Court Opinion

ID: 9636991
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:51:40.825879+00
Date Added: 2024-06-11T13:37:12.401716
License: Public Domain

EVELYN V. KEYES, Justice,
concurring.
I agree with the disposition of this case. I write separately because I believe the opinion understates appellees’ burden of proof of damages on remand. It is well settled that a default judgment operates as an admission of all allegations set out in the plaintiffs petition except unliquidated damages and is, therefore, an admission of liability. Stra, Inc. v. Seafirst Commercial Corp., 727 S.W.2d 591, 593 (Tex.App.Houston [1st Dist.] 1987, no writ). However, a defaulting defendant does not admit that the event sued upon caused any of the plaintiffs alleged injuries. Boat Superstore, Inc. v. Haner, 877 S.W.2d 376, 379 (Tex.App.-Houston [1st Dist.] 1994, no writ). Rather, a court that renders a default judgment must hear evidence of un-liquidated damages. Tex.R. Civ. P. 243; Holt Atherton Indus, v. Heine, 835 S.W.2d 80, 83 (Tex.1992).
At the damage assessment hearing, the plaintiff is obliged not only to come forward with sufficient competent evidence to establish the amount of alleged damages, but also to show a causal nexus between the event sued upon and the resulting injuries. Morgan v. Compugraphic Corp., 675 S.W.2d 729, 732 (Tex.1984). Proving that the event sued upon caused the injuries claimed by the plaintiff is part and parcel of proving the amount of damages to which the plaintiff is entitled. Id. The causal nexus requirement is met by pleading and proof that establishes a direct causal link between the damages awarded, the actions of the defendant, and the injury suffered. Haynes & Boone v. Bowser Bouldin, Ltd., 896 S.W.2d 179, 182, 183 (Tex.1995). The fact that a defendant has defaulted — thereby admitting his liability — does not give the plaintiff a right to recover for damages that did not arise from his cause of action. Id.; Boat Superstore, Inc., 877 S.W.2d 376 at 379.
Here, appellees pleaded that they suffered damages for lost profits in the amount of the difference between their expected profits at the two sites they owned (the Katy location and the Texas City location) as fraudulently projected in Texaco’s Gasoline Volume Forecast (GVF) and the actual profits appellees realized at those sites. Texaco’s default operated as an admission that the projections in the GVF were false, that Texaco knew they were false, and that Texaco intended appellees to rely on them in making their investment decision. See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex.1992) (reciting elements of fraud). Appellees still had to prove, however, that Texaco’s misrepresentations caused them to lose profits.
The only proof of damages submitted to the trial.court was appellees’ affidavits, not the GVF itself. In those affidavits, appel-lees determined their lost profits by subtracting their actual profits at the Katy *775and Texas City locations from the total projected sales for groceries and gasoline set out in the GVF. Appellees averred that the GVF fraudulently projected they would realize grocery sales of $75,000 a month and gasoline sales of 120,516 gallons a month at the Katy location, but they realized actual grocery sales of only $55,000 per month and actual motor fuel sales of 60,000 gallons a month. They further averred that the GVF fraudulently projected they would realize grocery sales of $65,000 a month and gasoline sales of 80,134 gallons a month at the Texas City location, but they realized actual grocery sales of only $35,000 per month and actual motor fuel sales of 32,000 gallons a month at that location. Since they claimed that each store had a profit margin of 30% on grocery items and 5<f a gallon on gasoline, they simply applied these figures to their actual sales to determine their actual profits. They then subtracted their actual profits from the profits they claim they would have made had Texaco’s projected sales of gasoline and groceries at those sites been accurate.
Lost profits are not shown where nothing in the record relates the total amount of profits the plaintiff expects to make to profits actually lost as a result of the defendant’s wrongful act. Szczepanik, 883 S.W.2d at 649; see also Haynes & Boone, 896 S.W.2d at 182, 183 (holding that, in default judgment case, shopping center landlord did not establish causal nexus between legal malpractice and foreclosure on shopping center where there was no evidence that tenant’s vacating premises was result of any act of attorney; attorney’s acts were not producing cause of foreclosure); Nothing in the evidence presented by appellees at the hearing on damages established a direct causal link between Texaco’s misrepresentations about total profits, and the lost profits damages claimed by appellees and awarded by the trial court. I would hold that appellees have failed to produce any evidence of a causal relation between Texaco’s sales projections and the lower profits realized by appellees and therefore have failed to establish a causal nexus between Texaco’s misrepresentations and their own claimed lost profit damages.
