United States District Court, W.D. Pennsylvania
October 7, 2005.
KIRK BRISBIN d/b/a SPECIALTY MANUFACTURING Plaintiff
SUPERIOR VALVE COMPANY Defendant.
The opinion of the court was delivered by: FRANCIS CAIAZZA, Chief Magistrate Judge
In this diversity action filed pursuant to 28 U.S.C. § 1332 and
before this court on remand, Kirk Brisbin, the owner and sole
employee of Specialty Manufacturing, seeks damages from Superior
Valve Co. ("Superior"),*fn1 for the anticipatory breach of
three contracts which obligated Superior to buy industrial parts
made in Korea on behalf of and sold by Specialty. The court is
well acquainted with this matter, having conducted a six day
bench trial in January 2002. At the conclusion of that trial, the
court found in favor of Specialty with respect to the breach of
the two written contracts, assessing lost profit damages in the
amount of $746,675.00. The court also awarded damages in connection with a third (oral) agreement,*fn2 finding that
Specialty was entitled to $12,200 based on the doctrine of
promissory estoppel. Both parties appealed to the Court of
Appeals for the Third Circuit. Superior contested this court's
findings with respect to liability and its assessment of damages
for lost profits. In its cross appeal, Specialty argued that it
was entitled to prejudgment interest on the damage award, and to
damages for lost profits on the oral contract. In Brisbin v.
Superior Valve Co., 398 F.3d 279 (3d Cir. 2005), the Court of
Appeals affirmed this court's finding that Superior had breached
the written contracts, and did not disturb the assessment of
reliance damages with respect to the oral contract. The Court of
Appeals did, however, reverse this court's calculation of lost
profits damages, concluding that the award was too speculative
and should be reexamined on remand.
Following a meticulous review of the record in light of the
Court of Appeals' identification of questions to be resolved on
remand, this court is constrained to conclude that the record
cannot support the award of damages for lost profits. The court
must also decline Specialty's invitation to consider the
availability of reliance damages as an alternative to lost
profits damages. The record establishes that this issue was not
raised on appeal and was waived as a result. The court will, however, calculate prejudgment (and postjudgment) interest on the
award of reliance damages already made.
Because the parties are familiar with the facts as recounted at
trial and in earlier opinions, the court will move directly to
the tasks placed before it by the Court of Appeals, referring to
the facts only as necessary to provide context for its
conclusions of law.
A. Lost Profits
The parameters of Pennsylvania law regarding recovery of lost
profits for breach of contract are clear. Lost profits are
available to the wronged party as an element of consequential
damages. National Controls Corp. v. National Semiconductor
Corp., 833 F.2d 491, 495 (3d Cir. 1997) (citing 13 PA. Cons.
Stat. § 2714(c)). The injured party bears the burden of
establishing entitlement to and the extent of lost profits.
Delahanty v. First Pa. Bank, N.A., 464 A.2d 1243, 1257.
(Pa.Super. 1983). In order to satisfy that burden, the injured party
must demonstrate that evidence in the record is sufficient to
establish the extent of damages with reasonable certainty.
Advent Systems, Ltd. v. Unisys Corp., 925 F. 2d 671, 680 (3d
Cir. 1991) (citing Delahanty, 464 A.2d at 1258). Although
mathematical precision is not required, there must be evidence
from which damages can be calculated without engaging in
speculation. Advent, 925 F.2d 681. Typically, the extent of
lost profits may be established by reference to evidence of past
profits, profits made by others similarly situated, or through expert testimony. Massachusetts
Bonding & Ins. Co. v. Johnston & Harder, Inc., 343 Pa. 270
Calculating the amount of lost profits in this matter was
problematic. Because Specialty was a relatively new venture, it
did not have a history of engaging in business of the type
transacted here; there was no established course of dealing
between Specialty and Superior. Furthermore, Specialty did not
offer evidence relating to general practice in the industry, or
expert testimony bearing on damages. Recognizing, however, that
Specialty had been injured, and that Brisbin had expended
substantial effort to salvage the Specialty-Superior relationship
in the face of Superior's almost total failure to cooperate, this
court attempted to make Specialty whole by calculating its lost
profits with respect to the most concrete evidence in the record.
