door Control’s north/east/centralTexas distributorship breached theDistributorship Agreement. Door Control argues

that the agreement had been orally modified

and that Besam breached the agreement as

modified. Besam avers that the Uniform Commercial Code’s statute of frauds, N.J. STAT.

ANN. § 12A:2-201, applies to the agreement,

requiring that any modifications had to be in

writing.

The Distribution Agreement contains a

clause that prohibits modification of the contract except by a written agreement by a duly

authorized Besam representative. If the New

Jersey common law for contracts applies,6the

DistributionAgreement could have beenmodified orally, notwithstanding this provision;

New Jersey law allows every agreement, no

matter how firmly drawn, to be modified by

another agreement.7 The Uniform Commercial

Code covers all contractsfor the sale of goods

sold for $500 or more. N.J. STAT. ANN. §

12A:2-201(1). Had the UCC applied to the

contract, its statute of frauds would have

required that all modifications be in writing.

See § 12A:2-209; 5-80 N.J. TRANSACTION

GUIDE § 80.34.

“[B]ecause of the mixed character of many

distributorships, the UCC’s statute of frauds

may or may not apply in a given case.” Custom Communications Eng’g, Inc. v. E.F.

Johnson Co., 636 A.2d 80, 85 (N.J. Super. Ct.

App. Div. 1993). Custom Communications

distinguishes between contracts involving a

transaction of goods plus incidental services,

which are covered by the UCC, and contracts

for services plus the incidental sale of goods,

which are covered by customary contract law.

Id. at 83. The court in Custom Communications found the law of other jurisdictions per4

 To provide context to the remarks, we note

that Gilchrist next declared that it would also take

“take thousands of sales calls to get people to understand the new line” and “probably five to ten

million dollars.” His testimony was based on conjecture, not reasoned analysis supported by facts.

5 Besam challenges the award of lost profits on

several other grounds. Because the evidence is insufficient to support lost profit damages, we need

not address those arguments.

6 The distributorship agreement provides that

New Jersey law controls the performance and construction of the contract.

7 Estate of Connelly v. United States, 398 F.

Supp. 815, 827 (D.N.J. 1975) (“Even a formal

agreement which expressly states that it cannot be

modified except in writing, is subject to modification by oral agreement since the requirement for

a writing is itself subject to modification.”).
6

suasive, stating:

The common theme expressed in nearly

all of the cases is that, although most

dealership or distributorship agreements

involve more than a mere sale of goods,

the sales aspect of the relationship predominates. Accordingly, courts have

not hesitated to conclude that a direct

dealership agreement, as here, issubject

to the . . . UCC. We adopt the majority

rule as sound, since it is entirely consistent with the underlying purposes of the

UCC: to foster consistency and predictability in the commercial marketplace.

Id. at 84. See also Spring Motors Distribs.,

Inc. v. Ford Motor Co., 489 A.2d 660, 668

(N.J. 1985) (“[T]he U.C.C. isthe more appropriate vehicle for resolving commercial disputes arising out of business transactions

between persons in a distributive chain.”).

New Jersey law adopts a strong presumption that the UCC applies to distribution

agreements. The Distribution Agreement is

sufficiently similar to those found in the many

cases cited by the Custom Communications

court to apply the UCC statute of frauds to its

enforcement. Custom Communications, 636

A.2d at 84 (citing cases). Oral modifications

therefore were not allowed. The agreement

provided that it could be terminated for any

reason on thirtydays’ notice. Besam exercised

its rights in accordance with this provision

when it terminatedDoor Control’s distributorship, so the district court properly granted

j.m.l. in this regard.

IV.

Door Control appealsthe j.m.l. with regard

to its claim for breach of duty of good faith

and fair dealing. It argues that it presented

sufficient evidence for a jury to find that Besam intended to deprive Door Control of its

distributorship before the time of termination

and that it withheld thisinformation fromDoor

Control in violation of the implied covenant of

good faith and fair dealing found in the contract under New Jersey law. Besam answers

that Door Control has waived the right to argue that New Jersey law applies, and Besam

contends that, under Texas law, the duty of

good faith and fair dealing does not extend to

ordinary contractual relationships.

A.

Besamassertsthat Door Controlwaived its

argument under New Jersey law because it did

not specifically raise New Jersey law in its oral

response to Besam’s motion for j.m.l. The

record demonstratesthat the district court was

sufficiently aware of the grounds for Door

Control’s objections to Besam’s motion for

j.m.l., including its position under New Jersey

law. 

Formal exceptions to rulings or orders

of the court are unnecessary; but for all

purposes for which an exception has

heretofore been necessary it is sufficient

that a party, at the time the ruling or

order of the court is made or sought,

makes known to the court the action

which the party desiresthe court to take

or the party’s objection to the action of

the court and the grounds therefor; and,

if a party has no opportunity to object to

a ruling or order at the time it is made,

the absence of an objection does not

thereafter prejudice the party. 

