Phelps v. THOMAS J.
| Decision Date | 29 October 2010 |
| Docket Number | Cause No. CV200800174,2 CA-CV 2010-0052 |
| Parties | J.A. PHELPS, D.V.M. and KATARINA S. PHELPS, husband and wife, Plaintiffs/Appellants, v. THOMAS J. GILBRAITH and AUDREY J. WYSTRACH, D. v. M., husband and wife, Defendants/Appellees. |
| Court | Arizona Court of Appeals |
NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24
Not for Publication Rule 28, Rules of Civil Appellate Procedure
¶1 J.A. Phelps and Katarina S. Phelps appeal from the judgment awarding them nominal damages of $100 in their declaratory judgment and breach of contract action against appellees Audrey J. Wystrach and Thomas J. Gilbraith. Because the facts relevant to this appeal concern only J.A. Phelps's and Audrey Wystrach's conduct, we refer to them as individuals throughout this decision. Phelps argues on appeal that the trial court erred in denying his motion for new trial and in declining to award him attorney fees pursuant to A.R.S. § 12-341.01. We affirm the award of nominal damages, but vacate the judgment and remand for the court to reconsider the attorney fees issue.
¶2 "We view the record in the light most favorable to upholding the trial court's decision."1Duwyenie v. Moran, 220 Ariz. 501, ¶ 2, 207 P.3d 754, 755 (App. 2009). On August 16, 2004, Wystrach sold Phelps her Sonoita-based veterinary practice. The sale contract included a covenant not to compete that precluded Wystrach from engaging in the practice of veterinary medicine for five years within a forty-mile radius of Sonoita and to refrain from providing veterinary service to former customers of thepractice. The agreement also required Wystrach to recommend Phelps as her successor to existing customers.
¶3 Nelson Farms, located in Tucson, is a breeder, boarder, and trainer of show horses. As part of its services, it facilitates the provision of veterinary care for its clients' horses. Nelson Farms permits its clients to use any veterinarian, but if a client has none, then Nelson Farms will use one of several veterinarians located in Tucson with whom it has a preexisting relationship. After signing the sale agreement, Wystrach, who lived in Tucson, provided veterinary services to Nelson Farms at its request. According to Trish Nelson, Nelson Farms' principal, it would not have used Phelps for veterinary services had Wystrach been unavailable. She explained that Nelson Farms had preexisting relationships with other Tucson-based veterinarians, would have had no reason to use a Sonoita-based veterinarian, and used Wystrach both because she lived in Tucson and was a friend.
¶4 In April 2008, Phelps sued Wystrach, asserting claims for declaratory judgment and breach of contract based on her alleged violation of the sale contract's non-compete clause. He sought both damages and an order enjoining Wystrach from continuing to practice veterinary medicine in violation of that clause. Phelps filed a motion for partial summary judgment, asserting the non-compete clause was valid and binding and Wystrach had breached it by providing services to Nelson Farms. Wystrach also sought summary judgment, asserting she had not violated the sale contract's non-compete provision and, in order for Phelps to show damages, he had to demonstrate his lost profits with reasonable certainty.
¶5 The trial court granted Phelps's partial motion for summary judgment. The court also granted, in part, Wystrach's motion for summary judgment, concluding the parties did not dispute Phelps had to show damages by proving he had lost profits as a result of Wystrach's breach. After a two-day bench trial solely on the issue of damages, the court, relying in part on Nelson's testimony, found Phelps had failed to prove damages. The court entered a judgment on August 7, 2009, enjoining Wystrach from providing veterinary services "to Nelson Farms or the clients of Nelson Farms until after August 17, 2009," and awarding Phelps $100 in nominal damages. The court also determined that, because Phelps had prevailed "on the issue of... breach of the [sale] Agreement" and Wystrach had prevailed "on the damages issues," "each party was partially successful and partially unsuccessful." It therefore ordered that "each party shall be responsible for [its] own attorney's fees and court costs."
¶6 Phelps then filed a motion for a new trial. After oral argument, the trial court affirmed its August 7 findings of fact and conclusions of law, but agreed with Phelps that he was entitled to his costs. The court then entered an amended judgment awarding Phelps his taxable costs. This appeal followed.
