Computrol v. Newtrend ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 99-1167/No. 99-1242
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COMPUTROL, INC., *
*
Plaintiff - Appellant/ *
Cross-Appellee, *
*
v. * Appeal from the United States
* District Court for the
NEWTREND, L.P. and * Eastern District of Missouri.
CA NEWTREND, INC., *
*
*
*
Defendants - Appellees/ *
Cross-Appellants. *
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Submitted: December 13, 1999
Filed: February 10, 2000
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Before RICHARD S. ARNOLD and LOKEN, Circuit Judges, and
MELLOY,1 District Judge.
___________
1
The Honorable Michael J. Melloy, United States District Judge for the
Northern District of Iowa, sitting by designation.
Melloy, District Judge.
After a 34-day trial in the Eastern District of Missouri, a jury awarded
$2,663,000 to Appellant, Computrol, Inc., (“Computrol”) on a breach of contract
claim against Appellee Newtrend, L.P., and Appellee CA Newtrend, Inc.,
(collectively, “Newtrend”). The jury also decided against Newtrend and Newtrend
CEO Robert King, in his individual capacity, on three common law fraud claims.
On post-trial motion, the district court2 ruled as a matter of law that a
contractual limitation of liability provision limited Computrol’s breach of contract
recovery to $469,206.88, and described Newtrend’s proof of damages in excess of
$469,206.88 as wholly speculative. The district court entered judgment in
Computrol’s favor in the amount of $469,206.88, plus $150,000 in attorneys fees.
The district court also entered judgment as a matter of law against Computrol on the
fraud claims, and denied Computrol’s bill of costs. Computrol appealed the
decision, and Newtrend cross-appealed. For the following reasons, we affirm the
post-trial judgment of the district court.
I
Computrol develops custom computer software for the financial services
industry, and Newtrend provides software and support services to financial
2
The Honorable Catherine D. Perry, United States District Judge for the
Eastern District of Missouri.
2
institutions. On December 28, 1992, Computrol entered into a contract with
Newtrend to re-engineer a number of Newtrend’s INFOPOINT software
applications (“the Alliance Agreement”). INFOPOINT is a group of software
packages utilized by Newtrend’s banking customers. The Alliance Agreement
contemplated that Computrol would begin performance under the Agreement by re-
engineering Newtrend’s Integrated Commercial Loan Application (“ICL”). If
Newtrend successfully completed the initial re-engineering of the ICL, then
Computrol would re-engineer one additional software application per year. The
Agreement provided that Computrol would be paid $430,000 for re-engineering the
ICL.3
Although the terms of the Agreement required Computrol to complete the ICL
re-engineering project within 270 days of the date the Agreement was signed, the
project quickly ran into technical problems. Additionally, the parties disagreed as to
the specific terms of the Agreement. After extensive negotiations, the parties agreed
to modifications in the software requirements and to increase Computrol’s
compensation for the project.
In May of 1993, the parties signed an addendum to the Agreement in which
Computrol agreed to re-engineer an additional software application, the Integrated
Installment Loan (“IIL”). The IIL project also encountered technical complications
3
Computrol was also responsible for installation, training, and technical
documentation related to the software. Additionally, the Agreement allowed
Computrol to generate additional revenue by performing annual maintenance
services and earn royalties from future INFOPOINT sales.
3
and never progressed beyond the planning phase.
The relationship between the parties subsequently deteriorated, with
Newtrend providing written notice of default to Computrol on January 6, 1994. The
notice stated, in pertinent part:
This letter is an official NOTICE OF DEFAULT pursuant to paragraph
11.2 of the . . . Alliance Agreement . . . as modified by Letter
Agreement of December 30, 1992 . . . . As evidenced by numerous
letters, phone calls, and meetings between our companies, the
Commercial Loan Project is months behind schedule, still significantly
incomplete and does not contain several promised features. This is a
material breach of the Agreement and grounds for termination.
Technically, this contract gives you 90 days to cure the defaults, but it
will be difficult to cure late delivery when the date has already passed.
I suggest that you immediately return the $182,860 paid to date.
At the point Newtrend provided the written notice of default, Computrol had not
actually delivered the ICL in its re-engineered format. At trial, the parties disagreed
as to whether the ICL re-engineering project was substantially completed.
