Court Opinion

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Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

5-20-2009

Edwards v. Wyatt
Precedential or Non-Precedential: Non-Precedential

Docket No. 07-1466

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                                                              NOT PRECEDENTIAL

                     UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT
                               ____________

                              Nos. 07-1466 & 07-1602
                                   ____________

                            JOHN JOSEPH EDWARDS,
                                     Appellant in 07-1602

                                         v.

                              A. WESLEY WYATT,
                                     Appellant in 07-1466

                                   ____________

                   On Appeal from the United States District Court
                      for the Eastern District of Pennsylvania
                               (D.C. No. 01-cv-01333)
                    District Judge: Honorable Petrese B. Tucker

                                   ____________

                          Argued November 20, 2008
             Before: SMITH, HARDIMAN, and ROTH, Circuit Judges.

                               (Filed: May 20, 2009)

Stephen L. Braga [Argued]
Ropes & Gray
700 12th Street, N.W.
One Metro Center, Suite 900
Washington, DC 20005
      Attorney for John Joseph Edwards
Jeffrey A. Zucker [Argued]
FisherZucker
21 South 21st Street
Philadelphia, PA 19103

Paul J. Cianci, Esq.
FisherZucker
21 South 21 st Street
Philadelphia, PA 19103
       Attorneys for A. Wesley Wyatt

                                       ____________

                                OPINION OF THE COURT
                                     ____________

HARDIMAN, Circuit Judge.

       This case comes to us for the third time. Some ten years ago, John Joseph

Edwards sued his former business partner, A. Wesley Wyatt, for breaching an oral

agreement (the Handshake Agreement). In Edwards v. Wyatt, 335 F.3d 261 (3d Cir.

2003) (Edwards I), we reversed the District Court’s ruling that Edwards anticipatorily

repudiated the Handshake Agreement. Following a second bench trial, which produced

the same result as the first trial, we reversed again, explaining that the District Court’s

factual findings were still inadequate to sustain its legal conclusion that Edwards

anticipatorily repudiated the Handshake Agreement. See Edwards v. Wyatt, No. 04-3325,

2005 WL 1349531 (3d Cir. June 8, 2005) (Edwards II). After a third bench trial, the

District Court held that Edwards had not anticipatorily repudiated the Handshake

Agreement, and that Wyatt had breached it. See Edwards v. Wyatt (Edwards ‘06), No.

                                               2
01-1333, 2006 WL 2945224 (E.D. Pa. Oct. 10, 2006). Ultimately, the court awarded

Edwards $5,482,500. See Edwards v. Wyatt (Edwards ‘07), No. 01-1333, 2007 WL
136687 (E.D. Pa. Jan. 8, 2007). This time, Wyatt appeals and Edwards cross-appeals.

                                             I.

       In 1993, Edwards was President of Pilot Air Freight Corporation (Pilot). Pilot

needed capital to remain financially stable and received a $2 million loan and personal

guaranty from Wyatt, who had been introduced to Edwards by Pilot’s lawyer, Richard

Phillips. In exchange, Wyatt and Phillips became members of Pilot’s Board of Directors

and acquired stock options (45% for Wyatt and 21.67% for Phillips). Edwards retained

an option on the remaining 33.33% of Pilot’s shares. In addition, Phillips became Pilot’s

Chief Executive Officer while Edwards retained his position as President and Director of

Pilot and entered into a three-year employment agreement with the company.

       The relationship among the three men soon disintegrated and Edwards was

terminated in 1995. Edwards then filed for bankruptcy under Chapter 11 and listed his

one-third interest in Pilot on his schedule of assets. The case was eventually converted to

Chapter 7, and the Trustee assumed control of Edwards’s assets, including his Pilot stock.

See In re Edwards, 228 B.R. 552 (Bankr. E.D. Pa. 1998).

       In February 1998, Edwards and Wyatt executed a written settlement agreement

whereby they would collaborate to settle Edwards’s bankruptcy while Edwards received a

                                             3
weekly salary as a consultant for one of Wyatt’s companies until August 7, 1998. In

April 1998, the Trustee took steps to sell Edwards’s Chapter 7 assets. When it became

clear that Wyatt and Phillips would be in a bidding contest for Edwards’s stock, however,

Edwards and Wyatt entered into the Handshake Agreement which prohibited either man

from reaching a unilateral agreement with Phillips.

