Great Pines Water Co. v. Liqui-Box Corp.

• Decision Date: 29 February 2000
• Docket Number: LIQUI-BOX,No. 98-20198,98-20198
• Citation: 203 F.3d 920
• Parties: (5th Cir. 2000) GREAT PINES WATER CO., INC., Plaintiff-Appellee, v.CORPORATION, Defendant-Appellant
• Court: U.S. Court of Appeals — Fifth Circuit

Page 920

203 F.3d 920 (5th Cir. 2000)

GREAT PINES WATER CO., INC., Plaintiff-Appellee, v. LIQUI-BOX CORPORATION, Defendant-Appellant.

No. 98-20198

IN THE UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

February 29, 2000

Appeal from the United States District Court for the Southern District of Texas

Before DAVIS, JONES, and Magill¹, Circuit Judges

W. EUGENE DAVIS, Circuit Judge:

Appellant Liqui-Box Corporation ("Liqui-Box") challenges the damage portion of the judgment entered against it following a jury trial. Liqui-Box's principle argument is that the lost profit and compensatory damage elements of the lump sum award are not supported by sufficient evidence. Our review of the record leads us to agree that Appellee Great Pines Water Company ("Great Pines") failed to produce sufficient evidence to establish the number of Great Pines customers who canceled service due to Liqui-Box's defective products. Because this fact was essential to Great Pines's proof of lost profits and consequential damages, we vacate the judgment and remand for a partial new trial on damages

I

In 1986, Robert Hammond, Jr. purchased Great Pines, a bottled water distributor for Ambrosia Water Company in Conroe, Texas. In 1988, Hammond, Jr. moved Great Pines to Houston where he opened a water bottling plant and began producing and distributing his own bottled water.

Liqui-Box manufactures plastic water bottles, water bottle caps, and related equipment to dispense bottled water. This line of Liqui-Box products is sometimes referred to as De-Cap systems. In early 1990, Hammond, Jr. ordered 20 De-Cap systems from Liqui-Box. After inspecting the sample units, Hammond, Jr. began ordering large quantities of De-Cap systems. Over the next three and one-half years, Great Pines provided the De-Cap systems to about fifty-percent of its customers. However, Great Pines experienced severe problems with these systems and determined that the Liqui-Box products were seriously defective. Great Pines found that the De-cap systems constantly malfunctioned by allowing excessive water into the coolers' reservoirs, resulting in repeated overflow leaks. Moreover, Great Pines asserted that the De-Cap systems failed to use a "check valve" - commonly used in the industry - to prevent leaks. Finally, they contended that Liqui-Box's bottle caps included no "tear strip," as was common on other manufacturers' bottles, and thus, could not be removed without using a utility knife, a process that often resulted in water bottle damage and additional leaking.

Liqui-Box sued Great Pines to recover more than $22,698 in unpaid invoices for goods purchased and shipped. In response, Great Pines asserted a claim against Liqui-Box for breach of contract, fraud by misrepresentation, fraud by concealment, breach of warranty, and violation of the Texas Deceptive Trade Practices Act ("DTPA").

At trial, the district court submitted a special verdict, consisting of fourteen interrogatories on liability and damages, to the jury. The jury found in favor of Great Pines on its breach of contract, fraud by misrepresentation, and DTPA claims. Interrogatory No. 8 addressed actual damages for the fraud and breach of contract claims. The court instructed the jury that it could consider four elements of damages under these liability theories: lost profits, consequential damages, costs of removing Liqui-Box's products, and costs of replacing the removed equipment. The court defined lost profits as "the loss of the revenue from the customers that Great Pines lost," less expenses. The court defined consequential damages as "the decline in value of the company due to loss of customers." Thus, the damages for both of these items was based on the number of customers Great Pines lost as a result of Liqui-Box product defects. In response to Interrogatory No. 8, the jury awarded damages of $795,870 on the fraud and breach of contract actions. Although the interrogatory did not ask the jury to specify its award for each damage element, the jury included the following marginal notes next to each of the four damage elements: "$0.00" for removal costs, "$0.00" for replacement costs, "$122,531" for lost profits, and "$677,339" for consequential damages. In answer to a separate interrogatory, the jury awarded Great Pines $1,360,000 in punitive damages based on Liqui-Box's fraudulent misrepresentation.

