Fairmont Supply Co. v. Hooks Indus., Inc.

• Decision Date: 04 August 2005
• Docket Number: No. 01-03-01129-CV.,01-03-01129-CV.
• Parties: FAIRMONT SUPPLY COMPANY, Appellant, v. HOOKS INDUSTRIAL, INC., Appellee. Hooks Industrial, Inc., Appellant, v. Fairmont Supply Company, Appellee.
• Court: Texas Supreme Court

177 S.W.3d 529

FAIRMONT SUPPLY COMPANY, Appellant, v. HOOKS INDUSTRIAL, INC., Appellee.

Hooks Industrial, Inc., Appellant, v. Fairmont Supply Company, Appellee.

No. 01-03-01129-CV.

Court of Appeals of Texas, First District, Houston.

August 4, 2005.

Rehearing Overruled September 2, 2005.

COPYRIGHT MATERIAL OMITTED

Craig H. Clendenin, The Ballard Law Firm, Houston, TX, for Appellant.

George Diaz-Arrastia, Ruth Ellen Shapiro, Andrew C. Schirrmeister, III, Schirrmeister Diaz-Arrastia, Houston, TX, for Appellee.

Panel consists of Chief Justice RADACK and Justices HIGLEY and BLAND.

OPINION

LAURA CARTER HIGLEY, Justice.

In this breach of contract case, the trial court awarded Hooks Industrial, Inc. ("Hooks") $1,200,000 in lost profit-damages against Fairmont Supply Company ("Fairmont"), but denied Hooks's attorney's fees claim. Both Fairmont and Hooks appeal; each raise one issue. Fairmont complains that the trial court abused its discretion in admitting the opinion testimony of Hooks's damages expert, regarding the calculation of lost-profit damages. Hooks contends that the trial court erred in concluding that Pennsylvania law governs its claim for attorney's fees.

We affirm.

Background

Hooks and Fairmont entered into a "Strategic Distribution and Alliance Agreement" ("Alliance Agreement") by which Fairmont agreed to "use Hooks as their [sic] exclusive supplier" for all of the products defined in the contract. The Alliance Agreement remained in effect for 27 months. Hooks later discovered that Fairmont had purchased approximately $62 million worth of products from other suppliers that Fairmont was contractually required to purchase from Hooks.

Hooks sued Fairmont for breach of contract, negligent misrepresentation, and fraud, seeking to recover its lost profits for the products that Fairmont had failed to purchase as required under the Alliance Agreement. In support of its lost-profit claim, Hooks offered the opinion of its damages expert, Jeffrey Compton. Fairmont filed a pre-trial motion to exclude the expert opinion of Compton, which the trial court denied.

The jury found in Hooks's favor on its breach of contract and negligent misrepresentation claims. Hooks elected to have judgment entered on the $1,200,000 in lost-profit damages awarded by the jury for breach of contract.

The parties agreed that the trial court would decide, post-verdict, whether Hooks could recover its attorney's fees related to its breach of contract claim. The determinative issue was whether Texas law or Pennsylvania law governed. Based on a choice-of-law provision found in the Alliance Agreement, the trial court concluded that Pennsylvania law controlled whether Hooks was entitled to recover its attorney's fees. It is undisputed that Pennsylvania law generally does not allow an award of attorney's fees for breach of a contract, absent an agreement by the parties that such fees are recoverable. Fairmont and Hooks had not agreed that attorney's fees were recoverable in the event of a breach of contract. Accordingly, the trial court denied Hooks's attorney's fees request.

Lost-Profit Award

In its sole issue, Fairmont complains that the trial court erred in admitting the opinion testimony of Compton, Hooks's damages expert. Excluding Compton's challenged testimony, Fairmont contends that no competent evidence supports the lost-profit award.

No dispute exists as to the appropriate formula used to determine lost profits in this case. At trial, Compton testified that lost profits are calculated by multiplying expected sales by gross profit margin, subtracting incremental expenses, and applying a discount rate. Fairmont's damages expert agreed that this was the appropriate formula to calculate lost profits. Fairmont, however, takes issue with the method that Compton used to calculate the following three formula variables: Hooks's expected sales, gross profit margin, and incremental expenses. The calculation method used by Compton to ascertain these three formula variables is termed the "yardstick approach" by the parties. Utilizing this approach, Compton projected Hooks's lost profits to be $1,684,199. In its motion to exclude, Fairmont challenged Compton's opinion testimony relating to his calculation of these formula variables based on the yardstick approach.

