Opinion ID: 3008740
Heading Depth: 2
Heading Rank: 2

Heading: Lost-Profits Calculation

Text: Patton argues in the alternative that even if Elite is entitled to lost profits, the district court abused its discretion in calculating Elite’s damages. Specifically, Patton contends that the district court erred in basing its damages award on DID’s sales figures rather than Elite’s. Cf. Joerger, 568 N.W.2d at 369–70 (looking first to the plaintiff’s own past-profit data when considering damages). In using DID’s sales data instead of Elite’s, the court relied on Bero argument thus rises and falls with its self-styled alternative argument: that Elite failed to prove lost profits with reasonable certainty. -8- Case Nos. 14-2272/2317, Elite Int’l Enterprise, Inc. v. Norwall Group, Inc., et al. Motors, Inc. v. Gen. Motors Corp., No. 257675, 2006 WL 2312182 (Mich. Ct. App. Aug. 10, 2006), for the proposition that “using sales data of competitors or from other markets [is] acceptable in making a final determination on damages, so long as the sales data used [is] not itself speculative.” Even if courts properly may use a competitor’s sales data, Patton maintains that the district court erred in using DID’s sales figures because DID is not a similar business. In Bero Motors, an established car dealership owner proved lost profits from the Town & Country dealership it intended to open by adducing evidence of sales from nearby Town & Country dealerships. See Bero Motors, 2006 WL 2312182 at . DID, both a distributor and a manufacturer, “is a giant in the wallcovering business, with global connections, approximately 140 employees, and annual sales of $60 million.” Elite, by contrast, counts Kseri as its sole employee and operates out of Kseri’s Michigan video-rental store. Given these stark differences, Patton persuasively argues that the current case looks less like Bero Motors than it does Joerger v. Gordon Food Serv., Inc., a published Michigan Court of Appeals decision. In Joerger, the plaintiff’s business bought food at wholesale prices from the defendant and resold it to schools and churches. The plaintiff tried to establish lost profits by using data from a rival company that owned its own warehouse and handled its own deliveries. But the trial and appellate courts agreed on the incongruity of the rival company’s data because these “were not identical business operations . . . [given that the plaintiff] relied on defendant to supply and deliver the grocery items.” Joerger, 568 N.W.2d at 370. Similarly, DID’s sheer size and additional role as a manufacturer undermine the district court’s decision to use its sales figures to estimate Elite’s damages; DID and Elite are not “identical business operations.” Id. -9- Case Nos. 14-2272/2317, Elite Int’l Enterprise, Inc. v. Norwall Group, Inc., et al. Patton highlights a second problem with the district court’s methodology: despite purportedly relying on competitor sales data, the court treated DID not as a competing distributor but as a supplying manufacturer. The court “construct[ed] a[n] analytical framework within which Elite was still able to freely place orders with [Patton] or DID.” It envisioned a world in which Elite was the buyer for two out of every three sales DID made in the Middle East. This method departs from Bero Motors, where the court used sales data from a comparable dealership at the same step in the supply chain to estimate the plaintiff’s damages. More importantly, it also fails to appreciate that DID was contractually prohibited from selling to Elite. The court thus sidestepped Michigan law in two respects: first, by erroneously concluding that DID and Elite were sufficiently similar to allow the court to use DID’s sales figures; and second, by treating DID as a supplier rather than a direct competitor of Elite. Instead, as Patton maintains, the court should have restricted itself to using Elite’s actual sales data to estimate its lost profit. According to Elite’s tax returns, Elite earned a net profit of $71,814 in 2011 (the year of the breach) and $50,986 in 2012 (the first full year after the breach). Patton proposes that the correct measure of damages accounts for the difference between the two years’ profits ($20,828) and multiplies that difference by the 2.512 years remaining on the contract at the time of the breach. This method produces a damages figure of $52,319.94. Though Patton’s method uses Elite’s actual sales data, it too includes potential flaws. It fixes Elite’s 2011 net-profit figure as the baseline for determining damages, ignoring the possibility that Elite would have earned more than $71,814 in net profit in 2011 had the breach not occurred mid-year. Moreover, the district court found Patton’s breach derailed Elite’s potential sales relationships with Middle East buyers, and thus, it seems likely the court would find that Elite would have earned more profit over time. - 10 - Case Nos. 14-2272/2317, Elite Int’l Enterprise, Inc. v. Norwall Group, Inc., et al. Rather than using Elite’s own sales data, the dissent urges the court on remand to compare Elite to sub-distributors like Excel Dubai, which also purchased Patton products from suppliers. But, like the parties, the dissent fails to identify any sub-distributor sales data in the record. As a matter of principle, the dissent’s proposed damages calculation complies with Michigan law. As a matter of evidence in the record, however, it finds no support. Accordingly, we VACATE the district court’s award of damages and REMAND for recalculation using Elite’s own sales data in the first instance.