Opinion ID: 1643072
Heading Depth: 2
Heading Rank: 7

Heading: Did the Arbitrators Manifestly Disregard the Law by Awarding Double Recovery of Damages?

Text: As set out earlier in detail, the arbitration panel awarded each plaintiff a certain amount to compensate him or her for loss of franchise value and a certain additional sum representing the present value of his or her loss of future profits for 20 [or, in the case of Horn, 10] years. Also, by way of further compensatory damages, the panel awarded each plaintiff $200,000 for mental anguish, with the exception of Horn, whom it awarded $300,000. At no point in its briefs to this Court does the News challenge the amounts awarded each plaintiff for mental damages, apart from arguing that it has no liability for damages at all. The News argues that in awarding each plaintiff damages both for the loss of franchise value and for lost future profits the panel disregarded Alabama law prohibiting the double recovery of damages. Alabama law is clear that an injured party cannot receive from a single tortfeasor duplicative damages for a single wrong. As summarized by Dean Jeanelle Mims Marsh and Professor Charles W. Gamble, both of the University of Alabama School of Law, in their text Alabama Law of Damages § 1-8 (4th ed. 1999): There is a general rule that there can be only one satisfaction of the same damage or injury. The different means of ascertaining damages in a given situation should not be applied so as to give double damages or double compensation for the same thing. The prohibition against double recovery underlies the equitable principle informing the law of subrogation pursuant to which a party should not recover twice for a single injury. American Economy Ins. Co. v. Thompson, 643 So.2d 1350, 1352 (Ala.1994). The plaintiffs do not dispute that the recovery of duplicative damages would be contrary to governing Alabama legal principles; they counter only that [t]he News errs in characterizing the awards as duplicative. Each award represents a separate and distinct injury which [the plaintiffs] suffered as a result of The News'[s] wrongful conduct. As noted earlier in this opinion, the panel certified in its decision that it had not allowed any duplicative recovery, and it declared at another point that [t]he loss of future profits is a separate and distinct element of compensatory damages from the loss of franchise value. We disagree. The plaintiffs' expert witness, James Williams, testified both by deposition and in person at the hearing that he had, at the plaintiffs' request, made two computations of damages, which he described to plaintiffs' counsel as follows: The first computation was the value of the franchise interest that was lost by the Plaintiffs in these newspaper dealership franchises. And then you asked me to also provide an assessment of damages for the lost earnings that could have been estimated from the franchises. Williams explained that, because each plaintiff was a hundred percent owner of his or her franchise and because Williams valued each as a going concern, the calculation of the value of the franchise interest for each was the same as a calculation of the fair-market value of the franchise. In computing that market value for each franchise, Williams used, in turn, two different methodsa market approach and an income approach. One method was used to corroborate the other and they should have, and did, yield similar results. Williams testified that [a] market approach is an approach where you are looking at transactions in the marketplace and arriving at a value based on comparables in a market, whereas [a]n income approach is where you are determining an earning stream and dividing it by a capitalization rate or discount rate where appropriate to determine an indication of value. In forming his opinion on the lost profits that each franchise of the plaintiffs would incur if the business was kept intact and going forward, Williams assumed a 20-year working life for each plaintiff, except for Horn, for whom he assumed a 10-year working life. He then projected profits for each year of that period, based on a variety of premises. At no time did Williams testify that an appropriate calculation of damages should, or properly could, add together the two separate damages concepts he had been asked to develop: the market value of a franchise as a going concern and the flow of profits it might generate over a 10- or 20-year period. The News cites caselaw that holds such a combination or duplication would violate the rule against the double recovery of damages. In Albrecht v. Herald Co., 452 F.2d 124 (8th Cir.1971), the plaintiff, a contract carrier for the defendant newspaper, was forced to sell his route at a loss because of illegally competitive