F I L E D

United States Court of

Appeals

January 5, 1998

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

 

PROTECTORS INSURANCE SERVICE, INC., 

a Colorado corporation, 

 Plaintiff-Appellee,

v. No. 96-1399

UNITED STATES FIDELITY & GUARANTY COMPANY,

a Maryland Corporation; FIDELITY & GUARANTY

INSURANCE UNDERWRITERS, INC., an Ohio

corporation; and FIDELITY & GUARANTY INSURANCE 

COMPANY, an Iowa corporation,

 Defendants-Appellants.

 

Appeal from the United States District Court

District of Colorado

(D.C. No. 94-B-2669)

 

Bruce A. Menk, Hall & Evans, LLC, Denver, Colorado (Alan Epstein of

the same firm, and Mark Holtschneider, USF&G, Baltimore, Maryland,

with him on the briefs), for appellants.

Gerald P. McDermott, McDermott & Hansen, Denver, Colorado, for

appellee.

 

Before BALDOCK and BRORBY, Circuit Judges, and BROWN,* District

Judge.

 

BROWN, District Judge.

 

* The Honorable Wesley E. Brown, Senior District Judge, United

States District Court for the District of Kansas, sitting by

designation. 

The defendants (hereinafter “USF&G”) appeal a jury verdict in

plaintiff’s favor totaling $844,650.00. The jury found that USF&G
2

breached a contract with plaintiff and that, as a result, plaintiff

lost future profits in the amount of $809,650.00 and received

$35,000.00 less than fair market value upon the sale of its

business. On appeal, USF&G concedes liability for breaching the

contract, but argues that the lost profits award should be vacated

because it represents an impermissible double recovery. In the

alternative, USF&G argues that the evidence was insufficient to

support an award of lost profits. The jurisdiction of the district

court was founded upon 28 U.S.C. § 1332(a); we have jurisdiction

pursuant to 28 U.S.C. § 1291. The parties agree that the law of

Colorado governs this contract dispute. See New York Life Ins.

Co. v. K N Energy, Inc., 80 F.3d 405, 409 (10th Cir. 1996) (federal

court sitting in diversity must apply the substantive law of the

forum state).

 Summary of Facts. 

The plaintiff, a Colorado corporation, was an insurance agency

formed in 1979. The sole owner of plaintiff’s corporate stock was

Earl Colglazier. Plaintiff was an agent of USF&G and had a written

contract authorizing it to solicit and submit applications for

USF&G insurance. If the applications were accepted, plaintiff

would be paid a commission by USF&G. Although plaintiff was an

independent agency, it had contracts with only two insurance

carriers; thus, over 80% of the insurance it sold from 1979 to 1992

was USF&G business. Insofar as termination of the agency agreement
1 The principal owner of Centennial, Mark Swanson, is the

brother of David Swanson, the USF&G special agent that was assigned

to work on plaintiff’s rehabilitation. After the sale, David

3

between plaintiff and USF&G was concerned, the contract stated that

the parties “agree to make a good faith effort to provide for

rehabilitation and thereby avoid termination of this Agreement.” 

In March of 1992, USF&G notified Colglazier that because of

profitability concerns it was establishing a formal rehabilitation

program for plaintiff. The program set a goal of achieving

certain “earned loss ratios” (which measure the agent’s

profitability to the insurance company) in plaintiff’s commercial

and personal lines of insurance in 1992. In October of 1992, USF&G

notified Colglazier that it was going to terminate its personal

lines contract with plaintiff in 180 days if the goals of the

rehabilitation program were not met by the end of 1992. The letter

stated that after May 1, 1993, USF&G would not accept any new

personal lines business and would nonrenew the current business.

In response, Colglazier wrote USF&G and asserted that his personal

and commercial accounts were intertwined and that terminating the

personal lines, although only 20% of his sales, would effectively

put him out of business. Faced with this situation, Colglazier

decided to sell all of plaintiff’s assets, including the rights,

title and interest on its insurance policies, to Centennial Agency,

Inc., on January 1, 1993. The purchase agreement called for

plaintiff to receive cash payments of slightly over $148,000.00.1
Swanson left his job and joined his brother’s agency, becoming the

agent responsible for plaintiff’s former book of business. Aple.

