Opinion ID: 2674725
Heading Depth: 1
Heading Rank: 3

Heading: Z3’s cross-appeal

Text: In its cross-appeal, Z3 raises two main issues. First, Z3 contends the district court erred by interpreting ¶ 14(b)(iii) and (iv) as an alternative contract under which Digital could either order a minimum of 36,000 units or pay a minimum total royalty of $270,000. Additionally, Z3 contends that, if these provisions are interpreted as an alternative contract, the district court erred in awarding Z3 the smaller alternative of $270,000 rather than permitting it to recover its lost profits for Digital’s alternative obligation to purchase a minimum of 36,000 units. Second, Z3 contends the district court erred in denying its request for prejudgment interest for the $15,000 awarded by the jury on the 2008 contract and for the 2009 contract’s $175,000 design fee and $270,000 royalty payment that the district court held Z3 was entitled to on summary judgment. We first consider Z3’s argument regarding the district court’s interpretation of ¶ 14(b)(iii) and (iv), then turn to the prejudgment interest issue. -18-
We review de novo the district court’s interpretation of the 2009 contract and its legal conclusions regarding the applicable state law. See State Farm Mut. Auto. Ins. Co. v. Dyer, 19 F.3d 514, 521 (10th Cir. 1994). The dispute in this case centers around ¶ 14(b)(iv), which follows ¶ 14(b)(iii)’s provisions regarding the 36,000 minimum purchase requirement and provides in part: “If LICEN[S]EE does not order 36,000 units at 12,000 units per year, LICENSEE is [to] pay a minimum royalty to LICENSOR equivalent to 12,000$7.500 = $90,000 royalty per calendar year or the pro-rated balance if at least some units have been purchased within the fiscal year in question.” (Appellant’s App. at 63.) The district court concluded this provision established an alternative contract, under which Digital could satisfy its performance obligations by either ordering a total of 36,000 units or paying a total royalty of $270,000. Z3 argues this conclusion was an incorrect interpretation of the contractual provisions. We have not found any applicable Nebraska cases dealing with alternative contracts, so we assume Nebraska would follow the general law on this issue. As other authorities have stated, an alternative contract provides that “either one of two performances may be given by the promisor and received by the promisee as the agreed exchange for a return performance by the promisee.” In re Cmty. Med. Ctr., 623 F.2d 864, 867 (3d Cir. 1980). One type of alternative contract is a “take-or-pay” contract, under which the buyer can perform its obligations under the contract by either taking the minimum purchase obligation (and paying for the purchase) or instead paying a specified -19- amount without taking the product. Prenalta Corp. v. Colo. Interstate Gas Co., 944 F.2d 677, 689 (10th Cir. 1991). A take-or-pay provision is thus different from an obligation combined with a liquidated damages provision: the “pay” option of a take-or-pay contract is a valid alternative for the buyer to perform under the contract, rather than a measure of damages for breach of a purchase obligation. See id. However, where a buyer breaches a take-or-pay contract, the “pay” option will frequently serve as an appropriate measure of damages, particularly where the contract provides for expiration of the “take” option after a period of time. Id. In determining whether a contract is a true alternative contract, we look not to the form of the transaction but to its substance, and a contract will be construed as an alternative contract if “it appears that it was intended to give a real option, that is, that it was conceived possible that at the time fixed for performance, either alternative might prove the more desirable.” 14 Williston on Contracts § 42:10 (4th ed. 2010). Thus, an alternative contract is one in which “either alternative may prove the more advantageous and is as open to the promisor as the other.” Id. Based on these authorities, we agree with the district court that ¶ 14(b)(iii) and (iv) set forth an alternative contract which Digital could satisfy either by taking a minimum of 12,000 modules per year or by paying a minimum royalty of $90,000 per year for three years. The surrounding contractual language indicates that the reason for the royalty option was that the parties did not know at the time of contract formation whether Z3 would remain willing to produce the modules or whether Digital would find the price and -20- quality of Z3’s modules acceptable on an ongoing basis. Our review of the contract thus persuades us that “it was