Opinion ID: 219565
Heading Depth: 1
Heading Rank: 3

Heading: The District Court's Failure to Instruct on Gemini's Lost Opportunity Theory

Text: Under Massachusetts law, [10] to recover expectation damages for breach of contract the plaintiff must prove by a preponderance that an agreement existed, the agreement was breached, and the breach caused the plaintiff to suffer damages. See St. Charles v. Kender, 38 Mass.App.Ct. 155, 646 N.E.2d 411, 413 (1995); see also Salvas v. Wal-Mart Stores, Inc., 452 Mass. 337, 893 N.E.2d 1187, 1216 (2008) (`Contract damages are ordinarily based on the injured party's expectation interest and are intended to give him the benefit of his bargain by awarding him a sum of money that will, to the extent possible, put him in as good a position as he would have been in had the contract been performed[.]' (quoting Restatement (Second) of Contracts § 347, cmt. a (1981))); Abrams v. Reynolds Metals Co., 166 340 Mass. 704, 166 N.E.2d 204, 207 (1960) (Damages may be awarded for a breach of contract for the net amount of the losses caused and gains prevented by the defendant's breach. (internal citations omitted)); Schwartz v. Travelers Indem. Co., 50 Mass.App.Ct. 672, 740 N.E.2d 1039, 1047 (2001) (noting that a claim of breach of an implied contract will not go to the jury without any evidence supporting an inference that the harm which befell [plaintiff] followed as a natural consequence of the breach. (internal marks omitted)). The causation element generally requires the plaintiff to prove that but for the defendant's breach the plaintiff would have realized some gain or avoided some loss. [11] See Taylor v. Int'l Indus., Inc., 8 Mass.App.Ct. 865, 398 N.E.2d 501, 503 (1979). Gemini does not dispute the fact that but for causation is usually a prerequisite to recovering expectation damages. Nonetheless, Gemini appeals the district court's failure to instruct the jury on its alternative lost opportunity approach to causation and damages. Specifically, Gemini asserts that, pursuant to the Massachusetts Supreme Judicial Court's (SJC) holding in Air Technology, [t]he district court should have instructed the jury that Gemini could show that it was harmed by proving that AmeriPark's breach caused it to lose the exclusive opportunity to negotiate a final contract with AmeriPark. Under this approach, Gemini contends that the jury should have been instructed that it could determine the value of Gemini's lost opportunity by discounting [Gemini's] expected profit from the potential transaction with AmeriPark by the uncertainty that a final agreement would have been reached. [12] Air Technology 's holding and facts are confusing, but we recount them here as clearly and succinctly as possible. [13] In the early 1960s, the General Electric Company (GE) sought a contract from the Air Force to assist with the establish[ment] [of] installations in North America for detecting and determining the direction and yield of nuclear detonations by methods including the use of electromagnetic (EM) sensors. Air Tech., 199 N.E.2d at 540. To bolster its efforts, GE considered assistance from Air Technology Corporation (AT). Id. at 541. In a meeting between representatives of the two companies, AT proposed a system for the EM sensor portion of the [Air Force project]. Id. Eventually, GE and AT agreed that AT would become a team member on GE's bid. Id. at 547. Team membership, the SJC concluded, was intended to mean more to AT than opportunity to bid in the program; rather, if [GE] received a prime contract AT[,] subject to Air Force approval[,] would receive a subcontract for the EM sensor[.] Id. (internal marks omitted). Thereafter, AT personnel helped GE prepare and present its proposal to the Air Force. Id. at 541-43. The Air Force subsequently awarded the prime contract to GE. Id. at 543. Among other things, this contract required that all GE subcontracts receive Air Force approval. Id. at 544. To AT's dismay, GE refused to acknowledge its obligation to award a subcontract to AT for the design and manufacture of the EM sensor, and instead sought competitive bids for the job. Id. at 544-45. The SJC held that GE, by failing to press for AT's continuing participation in the program and by competing for the EM sensor work, committed total breaches of its duties to AT. Id. at 548-49. As for damages, the SJC remanded for a determination of the value of AT's lost opportunity, id. at 548-50, explaining: [T]he detailed terms of AT's subcontract were never determined beyond the expectation that the subcontract would cover the EM sensor and enable AT to recover its costs and a reasonable profit. Whatever uncertainty may have existed about the subcontract does not preclude recovery by AT. What AT lost by GE's breaches of contract was a business opportunity. The problem is to determine the value of that opportunity. . . . Id. at 548 (internal citations omitted). The SJC rejected the master's decision to use AT's subcontract proposals to measure damages in part because the master's computation of damages seems to have been made by allowing to AT the whole of what it would have received . . . on the basis of its bids, less the cost to AT of performing such a subcontract. That computation did not in any degree reflect the potential effect. . . of bargaining or the possibility that the Air Force would not have approved such a subcontract without competition. Id. at 549 (internal citation omitted). The court therefore concluded: The master or a judge . . . must appraise