Supp.App. at 49.

4

Plaintiff later brought this suit alleging that USF&G

breached the contract by not making a good faith effort at

rehabilitation to avoid termination of the agreement. For our

purposes it suffices to say that the jury could reasonably find

from the evidence that USF&G breached the agreement by improperly

measuring plaintiff’s loss ratios, by unfairly changing the goals

and criteria of the rehabilitation program, and/or by certain other

arbitrary actions. 

With respect to damages, plaintiff presented the testimony of

John Putnam, an expert in valuation of insurance agencies. Putnam

testified that plaintiff’s business was sold at a “distressed”

price because of the circumstances under which it was sold,

including time pressure to make a sale and USF&G’s stated intention

of terminating the agency’s personal lines insurance. Putnam

testified that the agency would have been worth approximately

$175,000 had it not been sold under distress. Aplt. App. at 226.

Putnam arrived at this value by using three different methods: a

multiple of revenues, a price/earnings ratio, and a capitalization

of earnings. Id. at 254. In addition to this evidence, Earl

Colglazier testified that he would have continued to operate the

agency for at least ten more years had USF&G not given him the

termination notice. Plaintiff also presented rather confusing
5

evidence with respect to its net profits in the years before the

sale. According to Colglazier’s testimony, Protectors Insurance

Service was operated in conjunction with a company called

Protectors Management Service, which conducted “all of the office

insurance activities, salary, payroll, paying everybody on behalf

of Protectors Insurance Service.” Aplt. App. at 72. The returns

of Protectors Insurance Service showed reported net income in the

years before the sale ranging from a low of about $36,000 to a high

of about $84,000, with an average of about $59,000. Plaintiff

argues that the returns of Protectors Management Service show that

plaintiff’s net income was actually higher than this. Defendant,

on the other hand, argues that the combined returns of the two

companies show that plaintiff made under $2,000 in 1991 and lost

over $17,000 in 1992. 

The district court instructed the jury with respect to damages

as follows: 

To the extent that actual damages have been

proved by the evidence you shall award as

actual damages: 

1. The amount of net income and earnings the

Plaintiff ... would have earned if the

Defendants had not breached the contract; and

2. The amount which is the difference between

the price the Plaintiff ... received for the

sale of the agency’s business and the

reasonable sale value of the agency’s business

if the Defendants had not breached the

contract....”

Aplt. App. at 41. USF&G objected to this instruction, arguing that
6

it permitted plaintiff to obtain a double recovery because the

reasonable sale value of the agency was based on the agency’s

ability to earn future profits and, thus, plaintiff would be

compensated twice if it received lost profits on top of the sale

price. The district court rejected this, finding that the two

items were distinct because the sale value in 1992 was a “snapshot

in time” that did not include lost future profits. Aplt. App. at

60. As indicated previously, the jury returned a special verdict

finding $809,650 in lost profits and a $35,000 difference between

the actual sale price of the agency and its reasonable sale value.

Discussion.

USF&G first argues that the district court’s damage

instruction was erroneous because it permitted the plaintiff to

obtain a double recovery. We agree. In a breach of contract

action, the objective is to place the injured party in the same

position it would have been in but for the breach. McDonald’s

Corp. v. Brentwood Center, 942 P.2d 1308, 1310 (Colo.App. 1997).

A double or duplicative recovery for a single injury, however, is

invalid. Westric Battery Co. v. Standard Elec. Co., 482 F.2d 1307,

1317 (10th Cir. 1973). Plaintiff contends there was no double

recovery here because “[t]he record is devoid of any factual basis

for believing that the damages for the decreased sales price are

based upon or included future lost profits.” Aple. Br. at 30.