       On July 29, Wyatt and Phillips informed the Bankruptcy Court that they were in

discussions to submit a joint bid. Wyatt communicated this to Edwards and informed him

that he would not continue their consulting arrangement past August 7. Edwards quickly

became concerned with Wyatt’s relationship with Phillips and ordered his attorney,

Stephen Braga, to send a letter to one of Wyatt’s attorneys, Jay Ochroch, on July 30,

which read, in relevant part:

       The reality of the events over the past twenty-four hours only heightens
       [Edwards’s] belief . . . that something fundamental has changed. In fact,
       those events confirm that there is no ongoing relationship between
       [Edwards] and [Wyatt] at this point in time. . . . [Edwards] believes [Wyatt]
       ha[s] effectively severed the relationship. . . . I would suggest that you
       make negotiating an end game result with [Edwards] your first and
       immediate priority. Otherwise, the game may be over as far as he is
       concerned; if it is not already.

       The next day, having not heard from Ochroch or Wyatt, Braga sent Ochroch a

second letter, in which he stated that “[Edwards] views [Wyatt’s refusal to communicate

and renew the consulting agreement] as [a] breach of his relationship,” and stated that

Braga had “been authorized to give [Wyatt] a one-week period within which to conclude

a settlement agreement with [Edwards].” Wyatt contends that he understood this letter to

                                             4
mean that Edwards had determined there was no more relationship between Edwards and

Wyatt and that the Handshake Agreement had been repudiated. However, in mid-August

1998, Wyatt and Edwards met face-to-face and Wyatt reassured Edwards that “nothing

had changed,” and asked Edwards to set up a meeting so that he could communicate this

to Braga. Edwards did so, and the following month Wyatt reconfirmed the essence of the

Handshake Agreement — specifically, that any settlement between Wyatt and Phillips

would need to include Edwards. In reliance upon these assurances, Edwards did not seek

out another investor.

       Despite the Handshake Agreement, on October 30, 1998, Wyatt and Phillips

advised the Bankruptcy Court of a settlement, and jointly offered a cash bid of $5.2

million for Edwards’s Pilot stock and related assets. Edwards objected to the joint bid as

an illegal collusive effort to control the sale price for his assets in the Bankruptcy Court.

On December 15, 1998, the Bankruptcy Court denied Edwards’s objection and permitted

the sale of his assets. Because the sale proceeds exceeded the estate’s debts, all of

Edwards’s creditors were paid, and Edwards received the balance of approximately

$3,000,000. At the end of the day, Wyatt and Phillips each held 50% of Pilot’s stock.

       Edwards sued Wyatt, asserting claims of breach of contract, promissory estoppel,

and fraudulent misrepresentation. After two bench trials were reversed because of

insufficient findings of fact, the case was remanded to consider two issues: (1) whether

Edwards anticipatorily breached or terminated the Handshake Agreement, and, if not; (2)

                                              5
whether Edwards was entitled to damages. After a two-day bench trial, the District Court

ruled in Edwards’s favor, concluding that Braga’s letters were not sufficiently absolute or

unequivocal to constitute anticipatory breach. Because Edwards had not repudiated or

terminated the Handshake Agreement, the District Court found that Wyatt breached the

contract in October 1998 by settling with Phillips without Edwards’s participation.

       As for damages, the District Court determined that because Wyatt profited

$12,900,000 from the settlement of Edwards’s bankruptcy estate, Edwards suffered

damages of $4,290,000 (one-third of Wyatt’s profits, which reflected Edwards’s one-third

share in Pilot). The District Court later amended that figure to $5,482,500, to reflect

Edwards’s and Wyatt’s respective shares of Pilot. Wyatt now appeals with regard to both

liability and damages and Edwards cross-appeals on the issue of damages.1

                                             II.

                                             A.

       As a preliminary matter, Wyatt argues that the Handshake Agreement was

unenforceable and void ab initio under Pennsylvania law because Edwards concealed it as

an asset from the Trustee in violation of 18 U.S.C. § 152(6). Edwards argues that this

       1
         The District Court had diversity jurisdiction under 28 U.S.C. § 1332. We have
appellate jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review over the
District Court’s legal conclusions, but review the District Court’s factual findings for
clear error. Lansing v. Se. Pa. Transp. Auth., 308 F.3d 286, 290 (3d Cir. 2002).