After Newtrend terminated the Agreement, Computrol filed the instant
lawsuit. In its complaint, Computrol alleged claims against both Newtrend and
Newtrend CEO King, in his individual capacity, for fraudulent misrepresentation
(Count I) and fraudulent concealment (Count II). Computrol also alleged claims
against only Newtrend for breach of contract (Count III), breach of fiduciary duty
(Count IV), indemnification (Count V), breach of the covenant of good faith and fair
dealing (Count VI), quantum meruit (Count VII), business defamation (Count VIII),
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and injurious falsehood (Count IX). Newtrend counterclaimed for breach of
contract (Count I), indemnification (Count II), breach of the covenant of good faith
and fair dealing (Count III), and fraudulent inducement/fraudulent misrepresentation
(Count IV).
At trial, Computrol advanced a theory it was an unwitting pawn in a larger
corporate dispute between King and Newtrend’s business affiliates.4 Computrol
introduced evidence that Newtrend actually terminated the Agreement because of
the corporate dispute, and not because of performance difficulties, delays, or any
other factor under Computrol’s control. Computrol also presented evidence that
Newtrend failed to comply with the termination provisions of the contract. The
Agreement allowed a party to terminate only in the event of material or repeated
breach and after the nonbreaching party provided the breaching party a detailed
notice of deficiencies and a ninety-day cure period for defaults other than payment.
The district court submitted to the jury fraudulent misrepresentation and
fraudulent concealment against Newtrend and King, and breach of fiduciary duty
against Newtrend. The Court also submitted the breach of contract claim against
Newtrend. As to Newtrend’s counterclaims, the district court submitted breach of
contract and fraudulent misrepresentation.
The jury returned a verdict in favor of Computrol and against Newtrend and
4
The details of the corporate dispute and the structure of the joint venture
between Newtrend and the business affiliates are quite complex, but irrelevant to the
merits of this appeal.
5
King on one count of fraudulent misrepresentation and two counts of fraudulent
concealment. The jury awarded $75,000 in damages on each fraud count against
Newtrend, and $35,000 in damages on each fraud count against King. The jury also
found in favor of Computrol on the breach of contract claim, and awarded
$2,663,000 in damages. The jury ruled in favor of Computrol on all of Newtrend’s
counterclaims.
On post-trial motion, the district court ruled that Computrol’s fraud claims
and the breach of fiduciary duty claim failed as a matter of law. The district court
reduced Computrol’s breach of contract recovery from $2,663,000 to $469,206.88,
for two reasons. First, the district court stated that the limitation of liability clause
barred Computrol from recovering lost profits because “lost profits damages are
considered consequential damages.” The district court stated that since the parties
agreed in the contract that they would not seek consequential damages, Computrol
could not recover lost profits. Second, the district court concluded that Newtrend’s
proof of damages in excess of $469,206.88 was “wholly speculative.”
Computrol timely filed a notice of appeal in the district court and raises two
distinct issues on appeal. First, Computrol alleges that the district court erred when
it reduced the jury’s breach of contract verdict from $2,663,000 to $469,206.88.
Computrol maintains that the limitation of liability clause did not bar lost profits,
and that the proof of damages it offered at trial was sufficiently definite. Second,
Computrol asserts that the district court abused its discretion when it awarded only
$150,000 in attorney’s fees and denied its bill of costs. On cross-appeal, Newtrend
asserts that Computrol failed to make a submissible case for breach of contract.
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II
Initially, the Court turns to the merits of the breach of contract claim. In its
post-trial order, the district court ruled that Computrol submitted evidence from
which a reasonable juror could find that Computrol adequately performed its duties
under the contract. While Computrol did not complete the ICL in saleable form and
the program had fewer functions than originally required under the contract, the
district court ruled that Newtrend agreed to numerous extensions of time and to
proposed modifications of the ICL software. The district court also ruled that
Computrol presented sufficient evidence that Newtrend breached the termination for
cause provision by failing to specify sufficiently the reasons it was terminating the
Agreement and by failing to provide an adequate opportunity to cure. On appeal,
Newtrend maintains that the district court should not have allowed the contract
claim to go to the jury and should have ruled for Newtrend as a matter of law.