The court considered the shell contract first, concluding that
Specialty was entitled to lost profits totaling $585,425.00. This
figure was derived by determining Specialty's cost of
manufacturing the shells, $228,525.00 for a full year of
production, and subtracting that cost from the amount that
Superior was obligated to pay, $345,610.00, for the same year.
The court concluded that Specialty's profit for each of the five
years of the shell contract would have been $117,085.00, bringing
total lost profits on this contract to $585,425.00.
Lost profits on the 1065 valve contract were similarly determined. Superior committed to pay Specialty $246,250 during
the first year of the contract. Specialty's manufacturing costs
were $192,500.00, leaving a one year profit of $53,750.00. This
amount was multiplied by three years, the term of the contract,
for a total lost profits award of $161,250. Concluding that these
awards were sufficiently certain to satisfy the requirements of
Pennsylvania law, this court noted that it had ascertained the
awards based on the only evidence in the record pertaining to
pricing, i.e., the prices fixed in the contracts signed by the
The Court of Appeals determined that these lost profits
calculations were flawed: "[A]s of the date of Superior's breach
(approximately fifteen months into the contracts), Specialty had
not yet begun full-time production on either the 1065 valves or
any of the shells." Brisbin, 398 F.3d at 290. As a result, the
Court of Appeals concluded that it was unreasonable for this
court to have extended the contracts beyond their expiration
dates to allow Specialty to recover "its full expectation
interest." Id. The following observation made by the Court of
Appeals is well taken:
The contracts neither provide for development time
nor guarantee a minimum of full time production.
Sympathy aside, it is axiomatic that a court may not
rewrite the clear provision of a contract to make it
more reasonable or to protect a party against an
Id. Despite this error in awarding Specialty full expectation
damages, the Court of Appeals stated that Specialty might yet be
entitled to the recovery of lost profits provided that the record
made at trial contained specific evidence regarding the date upon
which each contract item would have gone into full time
production. The Court wrote that if Brisbin could establish "the
date full-time production would have begun for each project, he
[could] recover lost profits for the valves and shells from that
date through May 27, 2001 and May 27, 2002, respectively." Id.
On remand, this court has been directed to examine the record
in order to determine whether a date for full-time production of
valves or shells can be ascertained. The court has undertaken
this review of the record, and does not find any way to identify
a definite production date for any of the contract items. In
fact, the court is convinced that it would be impossible for
Specialty to establish this date even if the record could be
First, as the court has noted, Specialty has never before
undertaken work of this type and cannot rely upon its course of
performance to fix a production date. Furthermore, Specialty had,
at best, only some control over delays in the production
process. Much of the delay was ultimately attributable to
Superior's imposition of additional testing requirements, its
failure to specify alleged deficiencies in the samples produced,
its claim to have lost approvals and test results, and its overall refusal to communicate effectively with Specialty. Under
the terms of both contracts, which heavily favored the drafter,
Superior, production of the 1065 valves or shells could have been
delayed indefinitely. As even Specialty admits in its Memorandum
of Law Following Remand, "[T]he time period that full production
would have begun [under either contract] is difficult to
determine. (Memo at 2).
According to the Court of Appeals' analysis, determining a date
of production for each product is essential to the calculation of
a lost profits award. Given all of the variables affecting
Specialty's ability to produce a finished product, the court is
convinced that establishing a definite production date is
impossible. This inability to fix even one date of production is
entirely fatal to Specialty's claim for lost profits. We need not
reach the other questions posed by the Court of Appeals. For
example, whether Specialty's Korean subcontractor would have been
able to source component parts necessary for the manufacture of
the 1065 valves is irrelevant. Even had a reliable source been
identified in the record, Specialty would not be able to
establish a definite date of production.
The same is true for the other issues which the Court of
Appeals asked this court to consider on remand: "when, [if ever]
the valves could have met Superior's quality control
requirements," Brisbin, 398 F.3d at 292, whether lost profits
damages for breach of the 1065 contract should have been
determined using a valve sales estimate of 8-10,000 instead of the 25,000 originally contemplated, and whether Superior had
granted First Article approval for 4" or 5" shells. Id.
Regardless of how these questions are answered, the record will
not establish when production of any of the valves or shells
would have begun. Accordingly, the court must conclude, as the
Court of Appeals predicted, that the record does not establish
lost profits with the requisite certainty. Lost profits cannot
comprise any part of a damage award in this case.
