Kinetico, Inc. v. Independent Ohio Nail Co., s. 47464
| Decision Date | 04 September 1984 |
| Docket Number | Nos. 47464,47476,s. 47464 |
| Citation | 19 OBR 92,19 Ohio App.3d 26,482 N.E.2d 1345 |
| Parties | , 19 O.B.R. 92 KINETICO, INC., Appellee, v. INDEPENDENT OHIO NAIL CO., D.B.A. Spencer Products Co. et al., Appellants. |
| Court | Ohio Court of Appeals |
Syllabus by the Court
1. Proof of lost profits must be reasonably certain and may not be speculative. Where conclusory evidence of lost profits is presented, without supporting information explaining how the profits were calculated, there is insufficient evidence of such lost profits.
2. Damages for goodwill may not be recovered where no expert witness presented evidence on the amount of goodwill lost. Although an exact calculation is not required, evidence on the method applied to calculate goodwill damages is necessary.
3. Incidental damages resulting from a seller's breach may be awarded only if there is some evidence on the manner in which these damages were calculated, including a breakdown of the costs of the components of such damages. A company employee may not simply testify that an estimated lump sum is the amount of damages.
4. Where a substantially incorrect figure on an item of damages based on an error in computation is presented to the jury, that figure cannot be corrected in plaintiff's closing argument, without a stipulation with opposing counsel and approval by the court.
Conway, Barclay, Deyo & Kurant Co., L.P.A., Donald K. Barclay and Michael K. Rode, Cleveland, for appellee.
Thompson, Hine & Flory, Michael M. Hughes and Paul N. Harris, Cleveland, for appellant Independent Ohio Nail Co.
Gallagher, Sharp, Fulton & Norman, John B. Robertson and Thomas J. Kaiser, Cleveland, for appellant Indus. Retaining Ring Co.
Plaintiff-appellee Kinetico, Incorporated (hereinafter "Kinetico") filed suit for breach of contract and breach of warranty against two defendants-appellants. Defendant-appellant Industrial Retaining Ring Company (hereinafter "IRR") is the manufacturer of a certain type of ring used by Kinetico in producing water softeners. Defendant-appellant Independent Ohio Nail Company, d.b.a. Spencer Products Company (hereinafter "Spencer") was the distributor and seller of this ring to the plaintiff. After a jury trial, Kinetico was awarded $550,000 in damages against both defendants-appellants.
Kinetico is an Ohio corporation founded in 1970, which began selling water softeners in 1973. Annual sales increased from fifteen hundred in 1975 to seventeen thousand in 1982. Through dealers, Kinetico sells its water softeners to consumers in almost every state and in Canada.
Assembly of Kinetico's water softener requires the installation of a certain type of retaining rings, known as "e-rings." Kinetico had been buying all of its e-rings from Bearings, Inc., a distributor located in Painesville who purchased them from Waldes Retaining Rings, the manufacturer. However, in January 1979, Waldes was faced with production problems (a strike) and Bearings, Inc. was no longer able to fill Kinetico's orders for e-rings.
Earlier (in 1978), Randy Reitnour, a salesman from Spencer, informed Kinetico that Spencer could supply Kinetico with e-rings that were comparable to the Waldes e-rings. Thus, in January 1979, faced with the inability of obtaining the e-rings from its regular supplier (Bearings, Inc.), Kinetico ordered (through Spencer) twenty thousand e-rings from IRR. A second order for twenty-five thousand e-rings for $450 was lodged in February 1979 and placed into production in March 1979.
In either March or April 1979, Kinetico assemblers began to experience cracking of the e-rings when they were inserted into the water softeners. In late April or early May 1979, Kinetico received reports from some dealers that upon investigating failed water softeners, they noticed that the e-rings were either cracked or missing. When Kinetico linked this problem to the use of the e-rings from the second shipment of IRR e-rings, Kinetico pulled the remaining e-rings (from the second order) out of production.
As additional complaints arrived, Kinetico's dealers ordered fewer water softeners. According to Kinetico's vice president, sales dropped sharply. Kinetico also received valves returned for repair or replacement due to e-ring failure. Kinetico repaired some units and replaced others, incurring shipping and handling expenses as well as additional labor costs. Employees of Kinetico were flown to dealers in other states, to repair the water softeners in stock as well as those already sold to customers. Kinetico also incurred expenses for long distance phone calls and letters on complaints about defective e-rings. Kinetico's vice president testified that he believed his company had experienced a loss of goodwill but no dollar figure or estimate was allocated to this particular claim of damages.
The jury returned a verdict against both defendants-appellants for $550,000. 1 After this verdict, IRR filed motions for judgment notwithstanding the verdict, for a new trial, and for a remittitur of damages, while Spencer filed a motion for a new trial. All motions were based on the alleged excessiveness of the damages and all were denied. Neither appellant has appealed the issue of liability; only the amount of damages has been challenged.
Appellant Spencer has cited four assignments of error, 2 while appellant IRR has assigned two. Issues common to both appellants are addressed together.
Appellant Spencer's Assignment of Error No. 1:
Appellant IRR's Assignment of Error No. 2:
Appellants argue that the trial court erred in receiving evidence of lost profits because it was unsupported and unreliable. We find insufficient evidence on two components of this item of damages: the sales quotas and the figure used as the net profit on each water softner.
The vice president of Kinetico, James Kewley, testified that while the annual sales of water softeners had increased steadily from fifteen hundred in 1975 to seventeen thousand in 1982, the monthly sales in 1979 began dropping sharply in June, after the problem of defective e-rings was reported by dealers and consumers. Kewley testified that his company had developed sales quotas for each month in 1979, and that until June 1979 the actual sales generally exceeded the projected sales:
Projected Sales Actual Sales
January 1,035 1,263
February 1,100 1,054
March 1,205 1,231
April 1,270 1,287
May 1,335 1,302
--------------- ------------
5,945 6,137
According to Kewley, from January to June 1979, Kinetico sold one hundred ninety-two more units than the total projected sales for that period, and beginning in June there was a sharp drop in monthly sales.
Projected Sales Actual Sales
June 1,430 644
July 1,440 847
August 1,495 1,138
September 1,525 1,228
October 1,495 1,091
November 1,415 900
December 1,320 964
--------------- ------------
10,120 6,812
From June to December 1979, Kinetico sold 3,308 fewer units than projected for that period.
In explaining the projected sales, however, Kewley indicated that the above quotas were "established by the sales department" and were based in part on "new areas we were opening." No one from the sales department testified as to how or exactly when these sales quotas were developed:
Kewley's statement that the quotas were referred to him by the sales department does not satisfy the requirement that a witness must testify as to facts within his personal knowledge.
There was no data on performance from prior years when the product was moved into a new territory, nor was there any comparison to monthly sales of years prior to 1979. Thus, there was no evidence indicating that the sales quotas for new territories were beyond speculation.
As to the dollar amount for net profits, Kewley testified on direct examination that the average net margin on each unit was $91.68; however, there was no evidence on how much each water softener cost to produce, and no breakdown of the expenses of production, i.e., parts, labor, overhead, etc. Nor was the jury informed of the price of water softeners. There is only the witnesses' conclusion that $91.68 represents the profit on each unit that would have been sold:
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