Ameristar Jet v. Dodson Intern. Parts

• Citation: 155 S.W.3d 50
• Decision Date: 25 January 2005
• Docket Number: No. SC 85889.,SC 85889.
• Parties: AMERISTAR JET CHARTER, INC., and Sierra American Corporation, Appellant-Respondent, v. DODSON INTERNATIONAL PARTS, INC., Respondent-Appellant, Houston Casualty Company, Respondent, Howe Associates, Inc., Defendant.
• Court: United States State Supreme Court of Missouri

155 S.W.3d 50

AMERISTAR JET CHARTER, INC., and Sierra American Corporation, Appellant-Respondent, v. DODSON INTERNATIONAL PARTS, INC., Respondent-Appellant, Houston Casualty Company, Respondent, Howe Associates, Inc., Defendant.

No. SC 85889.

Supreme Court of Missouri, En Banc.

January 25, 2005.

Rehearing Denied March 1, 2005.

Christopher S. Shank, David L. Heinemann, Yvonne M. Warlen, Kansas City, Richard A. Illmer, Dallas, TX, for Appellant-Respondent.

Donald G. Scott, Kansas City, for Respondent-Appellant.

Martin M. Montemore, Patrick J. Kaine, Kansas City, Mark Cohen, Houston, TX, for Respondent.

MARY R. RUSSELL, Judge.

Ameristar Jet Charter, Inc. and Sierra American Corporation (collectively "Owner") brought a negligence suit against Dodson International Parts, Inc. ("Hauler") for its mishandling of Owner's airplane that was damaged after an emergency landing. The jury found in favor of Owner, and Hauler appeals the trial court's entry of judgment in accordance with the jury verdict. After opinion by the Court of Appeals, Western District,¹ this Court granted transfer. Mo. Const. art. V, sec. 10.

Hauler raises eight issues on appeal, including that Owner presented insufficient evidence of lost profits damages. This Court reverses the trial court's judgment as to the calculation of lost profits damages. The trial court's judgment with respect to Hauler's remaining issues is affirmed. Owner also appeals, alleging that the trial court incorrectly calculated Owner's award against Hauler. This Court reverses the trial court's judgment as to the damages award calculation. The case is remanded for a new trial on the issue of damages or other relief consistent with this opinion.

Owner also asserted claims against its insurance carrier, Houston Casualty Corporation ("Insurer"), for negligent misrepresentation, negligence, and bad faith. The trial court granted Insurer's motion for summary judgment. Owner appeals, alleging that the trial court improperly granted judgment for Insurer based on a release contained in the proof of loss signed by Owner. This Court affirms the trial court's judgment in favor of Insurer.

I. Facts

Ameristar and Sierra are in the air charter business. Sierra owns several jet airplanes, including the airplane that is the subject of this suit. Sierra leases these airplanes to Ameristar, which uses them to deliver parts for automobile manufacturers.

One of Owner's planes, a Falcon 20 Jet, made an emergency landing in April 1998 on a levee near the Kansas City Downtown Airport. Insurer's claims adjuster, Howe Associates, Inc. ("Adjuster"), hired Hauler to transport the airplane from the levee to the Kansas City Downtown Airport. In order to transport the airplane, Hauler removed the wings from the airplane and hauled the airplane's fuselage on a flat-bed trailer.

After Insurer ultimately concluded that the fuselage was bent and the repair cost would be prohibitively high, Insurer submitted a proof of loss to Owner, which proposed to treat the airplane as a constructive total loss and obligated Insurer to pay the policy limits of $1.5 million. Although Owner contends that Insurer gave it no choice in the matter, Owner signed the proof of loss and accepted payment of the policy limits.

The airplane was later sold at a salvage auction, in which Hauler outbid Owner and purchased the airplane from Insurer. It was discovered that Insurer was incorrect in its determination that the airplane's fuselage was permanently bent because the fuselage "popped" back into place after being removed from the flat-bed trailer. Hauler repaired the airplane for approximately $100,000, and offered to sell it to Owner for $1.5 million. Owner refused and purchased a replacement airplane for approximately $2.1 million.

Owner asserted a negligence claim against Hauler for its mishandling of the airplane. The trial court submitted this claim to the jury on comparative fault instructions. The jury found in favor of Owner, assigning 70% of the fault to Hauler and 30% of the fault to Owner. The jury also found Owner's actual damages to be $2.1 million. Based upon the jury's findings, the trial court entered judgment in favor of Owner for $1,435,000.

II. Hauler's Claims

A. Owner Presented Insufficient Evidence of Lost Profits.

Hauler argues that Owner did not provide sufficient evidence of lost profits in that Owner failed in calculating its net profit to deduct a variety of fixed and variable expenses, including salaries, benefits, insurance, depreciation, rent, interest, and other costs attributable to generating revenue with this aircraft.