“Our review of a jury verdict is extremely deferential and we will not
reverse for insufficient evidence unless after viewing the evidence in the light most
favorable to the verdict, we conclude that no reasonable juror could have returned a
verdict for the non-moving party.” Morse v. Southern Union Co., 174 F.3d 917,
922 (8th Cir.), cert. denied, 120 S. Ct. 29 (1999) (internal quotations omitted). In
this case, there is sufficient evidence from which a reasonable juror could find that
Computrol performed its duties under the Agreement even if Computrol did not
complete the ICL within the 270-day time frame. Newtrend Vice President Jerry
Nissen testified that when Computrol programmers encountered outdated computer
7
code in the original ICL program, Newtrend authorized Computrol additional time
and compensation to rewrite the new program. Nissen stated that Newtrend
expected a delay after the company authorized the additional work. Computrol also
presented testimony that it did not compete the ICL within the 270-day limit at least
in part because Newtrend delayed approving the program design of the ICL for
more than ten weeks. Finally, testimony at trial reflected that Newtrend submitted a
number of change orders to the ICL program to include extra functions which
accounted for additional delays. In light of the dynamic nature of the contractual
relationship between Computrol and Newtrend, we find that a reasonable juror
could have determined that Computrol satisfied its contractual obligations under the
Agreement.
Computrol also presented testimony at trial that Newtrend breached the
termination provision of the Agreement by failing to specify sufficiently its reasons
for terminating the Agreement and by failing to allow Computrol adequate
opportunity to cure. Newtrend witnesses admitted that Newtrend’s notice of default
letter failed to comply with the requirement that the party terminating the Agreement
describe the deficiencies in detail. Moreover, Newtrend failed to afford Computrol
the 90-day opportunity to cure that the Agreement provided. Accordingly, viewing
the evidence in a light most favorable to the verdict, we find that Computrol
presented a submissible case to the jury.
We now turn to the district court’s decision to reduce Computrol’s breach of
contract jury award from $2,663,000 to $469,206.88. In its post-trial order
amending the judgment under Fed. R. Civ. P. 59(e), the district court ruled that the
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provision in the Alliance Agreement which expressly barred consequential damages
precluded Computrol from recovering the lost profits it would have earned from re-
engineering the follow-on software applications, and from projected sales of the
software to other financial institutions. The limitation of liability provision states:
In no event will either party be liable to the other for any special,
incidental or consequential damages arising out of this Alliance
Agreement. Except as otherwise expressly stated in this Alliance
Agreement, each party’s liability to the other for any cause whatsoever
and regardless of the form of action and whether in contract or tort, or
at law or equity shall in no event exceed the amounts actually paid to
the other under this Alliance Agreement.
The district court ruled that Computrol was only entitled to recover the modified
contract price of the ICL and for work performed on the IIL. Since the sum of the
modified contract price for the ICL project and the cost of the work performed on
the IIL only amounted to $469,206.88, the district court limited Computrol’s
recovery to that amount. As an alternative reason for reducing the award, the
district court stated that Computrol’s “value-added damage evidence [was] wholly
speculative, and should have never been presented to the jury.” On appeal,
Computrol maintains that it presented sufficient evidence to support the jury’s
verdict and its implicit factual finding that the Alliance Agreement permits
Computrol to recover lost profits.
The Court of Appeals reviews a district court's decision to grant a Rule 59(e)
motion to alter or amend a judgment for abuse of discretion. Perkins v. U.S. West
Comm., 138 F.3d 336, 340 (8th Cir. 1998). “Little turns, however, on whether we
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label the review of this particular question abuse of discretion or de novo, for an
abuse of discretion standard does not mean a mistake of law is beyond appellate
correction.” Koon v. United States, 518 U.S. 81, 100 (1996). A district court by
definition abuses its discretion when it makes an error of law. Id. Accordingly, the
Court of Appeals will review de novo the language of the Alliance Agreement. See
Bourke v. Dun & Bradstreet Corp., 159 F.3d 1032, 1036 (7th Cir. 1998) (“The
district court's determination is reviewed de novo, ‘without giving any deference to
the interpretation by the first-line decider, here the district judge.’”).