This assertion is contradicted both by the record and by common
7

sense. The testimony of plaintiff’s expert, John Putnam, shows

that his determination of the reasonable sale value of the agency

was based largely -- if not entirely -- upon the agency’s ability

to generate future profits. His testimony makes clear that the

value of an agency to a buyer is determined from its potential to

generate a future income stream. See e.g., Aplt. App. at 226.

Putnam conceded that all of the methods he used to determine value

took into account the agency’s ability to generate future profits.

Aplt. App. at 254. When asked what the reasonable sale price of

the agency’s business would have been but for the distress factors

brought about by the defendant, Putnam replied:

Well, at the time that it was sold, you know,

based upon income, because to a large degree

this is what we all — and I am talking about

commission revenue, what kind of income is

coming into the agency, what kind of expenses

they had. In my opinion the agency was worth

approximately $175,000 at the time that it was

sold had it not been sold under duress or

distress.

Aplt. App. at 228. 

We agree with USF&G that Albrecht v. The Herald Co., 452 F.2d

124 (8th Cir. 1971), although it is not controlling in this

diversity action, is analogous to the situation before us. In

Albrecht, the plaintiff was a contract carrier for a newspaper

publisher. After plaintiff charged the subscribers on his route a

greater price than the suggested retail price of the publisher, the

publisher began competing directly with the plaintiff on his own
2 The jury awarded damages for three items in the respective

amounts of $2,000, $12,000, and $57,000. Id. at 126. 

8

route. As a result of defendant’s actions, plaintiff was forced to

sell the route for $12,000. The publisher’s actions were later

found to violate the Sherman Act and the plaintiff obtained a jury

verdict comprised of three elements of damages: (1) plaintiff’s

lost profits prior to the sale caused by the publisher’s

competition; (2) the difference between the fair market value of

plaintiff’s business (with all his customers intact) at the time of

the sale and the actual sale price received; and (3) loss of future

profits following the forced sale. Id. at 126.2 In reversing the

award of lost profits, the Eighth Circuit explained after an

extensive review of cases why such an award was impermissible: 

[N]one of these cases allowed a plaintiff

damaged by an antitrust violation to recover

both the value of the business as a going

concern at the time of the damage and future

profits of that business after the time of the

damage. The future profits which were allowed

in those cases were used as a method of

calculating the damage to the value of the

businesses involved because no other reliable

method of valuing the business was presented.

However, in the instant case we have clear

proof in the record of the value of

plaintiff’s business as a going concern, and

that value must necessarily take into

consideration its future profit-earning

potential. Thus, we think that the cases

relied on by the defendant, which allow the

plaintiff to recover the going-concern value

of his business, but not future profits in

addition, are applicable to the instant case.

* * *
3 Morison was overruled in part on other grounds by Evans v.

Bd. of County Comm. of El Paso County, 174 Colo. 97, 482 P.2d 968

(Colo. 1971). 

9

It is our opinion that the plaintiff has

received all permissible damages under items

one and two, damages occasioned prior to the

sale and the full market value on the sale of

his route as a going concern, free of the

restrictive practices. This value is figured

on the basis of his reconstituted route with

all 1200 customers. Fair market value would be

that price a willing seller could secure from

a willing buyer, and the evidence establishes

$24,000 as the maximum price obtainable.

Plaintiff has thus been made whole on his

actual damages [....] He is not entitled to

sell the route, receive full compensation

therefor, and still receive the profits the

route might have made over his reasonable

work-life expectancy. The trial judge did cut

these damages down to future losses occurring

after the sale for a period of three years. We

feel this also is duplicitous. The prospect of

future earnings is considered in arriving at

the fair market value of a given business.

Here undoubtedly the value of the route rested

not in its tangible assets of an old truck and

paper wrapper (valued $600) but in the

exclusive contract for distribution of a well

regarded newspaper in a given area. Whatever

that fair market value might be, plaintiff has

received it. Capitalizing and discounting

future profits is one method of figuring

present value, but this does not mean that a

person is entitled to present value plus

future profits.

Id. at 131. 

