Atlantech Incorporated v. American Panel Corporation ( 2014 )

United States Court of Appeals
For the First Circuit
Nos. 13-1437
13-1513
13-1514
ATLANTECH INCORPORATED,
Plaintiff, Appellant/Cross-Appellee,
v.
AMERICAN PANEL CORPORATION, APC AQUISITION CORPORATION
INCORPORATED, and UNIVERSAL AVIONICS SYSTEMS CORPORATION,
Defendants, Appellees/Cross-Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, District Judge]
Before
Selya, Stahl, and Lipez,
Circuit Judges.
Irwin B. Schwartz, with whom Nicholas R. Cassie and BLA
Schwartz, PC were on brief, for Atlantech, Inc.
Michael J. King, with whom John F. Farraher, Jr. and Greenberg
Taurig, LLP were on brief, for American Panel Corporation and
Universal Avionics Systems Corporation.
John A. Christy, with whom Michelle Roback Kraynak, Schreeder,
Wheeler & Flint, LLP, Justin P. O'Brien, and Collora LLP were on
brief, for APC Acquisition Corporation, Inc.
February 20, 2014
STAHL, Circuit Judge. Plaintiff Atlantech Incorporated
("Atlantech") filed a seven-count amended complaint against
Defendants American Panel Corporation ("APC"), APC Acquisition
Corporation, Inc. ("APC Acquisition"), and Universal Avionics
Systems Corporation ("Universal") (collectively, "Defendants")
asserting claims related to the alleged breach of various
agreements involving the sale of aviation equipment. After a jury
trial, the parties filed post-trial motions, which the district
court resolved partially in favor of Atlantech and partially in
favor of Defendants. Atlantech appeals and Defendants cross-
appeal. We affirm.
I. FACTUAL BACKGROUND
Atlantech was a dealer of aircraft LCD displays and APC
was its primary product supplier. Pursuant to an August 2002
agreement, Atlantech was the exclusive vendor to Ulyanovsk
Instrument Manufacturing Design Bureau ("UIMDB"), which integrated
the displays into its own product for use in aircraft instrument
panels. On December 2, 2003, APC, operating at the time as a
division of Universal, entered into a Memorandum of Agreement with
Atlantech for the sale of 103 1040-100 AMLCD displays ("1040 MOA").
At the same time, APC and Atlantech reached a Non-Circumvention
Agreement ("NCA") preventing APC from conducting direct business
with UIMDB for two years after the last completed transaction
between APC and Atlantech.
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The 1040 MOA required APC to "support" the product
through December 31, 2012 ("Support Agreement"); the parties
dispute the meaning of the word "support" in the context of this
provision. The Support Agreement further required APC to maintain
"Data Warehouse Documents" recording the intellectual property
necessary for the production and repair of the displays. In the
event that APC discontinued the product, the Support Agreement
obligated APC to provide those documents to Atlantech. The 1040
MOA also exempted Defendants from liability for "consequential,
incidental, indirect, special or punitive damages," including "lost
profits" and "cost of replacement goods."
APC stopped producing 1040-100 displays in 2004. To
obtain "form, fit, and function replacements" for the discontinued
model, Atlantech purchased two hundred 1040-725 displays in
February 2006 ("2006 Purchase Order"). APC did not deliver any
displays under the 2006 Purchase Order. Under a separate purchase
agreement, APC eventually did deliver fifteen 1040-725 displays.
According to subsequent communications between Atlantech and APC,
these displays did not function properly.
In April 2006, Atlantech, invoking diversity
jurisdiction, see 28 U.S.C. § 1332(a), filed an action in the
District Court of Massachusetts against APC for breach of contract
and negligent misrepresentation. Later that year, it voluntarily
dismissed the complaint. In January 2007, APC sold its assets to
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APC Acquisition. At the same time, APC, APC Acquisition, and
Universal agreed among themselves not to sell any further product
to Atlantech without obtaining either a release from Atlantech of
all liability or the written consent of the three parties to the
agreement. Over the course of 2008 and 2009, APC Acquisition, in
violation of the 1040 MOA, sold sixteen display units to a third-
party vendor, knowing that it intended to develop business with
UIMDB.
