Western Energy, Inc. v. Georgia-Pacific Corp.

• Decision Date: 07 December 1981
• Docket Number: GEORGIA-PACIFIC,No. A7808-14203,A7808-14203
• Citation: 637 P.2d 223,55 Or.App. 138
• Parties: WESTERN ENERGY, INC., an Oregon corporation, Respondent, v.CORPORATION, a corporation, Appellant. ; CA 16421.
• Court: Oregon Court of Appeals

Page 223

637 P.2d 223

55 Or.App. 138

WESTERN ENERGY, INC., an Oregon corporation, Respondent, v. GEORGIA-PACIFIC CORPORATION, a corporation, Appellant.

No. A7808-14203; CA 16421.

Court of Appeals of Oregon.

Argued and Submitted June 10, 1981.

Decided Dec. 7, 1981.

T. Leonard O'Byrne, Portland, argued the cause for appellant. With him on the briefs was O'Byrne & Ingalls, Portland

John M. Berman, Portland, argued the cause for respondent. With him on the brief was Spears, Lubersky, Campbell & Bledsoe, Portland.

Before GILLETTE, P. J., and ROBERTS and YOUNG, JJ.

YOUNG, Judge.

The relevant facts of this litigation arose out of an arm's-length business transaction in Louisiana. After negotiations in the fall of 1977 and early 1978, the parties entered Plaintiff alleged a cause of action for breach of contract and a cause of action for misrepresentation. The second cause of action was plead in two counts, i. e., negligent misrepresentation and fraudulent misrepresentation. ¹ The jury awarded plaintiff damages on its cause of action for breach of contract and on its count for negligent misrepresentation. ² On appeal defendant argues that, under the law of Louisiana: (1) it was error under the breach of contract claim to submit the issue of lost profits to the jury, and (2) the negligent misrepresentation count did not state facts sufficient to constitute a cause of action. ³

into an agreement for plaintiff to supply phenolic tar, a waste oil fuel, to defendant for its plant in Port Hudson, Louisiana. The case was tried on the basis that the substantive law of Louisiana applied.

For several years, defendant purchased a major portion of its phenolic tar requirements for fuel for its Port Hudson plant from a company known as Energy Supply, Inc., managed by Lyle Adams. In 1977, defendant's plant was temporarily closed by an explosion and, as a result, defendant had no present need for fuel. Energy Supply, Inc., went out of business when defendant, its principal customer, stopped operating. In August, 1977, Mr. Adams and two other individuals formed the plaintiff corporation for the purpose of selling and delivering propane. When it became known that defendant was going to reopen its plant, plaintiff initiated negotiations to sell and deliver to defendant all of its phenolic tar requirements for the No. 1 lime kiln.

Between October and December, 1977, plaintiff had several conversations with Bob Riha, the defendant's purchasing agent in Louisiana, who had authority to purchase fuel. In December, Riha assured plaintiff that defendant was going to purchase all of its phenolic tar requirements from plaintiff for the kiln for one year. The price was the same as that previously charged by Energy Supply, Inc. In January and February, 1978, Riha essentially reconfirmed defendant's intention to purchase its fuel needs from plaintiff. In reliance on defendant's assurances and with Riha's knowledge, plaintiff proceeded to acquire the necessary equipment, including trucks, to deliver the fuel. Plaintiff also arranged for and committed itself to purchase the fuel from a plant in Texas.

DAMAGES FOR LOSS OF PROFITS

The trial court denied defendant's motion to strike the claim for damages for lost profits. On that issue the parties stipulated that Louisiana law applied. Defendant argues that Louisiana case law precludes recovery of lost profits by a new and untried venture, or, alternatively, if that is not the law, then, and in any event, plaintiff's evidence of anticipated future lost profits was too speculative to submit the issue to the jury.

Defendant cites Tidwell v. Meyer Bros., Ltd., 160 La. 778, 107 So. 571 (1926), for the proposition that in Louisiana a new business cannot recover lost profits. In Tidwell, the plaintiff was engaged in an auto repair business and undertook to lease another building at a new location. The building was condemned before plaintiff moved to the new location. Plaintiff claimed that the new location would have resulted in greater profits. The Louisiana court denied the claim for lost profits because they " * * * are contingent and uncertain and not susceptible of proof with certainty," 107 So. at 575, and not because an untried or new business was involved. We have not been directed to a Louisiana case that has denied lost profits damages because the business was new. Common In Folds v. Red Arrow Towbar Sales, 378 So.2d 1054 (La.App.1979), the court allowed the recovery of lost profits by a new venture. Proof of lost profits is discussed in Folds :

sense dictates that the fact that a new business has no "past history" should not, ipso facto, deny a claim for lost profits. ⁴

"Although the rule has been variously stated, our courts are in general agreement that while damages for lost profits may not be based on speculation and conjecture they need only be proven within a reasonable certainty. * * * However, it is also well recognized that where damage (including loss of profits) and liability are certain and quantum is uncertain, courts are nonetheless required to award damages. * * * Furthermore, in cases where direct evidence is not available to establish the exact extent of loss caused by a breach of contract, resort to customary or foreseeable profit as a measure of damage is proper." (Citations omitted.) 378 So.2d at 1059.