To the extent Colorado courts have addressed the question of

duplicative damages, they have adopted a view similar to Albrecht.

For example, in State of Colorado v. Morison, 148 Colo. 79, 365

P.2d 266 (Colo. 1961),3 the court addressed the damages recoverable
10

by a farmer whose dairy cows had become diseased through the

defendant’s negligence:

[T]he Morisons are admittedly entitled to such

special damages as they are able to show with

reasonable certainty resulted from defendants'

negligence. This would include loss of

profits due to diminished milk production from

the cows before their sale; the value of

silage or feed that became contaminated and

therefore unusable; and the reasonable cost of

disinfecting the milking equipment, barn

facilities, and the farm in general.

 However, the Morisons are not entitled to

be awarded any sum representing loss of

profits for the dairy operation from and after

the date of the sale of their diseased cows.

Nor are they entitled to be compensated for

the loss of the progeny which they could

reasonably have expected from the cows.

Having received the diminution in their market

value[,] to allow these additional items would

be a form of double recovery. In other words,

fair market value itself reflects, inter alia,

the fact that the farm animal may have income

producing ability, including the ability to

propagate. 

A similar approach was taken by the Colorado Court of Appeals

in Forsyth v. Associated Grocers of Colorado, Inc., 724 P.2d 1360

(Colo.App. 1986), where a jury had awarded damages to an

independent grocer who had to sell his business as a result of a

misrepresentation by the defendant. The court of appeals reversed

the judgment because the trial court’s instruction on damages

permitted the jury to award lost profits in addition to an amount

awarded to ensure that plaintiff received the fair market value of

the business. “Such a result,” the court concluded, “would lead to

an improper double recovery.” Id. at 1365. 
11

Numerous jurisdictions hold to the view that “when the loss of

business is alleged to be caused by the wrongful acts of another,

damages are measured by one of two alternative methods: (1) the

going concern value; or (2) lost future profits.” Malley-Duff &

Assoc. v. Crown Life Ins. Co., 734 F.2d 133, 148 (3rd Cir. 1984).

See also Johnson v. Oroweat Foods Co., 785 F.2d 503, 508 (4th Cir.

1986) (the courts allow a plaintiff to recover either the present

value of lost future earnings or the present market value of the

lost business, but not both). The “going concern value” is the

price a willing buyer would pay and a willing seller would accept

in a free marketplace for the business in question. Malley-Duff,

734 F.2d at 148. It measures damages by awarding the difference

between the going concern value and the price actually received by

the plaintiff upon sale of the business. Cf id. This is clearly

the measure of damages that was presented by plaintiff’s expert in

the instant case and it properly supports the consequent award of

$35,000 by the jury. The award of lost profit damages in addition

to this amount, however, was an improper double recovery. 

Plaintiff contends that Atlas Building Products Co. v. Diamond

Block & Gravel Co., 269 F.2d 950 (10th Cir. 1959) supports the view

that an injured plaintiff can recover lost profits as well as a

“diminution in value” of the business. Atlas is distinguishable

because the plaintiff in that case continued to operate the

business despite the injury. Such a plaintiff might not be made
4 Plaintiff argues that Arnott v. The American Oil Co., 609

F.2d 873 (8th Cir. 1979), supports its position, but upon close

inspection it does not. First of all, Arnott recognized that

“going concern value” and lost future profits are alternative

measures of damage, which necessarily means that it is improper to

award both. See id. at 887. Moreover, the court said that the

jury in that case could have found that the sale “was a forced sale

with no allowance for goodwill or the value of a going business and

therefore that [plaintiff] had not received the fair market value

of his business.” Id. at 887. This analysis in inapplicable to

the instant case. The evidence in this case clearly showed that

the business was sold as a going concern, with its value arising

from the fact that it would continue to operate as an insurance

agency. Second, the damage instruction given to the jury in this

case told them to award the difference between the actual price

received for the business and “the reasonable sale value of the

agency’s business if the Defendants had not breached the contract.”

