DaimlerChrysler Motors Company, LLC v. Tommy J. Manuel, Tommy Manuel Auto Leasing, Inc., and Manuel Auto Sales, Ltd. ( 2012 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-07-00299-CV
DAIMLERCHRYSLER MOTORS APPELLANT
COMPANY, LLC AND APPELLEE
V.
TOMMY J. MANUEL, TOMMY APPELLEES
MANUEL AUTO LEASING, INC., AND APPELLANTS
AND MANUEL AUTO SALES, LTD.
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FROM THE 141ST DISTRICT COURT OF TARRANT COUNTY
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OPINION
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I. INTRODUCTION
Following a bench trial in this breach of contract case, the trial court
rendered judgment for damages against Appellant and Cross-Appellee
DaimlerChrysler Motors Company, LLC (Chrysler) and in favor of Appellees and
Cross-Appellants Tommy J. Manuel, Tommy Manuel Auto Leasing, Inc., and
Manuel Auto Sales, Ltd. (collectively, Manuel) but denied recovery of Manuel‘s
attorney‘s fees.1 In four issues, Chrysler contends (1) that the best efforts
provision in its contract with Manuel is unenforceable or that Chrysler
conclusively proved that it complied with the best efforts provision by ultimately
settling a protest by a competing dealer of Manuel‘s application for a new
dealership, (2) that Manuel‘s damages from delay in opening the new dealership
are consequential damages barred by limitation-of-damages provisions in the
parties‘ contracts, (3) that the trial court abused its discretion by admitting
unreliable expert testimony regarding damages for lost profits, and (4) that the
trial court erred in calculating prejudgment interest. In his cross-appeal, Manuel
contends that the trial court erred by failing to award him any trial and appellate
attorney‘s fees. We affirm in part and reverse and remand in part.
II. BACKGROUND2
Chrysler manufactures Chrysler, Dodge, Dodge Truck, and Jeep motor
vehicles. Tommy Manuel has been a franchised automobile dealer in the Dallas-
1
Tommy J. Manuel; Tommy Manuel Chrysler-Jeep, Inc.; and Manuel
Dodge, Ltd. were plaintiffs in the trial court. During the pendency of this appeal,
Tommy Manuel Chrysler-Jeep, Inc. changed its name to Tommy Manuel Auto
Leasing, Inc., and Manuel Dodge, Ltd. changed its name to Manuel Auto Sales,
Ltd.
2
The trial court made extensive findings of fact—twenty-nine pages‘ worth.
Findings of fact that are unchallenged are binding on an appellate court unless
the contrary is established as a matter of law or there is no evidence to support
the finding. McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986); Raman
Chandler Props., L.C. v. Caldwell’s Creek Homeowners Ass’n, Inc., 178 S.W.3d
384, 390 (Tex. App.—Fort Worth 2005, pet. denied). We draw the bulk of the
facts recited below from the trial court‘s unchallenged findings, which from our
review of the record are supported by sufficient evidence.
2
Fort Worth area for forty-seven years, including twenty-five years as a franchised
Chrysler and Dodge dealer in Fort Worth and Richardson. At the time of trial,
Tommy Manuel owned or controlled at least nine motor vehicle dealerships in the
Dallas-Fort Worth market.
A. Historical Backdrop
In the mid-1990s, as number three of the ―Big Three‖ in that day, Chrysler
developed a market realignment plan called ―Project 2000‖ to reorganize,
relocate, and establish more motor vehicle dealerships to improve sales in the
Dallas-Fort Worth area and to better compete with its rivals, Ford and General
Motors. As an essential part of Project 2000, Chrysler sought to have its various
Dallas-Fort Worth franchised dealers agree to waive their rights to protest the
establishment or relocation of other dealerships in the Dallas-Fort Worth area.
Texas and other states closely regulate the distribution and sale of
automobiles. In response to the superiority of economic power and bargaining
strength of American automobile manufacturers in their relationships with dealers
that had developed by the 1950s, with dealers completely dependent upon those
manufacturers for their supply of automobiles, Congress3 and state legislatures
enacted regulatory schemes to protect retail dealers from perceived abusive and
3
See Automobile Dealers‘ Day in Court Act, 15 U.S.C. §§ 1221–1225
(1956).
