* District Judge for the Southern District of Texas, sitting

by designation.

1 United States Court of Appeals,

Fifth Circuit.

No. 93-8421.

Sam B. HILLER, et al., Plaintiffs,

Federal Signal Corp., Plaintiff-Appellant,

v.

MANUFACTURERS PRODUCT RESEARCH GROUP OF NORTH AMERICA, INC.,

Intervenor-Plaintiff-Appellee,

v.

DURAVISION, INC., et al., Defendants,

Duravision, Inc., Defendant-Appellee.

DURAVISION, INC., et al., Plaintiffs,

Duravision, Inc., Plaintiff-Appellee,

v.

FEDERAL SIGNAL CORP., Defendant-Appellant.

Aug. 4, 1995.

Appeal from the United States District Court for the Western

District of Texas.

Before GARWOOD and EMILIO M. GARZA, Circuit Judges, and HEAD,

District Judge. *

EMILIO M. GARZA, Circuit Judge:

Federal Signal Corporation ("Federal") appeals from a judgment

entered against it after trial before a jury. After finding

Federal liable for fraud and violations of the Texas Deceptive

Tra de Practices and Consumer Protection Act ("DTPA"), Tex.Bus. &

Com.Code Ann. §§ 17.41-17.63 (Vernon 1987), the jury awarded1 The opinion of the Court consists of the following: parts

I, II.A.1, II.A.3, II.B, and II.C, and part II.A.2 to the extent

that it holds that the evidence did not establish certain

categories of lost profits with reasonable certainty. The

remainder of part II.A.2 constitutes my concurrence in part and

dissent in part to the decision of the Court, see Garwood, J.,

concurring in part and dissenting in part, infra, to remand for

retrial of all damages.

2 Duravision, Inc. ("Duravision") and Manufacturers Product Research

Group of North America, Inc. ("MPR") compensatory damages for lost

profits, and punitive damages. Federal appeals this damage award,

and we vacate and remand. 1

I

In 1987 Marc Johnson was hired by an advertising company

called Rollavision, U.S.A., Inc., which was in the business of

selling ads displayed on large video units in grocer y stores,

banks, airports, and other public places frequented by consumers.

Film inside each machine rotated periodically, displaying in

succession as many as twenty-five to thi rty advertisements.

Johnson worked as an ad salesman for Rollavision from October 1987

to December 1987, and his exposure to Rollavision influenced him to

start a business of his own, selling ads for machines like the ones

used by Rollavision.

After leaving Rollavision, Johnson met with representatives of

Federal, and informed them that he wanted to develop a display

machine, for placement in public establishments, which would handle

multiple ads and display them frequently during the day. Federal

represented to Johnson that it was well-equipped to design and

manufacture a device which would meet his needs. Johnson2 STOC was run by Alfonso Moran and Alejandro Amescua.

Amescua is a cousin of Rodolfo Velasco, the president of MPR.

3 incorporated Duravision, Inc., and ten days later Duravis ion and

Federal agreed that Federal would construct twenty display machines

capable of hou sing from eight to forty transparency frames, and

Duravision would buy the units for $3,100 each. An addendum to

that agreemen t, executed several months later, provided that

Federal would not sell a Duravision display machine to anyone other

than Duravision, as long as Duravision purchased at least 100 signs

every twelve months.

Duravision then began marketing the machines, assigning to MPR

the exclusive right t o buy Duravision displays from Federal for

export to Mexico and to all of South America except Colombia. In

return Duravision was to receive one-half of MPR's profits on the

resale of the machines, as well as one-half of any license fees

received by MPR. A Mexican firm, Servicios Tecnicos Orientados al

Commercio ("STOC"), 2 agreed to purchase Duravision machines from

MPR, and to pay MPR a franchise fee, as well as a licensing fee for

each machine it bought. Gran Bazar—a major retailer in Mexico

City—agreed to lease a number of Duravision units from STOC for

installation in its stores. Ricardo Guerra purchased from MPR the

exclusive right to market the Duravision concept in South America,

Central America, and the Caribbean, except for Colombia, agreeing

to buy Duravision machines from MPR and to pay MPR a franchise fee,

as well as a licensing fee for each machine purchased. Duravision

also granted a franchise to an Arkansas firm known as Duravision of3 The parties consented to have the case tried before a

United States Magistrate Judge.

4 America, Inc. ("the Arkansas franchisee"), agreeing to sell

Duravision machines to the Arkansas franchisee at cost plus $1000,

in return for a 6% royalty on any revenues the franchisee might

earn.

These arrangements all came to nought, however, when it became

apparent that Federal was unable to produce a working Duravision

machine as promised. Despite continual reassurances of the

impending completion of the project and the quality of the

machines, Federal never delivered a working Duravision sign. As a

result, all prospects for the dis tribution of the Duravision

displays were lost.

This litigation ensued, with Duravision and MPR asserting

claims for fraud and violations of the Te xas DTPA. The case was

tried before a jury, which found Federal liable and awarded

Duravision and MP R compensatory damages for lost profits in the

amounts of $3,995,000, and $4,750,000 respectively. The jury also

awarded punitive damages of $4,500,000 each to Duravision and MPR.

The magistrate judge entered judgment on the jury verdict and

awarded Duravision and MPR prejudgment interest. 3

Federal appeals, contending that (a) the jury's findings of

lost profits must be set aside, and the corresponding damage award

reversed, because MPR's and Duravision's recovery of lost profits

is precluded by T exas law, and because the lost profits were not

proved with reasona ble certainty; (b) it is entitled to a new5

trial because the district court committed reversible error by

excluding from evidence Plaintiff's Exhibits 51 and 51a; (c) the

award of punitive damages must be set aside, because there was

neither evidence nor a jury finding that Duravision or MPR was

injured in tort; and (d) the magistrate judge's award of

prejudgment interest must be set aside.

II

A

Federal contends that the jury's finding of Duravision's and

MPR's lost profits must be set aside, and the damage award for

those lost profits must be reversed, because (1) Texas law does not

permit unestablished or unprofitable businesses, such as Duravision

and MPR, to recover damages for lost profits; (2) Duravision and

MPR failed to prove lost profits with reasonable certainty; and

(3) the statute of frauds prevents Duravision and MPR from

recovering profits.

1

a

Before we ad dress Federal's first argument, we clarify

whether Duravision and MPR can recover any lost profits under Texas

law. Texas common law traditionally awarded only out-of-pocket

costs in fraud cases. Morriss-Buick v. Pondrom, 131 Tex. 98, 113

S.W.2d 889 (1 938); s ee also Camp v. Ruffin, 30 F.3d 37 (5th

Cir.1994) (rejecting benefit-of-the-bargain damages in common-law

fraud action). That measure, however, is no longer exclusive.

With the enac tment of the DTPA, Texas expanded the allowable4 See also Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d

369 (Tex.1984) (acknowledging that Texas common law allows "out

of pocket' damages, but also stating that Texas law also allows

"benefit of the bargain' damages under the DTPA); Streller v.

Hecht, 859 S.W.2d 114, 116 (Tex.App.—Houston [14th Dist.] 1993,

writ denied) ("Our common law allows recovery of either the

benefit of the bargain measure of damages or out of pocket losses

in fraud claims."); Hedley Feedlot, Inc. v. Weatherly Trust, 855

S.W.2d 826, 840 (Tex.App.—Amarillo 1993, writ denied) (same as

Streller ).

5 See also Airborne Freight Corp. v. C.R. Lee Enters., Inc.,

847 S.W.2d 289, 295 (Tex.App.—El Paso 1992, writ denied) ("[T]he

plaintiff is entitled to recover "special' or "consequential'

damages shown to be the proximate result of the

misrepresentation.").

6 See White v. Southwestern Bell Tel. Co., 651 S.W.2d 260,

262 (Tex.1983) (allowing recovery of lost profits in DTPA case);

Trenholm v. Ratcliff, 646 S.W.2d 927, 933 (Tex.1983) (allowing

recovery for lost profits in fraud action); Lebco, 865 S.W.2d at

74 (allowing contractor to recover lost compensation and lost

profits when property owner with whom he had contracted induced

him to begin construction by fraudulently misrepresenting the

status of the development loan).

6 methods by which damage s in a fraud case can be measured, and

today, Texas common law allows "either the "out-of-pocket' or the

"benefit of the bargain' damages, whichever is greater." W .O.

Bankston Nissan, Inc. v. Walters, 754 S.W.2d 127, 128 (Tex.1988). 4

Fraud victims are "also entitled to recover for pecuniary loss

suffered otherwise as a consequence of [their ] reliance upon the

m isrepresentation." T exas Commerce Bank Reagan v. Lebco

Constructors, Inc., 865 S.W.2d 68, 73 (Tex.App.—Corpus Christi

1993, writ denied). 5 Where properly proven, that is, not

speculat ive, these special damages can include lost profits. 6

Consequently, Texas law does allow the recovery of lost profits in

DTPA cases, and Duravision and MPR are not precluded p er se from

proving and recovering lost profits.7 Rodolfo Velasco testified that although MPR "never showed a

profit from 1984 until 1988," during those years "it was break

even." Record on Appeal, vol. 27, at 5.

8 The issue which Federal raises is one of state law, and we

review de novo the district court's resolution of that issue.

See Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct.

1217, 1225, 113 L.Ed.2d 190 (1991) ("The obligation of

responsible appellate review and the principles of a cooperative

judicial federalism underlying [ Erie Railroad Co. v. Tompkins,

304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ] require that

courts of appeals review the state-law determinations of district

courts de novo. "). The parties agree that the issue is governed

by Texas law.

7 b

Federal first argues that "as a matter of law" neither

D uravision nor MPR may recover damages for lost profits, because

neither company was an established, profitable business at the time

of the transactions in question. Federal points out that

Duravision was incorporated less than one month before it entered

into the Display Sales Agreement, and has never made a profit; and

that MPR has never made a profit, although it had been in business

for several years when th e transactions at issue here occurred. 7

Federal argues that "under Texas law, an unestablished business is

not entitled to recover lost profits." 8

A number of decisions of this Court and the Texas courts

indicate that businesses lacking a history of profitability may not

recover lost profits under Texas law. However, in light of the

most recent decisions on this subject, we conclude that this Texas

rule is not an absolute one. Under Texas law a business's failure

to demonstrate a history of profitability should be considered, but

is not independently dispositive, in deciding whether lost profits8

may be recovered.

The Supreme Court of Texas recently stated:

[W]here it is shown that a loss of profits is the natural and

probable consequence[ ] of the act or omission complained of,

and their amount is shown with sufficient certainty, there may be a recovery therefor.... It is not necessary that profits

should be susceptible of exact calculation, it is sufficient

that there be data from which they may be ascertained with a

reasonable degree of certainty and exactness .... "In order

that a recovery may be had on account of loss of profits, the

amount of the loss must be shown by competent evidence with

reasonable certainty."

Texas Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d

276, 279 (Tex.1994) (quoting Southwest Battery Corp. v. Owen, 131

Tex. 423, 115 S.W.2d 1097, 1098 (1938)). The court also quoted a

passage from Southwest Battery which indicates that new and

unestablished businesses may not recover lost profits: "The rule

denying a recovery

... where the enterprise is new or

unestablished, is still enforced, on the ground that the profits

which might have been made from such business are not susceptible

of being established by proof to that degree of certainty which the

law demands." I d. (quoting Southwest Battery, 115 S.W.2d at 1099).

Several of our decisions indicate that the new and

unest ablished business rule is a strict one, always denying

recovery to businesses which have failed to show a history of

profits. S ee Fiberlok, Inc. v. LMS Enters., Inc., 976 F.2d 958,

962 (5th Cir.1992) (stating that "prospective profits are not

recoverable for a newly established business or for a business that

has operated at a loss" and explaining that "[t]he former has no

track record, and the latter is an established loser"); G olden

Bear Distributing Sys. of Texas, Inc. v. Chase Revel, Inc., 7089

F.2d 944, 951 (5th Cir.1983) (stating categorically that "Texas law

permits the recovery of the expected profits of a business only if

"there was some data and history of profits from an established

business' " (emphasis added) (quoting Atomic Fuel Extraction Corp.

v. Slick' s Estate, 386 S.W.2d 180, 188 (Tex.Civ.App.—San Antonio

1964), writ ref'd n.r.e. per curiam, 403 S.W.2d 784 (Tex.1965)

(explicitly w i thholding approval of holding that only nominal

damages might be recovered))); K eener v. Sizzler Family Steak

Houses, 597 F.2d 453, 458 (5th Cir.1979) (stati ng that "[u]nder

Texas la w prospective profits a re not recoverable for a newly

established business or for a business which has operated at a

loss" (emphasis added)), cited in Golden Bear, 708 F.2d at 951

("accord"); F redonia Broadcasting Corp., Inc. v. RCA Corp., 481

F.2d 781, 803 (5th Cir.1973) (stating "the well-established rule

that prospective profits from a new enterprise which has no history

of profits are too remote and speculative to be included in

compensatory damages" (quoting S outhwest Bank & Trust Co. v.