In response to Interrogatory No. 10, the jury awarded Great Pines $132,000 in actual damages on its DTPA claim, which also included lost profits, consequential damages, removal costs, and replacement costs damage elements. Again, the jury's answer to this interrogatory included marginal notes next to each damage element, indicating "$70,000" for removal costs, "$60,000" for replacement costs, "-0-" for lost profits, and "-0-" for consequential damages.

Great Pines elected to recover on its fraud claim, because it afforded the largest recovery; and the district court entered judgment against Liqui-Box in the amount of $2,373,285, consisting of the $799,870 in actual damages (less an offset credit of $27,477 for Liqui-Box's uncontested unpaid account claim), $1,360,000 in punitive damages, and $240,892 in interest. In this appeal, Liqui-Box does not challenge any of the jury's liability findings. Rather, the sole issues on appeal relate to damages.

II

Liqui-Box's principal argument on appeal is that Great Pines produced insufficient evidence to support an award for either lost profits or consequential damages. In support of this argument, Liqui-Box focuses on the inadequacy of evidence on a fact critical to an award for either of these elements: the number of customers who canceled Great Pines's water service because of defective Liqui-Box products.

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.² While this reasonably certain evidence determination is a fact intensive inquiry, opinions of estimated lost profits must, at a minimum, be based on objective facts, figures, or data from which the amount of lost profits can be ascertained.³ In addition, when lost profits are dependent on a plaintiff's lost contracts with customers, Texas law requires that such contracts be proved with reasonable certainty, both as to their existence and their number.⁴

At trial, Great Pines presented three witnesses who testified on the issue of how many customers were lost due to Liqui-Box's conduct. These included Robert Hammond, Sr., Great Pines's plant manager, Robert Hammond, Jr., Great Pines's majority owner, and David Williams, Great Pines's former Chief Financial Officer. Robert Hammond, Sr. and Jr. testified that approximately 20,000 De-Cap customers canceled their service with Great Pines during the period in question, February 1990 through August 1994. However, Great Pines introduced no definitive evidence such as contemporary business records, service cancellation slips, relevant computer entries, or customer complaint lists on the central issue of how many customers canceled due to problems with De-Cap systems. Though Great Pines did conduct a "customer cancellation" survey in an attempt to show the number of cancellations resulting from Liqui-Box products, the district court excluded the survey as unreliable.

Nevertheless, Hammond, Sr. was allowed to testify that based on his "observations of the plant," discussions with Great Pines's drivers, and conversations with an unknown number of customers who complained, Liqui-Box product dissatisfaction caused about 4,000 cancellations. Hammond, Sr. readily conceded that he only spoke with a few of these dissatisfied customers, did not see the defective De-Cap systems associated with this estimate, and made no records of De-Cap customer complaints or the reasons why customers discontinued water service.

Hammond, Jr. testified that based on similar general observations, he estimated 6,000 - 8,000 cancellations due to Liqui-Box's defective products. Hammond, Jr., like his father, could produce no customer correspondence or records reflecting the customers' reasons for terminating water service. Finally, David Williams, stated that, based on his "investigation" and generally "being at the company," he estimated these problems caused "probably 20 percent" of the 31,524 total⁵ customer cancellations. Williams also conceded that he had not spoken to customers concerning their cancellations and made no contemporaneous notes of his impressions during the pertinent time period.

In addition, these Great Pines's witnesses agreed that they had customer cancellations for numerous reasons unrelated to Liqui-Box product failures.⁶

Thus, Great Pines's only evidentiary foundations for these estimates of De-Cap related cancellations are Williams's general impressions from his presence at the plant and the Hammonds' perceptions from their supervision of the plant, limited discussions with drivers, and conversations with a limited but undetermined number of canceling customers.

Two Texas Supreme Court cases are instructive on when evidence presented at trial is legally sufficient to support a recovery of lost profits. In Szczepanik v. First Southern Trust Co., First Southern asserted a claim for lost profits against a former employee who left First Southern, formed a competing company, and lured a number of First Southern investors to follow him and transfer their assets to his new enterprise. However, because First Southern supported its entire damage case on the speculative and conclusory statements of two current employees and failed to present any evidence showing that it had a reasonable expectation of retaining the lured investors, the supreme court ruled that the evidence was uncertain, was not based on objective facts, and failed to provide a basis for accurate calculations. Therefore, the court concluded that the evidence was "legally...