Handi Caddy, Inc. v. American Home Products Corp.

• Decision Date: 09 June 1977
• Docket Number: No. 76-1699,76-1699
• Citation: 557 F.2d 136
• Parties: HANDI CADDY, INC., Appellee, v. AMERICAN HOME PRODUCTS CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 136

557 F.2d 136

HANDI CADDY, INC., Appellee, v. AMERICAN HOME PRODUCTS CORPORATION, Appellant.

No. 76-1699.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 18, 1977.

Decided May 31, 1977.

Rehearing Denied June 9, 1977.

Thomas J. Wheatley, Kansas City, Mo., for appellant; Maurice J. O'Sullivan, Jr. and Stephen W. Jacobson, Kansas City, Mo., on brief.

David Skeer, Kansas City, Mo., for appellee; David R. Frensley and John F. Michaels, Kansas City, Mo., on brief.

Before CLARK, Associate Justice, ^* MATTHES, Senior Circuit Judge, and HEANEY, Circuit Judge.

MATTHES, Senior Circuit Judge.

This action was brought in the circuit court of Jackson County, Missouri by Handi Caddy, Inc. to recover damages for breach of contract. Defendant American Home Products Corp. removed the case to the United States District Court for the Western District of Missouri. That court on its own motion separated the issues of breach and damages. In the first trial a six-member jury found that defendant had breached the contract. Accordingly, an appropriate judgment was filed on October 16, 1975. The issue of damages was subsequently tried before the same judge and jury and a verdict was rendered awarding plaintiff $340,000 as damages for breach of contract. A judgment for that amount was filed on May 21, 1976. The district court denied defendant's motion for a judgment n. o. v. or, in the alternative, for a new trial. Defendant then appealed from the judgment entered on the verdict for damages.

Defendant, a Delaware corporation with its principal place of business in New York City, was at all times material to this controversy engaged in the business of distributing food products, including frozen pizzas, under the trade name "Chef Boy-ar-dee." The pizzas were sold to wholesale grocers, frozen food distributors and chain store headquarters, but were not sold directly to retail grocery stores.

Plaintiff, a Missouri corporation, was engaged in manufacturing and distributing items fabricated from metal, including a device called a "Handi Caddy" oven utensil, which was designed to remove hot pizzas from the oven.

The parties engaged in negotiations for a promotion of Chef Boy-ar-dee frozen pizzas involving the distribution of the Handi Caddy oven utensils as premiums on a self-liquidating basis. ¹ They then entered into a written contract dated April 1, 1970, which provided that for a period of fourteen months from May 1, 1970 to June 30, 1971, defendant would advertise plaintiff's product on its frozen pizza packages. The pertinent provision of the contract read as follows:

2. Foods (defendant) will promptly after the execution of this Agreement, offer the oven utensils for sale to the public by means of copy on frozen pizza packages, point of purchase material and other media of Foods' choice. Said offer will provide that the customer may purchase one (1) Handi Caddy oven utensil if he fills out and returns a Coupon with one ($1.00) dollar to the listed post office box, as hereinafter set forth. Handi Caddy will be solely responsible for determining Plaintiff offered evidence at trial to prove that while the contract provided for the term of the promotion to begin on May 1, 1970, the promotion did not actually begin until after that date. The first shipment of frozen pizza packages containing the Handi Caddy offer was made on June 30, 1970, but shipments did not generally begin until August from defendant's Pennsylvania plant and until September from its Indiana plant. The point of purchase material was not available to the sales force until June 23, 1970, and advertising in other media did not appear until May 2, 1971.

the number of oven utensils necessary to satisfy its obligations under Paragraph 1 hereof.

With respect to defendant's duty to advertise the promotion by means of copy on frozen pizza package point of purchase material and other media, plaintiff introduced the following evidence:

Copy on frozen pizza packages. Defendant's total production of frozen pizzas of all kinds and sizes for the contract period was 38,607,112. A reference of some sort to the Handi Caddy promotion was carried on 20,274,244 pizza packages. Of those 20,274,244 packages, 2,596,194 included a blurb on the front of the package which read "Get your pizza Handi Caddy See back panel" and a picture illustrating the use of the Handi Caddy and an order blank on the back. Viewing the evidence in the light most favorable to the plaintiff, the maximum possible actual rate of response by the consumer to those packages was .17% (seventeen purchases per 10,000 packages). The remaining 17,678,050 packages included an order blank, but either failed to include pictures of the utensil showing how it was used, or failed to include reference to the promotion on the front of the package, or both. The rate of response to those packages containing no blurb on front, but with pictures on the back was .05% and for those packages containing no pictures, .025%.