Nor do I agree with the appellees that their affidavits provide competent eviden-tiary support for their claim of lost-profit damages. To prove damages in the form of lost profits, a plaintiff must do more than show that he suffered some lost profits. Szczepanik v. First So. Tmst Co., 883 S.W.2d 648, 649 (Tex.1994); SBC Operations, Inc. v. The Bus. Equation, Inc., 75 S.W.3d 462, 466 (Tex.App.-San Antonio 2001, pet. denied). While recovery of lost profits does not require that the loss be susceptible to exact calculation, the amount of the loss must be shown by competent evidence with reasonable certainty. Szczepanik, 883 S.W.2d at 649. This is a fact intensive determination, requiring, at a minimum, opinions or estimates of lost profits based on objective facts, figures, or data from which the amount of lost profits may be ascertained, although the documentation supporting the opinions or estimates need not be produced in court. Id; Holt Atherton, 835 S.W.2d at 84; SBC Operations, Inc., 75 S.W.3d at 466. The correct measure of damages is lost net profits, not gross profits. Holt Atherton, 835 S.W.2d at 83 n. 1.
Mere evidence that the plaintiff expected to make a profit within a certain range at a certain time is legally insufficient to show lost profits. Szczepanik, 883 S.W.2d at 649; see also Holt Atherton, 835 S.W.2d at 85 (in default judgment case, where plaintiffs did not specify which contracts were lost as result of unavailability of bulldozer, how much profit they would have had from those contracts, or who would have awarded them contracts, bare asser*776tion that contracts were lost did not demonstrate reasonably certain objective determination of lost profits). The evidence must show to a reasonable certainty the profits actually lost as a result of the defendant’s wrongful acts. See Szczepanik, 883 S.W.2d at 649.
While it is true that the supporting documentation for opinions or estimates of lost profits need not be shown in court, appellees here presented no evidence regarding the cause for the discrepancy in either sales or profits between those Texaco projected and those they actually realized. Instead, they conclusorily averred that they enjoyed a 30% profit margin on grocery items and 5<t on gasoline, without indicating whether those figures represented gross profits or net profits, without showing how the figures were calculated, and without showing how their actual profits related to Texaco’s sales projections, e.g., whether Texaco projected profits based on its projected number of sales, or whether its sales or profit projections were qualified in any way. Thus, I would hold that not only did appellees fail to prove their claimed damages for lost profits with the required specificity, but also that their affidavits merely show that they expected to make a profit within a certain range at a certain time and are therefore legally insufficient to show lost profits. See id.; Holt Atherton, 835 S.W.2d at 84.
Finally, appellees overlook the test for recovery of lost profits by a new business set out in Texas Instruments, Inc. v. Tele-tron Energy Management, Inc., 877 S.W.2d 276 (Tex.1994). It is true that an enterprise is not prohibited from recovering lost profits merely because it is new when there are firmer reasons to expect a profit than the mere hope of success for an untried enterprise. Id. at 279-80. Thus, when an activity is ongoing, but is conducted, for example, by a newly formed subsidiary controlled and managed by the same company, recovery for lost profits should not be denied simply because the same activity is conducted by a subsidiary newly formed for that purpose. Id.; see also Southwest Battery Carp. v. Owen, 131 Tex. 423, 115 S.W.2d 1097, 1098-1099 (1938). However, under Teletron, even where only an entity changes and not an ongoing activity, the plaintiff must still provide proof that the experience of the persons involved in the enterprise, the nature of the business activity, and the relevant market were such that the drop in profits is reasonably certain to have been caused by the defendant’s wrongful act. See Teletron, 877 S.W.2d at 280.
Here, the activity was ongoing only in the broadest sense: there was no ongoing activity of grocery and gasoline sales made by appellees at the two locations at issue. Rather, although the products being sold here were neither new nor untested, the stations owned by appellees were newly built and had no sales history against which to compare appellees’ actual sales. Nor is there any proof that appellees had the requisite experience to operate service stations successfully. And there is no evidence regarding the relevant market. Thus, I would hold that, on this ground as well, appellees failed to satisfy their burden that they come forward with sufficient competent evidence to establish the amount of their lost profits with reasonable certainty. See Holt Atherton, 835 S.W.2d at 84; Morgan, 675 S.W.2d at 732.
I would hold that appellees have neither established a causal nexus between their alleged damages and Texaco’s projections nor provided competent evidence from which the amount of their allegedly lost profits could be calculated with reasonable certainty. When an appellate court finds that there is no evidence to support an essential element of a claim for damages after an uncontested hearing on unliqui-*777dated damages in a no-answer default judgment, it must remand the cause for new trial on the issue of unliquidated damages. Holt Atherton, 835 S.W.2d at 86. I therefore concur in the judgment reversing and remanding this case for a new trial on damages.