                                             6
claim has been waived and is without merit. We agree with Edwards that Wyatt has

waived this claim.

       The only two issues presented to the District Court during the third trial were: (1)

whether Edwards anticipatorily repudiated or terminated the Handshake Agreement and,

if not; (2) whether Edwards was entitled to damages. Only in his summation following

the third trial did Wyatt ever raise this issue of unenforceability and even the District

Court noted that it appeared to be waived. Furthermore, when Wyatt reargued this issue

in a motion for reconsideration, the court again noted that it appeared to be waived, and

then denied the claim on its merits. See Edwards ‘07, 2007 WL 136687, at *4-5.

       Issues not raised in the district court are waived. Ogden Fire Co. No. 1 v. Upper

Chichester Twp., 504 F.3d 370, 381 (3d Cir. 2007). “Absent exceptional circumstances,

this Court will not consider issues raised for the first time on appeal.” Del. Nation v.

Pennsylvania, 446 F.3d 410, 416 (3d Cir. 2006). Exceptional circumstances would

include a showing that the public interest requires that the issues be heard or that manifest

injustice would result from the failure to consider such issues. Brown v. Philip Morris

Inc., 250 F.3d 789, 799 (3d Cir. 2001). Because no such exceptional circumstances are

apparent here, we decline to reach the merits of this issue and conclude that Wyatt waived

the defense that the Handshake Agreement was void. See Massey-Ferguson Credit Corp.

v. Webber, 841 F.2d 1245, 1249 (4th Cir. 1988) (defense to breach of contract action

untimely where it was not raised until the third trial).

                                               7
                                            B.

       Assuming arguendo that the Handshake Agreement was valid, Wyatt asserts that

the District Court erroneously found — in contrast to the first two trials — that Edwards

did not repudiate it. See Edwards ‘06, 2006 WL 2945224 at *8. Wyatt insists that

Braga’s letters of July 30 and 31, 1998 either repudiated or terminated the Handshake

Agreement. We disagree.

       In Edwards I, we stated the legal standard that the District Court was required to

apply when addressing the issue of repudiation: “To constitute anticipatory breach under

Pennsylvania law there must be an absolute and unequivocal refusal to perform or a

distinct and positive statement of an inability to do so.” 335 F.3d at 272 (quoting 2401

Pa. Ave. Corp. v. Fed’n of Jewish Agencies, 507 Pa. 166, 172 (1985)) (emphasis in

original) (internal quotation marks omitted). We noted further that Wyatt’s subjective

belief would not suffice to demonstrate repudiation, and explained that Pennsylvania

courts would require repudiation to “be apparent in an objective sense.” Id. at 273 n.9.

       In its 2006 opinion, the District Court emphasized the extensive use of terms such

as “if,” “belief,” “believes,” and “views” in Braga’s letters. See Edwards ‘06, 2006 WL
2945224 at *6 (Findings of Fact Nos. 34 and 36). After considering the surrounding

factual circumstances, the court concluded this language was too equivocal to constitute a

repudiation, and found that Braga’s letters were instead demands for assurance that Wyatt

intended to adhere to the Handshake Agreement. See id. at *6 (Finding of Fact No. 37)

                                             8
and *8-9 (Findings of Law Nos. 4-8). Accordingly, the court found that these letters did

not terminate the Handshake Agreement.

       Although the tone of the letters is stern, and notwithstanding that at least one of

them contains an ultimatum, an objective reader of Braga’s letters would not believe that

Edwards had repudiated the Handshake Agreement. Accordingly, we find no error in the

District Court’s finding that Edwards did not repudiate the Handshake Agreement.      2

                                             C.