II. PROCEDURAL HISTORY
This case has followed a convoluted course, and in order
to place the parties' arguments in context it is necessary to trace
its procedural path in some detail. On February 21, 2007,
Atlantech filed a complaint against Defendants alleging breach of
warranty, breach of the 1040 MOA, breach of the 2006 Purchase
Order, and negligent misrepresentation. After two amendments to
the complaint, the parties filed cross-motions for summary
judgment. Judge Tauro, in an order dated March 24, 2008 ("March
2008 Order"), granted partial summary judgment in favor of
Atlantech. While that order decided a number of issues, it left
others unresolved. Among the issues it addressed, Judge Tauro held
that APC was "in breach of its obligations under the Data Warehouse
Documents provision" and granted injunctive relief to Atlantech
requiring that APC provide it with the 1040-100 Data Warehouse
Documents.
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Despite the presence of unresolved issues, Judge Tauro
entered judgment in favor of Atlantech, effectively closing the
case. A series of motions to reopen and appeals followed,
culminating in this court's order dated May 19, 2010 ("May 2010
Order"), which left in place the injunctive relief related to the
Data Warehouse Documents and otherwise vacated the March 2008
Order.
On remand, the case was reassigned to Judge Woodlock.
Two further amendments to the complaint followed. Atlantech filed
the final version, the Fourth Amended Complaint, on June 1, 2011,
alleging seven counts: Breach of Contract — Warranty (1040 MOA,
1040-72X MOA, and 890 MOA)1 (Count I); Breach of Contract — Support
and Product Availability (1040 MOA, 1040-72X MOA, 890 MOA, and
Purchase Order #40323) (Count II); Breach of Contract — Data
Warehouse Documents (1040 MOA, 1040-72X MOA, and 890 MOA) (Count
III); Breach of Contract — 2006 Purchase Order (Count IV);
Negligent Misrepresentation (Count V); Intentional Interference
with Contractual Relations (Count VI); and Breach of Contract — NCA
(Count VII). Thereafter, the district court resolved pending
cross-motions for summary judgment and ruled in favor of Defendants
on Counts III, V, and VI.
An eight-day jury trial began June 13, 2011. On the
1
The 1040-72X MOA and 890 MOA are not directly at issue on
appeal.
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seventh trial day, the court determined that it would be
expeditious for the jury to resolve a set of preliminary questions
while the court heard arguments regarding directed verdict motions.
The judge conferred extensively with trial counsel at that point to
fashion three questions for an "interim verdict slip." On the
morning of the eighth day the court instructed the jury on those
preliminary questions and sent them to deliberate while the court
dealt with the directed verdict motions.
Eventually, the judge indicated that he would grant a
directed verdict in favor of Defendants on Counts I, V, and VI, and
portions of Count II involving a purchase order that is not at
issue on this appeal. He also explained that he was "keeping alive
the Count III to resolve on the papers and the evidence that is
presented here."2 The judge also engaged trial counsel in an
extensive discussion of what additional questions remained for the
jury to decide.
Thereafter the jury was given a second verdict slip with
questions regarding damages under Count IV, breach of the 2006
Purchase Order, and Count VII, breach of the NCA. On these counts,
the jury awarded Atlantech $1,112,476 in damages.
2
According to the record, Judge Woodlock had already
resolved Counts III, V, and VI on summary judgment prior to
trial. His reason for revisiting those counts after trial is not
readily apparent in the transcript. None of those counts is
presently before us on appeal, however, so the timing of their
resolution need not concern us.
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After dismissing the jury, the court instructed the
parties to file a joint status report delineating the issues that
remained to be resolved post-trial. The parties filed their report
on July 8, 2011, and Atlantech subsequently filed a motion for
judgment as a matter of law on Defendants' alleged breach of the
1040 MOA Support Agreement (an unresolved issue remaining under
Count II). The court denied that motion and ordered the parties to
"frame this case for final resolution by means of summary judgment
motions in the wake of trial and the record as it existed as of
trial."