Point of purchase material. Defendant made available to its sales force 10,000 channel cards and 50,000 tear off pads, each pad having twenty-five sheets, to be placed in supermarkets and other stores selling Chef Boy-ar-dee frozen pizzas. These materials were not made available until June 23, 1970, approximately three months after the promotion had been scheduled to begin. Furthermore, subsequent to June 23, 1970, the point of purchase material was present in some but not all retail stores selling Chef Boy-ar-dee frozen pizzas, and was not uniformly displayed in such stores. One hundred sixty-three Handi Caddies were sold in response to the tear off pads, a rate of response of .013%.

Other media. The only media support other than the advertising on the packaging and the point of purchase material was a split run advertisement in the May 2, 1971, Family Weekly Supplement to certain Sunday newspapers having a combined circulation of approximately 4,000,000. The advertisement appeared in every other Family Weekly Supplement, and consisted of a one-sentence reference to the Handi Caddy offer, without pictures or order blank, as part of a much larger advertisement for Chef Boy-ar-dee products.

The jury in response to special interrogatories submitted by plaintiff, found that defendant had breached the contract in the following respects:

1) the copy appearing on frozen pizza packages did not constitute a reasonable and substantial performance by defendant of the agreement;

2) defendant failed to reasonably and substantially provide point of purchase material promptly after execution of the agreement; and

3) defendant failed to offer the Handi Caddy for sale to the public by other media of its choice at a time and in a manner sufficient to constitute a reasonable and substantial performance of the agreement.

Defendant does not contest liability. It argues, inter alia, that the district court erred in allowing the jury to award damages on the basis of loss of profits, and that there was not substantial evidence to support the award of $340,000 in damages.

I DAMAGES FOR LOSS OF PROFITS

Defendant argued at trial that because plaintiff was a new business, ² which was engaged in producing an untried product and which had previously suffered business losses, the court should not have authorized the jury to award plaintiff any damages for what defendant terms "loss of gross profits." The district court was not persuaded by defendant's position and accordingly instructed the jury that if it found that plaintiff was damaged by the breach, it must award such sum as would compensate plaintiff "for the loss of whatever net gain plaintiff would have made by a fulfillment of the contract." (emphasis added).

We agree with the district court that under Missouri law there is no per se rule that a so-called "new" business may not, regardless of the facts and circumstances, recover for loss of net profits or net gain. The question of the recovery of lost profits has been the subject of much litigation. It is discussed in 22 Am.Jur.2d, Damages § 171, at 242, as follows:

There are, however, three general principles which the courts apply to determine when lost profits will be allowed as compensation: (1) In both tort and contract actions, lost profits will be allowed only if their loss is proved with a reasonable degree of certainty. (2) In both contract and tort actions, lost profits will be allowed only if the court is satisfied that the wrongful act of the defendant caused the loss of profits. (3) In contract actions, lost profits will be allowed only if the profits were reasonably within the contemplation of the defaulting party at the time the contract was entered into.

(footnotes and citations omitted).

The Supreme Court of Missouri has held that while the general rule is that anticipated profits of a commercial business are too remote and speculative to warrant a judgment for their recovery, they may be recovered when "they are made reasonably certain by proof of actual facts, with data for a rational estimate of their amount". Anderson v. Abernathy, 339 S.W.2d 817, 824 (Mo.1960).

We recognize that a distinction is to be made between claims for profits derived from a new business venture and those derived from a going concern. A new business labors under a greater burden of proof in overcoming the general rule that evidence of expected profits is too speculative, uncertain, and remote to be considered and does not meet the legal standard of reasonable certainty. See 22 Am.Jur.2d, Damages § 173, at 245; cf. LaBore v. Clark Oil & Refining Corp., 524 S.W.2d 183 (Mo.App.1975); United Iron Works, Inc. v. Twin City Ice & Creamery Co., 317 Mo. 125, 295 S.W. 109, 113 (1927); Gray v. Wabash R. R., 220 Mo.App. 773, 277 S.W. 64 (1925). It does not follow, however, that a so-called "new" business can never recover lost profits as an item of damages for breach of contract. In the final analysis, the question...