Executive Sportsman Ass'n, 477 S.W.2d 920, 929 (Tex.Civ.App.—Dallas

1972, writ ref'd n.r.e.))).

Our statements to that effect were supported by the teaching

of the Tex as courts of appeals. Most notably, in A tomic Fuel

Extraction Corp. v. Slick's Estate, the San Antonio Court of Civil

Appeals explained:

Since the decisio n in Southwest Battery Corporation v.

Owen, Texas has permitted recovery of lost profits to a

business that can prove it is established and making profits

at the time a contract is breached or a tort committed. That

case explains that pre-existing profits, together with other

facts and circumstances, may supply the reasonable certainty10

required both as to the fact of damages and the amount. The

success of an enterprise, measured in profits, is dependent

upon a multit ude of risks, chances and circumstances; and

without some history of profits there is inadequate data upon

which to prove the fact of da mages with the certainty

required. A new and unestablished business without a profit

record leaves too much to conjecture and speculation.

Id., 396 S.W.2d at 188 (c itation omitted). The court in A tomic

Fuel, citing numerous decisions, observed tha t "[i]n those Texas

cases which have permitted recove ry, there was some data and

history of profits from an established business," and "[i]n sharp

contrast with those prece dents are those which have consistently

denied future profits when the business was new and unestablished."

Id. at 188-89, quoted in Fredonia Broadcasting, 481 F.2d at 803.

The court stated that "[p]roof of an operation of a business at a

loss fails to meet the test." I d. at 189 ; s ee also First Texas

Sav. Ass' n v. Dicker Ctr., Inc., 631 S.W.2d 179, 187

(Tex.App.—Tyler 1982, no writ); G anda, Inc. v. All P lastics

Molding, Inc., 521 S. W.2d 940, 943 (Tex.Civ.App.—Waco 1975, writ

ref'd n.r.e.); Executive Sportsman Ass'n, 477 S.W.2d at 929.

However, several recent decisions of Texas courts of appeals

indicate that the absence of a history of profitability is not

dispositive of the issue of recovery of lost profits; rather it is

one consideration, and lost profits may be recovered, even absent

a his tory of profitability, if other evidence establishes lost

profits with reasonable certainty. The court of appeals stated

that conclusion quite clearly in Orchid Software, Inc. v. PrenticeHall, Inc

., 804 S.W.2d 208 (Tex.App.—Austin 1991, writ denied).

There the court stated that "more recent cases have held that a new9 See also Wissman v. Boucher, 150 Tex. 326, 240 S.W.2d 278,

281 (1951) (stating that "the normal criterion" for recovery of

lost profits is "an established record of profits made prior to

the act which is the basis of damage claim" (emphasis added)).

11 business may use other data besides past profit history to show

anticipated profits to a reasonable certainty," and held "that the

absence of a history of profits does not, by itself, preclude a new

business from recovering lost future profits." Id. at 210-11. 9

The court of appeals in Pena v. Ludwig, 766 S.W.2d 298

(Tex.App.—Waco 1989, writ requested), stated that although "[l]ost

profits of a new or unestablished business generally cannot be

proved to a reasonable certainty due to the absence of a prior base

period for comparison[,]

... lost profits may be recovered for a

new enterprise, if factual data is otherwise available to furnish

a sound basis for computing probable losses." I d. at 301

(citations omitted). The court explained that "[w]hether the

evidence is sufficient to support a finding of lost profits must be

determined from the facts of each case." Id.

In Frank B. Hall & Co. v. Beach, Inc., 733 S.W.2d 251

(Tex.App.—Corpus Chri sti 1987, writ ref'd n.r.e.), the appellant

argued—as does Federal here—that the jury's damage award had to be

reversed because "a "business which operates at a loss ... cannot

recover lost profits.' " I d. at 257. The court of appeals

rejected that argument, noting that "Beach did not contend

...

Hall's conduct caused it to suffer another year of operating at a

loss. Rather, Beach sought to prove that Hall's conduct caused it

to lose specific business from which it would have realized a10 The court of appeals in Hall overturned the jury's damage

award on other grounds. See Hall, 733 S.W.2d at 258-59 (noting

that verdict was based on estimates of lost profits which were

not supported by "objective facts, figures, or data").

11 The court also stated:

This does not mean, however, that the "reasonable

certainty" test lacks clear parameters. Profits which

are largely speculative, as from an activity dependent

on uncertain or changing market conditions, or on

chancy business opportunities, or on promotion of

untested products or entry into unknown or unviable

markets, or on the success of a new and unproven

enterprise, cannot be recovered. Factors like these

and others which make a business venture risky in

prospect preclude recovery of lost profits in

retrospect.

Teletron, 877 S.W.2d at 279 (emphasis added). The Texas

12 certain profit." Id. The court explained that "[i]t is entirely

possible that a business can make a profit on individual jobs, yet

still end up with a net year-end loss. Furthermore, simply because

a business may have a net loss does not mean that it cannot suffer

further damage at the hands of another." Id. at 258. 10

We are not a ware of any decision of the Texas Supreme Court

that expressly decides whether the failure to demonstrate a history

of profitability—by itself—bars the recovery of lost profits.

However, the Texa s Supreme Court's recent decision in T exas

Instruments, Inc. v. Teletron Energy Management, Inc. is

instructive. There the court stated:

The requirement of "reasonable certainty" in the proof of lost

profits is intended to be flexible enough to accommodate the

myriad circumstances in which claims for lost profits

ari se.... "Profits are not always speculative and remote.

Whether in a given case they should be so classified depends

altogether upon the facts and circumstances of that particular

case." ... "What constitutes reasonably certain evidence of

lost profits is a fact intensive determination." 11Supreme Court's reference to "clear parameters," and

"factors" which "preclude recovery of lost profits," appears

compatible with a strict rule denying recovery whenever a

business fails to prove a history of profits: the court's

list of factors which preclude recovery was not exhaustive,

see id. (referring to "[f]actors like these and others "

(emphasis added)), and the absence of a profit history

arguably could be one such factor. However, the court's

analysis of the evidence in Teletron leads us to conclude

that treating the absence of profit history as one

consideration—but not a dispositive one—is more consistent

with the Texas Supreme Court's view of the reasonable

certainty requirement.

12 See id. at 280 (distinguishing Southwest Battery and Pace

Corp. v. Jackson, 155 Tex. 179, 284 S.W.2d 340 (1955)—two cases

where recovery of lost profits was permitted—based on the fact

that "[t]he businesses in [those] cases actually operated at a

profit," whereas the plaintiff in Teletron "never did").

13 See id. at 281 (pointing out that Pace and Southwest

Battery

"involved the sale of established products").

13 Teletron, 877 S.W.2d at 279 (quoting Southwest Battery, 115 S.W.2d

at 1099; Whiteside v. Trentman, 141 Tex. 46, 170 S.W.2d 195, 197

(1943); H olt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84

(Tex.1992)). Furthermore, although emphasizing that the plaintiff

in Teletron had never ope rated at a profit, 1 2 the Texas Supreme

Court did not end its analysis there. The court also emphasized

that the case bef ore it involved "the proposed sale of a new and

unique product which h ad never been sold before," and the

production of which appea red not to be feasible. 1 3 Although the

absence of profit history was an important consideration in

T eletron, the court did not list it as a factor which prec luded

recov ery of lost profits, and stated that "[t]he focus is on the

experience of the persons involved in the enterprise and the nature

of the business activity, and the relevant market." Id. at 280.14 Although the court in Teletron stated that "[t]he rule

denying a recovery ... where the enterprise is new or

unestablished, is still enforced," id., 877 S.W.2d at 279

(quoting Southwest Battery, 115 S.W.2d at 1099), the court also

explained that a new business is not absolutely barred from

recovering lost profits simply because it is new:

The fact that a business is new is but one

consideration in applying the "reasonable certainty"

test. In Southwest Battery the Court endorsed

enforcement of a rule denying recovery of lost profits

"where the enterprise is new or unestablished." But

this rule does not deny recovery by a new business

simply because it is new; it denies recovery "on the

ground that the profits which might have been made from

such businesses are not susceptible of being

established by proof to that degree of certainty which

the law demands." The mere hope for success of an

untried enterprise, even when that hope is realistic,

is not enough for recovery of lost profits. When there

are firmer reasons to expect a business to yield a

profit, the enterprise is not prohibited from

recovering merely because it is new.

Id. at 280. Also, according to Teletron, the new or

unestablished " "enterprise' referred to in Southwest

Battery is not the business entity, but the activity which

is alleged to have been damaged." Id. In light of that

language we reject Federal's argument that Duravision is

barred from recovering lost profits because it was

incorporated only a matter of days before the agreement with

Federal.

14 We follow the Teletron court's example by declining to treat

the absence of a profit history, on the part of either Duravision

or MPR, as dispositive of the recoverability of lost profits. We

hold that the absence of a history of profitability, like the fact

that a business is new, is "but one consideration." 14 I d. Several

of our decisions indicating a contrary result— Golden Bear, Keener,

and Fredonia Broadcasting —preceded the decisions in Teletron,

Orchid Software, Frank B. Hall, and Pena, and therefore do not

reflect the recent trend in Texas law which the latter cases15 But see Fiberlok, 976 F.2d at 963 (describing the rule

denying recovery for new and unestablished businesses as "the

general rule," and stating that that rule "does not apply to a

business established on the basis of a contract sufficiently

specific in nature as to allow credible prediction of the amount

of lost profits, particularly if factual data is available to

furnish a sound basis for computing probable loss").

15 represent. Because our 1992 decision in F iberlok is more recent

than Orchid Software, Hall, and Pena, we regard Fiberlok as

declining to adopt the view of Texas law which those cases

represented. However, the Texas Supreme Court's decision in

Teletron implicitly approved the approach which was taken in Orchid

Software, Hall, and Pena. Therefore, to the extent that the view

of Texas law expressed here represents a departure from that in

Fiberlok, 15 we believe such a departure is justified by the decision

in Teletron.

2

Deciding whether the evidence is sufficient to prove lost

profits with reasonable certainty requires a detailed discussion of

the facts. "Recovery for lost profits does not require that the

loss be susceptible of exact calculation. However, ... [t]he

amount of the loss must be shown by competent evidence with

reasonable certainty." H olt, 835 S.W.2d at 84 (citations omitted).

"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." I d. Federal argues that most of the

lost profits awarded by the jury were not proved with reasonable

certainty, but were merely hoped for by Duravision and MPR.

Duravision and MPR respond that t hey proved lost profits via16

specific cont racts which would have earned revenues in Mexico,

South America, and Arkansas, but which were cancelled because of

Federal's failure to deliver the Duravision machines.

a

The ju ry awarded Duravision $3,995,000 in damages—almost

exactly the figure presented by Duravision's expert, Christopher

Pflaum. Pflaum computed Duravision's damages to be $3,994,902,

based on lost profits from sales of display machines, leases of

display machines, sales of advertising, license fees, and franchise

fees, in Mexico, Arkansas, and So uth America, less operating

expenses. Similarly, the jury awarded MPR almost exactly the

amount of damages testified to by MPR's damages expert, Timothy Ray

Moore. Moore testified that MPR suffered $4,751,530 in damages,

based on lost profits from sales and leases of display machines,

sales of advertising, license fees, and franchise fees in Mexico,

South America, and Arkansas, less operating expenses. The jury

awarded MPR $4,750,000 in damages. Because the amounts of damages

awarded by the jury so closely approximated the amounts testified

to by Pflaum and Moore, we regard the j ury's verdict as finding

that the amounts testified to by the experts were correct.

