Eric Sanders v. Harold Flanders ( 2014 )

Case: 13-50235 Document: 00512603796 Page: 1 Date Filed: 04/22/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 13-50235 United States Court of Appeals
Fifth Circuit
FILED
ERIC M. SANDERS, April 22, 2014
Lyle W. Cayce
Plaintiff - Appellant Clerk
v.
HAROLD H. FLANDERS,
Defendant - Appellee
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:10-CV-192
Before WIENER, HAYNES, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellant Eric Sanders appeals the district court’s grant of a
judgment as a matter of law in favor of Defendant-Appellee Harold Flanders.
Sanders retained Flanders to prepare and file various patent applications with
the United States Patent and Trademark Office (“PTO”). Unsatisfied with
Flanders’s work, Sanders sued Flanders, asserting various Texas state-law
claims. Because Sanders failed to present legally sufficient evidence of a
necessary element of each of his claims (damages), we AFFIRM.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
Case: 13-50235 Document: 00512603796 Page: 2 Date Filed: 04/22/2014
No. 13-50235
I. Factual and Procedural Background
Flanders prepared numerous patent applications over a period of several
years regarding Sanders’s invention of an effervescent mouthwash tablet and
filed them with the PTO on Sanders’s behalf. None of these applications was
approved. After discovering that he no longer had any applications pending
and alleging that Flanders had misrepresented the status of the applications,
Sanders sued Flanders claiming: (1) legal malpractice and professional
negligence; (2) common-law fraud; (3) negligent misrepresentation; (4) breach
of fiduciary duty; and (5) gross negligence. In connection with these claims,
Sanders alleged that he suffered damages in the form of lost profits, out-of-
pocket expenses, and attorney’s fees. In his filings in the district court,
Sanders asserted that the conduct underlying, and the damages caused by,
each of the causes of action were the same.
With respect to lost-profit damages, Sanders testified at trial that he lost
potential investors as a result of Flanders’s conduct. Sanders also generally
testified as to the existence of a pro forma model developed by potential
investors and a case study performed by university students that evaluated
the viability of a business model based on his invention. Sanders did not testify
as to the substance of the pro forma model or viability study; he asserts that
he was barred from doing so when the district court sustained Flanders’s
hearsay objections to such evidence.
Sanders also testified that he had out-of-pocket costs that were “roughly”
$40,000–$50,000, but he did not provide any additional evidence apart from
this vague testimony to support this claim. With respect to attorney’s fees,
Sanders testified that he paid Flanders’s fees in the amount of $10,000–
$15,000, but could not produce any evidence to support his claim that he paid
such fees. Flanders testified that Sanders only had paid him approximately
$3,800.
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After Sanders rested his case, Flanders moved for judgment as a matter
of law under Federal Rule of Civil Procedure 50(a). The district court granted
the motion, holding that Sanders failed to present legally sufficient evidence of
causation and damages. Sanders appealed to the United States Court of
Appeals for the Federal Circuit, which transferred the appeal to us based on
Gunn v. Minton, 133 S. Ct. 1059 (2013).
II. Jurisdiction
While the Federal Circuit has exclusive jurisdiction over claims arising
under federal patent law, see 28 U.S.C. § 1295(a), state-law malpractice claims
based on underlying patent issues “rarely, if ever, arise under federal patent
law.” Gunn, 133 S. Ct. at 1065; see also MDS (Canada) Inc. v. Rad Source
Techs., Inc., 720 F.3d 833, 841–43 (11th Cir. 2013) (applying Gunn to conclude
that the Federal Circuit did not have exclusive jurisdiction to consider an
appeal of a breach of contract action that required the resolution of a claim of
patent infringement). Similar to the Court’s analysis in Gunn, Sanders’s
claims—while important to the present litigants—do not carry the level of
significance with respect to federal patent law to establish jurisdiction
exclusively in the Federal Circuit. 1 See Gunn, 133 S. Ct. at 1067 (explaining
that state legal-malpractice claims generally involve hypothetical, backward-
looking questions that “will not change the real-world result of the prior federal
1 Although Gunn involved only a legal-malpractice claim, the fact that Sanders raises
other claims in addition to his legal-malpractice theory is not a material difference. By
Sanders’s own assertions, all of his claims present the type of hypothetical, backward-looking
questions that do not implicate significant matters of federal patent law such that exclusive
jurisdiction lies in the Federal Circuit. See USPPS, Ltd. v. Avery Dennison Corp., 541 F.
App’x 386, 390 (5th Cir. 2013) (unpublished) (observing that a party’s claims for fraud and
breach of fiduciary duty, rather than malpractice, did not command a different result than
that in Gunn because this difference “does not cause the underlying hypothetical patent
issues to be of substantial importance to the federal system as a whole, as required for
exclusive federal jurisdiction under Gunn”).