On May 23, 2012, Atlantech filed a motion for summary
judgment seeking damages for breach of the Support Agreement,
prejudgment interest on all claims, and attorney's fees.
Defendants filed motions for a directed verdict or, in the
alternative, for judgment notwithstanding the verdict, asking the
court to construe the Support Agreement in their favor and seeking
a reduction in the jury's award of damages for breach of the 2006
Purchase Agreement. On March 6, 2013, the court found that
Defendants were not liable for breach of the Support Agreement,
denied prejudgment interest, awarded Atlantech $26,761.58 in fees
and expenses, and upheld the jury's award of damages for breach of
the 2006 Purchase Agreement ("March 2013 Order"). The parties
appeal from the district court's March 2013 Order.
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III. ANALYSIS
Before us on appeal are three broad issues: (1) whether
Defendants are liable to Atlantech for damages under the terms of
the 1040 MOA Support Agreement; (2) whether Atlantech is entitled
to prejudgment interest; and (3) whether the district court erred
in upholding the jury award of damages for breach of the 2006
Purchase Agreement.3
A. 1040 MOA Support Agreement
In section 11.2 of the Support Agreement, entitled
"Length of Product Availability," APC agreed "to support original
product through December 31, 2012. At that point the product may
be discontinued." The district court held that this provision was
an enforceable agreement obligating Defendants "to hold open the
opportunity for Atlantech to buy form, fit, and function
replacements" for the 1040-100 displays for a period of ten years.
Nevertheless, the district court entered judgment in
favor of Defendants on this claim. Proceeding under a theory of
anticipatory repudiation, Atlantech argued that Defendants breached
the Support Agreement by agreeing in January 2007 to discontinue
sales to Atlantech, unless Atlantech provided them with a release
from liability or they all consented. A claim for anticipatory
repudiation requires an absolute and unqualified refusal to perform
3
The parties initially disputed the award of fees and
expenses, but settled that issue after oral argument.
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a contract. Textile Rubber & Chem. Co., v. Thermo-Flex Techs.,
Inc., 687 S.E.2d 919, 922 (Ga. Ct. App. 2009).4 The district court
found that "there [was] nothing absolute or unqualified about" the
Defendants' refusal to perform under the contract, because they
could have all consented to continue sales. Accordingly, it found
no breach of the agreement as a matter of law. The district court
also found that Atlantech could not prove the damages it sought,
which were based on lost profits as a measure of direct damages.
The court held that "[t]here is nothing inherent in the bargain
. . . sufficient to provide reliable numbers, and this precludes
Atlantech from recovering lost profits."
On appeal, the parties dispute numerous issues with
respect to the alleged breach of the Support Agreement: whether the
mandate rule requires judgment in favor of Atlantech, whether the
Support Agreement is an enforceable contract, the nature and scope
of Defendants' obligations under the Support Agreement, whether
Defendants repudiated or otherwise breached the Support Agreement,
and whether Atlantech can prove direct damages related to the
alleged repudiation. We can quickly dispense with Atlantech's
argument for the application of the mandate rule. Of the remaining
4
"Both sides premise their arguments on Georgia law, which
the parties reasonably understand to govern their relationship in
this regard." Atlantech Inc. v. Am. Panel Corp., No. 07-cv-
10342, 2013 WL 870227, at *8 (D. Mass. Mar. 6, 2013). Like the
district court, we accept the parties' reasonable understanding
and look to Georgia law for the substantive rules of decision.
See Shay v. Walters, 702 F.3d 76, 79–80 (1st Cir. 2012).
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arguments, only one requires our attention at this stage. We agree
with the district court that Atlantech did not prove direct damages
resulting from the alleged repudiation, and that the plain terms of
the contract preclude recovery for other types of damages.
Therefore the claim fails as a matter of law. Because this issue
is dispositive, we need not resolve the other disputes related to
the Support Agreement.