"The standard for appellate review of a jury's verdict is

exacting." C hemical Distrib., Inc. v. Exxon Corp., 1 F.3d 1478,

1483 (5th Cir.1993).

"The verdict must be upheld unless the fac ts and inferences

p oint so strongly and overwhelmingly in favor of one party

that reasonable [individuals] could not arrive at any verdict

to the contrary. If there is evidence of such quality and

weight that reasonable and fair minded [individuals] in the

exercise of impartial judgment might reach different16 The Gran Bazar lease agreement was engineered by STOC, but

will be addressed separately from STOC's sales of Duravision

machines.

17 conclusions, the jury function may not be invaded."

Id. (quoting Granberry v. O'Barr, 866 F.2d 112, 113 (5th

Cir.1988)). Therefore, we must decide whether a reasonable person

could find that Duravision's and MPR's lost profits were not

speculative, but were proved with reasonable certainty. "[W]e are

bound to view the evidence and all reasonable inferences in the

light most fa vorable to the jury's determination." R ideau v.

Parkem Indus. Serv., Inc., 917 F.2d 892, 897 (5th Cir.1990). "Even

though we might have reached a different conclusion if we had been

the trier of fact, we are "not free to reweigh the evidence or to

re-evaluate credibility of witnesses.' " I d. (quoting Gla ss v.

Petro-Tex Chem. Corp., 757 F.2d 1554, 1559 (5th Cir.1985)).

The Durav ision concept was marketed in four main areas—in

Mexico, via S .T.O.C.; in Mexico, via an agreement with the Gran

Bazar retail chain; 16 in South America, by way of an agreement with

Ricardo Guerra; and in Arkansas, through the Arkansas franchisee,

Duravision of America, Inc. The future profits which Duravision

and MPR would have earned in each of these areas are in dispute,

and we will examine each one separately.

b

Servicios Tecnicos Orientados al Commercio

In the summer of 1988 MPR acquired from Duravision the

exclusive rights (1) to purchase Duravision displays from Federal

for export to Mexico, and (2) to ma rket the machines in Mexico.18

MPR agreed to pay Duravision one half of all licensing fees from

the Duravision concept, as well as one half of all profits from the

sale of Duravision machines.

Shortly thereafter MPR transferred to STOC the exclusive right

to market the Duravision idea in Mexico. Alejandro Amescua and

Alfonso Moran, representing STOC, signed a letter approving the

following conditions of the agreement: (1) STOC would acquire

Duravision machines from MPR at the rate of $3500 per machine; (2)

for each machine imported into Mexico, STOC would pay MPR an annual

license fee of $1000 for the first year, to be negotiable

thereafter but not to be less than $1000; and (3) STOC would buy

a minimum of 100 Duravision machines during a period of 12 months.

See Record on Appeal, Defendant's Exhibit D-129.

Several days later Moran, on behalf of STOC, sent a letter to

MPR agreeing to the following additional terms "as a compl[e]ment"

to the prior agreement: (1) that the cost of the exclusive right

to market the Duravision concept in Mexico would be $175,000; and

(2) that the cost of the license would be $1000 per machine per

year "for the first three years," but would be negotiated for the

subsequent years. See id. Defendant's Exhibit D-130.

On July 30, 1988, Moran wrote Duravision a "formal letter of

intent to buy

... a minimum of eight hundred (800) "Duravision

displays' " that year, "to be delivered in the next six months,"

for $3500 each. See id. Defendant's Exhibit D-140. The terms of

the formal letter of intent were reiterated by a letter from Moran

to Duravision the following month, in which Moran stated: "By17 See also Defendant's Exhibit D-131 (setting out additional

terms as a "complement" to the MPR-STOC agreement, and stating

that STOC's "needs ... estimated for the first year, could be

approximately ... 800 to 1200 units").

18 Pflaum prepared two charts, one of which was based on

sales of 1200 units, the other on sales of 800 units. The jury's

verdict reflects that the jury did not accept Pflaum's

calculations based on sales of 1200 units.

19 If 800 machines had been sold, and STOC had paid MPR $1000

per machine per year for three years, the total license fee paid

to MPR would have been $2,400,000 (800 machines × $1000 × 3 years

= $2,400,000). Pflaum arrived at a lower amount, $2,200,000, by

allowing for the time required to deliver all of the 800 machines

to Mexico. In late July of 1988 Moran wrote STOC's formal letter

of intent to purchase 800 machines, to be delivered within six

19 accepting these terms you will assure us that nobody will be able

to purchase these Signs from you for the purpose of exporting them

into Mexico." Moran also indicated that in light of STOC's

con tacts with public transit authorities in Mexico City, "very

probably the amount of eight hundred displays ordered w[ould] be

increased to arou nd 1,200 displays the first year." 1 7 S ee id.

Defendant's Exhibit D-141.

Based on the foregoing informatio n, Pflaum and Moore

calculated the profits that Duravision and MPR would have earned if

F ederal had provided the Duravision display machines that it had

promised. Pflaum prepared a chart, based on projected sales of 800

units, 18 which represented that Duravision would have received the

following revenues:

(i) $87,500 Duravision's half of the $175,000 fee to be paid

by STOC to MPR for the exclusive right to market the

Duravision concept in Mexico;

(ii) $1,1 00,000 Duravision's half of the license fees to be

paid by STOC to MPR each year for a period of three

years, on each machine imported into Mexico by STOC; 19months. Pflaum assumed "that by the end of 1989, all eight

hundred machines would be in place." Record on Appeal, vol. 38,

at 29. Consequently, according to Pflaum's calculations, 1990

would be the first year in which license fees of $1000 per

machine would be received for all 800 machines. Pflaum

calculated that $800,000 in license fees would be received by MPR

in each of 1990 and 1991, but only $600,000 would be received by

the end of 1989. Hence the figure $2,200,000 ($600,000 +

$800,000 + $800,000 = $2,200,000), of which Duravision's one half

share would have been $1,100,000. Pflaum's allowance for

delivery time is not challenged on appeal.

20 The jury's verdict is inconsistent to the extent that it

awarded damages to Duravision based on the sale of 800 Duravision

machines, but awarded damages to MPR based on the sale of 1200

machines. Because Duravision and MPR agreed to divide equally

the profits from the sale of all machines, the jury verdict is

unsupported by the evidence to the extent that it implicitly

finds MPR would have earned revenues based on the sale of an

additional 400 machines. However, because the parties present no

argument as to this issue it is not properly before the Court.

20 (iii) $400,000 Duravision's half of the profits to be received

by MPR on the sale of 800 units to STOC for $3500 each:

Pflaum figured that Federal would sell each unit to MPR

for $2500, and that MPR would therefore earn a profit of

$1000 on each unit, resulting in a total profit on sales

of $800,000.

The total of all of the foregoing is $1,587,500.

Moore's calculation of MPR's lost revenues differed from

Pflaum's calculations in the important respect that Moore based his

numbers on sales of 1200 machines. In other important respects

Moore's calculations mirrored Pflaum's. 20 Moore prepared a chart,

based on sales of 1200 units, which represented that MPR would have

earned the following revenues:

(i) $87,500 MPR's half of the $175,000 fee paid by STOC to MPR

for the exclusive right to market the Duravision concept

in Mexico;

(ii) $1,800,000 MPR's half of the license fees to be paid by

STOC to MPR each year for a period of three years, on21 Unlike Pflaum, Moore did not allow for the time required

to deliver all of the machines he anticipated would be purchased

by STOC. Neither his failure to do so—nor the jury's finding

accepting his calculations to that effect—is challenged on

appeal. Moore simply calculated that $1000 would be paid on each

of 1200 machines every year for three years, resulting in a total

receipt by MPR of $3,600,000 ($1000 × 1200 machines × 3 years =

$3,600,000). MPR's half of that sum would, of course, be

$1,800,000.

22 Arguably, the machines could not even have been bought

from Federal under the terms of the parties' agreements, since

the record contains no evidence of a contract binding Federal to

produce all the Duravision displays that the jury's damage award

was based on. Duravision and MPR's claims for lost profits are

necessarily predicated not only on the demand for Duravision

machines, but also on their ability to meet that demand.

Consequently, the absence of evidence that Federal was

contractually bound to produce the hundreds of machines which

formed the basis of the jury's verdict calls into question the

certainty of the lost profits which the jury found. However,

Federal does not argue that Duravision's and MPR's lost profits

were, for that reason, not proved with reasonable certainty.

That argument is therefore waived.

21 each machine imported into Mexico by STOC; 21

(iii) $600,000 MPR's half of the profits to be received by MPR

on the sale of 1200 units to STOC for $3500 each: Moore

figured that Federal would sell each unit to MPR for

$2500, and that MPR would therefore earn a profit of

$1000 on each unit, resulting in a total profit on sales

of $1,200,000

The total of the foregoing revenues is $2,487,500.

i

Federal initially challenges these damages calculations by

arguing that MPR and Duravision failed to establish with reasonable

certainty that any of the 1200 Duravision machines could have been

sold. 22 Although I agree as to any sales in excess of 800 machines,

I conclude that sufficient facts and figures indicated the future

sale of 800 ma chines to permit recovery of corresponding lost

profits.22

MPR's expert, Moore, computed lost profits on the basis of

1200 machines, which Moran mentioned in a letter to Duravision. In

that letter Moran stated: "Also be informed that we contacted the

officers in the Subway System in Mexico City and the Airport

management and very probably the amount of eight hundred displays

ordered will be increased to around 1,200 displays the first year."

Record on Appeal, Defendant's Exh ibit D-141. The only other

indication that 1200 machines would be purchased by STOC is found

in an earlier letter from Moran to MPR, in which Moran stated that

STOC's "estimated" "needs" for the first year "c ould be

approximately

... 800 to 1200 units." Record on Appeal,

Defendant's Exhibit D-130.

Moran's statements of an approximate number of machines which

he "could" need, and which he "very probably" would order, does not

provide the degree of certainty which is required for recovery of

lost profits. "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." H olt, 835 S.W.2d at

84. "We cannot uphold an award of damages based on speculation."

Hall, 733 S.W.2d at 259 (overturning jury verdict where evidence

supporting finding of lost profits was estimate, u nsupported by

underlying facts, of "about" how much plaintiff could have made);

see also Fenwal, Inc. v. Mencio Sec., Inc., 686 S.W.2d 660, 6 6 5

(Tex.App.—San Antonio 1985, writ ref'd n.r.e.) (overt urning jury

verdict where evidence supporting lost profits was statement that

company would do "in the neighborhood of $300,000 in gross sales"23 Several witnesses at trial inadvertently referred to

Moran's statements as an order for 1200 machines. See Record on

Appeal, vol. 25, at 152 (where Moran testified that he "place[d]

an order" with Duravision for 800 machines, and that "order g[o]t

increased to twelve hundred machines"); id. vol. 24, at 87

(where Rodolfo Velasco testified that "STOC increase[d] the

number of signs it was ordering from duravision and M.P.R. group

... from eight hundred to twelve hundred units"); id. vol. 26,

at 99 (where Moran testified that he "decided to increase the

order by another four hundred"). In light of the explicit terms

of Moran's correspondence, the foregoing testimony does not

support the conclusion that either of Moran's letters amounted to

an order for 1200 machines. See generally Fed.R.Evid. 1002 ("To

prove the content of a writing ... the original writing ... is

required, except as otherwise provided in these rules or by Act

of Congress."), 1004 (providing that "[t]he original is not

required, and other evidence of the contents of a writing ... is

admissible if" the original is lost, destroyed, not obtainable,

in the possession of the opposing party, or not closely related

to a controlling issue).

23 and profit would be "in the neighborhood of about I guess

$60,000"). Moran's statements regarding the purchase of 1200

machines are unsupported by any underlying facts, and are patently

speculative. 23 As such they are insufficient to prove with

reasonable certainty any lost profits from the sale of Duravision

machines over 800 units, and the jury's verdict awarding MPR lost

profits must be modified accordingly. MPR may not recover lost

profits from sales or from license fees for any of the 400 machines

erroneously included in Moore's calculations.

