Ad-Vantage Telephone Directory Consultants, Inc. v. GTE Directories Corp.

• Decision Date: 09 October 1991
• Docket Number: No. 90-3410,AD-VANTAGE,90-3410
• Parties: TELEPHONE DIRECTORY CONSULTANTS, INC., Plaintiff-Appellant, Cross Appellee, v. GTE DIRECTORIES CORPORATION, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1511

943 F.2d 1511

AD-VANTAGE TELEPHONE DIRECTORY CONSULTANTS, INC., Plaintiff-Appellant, Cross Appellee, v. GTE DIRECTORIES CORPORATION, Defendant-Appellee, Cross-Appellant.

No. 90-3410.

United States Court of Appeals, Eleventh Circuit.

Oct. 9, 1991.

Jawdet I. Rubaii, Clearwater, Fla., John R. Ferguson, Paul J. Kaleta, Swidler & Berlin, Washington, D.C., for plaintiff-appellant, cross-appellee.

James J. Kenny, Richard Alan Arnold, William J. Blechman, Kenny, Nachwalter & Seymour, Miami, Fla., for defendant-appellee, cross-appellant.

Appeals from the United States District Court for the Middle District of Florida.

Before FAY and COX, Circuit Judges, and MORGAN, Senior Circuit Judge.

FAY, Circuit Judge:

The parties in this case have let their fingers do the walking in court since 1982. Previously, this court affirmed a jury verdict in favor of the Plaintiff-Appellant, Ad-Vantage Telephone Directory Consultants, Inc. ("Ad-Vantage "), and against Defendant-Appellee, GTE Directories Corporation ("GTEDC"), for intentional interference with advantageous business relationships. Ad-Vantage Tel. Directory Consultants, Inc. v. GTE Directories Corp., 849 F.2d 1336 (11th Cir.1987) ("Ad-Vantage I"). We reversed, however, the jury's award of $1.5 million in compensatory damages for that claim, and remanded the case for a retrial expressly limited to the amount of compensatory damages due Ad-Vantage. Id. At retrial, the district court ¹ directed a verdict against Ad-Vantage, reinstated a $500,000 punitive damage award against GTEDC from the first trial, and setoff GTEDC's counterclaim judgment for $208,000 against the punitive damages award for a net judgment against GTEDC of $292,000 with interest. After nine years of litigation, we remand this case to the district court for yet another trial. For the reasons that follow, we AFFIRM the judgment of punitive damages subject to the setoff against GTEDC, REVERSE the directed verdict, and REMAND the case again for a determination of the amount of compensatory damages due Ad-Vantage.

I. BACKGROUND

This case concerns the business of yellow pages advertising in telephone directories. Defendant GTEDC is a publisher of telephone directories and a member of the National Yellow Pages Service Association ("NYPSA"), ² a yellow pages trade organization. Plaintiff Ad-Vantage, a subchapter S corporation, ³ was a NYPSA Authorized Selling Representative ("ASR"). ASRs sell yellow pages advertising to "national accounts," as defined by NYPSA, for placement in yellow pages directories, such as those published by GTEDC.

Ad-Vantage originally sued GTEDC for monopolization and attempt to monopolize under federal and state law, intentional breach of unidentified agreements, breach of contract, and intentional interference with advantageous business relationships. GTEDC counterclaimed for $208,000 owed for advertising purchased in GTEDC directories on orders submitted on behalf of specific advertisers. ⁴ The district court directed a verdict in GTEDC's favor on Ad-Vantage's claim for intentional breach of unidentified contracts. The jury later returned a verdict for GTEDC on the breach of contract claim and the antitrust claims under the Sherman Act. The jury, however, returned a verdict for Ad-Vantage on its Florida antitrust claims and on the interference claim. Ad-Vantage was awarded $1.5 million in damages, not differentiated between claims, and punitive damages of $500,000 on the interference claim.

On appeal, this court reversed the antitrust verdict, instructing the district court to grant GTEDC's motion for a judgment notwithstanding the verdict ("JNOV") on all the antitrust claims. Ad-Vantage I, 849 F.2d at 1348. We affirmed the district court's denial of GTEDC's motion for a directed verdict or for a JNOV on Ad-Vantage's claim for interference with an advantageous business relationship. Id. at 1349, 1350, 1353. We also ruled, however, that Ad-Vantage's evidence of damages was legally insufficient under Florida law and remanded for retrial the sole issue of the amount of compensatory damages due Ad-Vantage. Id. at 1350-53. Because this second appeal turns on the application of our mandate regarding calculation of the appropriate amount of compensatory damages due Ad-Vantage, we review the proceedings on this issue and revisit relevant Florida law.