B. Availability of Reliance Damages as an Alternative to the
Award of Lost Profits
Anticipating that this court's award of lost profit damages for
breach of the written contracts could not survive on remand,
Specialty, in its Reply Brief on Remand, contends that: "If the
Court finds that the evidence cannot establish when full-time
production of the P-1065 valves and shells would have commenced,
Brisbin is entitled to his reliance damages." (Br. at 3).
Under general principles of contract law, damages for breach of
contract are assessed according to three alternative theories:
loss of profits or expectation damages; reliance damages; and
restitution. Trosky v. Civil Service Comm'n, City of
Pittsburgh, 539 Pa. 356, 363 (1995). The Court of Appeals has
described the difference between expectation damages and reliance
damages as follows:
Although expectation damages, or damages for lost
profits, are preferred, where a court cannot measure
lost profits with certainty, contract law protects an
injured party's reliance interest by seeking to achieve the position
that it would have obtained had the contract never
been made, usually through the recovery of
expenditures actually made in performance or in
anticipation of performance.
ATACS Corp. v. Trans World Communications, Inc., 155 F.3d 659
669 (3d Cir. 1998).*fn3
Because its lost profits cannot be determined, Specialty asks
that it be reimbursed for substantial expenditures made in
reliance on the written contracts. Reluctant though this court
may be to deny Specialty's entitlement to reliance damages
especially since there is no doubt that Specialty incurred
significant development and preparation expenses in connection
with the 1065 and shell contracts it must do so. That the court
is sympathetic to the situation in which Specialty finds itself,
and is aware that the unavailability of reliance damages appears
to work a hard result, the court is convinced that Specialty
waived any entitlement to reliance damages by failing to preserve
on appeal its claim to reliance damages as an alternative to
damages for lost profits.
The law governing which issues remain viable following an
appeal and remand simply is not elastic enough to cover the
somewhat unusual situation presented here. In reaching this
conclusion, the court has taken into account every part of the
record before it, reviewing in detail the notices of appeal, the appellate briefs, the instructions articulated by the Court of
Appeals and, of course, the law. Each of these factors supports
the finding that Specialty's request for reliance damages as an
alternative to lost profits came too late.
During and immediately following trial, Specialty sought to
convince this court that it was entitled to lost profits and
reliance damages on each of the three contracts alleged to have
been breached. Recognizing that lost profits and reliance damages
are alternative remedies, the court awarded only damages for lost
profits in connection with the written contracts, and only
reliance damages pursuant to the oral agreement.
Superior then appealed and Specialty cross appealed. Each party
filed a general notice of appeal challenging this court's final
judgment and all of the prior orders and judgments in this case.
The parties next filed appellate briefs. Nowhere in that exchange
of briefs did Specialty contend that it was entitled to reliance
damages for breach of the written contracts either in addition to
lost profits or in the alternative. It argued instead that this
court's original assessment of lost profits should be affirmed.
The Court of Appeals reached a similar conclusion, summarizing
the issues delineated by Specialty on appeal as follows:
"Specialty raises two issues on cross-appeal. First, it argues
that lost profits, not just reliance damages, are recoverable
for the in-line valves project. Second, it claims it is
entitled to prejudgment interest on the damages awarded in its favor [at trial]. Brisbin, 398 F.3d at 286 (emphasis added).
Clearly, Specialty asked that the Court of Appeals award lost
profits and reliance damages pursuant to the oral agreement. It
is unclear why it did not ask that reliance damages be calculated
to supplement the award of lost profit damages on the written
contracts, or as an alternative measure of damages should the
lost profits award be reversed.
Fed.R.App.P. 28(a)(5),(9) and (10) requires that in order to
have a claim considered, the appellant is required to list the
issues raised on appeal, present an argument in support of them,
and set forth a short conclusion stating the "precise relief
sought." The Court of Appeals has stressed the importance of
framing issues clearly and thoroughly, writing:
We have repeatedly emphasized that failure to raise a
theory as an issue on appeal constitutes a waiver
because consideration of that theory would vitiate
the requirement of the Federal Rules of Appellate
Procedure and our own local rules that, absent
extraordinary circumstances, briefs must contain
statements of all issues presented on appeal,
together with supporting arguments and citations.
I.R.S. v. Gaster, 42 F.3d 787
, 792 (3d Cir. 1994) (quoting
International Raw Materials, Ltd. v. Stauffer Chem. Co.,
978 F.2d 1318
, 1327 n. 11) (3d Cir. 1992)).