As to the remaining 800 signs, however, I reject Federal's

arguments. First of all, I conclude that a binding contract was

entered into between STOC and MPR which entitled MPR to the sale of

100 Duravision machines during the first year of the contract. A

letter from Moran to MPR specifically stated, "the minimum quantity

... will be the buying of 100 units." A binding contract which24 Federal concedes that Texas courts have permitted recovery

of lost profits where there was "proof of existing, enforceable

contracts." Reply Brief for Federal at 4.

24 would have resulted in ascertaina ble profits can satisfy the

plaintiff's burden of proving lost profits with reasonable

certainty. S ee Holt, 835 S.W.2d at 85 (stating that plaintiffs

"could have supported their lost profits with testimony that they

had lost out on specific contracts"); F leming Mfg. Co. v. Capitol

Brick, Inc., 734 S.W.2d 405, 407 (Tex.App.—Amarillo 1987, writ

ref'd n.r.e.) (stating that "[p]roof of existing contracts for ten

inch bricks

... would have satisfied th[e] burden" of proof with

reasonable certainty). 24 A binding agreement between MPR and STOC

for the purchase of 100 units proved those sales with reasonable

certainty in this case.

The remaining units upon which Pflaum based his calculations

were the subject of Moran's formal letter of intent. Although

apparently not a binding contract, neither is Moran's letter of

intent a mere statement of opinion or conjecture, as was his

reference to a probable order of 1200 machines. Moran stated his

intent to purchase a specific number of machines (800) for a stated

price ($3500 each) within a definite time period (six months). As

a result, the formal letter of intent satisfied the requirement of

"objective facts, figures, or data from which the amount of lost

profits can be ascertained." Holt, 835 S.W.2d at 84.

Furthermore, several weeks later Moran repeated his statement

of intent in the following letter to Marc Johnson:

Dear Marc:25 Moran testified at trial that in his experience in

business, written agreements usually follow formal letters of

intent. See Record on Appeal, vol. 26, at 93.

26 Federal contends that the "number of displays that could

have been sold if the displays had functioned properly is a

matter of pure speculation" because Moran's "letters of intent

were not supported by orders from" stores where the displays

would eventually be installed. Reply Brief for Federal at 8. We

disagree. Despite the absence of contracts to install units in

the field, Moran issued the formal letter of intent and, several

25 In reference to our July 30th, Letter of Intent for Eight

Hundred (800) "Duravision Displays" we are confirming you that

as per our conversations with Mr. Rodolfo Velasco we accepted

that the price for each Display will be $3,500.00 USD FOB

Mexico City and we will pay you the amo unt of $1,000.00 USD

per display per year as a "License Fee" for using the

exclusive rights to market this concept in Mexico.

By accepting these terms you will assure us that nobody will

be able to purchase these Signs from you for the purpose of

exporting them into Mexico....

SINCERELY YOURS.

/s/ALFONSO MORAN DIRECTOR.

Record on Appeal, Defendant's Exhibit D-141.

Moran's letters amply support the inference that STOC would

have entered into a binding contract for the purchase of those

displays had they been available. 25 Furthermore, there is no reason

to believe that MPR would have been less willing than STOC to

complete the sale of the 800 Duravision machines. Even assuming

that the machines would have cost MPR $3100 each, as Federal

contends, MPR would have made a profit on the sale of each machine,

and therefore had good reason to sell the machines which STOC

de sired to purchase. In light of these facts, it is reasonably

certain that a binding contract for the sale of 800 Duravision

machines would have been completed, had they been produced. 26weeks later, sought MPR's and Duravision's acceptance of its

terms. See supra, Record on Appeal, Defendant's Exhibits D-140

(July 30 letter of intent), D-141 (letter of 20 August). That

evidence showed with reasonable certainty that Moran would have

entered into a contract to buy 800 units, even though he had not

obtained contracts to install the units in public establishments.

Admittedly, the absence of contracts for installation of the

units might have compromised STOC's ability to honor an agreement

to purchase 800 units from MPR. However, it is always possible

that contracts will be breached, and Texas courts nonetheless

have indicated that contracts which would have given rise to

certain profits may satisfy the requirement of reasonable

certainty.

26 Federal argues, however, that Moran's formal letter of intent

is merely an unenforceable agreement to agree, and as such will not

support recovery of lost profits damages. Federal relies for that

proposition on Reid v. El Paso Construction Co., 498 S.W.2d 923

(Tex.1973), where the Supreme Court of Texas reversed an award of

lost profits which was based on an unexecuted collateral contract,

holding that proof of the lost profits was "remote, contingent, and

too uncertain." I d. at 925. However, in R eid the Te xas Supreme

Court did not hold that executory contracts generally are

insufficient evidence of future lost profits. Furthermore, Reid is

distinguishable on its facts.

The plaintiffs in Reid purchased land from the defendants and

entered into an oral agreement with a third party to build

apartment buildings on the premises. S ee id. The plaintiffs

alleged that they lost profits, which they would have earned by

building the apartments, because that the defendants had secretly

altered the drainage of the land before selling it to the

plaintiffs, causing it to flood with the first heavy rains. I d. at

924-25. In denying recovery of the lost profits, the Texas Supreme27

Court noted that there was "no evidence that [the defendants] knew

or had any reason to know abo ut an agreement by which plaintiffs

intended to or had a contract to erect a partment units on the

vacant lot...." I d. at 925. Here, by contrast, Federal knew that

Duravision would attempt to distribute hundreds of its machines for

placement in public establishments. Therefore, R eid does not

require reversal in this case.

Federal also relies on Federal Land Bank Ass'n v. Sloane, 793

S.W.2d 692 (Tex.App.—Tyler 1990), rev'd in part on other grounds,

825 S.W.2d 439 (Tex.1991), in which the court of appeals overturned

a jury verdict awarding damages for lost profits. S ee id. at 699-

700, 701. Hoping to raise broiler chickens for sale to Pilgrim's

Pride, the Sloanes sought financing from FLBA for construction of

two chicken houses. See id. at 694. FLBA's loan officer assured

the Sloanes that their loan application had been approved, but

several months later FLBA informed the Sloanes that the money would

not be forthcoming. See id. at 694-95. As a result, the Sloanes

were unable to finalize an agreement with Pilgrim's Pride. S ee id.

a t 695. The Sloanes sued FLBA, and the jury awarded damages for

profits that the Sloanes would have made under a contract with

Pilgrim's Pride. See id.

The court of appeals reversed the award of lo st profits,

stating that "there was no proposed form of contract between the

Sloanes and Pilgrim introduced into evidence; [and] there was no

proof as to any of the specific terms of suc h proposed future

c ontract from which the jury could award lost profits with27 The court of appeals in Sloane also relied on dicta from

the court of appeals' opinion in Allied Bank West Loop v. C.B.D.

& Associates, 728 S.W.2d 49 (Tex.App.—Houston [1st Dist.] 1987,

writ ref'd n.r.e.). The court in Allied Bank stated that "[i]n

order 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."

Id. at 54-55. However, the Allied Bank case did not raise the

issue whether future contracts must actually be in existence to

permit the recovery of lost profits where there is no profit

history: the court sustained the award of lost profits because

the plaintiff's "financial history ... showed profitability."

Id. at 55. Furthermore, after carefully examining the two cases

cited by Allied Bank for the requirement of existing future

contracts— Southwest Battery and Automark of Texas v. Discount

Trophies, 681 S.W.2d 828 (Tex.App.—Dallas 1984, no writ)—we can

find no support for such a rigid rule. To the contrary, both

Southwest Battery and Automark indicate that the recoverability

of lost profits must be decided upon the facts of each case. See

Southwest Battery, 115 S.W.2d at 1099 ("It is impossible to

announce with exact certainty any rule measuring the profits the

loss for which recovery may be had."); Automark, 681 S.W.2d at

829 ("Each such case must be determined on its own facts."); see

also Teletron, 877 S.W.2d at 279 (stating that the "requirement

of "reasonable certainty' in the proof of lost profits is

intended to be flexible enough to accommodate the myriad

circumstances in which claims for lost profits arise," and that

"[w]hat constitutes reasonably certain evidence of lost profits

is a fact intensive determination"). Although we recognize the

probative force of existing contracts in lost profits cases, see

Holt, 835 S.W.2d at 85 ("The Heines could have supported their

lost profits with testimony that they had lost out on specific

contracts...."), we do not regard Texas law as including a strict

requirement of the actual existence of future contracts wherever

no history of profitability is shown.

28 reasonable certainty." I d. at 699. S loane is easily distinguished

from this case because Moran's formal letter of intent did propose

a contract between STOC and MPR, including specific terms of price,

quantity, and delivery date. Because it is distinguishable on its

facts, Sloane is not controlling. 27

I would therefore hold that Dur avision and MPR proved with

reasonable certainty that they would have sold 800 Duravision

display machines to STOC, and that both MPR and Duravision are28 See Record on Appeal, vol. 30, at 16 ("I've seen a lot of

things about what the price is going to be. I can't say that any

one of them says this is the price we agree on.").

29 entitled to collect license fees and profits from the sale of those

machines.

ii

Federal further contends that the evidence does not support

Moore's and P flaum's assumption that Federal would have sold

machines to MPR for $2500. In calculating MPR's and that

Duravision's profits on the sale of displays to STOC, Moore and

Pflaum posited that MPR could have purchased the machines from

F ederal for $2500 each and sold them to STOC for $350 0 each,

resulting in a per-machine sales profit of $1000. Duravision and

MPR contend that Federal promised to reduce the cost of each

display from $3100—the amount pr ovided in the initial agreement

between Duravision and Federal—to $2500. Federal argues that no

agreement was reached for a reduction in the price of a Duravision

display from $3100 to $2500, and that Duravision and MPR's experts

merely speculated that the price of display machines would drop to

$2500. Federal contends that any profits from the sale of display

machines should thus be based on a cost to MPR of $3100, resulting

in a profit of only $400 on the sale of each machine.

Pflaum, Duravision's expert, admitted that he had never seen

a document which stated an agreed price per unit for the Duravision

displays. 28 When asked whether he was "aware of how the twenty-five

hundred dollar per machine cost came into effect," Pflaum answered:

"There were some early discussions I've seen notes on...." MPR's30

expert, Moore, who also based his calculations on the price of

$2500 per machine, agreed that he had "never seen a letter written

from Federal sign in which they agree to keep the price at

twenty-five hundred dollars." Neither had Moore seen an invoice

from Federal Sign bearing the price $2500 per machine.

Federal's district manager, Mike Harris, dealt extensively

with Duravision and MPR regarding the price of Duravision displays.

Harris testified that he had "had no way of knowing what the final

purchase price would be," and that "the only representations that

[Federal] ever made to [Duravision were] that [Federal] would try

to have the machine priced in th[e] ballpark" of $2500. Record on

Appeal, vol. 34, at 216. During his testimony Harris specifically

denied "that [he] represented that the price would be twenty-five

hundred dollars or less," id. at 218, and further testified as

follows: "We had discussions. We may have said, it might be

twenty-five hundred, maybe it will be twenty-five hundred, it could

be twenty-five hundred. We were still in the development process

... and there was no way for us to know what the price would be."

Id.

Other evidence in the record tends to show that Harris may

have promised a reduction in the price of the Duravision machines.

However, that evidence merely raises questions about the amount of

any possible price reduction. Rodolfo Velasco, of MPR, testified

as follows:

Q What was your agreement with Federal Sign relative to how

much each machine would cost if you bought in quantities?

A Mike Harris told me that the price would be reduced. From29 Vickers testified that this agreement was reached between

Rodolfo Velasco and Mike Harris.

31 the first machine that I paid thirty-five hundred dollars,

that would be reduced around twenty-three to twen t y-five

hundred dollars ... if I purchased in volume.

Id. vol. 24, at 83. Velasco also indicated in a letter to

Duravision that Harris had "offered a discount after the first

twenty machines and the price that [was] quoted was around

$2,350.00 to $2,400.00 USD per machine." Id. Defendant's Exhibit

D-121. John Vickers, of Duravision, testified that he was once

p resent when Velasco ordered two hundred signs, and "[t]h e

agreement was twenty-six hundred and sixty-five dollars for the

first hundred and twenty-five hundred thereafter." I d. vol. 23, at

44. 29 Although this evidence supports the conclusion that a price

reduction was agreed to by Federal, it does not show sufficiently

what the amount of the reduced price would have been. Velasco does

not identify a specific agreed price: he refers to two different

ranges of prices—$2300 to $2500, and $2350 to $2400. Vickers

testified that, of the 200 machines ordered, 100 would have cost

$2650.

