Opinion ID: 1198908
Heading Depth: 3
Heading Rank: 2

Heading: Procedural and legal background

Text: In order to recover lost profits in a breach of contract action, the plaintiff must present to the jury evidence sufficient to calculate the amount of the loss caused by the breach. See City of Palmer v. Anderson, 603 P.2d 495, 500 (Alaska 1979). Damages must be proved with reasonable certainty. See Geolar, Inc. v. Gilbert/Commonwealth, Inc., 874 P.2d 937, 945-46 (Alaska 1994). The party seeking damages must provide a reasonable basis for computing the award. See Conam Alaska v. Bell Lavalin, Inc., 842 P.2d 148, 154 (Alaska 1992). Our cases have discussed four methods of proving damages in a construction contract case: the actual cost method, the total cost method, the modified total cost method, and the jury verdict method. See Anchorage v. Frank Coluccio Constr. Co., 826 P.2d 316, 324-27 (Alaska 1992). The preferred method is the actual cost method, in which each element of extra expense incurred because of the [alleged breach] is added up for a total claimed amount. Id. at 325. By contrast, [t]he total cost method calculates damages by determining the difference between the actual costs incurred on a project, plus a reasonable amount for profit, and the contract price. Geolar, 874 P.2d at 943. This method is disfavored because it assumes that the defendant's breach was the cause of all of the extra cost, it assumes plaintiff's bid was accurately computed, and it assumes that plaintiff was not responsible for increases in cost. Fairbanks N. Star Borough v. Kandik Constr., Inc. & Assocs., 795 P.2d 793, 798 (Alaska 1990), opinion vacated in part on reh'g, 823 P.2d 632 (Alaska 1991) (relevant parts unaffected). For these reasons, the proponent of total cost evidence must establish that no other form of proof is practicable. See Coluccio, 826 P.2d at 325. [32] Similar to the total cost method, and similarly disfavored, is the modified total cost method, which fixes amounts actually spent for various parts of a contract and compares those costs with some form of estimate-derived reasonable cost. [33] The central aspect of both the total cost and modified total cost methods is a comparison between the contractor's initial estimates and the actual cost of performing the contract. Geolar, 874 P.2d at 944. The fourth method of proof is the jury verdict method, a variant on the actual cost approach which allows the contractor to `present evidence of the cost of additional work to the finder of fact[,] including any actual cost data, accounting records, estimates by law and expert witnesses, and calculations from similar projects.' Coluccio, 826 P.2d at 325 (quoting New Pueblo Constr., Inc. v. State, 144 Ariz. 95, 696 P.2d 185, 194 (1985)). Before trial began, the trial court granted a motion by TH to prohibit PCI from relying on the total cost method to prove damages and requiring, instead, that damages be proved by the actual cost method: PCI must establish its damages, and any right to recovery, by means of the actual cost method of establishing damages. In other words, PCI must establish each element of extra expense incurred, and that each such expense was caused by defendants' negligence, before it will be entitled to an award for such expense. At the conclusion of PCI's case-in-chief, TH filed motions for a directed verdict on damages, asserting that PCI's witnesses had failed to present an actual cost case, had relied instead on total cost evidence, and had failed to present sufficient evidence to establish causation of damages or to establish its damages with sufficient specificity. The trial court declined to direct a verdict against PCI, concluding that, although PCI's evidence incorporated some total cost elements, ample evidence of causation had been presented, particularly as to A/H; the court further concluded that specificity as to the amount of damages was of secondary importance. [34] Essentially, the court embraced the jury verdict method, stating, It seems to me the way to handle this is a very carefully worded jury instruction .. . which requires the jury to find causation with precision and to let them know that that was the burden that Plaintiffs had. Accordingly, at the close of the case, the court defined the actual cost method and instructed the jury that Plaintiff must use the actual cost method to establish its damages. The court defined the total cost method, as well, and instructed that [y]ou may not use this method to determine PCI's damages, because it does not differentiate between the various entities which may have caused any damage to PCI. The court also advised the jury, you must have a reasonable basis for fixing damages in this case. The court warned that delay and damages in the performance of the powerline project could potentially have been caused by numerous contract participants other than A/H or Ebasco, and it told the jury that [f]or each item of damages claimed ... you must determine that such item of damage was legally caused by [A/H] or Ebasco Services before making an award ... for that item. On appeal, TH renews the objections it raised below. TH complains that the trial court erred in allowing PCI to present a case based entirely on total cost evidence. After undertaking an extensive review of the damages evidence, TH encapsulates its claim as follows: PCI's evidence ignored causation, and PCI witnesses simply assumed that all injuries were caused by A/H and