Specialty does not contend and this court cannot fathom that
special circumstances prevented it from raising this issue at the
outset of the appellate process. Specialty attempts to avoid the
clear import of the rules and the case law by stating that
questions relating to reliance damages were posed by the Court of Appeals at oral argument. Specialty buttresses this argument by
contending that the Court's opinion directs this court to
evaluate the availability of reliance damages. Neither of these
arguments has merit.
First, Specialty has neglected to provide this court with
transcripts of any colloquy with the Court of Appeals relevant to
reliance damages under the written contracts. We would expect
that there was some discussion of reliance damages in the context
of the oral agreement, but have no way of knowing whether the
written contracts were implicated. Furthermore, the court does
not read the opinion of the Court of Appeals to direct or even
hint that analysis of reliance damages as an alternative to
damages for lost profits was contemplated.
The Court of Appeals' opinion is very specific. It is
absolutely clear that this court was directed to re-examine the
lost profit awards. The Court provided detailed questions to be
asked and answered during that re-examination. In contrast, the
Court of Appeals' discussion of reliance damages was brief and
was confined to the oral agreement: "[T]he Magistrate Judge held
that the evidence was insufficient to award lost profit damages
for the in-line valves project, but awarded reliance damages
instead." Brisbin, at 285.
The only other reference to reliance damages is set forth in
the final section of the Court of Appeals' opinion addressing the
availability of prejudgment interest. There, the Court wrote:
As set out above, the Magistrate Judge should award lost profits on remand only if he makes findings as
to when production for the 1065 valves and the shells
would have begun. If those findings can be made,
prejudgment interest may be calculated based on
prorated monthly production figures (derived from
findings as to annual production amounts). But if no
lost profits are awarded, Specialty would be entitled
to prejudgment interest on its reliance damages,
beginning on the date of contract repudiation.
Id., at 294 (citing Fernandez v. Levin, 519 Pa. 375, 379
(1988)). Specialty clings to this proverbial slender reed in an
attempt to convince this court that the availability of reliance
damages for breach of the written contracts was not waived.
Relying on that final paragraph in the Court of Appeals' opinion,
Specialty argues that the language used "expressly" or impliedly
requires that Specialty be given reliance damages where lost
profit damages are too speculative.
This court is not persuaded by this argument. When it wanted
this court to act on remand, the Court of Appeals spoke clearly.
Its instructions were detailed and unequivocal. There is no
corresponding clear direction with respect to reliance damages.
We are convinced that the only references to reliance damages
made by the Court of Appeals were made in the context of the oral
agreement. More fundamentally, this court, taking into account
the entire record, seriously doubts that the Court of Appeals was
even aware that Specialty was seeking reliance damages for breach
of the written contracts.*fn4 The court does not believe that it was directed to calculate reliance damages
attributable to the written contracts. Furthermore, any
assessment of reliance damages based on the record as it stands
would be at least as specultive as the award for lost profits.
Accordingly, the court will not consider this issue further.
C. The Award of Interest
The parties do not contest that Specialty is entitled to
reliance damages related to the oral agreement. The Court of Appeals held that Specialty is also entitled to prejudgment
interest on that total. There is some confusion in the record
regarding the amount of Specialty's reliance award. Different
totals appear in different documents, sometimes without
explanation. On appeal, Specialty claimed $14,827.90 in reliance
damages, and Superior contends that reliance damages should be
capped at that amount. Because the court is convinced that the
$14,827.90 figure can be supported by evidence in the record, it
will fix Specialty's reliance damages at that amount, increased
by $2,542.27 in prejudgment interest calculated from the date of
breach, September 8, 1999. We have also calculated and included
postjudgment interest in the amount of $3,363.63 accruing from
the date of the original judgment, July 17, 2002. Specialty is
owed a total of $20,733.80.
It is a rare case indeed in which a plaintiff who has
undeniably suffered injury as a result of another's breach of a
written contract does not have a remedy against the party who has
wronged him. After reviewing the state of the record pertaining
to damages, however, the court regrets, but is convinced that
this is one of those rarities.
For the foregoing reasons, it is hereby ORDERED that the
Defendant remit to the Plaintiff forthwith, total damages in the
amount of $20,733.80. The Clerk is directed to mark this case closed.
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