Furthermore, the evidence does not show sufficiently when any

reduction in price would have occurred. In his letter to

Duravision, see supra, Velasco indicates Harris promised a

reduction after the first twenty machines. However, Velasco

testified differently at trial:

Q And what type of volume did you have to purchase in order to

get the price down to twenty-five hundred dollars per machine?

A He had it m entioned that he knew that we were talking30 It is also speculative whether MPR could have continued to

purchase the machines for $3100, since the contract with Federal

only bound Federal to provide 20 machines at that price.

However, Federal does not make that argument. It is therefore

waived.

32 about—to start eight hundred to twelve hundred units.

Id. vol. 24, at 83-84. Although Vickers testified about an order

for 200 machines, he did not say when this order was placed, or how

many Duravision machines would have been sold already before these

200 machines. Therefore, the evidence does not show sufficiently

whether a reduction in price would have been in effect when MPR

purchased the 800 machines for resale to STOC.

As a result, I would reverse the damage awards for MPR and

Duravision to the extent that they are based on a sale price to MPR

of $2500 and a corresponding profit margin of $1000 per machine.

The district court did not address whether Fede ral would have

reduced the price of Duravision displays below the rate of $3100

each, which was provided for in the original Display Sales

Agreement between Duravision and Federal. 30 Because the district

court instead accepted the experts' assumption that Federal would

have reduced its price to $2500, I would not on our own initiative

make that determination. Duravision and MPR did, however, prove

that some profits had been lost, and I would therefore remand for

a determination of what both the price of the displays and the

corresponding lost profits would have been.

iii

We also find insuff icient evidence to prove with reasonable

certainty that ST OC would have paid license fees for each of the31 Federal does not argue that the license fees would not

have been paid during the first year—1989.

33 800 machines in 1990 and 1991. 31 Both Moore and Pflaum calculated

lost profits based on license fees of $1000 per machine for 1990

and for 1991. However, as Federal points out, there is no

objective evidence to prove that STOC would have continued to pay

the license fees during t hose years. MPR and Duravision do not

cite, and we have not found, any evidence that STOC held contracts

for the sale of advertising on the machines it intended to purchase

from MPR. Therefore, there are no objective facts and figures to

show that STOC could have done enough business during 1990 and 1991

to be able to pay $800,000 per year in license fees. Furthermore,

STOC was not contractually obligated to continue paying li cense

fees for three years. Although the agreement between STOC and MPR

stated that the amount of the license fees would be negotiated

after three years, it did not identify three years as the term of

the agreement. Therefore STOC was not bound by any agreement for

a term of three years. See City of Big Spring v. Bd. of Control,

404 S.W.2d 810, 817 (Tex.1966) (stating that "when a contract has

no definite and determinable term ... it may be terminated at the

end of a reasonable time in order to carry out the intention of the

parties"). Absent a binding agreement or other objective data to

show that STOC would have paid the license fees beyond the first

year, there is insufficient evidence to prove with reasonable

certainty that MPR and Duravision would have shared $800,000 in

l icense fees during 1990 and during 1991. The award of lost34

profits from STOC's license fees must therefore be vacated, and I

would hold that Duravision and MPR may recover lost profits only

from license fee revenues that the jury found they would have

received prior to 1990: $300,000 for Duravision, and $400,000 for

MPR.

iv

In summary, I would hold that the evidence shows with

reasonable certainty that 800 Duravision displays would have been

sold to STOC in Mexico. As a result, the total profit on sales of

displays to STOC from which lost profits could be recovered should

on remand be calculated as follows: ($3500-price determined on

remand) × 800 machines, and Duravision and MPR are each entitled to

recover lost profits from half of that sum.

I would also hold t hat Duravision may recover lost profits

fro m license fees of only $300,000—the amount which Pflaum

calculated Duravision would have received before 1990, and that MPR

also may recover lost profits only from license fees it would have

received prior to 1990. Furthermore, to the extent that the lost

license fees awarded to MPR are based on the sale to STOC of 1200

Duravision displays, those lost license fees were not proved with

reasonable certainty. It was only shown with reasonable certainty

that 800 machines would have been sold to STOC. Consequently,

rather than the $1,800,000 which the jury awarded, I would hold

that MPR may recover lost profits from license fee revenues of only32 I recognize that this award varies from the amount which

would be recovered by Duravision. For reasons already discussed,

see supra notes 18, 20, Pflaum computed a different damage amount

for lost license fees than did Moore. However, because that

aspect of the damage award for Duravision is not challenged on

appeal, the issue is not before this Court.

33 Federal argues that the $175,000 franchise fee paid by

STOC to MPR cannot give rise to damages because it was a

collateral agreement unanticipated by Federal. For this

proposition Federal cites only to a segment of Rodolfo Velasco's

testimony where he states that Duravision and Federal, in

entering into the Display Sales Agreement, did not anticipate the

installation of Duravision machines in Mexico. See Record on

Appeal, vol. 27, at 127. However, Velasco's testimony does not

prove Federal failed to foresee that Duravision might earn

revenues such as franchise fees. It suggests only that Federal

did not anticipate the distribution of Duravision machines in

Mexico. Other evidence supports the conclusion that Federal was

aware of Duravision's and MPR's plans for marketing the

Duravision displays. During meetings with Marc Johnson, prior to

the execution of the agreement between Federal and Duravision,

Mike Harris of Federal learned that Duravision might try to sell

or lease its machines in Oklahoma and Texas, and that they "were

talking about a good number of machines." Federal's argument

that the franchise fee was unanticipated is without merit.

35 $400,000. 32

Also, I would not disturb the award of lost profits based on

one-half of the $175,000 franchise fee paid by STOC to MPR—$87,500

to each of Duravision and MPR. 33

c

Gran Bazar

Accepting the calculations promulgated by Duravision 's and

MPR's experts, the jury also awarded damages to both companies for

profits which would have been earned as a result of a leasing

agreement with Gran Bazar, a major retailer in Mexico City. The

experts' calculations were based on the following scenario.

Gran Bazar would lease thirty Duravision displays, all34 It is undisputed that STOC and MPR agreed to share equally

any profits STOC received by leasing Duravision signs to Gran

Bazar. See id. vol. 25, at 134 (where Alfonso Moran, director of

STOC, testified that STOC was "going to split fifty/fifty as part

of joint venture some profits with M.P.R. Group"); id. vol. 26,

at 84 (where Moran testified that "STOC and MPR ... had an

agreement to split, one half, fifty-fifty ... all monies"); see

also id. at 119. It is also undisputed that MPR agreed to share

equally with Duravision any profits it made by marketing the

Duravision concept in Mexico. See id. Defendant's Exhibit D124.

36 belonging to STOC, and place fifteen of the units in each of two

Gran Bazar stores. Lease payments would be $80,000 per year per

machine, such that the total as to all thirty machines would be

$2,400,000 per year. Lease payments would be received initially by

STOC, which would then remit one half—$1,200,000 annually—to MPR;

and MPR would pay to Duravision one half of that—$600,000.

Therefore the lease revenues for a given year were ultimately

divided as follows: $1,200,000 to STOC; and $600,000 each to

Duravision and MPR. 34

Moore calculated MPR's lost profits based on lease payments

for 1989, 1990, and 1991, resulting i n a total for MPR of

$1,800,000. Like Moore, Pflaum calculated Duravision's lost

profits from leases to Gran Bazar for 1989, 1990 and 1991, totaling

$1,800,000. However, Pflaum also calculated lost profits for the

last quarter of 1988, in the amount of $150,000 (1/4 × $600,000 =

$150,000), so that Duravision's total damage estimate for profits

from leasing fees was $1,950,000. The jury awarded MPR and

Duravision damages in accordance with those figures.

Federal first argues the evidence did not show with reasonable

certainty that Gran Bazar would lease thirty Duravision machines to35 Luna's testimony that twenty displays would have been

placed in the second Gran Bazar suggests that 35 signs in all

would have been leased.

37 Gran Bazar. At the time of the agreement between STOC and Gran

Bazar there was one Gran Bazar store in operation in Mexico City,

and the grand opening of another store was planned. Federal

contends that the lease of thirty Duravision units for these stores

was a mere "contingency" which was not proven with reason able

certainty. We disagree.

Several witnesses, including Marco Antonio Luna, the

sub-director of Gran Bazar, and Alfonso Moran, the director of

STOC, testified that Gran Bazar leased fifteen Duravision machines

for the first Gran Bazar store. Luna also testified that twenty

Duravision machines "were going to be installed in the Gran Bazar

store, the second one," and that these machines were "on the same

agreement" as the machines for the first store. Record on Appeal,

vol. 25, at 49-50. Rodolfo Velasco testified that the same

agreement was reached for the second Gran Bazar s tore as for the

first—providing for fifteen machines. S ee id. vol. 23, at 198. A

letter from MPR to Federal also refers to a "contract" with "the

second Gran Bazar" for "15 more machines and another $1.2 million."

The letter says that "we"—apparently referring to MPR and

STOC—"were going to be paid $2,000.00 USD per ad per year in each

machine for 15 machines." I d. Defendant's Exhibit D-185. This

evidence would permit a reasonable juror to conclude that Gran

Bazar and STOC had a contract for the lease of at least thirty

Duravision signs. 35 I would therefore hold that the evidence of38

those contracts proved with reasonable certainty that thirty signs

would have been leased to Gran Bazar by STOC. S ee Holt, 835 S.W.2d

at 85; Barbouti v. Munden, 866 S.W.2d 288, 297 (Tex.App.—Houston

[14th Dist.] 1993, writ denied) ("One party's testimony of

estimated profits, without proof of the existence of an actual

contract or any objective data, is not sufficient in our opinion to

support an award of lost profits." (emphasis added)); F leming

Mfg. Co., 734 S.W.2d at 407; D avis v. Small Business Inv. Co., 535

S.W.2d 740, 743 (Tex.Civ. App.—Texarkana 1976, writ ref'd n.r.e.)

(upholding denial of lost profits damages where, i nter alia,

"[t]here was no evidence of contracts or sales which could have

been anticipated").

Federal also contends, however, that the evidence did not show

with reasonable certainty that Gran Bazar w ould pay $80,000 per

machine to lease the Duravision units. Federal argues that a

letter fr om Marco Antonio Luna, sub-director of Gran Bazar,

indicates $80,000 was to be paid for all fifteen units which were

to be leased for the first Gran Bazar l ocation. S ee Record on

Appeal, Defendant's Exhibit D-138. Federal's argument is without

merit.

Luna admitted at trial that the letter in question, which is

written in Spanish, did not explicitly say $80,000 was to be paid

for each machine. S ee id. vol. 25, at 79, 81. As Luna testified,

the letter refers only to a lease of fifteen machines for $80,000.

However, the letter does not purport to be a contract between STOC

and Gran Bazar. It merely states that "Gran Bazar is i nterested in39

mar ket[ing] the ads in ... Duravision displays" under a leasing

agreement. Id. Defendant's Exhibit D-138 (emphasis added).

Furthermore, Luna repeatedl y testified that the oral agreement

between STOC and Gran Bazar obligated Gran Bazar to pay the sum of

$80,000 annually for each machine, see id. vol. 25, at 24-25, 29,

79. Alfonso Moran, the director of STOC, testified to the same

effect. S ee id. vol. 26, at 81. Their testimony was sufficient to

prove that an agreement between Gran Bazar and STOC required Gran

Bazar to pay $80,000 per machine per year . Because of the

existence of that contract, I would hold that the evidence showed

with reasonable certainty that STOC would have received $80,000 per

year for each machine it leased to Gran Bazar. S ee Holt, 835

S.W.2d at 85; B arbouti, 866 S.W.2d at 297; F leming Mfg. Co., 734

S.W.2d at 407; Davis, 535 S.W.2d at 743.