conceived possible that . . . either alternative m[ight] prove the more advantageous.” Id. As for whether the royalty option was “as open to [Digital] as the [purchase obligation],” id., Z3 contends that ¶ 14(b)(iii) in fact set forth a mandatory purchase obligation, while ¶ 14(b)(iv) only described a consequence of nonperformance of this obligation. However, we are persuaded these provisions in fact gave Digital a choice between alternative performances. While Digital’s pre-production and initial production purchase obligations under ¶ 14(a) and ¶ 14(b)(i) were unequivocal in their requirement that Digital purchase a minimum number of pre-production and initial production units, ¶ 14(b)(iii) was entitled “Minimum 12,000 units or equivalent Royalty PER YEAR for 3 years,” and ¶ 14(b)(iv) set forth the royalty Digital would be required to pay if it chose not to purchase the minimum number of units. (Appellant’s App. at 63 (emphasis added).) Indeed, the contract permitted Digital to take some combination of the two performance options, since Digital could purchase some units during a particular year and then pay the prorated balance of the royalty for the units it did not purchase. The pertinent provisions did not indicate that Digital would be found in breach of the contract if it paid the full or prorated royalty in lieu of purchasing modules; rather these provisions simply described the minimum purchase requirement “or equivalent Royalty” to which Digital was obligated. (Id. (emphasis added).) We agree with the district court that ¶ 14(b)(iii) and (iv) set forth a valid take-or-pay contract under which Digital had the choice of alternatives to fulfill its contractual obligations. -21- B. Appropriate Measure of Damages under ¶ 14(b)(iii) and (iv) Having so concluded, we must next consider whether the district court erred in limiting Z3’s damages for Digital’s breach of these provisions to $270,000 in royalties rather than the larger amount of Z3’s lost profits for Digital’s failure to purchase the 36,000 units. Because there is no Nebraska law on point, we must attempt to predict what the Nebraska Supreme Court would do if faced with this issue. See Wade v. EMCASCO Ins. Co., 483 F.3d 657, 666 (10th Cir. 2007). There is no universal consensus on the question of appropriate damages for breach of an alternative contract. In 1934, a panel of this court held as a matter of federal common law that damages could be based on the alternative that would result in the largest recovery. Prudential Ins. Co. v. Faulkner, 68 F.2d 676 (10th Cir. 1934).3 In reaching this conclusion, the panel majority reasoned that “[o]ne who repudiates his obligation under a contract cannot thereafter exercise an election contained in its provisions.” Id. at 679. A few cases have followed this rule. See, e.g., Anderson v. Rexroad, 306 P.2d 137, 142 (Kan. 1957). However, most cases have instead followed the rule set forth in the First Restatement of Contracts, which provides: “The damages for breach of an alternative contract are determined in accordance with that one of the alternatives that is chosen by the party having an election, or, in case of breach without an election, in accordance with the alternative that will result in the smallest recovery.” 3 Of course, in the case before us we are applying Nebraska law, and thus our prior opinion bears only persuasive and not precedential weight. -22- Restatement (First) of Contracts § 344 (1932); see In re Cmty. Med. Ctr., 623 F.2d at 868 (describing the First Restatement rule as the “general rule” and stating that the Prudential approach “has garnered scholarly approval in only one situation—where the contract itself contains language granting the promisee the right to elect remedies”); see also 25 Williston on Contracts § 66:106 (4th Ed. 2010) (collecting cases and describing the Prudential approach as “an inconsistent and, it seems, erroneous rule . . . laid down in a few cases”). The majority of courts have reasoned, like the dissent in Prudential, that the Prudential approach “results in the imposing upon the promisor, as a penalty for the breach, a greater obligation or duty than does the contract itself; its effect is to increase the contractual rights of the promisee upon a breach by the promisor when the contract does not so provide, and to make a new contract for the parties.” Prudential, 68 F.2d at 684 (Phillips, J., dissenting). In recent years, a few courts have questioned in dicta whether the rule set forth in Section 344 of the First Restatement is still the current rule, in light of the omission of this provision from the Second Restatement. See, e.g., Schwan-Stabilo Cosmetics GmbH & Co.v. PacificLink Int’l Corp., 401 F.3d 28, 34 (2d Cir. 2005) (“Even if this is currently the rule—and its absence from the Second Restatement of Contracts suggests that it is not—it does not appear to apply in a case such as this one.”); Minnick v. Clearwire US LLC, 275 P.3d 1127 (Wash. 2012) (same). However, these courts have not expressly rejected the First Restatement rule, but have instead premised their holdings on what Williston describes as “[a]n exception to the general rule,” which “is made if one of the -23- alternatives is to pay a certain sum of money.” 