Ebasco. That assumption duplicates the underlying premise, and the essential evidentiary weakness of the total cost approach. The jury had no evidentiary basis for distinguishing between injuries caused by A/H and those caused by PCI, Ebasco, the COS [City of Seward], CEA [Chugach Electric], the U.S.F.S [United States Forest Service] and others, therefore it could not isolate which specific injuries were caused by A/H. Since the jury could not isolate what injuries were caused by A/H, it therefore could not determine damages flowing from those injuries. Nor could the jury use the resultant percentage of fault to determine the damages relating to the arbitration expenses incurred by PCI and the COS or the COS's increased administrative costs. In short, TH maintains that PCI's reliance on a total cost case left the jury with no rational basis for a verdict: The jury's award can only be explained as a result of the averaging method, the adoption of an arbitrary percentage calculation, or the random selection of figures improperly based on speculation. We disagree. TH's view of the case is not taken, as ours must be, in the light most favorable to PCI. See Gonzales v. Safeway Stores, Inc., 882 P.2d 389, 395 (Alaska 1994). PCI's evidence cannot be dismissed as a mere total cost case. Although the evidence included a healthy dose of information concerning the total cost of the delays, the jury heard detailed testimony concerning PCI's actual construction of the powerline project. Witnesses who had worked on the project told of the delays, frustrations, and economic problems PCI experienced; they recounted details of PCI's dealings with A/H and other contract participants; they described A/H's alleged misrepresentations and acts of negligence; and they tied those acts to specific problems in PCI's performance of the contract. The jury also heard a significant amount of cost analysis and received volumes of paperwork documenting and analyzing virtually every phase of construction. Some of the analysis was based on a total cost approach, but some was in the form of expert opinion, and much consisted of specific testimony and records memorializing PCI's actual work experience. This admixture of evidence left the jury with much more to consider than the difference between the actual costs incurred on a project, plus a reasonable amount for profit, and the contract price. Geolar, 874 P.2d at 943. In addition to establishing total project costs significantly exceeding the original contract price, the evidence strongly suggested that a substantial amount of PCI's added costs resulted from delayed and out-of-sequence delivery of powerline poles. The evidence also described instances in which A/H misled PCI with regard to pole delivery, and it described the effects of A/H's misrepresentations and negligence on PCI's construction efforts. While PCI never submitted itemized proof of actual added costs attributable to A/H's misconduct, it presented enough information to support a strong inference that A/H had caused PCI a substantial amount of actual harm and to enable the jury to form a reasonable, though perhaps imprecise, estimate of the extent of that harm. This is hardly a situation in which the jury was fed, and swallowed whole, a case based solely on total cost analysis. See, e.g., Coluccio, 826 P.2d at 327 (Had the jury heard only FCCC's modified total cost theory and returned a verdict in the amount indicated by that theory ... reversal would be mandated.). As the trial court correctly recognized, the strong showing that A/H caused PCI actual harm was particularly significant in establishing the sufficiency of the damages evidence to submit to the jury, despite the relative weakness of PCI's evidence on precise damages. In a factually distinct but legally analogous situation, we recently observed: It is, of course, the law that the fact of damages must be proven by a preponderance of the evidence. To recover for future medical expenses one must prove to a reasonable probability that they will occur. Blumenshine v. Baptiste, 869 P.2d 470, 473 (Alaska 1994) (citing Maddocks v. Bennett, 456 P.2d 453, 458 (Alaska 1969)). Once the fact of damages has been proven to a reasonable probability, the amount of such damages, on the other hand, need only be proven to such a degree as to allow the finder of fact to reasonably estimate the amount to be allowed for [the] item [of damages]. Id. (citing Henderson v. Breesman, 77 Ariz. 256, 269 P.2d 1059, 1061-62 (Ariz. 1954)). Pluid v. B.K., 948 P.2d 981, 984 (Alaska 1997). [35] As the trial court also correctly recognized, the evidence in this case was suitable and sufficient to submit to the jury under the jury verdict method: [36] Courts have generally approved jury verdict awards, whether rendered by the judge or a jury, under similar circumstances  that is, where the contractor has sought to rely on a total cost approach, but the fact-finder has apparently gone beyond that method and rendered a verdict that seems fair and reasonable and is supported by substantial evidence. Coluccio, 826 P.2d at 327. The jury heard substantial evidence unrelated to the total cost method; it was carefully and specifically instructed to ignore all that was not evidence of actual cost; [37] and its modest verdict  which fell far closer to TH's position than to PCI's  bears witness to its ability to sift through the chaff and find the grain. TH's motions for directed verdicts were properly denied.