FED. R. CIV. P. 46. “The purpose of the rule is

that the district court should be given notice of

an alleged defect so the court has an opportunity to cure it.” Hartford Lloyd’s Ins. Co. v
7

Teachworth, 898 F.2d 1058, 1060 (5th Cir.

1990).

Normally, “that purpose can be adequately served only by the making of an

objection on the record, but if the court

and the other litigants know what action

a party desires the court to take, the

purpose of the rule is served.” Stone v.

Morris, 546 F.2d 730, 736 (7th Cir.

1976). In such circumstances, a formal

objection is not required, “and the failure of the court to take the desired action may be asserted as error on appeal.”

Id. at 1060-61; see also 9 CHARLES A.

WRIGHT & ARTHUR R. MILLER, FEDERAL

PRACTICE AND PROCEDURE § 2472, at 92-105

(2d ed. 1995). 

Door Control made a pretrial motion that

was never ruled on, asking the court to recognize the applicability of New Jersey law to all

contractual claims. In the pretrial order, the

applicabilityof New Jersey law to the claimfor

breach of good faith and fair dealing waslisted

specifically as a contested issue of law. The

district court never ruled on the question. 

It is apparent that neitherside was expected

to say much regarding the motions, because

the court decided that it was unnecessary to

listen to arguments with which it was already

familiar.8 As soon as both sides had finished,

the court announced that it already had prepared its ruling, which it began reading. After

listing all of Door Control’s claims except the

fraud claim, the court stated that it “finds that

plaintiff has failed to present legally-sufficient

evidence, regardless of whether Texas or new

8 Moments after Besam’s trial counsel,

Mr.Burke, began making his motion for j.m.l., the

court interrupted him:

THE COURT: I don’t want you to go into

the testimony. Just make your motions, and

I think it is broad enough the way you have

already made it, unless you want to add to

it.

(continued...)

8

(...continued)

MR. BURKE: If I can maybe say one sentence about each one of the plaintiff’s claims

and limit it to that?

THE COURT: I don’t think that is going to

be necessary.

Burke proceeded quickly to outline his motion, and

at his conclusion, Mr. Travis, trial counsel for

Door Control, began.

MR. TRAVIS: May I respond, Your

Honor?

THE COURT: Briefly.

MR. TRAVIS: Your Honor, I will endeavor–

THE COURT: Your response has been

what you have been putting on for four

days.

MR. BURKE: I was going to make your

job easier and make a concessionSSI was

going to make your job easier and concede

on someSScertain claims. Would you like

me to do that, or shall we keep all our

claims?

THE COURT: If you can be brief about it.

I’ve heard the evidence for four days. I

don’t think it is necessary for you to repeat

it to me.

At the court’s instruction, counsel quickly listed

which claims he was withdrawing and which ones

he intended to pursue.
8

Jersey law controls, such that a reasonable

Jury could find in its favor on these claims.”

Consequently, before the motion for j.m.l. was

made, Door Control had sufficiently made

known to the court its position on the applicability of New Jersey law to satisfy the requirements of rule 46. 

B.

The UCC, including its choice-of-law

provision, applies to the Distributorship

Agreement. SeeDavidson OilCountry Supply

Co. v. Klockner, Inc., 908 F.2d 1238, 1248

(5th Cir. 1990). The relevant provision is

identical in the law of Texas and New Jersey;

it provides that “when a transaction bears a

reasonable relation to this State and also to

another state or nation the parties may agree

that the law either of this State or of such

other state or nation shall govern their rights

and duties.” TEX.BUS. & COM.CODE ANN.

§ 1.105(a); N.J. STAT. § 12A:1-105(1). 

This requirement is satisfied here with respect to Texas and New Jersey. New Jersey

law therefore applies to the issue of breach of

good faith and fair dealing, because the choice

of law provision in the Distributorship Agreement provides that New Jersey law applies to

the performance and construction ofthe agreement.

C.

Under New Jersey law, every contract has

an implied covenant of good faith and fair

dealing. Onderdonk v. Presbyterian Homes,

425 A.2d 1057, 1062 (N.J. 1981). In Bak-ALum Corp. of Am. v. Alcoa Bldg. Prods., Inc.,

351 A.2d 349, 350-52 (N.J. 1976), the court

held that a manufacturer breached its implied

covenant of good faith and fair dealing when it

failed to tell a distributor that it was planning

to end the exclusivity of the distributor’s territory, knowing that the distributor was investing substantial sums of money to expand

its operations within the territory. 

Door Control presented evidence to support a claim under breach of good faith and

fair dealing. It demonstrated that Besam attempted to purchase all or part of Door Controlon more than one occasion, but, each time,

Door Control refused the offer. There also

was evidence that Besam attempted to hire

several Door Control employees months beforeBesamterminated the distributorship. Evidence indicated that Besam may have contacted competitors of Door Control in attempts to purchase them, potentially in an effort to transfer the distributorship to the newly

owned competitor. 