25 Williston on Contracts § 66:106 (4th Ed. 2010); see Schwan-Stabilo, 401 F.3d at 34 (holding that the First Restatement rule was inapplicable based on the exception for cases “where an alternative contract provides as one alternative the payment of a sum of money”); Minnick, 275 P.3d at 1135 (same). This exception provides that “[i]n an alternative contract where one of the alternatives is a sum of money, the promisee is entitled to the sum of money even though the other alternative may be less onerous to the promisor.” Minnick, 275 P.3d at 1135. Thus, courts which have applied this exception have not needed to determine the continued viability of the general First Restatement rule. We conclude the Nebraska Supreme Court would be most likely to follow the majority approach and award damages based on the alternative that would result in the smaller recovery. This conclusion is bolstered by the fact that the lesser alternative in this case—the $270,000 total royalty payment—is a fixed sum of money under the “pay” alternative of the take-or-pay contract. An award of damages based on this monetary alternative accordingly complies with the approach taken by several courts, including those which have called the First Restatement rule into question, for an alternative contract that provides as one alternative the payment of a fixed sum of money. We therefore affirm the district court’s holding that Z3 was only entitled to $270,000 in damages for Digital’s breach of its obligation to either purchase 12,000 units or pay a $90,000 royalty each year for three years. C. Prejudgment Interest -24- We turn then to the final issue we must resolve in these cross-appeals—Z3’s argument that the district court erred in denying its request for prejudgment interest for the $15,000 awarded by the jury on the 2008 contract and for the $175,000 in unpaid design fees and $270,000 in royalties that the district court awarded to Z3 on summary judgment on the 2009 contract. Before resolving this issue, we must first determine the standard of review that governs our review of the district court’s denial of prejudgment interest. Z3 argues we must review this decision under a state de novo standard of review, while Digital argues our review is instead governed by a federal abuse of discretion standard. We note there is some conflict in the cases over whether the appellate standard of review in a federal diversity case is governed by state or by federal law. Compare Freund v. Nycomed Amersham, 347 F.3d 752, 762 (9th Cir. 2003) (“Yet it is well established that rules regarding the appropriate standard of review, or even the availability of review at all, to be applied by a federal court sitting in diversity, are questions of federal law.”), and Atlas Food Sys. & Servs. v. Crane Nat’l Vendors, Inc., 99 F.3d 587, 596 (4th Cir. 1996) (“While state law governs the substantive right to setoff, federal law dictates our standard of review. And, under federal law, a district court’s decision to set off a damage award is reviewed for clear error.”), with United Int’l Holdings, Inc. v. Wharf (Holdings) Ltd., 210 F.3d 1207, 1233 (10th Cir. 2000) (citing a Colorado case in support of reviewing de novo the district court’s conclusion that the facts of a case fell within the terms of Colorado’s prejudgment interest statute”), and Brocklehurst v. PPG Indus., Inc., 123 F.3d 890, 894 -25- (6th Cir. 1997) (“[B]ecause this is a diversity case, we apply the standard of review used by the courts of the state whose substantive law governs the actions.”). However, we need not resolve this issue in the case before us because we conclude that a de novo standard of review is appropriate whether we label it a federal or a state standard. As Digital notes, several Tenth Circuit cases have indicated that the district court’s denial of prejudgment interest is reviewed for abuse of discretion. However, we have elsewhere more aptly stated that “[a]n award of prejudgment interest ‘is generally subject to an abuse of discretion standard of review