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patent litigation”). Therefore, we have appellate jurisdiction over this diversity
action. See 28 U.S.C. §§ 1291, 1332.
III. Discussion
We review a district court’s ruling on a motion for judgment as a matter
of law de novo. E. Tex. Med. Ctr. Reg’l Healthcare Sys. v. Lexington Ins. Co.,
575 F.3d 520, 525 (5th Cir. 2009). A judgment as a matter of law “is
appropriate when ‘a party has been fully heard on an issue during a jury trial
and the court finds that a reasonable jury would not have a legally sufficient
evidentiary basis to find for the party on that issue.’” Id. (quoting FED. R. CIV.
P. 50(a)(1)). In a diversity case, we apply the substantive law of the forum
state. Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191 (5th Cir. 2010).
To prevail on any of his five claims, Sanders had to demonstrate, inter
alia, that Flanders’s conduct caused damages, a point he does not contest. 2 It
is well settled that damages cannot be established merely through speculation
or conjecture. Tate v. Goins, Underkofler, Crawford & Langdon, 24 S.W.3d
627, 635 (Tex. App.—Dallas 2000, pet. denied) (explaining that “[r]emote
damages, or those damages that are purely conjectural, speculative, or
contingent, are too uncertain to be ascertained and cannot be recovered”).
Granting a judgment as a matter of law with respect to damages, the district
court concluded that “Sanders’s damages testimony was too speculative as to
lost investors and lost profits, and unsubstantiated by competent proof as to
out-of-pocket expenses and legal fees, to be recoverable.” Because we agree
2 See Alexander v. Turtur & Assocs., Inc., 146 S.W.3d 113, 117 (Tex. 2004) (legal
malpractice); Fed. Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991)
(negligent misrepresentation); Beck v. Law Offices of Edwin J. (Ted) Terry, Jr., P.C., 284
S.W.3d 416, 429 (Tex. App.—Austin 2009, no pet.) (breach of fiduciary duty); Newman v.
Tropical Visions, Inc., 891 S.W.2d 713, 721 (Tex. App.—San Antonio 1994, no writ) (gross
negligence); Airborne Freight Corp., Inc. v. C.R. Lee Enters., Inc., 847 S.W.2d 289, 296 (Tex.
App.—El Paso 1992, no writ) (common-law fraud).
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and affirm the district court’s grant of Flanders’s Rule 50(a) motion on this
basis, we need not address whether Sanders presented sufficient evidence with
respect to the element of causation—an alternative ground on which the
district court granted relief.
A. Lost Profits
A lack of profit history will not render a plaintiff unable to secure lost-
profit damages; however, a plaintiff must establish his damages through
“competent evidence with reasonable certainty.” Helena Chem. Co. v. Wilkins,
47 S.W.3d 486, 504 (Tex. 2001); see also Hiller v. Mfrs. Prod. Research Grp. of
N. Am., Inc., 59 F.3d 1514, 1521–23 (5th Cir. 1995). The amount of lost profits
sought need not be exact, but it cannot be uncertain or speculative. Wilkins,
47 S.W.3d at 505; Tex. Instruments, Inc. v. Teletron Energy Mgmt., 877 S.W.2d
276, 279 (Tex. 1994); see also Szczepanik v. First S. Trust Co., 883 S.W.2d 648,
649 (Tex. 1994) (“[T]he injured party must do more than show that they
suffered some lost profits.”); Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80,
84 (Tex. 1992) (“As a minimum, opinions or estimates of lost profits must be
based on objective facts, figures, or data from which the amount of lost profits
can be ascertained.”).
Sanders’s counsel acknowledged at oral argument that Sanders did not
present competent evidence at trial with respect to the calculation of lost-profit
damages, arguing instead that such evidence would have been presented had
it not been for the district court’s erroneous hearsay rulings. 3 A party alleging
3 To the extent Sanders argues in his briefs that competent evidence had been
presented, such evidence was far too speculative. Specifically, as the only potential evidence
of lost-profit damages, Sanders’s testimony did not contain any specific amount of lost profits
or describe any means by which lost profits could be calculated. See Szczepanik, 883 S.W.2d
at 648–50 (explaining the need to present evidence of how lost-profit damages were calculated
and stating that showing that accounts were lost is insufficient). Indeed, similar to the
situation in Holt where a plaintiff’s bare assertion that he had lost contracts did not
demonstrate lost profits with reasonable certainty, Sanders’s assertion that he lost potential
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error based on a district court’s exclusion of evidence must have made an offer
of proof at trial that informs the court of its substance, unless the substance of
the evidence is apparent from the record. See FED. R. CIV. P. 103(a). Sanders’s
counsel admitted during oral argument that Sanders did not make any offer of
proof concerning the lost-profit evidence that he would have otherwise
presented but for the district court’s hearsay ruling. Further, it is not apparent
from the record that the substance of the excluded evidence—namely,
Sanders’s testimony concerning his interactions with investors and the
calculations of business losses and valuations—would have allowed him to
establish lost-profit damages with reasonable certainty. On this record, we
cannot conclude that the district court erred in holding that Sanders presented
insufficient evidence of lost profits. 4 See United States v. John, 597 F.3d 263,
276 (5th Cir. 2010) (explaining that in the absence of a proffer, an appellant
cannot prevail on a direct challenge to the district court’s hearsay ruling).
