Opinion ID: 613084
Heading Depth: 2
Heading Rank: 5

Heading: The $27,000 Damage AwardProfits v. Revenue

Text: As we have explained, the vast majority of e360's evidence was (1) stricken in its entirety as a discovery sanction; (2) excluded because it was disclosed long after the close of discovery; or (3) rejected on credibility grounds. The district court's treatment of this evidence was entirely proper. All that remains is the lone category of evidence on which the district court rested its damage award of $27,000. The district court concluded that Linhardt had provide[d] some reliable information regarding e360's contracts with three customers. e360 Insight, 2010 WL 2403054 at . During the time that those companies dealt with e360, they collectively paid e360 approximately $27,000 per month for the services it performed. Id. As a result of Spamhaus's actions, the district court found, e360 lost its contracts with these customers. The district court did not believe, however, Linhardt's claim that these contracts would have remained in effect for an additional four years if not for Spamhaus's conduct. Linhardt had admitted that long-term agreements with customers were not the norm in the industry, the court explained, and had given no reason to believe that these contracts were an exception to that general rule. Id. at . Despite its refusal to award four years of damages on these three contracts, the court believed that e360's relationships with these customers were not in danger of ending prior to Spamhaus's actions, making it more likely than not that they would have continued to do business with e360 for one additional month beyond the end of the relationships precipitated by Spamhaus. Id. For this reason, the district court awarded $27,000 on the claim that Spamhaus interfered with e360's existing contracts, the amount of the payments [it] would have received for one additional month's worth of work for each of these customers. Id. On appeal, Spamhaus argues that the district court's damage award was excessive because it was in the amount of e360's gross revenue rather than its profit. As Spamhaus correctly observes, gross revenue is generally not an appropriate measure of damages because revenue is calculated without regard to the costs the plaintiff incurred in the course of making that revenue. See Taylor v. Meirick, 712 F.2d 1112, 1121 (7th Cir.1983) (a loss of revenue is not the same thing as a loss of profits. If you sell less of your product you will have lower costs, and the cost savings is a gain that must be offset against the loss of revenues in computing lost profit.). [7] Our jurisdiction in this matter is based on diversity of citizenship between e360 and Spamhaus, and Illinois law controls the proper measure of damages. See Europlast, Ltd. v. Oak Switch Systems, Inc., 10 F.3d 1266, 1276 (7th Cir.1993); Muller v. Groban, 346 F.2d 263, 265 (7th Cir.1965); Weakley v. Fischbach & Moore, Inc., 515 F.2d 1260, 1267 (5th Cir.1975). On this question of state law, our review of those legal standards is de novo, though we review the district court's application of the legal standard to the facts only for clear error. Shirley v. Russell, 69 F.3d 839, 841-42 (7th Cir.1995). e360 defends the use of gross revenue on the theory that its revenue was all profit because the e-mail messages had already been sent to the intended recipients. Although the infrastructure costs of transmitting an email were already incurred by the time of its transmission, regardless of whether the email was ever received, Linhardt admitted that e360 still had to pay additional royalty fees whenever its emails generated revenue. These fees and e360's failure to account for them in its damages calculation doom the damages award. See Taylor, 712 F.2d at 1121 (When a plaintiff contends that lost sales revenue would have been all profit, the contention is sufficiently improbable to require him to come forward with substantiating evidence. . . .). Because e360 failed to offer any evidence that would have allowed the district court to determine what portion of its $27,000 lost gross revenue would have been profit, the district court's award in that amount was based on an error of law. Without evidence that might answer the critical question, we cannot uphold the award of damages in this amount or even impose a remittitur. Id. We must instead vacate the modest damages award. [8]