conduct by the newspaper. Although the plaintiff's ensuing action was brought pursuant to federal antitrust law, [t]he damages referred to in the statute should be construed in the ordinary common law context as compensating plaintiff in full for the preventable and established loss sustained by reason of tortious or proscribed acts. 452 F.2d at 127-28. The jury had awarded the plaintiff damages both for the loss of the fair-market value of his route and for the loss of future profits. On appeal, the United States Court of Appeals for the Eighth Circuit pointed out that there was clear proof in the record of the value of the plaintiff's business as a going concern, and that value must necessarily take into consideration its future profit-earning potential. 452 F.2d at 129. It is our opinion that the plaintiff has received all permissible damages ..., damages occasioned prior to the sale and the full market value on the sale of his route as a going concern.... Fair market value would be that price a willing seller could secure from a willing buyer.... Plaintiff has thus been made whole on his actual damages.... He is not entitled to sell the route, receive full compensation therefor, and still receive the profits the route might have made over his reasonable work-life expectancy. The trial judge did cut these damages down to future losses occurring after the sale for a period of three years. We feel this is also is duplicitous. The prospect of future earnings is considered in arriving at the fair market value of a given business. Here undoubtedly the value of the route rested not in its tangible assets of an old truck and paper wrapper (valued $600) but in the exclusive contract for distribution of a well regarded newspaper in a given area. Whatever that fair market value might be, plaintiff has received it. Capitalizing and discounting future profits is one method of figuring present value, but this does not mean that a person is entitled to present value plus future profits. 452 F.2d at 131. See to like effect Protectors Ins. Serv., Inc. v. United States Fid. & Guar. Co., 132 F.3d 612 (10th Cir.1998); C.A. May Marine Supply Co. v. Brunswick Corp., 649 F.2d 1049 (5th Cir.1981); and Bush v. National School Studios, Inc., 131 Wis.2d 435, 443-44, 389 N.W.2d 49, 53 (Wis.Ct.App.1986). (Lastly, National contends that the trial court erroneously permitted recovery for both lost income and lost `territory rights.' We agree. A dealer is entitled to damages resulting from the grantor's violation of the [Wisconsin Fair Dealership Law]. ... Two measures of damages are recognized: (a) lost profits, and (b) lost business value. C.A. May Marine Supply Co. v. Brunswick Corp., 649 F.2d 1049, 1053 (5th Cir.1981). Lost future profits is an appropriate measure of damages when based on adequate data, Lehrman v. Gulf Oil Corp., 500 F.2d 659, 668 (5th Cir.1974), and proven to a reasonable probability. Esch v. Yazoo Manufacturing Co., 510 F.Supp. 53, 56 (E.D.Wis.1981). On the other hand, lost business value focuses on the reduction in value of the business. Both good will and future profits are computed into lost business value. Therefore, damages awards that include lost profits and lost business value are impermissibly duplicitous. See C.A. May Marine, 649 F.2d at 1053.) In a situation involving the destruction of a business, there are two basic models for proof of damages. The first requires a projection of the profits the plaintiff would have earned over some future period if it had remained in the business; these amounts are then totaled to produce the damage[s] award. The second model attempts to determine the fair market or `going concern' value of the business, i.e., what a reasonable and willing buyer would have bought it for on the date of its destruction. This figure typically is based on a projection of the average future annual earnings which the business would produce and the capitalization of that figure. Both of these methods require an analysis of prior earnings history and the projection of those earnings, if any, into the future. The two methods, however, are conceptually different; they function as mutually exclusive alternative measures. Accordingly, a plaintiff is not entitled to recover both the going concern value of a destroyed business and the profits lost after its destruction. Such a damage award would be duplicative. Allen S. Joslyn, Measures of Damages for the Destruction of a Business, 48 Brook. L.Rev. 431-32 (1982) (footnotes omitted). In connection with this feature of its argument, the News does not contest the legitimacy of Williams's opinions concerning the amount of loss of franchise value experienced by each plaintiff and the present value of the loss of future profits of each plaintiff, and it does