1. Mandate Rule
"[A]n appellate court's mandate controls all issues that
were actually considered and decided by the appellate court, or as
were necessarily inferred from the disposition on appeal." Kashner
Davidson Sec. Corp. v. Mscisz, 601 F.3d 19, 23-24 (1st Cir. 2010)
(quoting NLRB v. Goodless Bros. Elec. Co., 285 F.3d 102, 107 (1st
Cir. 2002)) (internal quotation marks omitted). "[I]ssues that
were not decided by the appellate court . . . are not affected by
the mandate." Id. (quoting de Jesús–Mangual v. Rodríguez, 383 F.3d
1, 6 (1st Cir. 2004)) (alteration in original).
Atlantech argues that Judge Tauro's March 2008 Order held
that APC breached the Support Agreement, and that this court
subsequently affirmed that holding. But this court's May 2010
Order expressly vacated the March 2008 Order in part, leaving in
place only the injunction related to the Data Warehouse Documents.
All that can be "necessarily inferred" from the May 2010 Order is
that Defendants breached the provision of the Support Agreement
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requiring them to turn over the Data Warehouse Documents. The May
2010 Order did not decide the question currently before us; whether
Defendants breached section 11.2 of the Support Agreement.
Therefore, the mandate rule does not apply.
2. Damages
In a breach of contract case, "the burden is on the
plaintiff to show both the breach and the damage." Adamson Co. v.
Owens-Ill. Dev. Corp., 309 S.E.2d 913, 916 (Ga. Ct. App. 1983).
Atlantech does not dispute that it contractually waived the right
to seek consequential damages, including lost profits. It argues,
however, that lost profits can serve as a measure of direct
damages. It also offers two alternate measures of damages.
At trial, Atlantech attempted to prove lost profits by
showing past sales to UIMDB as well as evidence of UIMDB's intent
to buy certain quantities in the future. It relied on the prices
at which it bought and sold the displays at the time the parties
entered into the 1040 MOA. But as the district court observed, the
Support Agreement itself does not prescribe any particular price or
quantity for future sales, other than providing that prices must be
"in line" with those from past sales. Under these circumstances
the district court found the evidence offered by Atlantech too
speculative, because "[t]here is nothing inherent in the bargain
when the parties entered into the 1040 MOA in 2003 sufficient to
provide reliable numbers." We agree with the district court.
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Under Georgia law, the term "lost profits" refers to two
distinct concepts:
Consequential damages, which may include 'profits which
might accrue collaterally as a result of the contract's
performance,' are a separate concept from direct damages,
which may include 'profits necessarily inherent in the
contract.' Thus there are two types of lost profits: (1)
lost profits which are direct damages and represent the
benefit of the bargain (such as a general contractor
suing for the remainder of the contract price less his
saved expenses), and (2) lost profits which are indirect
or consequential damages such as what the user of the MRI
would lose if the machine were not working and he was
unable to perform diagnostic services for several
patients.
Imaging Sys. Int'l, Inc. v. Magnetic Resonance Plus, Inc., 490
S.E.2d 124, 127 (Ga. Ct. App. 1997) (internal citation omitted).
Another court observed that profits "necessarily inherent in the
contract . . . are always provable." Franklin v. Demico, Inc., 347
S.E.2d 718, 721 (Ga. Ct. App. 1986).
The question here is whether the damages Atlantech seeks
to prove are "necessarily inherent in the contract." We find that
they are not, because they depend on contingencies beyond the terms
of the contract itself. The brief examples offered by the court in
Imaging Systems are instructive. When a general contractor sues
for its remaining contract price less saved expenses, the damages
do not depend on the future action of any third party; they are
determined by the terms of the contract and the circumstances of
the breach. Thus, they are "always provable" in the sense that
they do not require evidence of what some other party might have
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done. The damages suffered by the doctor with a malfunctioning MRI
machine depend on how many patients one might have seen if the
machine were working. The doctor very well might be able to
recover such damages by showing evidence of how many patients were
normally seen in the past, but they would remain consequential
damages.