on appeal.’” Atl. Richfield v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1156 (10th Cir. 2000) (quoting Driver Music Co. v. Commercial Union Ins. Cos., 94 F.3d 1428, 1433 (10th Cir. 1996)) (emphasis added). A closer examination of our cases reveals that the abuse of discretion standard is generally appropriate because the decision whether to award prejudgment interest is generally committed to the district court’s discretion. Under federal law, an award of prejudgment interest is generally equitable; accordingly, in the “absence of a statutory provision to the contrary, the district court has broad discretion in deciding whether to grant prejudgment interest.” FDIC v. Rocket Oil Co., 865 F.2d 1158, 1160 (10th Cir. 1989). When, as is usually the case, the district court has broad discretion on the question of prejudgment interest, the abuse of discretion standard will govern. Id. However, we are not persuaded that this general rule requires us to apply an abuse of discretion standard even in cases where a statute—whether federal or state—makes an award of prejudgment interest mandatory rather than discretionary. In such cases, it is appropriate to instead apply a de -26- novo review, since the pertinent inquiry in such a case will not involve the district court’s exercise of discretion, but will instead involve only the court’s legal determination as to whether the facts of the case fall within the terms of the statutory mandate. The Second Circuit reached the same conclusion in a case involving an award of post-judgment interest. In Westinghouse Credit Corp. v. D’Urso, 371 F.3d 96, 100 (2d Cir. 2004), the Second Circuit applied a de novo standard of review to review the district court’s award of post-judgment interest under 28 U.S.C. § 1961. The court explained: We recognize that interest awards are ordinarily said to be subject to an abuse of discretion standard. But such language appears only in cases where the statute commits those awards to the district court’s discretion. In contrast, we have not limited review to the abuse of discretion standard in cases where the governing law made an award of interest mandatory. Id. (citations omitted). Our own circuit at least implicitly reached the same conclusion in United International Holdings, in which we applied a de novo standard of review to determine whether the facts of the case before us fell within the terms of Colorado’s nondiscretionary prejudgment interest statute. 210 F.3d at 1233. The applicable state statute in this case commits no discretion in the district court, providing instead that prejudgment interest “shall accrue on the unpaid balance of liquidated claims from the date the cause of action arose until the entry of judgment.” Neb. Rev. Stat. § 45-103.02(2) (emphasis added). Because an award of prejudgment interest is mandatory under Nebraska law if the statutory terms are met, we review the district court’s denial of prejudgment interest under a de novo standard. Turning then to the merits of this issue, we note that Nebraska Revised Statutes -27- Section 45-103.02(2) provides for prejudgment interest only for “liquidated claims.” The Nebraska Supreme Court has explained: “Liquidated claims are those where there is no reasonable controversy as to the plaintiff’s right to recover or as to the amount of such recovery.” Blue Valley Coop. v. Nat. Farmers Org., 600 N.W.2d 786, 796 (Neb. 1999). Thus, to determine whether an award of prejudgement interest should be made, “[a] two- pronged inquiry is required,” under which there can be no reasonable controversy “either as to the amount due or as to the plaintiff’s right to recover, or both.” Countryside Coop. v. Harry A. Koch, Co., 790 N.W.2d 873, 889 (Neb. 2010). We apply this two-pronged inquiry to each of the three sums of money for which Z3 seeks prejudgment interest: (1) the $15,000 awarded by the jury on the 2008 contract; (2) the unpaid $175,000 in design fees the district court held Z3 was entitled to on summary judgment; and (3) the $270,000 royalty payment the district court held Z3 was entitled to based on ¶ 14(b)(iii) and (iv) of the contract. Z3 contends it is entitled to prejudgment interest on the $15,000 awarded by the jury on the 2008 contract because there was no dispute that Digital breached the contract by failing to make the final, indisputable $15,000 payment due under the contract. However, this argument ignores the controversy in this litigation as to whether Z3 had “substantially performed so that it could . . . recover the balance due” on the 2008 contract. Lange Indus., Inc. v. Hallam Grain Co., 507 N.W.2d 465, 477 (Neb. 1993). Digital