       Wyatt next argues that the District Court failed to provide subordinate factual

findings to support its conclusion. This is the flaw that required us to reverse the District

Court in Edwards I (where we found that District Court’s findings omitted any discussion

of the effect of the July 30 and 31, 1998 letters) and Edwards II (where we concluded that

the court’s findings of fact were still insufficient because they failed to explain which

findings were germane to the question whether those two letters had objectively

       2
         In addition to reviewing Braga’s letters, the District Court properly determined
that the parties’ interaction after July 31 was consistent with a lack of repudiation. Wyatt
met Edwards in early August and agreed to continue giving Edwards some of the benefits
of the February 1998 consulting agreement, including health insurance and the use of one
of Wyatt’s cars. See Edwards ‘06, 2006 WL 2945224 at *6. Furthermore, Wyatt met
with Edwards a second time and explained that “as far as he was concerned, nothing had
changed, we were going forward with the same plan.” Id. at *7. Finally, in a face-to-face
meeting with Edwards and Braga on September 1, 1998, Wyatt confirmed that any
settlement would need to include Edwards. Id. Wyatt’s conduct and assurances are
inconsistent with his contention that he took Braga’s letters to be a repudiation of the
Handshake Agreement.

                                              9
repudiated the Handshake Agreement). This time the District Court’s findings of fact

were sufficiently detailed to permit judicial review.

       As we noted in Edwards I, “[w]e have required that the district court make

‘subordinate’ factual findings in support of its ‘ultimate’ findings so as to allow us to

ascertain what evidence the district judge accepted as credible or what he rejected.”

Edwards I, 335 F.3d at 275 (citation and internal quotation marks omitted). We explained

that subordinate findings “may not be left unarticulated,” at least where they “actually

were reached in the process of arriving at the ultimate factual conclusion.” Id. (citation

omitted). Where a court’s subordinate factual findings are insufficient, we “review the

district court’s ultimate factual findings under a standard more stringent than the clearly

erroneous standard ordinarily applicable to such findings.” United Steelworkers of Am.,

AFL-CIO v. N.J. Zinc Co., Inc., 828 F.2d 1001, 1009 (3d Cir. 1987).

       Wyatt’s opening brief identified ten subordinate findings that he believed the

District Court failed to make. Each of the first three factual determinations that Wyatt

identifies corresponds to an ultimate factual finding actually contained in the District

Court’s order. See Edwards ‘06 at *3-8. The seven other subordinate findings need not

have been made because they became irrelevant once the District Court determined that

there was no anticipatory repudiation and that Wyatt was in breach. Wyatt points to no

authority that requires district courts to make irrelevant subordinate factual findings;

indeed, such a requirement would run contrary to the purpose of a subordinate finding of

                                             10
fact. See Edwards I, 335 F.3d at 275; cf. Logue v. Int’l Rehab. Assocs., Inc. 837 F.3d 150,

155 (3d Cir. 1988) (requiring the district court to consider all “relevant” evidence in

making its findings of fact and conclusions of law). Accordingly, we conclude that the

District Court’s subordinate findings of fact are sufficient to permit judicial review of its

ultimate conclusions.

                                              III.

       Having determined that the District Court did not err with regard to liability, we

turn now to the complicated issue of damages.

                                              A.

       Wyatt argues that Edwards has not proven his damages to a reasonable certainty,

and insists that the District Court erred in using a pro rata formula for measuring

Edwards’s damages.

                                              1.

       Pennsylvania law requires a plaintiff seeking damages for breach of contract to

establish “(1) the existence of a contract, including its essential terms, (2) a breach of a

duty imposed by the contract, and (3) resultant damages.” CoreStates Bank, N.A. v.

Cutillo, 723 A.2d 1053, 1058 (Pa. Super. Ct. 1999). A party is entitled to recover

whatever damages it suffered, provided they would naturally and ordinarily result from

such a breach, or the damages were reasonably foreseeable and within the contemplation

of the parties at the time of contracting and can be proved with reasonable certainty.

                                              11
Ferrer v. Trs. of Univ. of Pa., 573 Pa. 310, 341 (2002). “Reasonable certainty embraces a

rough calculation that is not too speculative, vague or contingent upon some unknown

factor.” Ware v. Rodale Press, Inc. 322 F.3d 218, 225-26 (3d Cir. 2003) (citations and

internal quotation marks omitted). Moreover:

       Although the fact-finder may not render a verdict based on sheer conjecture
       or guesswork, it may use a measure of speculation in estimating damages.
       The fact-finder may make a just and reasonable estimate of the damage
       based on relevant data, and in such circumstances may act on probable,
       inferential, as well as direct and positive proof.