Gilcrest also testified that he received a

secret call from a Besam employee advising

himto look for a second line of doors, because

others at Besam were “planning on doing

some things with our distributorship that he

didn’t think wasright.” Door Control presented sufficient evidence for a reasonable jury to

find that Besam breached an implied covenant

of good faith and fair dealing under New Jersey law, so the j.m.l. in this respect is reversible error.

V.

Door Control argues that the district court

erred in granting Besam’s motion for j.m.l. on

the tortious interference claim, because Door

Controlpresented sufficient evidence for a jury

to find that Besam tortiously interfered with

employment contracts between Door Control

and its employees. Besam argues that under

Texas law, third-party interference in at-will

employment is not tortious interference and

that competitors are privileged to compete for

employees’ services. 
9

A.

Texas law adopts the view of the second

Restatement that employment at will istreated

analogously to prospective contracts with respect to tortiousinterference:9

 “[T]o establish

liability for interference with a prospective

contractual or business relation the plaintiff

must prove that it was harmed by the defendant’s conduct that was either independently

tortious or unlawful. By ‘independently tortious’ we mean conduct that would violate

some other recognized tort duty.’” Wal-Mart,

52 S.W.3d at 713. This holding employs more

limiting language than did the second Restatement or prior Texas law, though the court

noted “that the case law is generally consistent

with this position as a matter of outcomes as

distinct from articulation.” Id. at 721.

We read Wal-Mart to apply to at-will contracts. Because Door Control has neither

proven nor alleged any independently tortious

or unlawful conduct by Besam in its efforts to

lure Door Control’s employees, j.m.l. on the

claim of tortious interference with respect to

all at will employees was proper.10

B.

One former Door Control employee, Patrick Lyness, was under an employment contract that contained a covenant not to compete

when he left to work for Besam; therefore, interference with his employment must be analyzed separately. Evidence indicated that Besamcontacted Lyness about potential employment before he quit his job and that he went to

work for Besamtwo weeks after leaving Door

Control.

Lyness’s employment contract and covenant not to compete, if valid, may form the

basis of a claim for interference with contractual relations. Travel Masters, Inc. v. Star

Tours, Inc., 827 S.W.2d 830, 833 (Tex. 1991).

9 See Sterner v. Marathon Oil Co., 767 S.W.2d

686, 689 (Tex. 1989) (citing RESTATEMENT (SECOND) OF TORTS § 766 comment g); Wal-Mart

Stores, Inc. v. Sturges, 52 S.W.3d 711, 719 (Tex.

2001) (“The second Restatement, like the first,

provided that lawful competition was not tortious

interference with a prospective business relation

although it might be tortious interference with any

contract not terminable at will.”) (emphasis added); see also RESTATEMENT (SECOND) OF TORTS

§ 766 comment g (“One’s interest in a contract terminable at will is primarily an interest in future

relations between the parties, and he has no legal

assurance of them. For this reason, an interference

with this interest is closely analogous to interference with prospective contractual relations.”).

10 Before Wal-Mart was decided, the view was

that “Texas law supports a claim for interference

with a terminable-at-will contract where a

third-party has induced the contract’s breach without any economic justification or goal other than

evisceration of the underlying contract.” C.E.

Servs., Inc. v. Control Data Corp., 759 F.2d 1241,

1249 n.11 (5th Cir. 1985). With an economic motive, and absent otherwise illegal conduct, however,

the conduct is justified. Id. Door Control’s claim

fails under this standard, as well, because it has

asserted that Besam’s goalwas economic in nature.

We further recognize that the Texas Supreme

Court, in the context of tortious interference with

employment at will, has held that legal justification

or excuse is an affirmative defense on which the

defendant has the burden of proof. Sterner v.

Marathon Oil Co., 767 S.W.2d 686 690. We read

that holding to be limited to the context therein

described, where a third-party is alleged to have

intervened to cause an employer to terminate an

employee. See id. at 688. In any case, Besam has

asserted legal justification, and it is uncontroverted

that such justification existed.
10

Besam has not challenged the validity of this

agreement, nor has it offered a defense.11 The

district court committed reversible error in

granting j.m.l. on Door Control’s claim of tortious interference with Lyness’s employment

contract.

The judgment is AFFIRMED in part, REVERSED in part, and REMANDED for further appropriate proceedings.

11 Besam’s arguments addressed only the law

applicable to at-will employees. Though Besam

asserts that it is a competitor, “[t]he fact that one is

a competitor of another for the business of a third

person does not prevent his causing a breach of an

existing contract with the other from being an

improper interference if the contract is not

terminable at will.” RESTATEMENT (SECOND) OF

TORTS § 768(2); see also Wal-Mart, 52 S.W.3d at

719 n.32 (quoting § 768).