This instruction was clearly designed to ensure that the plaintiff

received fair market value for the business. 

12

whole by receiving lost profits because the business may be left

with assets (e.g., intangible assets such as goodwill) that have

less value than before the injury. Such a loss would be realized

by the owner upon a subsequent sale of the business. But where the

business is sold as a going concern and the owner is awarded the

fair market value of the business without the injury,4 the owner

has been made whole because that value takes into account the

prospect of future profits as well as the unreduced value of all

the business’ assets. Cf. Morison, supra (plaintiff could recover

profits lost before his cows were sold but not after). Plaintiff

also relies on Twentieth Century-Fox Film Corp. v. Brookside

Theatre Corp., 194 F.2d 846 (8th Cir. 1952), but that case did not

arise under Colorado law and thus does not diminish the holdings in

Morison and Forsyth, supra. Moreover, we think it clear that the
13

Eighth Circuit’s view of duplicative damages was refined in

Albrecht and it is the latter decision which provides guidance on

the question before us. 

We do not mean to suggest that there can never be an award of

lost profits in addition to damages for reduction in the value of

the plaintiff’s business. As we recognized in Westric Battery Co.

v. Standard Elec. Co., 482 F.2d 1307 (10th Cir. 1973), “[i]t is

conceivable that there could be capital loss shown in addition to

out-of-pocket expenses and loss of profits.” Id. at 1317. Such a

loss must exist clearly independently of the lost profits, however,

and “[t]he jury must be cautioned about duplicative items of

damage.” Id. Neither of these requirements was satisfied in the

instant case. In sum, we conclude that the judgment must be

vacated in part because it awards plaintiff an impermissible double

recovery. 

Not surprisingly, the parties disagree as to what effect a

double recovery has upon disposition of the appeal. Plaintiff

argues that only the $35,000 award for diminished sale value should

be vacated and that the lost profits award should stand, while

USF&G argues just the opposite. Although, as indicated above, the

“going concern” and “lost profit” measures are generally considered

alternative remedies, in this case we conclude that the award of

lost profits must be vacated. Just as in Albrecht, here we have

“clear proof in the record of the value of plaintiff’s business as
5 Plaintiff did not present a specific estimate of lost

profits from any witness but instead relied on the plaintiff’s tax

returns and the arguments of counsel. Although plaintiff at one

point attempted to establish the amount of lost profits through its

expert, the trial court sustained an objection to this testimony

because it was beyond the scope of the expert’s report and

designation. Aplt. App. at 232. In addition to its other

arguments, USF&G contends that the lost profits award should be

vacated because it was based on speculation by the jury. Because

we find that the lost profit award must be vacated for other

reasons, we do not reach this issue. 

14

a going concern, and that value must necessarily take into

consideration its future profit-earning potential.” Albrecht, 452

F.2d at 129. In fact, plaintiff’s expert in this case testified

solely to the going concern value and did not make an estimate of

lost future profits.5 Lost future profits may be used as a method

of calculating damage where no other reliable method of valuing the

business is available, see id., but that was not the case here.

Plaintiff has been made whole by receiving the fair market value of

the business; he “is not entitled to sell the [business], receive

full compensation therefor, and still receive the profits the

[business] might have made over his reasonable work-life

expectancy.” Id. See also R.E.B., Inc. v. Ralston Purina Co., 525

F.2d 749, 754 (10th Cir. 1975) (ability to earn future profits is

to be calculated as part of reduction of market value). Moreover,

we note that the lost profits award in this case would still be

duplicative even if the $35,000 were vacated because the former

fails to take into account the additional sum received by plaintiff

(over $148,000) for the sale of the business. Thus, the award of
15

lost profits cannot stand. 

Under the circumstances, we conclude that the proper course is

to vacate the portion of the judgment awarding $809,650 in lost

profit damages. The alternative award of $35,000 for diminution in

market value is appropriate and is AFFIRMED. The case is REMANDED

to the district court for entry of judgment in accordance with this

opinion.