¶7 Phelps first argues the trial court erred in denying his motion for a new trial and awarding him only nominal damages. We review for an abuse of discretion a court's denial of a motion for a new trial. White v. Greater Ariz. Bicycling Ass'n, 216 Ariz. 133, ¶ 6, 163 P.3d 1083, 1085 (App. 2007). Phelps contends the court erred "in determining damages based solely on [Nelson's] testimony." Relying on Gann v. Morris, 122 Ariz. 517, 596 P.2d 43 (App. 1979), he asserts a court may not consider a customer's testimony in assessing damages for the breach of a covenant not to compete, and the court here should have based its damages evaluation instead on the services Wystrach had provided in violation of the agreement, together with the testimony of both the parties to the agreement. In Gann, we summarily affirmed the trial court's damages finding, stating it was "supported by invoices for sales made in violation of the agreement, and testimony of both buyer and seller as to average cost and profits per sale," concluding the trial court had properly "limited its award to the lost profits specifically established by such evidence." 122 Ariz. at 519, 596 P.2d at 45. Nothing in Gann limits to invoices and the testimony of the parties to the agreement the evidence a trial court may consider in evaluating whether a party has demonstrated lost profits.
¶8 Phelps contends, however, that Nelson's testimony was irrelevant to the issue of lost profits.2 He reasons that, because the trial court properly found "a customer's wishes... irrelevant" to the issue of whether Wystrach had violated the non-compete clause, her testimony was equally irrelevant to the issue of damages. This argument is unavailing. We agree that whether Nelson Farms would have used Phelps for veterinary services is irrelevant to whether Wystrach had violated the contract's non-compete clause—customers were not excepted from its provisions. But such evidenceplainly is relevant to whether Wystrach's breach caused Phelps to sustain lost profits. If a customer would not have used Phelps for veterinary services regardless of Wystrach's breach, Phelps cannot reasonably argue he lost profits he otherwise would have earned by providing services to that customer.
¶9 Phelps cites numerous cases for the proposition that the breaching party's income earned in violation of a non-compete clause may form a basis for calculating damages caused by that violation. But, "[g]enerally, damages for breach of contract are those proximately caused by the breach, or which are within the contemplation of the parties at the time they entered into the contract." Home Indem. Co. v. Bush, 20 Ariz. App. 355, 360, 513 P.2d 145, 150 (1973). None of the authority Phelps cites suggests that, when a defendant has breached a covenant not to compete, a plaintiff is relieved of the burden of proving his or her damages were caused by that breach. Indeed, the cited authority is to the contrary. See, e.g., McNutt Oil & Refining Co. v. D'Ascoli, 79 Ariz. 28, 32-33, 281 P.2d 966, 969-70 (1955) (); Martin v. La Fon, 55 Ariz. 196, 199, 100 P.2d 182, 183 (1940) (); Dunn v. Ward, 670 P.2d 59, 61 (Idaho App. 1983) (); N. Pac. Lumber Co. v. Moore, 551 P.2d 431, 435-46 (Or. 1976) ().
¶10 Here, there was uncontroverted evidence Nelson Farms would not have used Phelps irrespective of Wystrach's availability. And Phelps does not identify anything in the record suggesting any of Nelson Farms's customers would have chosen Phelps as their veterinarian had Wystrach been unavailable or even if Wystrach had, pursuant to the sale agreement, recommended Phelps to them as a veterinarian. Phelps stipulated in the parties' joint pretrial statement that "[t]he proper measure of [his] damages is [his] lost profits proven with reasonable certainty." Lost profits are usually the "'direct and natural result'" of the defendant's breach. Drew v. United Producers & Consumers Coop., 161 Ariz. 331, 333, 778 P.2d 1227, 1229 (1989), quoting Myers v. Stephens, 43 Cal. Rptr. 420, 433 (Ct. App. 1965). There was no evidence from which the trial court reasonably could conclude Phelps would have earned additional profits but for Wystrach's breach.3 Thus, we find no error in its conclusion that Phelps failed to meet his...
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