Liss & Marion, P.C. v. Recordex Acquisition Corp., 937 A.2d 503, 514 (Pa. Super. 2007)

(citations omitted). In addition, the Restatement of Contracts — which Pennsylvania

courts follow, see Edwards I, 335 F.3d at 272 n.8 — provides that “[d]oubts are generally

resolved against the party in breach,” and the court may “require a lesser degree of

certainty,” depending upon the circumstances of the breach. R ESTATEMENT (S ECOND) OF

C ONTRACTS § 352 (1981). Thus, absolute precision is not required. See Bigelow v. RKO

Radio Pictures Inc., 327 U.S. 251, 264 (1946); accord Berg Chilling Sys., Inc. v. Hull

Corp., 369 F.3d 745, 764 (3d Cir. 2004). Otherwise, we risk leaving the injured party

without a remedy.

       Wyatt argues that Edwards has not proved his damages because the Handshake

Agreement did not contain a term whereby Edwards would receive anything in the

settlement contemplated among Edwards, Phillips, and Wyatt. However, it is undisputed

that Edwards was deprived of consideration for this agreement, i.e., the value of his

                                            12
promise not to reach a unilateral agreement with Phillips. See Edwards ‘06, 2006 WL
2945224 at *5. Edwards reasonably relied on Wyatt’s assurances that he would abide the

Handshake Agreement, and he was damaged when Wyatt settled with Phillips in

contravention of that agreement. See Edwards ‘06, 2006 WL 2945224 at *7-8.

Accordingly, the District Court did not err in holding that Edwards was damaged by

Wyatt’s breach.

                                            2.

       We turn to the methodology used by the District Court to determine Edwards’s

damages. It calculated the amount that Wyatt realized by virtue of the breach and then

apportioned Wyatt’s earnings between Edwards and Wyatt based on their relative

ownership of Pilot. As Wyatt did not offer the District Court a competing theory of

damages,3 the District Court concluded that Edwards’s loss could be calculated by

determining the parties’ shared interest in Pilot — 33.33% for Edwards, and 45% for

Wyatt, for a total of 78.33% — and concluding that the ratio of that shared interest

controlled by Edwards was 42.5% (dividing 33.33% by 78.33% for a total of 42.5%).

The District Court then calculated the economic benefit Wyatt received as a result of his

breach of the Handshake Agreement and awarded Edwards 42.5% of that amount.

       3
         Wyatt proposes a different method of calculation in his opening brief, but he did
not raise this theory in the District Court. Accordingly, the argument is waived. See
Ogden Fire, 504 F.3d at 381; see also Delaware Nation, 446 F.3d at 416.

                                            13
       We find no error in this approach. Although the record supports Wyatt’s

contention that the Handshake Agreement itself does not yield a measure of damages, we

do not find this to be dispositive. Pennsylvania law permits courts to imply a missing

term in a parties’ contract “when it is necessary to prevent injustice and it is abundantly

clear that the parties intended to be bound by such term.” Solomon v. U.S. Healthcare

Sys. of Pa., Inc. 797 A.2d 346, 350 (Pa. Super. Ct. 2002) (citation omitted). Under the

Restatement, Pennsylvania courts will supply a reasonable missing term based on “a tacit

agreement or a common tacit assumption or where a term can be supplied by logical

deduction from agreed terms and circumstances.” R ESTATEMENT (S ECOND) OF

C ONTRACTS §204 cmt. c (1981). When a court cannot find an agreement as to a

particular term based on principles of contractual interpretation, “a term which is

reasonable in the circumstances is supplied by the court.” Id. at § 204. Given the course

of dealing between the parties — which presumed their respective percentages of

ownership in Pilot shares — we cannot say that the District Court’s method of calculation

was unreasonable. The District Court attempted to enforce Wyatt’s broken promise by

protecting the expectation that Edwards had when he made the contract. Id. at § 344, cmt.

a. “[The court] does this by attempting to put him in as good a position as he would have

been in had the contract been performed, that is, had there been no breach.” Id. In this

case, Edwards expected to share in the post-bankruptcy success of Pilot on a pro rata

basis with Wyatt and the District Court so found.

                                             14
       Wyatt’s citation to ATACS Corp. v. Trans World Communications, Inc., 155 F.3d
659 (3d Cir. 1998), is inapposite. ATACS involved a breach of a teaming arrangement

between a prime contractor and a subcontractor. When the prime contractor’s bid was

accepted, it turned its back on the teaming arrangement in favor of a cheaper

subcontractor to improve its profit margin. 155 F.3d at 662-64. We held that ATACS’s

expectancy was too speculative because the agreement was only preliminary and failed to

include a contract price, financing fees, and other terms; the District Court had

“absolutely no basis” for valuing ATACS’s lost profits under the subcontract. Id. at 670.