Compton testified that the yardstick approach is employed to calculate lost profits by analyzing the sales and profits of comparable businesses. Fairmont generally does not dispute the yardstick approach as an accounting method; rather, it argues that its application is not appropriate to determine lost profits in this case. Fairmont also takes issue with Compton's determination that a comparable business to Hooks, with regard to performance of the Alliance Agreement, would be a "manufacturer's agent." And Fairmont disputes the reliability of a survey conducted by an association of manufacturer's agents used by Compton to determine the formula variables. Specifically, Fairmont challenges the reliability of Compton's use of data from the survey to extrapolate the figures for Hooks's expected sales, gross profit margin, and incremental expenses, which Compton then used to calculate Hooks's lost profits.

Regardless of whether the trial court erred in admitting Compton's challenged testimony, we conclude that such error was harmless. We will not reverse a trial court for an erroneous evidentiary ruling unless the error probably caused the rendition of an improper judgment. See TEX.R.APP. P. 44.1; see also Gee v. Liberty Mut. Fire Ins. Co., 765 S.W.2d 394, 396 (Tex.1989). Error in admitting evidence is generally harmless if the contested evidence is merely cumulative of properly admitted evidence. See Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 230 (Tex.1990). We examine the entire record to determine whether the judgment is controlled by the evidence that should have been excluded. Id.

Hooks points out that, in addition to Compton's testimony regarding the yardstick method of valuation, other unobjected-to testimony was admitted that supports the jury's lost profits award. Specifically, alternate values were admitted, without objection, for the variables in the lost-profit formula.

Evidence was admitted, establishing that John Valentine, Hooks's president, had also determined the projected lost sales due to Fairmont's breach and the profitability of the Alliance Agreement had it been performed.¹ In particular, Hooks presented testimony, without objection, regarding Valentine's independent determination of Hooks's expected sales and profit margin. Valentine testified that Hooks would have made $28,070,000 in sales had Fairmont performed the Alliance Agreement. Although it made no objection to this portion of Valentine's testimony before or during trial, on appeal, Fairmont contends that Valentine's expected-sales figure is unreliable because it is not based on "objective, facts, figures, or data." Despite Fairmont's contention, the record reveals that Valentine testified about the source and method that he used for determining the expected sales figure. According to Valentine, he reviewed Fairmont's sales data for the period of the contract's 27-month term. The sales data information was contained in Fairmont's "flat files," which Fairmont produced during discovery. On direct examination, Valentine gave detailed testimony about his review and analysis of Fairmont's flat files. In addition, six separate exhibits containing summaries of information found in Fairmont's flat files were admitted at trial and used to support Valentine's testimony on this point.

Without objection, Valentine also testified that, had Fairmont performed under the Alliance Agreement, Hooks's profit margin would have been 27.5 percent. Valentine explained that this profit margin was indicated by (1) pricing reviews that Hooks had performed for Fairmont during the term of the contract, (2) the few actual purchases that Fairmont had made under the Alliance Agreement, and (3) quotations that Hooks had given to Fairmont for products, which Fairmont never purchased. Valentine testified that 27.5 percent was also Hooks's historic profit margin.

Compton testified that he had determined that Hooks's "overhead" or incremental expenses historically had been 16 percent. Compton acknowledged that this was a lesser amount than he had determined using the yardstick approach.² Fairmont made no objection to Compton's testimony on this point in the trial court and does not challenge it on appeal. Compton also testified, without objection, that the applicable discount rate was 33 percent. Fairmont's financial expert testified that he believed the appropriate discount rate was 36 percent.

From the unobjected-to evidence presented at trial, the jury could have assigned the following values to the variables in the lost-profit formula: (1) $28,070,000 for expected sales, (2) 27.5 percent for profit margin, (3) 16 percent for incremental expenses, and (4) 33 or 36 percent for the discount rate. Assuming the jury made the lost profit calculation applying these values, the jury's $1,200,000 award is within the range of the evidence.

After reviewing the record, and without deciding whether the trial court erred in admitting Compton's objected-to testimony, we conclude sufficient evidence is found in the record to render any error harmless. Compton's testimony was cumulative of other evidence admitted without objection, supporting the jury's damages award. Fairmont has failed to show that Compton's challenged testimony probably caused the rendition of an improper judgment. Thus, we hold that the trial court's ruling, even if erroneous, did not amount to harmful error. See VingCard A.S. v. Merrimac Hospitality Sys., Inc., 59 S.W.3d 847, 859 (Tex.App.-Fort Worth 2001, pet. denied)(holding that error in admission of manufacturer's expert's testimony regarding loss of projected future sales was harmless because it was merely...