Other circuits have reached a similar understanding of
the distinction between the two types of lost profits:
Direct damages refer to those which the party lost from
the contract itself—in other words, the benefit of the
bargain—while consequential damages refer to economic
harm beyond the immediate scope of the contract. Lost
profits, under appropriate circumstances, can be
recoverable as a component of either (and both) direct
and consequential damages. Thus, for example, if a
services contract is breached and the plaintiff
anticipated a profit under the contract, those profits
would be recoverable as a component of direct, benefit of
the bargain damages. If that same breach had the knock-on
effect of causing the plaintiff to close its doors,
precluding it from performing other work for which it had
contracted and from which it expected to make a profit,
those lost profits might be recovered as "consequential"
to the breach.
Atl. City Assocs., LLC, v. Carter & Burgess Consultants, Inc., 453
F. App'x 174, 179-80 (3d Cir. 2011) (quoting Penncro Assocs., Inc.
v. Sprint Spectrum, L.P., 499 F.3d 1151, 1156 (10th Cir. 2007)).
The evidence that Atlantech offered at trial is relevant
to lost profits as consequential, not direct, damages. Atlantech
is seeking to show how much it would have earned selling displays
to UIMDB if APC had performed its obligations under the Support
Agreement. Because those damages rely on future deals with a
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business that is not a party to the Support Agreement, and are
contingent on anticipated prices and demand that are not determined
by the contract itself, the damages are not "necessarily inherent
in the contract." Thus, they are consequential damages, for which
Defendants are not liable under the terms of the 1040 MOA.
Atlantech fares no better with its other theories of
damages. It argues that "under Georgia law, Atlantech may recover
direct damages in an amount equal to the difference between the
market price at the time the buyer learned of the breach and the
contract price, less expenses saved at as a result of the breach."
The obvious problem with the use of this method of measuring
damages here is that there is no contract price in section 11.2 of
the Support Agreement. Presumably, if APC had continued to sell
displays to Atlantech under the terms of the Support Agreement, the
parties would have negotiated a price for each sale. Without a
fixed contract price, Atlantech cannot use this method to prove
damages.
Finally, Atlantech argues that it "is entitled to recover
its attempted mitigation expenses associated with Defendants'
repudiation of their support obligations." Atlantech defines its
"mitigation expenses" as its "failed efforts to develop a
substitute for the 1040-100 Display." But the terms of the 1040
MOA clearly exempt Defendants from liability for the "cost of
replacement goods." Therefore, Atlantech is barred from recovering
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damages under this theory as well.
In sum, the district court correctly concluded that
Atlantech had failed to prove damages for breach of the Support
Agreement and thus finding for Defendants on that claim.
B. Prejudgment Interest
In its post-trial motion, Atlantech asked the district
court to award prejudgment interest. Georgia law provides for a
discretionary award of prejudgment interest on unliquidated claims,
Ga. Code Ann. § 13-6-13,5 but it is the role of the jury, not the
court, to exercise that discretion. See Alphamed, Inc. v. B. Braun
Med., Inc., 367 F.3d 1280, 1287 (11th Cir. 2004) (applying Georgia
law); Am. Family Life Assurance Co. of Columbus, Ga. v. U.S. Fire
Co., 885 F.2d 826, 835–36 (11th Cir. 1989).
Atlantech did not submit a request for prejudgment
interest to the jury at trial. Therefore the court found the issue
to be waived and denied the request. On appeal, Atlantech argues
that it did not knowingly waive the request, because "the district
court bifurcated the case in the middle of trial and allowed only
certain issues to go to the jury." According to Atlantech, when
the district court bifurcated the case, it represented that it
would impanel a second jury at a later time to determine
outstanding factual issues.
5
"[T]he parties agree that the request is one for interest
on unliquidated damages. . . . " Atlantech, 2013 WL 870227, at
*8.