A. The First Trial

The dispute between Ad-Vantage and GTEDC stemmed from alleged collection problems. GTEDC claimed Ad-Vantage failed to pay its account on time and that several of Ad-Vantage's checks were worthless. Consequently, GTEDC bypassed Ad-Vantage and directly billed Ad-Vantage's clients. Ad-Vantage sued, claiming that as a result of GTEDC's direct contact with its clients, Ad-Vantage lost several major accounts, and ultimately went out of business. ⁵ During the first trial, Ad-Vantage claimed GTEDC interfered with forty-six, specifically identified accounts. ⁶

In order to show lost profits on these accounts, Ad-Vantage presented the expert testimony of Mr. David Salverson, a certified public accountant who reviewed Ad-Vantage's books and records. Using 1982 as the base year, Mr. Salverson computed the gross sales revenue for each of the forty-six accounts and then deducted the full amount due publishers. He also deducted any discount that Ad-Vantage gave to the client, together with the commissions that Ad-Vantage paid its salespersons. From these calculations, Mr. Salverson derived the operating profit on each account. The operating profit for each of the forty-six accounts was then added together to obtain the gross operating profit for all forty-six accounts. To this 1982 base year profit, Mr. Salverson applied a growth rate of approximately twenty percent per year to project future lost profits for a ten year period. From the resulting amounts for each year, Mr. Salverson deducted the entire amount of Ad-Vantage's overhead expenses, including salaries paid to clerical help, to arrive at Ad-Vantage's projected profits for each of these years on the lost profits.

Mr. Salverson, however, did not deduct any salary or compensation for Mr. Joel Blumberg, the manager and sole stockholder of Ad-Vantage, contrary to the general rule in Florida that a corporation, in proving the amount of lost profits, must deduct the expense of salaries paid to its officers. Southern Bell Tel. & Tel. Co. v. Kaminester, 400 So.2d 804, 807 (Fla. 3rd DCA 1981). Ad-Vantage argued that the rule could not possibly apply to subchapter S corporations because subtracting the net profits paid to a stockholder of a subchapter S corporation as an expense would always produce a net profit of zero.

GTEDC vigorously objected to Ad-Vantage's damage study and its failure to deduct a salary figure for Mr. Blumberg. GTEDC extensively cross-examined Mr. Salverson. GTEDC also introduced the expert testimony of Mr. James Smith IV and Dr. John Deiter to rebut Ad-Vantage's damage studies. Dr. Deiter testified that Ad-Vantage's damage study remained flawed until a reasonable manager's salary for Mr. Blumberg reflecting the value of his services as office manager was deducted as an expense. Significantly, Dr. Deiter testified that $25,000 would be a reasonable salary for these services. At the close of argument, the jury returned a verdict for Ad-Vantage on its claims for intentional interference with advantageous business relationships and monopolization under Florida antitrust law and awarded $1.5 million in compensatory damages. ⁷

B. Mandate of Ad-Vantage I

GTEDC appealed, arguing that Ad-Vantage's damage study was insufficient under Florida law because it failed to deduct Mr. Blumberg's salary as office manager and to account for the large sums of money withdrawn by Mr. Blumberg from Ad-Vantage as personal income. Ad-Vantage I, 849 F.2d at 1351. Mr. Blumberg's K-1 form for 1982--the year of the claimed interference and the base year for Mr. Salverson's damage calculations--revealed that he received $448,984 of income as sole shareholder of Ad-Vantage. Moreover,

Mr. Blumberg's testimony indicated that he drew money out of Ad-Vantage's account when he needed it "to live on." He also testified that in 1982 more than $100,000 of the $448,984 which showed up as income on his K-1 form for 1982 was taken directly out of Ad-Vantage's corporate account to pay his personal losses in the commodities market.

Id. at 1352. GTEDC asserted that Ad-Vantage did not show what amount of the $448,984 represented Mr. Blumberg's salary, that under Florida law a salary must be prorated as an expense, and therefore the net profit figure offered by Ad-Vantage was insufficient. Id. at 1351-53.

Our review of this issue began with the standard of proof for lost profits under Florida law:

To recover anticipated lost profits in Florida, a plaintiff must demonstrate such a loss with reasonable certainty by competent proof. The expenses incurred to produce the net profits must be established in specific dollar amounts. In addition, Florida law expressly requires that a corporation, in proving the amount of lost profits, must deduct the expense of salaries paid to its officers.

Id. at 1351 (citations omitted) (emphasis added). We noted that the strictness of the last rule was made clear in Southern Bell Telephone & Telegraph Co. v. Kaminester, 400 So.2d 804 (Fla. 3rd DCA 1981). Ad-Vantage I, 849 F.2d at 1351. In Kaminester, a jury awarded a professional association, whose principal employee and sole officer was a dermatologist, lost profits after it found Southern Bell liable for incorrectly listing the doctor's address in the 1977 Hobe Sound-Jupiter Yellow Pages. 400 So.2d at 805. Southern Bell appealed, arguing that the professional association failed to deduct the doctor's compensation in computing net profits, rendering the proof of lost profits inadequate. Id. at 807. The third district court agreed, rejecting the argument that "when [a] corporation is a professional...