3
oppressive acts by the manufacturers.4 In accord with the policy of protecting
dealers and consumers, the United States Supreme Court upheld the
constitutionality of a California statute that prohibited manufacturers from
relocating or adding new dealerships to their market areas where the effect of
such added competition would be injurious to existing franchisees and to the
public interest.5 The Court held that a state may, consistent with due process,
provide that the filing of a protest by an existing dealer can, without a prior
hearing, prevent another dealer from relocating or establishing a new dealership
in the existing dealer‘s defined market area until after a hearing and resolution of
the protest.6
The Texas Motor Vehicle Commission Code (TMVC), this State‘s first
regulation of the motor vehicle manufacturer-dealer relationship, was adopted in
1971.7 The policy of the TMVC, set forth in what is now section 2301.001 of the
4
See New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co., 439 U.S. 96, 101–
02 & n.5, 99 S. Ct. 403, 407–08 & n.5 (1978) (listing then-existing federal and
state statutes and quoting from Senate committee report as to its grave concern
that the disparity in economic power and bargaining strength had enabled
manufacturers to, in effect, write the rules by which the two parties conduct their
business affairs as set forth in the sales agreements or franchises that the
manufacturer prepares for the dealer‘s signature) (quoting S. Rep. No. 84-2073,
at 2 (1956)).
5
Id. at 107–08, 99 S. Ct. at 410–11.
6
Id.
7
See Act of April 7, 1971, 62nd Leg., R.S., ch. 51, 1971 Tex. Gen. Laws
89. The TMVC has been amended almost every session since its inception.
Currently, the regulatory function is performed by the Motor Vehicle Division of
4
occupations code, is to ensure a sound system of distribution and sale of motor
vehicles for the protection of the public interest and welfare of the citizens of
Texas through exercise of this State‘s police power.8
The TMVC, as do similar state statutory schemes like California‘s, provides
a procedure by which an existing dealer may protest the establishment or
relocation of a dealership that will sell the same line or make of vehicles in the
same county or within fifteen miles of the existing dealership. 9 The filing of a
notice of protest triggers an administrative proceeding requiring a hearing before
the Commission, in which the applicant for the new dealership has the burden to
establish ―good cause‖ for establishing or relocating the dealership at the
proposed location.10 In the meantime, filing of the notice effects an immediate
statutory stay as to any action by the applicant to establish or relocate the
proposed new dealership or relocation until the protest is resolved.11 Among its
findings of fact, the trial court found that a hearing and final resolution of the
the Texas Department of Transportation, and the substantive law is now codified
as Chapter 2301 of the Texas Occupations Code. See, e.g., Tex. Occ. Code §
2301.001 (West 2004). Current sections of the occupations code referenced in
this opinion correspond to sections of the former TMVC in effect at the time of the
events and suit that remain substantially unchanged.
8
See id.
9
See Tex. Occ. Code Ann. § 2301.652 (West Supp. 2011).
10
Id.
11
See id. § 2301.803 (West Supp. 2011).
5
protest could take years. Complicating matters in this case, the TMVC provides
that any agreement waiving terms of the TMVC is void and unenforceable.12
B. Project 2000
By mid-July of 1999, after several years of efforts to obtain agreements for
the realignment of the Dallas-Fort Worth market from its various dealers in the
area, Chrysler had circulated and obtained settlement agreements, including
waivers of the right to protest, from each of the Dallas-Fort Worth area dealers
participating in Project 2000, with the exception of Manuel. Manuel was aware of
Chrysler‘s plan but was not originally a Project 2000 participant for several
reasons. Chrysler had litigation pending against one of Manuel‘s dealerships
(and other dealerships in Texas and California) for allegedly seeking fraudulent
warranty credits from Chrysler for engine cores (the Cores litigation), and Manuel
had a protest against Chrysler pending before the Commission arising out of the
Cores litigation. Additionally, Manuel had bought and operated for twenty-five
years a successful dealership in Richardson with a ―trip,‖ that is, three
lines―Chrysler, Dodge car, and Dodge truck. Chrysler had been trying to buy
the Chrysler line from Manuel for many years, and he had refused to sell it.
Chrysler desired the Chrysler line to keep Manuel from protesting other dealers
in that market area as well as to give that ―point‖ to another dealer to complete
the Project 2000 market realignment. Chrysler approached Manuel last
12
See id. § 2301.003 (West 2004).