Computrol and Newtrend agree that Illinois law governs Computrol’s
contract claim. Illinois uses a “four corners” rule in the interpretation of contracts,
holding that “if the language of a contract appears to admit only one interpretation,
the case is indeed over.” AM Internat'l Inc. v. Graphic Management Assoc., Inc.,
44 F.3d 572, 574 (7th Cir. 1995). Contracts “must be construed to give effect to the
intention of the parties which, when there is no ambiguity in the terms of the
[contract], must be determined from the language of the [contract] alone.” Flora
Bank & Trust v. Czyzewski, 583 N.E.2d 720, 725 (Ill. App. Ct. 1991). “The terms
of an agreement, if not ambiguous, should be generally enforced as they appear, and
those terms will control the rights of the parties.” Dowd & Dowd, Ltd. v. Gleason,
693 N.E.2d 358, 368 (1998).
Under the Illinois "four corners" rule, the threshold inquiry is whether the
contract is ambiguous. Ford v. Dovenmuehle Mortgage, Inc., 651 N.E.2d 751, 755
(Ill. App. Ct. 1995). "An instrument is ambiguous only if the language used is
reasonably or fairly susceptible to having more than one meaning, but it is not
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ambiguous if a court can discover its meaning simply through knowledge of those
facts which give it meaning as gleaned from the general language of the contract. A
contract is not rendered ambiguous simply because the parties do not agree on the
meaning of its terms." Flora Bank & Trust, 583 N.E.2d at 725.
Illinois law allows parties to limit remedies and damages for breach of
contract if no public policy bar exists. Rayner Covering Sys., Inc. v. Danvers
Farmers Elevator Co., 589 N.E.2d 1034, 1036 (Ill. App. Ct. 1992). While
exculpatory or limitation of damages clauses are not favored and must be strictly
construed against a benefitting party, id., the basis for their enforcement is the
strong public policy favoring freedom of contract. Liccardi v. Stolt Terminals, Inc.,
687 N.E.2d 968, 972-73 (Ill. 1997).
We find that the district court was correct when it ruled post-trial that the
limitation of liability clause unambiguously precluded Computrol from recovering
the prospective lost profits it would have earned for re-engineering the additional
software applications. The limitation of liability provision in this case is fairly
straightforward. In addition to prohibiting “special, incidental, or consequential
damages,” the limitation of liability clause dictates that contract damages “shall in
no event exceed the amounts actually paid under the Agreement.” When the Court
considers both sentences of the limitation of liability provision in the context of the
entire Agreement, Trade Ctr., Inc. v. Dominick’s Finer Foods, Inc., 711 N.E.2d
333, 335 (Ill. App. Ct. 1999) (“We consider the contract as a whole in order to
ascertain the intent of the parties.”), we find that Computrol and Newtrend intended
to preclude liability in the form of prospective lost profits.
11
While the first sentence of the limitation of liability provision precludes
“special, consequential, or incidental damages,” the second sentence of the
provision amplifies the limits on each party’s liability. Specifically, the second
sentence limits any contract recovery to past damages or “amounts already paid.”
We believe that because the term “amounts actually paid” is phrased in the past
tense, the parties intended to foreclose all future damages, i.e., prospective lost
profits.5 Therefore, the district court was correct to reduce the judgment to
$469,206.88.6
The district court articulated a second and alternative reason for reducing
Computrol’s breach of contact judgment: “[Computrol’s] value-added damage
evidence [was] wholly speculative, and should have never been presented to the
jury.” At oral argument, counsel for Computrol insisted that Computrol relied on
Newtrend’s profit projections and that numbers were “very do-able.” Newtrend
5
We are not convinced that the first sentence’s restriction on “special,
incidental, or consequential damages,” standing alone, precludes the recovery of lost
profits. The Seventh Circuit has unequivocally stated that “[l]ost profits are
considered to be general or direct damages in a breach of contract case, while they
are considered to be special or indirect damages in a tort case.” Moore v. Boating
Indus. Assoc., 754 F.2d 698, 717 (7th Cir.), vacated on other grounds, 474 U.S. 895
(1985) (applying Illinois law). Thus, it is incorrect to classify mechanically the
prospective lost profits portion of Computrol’s damage award as consequential
damages. However, both sentences of the clause together manifest an intent to
foreclose prospective lost profits.
