Opinion ID: 1774526
Heading Depth: 4
Heading Rank: 1

Heading: lost profits coverage

Text: Kenneco's claim for breach of the alleged agreement to secure lost profits coverage is barred by collateral estoppel. In its state court claim, Kenneco asserts that J & H breached its agreement to provide the type of coverage it assured [Kenneco] it would secure. The jury question submitted asks, Did Johnson & Higgins and Armada agree on November 30, 1982, that Johnson & Higgins would secure for Kenneco's (Armada's) benefit a policy of insurance protecting the profits on the sale of the cargo in question? The instruction further clarifies that the jury was asked to decid[e] whether the parties reached an agreement. That identical issue was previously decided against Kenneco in the federal action. In the federal suit, Kenneco argued that J & H specifically agreed to lost profits coverage at the November 30 meeting. Armada Supply, 665 F.Supp. at 1057. Even a cursory reading of the federal district court's opinion demonstrates its finding that no such agreement to secure lost profits coverage was made. At least twice in its opinion, the court explicitly found that J & H neither made an agreement to insure the profits on the contract nor purported to make such an agreement. Armada Supply, 665 F.Supp. at 1051, 1066-67. The Second Circuit noted the district court's rejection of Kenneco's argument that the parties agreed to coverage of lost profits at the meeting, and affirmed the finding that Brown did not ask for, nor did Anderson agree to, coverage on lost profits. Armada Supply, 858 F.2d at 847, 851. In order to succeed on its breach of contract claim in state court, Kenneco was required to establish that an agreement concerning lost profits coverage was made. That issue was already decided against Kenneco in the prior action. Thus, Kenneco's claim for breach of a contract to secure lost profits coverage is precluded if the claim was actually litigated and essential to the judgment in the federal action. The issue concerning whether J & H agreed to secure lost profits coverage was actually litigated in the federal action because the issue was properly raised, submitted for determination, and determined. RESTATEMENT (SECOND) OF JUDGMENTS § 27 cmt. d (1982); Van Dyke v. Boswell, O'Toole, Davis & Pickering, 697 S.W.2d 381, 384 (Tex. 1985). The real question concerns the extent to which the federal district court's finding that no such agreement was made was essential to its judgment. Kenneco argues that, because the federal district court's holding of no lost profits coverage was based on the alternative findings of no agreement and no authority, neither finding was essential to the prior judgment. Section 27 of the Restatement (Second) of Judgments provides in part: If a judgment of a court of first instance is based on determinations of two issues, either of which standing independently would be sufficient to support the result, the judgment is not conclusive with respect to either issue standing alone. Id. § 27, cmt. i (1982). Thus, according to the Restatement, the general rule is that there cannot be estoppel by alternative holdings. [8] In response, J & H correctly asserts that both of the district court's findings can have a preclusive effect because both were reviewed and affirmed by the Second Circuit. An exception exists to the general rule of no preclusion when alternative holdings are appealed and affirmed. Comment o to the Restatement provides: If the judgment of the court of first instance was based on a determination of two issues, either of which standing independently would be sufficient to support the result, and the appellate court upholds both of these determinations as sufficient, and accordingly affirms the judgment, the judgment is conclusive as to both determinations. In contrast to the case discussed in Comment i, the losing party has here obtained an appellate decision on the issue, and thus the balance weighs in favor of preclusion. RESTATEMENT (SECOND) OF JUDGMENTS § 27, cmt. o (1982). The district court's alternative findings of no agreement to insure the Sun contract and no authority to do so were both appealed and affirmed by the Second Circuit. The finding that no agreement was made to cover the Sun contract profits was rigorously consideredthe district court discussed this issue extensively in its findings of fact and conclusions of law. This finding was affirmed by the Second Circuit and could, standing independently, support the result of no coverage; it thus serves as a valid estoppel in this action. Because we conclude that alternative findings that are in fact reviewed and affirmed by an appellate court may have preclusive effect, we need not address J & H's additional argument under Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d 714, 721 (Tex.1990), that estoppel is allowed for alternative holdings that were rigorously considered and sufficient to sustain the judgment.