Finally, Federal argues that the evidence failed to show with

reasonable certainty that any signs would have been leased by Gran

Bazar during 1990 and 1991—the second and third years as to which

da mages were awarded for lost lease revenues. Federal contends

that "no objective facts and data in the record supported that

speculation." We agree. We have not found, and MPR and Duravision

do not ci te, any evidence in the record which indicates that the

Gran Bazar lease agreement extended for a period greater than one

year. Alfonso Moran, the director of STOC, testified that the Gran

Bazar agreement was "for an indefinite period of time." Record on

Appeal, vol. 26, at 32. Furthermore Rodolfo Velasco, writing to

Federal on behalf of MPR, indicated that the "contract with Gran36 Pflaum also answered "yes" to the following question:

"With respect to the Gran Bazar line, you contend, as I

understand it, that the agreement was that Gran Bazar would pay

eighty-thousand dollars, per machine, per year, for three years,

to lease the machines, to STOC." Record on Appeal, vol. 30, at

19 (emphasis added). Pflaum's testimony does not reflect any

facts of the STOC-Gran Bazar agreement which would support his

"contention." Pflaum, an expert in finance, testified about the

economic consequences of the transactions in question here. He

did not testify from personal knowledge about the facts of the

transactions which took place. See id. at 23 (where Pflaum

testified that his understanding of the Gran Bazar transaction

was "based on reading the depositions and talking to Mr.

Velasco").

40 Bazar was signed for $1.2 million Dollars (15 machines at $80,000

USD per year)." I d. Defendant's Exhibit D-185. Velasco also

referred to the agreement regarding the second Gran Bazar location

as a "contract

... for 15 more machines and another $1.2 million."

Id. Velasco's letter does not indicate that he regarded the Gran

Bazar contracts as having a term of three years. To the contrary,

the letter sugg ests that Velasco considered the Gran Bazar

contracts to be worth only $1.2 million each, which was the agreed

rental payment for one year. On direct examination Pflaum,

Duravision's expert, was asked why his calculations of Duravision's

damages extended over a period of three years, and he responded:

"In reviewing, looking at the projections, this looked like it was

goi ng to be a very profitable business. And, clearly, a very

profitable business." I d. vol. 38, at 33. 36 The most we have found

to support the projection of lease revenues into a second and third

year is Moran's testi mony that he was "in this deal for the long

term." I d. vol. 26, at 37. Moran's statement of a general desire

to continue participating in what was, in his words, a "terrific41

business," reveals neither an agreement between STOC and Gran Bazar

to lease the Duravision machi nes for more than one year, nor any

other facts, figures, or data sufficient to prove with reasonable

certainty that profits would have been earned from the Gran Bazar

deal for a period of three years.

Because we agree with Federal's third argument, I would hold

that MPR and Duravision may recover lost profits from the Gran

Bazar lease agreement only for revenues which would have been

received during the first year of that agreement—$600,000 in lease

revenues for each of Duravision and MPR. Accordingly, I would

reverse the j ury's verdict awarding lost profits based on an

additional $1,200,000 to MPR and an additional $1,350 ,000 to

Duravision on the grounds that it was not proved with reasonable

certainty that the Gran Bazar lease agreement would have remained

in effect for more than one year.

d

South America

Duravision an d MPR's experts also calculated, and the jury

found, damages resulting from the loss of a sale of 300 Duravision

machines to Ricardo Guerra, for distribution in South America. The

jury foun d that Duravision lost $639,845, and MPR lost $525,000,

consisting of profits on sales of Duravision machines, as well as

license and franchise fees which would have been paid by Guerra.

Feder al argues that the amount of Duravision's and MPR's lost

profits from license fees, and from sales of Duravision machines to

Guerra, was not proved with reasonable certainty. We agree.37 Because we reverse the award of license fees based on the

lack of evidence to prove with reasonable certainty that any

number of machines would have been sold, we do not reach the

issue of the amount of the license fee that Guerra agreed to pay.

42 In a written contract, Guerra purchased from MPR the right to

market, sell, and use the Duravision display in South America,

Central America, and the Caribbean, except for Panama and Columbia.

See Record on Appeal, Defendant's Exhibit D-134. In return for

those rig hts Guerra agreed to pay MPR $225,000, of which he paid

$22,500 upon the signing of the contract. MPR agreed to supply

Guerra with Duravision signs "enough for [his] demand" at the price

of $3500 per machine, and Guerra agreed to pay MPR an annual

license fee for each machine purchased. 37

Both Pflaum and Moore cal culated lost profits based on the

sale to Guerra of 300 Duravision machines, and the jury apparently

credited the experts' calculations. We find the evidence

insufficient to prove with reasonable certainty that 300 machines

would have be en sold to Guerra. The contract between Guerra and

MPR does not require Guerra to purchase any particular number of

Duravision machines. See id. In a letter to Guerra on behalf of

MPR, Rodolfo Velasco wrote: "We accept your proposal to not

establish a minimum quantity of purchase per year of these devices

s ince the market potential existing in Central and South America

has not yet been determined." I d. Intervenor's Exhibit I-155.

Therefore, the record contains no evidence of a contract for the

sale and purchase of 300 Duravision machines or any other number of

machines.43

Furthermore, the other evidence upon which MPR and Duravision

rely to show that 300 machines would hav e been purchased is too

conjectural to satisfy the requirement of reasonable certainty.

MPR and Duravision place considerable weight on a letter from

Alejandro Amescua to MPR, in which Amescua states that he has

"started talks with [Sr.] Ricardo Guerra

... about the possibility

of acquiring the rights to commercialize the concept Duravision in

all the countries of South America...." I d. Defendant's Exhibit D132. After mentioning Guerra's "contacts," Amescua states that

"[t]he person contacted and is functioning [sic] in important

chains of supermarkets in South America, mentions at the minimum of

150 stores where [displays] could be located and at the minimum of

2 units per each store, which represent the sale of 300-400 units

the first year." This letter is insufficient to prove with

reasonable certainty that 300 Duravision display units would have

been sold to Guerra. It merely refers to an unnamed person who

"mentions" 150 stores where displays "could be located," and that

evidence does not provide the facts and figures which would permit

a trier of fact to determine with reasonable certainty that 300

units actually would have been sold. S ee Automark of Texas v.

Discount Trophies, 681 S.W.2d 828, 830 (Tex.App.—Dallas 1984, no

writ) (observing that Texas courts which have permitted recovery of

lost profits have relied on "objective facts, figures, and data and

not upon the subjective opinions of interested parties" (citing

White v. Southwestern Bell Tel. Co., 651 S.W.2d 260, 262

(Tex.1983)).44

Nor is Duravision's and MPR's burden satisfied by the

following testimony from Rodolfo Velasco: "Q: How many signs did

Ricardo Guerra order from M.P.R. Group? A: He wanted to install

three hundred signs...." Record on Appeal, vol. 24, at 25. The

fact that Guerra "wanted" to install three hundred Duravision signs

in South America falls short of proving that he would have

purchased those signs, or even that he intended to purchase them

under the terms of his agreement with MPR. Velasco's letter to

Guerra reflects that Guerra was unwilling to agree to purchase any

minimum number of Duravision displays, because the potential of the

South American and Central American markets was undetermined. S ee

id. Invervenor's Exhibit I-155. The fact that Guerra wanted to

distribute 300 machines in South America therefore does not prove

with reasonable certainty that he actually would have purchased

them.

Nor is Duravision's and MPR's burden satisf ied by a few

handwritten notes which were admitted into evidence. S ee id.

Defendant's Exhibit D-131. These notes include the following

language: "Mr. Guerra 1. Has an agmt w/ 180 store chain in Col.

Arg & Ven 2. Install 3-5 machines in ea." We understand this note

to say that Guerra had an agr eement with a chain of 180 retail

stores in Colombia, Argentina, and Venezuela to place 3-5 machines

in each store. However, as Federal points out, Guerra did not have

the right to market Duravision displays in Colombia, see id.

Defendant 's Exhibit D-134 (Guerra's contract with MPR), and the

note indicates that some of the stores were located in Colombia.38 MPR and Duravision contend that "Guerra was going to put

the machines in Venezuela, not in Columbia as suggested by

Federal." However, the portions of the record which Duravision

and MPR cite provide no support for that assertion. See Record

on Appeal, vol. 23, at 169-70, 179-80.

39 Moore and Pflaum calculated—and the jury awarded—$1000 in

sale profits for each of 300 Duravision machines to be sold to

Guerra. The sum of $1000 profit on the sale of each machine was

based on an anticipated reduction in the price charged by Federal

for the machines—from $3100 to $2500. We have already held that

such a reduction in the price of the machines was not proved with

reasonable certainty. See supra part II.A.2.b.ii. However,

because we reverse the jury's award of sales profits on other

grounds, the lack of evidence to prove the anticipated reduction

in price does not present a basis for relief.

45 Because the note does not indicate how many of the stores involved

i n the "agreement" were located in countries where Guerra was

entitled to market Duravision displays, it does not prove with

reasonable certainty that Guerra would have bought any particular

number of Duravision displays under his agreement with MPR.

Therefore the amount of damages was not proved with reasonable

certainty. 38

Because the evidence does not show that any particular number

of Duravision signs would have been sold to Ricardo Guerra for

distribution in South America, the evidence fails to prove with

reasonable certainty any amount of lost profits based on sale to

Guerra of Duravision units. MPR and Duravision therefore may not

recover profits which allegedly would have been earned on the sale

of Duravision signs. 39 Nor may Duravision or MPR recover license

fees which allegedly would have been paid annually for each

Duravision machine sold.

However, I would hold that MPR and Duravision may each recover40 It is undisputed that MPR was to remit to Duravision

one-half of the $225,000 franchise fee to be paid by Guerra.

46 lost profits based on one-half of the $225,000 franchise fee which

Guerra agreed to pay for the right to market Duravision machines in

South America. 40 Guerra agreed to buy the exclusive right to market

the Duravision con cept in South America for $225,000, and his

obligation to do so was not contingent upon his use of the rights

purchased. The written agreement for Guerra to pay the franchise

fee proved with reasonable certainty that Duravision and MPR each

would have received half of that sum—$112,500. S ee Holt, 835

S.W.2d at 85; B arbouti, 866 S.W.2d at 297; F leming Mfg. Co., 734

S.W.2d at 407; D avis, 535 S.W.2d at 743. To the extent of lost

profits based on that amount, I would therefore hold that the

jury's verdict is supported by the evidence.

e

Arkansas

Duravision granted a franchise to an Arkansas company called

Duravision of America, Inc. ("the Arkansas franchisee"), which set

out to place Duravision machines in public establishments and sell

advertising on the machines. It is undisputed that the Arkansas

franchisee agr eed to purchase twenty-one display units from

Duravision, and that the Arkansas franc hisee agreed to pay

Duravision a six percent royalty on any revenues it earned by

selling advertising. Pflaum calculated—and the jury awarded to

Duravision—damages for lost profits based on (1) lost sales of

twenty-one Duravision units to the Arkansas franchise e; and (2)41 Whereas profits on the sale of Duravision displays to STOC

were awarded based on an anticipated reduction in Federal's

per-unit price for displays, see supra part II.A.2.b.ii., the

profit margin of $1000 on units sold to the Arkansas franchisee

was based on a provision in the franchise agreement that

Duravision would "make the sign available to Franchisee at ...

cost plus $1,000.00 per sign." Record on Appeal, Plaintiff's

Exhibit P-48.

47 royalties which would have been paid to Duravision by the Arkansas

franchisee.

Based on a per unit profit of $1000, the jury awarded

Duravision $21,000 for profits lost on sales of Duravision units to

the Arkansas franchisee. Federal does not argue that the evidence

fails to prove th ese lost profits with reasonable certainty. 4 1

However, Federal does challenge Pflaum's calculations, and the

jury's award, of profits that Duravision would have earned by way

of its six percent royalty on the Arkansas franchisee's sales of

a dvertising. We agree that these royalty-based profits were not

proved with reasonable certainty.

Pflaum testified that between the last quarter of 1988 and the

end of 1991, Duravision would have earned royalties totalling

$81,367. Based on the twenty-one Duravision displays which were to

be installed by the Arkansas franchisee, Pflaum calculated

royalties during the fourth quarter of 1988 and all four quarters

of 1989, and during the years 1990 and 1991. Pflaum figured that

the numbers of ads being shown in each display would increase

q uarter-by-quarter and year-by-year: on average each Duravision

display would contain only twenty ads during the last quarter of

1988, but by 1991 each Duravision display would be showing42 The parties do not cite to the Bilgisher deposition, and

it is not included in the record on appeal.

