Opinion ID: 806007
Heading Depth: 2
Heading Rank: 2

Heading: Lost Profits Measure of Damages

Text: When Razorback filed suit against Dement, it requested “the monies it is owed” as damages for its breach of contract claim. However, Razorback conceded at oral argument that it was clear from its subsequent computation of damages, submitted in accordance with Federal Rule of Civil Procedure (“FRCP”) 26, that it was seeking lost profits under Arkansas Code Annotated (“ACA”) section 4-2-708(2), the analog of U.C.C. section 2-708(2), although it did not include a specific citation to section 4-2-708(2). While section 4-2-708(1) provides a measure of compensatory damages to an injured seller—the difference between the unpaid contract price and the market price—premised on the seller’s ability to resell the same goods at market price, section 4-2-708(2) provides for lost profits damages but only to sellers who can show that the section 4-2-708(1) damages are inadequate to place them in as good a position as performance by the buyer would have.4 One way to make this showing 4 Section 4-2-708 provides: (1) Subject to subsection (2) and to the provisions of this chapter with respect to proof of market price (§ 4-2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this chapter (§ 4-2-710), but less expenses saved in consequence of the buyer's breach. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done -7- is for the seller to prove it “has the capacity to perform the contract which was breached as well as other potential contracts, due to their unlimited resources or production capacity.” Bill’s Coal Co. v. Bd. of Pub. Utils., 887 F.2d 242, 245 (10th Cir. 1989). Such a seller is commonly referred to as a “lost volume seller.” See id. The district court ruled in favor of Dement because it concluded that Razorback’s evidence did not create a genuine question of material fact regarding whether Razorback was a lost volume seller or whether damages under section 4-2-708(1) were otherwise inadequate.5 On appeal, Razorback first argues that the trial court acted sua sponte in ruling that Razorback was not a lost volume seller because Dement never argued that Razorback was not a lost volume seller or that Razorback failed to mitigate its damages. Thus, Razorback claims that it did not have the opportunity to present evidence and argument regarding these issues. The record belies this argument. After Razorback’s FRCP 26 damages calculation made clear that it was seeking lost profits, Dement, in seeking summary judgment, made multiple arguments claiming that Razorback was not entitled to lost profits, including that “[t]he U.C.C. does not permit a seller to recover consequential damages such as lost profits” and that Razorback’s claim for lost profits was speculative. Razorback opposed summary then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this chapter (§ 4-2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. Ark. Code Ann. § 4-2-708. 5 Because Razorback does not provide any developed argument that it is entitled to lost profits under a different provision of the Arkansas code, we address its argument that it is entitled to lost profits by examining ACA section 4-2-708(2). Furthermore, we assume without deciding that the facts of this case constitute “nonacceptance or repudiation” by Dement. See Ark. Code Ann. § 4-2-708(1). -8- judgment by quoting section 4-2-708(2) in support of its position that a seller can recover lost profits under the U.C.C. and asserting that its lost profits—which it calculated as the contract price minus the cost of performance—were not speculative. Razorback further asserted that “to the extent that [Dement] may be arguing that Razorback [could not] have supplied concrete on other jobs if it had continued supplying concrete on the Dement job, . . . Razorback’s high-capacity plants permitted Razorback to meet all the requirements of the Dement job as well as being able to supply concrete on other jobs.” Thus, we conclude that the issue was properly before the district court. Razorback next argues that the issue of whether it was a lost volume seller would only be relevant if Dement had argued that Razorback failed to mitigate its damages. We disagree. Section 2-708(2) generally is interpreted as placing upon the seller the burden of demonstrating that it should be compensated as a lost volume seller if that is a theory by which the seller seeks to show that damages under section 2-708(1) are inadequate. See, e.g., Bill’s Coal Co., 887 F.2d at 245 (“Sellers have the burden of proving that they are lost volume sellers . . . .”); R.E. Davis Chem. Corp. v. Diasonics, Inc., 826 F.2d 678, 684 (7th Cir. 1987) (“Diasonics must establish, not only that it had the capacity to produce the breached unit in addition to the unit resold, but also that it would have been profitable for it to have produced and sold both. Diasonics carries the burden of establishing these facts because the burden of proof is generally on the party claiming injury to establish the amount of its damages . . . .”). Finding no Arkansas law addressing this question directly, we predict Arkansas likewise would place this burden upon the seller claiming damages. See Marine Servs. Unlimited, Inc. v. Rakes, 918 S.W.2d 132, 136 (Ark. 1996) (“The burden of proving damages rests on the party claiming them and the proof must consist of facts, not speculation.”). At the summary judgment stage, Razorback had the burden of identifying facts that at least created a genuine issue of material fact regarding whether Razorback was eligible to recover under ACA section 4-2-708(2). To meet this burden, Razorback needed to provide the district court with sufficient -9- proof as to why the damages under subsection (1) were inadequate. Nothing in section 4-2-708 conditions this burden on whether the buyer asserted a failure to mitigate damages. Razorback next argues that the district court erred by concluding that no reasonable jury could find that Razorback was a lost volume seller. Again, we disagree. The testimony of Razorback’s general manager, Keith Wetsell, shows that Razorback would have had a limited capacity to perform other contracts if Dement had not breached. According to Wetsell, Razorback “probably turned away or didn’t bid [on] some work that had come along during the time we were doing the Dement project . . . because we knew we were kind of at maximum peak there with their job.” Although Wetsell later indicated that Razorback “could have done plenty of other work” if the opportunity were there, he specified that it would have had to be a size that Razorback could handle. Given this testimony that Razorback was operating at near peak capacity, the absence of contrary evidence indicating that Wetsell understated Razorback’s capacity to supply concrete, and the lack of evidence regarding whether the additional jobs that Razorback took after ending its relationship with Dement were of a size it could have handled if it were still supplying Dement under the contract, the district court did not err in determining that Razorback failed to create a genuine issue of fact as to its status as a lost volume seller. See Bill’s Coal Co., 887 F.2d at 245. Finally, Razorback contends that it is entitled to lost profits under Arkansas law based on Capital Steel Co. v. Foster & Creighton Co., 574 S.W.2d 256 (Ark. 1978), where the court affirmed a jury’s award of lost profits to a supplier. There are many obstacles, however, to applying Capital Steel to this case. First, the court held that the breaching buyer forfeited its argument that a jury instruction premised on what is now ACA section 4-2-708(2) was “an incorrect declaration of the law” because its objection to the instruction was not sufficiently specific. Id. at 259. Second, the court held that what is now section 4-2-708(1) was not applicable because Capital -10- Steel could not have tendered actual performance. Id. Notably, Razorback did not argue that it could not have tendered actual performance. Finally, the court held that once the instruction on damages under section 4-2-708(2) went to the jury, it was not outside the realm of the jury’s competence, based on the evidence presented at trial, to find that Capital Steel “may have been in a position to make a profit on two transactions instead of one.” See id. at 260. Here, Razorback did not provide evidence from which a reasonable jury could conclude that Razorback was in a similar position because it did not show that it had the capacity to complete profitably the project for Dement plus any of the other jobs that it acquired after ending its relationship with Dement. We conclude that Razorback failed to supply evidence creating a fact issue regarding whether it was a lost volume seller or whether the damages provided for under section 4-2-708(1) were otherwise inadequate and that such evidence was necessary for Razorback to show successfully that lost profits under section 4-2- 708(2) were potentially appropriate. Therefore, the district court did not err by granting partial summary judgment to Dement on Razorback’s claim for lost profits under section 4-2-708(2).