contended throughout the proceedings below that the pink noise and other hardware issues with the modules delivered by Z3 demonstrated that Z3 had failed to -28- substantially perform its obligations under the contract. Indeed, the jury ultimately agreed with Digital that Z3 had breached the contract by failing to satisfy the hardware warranties, although the jury implicitly found that both sides had substantially performed under the contract such that they were each entitled to recover for the other’s breach. The pertinent facts regarding the $15,000 award in this case are very close to the facts at issue in the controlling Nebraska case of Church of the Holy Spirit v. Bevco, Inc. 338 N.W.2d 601 (Neb. 1983). In that case, a church hired a contractor, Bevco, to construct a parish center, and Bevco hired a subcontractor which did a very poor job of painting the parish center’s exterior walls. The church sued Bevco for breach of contract based on the “improper exterior wall coating and caulking resulting in lack of uniformity in color, thickness and texture, discoloration, cracking, [and] peeling.” Id. at 604 (internal quotation marks omitted). In response, Bevco filed a counterclaim against the church seeking the unpaid balance of $16,750 that was due under the contract. The jury ultimately found that both parties had breached the contract, and it awarded $29,117 to the church and $16,750 to Bevco. Id. at 605. On appeal, Bevco claimed the trial court erred in denying its request for prejudgment interest on its $16,750 counterclaim. The Nebraska Supreme Court affirmed the trial court’s decision. The court explained: The poor quality of the painting raised the question whether Bevco could recover any amount from the Church. In view of the faulty painting—a breach of contract—Bevco requested and received an instruction on substantial performance in order to prevail on its counterclaim against the Church. Any possibility of recovery by Bevco depended on the jury’s answer to the question, Had Bevco substantially performed its contract with the Church? A reasonable controversy existed regarding the nature and -29- degree of performance by Bevco, and, therefore, the claim was not liquidated. The trial court was correct in denying prejudgment interest on Bevco’s counterclaim. Id. at 607. The Bevco case is on all fours with the case before us. Consequently, Z3’s argument that it is entitled to prejudgment interest for its award of $15,000 on the 2008 contract lacks merit. We turn then to Z3’s argument that it is entitled to prejudgment interest for the $175,000 in unpaid design fees that the district court held it was entitled to on summary judgment. First, we must decide whether there was a reasonable controversy as to Z3’s right to recover for Digital’s breach of the 2009 contract. Digital contends there was a reasonable controversy based on its arguments regarding Vice President Haler’s lack of authority to enter into the 2009 contract on behalf of Digital. For the reasons discussed above, we find this argument to be without merit, and we are persuaded the principle of apparent authority was sufficiently settled that there could be no reasonable controversy as to whether Digital was bound by the contract. Moreover, the undisputed facts clearly established that Digital breached the contract through its unequivocal anticipatory repudiation. We accordingly conclude there was no reasonable controversy as to Z3’s right to recover for Digital’s breach of the 2009 contract. The second prong of the inquiry for determining whether a claim is liquidated—whether there is “no reasonable controversy as to . . . the amount of such recovery,” Blue Valley Coop., 600 N.W.2d at 796 —requires a somewhat lengthier analysis in this case. To make this determination, the critical question we must resolve is -30- whether the “no reasonable controversy” requirement applies to the entire amount of damages due for Digital’s breach of the 2009 contract, or whether Z3 can instead recover prejudgment interest for those specific portions of damages (i.e., the unpaid $175,000 in design fees) as to which the amount of recovery was undisputed, even if other elements of damages remained in dispute. Digital contends the total sum of damages recoverable for Z3’s single claim of breach of the 2009 contract needed to be liquidated in order for Z3 to be entitled to prejudgment interest under Nebraska law for any portion of damages. Z3 argues in response that Nebraska law entitles it to recover prejudgment interest for those portions of the damage award where there was no reasonable controversy as to either its right to recover