48 thirty-six ads. Pflaum also figured that the annual revenue earned

on each ad would increase fro m $500 in 1988, to $566 in 1989, to

$669 in 1990, and $735 in 1991.

We conclude that thes e calculations, and the damage award

based thereon , were not supported by the facts, figures, and

objective data required to prove lost profits with reasonable

certainty. We have not found in the record, and Duravision and MPR

do not cit e, any objective facts to support Pflaum's prediction

that the Arkansas franchisee would have sold twenty ads per machine

in 1988, much less thirty-six ads per machine in 1991. Only four

contracts for the sale of advertising were actually obtained by the

Arkansas franchisee, one of which encompassed the sale of two ads.

When asked whether his "assumption of number of ads per sign" was

"based on written contracts," Pflaum respon ded in the negative:

"[T]hat's purely an assumption on my part based on reading Mr.

Bilgisher's Deposition 42 and knowing that the people who were

running that franchise were experienced businessmen, spent a

hundred thousand dollars of their own money trying to get that

business going. They were serious people." Second Supplementary

Record on Appeal at 141. That is insufficient objective evidence

to prove with reasonable certainty that the Arkans as franchisee

would have sold ads in the numbers forecast by Pflaum.

However, as we mentioned, four contracts were actually

obtained by the Ark ansas franchisee for the sale of ads, and I43 We must briefly address an argument, pressed strenuously

by Federal at oral argument, which relates to all of the damages

awarded by the jury for lost profits. In the Texas Supreme

Court's recent decision in Teletron, that court held that lost

profits were not proven with reasonable certainty, and placed

considerable weight on the fact that the transactions at issue

"involve[d] the proposed sale of a new and unique product which

had never been sold before." Teletron, 877 S.W.2d at 280. The

court pointed out that "there [was] no evidence that a thermostat

like the T-2000 has ever been produced and sold by anyone," and

distinguished its prior cases permitting an award of lost

profits— Pace and Southwest Battery —on that basis. See id.

Federal contends that the same result must be reached here,

because the Duravision display machine—which was supposed to

accommodate 40 advertising frames at once, rather than only 25 or

30—was a unique product which was never successfully produced.

Although we recognize that a properly working Duravision machine

was never successfully manufactured by Federal, the record does

not reflect that the machine envisioned by the parties was so

unique that Teletron requires a wholesale denial of any lost

profits. It is undisputed that Marc Johnson got the idea for the

Duravision machine from his experience with similar machines that

he observed while working for Rollavision in California.

Furthermore, the record contains evidence of several other

companies, both in this country and abroad, which marketed a

49 wou ld hold that those contracts prove with reasonable certainty

that Duravision would have earned a royalty of six percent on the

sales embodied in those four agreements. See Holt, 835 S.W.2d at

85; B arbouti, 866 S.W.2d at 297; F leming Mfg. Co., 734 S.W.2d at

407; D avis, 535 S.W.2d at 743. The total revenue from those sales

was $5,395.00 ($999.00 + $1099.00 + $2098.00 = $5395.00), and six

percent of that sum is $323.70. I would affirm the jury's award of

lost profits based on royalties in that amount, as well as the

award of damages based on $21, 000 in profits from the sale of

Duravision units to the Arkansas franchise—which is not challenged

by Federal. As a result, I would hold that MPR and Duravision may

recover lost profits based on revenues from Arkansas in the amount

of $21,323.70. 43working machine similar to the Duravision display. The major

difference between the other machines and the Duravision machine

is its capacity to accommodate forty advertising frames rather

than twenty or thirty. We do not conclude, based on that

difference, that the Duravision machine was a totally unique

product or that "there was no comparable device on the market."

Id. at 277. Instead this is a case where a manufacturer

attempted, unsuccessfully, to improve on a type of machine which

had been manufactured by others.

We also find unpersuasive Federal's argument that the

award of lost profits damages must be reversed altogether

because the individuals involved in MPR and Duravision had

little experience with video display machines. The

experience of the individuals involved is clearly an

important factor in determining whether lost profits may be

recovered. See id. at 280 ("The focus is on the experience

of the persons involved in the enterprise and the nature of

the business activity, and the relevant market.").

Furthermore, Marc Johnson had only a few months' experience

with Rollavision, U.S.A., Inc., and Rodolfo Velasco

apparently had no prior experience with devices of this

kind. However, under the facts of this case the individual

participants' lack of experience with a particular type of

machine is not fatal to their claim for lost profits.

Whatever their prior experience, they were able to acquire a

number of binding contracts and other arrangements which

showed with reasonable certainty that certain profits would

have been earned if not for Federal's misconduct. The

individuals' lack of experience with video advertising

therefore is not determinative.

We also reject MPR's argument that the jury's damages

award must be sustained in its entirety because MPR suffered

harm to its credit reputation. The jury did not award

damages for that type of harm: it accepted Moore's

calculations, which did not include an amount for damage to

MPR's credit reputation. Because MPR has not appealed the

jury's verdict, the issue of damages for MPR's alleged loss

of credit reputation is not properly before the Court.

50 f

To summarize part II.A.2, I would hold that the following

revenues on behalf of Duravision were proved with rea sonable

certainty:

(i) lost profits from the sale of Duravision machines to STOC,

equal to ($3500—price t o be determined on remand) × 80051

machines;

(ii) $300,000 in license fees to be paid by STOC to MPR;

(iii) $87,500 from fee paid by STOC to MPR for the exclusive right

to market the Duravision concept in Mexico;

(iv) $600,000 in lease revenues from Gran Bazar in Mexico City;

(v) $112,500 from Guerra's franchise fee for the right to market

the Duravision concept in South America; and

(vi) $21,323.70 from the Arkansas franchisee.

I would also hold that the following lost revenues on behalf

of MPR were shown with reasonable certainty:

(i) lost profits from the sale of Duravision machines to STOC,

equal to ($3500—price to be determined on remand) × 800

machines;

(ii) $400,000 in license fees to be paid by STOC to MPR;

(iii) $87,500 from fee paid by STOC to MPR for the exclusive right

to market the Duravision concept in Mexico;

(iv) $600,000 in lease revenues from Gran Bazar in Mexico City;

and

(v) $112,500 from Guerra's franchise fee for the right to market

the Duravision concept in South America.

Because the jur y awarded damages for lost profits from

revenues in excess of those amounts, I would vacate the judgment

entered upon that verdict, and remand only for a determination of

the price that Federal would have sold at and the amount of lost

profits based on that price. For reasons explained infra at part

II.B, Federal is also entitled to a new trial on the issue of the

distribution of lost profits which would have been earned from the

distribution of Duravision machines outside the United States and

Canada. S e e infra part II.B. Accordingly, I would hold that on

remand, Duravision and MPR may recover only lost profits based on44 Because Texas law permits the recovery of lost profits,

and not lost revenues, see Holt, 835 S.W.2d at 83 n. 1, on remand

MPR's and Duravision's expenses, as well as their revenues, must

be determined. See infra part II.B.

52 revenues which, in my opinion, I would find were proved with

reasonable certainty. 44

3

Federal also argues that the statute of frauds, Tex.Bus. &

Com.Code Ann. § 2.201(a) (Vernon 1968), bars Duravision's and MPR's

r ecovery of lost profits for sales of signs not agree d to in

writing. Section 2.201(a) provides:

Except as otherwise provided in this section a contract

for the sale of goods for the price of $500 or more is not

enforceable by way of action or defense unless there is some

writing sufficient to indicate that a co ntract for sale has

been made between the parties and signed by the party against

w hom enforcement is sought or by his authorized agent or

broker. A writing is not insufficient because it omits or

incorrectly states a term agreed upon but the contract is not

enforceable under this paragraph beyond the quantity of goods

shown in such writing.

Federal contends that "[t]h e only agreement in writing obligates

Federal to supply only 20 displays," and "[t]herefore, even

assuming Duravision and MPR proved lost profits with the requisite

proof, they would be limited to recovering profits lost only from

these 20 displays." We disagree.

The statute of frauds does not bar recovery on a claim of

fraud or misrepresentation which sounds in tort. See Sloane, 825

S.W.2d at 442 (holding that statute of frauds did not bar recovery

where plaintiff alleged negligent misrepresentation, not breach of

contract); Sibley v. Southland Life Ins. Co., 36 S.W.2d 145, 146

(Tex.1931) (holding that because the plaintiff's "cause of action45 Krupp Organization v. Belin Communities, Inc., 582 S.W.2d

514 (Tex.Civ.App.—Houston [14th Dist.] 1979, writ ref'd n.r.e.),

upon which Federal relies, is a breach of contract case, see id.

at 516, and is therefore distinguishable.

53 ... [was] grounded in tort and not in contract

... [r]esponsibility

for the tort committed [was] not affected by the fa ct that the

false promise was made orally"); T urner v. PV Int'l Corp., 765

S.W.2d 455, 461 (Tex.App.—Dallas 1988) ("The statute of frauds is

not a defense to any action for damages based on fraud or breach of

fiduciary duty, both being tort actions." (citing Sibley )), writ

denied per curiam, 778 S.W.2d 865 (Tex.1989); I nman v. Wallace,

558 S.W.2d 554, 556 (Tex.Civ.App.—Waco 1977, no writ) (" "The fact

that false representations are made in connection with a contract

which the general statute of frauds requires to be in writing does

not render it necessary that such representatio ns shall be in

writing in order that they may sustain an action of deceit

...

where plaintiff does not seek to enforce the contract or sue for a

breach thereof.' " (citation omitted)). 45

Whether a particular claim sounds in tort or contract is not

simply a matter of the legal theo ry pleaded. "[O]ften it is

difficult in practice to determine the type of action that is

brought. We must look to the substance of the cause of action and

n ot necessarily the manner in which it was pleaded." J im Walter

Homes, Inc. v. Reed, 711 S.W.2d 617, 617-18 (Tex.1986); see also

Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494

(Tex.1991) (agreein g that negligence claim "sounded only in

contract" because plaintiff "sought damages for breach of a duty54

created under the contract"); B arbouti, 866 S.W.2d 288 ( stating

that although plaintiff "alleged

... fraud and conspiracy to commit

fraud," defend ants' "liability, if any, ar[ose] from failure to

comply with the

... agreement; therefore the claim sound[ed] only

in contract"); C ollins v. McCombs, 511 S.W .2d 745, 747

(Tex.Civ.App.—San Antonio 1974, writ ref'd n.r.e.) ("Even if it be

conceded that an action in tort for deceit is unaffected by the

provisions of the statute of frauds, the judicial disregard of the

statute should be limited to situations in which the essence of the

action truly sounds in tort.").

Whether a particular claim sounds in tort depends in part on

the duty alleged to have been violated:

If t he defendant's conduct ... would give rise to liability

ind ependent of the fact that a contract exists between the

parties, the plaintiff's claimmay also sound in tort.

Conversely, if the defendant's conduct

... would give rise to

liability only because it breaches the parties' agreement, the

plaintiff's claim ordinarily sounds only in contract.

DeLanney, 809 S.W.2d at 494; s ee also Lawson v. Commercial Credit

Business Loans, 690 S.W.2d 679, 681 (Tex.App.—Waco 1985, writ ref'd

n.r.e.) (holding that § 2.201 did "not insulate [the defendant]

from liability under the Deceptive Trade Practices Act for the

false and misleading statements which its employees made...."

because the evidence raised an issue whether the defendant "did

more than merely fail to perform under an oral agreement");

Keriotis v. Lombardo Re ntal Trust, 607 S.W.2d 44, 46

(Tex.Civ.App.—Beaumont 1980, writ ref'd n.r.e.) (holding that DTPA

action for misrepresentations failed "under the statute of frauds"

because "no attempt [was] made to establish any acts other than the55

promise to convey and the failure to do so").

"[I]t is also instructive to examine the nature of the

plaintiff's loss. When the only loss or damage is to the subject

matter of the contract, the plaintiff's action is ordinarily on the

contract. " DeLanney, 809 S.W.2d at 494; s ee also Keriotis, 607

S.W.2d at 46 (stating that "both the alleged misrepresentations and

the damages sought support the conclusion that plaint iff is

attempting to recover damages for failure to perform an oral

promise governed by the statute of frauds"); Collins, 511 S.W.2d

at 747 ("Where plaint iff, although casting his complaint in the

form of a cause of action for fraud, is attempt ing to recover

damages for the breach of the promise, it is clear that he is, in

effect, attempting to enforce the oral agreement."). " "The nature

of the injury most often determines which duty or duties are

breached. When the injury is only the economic loss to the subject

of a contract itself the action sounds in contract alone.' "

DeLanney, 809 S.W.2d at 494 (quoting Jim Walter Homes, 711 S.W.2d

at 618).