the fair value of AT's lost opportunity in the light of the uncertainties. This will be largely a matter of judgment, taking into account relevant factors, including what the trier of the fact concludes would have been (1) the approximate net amount realized by AT from a subcontract, if one had been negotiated, and (2) the probability of successful negotiations and Air Force approval. Id. (internal citation omitted); see also Miller v. Allstate Ins. Co., 573 So.2d 24, 29 (Fla.Dist.Ct.App.1990) (in approving a similar damages theory, concluding that recovery will be allowed where a plaintiff has been deprived of an opportunity or chance to gain an award or profit even where damages are uncertain); Wachtel v. Nat'l Alfalfa Journal Co., 190 Iowa 1293, 176 N.W. 801, 802-05 (1920) (where defendant breached contract by restricting plaintiff's ability to compete in contest in which she was likely to win a prize, holding that defendant could be held liable for the plaintiff's lost chance of winning a prize). But see Wright v. St. Mary's Med. Ctr. of Evansville, Inc., 59 F.Supp.2d 794, 799 (S.D.Ind.1999) (rejecting loss of chance theory because, among other reasons, Indiana had rejected a similar doctrine in medical malpractice cases and [t]here is less basis for denying recovery for loss of a chance in tort cases [as compared to contract cases]) [14] ; Phillips v. Pantages Theatre Co., 163 Wash. 303, 300 P. 1048, 1049 (1931) (where court assumed that defendant reached contractual duty to allow plaintiff to enter final round of contest, affirming dismissal because [w]ithout either the winning . . . or substantial proof that she would have won had she been permitted to enter, no recovery can be had). In Sampson v. Eaton Corp., 809 F.2d 156 (1st Cir.1987), the defendant and Sampson had agreed that Sampson would serve as the defendant's exclusive real estate agent as the defendant sought to purchase property in Massachusetts. Id. at 159. Although industry norms dictated that the seller was to pay the agent's brokerage fee, the agreement obligated the defendant to inform the seller of Sampson's position if the defendant ended up acquiring a property that Sampson had showed. See id. The defendant was under no obligation, however, to ensure that the seller actually paid Sampson the fee. Id. The defendant ended up purchasing a property, but never informed the seller about Sampson, and the seller paid the fee to a different agent. Id. at 157-58. Because the contract lacked a guarantee that Sampson would receive any payment, Sampson went to the jury not for a brokerage fee, but for the found value of the promised, and lost, opportunity to obtain one. Id. at 160. The jury awarded Sampson one-half the value of the fee, id. at 157, and this court concluded that those damages were not too speculative. Id. at 160. Citing Air Technology, the court observed, the jury had specific evidence on the amount of brokerage fees awarded generally and on the [specific sale at issue], and the additional findings required to assess plaintiff's chances are not demonstrably more speculative than those required in many contract or tort actions. Id. We do not think the lost opportunity theory of causation and damages urged by Gemini is applicable to the case before us. First, the Gemini-AmeriPark contractual agreement is distinguishable from the agreement in Air Technology. In Air Technology, GE was obliged to award AT a subcontract if GE secured the prime contract, provided that the parties were able to agree on specific terms and obtain Air Force approval for the subcontract. In the case at hand, AmeriPark lacked any analogous contractual duty; rather, at best, AmeriPark's obligation was merely to refrain from discussing, negotiating for, or obtaining financing from third parties. To be sure, this exclusivity provision was presumably drafted to pressure AmeriPark into accepting financing from Gemini if it moved forward with the Mile Hi acquisition. But there is a meaningful difference between a duty to award a subcontract, albeit subject to certain conditions, and a duty to refrain from dealing with third parties. Even if Air Technology holds that a breach of the former duty can cause the type of lost opportunity injury asserted by Gemini, it does not necessarily follow that a breach of the latter duty does as well. Put differently, in Air Technology the plaintiff actually lost a contractually guaranteed right to a subcontract (subject to certain conditions); in the case at bar, Gemini was at best deprived of a contractually guaranteed right to exclude others from negotiating with AmeriPark. Nor do we see any indication that Massachusetts has extended the interpretation of Air Technology urged by Gemini beyond the circumstances of that case. Massachusetts is of course free to do so, but we are not in a position to take that step for it. See Noonan v. Staples, Inc., 556 F.3d 20, 30 (1st Cir.2009) (acknowledging this court's obligation to provide its best guess as to open questions of state law, but recogniz[ing] that . . . we must tread lightly in offering interpretations of state law where controlling precedent is scarce); Gill v. Gulfstream Park Racing Ass'n, 399 F.3d 391, 402 (1st Cir.2005) (A federal court sitting in diversity cannot be expected to create new doctrines expanding state law.). Because we conclude that Gemini's lost opportunity theory of causation and damages does not apply in this case, the district court did not err in refusing to issue the corresponding jury instruction.