6
regarding Project 2000 because it knew that Manuel would be the most
expensive to deal with. Joe Park, Chrysler‘s Dallas zone manager at the time,
recalled at trial, ―We had to get him out of the way.‖
In mid-August 1999, during a meeting of Dodge truck dealers in San
Antonio, Chrysler representatives from Detroit and the Dallas zone office met
with Manuel about joining Project 2000, and the parties proceeded to negotiate.
Chrysler offered Manuel $5 million for his Chrysler line at the Richardson
dealership, and Manuel bargained for $15 million and another dealership to
replace it. The parties discussed possible locations for an additional dealership,
and Park told Manuel that the other dealers had signed waivers of the right to
protest relocations or additional dealerships in joining Project 2000. By the end
of August 1999, the two parties had arrived at a comprehensive agreement.
C. The Agreements
Manuel signed two written agreements dated August 31, 1999, after
reviewing them with his attorney (who had represented him in the Cores
litigation). One was a settlement and release agreement (the Settlement
Agreement) similar to those entered into with the other dealers participating in
Project 2000. Pursuant to the Settlement Agreement, Chrysler paid Manuel
$15.34 million to settle the Cores litigation, to relinquish the Chrysler line at his
Richardson dealership, and to waive any right to protest the other dealers
involved in Project 2000. The second agreement, attached to and referenced in
the Settlement Agreement, was titled ―Agreement to Enter into Sales and Service
7
Agreement‖ (the AESSA). By the AESSA, Chrysler agreed to enter into a
franchise agreement with Manuel for a new Chrysler-Jeep dealership in South
Arlington (the South Arlington dealership), conditioned upon Manuel providing
the land, building the facility, and furnishing the capital investment for the new
dealership by January 1, 2001.
The Settlement Agreement stated that the South Arlington dealership was
―subject to the possibility that it may be protested‖ by another dealer and that a
protest ―can significantly delay the establishment or relocation of the dealership
subject to the protest.‖ The AESSA in turn provided that, in the event of a protest
against the South Arlington dealership, Chrysler would ―use its best efforts to
litigate or settle the protest or lawsuit in order to allow the establishment of [the
South Arlington] dealership.‖
Pursuant to the terms of the Settlement Agreement, Manuel ceased selling
Chrysler vehicles at his Richardson dealership within thirty days after the
agreements were signed in August 1999. As required by the AESSA, Manuel
created a new corporation (Tommy Manuel Chrysler-Jeep, Inc.) and filed his
application with the Commission for the new dealership in South Arlington in
December, which was approved on January 14, 2000. Manuel purchased
property for the South Arlington dealership in April 2000.
D. Meador’s Protest
On January 28, 2000, Meador Chrysler-Plymouth, Inc. (Meador), one of
the other dealerships that was part of Project 2000 and whose dealer-principal
8
had signed a protest waiver, filed a notice of protest against the creation of the
South Arlington dealership, which would be located less than fifteen miles from
Meador‘s existing dealership. The filing of Meador‘s protest was unexpected by
both Manuel and Chrysler, and it triggered the statutory stay of Manuel‘s
attempts to open the South Arlington dealership.
Chrysler‘s zone manager and other representatives met with Mr. Meador
and his business associate on a number of occasions, requesting that Meador
withdraw its protest. Chrysler moved to have the protest dismissed by the
Commission, acting as Meador‘s attorney-in-fact as provided by Meador‘s
settlement agreement. Failing that effort, on March 31, 2000, Chrysler filed suit
in federal district court in the Western District of Texas, obtained a stay of the
administrative proceeding, and sought injunctive relief and to compel arbitration
of the issues raised by Meador‘s protest. The federal court initially stayed the
state administrative proceeding but, after a hearing, denied all relief on June 7,
2000, abated the suit in its own court, and returned the protest to the
Commission for resolution. Chrysler then sought and obtained permission to file
an interlocutory appeal of the adverse ruling and intervened in the administrative
proceeding before the Commission. In July 2000, Chrysler filed its appeal to the
Fifth Circuit Court of Appeals from the federal district court‘s adverse decision.
Also in July of 2000, pursuant to a strategy agreed upon at a meeting between
Manuel and Chrysler and their respective attorneys, Manuel filed a separate suit
9
in state court against Meador for damages resulting from the delay of the
establishment of his new dealership caused by Meador‘s protest.
