Opinion ID: 3016904
Heading Depth: 3
Heading Rank: 6

Heading: Profits Lost on the Shells Contract

Text: The Magistrate Judge erred in awarding lost profits for all of the shells when only the 3 shells had received FAI approval. The record indicates, and Specialty does not dispute, that separate FAI approvals were required for 2, 3, 4 and 5 shells. Prior to August 1999 Specialty had submitted no shell size for approval other than the 3 shells. In fact, Specialty missed a self-imposed deadline to provide sample 4 shells by late June 1999. Further, Brisbin testified that he initially anticipated between one and two years to get the subcontractors up to speed, receive necessary approvals and begin full-time production for all four shell sizes. While 29 the Magistrate Judge found that samples for the other shell sizes were being produced in August, there are no findings (and perhaps little to nothing in the record to allow findings) (1) when these samples would have been completed, (2) how long FAI approval should have taken, (3) how long a trialproduction run and approval would have taken, and, ultimately, (4) when Specialty could have begun full-time production. In addition, it is unclear whether the shells satisfied quality control requirements. As stated previously, Superior employees testified that additional testing uncovered problems with the brass alloy used for all shell sizes. Because this problem was common to all the shells, Superior argues that lost profits cannot be awarded. The Magistrate Judge noted, however, that a different Superior employee testified on cross-examination that the sample 3 shells actually passed the required tests. The Magistrate Judge concluded: On the basis of this record the court cannot make a finding that the samples provided by Specialty did not meet the applicable standards and the quality requirements of Superior Valve. Parenthetically, the court need not and will not proceed onto a protracted analysis of that question because it found that Superior Valve had materially breached the contract . . . and because it failed to provide the Plaintiff with 30 adequate assurance of performance. Analyzing the first sentence of this statement, we conclude that the Magistrate Judge never made a factual finding one way or the other. From the second sentence it appears that the Magistrate Judge applied the incorrect legal standard for awarding lost profits. Specialty must prove damages to a reasonable certainty. Advent Sys., 925 F.2d at 680. As with the 1065 valves, because neither Specialty nor its subcontractors had experience manufacturing the shells, substantial compliance with the contract requirements cannot be presumed through a course of performance. Specialty had the burden of demonstrating that the prototype shells were conforming and, if not, when any deficiencies could have been rectified. On remand, the Magistrate Judge needs to make (if possible) appropriate findings if, upon reconsideration, lost profits are to be awarded. C. The In-Line Valves Project On cross-appeal, Specialty argues that it is entitled to lost profits based on the existence of an in-line valves contract. The Magistrate Judge concluded that the parties intended to enter into a contract, that the writing requirement for the Statute of Frauds was satisfied, but that lost profits were not recoverable because no agreement had been reached as to price, quantity and duration. Accordingly, he awarded Specialty only reliance damages. 31 We first conclude that the Magistrate Judge’s finding that Superior and Specialty intended to contract is clearly erroneous. As a written contract was executed for both the 1065 valves and the shells projects, the parties’ course of dealings indicates that contractual intent was formalized in a written document. The record also indicates that the parties were in the final stages of negotiating the in-line valves contract, but that they had reached no firm agreement. In a letter dated August 3, 1999, Brisbin wrote that the in-line valves “program has not been officially granted [to] Specialty Manufacturing and we do not have currently a long-term contract agreement for this program.” Further, Brisbin testified that, in June 1999, he began “requesting information” on the status of the in-line valves project because he had been told a long-term agreement “would be forthcoming.” He also “repeatedly asked [Joe Kilmer] about getting my [in-line] check valve contract, and he said, ‘They’re still evaluating it.’” On cross-examination, Brisbin admitted that a draft agreement had not yet been exchanged between the parties and that the two sides were only working toward a final contract. Even assuming Superior and Specialty intended to agree, no contract was formed. A contract with open terms will “not fail for indefiniteness if . . . there is a reasonably certain basis for giving an appropriate remedy.” 13 Pa. Cons. Stat. § 2204(c). The Magistrate Judge concluded, however, that there was no “meeting of the minds” as to price, quantity 32 and contract duration. Thus, no contract was formed as a matter of law. Yellow Run Coal Co. v. Alma-Elly-Yv Mines, Ltd., 426 A.2d 1152, 1154 (Pa. Super. Ct. 1981) (stating that, “[t]o be enforceable, a contract must . . . represent a meeting of the parties’ minds on the essential terms of their agreement”); see also Black’s Law Dictionary 224 (6th ed. 1991) (defining a contract as an “agreement between the parties that gives each a legal duty to the other and also the right to seek a remedy for the breach of those duties”). Specialty points to evidence in the record — including price quotes, quantity estimates and duration ranges — to argue that these essential terms are ascertainable. But as discussed above, the evidence in the record establishes that the parties were still negotiating a final agreement. Accordingly, we agree with the Magistrate Judge’s finding that no final agreement was reached as to price, quantity and duration of a putative in-line valves contract. 12 12 The Magistrate Judge held in the alternative (that is, assuming the lack of an in-line valves contract) that Specialty could recover as reliance damages its development and start-up expenses for the in-line valves project under a promissory estoppel theory. See, e.g., GMH Assocs., Inc. v. Prudential Realty Group, 752 A.2d 889, 904 (Pa. Super. Ct. 2000) (recognizing reliance damages for promissory estoppel). The record establishes, and Superior does not dispute, that Specialty began development of and incurred expenses for the in-line 33 D. Prejudgment Interest Specialty also challenges the Magistrate Judge’s decision to exclude prejudgment interest from the damages award. The Pennsylvania Supreme Court has stated that “the right to interest upon money owing upon contract is a legal right . . . [which] begins at the time payment is withheld after it has been the duty of the debtor to make such payment.” Fernandez v. Levin, 548 A.2d 1191, 1193 (Pa. 1988) (citations omitted); see also Somerset Cmty. Hosp. v. Mitchell & Assocs., Inc., 685 A.2d 141, 148 (Pa. Super. Ct. 1996) (“It is well established that in contract cases . . . prejudgment interest is awardable as of right.”). Prejudgment interest “is a right which arises upon breach or discontinuance of the contract provided the damages are then ascertainable by computation and even though a bona fide dispute exists as to the amount of the indebtedness.” Palmgreen v. Palmer’s Garage, Inc., 117 A.2d 721, 722-23 (Pa. 1955) (citations omitted). Based on this standard, the Magistrate Judge declined to award prejudgment interest, concluding there was insufficient evidence to determine when the right to payment accrued. Initially, we note the inconsistency in the Magistrate Judge’s decision. If the record does not establish the date on valves project in reliance on promises and requests made by Superior. 34 which the right to payment would accrue (i.e., when full-time production would have begun), how could he conclude that Specialty had established lost profits to a reasonable certainty? As set out above, the M agistrate Judge should award lost profits on remand only if he makes findings as to when production for the 1065 valves and the shells would have begun. If those findings can be made, prejudgment interest may be calculated based on prorated monthly production figures (derived from findings as to annual production amounts). But if no lost profits are awarded, Specialty would be entitled to prejudgment interest only on its reliance damages beginning on the date of contract repudiation. See Fernandez, 548 A.2d at 1193 (concluding a party is entitled to prejudgment interest from the date the right to payment accrues).