Because the parties “were far from agreeing” on these critical terms, we found ATACS

was precluded from demonstrating its expectancy. Id.

       By contrast, we are not dealing here with lost profits, but with the evaluation of an

income-producing asset with an ascertainable market value. This difference is crucial.

See Schonfeld v. Hilliard, 218 F.3d 164, 176 (2d Cir. 2000) (explaining that “lost profit”

and “lost asset” damages are legally distinct: “When the defendant’s conduct results in the

loss of an income-producing asset with an ascertainable market value, the most accurate

and immediate measure of damages is the market value of the asset at the time of breach

— not the lost profits that the asset could have produced in the future.”). Although the

Handshake Agreement did not contain a damages provision, the course of dealing among

the parties — which always assumed their bargaining strength would be based on their

respective percentages of ownership in Pilot — was sufficient to supply the missing term.

                                             15
Although the terms of that settlement doubtless would have allocated the former Pilot

assets differently among Edwards, Phillips, and Wyatt, it was not unreasonable to assume

that the total size of the “pie” at stake in that settlement — including the post-bankruptcy

value of the Pilot shares — would be unaffected by Edwards’s involvement.      4

Accordingly, calculating Edwards’s expectancy by comparing his and Wyatt’s pre-

settlement stakes in Pilot was a fair and principled way to determine Edwards’s

expectancy under the Handshake Agreement.

                                             3.

       Although we agree Edwards was entitled to damages and the District Court used

an appropriate formula, we find that the District Court erred in calculating Wyatt’s

economic benefit to determine Edwards’s pro rata share. In other words, the pie was split

appropriately, but it was the wrong size pie. Specifically, we find that the District Court

failed to account for the fact that Wyatt owned 45% of Pilot prior to his agreement with

Phillips. Because Wyatt and Phillips each controlled 50% afterwards, Wyatt netted only

5% of Pilot’s shares by breaching the Handshake Agreement.

       4
         We reject Wyatt’s contention that Edwards’s involvement in the discussions
would have scuttled any settlement among the three businessmen. To indulge in such
speculation would be to assume that the Handshake Agreement was either not a binding
agreement at all, or that its terms became impracticable by October 1998 (when Wyatt
and Phillips reached their private settlement) simply because of the personalities
involved. We reject both assumptions because either of them would be inconsistent with
the District Court’s finding that the Handshake Agreement was valid and enforceable at
the time Wyatt breached it. See Edwards ‘06, 2006 WL 2945224 at *8.

                                             16
       In his brief and again at oral argument, Edwards contended that Wyatt did not in

fact own 45% of Pilot because that ownership was contested and “there was a substantial

and gathering cloud over [the] 45 shares.” This contention is at odds with Edwards’s

position opposing the Wyatt-Phillips bid in the Bankruptcy Court, where Edwards stated

that “Wyatt received a 5% increase in his ownership control of Pilot.” Having taken this

position in the Bankruptcy Court, Edwards is judicially estopped from asserting an

inconsistent position now. See Ryan Operations G.P. v. Santiam-Midwest Lumber Co.,

81 F.3d 355, 358 (3d Cir. 1996). Furthermore, Edwards’s position on appeal contradicts

an undisputed fact set forth in the parties’ pre-trial stipulation and cited by the District

Court in its 2006 opinion: “In the fall of 1997, Wyatt owned forty-five percent of the

issued and outstanding stock of Pilot, Edwards’s Chapter 7 Trustee controlled his thirty-

three and one-third percent of Pilot’s stock and the balance was owned or controlled by

Phillips . . . .” 2006 WL 2945224 at *2.