not assert that either would be an inappropriate method for calculating the plaintiffs' direct damages for the loss of their dealerships, if the plaintiffs were entitled to any damages at all. Rather, the News simply says that the arbitration panel should not have awarded each plaintiff both amounts because [a]n award of both future lost profits and the lost value of each of the [plaintiffs'] businesses is plainly duplicative. We agree. By its own acknowledgment, the panel was clearly aware that awarding duplicative damages was impermissible. It is apparent, however, even accepting Williams's testimony at full face value, that by awarding each plaintiff damages for loss of franchise value and damages for loss of future profits for 20 years [10 years for Horn], reduced to present day value the panel has awarded duplicative recoveries. Therefore, the most that could be awarded by way of compensatory damages to each plaintiff is his or her mental-anguish damages and either the loss of his or her franchise value or the loss of his or her future profits, reduced to present value. Therefore, we find that the panel manifestly disregarded the law of damages in this respect. Arbitrator White recognized this, leading him to dissent from the panel's decision on the basis that the damage[s] calculations by the majority of the Panel result in the plaintiffs' receiving duplicate damages for the same conduct. Beyond arguing the impropriety of allowing a double recovery of both the loss of franchise value and the loss of future profits, however, the News makes no argument concerning which of those two recoveries should be disallowed. It does not argue that either method of calculating damages is invalid under the circumstances. It does not, for example, contend that if the plaintiffs are entitled to recover any damages at all for the loss of their dealerships, computation of the damages on the basis of loss of future profits would be an illegitimate approach or inferior to calculating damages based on the loss of franchise value. Indeed, in this State the rule [is] that in the event of the destruction or interruption of an established business, loss of profits may be recovered if the amount of actual loss is rendered reasonably certain by competent proof. Hunter v. Parkman, 265 Ala. 168, 176, 90 So.2d 274, 283 (1956). [L]ost profits are recoverable if they are proved with reasonable certainty. Johns v. A.T. Stephens Enters., Inc., 815 So.2d 511, 517 (Ala.2001). Even anticipated profits of an unestablished business may be recovered if such damages are proved with `reasonable certainty.' Super Valu Stores, Inc. v. Peterson, 506 So.2d 317 (Ala.1987); Morgan v. South Central Bell Telephone Co., 466 So.2d 107 (Ala.1985). Kirkland & Co. of Anniston, P.C. v. A & M Food Serv., Inc., 579 So.2d 1278, 1285 (Ala.1991). See also Mason & Dixon Lines, Inc. v. Byrd, 601 So.2d 68 (Ala.1992). Thus, we are left to determine, with no suggestion one way or the other from the News, which of the two duplicative damages components should be disallowed. Because Williams presented each to the panel as an independent and separately valid damages assessment, we have no basis in the record for preferring one over the other. Logic dictates, however, that we consider the larger award to subsume the smaller; certainly the reverse could not be true. This proposition has been stated as follows: It is well accepted that the fair market value of a privately held business is estimated to be the largest of the values determined by the following three methods: (1) Income Approach: the net present value of the business's profits; (2) Asset Approach: the difference between the market value of its assets and liabilities; or (3) Market Approach: the comparable fair market value of the business as determined by either comparable publicly traded corporations or comparable companies purchased in whole. Unless the company has significant asset holdings such as real estate, securities, or natural resources, the first or third method usually generates the largest value. George P. Roach, Correcting Uncertain Prophecies: An Analysis of Business Consequential Damages, 22 Rev. Litig. 1, 11-12 (Winter 2003) (emphasis added; footnotes omitted). It is also logical that in undertaking to eliminate one or the other, but not both, of two duplicative elements of an arbitration award, we should do the least violence practical to the substance of the award. It is obvious that the majority of the panel considered due and owing under its findings the full measure of damages it awarded for loss of future profits, as a fully independent damages component. Therefore, we disallow and vacate that portion of each award providing damages for the smaller separate component of loss of franchise value.