or the amount of such recovery, regardless of whether the entire amount of damages was settled. After reviewing the pertinent Nebraska cases, we agree with Z3 that it is entitled to recover prejudgment interest for those portions of the damage award as to which both Z3’s right of recovery and the amount to be recovered were not reasonably controverted. The Nebraska Supreme Court has indicated that a single claim of breach can give rise to disparate elements of damages, not all of which need to be liquidated in order for the undisputed amounts to give rise to an award of prejudgment interest. For instance, in Classen v. Becton, Dickinson & Co., 334 N.W.2d 644 (Neb. 1983), the plaintiff agreed to supply steel to the defendant for its construction work, and the defendant agreed to pay a total of approximately $118,500 in return. The plaintiff supplied steel to the defendant, and the defendant paid invoices amounting to $98,094.38. However, the defendant -31- refused to pay the final invoice for $20,350.74. When the plaintiff sued to recover this unpaid amount, the defendant filed an answer and a setoff, in which it sought to reduce the plaintiff’s recovery by the amount the defendant was allegedly damaged as a result of the plaintiff’s late delivery and misfabrication of steel. Because the defendant’s alleged damages were smaller than the amount due on the unpaid invoice, “[t]he trial court found that it was agreed by all parties that there was $17,723.94 due the plaintiff.” Id. at 645. However, based on the defendant’s disputed setoff claim, there was a dispute as to whether the plaintiff could recover the remainder of the unpaid invoice amount. The defendant ultimately succeeded in part on its setoff claim, and the plaintiff was awarded a total judgment of $18,973.94. On appeal, the plaintiff contended it was entitled to prejudgment interest on this award based on the defendant’s failure to pay the final invoice. The Nebraska Supreme Court agreed with this argument, but only as to the undisputed amount of the award: “The record shows that $17,723.94 of the amount due the plaintiff was not disputed and therefore was a liquidated claim. The plaintiff was entitled to interest on that amount . . . .” Id. However, because there was a dispute as to whether the plaintiff could recover the remaining portion of the unpaid invoice, the plaintiff was not entitled to prejudgment interest on the $1,250 it recovered after resolution of the defendant’s setoff claim. Id. Likewise, in a recent case where the “sole cause of action was essentially an action for conversion,” Brook Valley Ltd. P’ship v. Mut. of Omaha Bank, 825 N.W.2d 779, 785 (Neb. 2013), the Nebraska Supreme Court similarly upheld an award of prejudgment interest on one portion of the award of -32- damages despite the fact that there was a reasonable controversy as to the amount due and the right of recovery on another element of damages. Id. at 792; see also Cheloha v. Cheloha, 582 N.W.2d 291, 295-97, 301 (Neb. 1998) (holding in an action for an accounting that the plaintiff was entitled to prejudgment interest for those elements of damages as to which there was no reasonable controversy, while reversing the trial court’s award of prejudgment interest for those elements of damages as to which there was a reasonable controversy). In this case, there was no reasonable controversy as to whether Digital breached the 2009 contract, nor was there any reasonable dispute that Z3 was entitled to $175,000 in damages based on Digital’s failure to pay the remaining $175,000 in fees that were due during the design period. We accordingly hold that Z3 was entitled to prejudgment interest on this $175,000 award. Finally, we turn to Z3’s argument that it is similarly entitled to prejudgment interest on the $270,000 award the district court held it was entitled to for Digital’s breach of ¶ 14(b)(iii) and (iv). Again, as with the $175,000 design-fee award, there was no reasonable controversy that Z3 had a right to recover for Digital’s breach of the 2009 contract. Unlike the uncontroverted $175,000 design-fee award, however, Z3’s right to recover a specific amount of damages under ¶ 14(b)(iii) and (iv) was the subject of reasonable controversy. Whereas Z3’s entitlement to the $175,000 award flowed automatically from Digital’s repudiation of the valid 2009 contract, Z3’s entitlement to the $270,000 in minimum royalty fees turned on the resolution of the parties’ alternative- -33- contract arguments. Specifically, the parties have disputed throughout this case both (1) whether ¶ 14(b)(iii) and (iv) created an alternative take-or-pay contract and, if