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The record belies Atlantech's argument. The court only
"bifurcated" the trial in the sense that it sent three preliminary
questions to the jury while the court heard arguments about issues
pertaining to the directed verdict requests. While the jury
deliberated the questions submitted to it, the court repeatedly
asked counsel to articulate which issues remained for the jury and
which could be decided as a matter of law. ("My touchstone is what
else am I going to do with this jury at this time, . . . I am
trying to figure out what else I am going to ask them."); ("I am
searching through to identify those factual disputes that can be
resolved in a way that I am comfortable with by this jury."); ("But
let me just see if I can get through all of this to see what else
is potentially left that requires jury determination . . . .");
("So, I would like you to be thinking about, again, what else we
would want from this particular jury.")
Thus, prior to submitting a second (and final) verdict
form to the jury, the court expressly gave the parties multiple
opportunities to identify any issues they believed the jury needed
to decide. Under these circumstances, there is no legitimate
reason for Atlantech's failure even to mention the issue of
prejudgment interest at that time, and thus the district court did
not err in its holding that Atlantech had waived the issue.
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C. 2006 Purchase Agreement
Under the 2006 Purchase Agreement, Atlantech ordered 2006
1040-725 displays from APC for $1,335,750 in order to fulfill an
agreement it reached with UIMDB in December 2005. APC guaranteed
that the 1040-725 model would be "form, fit and function"
compatible with the displays Atlantech purchased previously. APC
was to deliver twenty-five units by April 15, 2006, and place the
"[r]emaining 175 unit materials on hold until confirmation of
compatibility." As discussed above, APC did not deliver any
displays under the 2006 Purchase Agreement, but did deliver fifteen
displays under a separate agreement. Those fifteen displays
apparently did not function properly, and Atlantech never gave APC
a confirmation of compatibility.
At trial, the jury awarded Atlantech $1,070,456 in
damages on Count IV, based on the value of the UIMDB contract minus
the cost of the 2006 Purchase Agreement, the cost of sale, and the
amount Atlantech received for separately delivering the fifteen
displays it received from APC. In their post-trial motion,
Defendants asked the district court to reduce the damages to
$57,862.67, which would represent the lost profits on the twenty-
five displays that APC was supposed to deliver by April 15, 2006,
minus the profits Atlantech received on the fifteen that APC
6
There is a discrepancy in the order, which appears to be
for 201 displays but only requires delivery of 200. At trial,
Atlantech sought damages based on the 200 units to be delivered.
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delivered separately. According to Defendants, they were only
obligated to deliver twenty-five displays until Atlantech gave them
a confirmation of compatibility; the fact that Atlantech never
confirmed compatibility absolved them of the obligation to deliver
the remaining 175 units.
The district court rejected Defendants' reading of the
contract. It read the confirmation provision as a protection for
Defendants "against a situation in which they produced the full
number of displays (thus bearing the cost of production for a full
200 displays), and then also faced liability for breach if all
those displays turned out to be incompatible with 1040-100 units."
It concluded that "nothing indicates that a failure to provide a
confirmation of compatibility relieved APC of its obligation to
deliver" the full order of 200 displays, particularly in light of
Defendants' "fail[ure] to deliver even the initial round of
compatible displays."
The district court's reading of the contract is correct.
Defendants have not offered any arguments on appeal that persuade
us otherwise. They ask us to read the confirmation provision as a
condition precedent to full delivery, but that is not the ordinary
meaning of the contractual language. The phrase "on hold," which
commonly indicates a temporary delay,7 implies the expectation of
7
See Random House Dictionary of the English Language 911
(2d. ed. 1987) (defining "on hold" as "in or into a temporary
state of interruption or suspension").
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eventual completion. In that respect it is different from the type
of language that would more commonly indicate a condition
precedent, such as "subject to" or "if and only if." The 2006
Purchase Agreement was for 200 displays. The fact that the parties
had the foresight to test the compatibility of a few displays prior
to delivery of the entire order does not evince an intention to
truncate Defendants' obligation under the contract. Accordingly,
we hold that the district court did not err in upholding the jury's
award of damages.
IV. CONCLUSION
For the reasons explained above, we AFFIRM the district
court's orders. All parties shall bear their own costs.
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