       In light of the aforementioned facts, we find that the District Court erred in

crediting Wyatt with having improved his position by receiving the entire value of 50% of

the company; because Wyatt owned 45% prior to the breach, he realized only a net gain

of 5% by breaching the Handshake Agreement. Accordingly, the District Court’s

inclusion of the value of Wyatt’s entire 50% interest in Pilot — valued at $9,500,000 5 —

       5
         Wyatt complains that the District Court’s valuation of the company was
erroneous because the court valued his 50% share when he sold his interest in Pilot to
Phillips in 2003, rather than the value at the time of breach (1998). As a general rule,
“[d]amages for breach of contract are to be determined as of the time of the occurrence of

                                              17
was improper. The District Court should have included the value of just 5% of the

company — or $950,000 — in determining Wyatt’s economic benefit from the breach.

       We find no error, however, in the other components of the District Court’s

calculation: payment of Wyatt’s legal fees ($700,000) 6 ; Wyatt’s four-year employment

contract ($1,200,000); and an interest in an Edwards real estate partnership ($1,500,000).

See Edwards ‘06, 2006 WL 2945224 at *9. Therefore, we find that the economic benefit

realized by Wyatt as a consequence of having breached the Handshake Agreement was

$4,350,000. Recognizing, as we have, that 42.5% of Wyatt’s benefits were attributable to

Edwards’s shares in Pilot and its affiliated holdings, we multiply Wyatt’s benefit by

the breach.” 22 Am. Jur. 2d Damages § 78 (2008); accord Gaylord Builders, Inc. v.
Richmond Metal Mfg. Corp., 186 Pa. Super. 101, 104 (Pa. Super. Ct. 1958). However,
there was no evidence that Wyatt’s shares were worth less in October 1998 or that Wyatt
and Phillips’s management of the company in the intervening five years substantially
increased the company’s value. Furthermore, we reject Wyatt’s assertion that expert
testimony was needed to determine the value of his shares. Wyatt has not pointed to any
authority which requires expert testimony to establish the company’s value, at least
where, as here, a defendant is a sophisticated investor whose opinion of the value of an
asset is reflected in what he was willing to pay for it, and where the fact-finder is given no
reason to think that the investor’s estimates did not reflect a reasonable approximation of
the value of the asset at the time of the breach.
       6
         We also reject Wyatt’s assertion that the District Court improperly included the
$700,000 he received for the payment of his legal fees. Wyatt argues that he is entitled to
an offset because some of those legal fees were spent “maximiz[ing] the value of
Edwards’ stock.” The Wyatt-Phillips settlement agreement expressly provided for the
payment of Wyatt’s legal fees up to that time and Wyatt has never introduced any
evidence to substantiate this offset. See Blum v. Witco Chem. Corp., 829 F.2d 367, 375
(3d Cir. 1987) (burden is on defendant to prove any setoffs to damages). Accordingly, we
find those fees were properly included.

                                             18
42.5% for a total of $1,848,750. Therefore, we will vacate the judgment of $5,482,500

and remand for the District Court to enter judgment in favor of Edwards for $1,848,750.

                                             B.

       Though we find that the District Court properly awarded Edwards expectation

damages, Edwards presents two arguments in support of his claim that the District

Court’s damages award was insufficient. First, Edwards argues that the District Court

should have included income reported on Wyatt’s K-1 tax statements. Specifically,

Edwards insists that he is entitled to 42.5% of $9,106,917 — the Pilot Holding Company

income attributable to Wyatt on his K-1 — for a total of $3,870,439. We disagree.

       Under the Internal Revenue Code, S-corporation and partnership shareholders pay

tax on the entity income allocated to them in accordance with their ownership percentages

in the year the entity received the income, whether or not the entity actually distributed

the income to the shareholder. 26 U.S.C. §§ 702(c), 1366(c). A partner’s pro rata share

of the corporation’s income is reported on a Schedule K-1, but the K-1 does not show the

amount of actual distributions that the partnership made to its partners; that information is

reported on a Form 1099-DIV. See Shareholder’s Instructions for Schedule K-1 (Form

1120S) for 2000, page 1. The K-1 is designed to show tax liability; the income need not

actually have been distributed to the shareholder. See I.R.C. §§ 1366(c) and 702(c).