6
We would also note that this holding does not preclude Computrol from
recovering its past profits under the contract. The amount due and owing for past
work, that is the $469,206.88 awarded by the district court, includes a profit factor
in the contractual amount. Only future profits are foreclosed by the Agreement.
12
maintains that the district court was correct to bar the lost profit damage evidence as
unduly speculative.
In Illinois as in most jurisdictions, the plaintiff must prove damages to a
reasonable degree of certainty and evidence cannot be remote, speculative, or
uncertain. Eddings v. Board of Educ. of City of Chicago, 712 N.E.2d 902, 908 (Ill.
App. Ct. 1999). Lost profits are generally unavailable for new and unproven
business ventures. See Stuart Park Assoc. Ltd. Partnership v. Ameritech Pension
Trust, 51 F.3d 1319, 1323 (7th Cir. 1995) (“A new business generally has no right to
recover lost profits.”) (applying Illinois law).
We find no error in the district court’s decision to reduce the breach of
contract judgment because Computrol failed to prove its damages with sufficient
certainty. At trial, the principal evidence that Computrol offered to support its profit
projections for the subsequent INFOPOINT software applications was based on
unrelated software products. Computrol’s lost profits evidence stood in stark
contrast to the evidence presented of Computrol’s historical difficulty marketing its
loan products. Additionally, Computrol encountered a number of technical
problems in the first two software re-engineering projects. All of the profit numbers
that Computrol presented assumed that the re-engineering projects would be
completed on schedule and include the features that Newtrend and Computrol
included in the original contract and change orders. Accordingly, the district court
correctly limited Computrol’s recovery and restricted Computrol’s lost profits
damages.
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III
At the completion of trial, Computrol moved for an award of $2,589,628.05
in attorneys’ fees, $303,333.62 in expenses, and more than $300,000 in costs.
Citing Fed. R. Civ. P. 54(d) and a contractual provision allowing a prevailing party
to recover reasonable attorneys’ fees, the district court awarded Computrol
$150,000. On appeal, Computrol alleges that the district court improperly reduced
the fees, expenses, and costs.
“The amount of an award of attorneys’ fees rests within the sound discretion
of the court and we will not disturb it absent clear abuse of that discretion.” Walton
Gen. Contractors, Inc./Malco Steel, Inc. v. Chicago Forming, Inc., 111 F.3d 1376,
1385 (8th Cir. 1997); Raffel v. Medallion Kitchens of Minnesota, Inc., 139 F.3d
1142, 1146-47 (7th Cir. 1998) (applying Illinois law). Additionally, while there is “a
presumption that the prevailing party is entitled to costs,” Bathke v. Casey's
General Stores, Inc., 64 F.3d 340, 347 (8th Cir. 1995), the district court also has
substantial discretion in awarding costs. Greaser v. State, Dept. of Corrections,
145 F.3d 979, 985 (8th Cir.), cert. denied, 119 S. Ct. 620 (1998).
There is no dispute that Computrol is a prevailing party within the meaning of
Rule 54(d) and the Alliance Agreement. Computrol argues that its status as the
prevailing party entitles it to fees, expenses, and costs far in excess of the $150,000
figure awarded by the district court. However, Computrol ignores the fact that the
Agreement afforded only reasonable attorneys’ fees. Additionally, Rule 54(d) is
phrased in permissive terms and generally grants a federal court the discretion to
14
refuse to tax costs in favor of the prevailing party. Crawford Fitting Co. v. J.T.
Gibbons, Inc., 482 U.S. 437, 441-42 (1987).
The district court characterized this case as a “relatively straightforward
breach of contract case” which was unduly protracted by Computrol’s painstakingly
slow and complicated presentation of the evidence. The district court is in a better
position than the Court of Appeals to assess the course of the litigation and the
quality of work performed by the attorneys. McNabola v. Chicago Transit Auth.,
10 F.3d 501, 519 (7th Cir. 1993). Accordingly, we are convinced that the district
court did not abuse its discretion when it awarded Computrol $150,000 in attorneys
fees, costs, and expenses under the circumstances of this case.
The post-trial judgment of the district court is affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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