so, (2) which alternative—lost profits or $270,000 in minimum royalties—was the appropriate remedy in the event of breach. Resolving these two questions could yield three possible outcomes under this provision of the contract. First, if ¶ 14 did not create an alternative contract, then Digital would owe Z3 both lost profits and $270,000 in minimum royalty fees. Second, if ¶ 14 created an alternative contract and if Z3 was entitled to the greater alternative, then Digital would owe Z3 lost-profit damages, but not the $270,000 in minimum royalties. Third, if ¶ 14 created an alternative contract and Z3 was only entitled to the smaller alternative, then Digital would owe Z3 the $270,000 in minimum royalties, but not lost profits.4 4 Z3 contends on appeal that its entitlement to $270,000 has always been uncontested because Z3 has consistently maintained that it is entitled to recover both lost profits and the $270,000 in minimum royalty fees, while Digital has consistently maintained that Z3’s potential recovery is limited to the smaller alternative of $270,000. However, Z3’s own arguments on appeal belie this contention. While Z3 mainly focuses on its argument that ¶ 14(b)(iii) and (iv) did not create an alternative contract, it also argues that if we do find an alternative contract, we must permit Z3 to recover the greater alternative of lost profits instead of the lesser alternative of $270,000 in royalties. Z3’s filings to the district court also demonstrate continued controversy as to whether Z3 was entitled to recover lost profits, minimum royalties, or both. While Z3 sometimes sought both lost profits and minimum royalties, it sometimes sought only the greater alternative of lost profits. For instance, in its Rule 26(a)(1) disclosures, Z3 disclosed as its damages only the $15,000 non-payment for the 2008 contract, the $175,000 balance due for design fees under the 2009 contract, and $2.3 million in “lost profits on 39,050 DM365 units @ average profit per unit of $60.” (Appellant’s App. at 361.) Likewise, the district court’s pretrial order noted that Z3 sought $4.05 million in damages as detailed in its expert’s -34- As discussed above, we conclude the third possible outcome applies here. However, this conclusion does not remove the issue from the realm of reasonable controversy. Our resolution of this issue depended on our resolution of two legal questions of first impression in Nebraska. If we had resolved these two contested issues by holding that ¶ 14 created an alternative contract and that Z3 was entitled to recover the greater alternative of lost profits, Z3 could not have recovered prejudgment interest under ¶ 14(b)(iii) and (iv), since Z3’s lost profits could not be calculated “without reliance upon opinion or discretion.” Hill v. City of Lincoln, 380 N.W.2d 296, 299 (Neb. 1986). Because a reasonable controversy existed as to whether Z3 might be entitled to recover only its lost profits and not the minimum royalty fees under ¶ 14(b)(iii) and (iv), it follows that Z3 was not entitled to prejudgment interest on the $270,000 award it ultimately received. Even though the minimum royalty amount itself was specified in the contract and calculable without “reliance upon opinion or discretion,” id., the alternativecontracts dispute meant that Z3’s right to recover this amount was not a foregone conclusion. “[N]ot only was the amount technically unliquidated, but owing to the unsettled state of the law, it was uncertain.” Id. report (id. at 1043), and this report based the $4.05 million damage calculation only on the design fees and lost profits, not the $270,000 royalty payment (id. at 1591.) We accordingly agree with Digital that “[t]he $270,000 component of Z3’s damages was in ‘controversy’ at all times[,] and it is Z3 itself that created that controversy.” (Appellant’s Resp. and Reply Br. at 17.) See also Ferer v. Aaron & Sons Co., 725 N.W.2d 168, 17475 (Neb. 2006) (“By electing to pursue their litigation for dissenters’ rights and refusing to receive the payment of their pro rata share of the sale proceeds, appellants in this case created a reasonable controversy with regard to their right to receive the sale proceeds.”). -35- Based on the continuing controversy over the amount Z3 was entitled to recover in damages for Digital’s breach of ¶ 14(b)(iii) and (iv), we conclude that this damage claim was not liquidated. We therefore hold that Z3 is entitled to prejudgment interest only as to the $175,000 award, since this was the only element of damages for which there was no reasonable controversy either as to Z3’s right to recovery or as to the amount to which Z3 was entitled.