       In light of the purpose of the K-1, we cannot say that the District Court erred in

excluding the information contained therein from Edwards’s damages. Edwards

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introduced no evidence at trial to demonstrate what portion, if any, of Wyatt’s taxable

interest in Pilot Holding Company translated into real income to Wyatt. Indeed, Wyatt

testified that the K-1 forms did not reflect any cash distributions from Pilot and Edwards

introduced no evidence to the contrary. This is fatal to Edwards’s claim that he is entitled

to a pro rata portion of the income listed on Wyatt’s K-1s. See Ad-Vantage Tel. Directory

Consultants, Inc. v. GTE Directories Corp., 849 F.3d 1336 (11th Cir. 1987) (finding that

K-1 did not show lost profits with reasonable certainty, where the plaintiff did not

demonstrate the relationship between a shareholder’s income and the S corporation’s

profits as reported on the K-1). Finally, we reject Edwards’s contention that Wyatt failed

to demonstrate that the K-1s did not reflect income distributions as an improper attempt to

shift Edwards’s burden of proof. See Spang & Co. v. U.S. Steel Corp., 519 Pa. 14, 25

(1988).

                                             C.

       Edwards also challenges the District Court’s denial of his post-trial request for

prejudgment interest. See Edwards ‘06, 2006 WL 2945224, at *9 (“No prejudgement

[sic] interest will be awarded.”).

       State law governs awards of prejudgment interest in federal diversity actions. See

Liberty Lincoln-Mercury v. Ford Motor Co., 134 F.3d 557, 574 (3d Cir. 1998). Under

Pennsylvania law, the award of pre-judgment interest in contract actions is not

discretionary. See Buford v. Wilmington Trust Co., 841 F.2d 51, 56-57 (3d Cir. 1988)

                                             20
(citing Palmgreen v. Palmer’s Garage, Inc., 383 Pa. 105, 108, 117 A.2d 721 (1955) (“In

all cases of contract interest is allowable at the legal rate from the time payment is

withheld after it has become the duty of the debtor to make such payment; allowance of

such interest does not depend upon discretion but is a legal right.”); Verner v. Shaffer, 347
Pa. Super. 206, 211, 500 A.2d 479 (1985) (“[I]n a contract action, the award of

prejudgment interest is not a matter of discretion, but is a legal right.”)). This principle

holds when contract damages are liquidated or unliquidated. See Spang & Co. v. USX

Corp., 599 A.2d 978, 983-84 (Pa. Super. Ct. 1991). Therefore, had Edwards petitioned

for prejudgment interest pursuant to state law, the District Court would have been

obligated to award it. However, Edwards requested prejudgment interest only pursuant to

federal law, which provides that the award of prejudgment interest is discretionary. See

Feather v. United Mine Workers of Am., 711 F.2d 530, 540 (3d Cir. 1983).

       Edwards failed to cite the nondiscretionary state law standard before the District

Court and on appeal before this Court. Accordingly, pursuant to the doctrine of invited

error — which prohibits one from seeking appellate review of “alleged errors invited or

induced by himself,” see United States v. Riccobene, 709 F.2d 214, 228 (3d Cir. 1983) —

we will affirm the District Court’s denial of prejudgment interest.   7

       7
         Even if we were to review the discretionary denial of prejudgment interest under
the federal standard for abuse of discretion, see Thabault v. Chait, 541 F.3d 512, 533 (3d
Cir. 2008), we would affirm. Under Feather, a district court must consider four factors in
determining the propriety of a prejudgment interest award: (1) whether the claimant has
been less than diligent in prosecuting the action; (2) whether the defendant has been
unjustly enriched; (3) whether an award would be compensatory; and (4) whether

                                              21
                                            IV.

       For the foregoing reasons, we find the judgment of the District Court free of

material error except insofar as it wrongly calculated Edwards’s damages. We will vacate

the District Court’s damages award and remand with instructions to enter judgment in

favor of Edwards and against Wyatt in the amount of $1,848,750.

countervailing equitable considerations militate against a surcharge. 711 F.2d at 540.
While acknowledging Edwards’s diligence throughout this protracted litigation, we find
that, on the whole, these factors support a denial of Edwards’s request. First, in order for
Wyatt to have been “unjustly enriched,” the benefit must have been conferred by the party
claiming restitution (Edwards); it is not enough that the benefit was simply derived from
the breach. Id. at 541 n.11. Furthermore, there are countervailing equitable
considerations — including the abnormal length of this litigation as well as the difficulty
in determining Edwards damages in the first place — that call for a rejection of
Edwards’s petition. Accordingly, the District Court did not abuse its discretion in
denying prejudgment interest under the federal discretionary standard.

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