The facts in Folds bear some similarity to the facts in the present case. There, the plaintiff held an exclusive distributorship for defendant's products. The plaintiff incurred expenses in promoting the distributorship, and the defendant refused to live up to its agreement to aid plaintiff in establishing the distributorship and allowed other distributors to compete with the plaintiff. The court allowed a claim for lost profits, noting that the plaintiff had some prior experience in a similar business and that there was some reasonable certainty that the plaintiff was deprived of future profits because of the defendant's refusal to honor the agreement.

In the present case, Adams, plaintiff's president, had been in charge of Energy Supply, Inc., when it was selling fuel to defendant. The anticipated profits from plaintiff's contract with defendant were ascertainable. Defendant agreed to buy all of its fuel needs for the lime kiln for one year at an agreed price. The kiln BTU requirements were known and that permitted the calculation of the amount of fuel needed to produce the required BTUs. With the fuel requirements established and the price of the fuel agreed upon, gross income could be computed, which, less estimated expenses, would produce the anticipated net profit. Plaintiff's evidence under the standard of "reasonable certainty" articulated in Folds was sufficient. ⁵

We conclude that the law of Louisiana permits the recovery of damages for lost profits of a new business venture when the profits may be projected and proven with "reasonable certainty." The trial judge properly denied defendant's motion to strike.

NEGLIGENT MISREPRESENTATIONS

Defendant charges it was error for the trial court to rule that the law of Louisiana recognized a cause of action for the tort of negligent misrepresentation and overruled defendant's demurrer.

The narrow issue is whether Louisiana recognizes a cause of action for negligent misrepresentation between parties negotiating at arm's-length in a business or commercial setting. The elements of negligence in Louisiana are a duty, its breach, and damages resulting from the breach. Callais v. Allstate Ins. Co., 334 So.2d 692 (La.1976); Pence v. Ketchum, 326 So.2d 831 (La.1976). The gist of defendant's argument is that it owed no duty to plaintiff.

The Louisiana Supreme Court's first opportunity to consider a cause of action for negligent misrepresentation arose in Devore v. Hobart Mfg. Co., 367 So.2d 836 (La.1979). (The intermediate appellate court had held there was no cause of action for negligent misrepresentation in Louisiana. Devore v. Hobart Mfg. Co., 359 So.2d 1108, 1110 (La.App.1978)). In Devore, an employe of a school was injured by defective equipment in the school kitchen. Her attorney asked the school for the name of the manufacturer. The school mistakenly gave the name of the wrong manufacturer. When the attorney discovered the mistake, the statute of limitations had run against the actual manufacturer. The employe sued the school for negligent misrepresentation. A majority of the court affirmed the lower court but held that there exists under the statutory law of Louisiana a cause of action for negligent misrepresentation. 367 So.2d at 839. The court did not delineate the circumstances or the extent to which Louisiana law permits the cause of action but did discuss some of the essential elements, relying in part on Restatement (Second) of Torts § 552. ⁶ The lower court had held that plaintiff had failed to meet the "pecuniary interest" test of the Restatement. The Supreme Court adopted a narrower view when it held that a defendant must have an independent legal duty to supply correct information. 367 So.2d at 839. The court found that the required duty was not shown to exist in the employer-employe relationship.

After the intermediate appellate court decision and before the Supreme Court decision in Devore, Texasgulf, Inc. v. United Gas Pipe Line, 471 F.Supp. 594 (D.D.C.1979) was decided. In that case, a buyer of natural gas sought damages against the seller for breach of contract, negligent misrepresentation and breach of fiduciary duty. The buyer contended that the seller negligently misrepresented its gas reserves when the seller knew or should have known the reserves were inadequate. The court noted that the buyer had not established that the seller had stated anything more than a promise or a prediction of future events. The court found, based on the lower court's decision in Devore, that Louisiana did not recognize a cause of action for negligent misrepresentation. The court expanded its...