Under the foregoing Texas authorities, Duravision's and MPR's

fraud and DTPA claims sound in tort: this is not a case where the

defendant's misconduct amounts to little more than breach of a

contract. In addition to alleging that Federal failed to perform

as it had promised, Duravision and MPR alleged and proved that

Federal made numerous misrepresentations of the impending

production and delivery of Duravision displays which were not

provided for by agreements between Federal and either Duravision or46 Federal contends that it only agreed to produce the 20

machines provided for in the original agreement with Duravision.

Duravision and MPR argue that the addendum to that contract

increased Federal's obligation to 100 machines every 12 months.

47 In almost every instance where we found that Duravision

and MPR proved their lost profits with reasonable certainty, we

so found because the display machines in question were the

subject of binding contracts. See supra part II.A.2. However,

the contracts to which we refer were not contracts between the

parties to this lawsuit.

56 MPR. Although the parties disagree as to how many display machines

Federal was contractually bound to manuf acture, neither of them

contends that all of the hundreds of machines as to which the jury

found misrepresentations were provided for by an agreement between

the parties. 46 Nor does the record support the conclusion that any

agreement encompassed that many machines. Furthermore, this is not

a case where "the only loss or damage is to the subject matter of

the contract," DeLanney, 809 S.W.2d at 494, since the jury awarded

damages based on lost profits from numerous Duravision signs which

were not provided for by any agreement between Federal and

Duravision or MPR. 47 The damages awarded by the jury in this case

therefore were not merely damages for breach of a contract.

Becaus e Duravision's and MPR's claims sound in tort rather than

contract, recovery on those claims is not defeated by the statute

of frauds.

B

Federal also contends that t he magistrate judge committed

reversible error by excluding from evidence Plaintiff's Exhibits 51

and 51a. "Determinations of admissibility of evidence rest largely

within the discretion of the trial court." U nited States v. Gorel,57

622 F.2d 100, 105 (5th Cir.1979), cert. denied, 445 U.S. 943, 100

S .Ct. 1340, 63 L.Ed.2d 777 (1980). "The trial judge has wide

discretion as to relevance and materiali ty of evidence. Such

rulings will not be disturbed on appeal absent a clear showing of

an abuse of discretion." U nited States v. Grimm, 568 F.2d 1136,

1138 (5th Cir.197 8). Nevertheless, we conclude that Federal's

argument has merit.

Exhibit 51 is a written contract between Federal, Duravision,

and MPR wherein Duravision assigned to MPR the exclusive right to

purchase Duravision displays from Federal for distribution

everywhere in the world except the United States and Canada "[i]n

exchange for a four percent (4%) royalty on the gross amount [MPR]

receives as license fees." Exhibit 51-A is an agreement, signed by

Marc Johnson and Rodolfo Velasco, which provides that

any net proceeds whatsoever received from MPR Group, Inc.'s

efforts in obtaining users of the Duravision Conce pt in the

world except for the United States of America and Canada shall

be owned and distribute d fifty percent (50%) to Marc E.

Johns on, after the payment to Duravision Incorporated of a

four percent (4%) royalty on all gross amounts received from

license fees.

At trial counsel for Federal offered these exhibits into evidence,

and the magistrate instructed counsel that he could go into Exhibit

51 if he could "establish that was a valid, binding contract."

Counsel then elicited from John V ickers, a representative of

Duravision, an admission that nothing on the face of Exhibit 51 or

Exhibit 51-A indicated it was not a valid, binding co ntract.

Vickers testified, however, that neither agreement ever took

effect, since the parties agreed orally that the agreements were to58

tak e effect only upon the acquisition of Duravision by Montello

Resources, and that takeover never happened. The magistrate judge

thereafter excluded Exhibits 51 and 51-A from evidence. In light

of the magistrate judge's comments and Vickers' testimony, we

believe that the magistra te judge excluded Exhibits 51 and 51-A

because he found that they did not represent binding agreements,

and thus were not relevant. S ee Fed.R.Evid. 401 (defining relevant

evidence); 402 (providing that evidence which is not relevant is

inadmissible).

Federal argues that the magistrate judge abused his discretion

by sustaining Duravision and MPR's objection to Exhibits 51 and 51-

A on relevance grounds. Federal contends that the exhibits are

relevant because Vickers' testimony that the agreements never took

effect "went at most to the weight of the agreement, not to its

admissibility." We agree.

As Vickers conceded at trial, nothing on the face of the

agreements suggests that they were not to take effect until the

completion of the Montello takeover. Therefore, by ruling that the

agreements were not effective, the magistrate judge improperly

added to the terms of the agreement, based on parol evidence.

Texas' parol evidence rule provides: "When parties have concluded

a valid integrated agreement with respect to a particular subject

matter, [that] rule precludes the enforcement of inconsistent prior

or contemporaneous agreements." Hubacek v. Ennis State Bank, 159

Tex. 166, 317 S.W.2d 30, 31 (1958); see also Tripp Village Joint

V enture v. MBank Lincoln Centre, N.A., 774 S.W.2d 746, 74959

(Tex.App.—Dallas 1989, writ denied) (stating that extrinsic

evidence is inadmissible to "supplement" the terms of a written

instrument that on its face is complete and unambiguous); 14

Tex.Jur.3d Contracts § 224 (1981) ("A contract takes effect from

the time the parties agree on its terms."). The magistrate judge's

conclusion that Exhibits 51 and 51A were ineffective, and thus

irrelevant, was therefore premised o n a misapplication of Texas

law, and the magistrate judge abused his discretion b y excluding

those exhibits from evidence.

Duravision and MPR argue that even if the exclusion of

Exhibits 51 and 51A was error, it was harmless error, see

Fed.R.Evid. 103 ("Error may not be predicated upon a ruling which

admits or excludes evidence unless a substantial right of the party

is affected.. .."), because Plaintiff's Exhibit 55, which was

admitted into evidence, referred to an agreement providing

Duravision a four percent royalty on MPR's profits. That argument

is unpersuasive. Exhibit 55 does not mention the agreement found

in Plaintiff's Exhibit 51A, which entitled Marc Johnson to half of

MPR's profits after Duravision's four percent royalty. That

agreement allocated forty-eight perce nt of all profits earned on

Duravision displays outside the U.S.A. and Canada to Johnson, who

was not awarded damages by the jury, and who is not a party to this

appeal. Had the jury seen that agreement and regarded it as a

binding contract, it should have awarded substantially less damages

for lost profits to MPR and Duravision. Therefore, the admission

o f Plaintiff's Exhibit 55 does not render the exclusion of48 Because we hold that Federal is entitled to reversal based

on the exclusion of Exhibit 51A, we do not reach the question

whether the admission of Plaintiff's Exhibit 55 renders the

exclusion of Exhibit 51 harmless.

60 Plaintiff's Exhibit 51A harmless. 48 Federal is entitled to

reversal, and to a new trial on the issue of lost profits which

would have been affected by the agreement in Exhibit 51A, i.e. lost

profits on Duravision machines which would have been distributed

outside the United States and Canada. On remand, if it is

determined that Exhibits 51 and 51A represent a binding agreement,

the lost profits awarded to Duravision and MPR should be reduced as

demonstrated by the distribution specified in that agreement.

C

Federal next argues that the award of $9,000,000 in punitive

damages to Duravision and MPR must be reversed because punitive

damages may only be awarded where the claimant has suffered a

distinct injury in tort, whereas in this case Duravision's and

MPR's damages flow solely from Federal's breach of the Display

Sales Agreement. "Punitive damages are not recoverable for breach

of contract. The party seeking punitive damages must obtain at

least one finding of an independent tort with accompanying actual

damages." T exas Nat'l Bank v. Karnes, 717 S.W.2d 901, 903

(Tex.1986); s ee also Bellfonte Underwriters Ins. Co. v. Brown, 704

S.W.2d 742, 7 45 (Tex.1986) (referring to "the basic principles"

that "punitive damages are not awarded for breach of contract," and

"the award of damages in tort is a prerequisite to recovery of

punitive damages"). "If th[e] issue sounds in contract, no49 Federal also contends that the magistrate judge erred in

awarding prejudgment interest. Because we vacate the judgment

and remand for a new trial on the issue of damages, we do not

review the award of prejudgment interest.

50 Alamo Nat'l Bank v. Kraus, 616 S.W.2d 908, 910 (Tex.1981)

(requiring a reasonable ratio between actual and punitive

damages); Southwestern Investment Co. v. Neeley, 452 S.W.2d 705,

707 (Tex.1970) ("[T]he amount of exemplary damage should be

reasonably proportioned to the actual damages found.").

51 Although I am sympathetic with Judges Garwood and Head's

position on retrial, I believe that Part II.A.2 is consistent

with Texas law and does not require a new trial on all damages

issues.

52 See supra note 1 for a delineation of those parts

constituting the opinion of the Court.

61 punitive damages should [be] awarded." K arnes, 717 S.W.2d at 903.

Because we have already concluded that Duravision's and MPR's

claims sound in tort, rather than contract, see supra part II.A.3,

we re ject Federal's attack on the jury's award of punitive

damages. 49 Because we remand for retrial of the actual damages

awarded, however, we also remand for retrial of the extent to which

Duravision and MPR are entitled to punitive damages. 50

III

For the foregoing reasons, I would VACATE the judgment of the

district court and REMAND only in part. However, because Judges

Garwood and Head would remand for a new trial as to a ll damages,

actual and exemplary, see Garwood, J., concurring in part and

dissenting in part, infra, 51 we VACATE the judgment of the district

court and REMAND for a new trial consistent with the opinion of the

Court. 52

GARWOOD, Circuit Judge, in which HEAD, District Judge, joins,

concurring in part and dissenting in part:53 The punitive damages were similarly awarded each plaintiff

in a single lump sum ($4.5 million each) in response to a single

interrogatory.

54 I do not necessarily agree with all those portions of part

II.A.2. as find various categories of claimed lost future

revenues adequately established. In determining whether the

evidence suffices to allow a finding that these items were

established with reasonable certainty, I would give more weight

to the newness and lack of profit experience of the businesses

involved, both that of the plaintiffs themselves and STOC, the

inexperience of their executives and owners in both this type of

business and in the foreign markets concerned, the lack of a

track record for this or similar products in those foreign

markets, the paucity of evidence as to the financial

62 I concur in parts I, II.A.1, II.A.3., II.B. and II.C. of Judge

Garza's thorough opinion. I also join in those portions of part

II.A.2. holding that, for the reasons there stated, various

specific categories of claimed lost future revenues may not be

recovered because the evidence does not establish them with

reasonable certainty. Although I agree with the ultimate

determination tha t the evidence suffices to adequately establish

that DURAVISION and MPR suffered some recoverable lost profits, in

my view the only practical and just course is to order a new trial

as to all damages, actual and exemplary. The jury's actual damage

findings were not divided by category but rather consisted only of

one lump sum figure for each plaintiff, $3,995,000 for DURAVISION

and $4,750,000 for MPR, in response to a single special

interrogatory. 53 Nothing else in the verdict provides any basis on

which to divide or allocate the damage award. Judge Garza's

opinion demonstrates that less than a third of each pl aintiff's

lump sum actual damage award is sustainable, and that the entirety

of each punitive damage award must be retried. 54 All significantresponsibility of STOC and Guerra, the substantial differences

between the markets (and business practices) in the foreign

nations concerned and those in the United States, and the more

uncertain and changing nature of the former. I do not ultimately

resolve these concerns as I believe a full new trial—at which the

evidence may be different—on damages is required. I do agree

with Judge Garza that "the absence of evidence that Federal was

contractually bound to produce the hundreds of machines which

formed the basis of the jury's verdict [or that such machines

were available at the requisite price elsewhere] calls into

question the certainty of the lost profits which the jury found."

See supra note 22.

63 categories of claimed lost profits were hotly disputed and none is

established as a matter of law. In these circumstances, a full

retrial on damages is plainly called for.