Opinion ID: 2717726
Heading Depth: 4
Heading Rank: 3

Heading: T-Mobile Waived the Failure to

Text: Mitigate Defense T-Mobile did not raise failure to mitigate in its pleadings or in its pre-trial Statement of Disputed Legal Issues. See J.A. 84-96. It did not offer any argument or evidence regarding failure to mitigate at trial. T-Mobile was in breach of contract but did not present any evidence or argument as to what measures VICI should have or could have taken to limit its loss but failed to take. The District Court did not make any findings about T-Mobile’s failure to plead or raise failure to mitigate. The record is undisputed that T-Mobile did not raise this issue at any time during trial, and thus it waived its failure to mitigate damages defense. The District Court, however, concluded that VICI had a responsibility to mitigate its damages and had the burden of presenting evidence of its efforts to do so. Finding that VICI had failed to satisfy this burden, the Court decided that it would not award damages related to the 2011 payment. In 52 other words, the District Court’s handling of the mitigation issue was confined to the 2011 payment. We address the District Court’s reasoning on that score in detail in Part VIII below. For the purposes of reviewing the 2010 award, however, it suffices to say that the District Court did not have to consider whether VICI failed to mitigate its damages or adjust the 2010 damages award based on that consideration. It therefore did not err when it limited its calculation of the 2010 damages award to the losses VICI incurred and the costs it avoided as a result of the breach by T-Mobile. VIII. The District Court’s Damages Calculation for the 2011 Payment As previously discussed, the Agreement provides that VICI would be entitled to an additional $7 million for its services under the contract during the 2011 racing season.18 VICI asserts in its cross appeal, as it did in its complaint and at trial, that it was entitled to the second $7 million due in 2011. At trial, VICI relied exclusively on the argument that the liquidated damages provision of the Agreement required the District Court to award the second $7 million. In rejecting this argument, the Court observed that “VICI had a responsibility to mitigate damages.” VICI Racing, 921 F. Supp. 2d at 334. It then stated that VICI did not present evidence as to its efforts to mitigate T-Mobile’s breach by trying to find a primary sponsor for the 2010 and 2011 seasons. 18 As discussed supra, VICI did not race a car that season due to damage the car sustained in a crash, although that nonperformance was excused by the force majeure provision. 53 Awarding the second $7 million, due by January 1, 2011, would provide VICI with an unfair windfall. Id. The Court then elaborated on this conclusion in a footnote, where it observed that even if it found section 11.2 to be a liquidated damages clause, or a “quasi-liquidated” damage clause, “having the second $7 million payment survive the breach would render the liquidated damages ‘unreasonably large’ and ‘unenforceable on grounds of public policy as a penalty.’” Id. n.22 (quoting Restatement (Second) of Contracts § 356). Although we affirm the District Court in rejecting VICI’s argument that section 11.2 is a liquidated damages clause, the reasoning is problematic. We have already rejected the Court’s characterization of section 11.2 as a “quasi-liquidated damages” clause. See supra note 12. Additionally, the Court’s analysis misapplied three distinct legal concepts: (1) the duty to mitigate; (2) penalty; and (3) windfall. The District Court committed two legal errors in its mitigation analysis. First, it improperly placed the burden on VICI to present evidence that it took reasonable efforts to mitigate its losses. As discussed supra Part VII.B.1, the party asserting a limitation on a damages award bears the burden of proof. Second, the Court erred when it conducted a mitigation analysis in the first place—for T-Mobile waived that basis for reducing damages by not pleading it as an affirmative defense. As discussed supra Part VII.B.2, the failure to mitigate is an affirmative defense, and an affirmative defense that is not pled is waived, Abdi v. NVR, Inc., 945 A.2d 1167 n.6 (Del. 2008). 54 The District Court also erred when it stated that awarding damages for the 2011 payment would render the award a penalty. We have not found any case under Delaware law applying the concept of a penalty outside the liquidated-damages context. Since we hold that section 11.2 is not a liquidated damages clause, any award that may be granted as a result of T-Mobile’s failure to make the 2011 payment is not a penalty. See PSL Air Lease Corp., 1974 WL 173050, at -3 (declining to address defendant’s argument that the purported liquidated damages clause would operate as a penalty after holding that the clause was not a liquidated damages clause). Finally, the District Court did not properly support its conclusion that awarding the second $7 million would result in an unfair windfall. Delaware courts use the term “windfall” to describe any damage amount in excess of a party’s expectation interest. See Paul v. Deloitte & Touche, LLP, 974 A.2d at 146-47 (denying damages to terminated employee because doing so would award him double compensation); Henkel Corp. v. Innovative Brands Holdings, LLC, Case No. 3663-VCN, 2013 WL 396245, at -6 (Del. Ch. Jan. 31, 2013) (denying plaintiff recovery for both the difference in sale price between time of breach and time of eventual sale and lost income because doing so would put plaintiff in better position than it would have been had the contract been performed); Council of Unit Owners of Sea Colony E. v. Carl M. Freeman Assocs., Inc., 564 A.2d 357, 362-63 (Del. Super. Ct. 1989) (holding that cost of repair was the correct measure of damages for breach of construction contract and did not constitute windfall even though the full cost of repair would extend the useful life of the buildings beyond the amount reasonably anticipated at the time of contract). 55 Other jurisdictions maintain a similar concept of windfall. In Ed Miller & Sons, Inc. v. Earl, the Supreme Court of Nebraska considered an appeal from a trial court judgment in favor of a lessor for unpaid rent and the projected cost of repairing a parking lot. 502 N.W.2d 444, 450 (Neb. 1993). The Court held that the repair cost of the parking lot, rather than the diminished value, was the correct measure of damages. It noted that the repair costs provided a reasonably accurate measure and would not constitute a windfall to the lessor. Id. at 451. Similarly, in Old Stone Corp. v. United States, the United States Court of Claims discussed windfall in an opinion following a trial on damages. 63 Fed. Cl. 65, 96 (2004), aff'd in part, rev’d in part, 450 F.3d 1360 (Fed. Cir. 2006). It considered whether restitution would be the proper measure of damages. In particular, the Court noted that the relevant question regarding windfall “is whether an award of restitution would place the [plaintiff] in an overall better position than if the breach of contract had not occurred.” Id. (quoting Hansen Bancorp, Inc. v. United States, 367 F.3d 1297, 1317 (Fed. Cir. 2004)). Here, the District Court determined that, because VICI did not present evidence of its efforts to mitigate its damages, awarding $7 million based on the 2011 payment would either constitute an unfair windfall or a penalty. The only reasons the Court gave for this conclusion were based on (1) a misapplication of mitigation principles and (2) an erroneous substitution of liquidated-damages principles where no liquidated damages provision existed. The Court reached this conclusion without finding—either explicitly or implicitly— what losses VICI incurred or what costs it avoided as a result of the breach. To find a windfall, the District Court must find that VICI’s requested damages exceed its expectation interest. Accordingly, the District Court erred in calculating VICI’s 56 expectation damages for the 2011 period. For these reasons, we vacate the District Court’s ruling on VICI’s cross appeal. On remand, the District Court is to consider, in the first instance, upon applying the appropriate burden of proof, whether to award VICI the additional $7 million or a lesser sum based on a proper measure of expectation damages, including the deduction of actual costs avoided. See Savarese v. Agriss, 883 F.2d 1194, 1210 (3d Cir. 1989) (vacating a damages award based on erroneous application of Pennsylvania law). The Court shall not consider any evidence or argument that VICI failed to mitigate damages, in view of our holding that T-Mobile waived this issue.