Owner's primary evidence regarding its claimed lost profits damages was a chart summarizing the revenue and expenses of its business. Owner's president testified as to the methodology used to produce the calculations in the summary chart. The chart contained estimated lost profits from after the incident in April 1998 to August 1999. Based on the average revenue of all of the airplanes in its fleet, Owner calculated an estimate of the lost gross revenue for the damaged airplane.

Owner determined what the variable expenses were and subtracted this figure from the gross revenue to obtain profit. The variable expenses that Owner deducted were expenses for fuel and maintenance of its fleet. Owner's estimate of its lost profits damages for this airplane from April 1998 to August 1999 was $2,562,088.94. The jury returned a verdict finding Owner's total damages to be $2.1 million. After deducting the settlement amounts and the comparative fault allocated to Owner, the trial court found the total amount of Owner's damages to be $1,435,000.²

1. General Principles

The goal of awarding damages is to compensate a party for a legally recognized loss. De Salme v. Union Elec. Light & Power Co., 232 Mo.App. 245, 102 S.W.2d 779, 782 (1937); see also Sampson v. Mo. Pac. R. Co., 560 S.W.2d 573, 588 (Mo. banc 1978) (stating that the ultimate test for damages is whether the award will fairly and reasonably compensate the party for its injuries); DAN B. DOBBS, LAW OF REMEDIES § 3.1, at 210 (2d ed.1993). A party should be fully compensated for its loss, but not recover a windfall. Weeks-Maxwell Constr. Co. v. Belger Cartage Serv., Inc., 409 S.W.2d 792, 796 (Mo.App.1966); DOBBS, § 3.1, at 210. In many contract and tort cases involving damage to persons, property or businesses, a party requests damages for loss of business profits. "In evaluating the sufficiency of evidence to sustain awards of damages for loss of business profits the appellate courts of this state have made stringent requirements, refusing to permit speculation as to probable or expected profits, and requiring a substantial basis for such awards." Coonis v. Rogers, 429 S.W.2d 709, 713-14 (Mo.1968).

For an award of lost profits damages, a party must produce evidence that provides an adequate basis for estimating the lost profits with reasonable certainty. Meridian Enters. Corp. v. KCBS, Inc., 910 S.W.2d 329, 331 (Mo.App.1995). "Loss of profits refers to the amount of net profits a plaintiff would have realized if its clients had not been lost as a result of a defendant's actions." Id. While an estimate of prospective or anticipated profits must rest upon more than mere speculation, "[u]ncertainty as to the amount of profits that would have been made does not prevent a recovery." Gasser v. John Knox Village, 761 S.W.2d 728, 734 (Mo.App.1988). The claimant must establish the fact of damages with reasonable certainty, but it is not always possible to establish the amount of damages with the same degree of certainty.

In some cases, the evidence weighed in common experience demonstrates that a substantial pecuniary loss has occurred, but at the same time it is apparent that the loss is of a character which defies exact proof. In that situation, it is reasonable to require a lesser degree of certainty as to the amount of loss, leaving a greater degree of discretion to the court or jury. This principle is applicable in the case of proof of lost profits.

Ranch Hand Foods, Inc. v. Polar Pak Foods, Inc., 690 S.W.2d 437, 444-45 (Mo.App.1985) (internal citations omitted).

2. Fixed and Variable Expenses

Hauler argues that Owner failed to deduct certain fixed and variable expenses in calculating its lost profits damages.

Missouri courts agree that lost profits are recoverable in a variety of breach of contract, tort, and business interruption cases. See Coonis, 429 S.W.2d at 714; Meridian, 910 S.W.2d at 332. In general, in calculating lost profits damages, lost revenue is estimated, and overhead expenses tied to the production of that income are deducted from the estimated lost revenue. Id. Overhead expenses include both fixed and variable expenses. Universal Power Sys., Inc. v. Godfather's Pizza, Inc., 818 F.2d 667, 673 (8th Cir.1987) (applying Missouri law). Fixed expenses are the continuous expenses of the business that are incurred regardless of the loss of a portion of the business, for example rent, taxes, and administrative salaries. Id.; H. Kent Munson, Fixed Overhead Expenses: Gremlins of Lost Profits Damages, 56 J. MO. B. 104 (March-April 2000). Variable expenses, also called direct expenses, are costs directly linked to the volume of business. Universal Power Sys., 818 F.2d at 673.

The Missouri appellate cases are split on whether fixed expenses should be deducted from estimated lost revenues in the calculation of lost profits damages. This Court granted transfer of this case to resolve this conflict.

The Meridian case illustrates one approach. In Meridian, a travel agency claimed lost profits damages because the defendant wrongfully deprived it of the business of handling a 1990 trip to Hawaii. Meridian, 910 S.W.2d at 330-31. The court affirmed the trial court's grant of a directed verdict in favor of the defendants because the plaintiff failed to present evidence regarding its overhead expenses to support its claim...