B. Out-of-Pocket Expenses
Sanders “estimated” that he spent $40,000–$50,000 5 in out-of-pocket
expenses. However, apart from this vague, general statement, he provided no
accompanying figures, data, or explanation as to how he calculated this
amount of damages. He further provided no evidence to establish that he had
investors falls far short of establishing a reasonable certainty of lost profits. See Holt, 835
S.W.2d at 87.
4 Because of this conclusion, we need not address whether Sanders’s mere passing
reference to his hearsay argument in his brief constituted waiver of this issue. See Douglas
W. ex rel. Jason D.W. v. Hous. Indep. Sch. Dist., 158 F.3d 205, 210 n.4 (5th Cir. 1998)
(“[F]ailure to provide any legal or factual analysis of an issue on appeal waives that issue.”).
5 It is not even clear what the $40,000–$50,000 estimate of “out of pocket” expenses
includes given this exchange at trial: “Q: So sum total of the fees you paid Mr. Flanders, the
cost of this litigation, your own out-of-pocket for travel costs associated with the – this
product, just the out-of-pockets, you would estimate at what number? Sanders: Forty to 50-
(sic) thousand.”
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actually paid this amount of money. As a result, the district court did not err
in concluding that he presented an “unsubstantiated estimate” and failed to
present competent evidence with respect to his out-of-pocket damages because
the passing comments concerning his losses were “mere speculation or
conjecture.” See Tate, 24 S.W.3d at 635; see also Coastal Transp. Co. v. Crown
Cent. Petroleum Corp., 136 S.W.3d 227, 232 (Tex. 2004) (“Opinion testimony
that is conclusory or speculative is not relevant evidence.”); Finley Oilwell
Serv., Inc. v. Retamco Operating, Inc., 248 S.W.3d 314, 323–24 (Tex. App.—
San Antonio 2007, pet. denied) (evidence of damages was legally insufficient
where opinion testimony as to actual damages was conclusory).
C. Attorney’s Fees
Similarly, Sanders presented no evidence to support his estimate that he
paid $10,000–$15,000 to Flanders in legal fees. 6 Further, Sanders has failed
to establish a legal basis to justify recovery of the approximately $3,800 that
Flanders acknowledges receiving. Specifically, a legal-malpractice plaintiff
may recover damages for attorney’s fees he paid in an underlying matter if the
fees were proximately caused by the negligent conduct of the defendant
attorney. See, e.g., Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev. &
Research Corp., 299 S.W.3d 106, 122 (Tex. 2009). Sanders presents no
argument or evidence, however, that any of the attorney’s fees he seeks to
recover were incurred by him as a result of having to respond to or correct
Flanders’s allegedly negligent conduct. In addition, while a plaintiff may
recover attorney’s fees when the attorney’s negligence rendered his services of
6In the trial court, Sanders asserted that his damages were the same for the various
theories of recovery and never sought “disgorgement” of fees as a remedy. On appeal,
Sanders’s arguments concerning the recovery of attorney’s fees focus only on his legal-
malpractice theory, and he therefore has waived any argument that such fees could be
disgorged under a breach-of-fiduciary-duty claim. See Bailey v. Shell W. E&P, Inc., 609 F.3d
710, 722 (5th Cir. 2010) (“Issues not briefed on appeal are waived.”).
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no value, Sanders acknowledged at trial that Flanders had performed at least
some quality work for him. See Judwin Props. v. Griggs & Harrison, 911
S.W.2d 498, 507 (Tex. App.—Houston [1st Dist.] 1995, no writ) (“Recovery of
fees paid to an attorney may be appropriate [in a legal-malpractice claim] when
his or her negligence rendered the services of no value.”). Having failed to
provide any evidence that the fees either were incurred in repairing Flanders’s
allegedly negligent conduct or paid in exchange for services of no value,
Sanders did not present legally sufficient evidence to allow him to recover
attorney’s fees.
IV. Conclusion
Because Sanders failed to present legally sufficient evidence of damages,
the district court correctly granted judgment as a matter of law in favor of
Flanders.
AFFIRMED.
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