In September 2000, some eight months after the protest had been filed,
Chrysler had intensive settlement negotiations with Meador. Chrysler ultimately
settled the Meador protest in October 2000 by giving Meador a letter of intent for
an additional dealership and paying Meador $17,000 in attorney‘s fees. In
November 2000, Chrysler advised Manuel to proceed with building his facility for
the new dealership in South Arlington, and the Meador protest was formally
dismissed on December 21, 2000.
E. This Suit
It was undisputed that the years 2000 and 2001 were exceptionally good
years for car sales in the Dallas-Fort Worth market, but Manuel was not able to
complete and open the South Arlington dealership until February 2002. A
significant downturn in sales and a steep decline of the American market share of
automobiles began in 2002. They were continuing at the time of trial, and the
new dealership sustained a loss for 2002 and subsequent years.
In 2004, Manuel sued Chrysler for breach of contract and other causes of
action, seeking damages caused by the delay in opening the South Arlington
dealership as the result of Chrysler‘s failure to resolve Meador‘s protest, the
costs Manuel incurred in litigating Meador‘s protest before the state agency and
in state court, and attorney‘s fees. Manuel contended that Chrysler failed to use
10
its best efforts as required by the AESSA to litigate or settle the Meador protest,
thereby causing the delay in the opening of the South Arlington dealership.
The trial court granted summary judgments to Chrysler on most of
Manuel‘s causes of action, including breach of contract, but on the morning of
trial on damages, the trial judge announced during opening statements that he
would hear evidence regarding breach of the best efforts clause by Chrysler.
The parties tried the case to the bench over a sporadic period of about six weeks
regarding that issue and damages. Among its findings of fact, the trial court
found that Chrysler failed to use its best efforts to resolve the Meador protest and
that Chrysler ―breached the contract.‖ 13 The trial court rendered a final judgment
awarding Manuel $370,668.50 in damages plus prejudgment interest but denied
Manuel recovery of attorney‘s fees. Both parties appealed. Chrysler seeks
reversal of the trial court‘s judgment and rendition of a take-nothing judgment,
and Manuel seeks remand for a new trial on the issue of attorney‘s fees.
III. BEST EFFORTS
By its first issue, Chrysler argues that the AESSA‘s best efforts clause is
unenforceable because it lacks measurable goals and guidelines and that even if
the best efforts clause is enforceable, the goal of the agreement was the opening
of the South Arlington dealership, meaning best efforts are irrelevant because
13
The trial court‘s findings of fact and conclusions of law do not expressly
state that Chrysler breached the AESSA (as opposed to the Settlement
Agreement), but only the AESSA contains a best efforts clause.
11
that goal was ultimately met. Chrysler alternatively contends that the evidence
conclusively established that Chrysler used its best efforts to resolve the Meador
protest.14
A. Enforceability of “Best Efforts” Clause
1. Standard of Review
When a contract is unambiguous, interpretation of the written instrument is
a question of law for the court. MCI Telecomm. Corp. v. Tex. Util. Elec. Co., 995
S.W.2d 647, 650B51 (Tex. 1999) (citing Coker v. Coker, 650 S.W.2d 391, 393
(Tex. 1983)); see Heil Co. v. Polar Corp., 191 S.W.3d 805, 809B10 (Tex. App.—
Fort Worth 2006, pet. denied) (―The interpretation of an unambiguous contract is
a question of law, which we review de novo.‖). More specifically, the
enforceability of a contract is a legal issue that we review de novo. See Elijah
Ragira/VIP Lodging Grp., Inc. v. VIP Lodging Grp., Inc., 301 S.W.3d 747, 754
(Tex. App.—El Paso 2009, pet. denied); Chavez v. McNeely, 287 S.W.3d 840,
843–44 (Tex. App.—Houston [1st Dist.] 2009, no pet.).
2. Goals and guidelines
14
Manuel urges us to summarily overrule Chrysler=s first issue, arguing that
an independent basis exists for the judgment in that the trial court could have
based its breach of contract finding on breach of paragraph 3 of the Settlement
Agreement. But the trial court specifically found that Chrysler failed to use its
best efforts to resolve the Meador protest, a provision contained only in the
AESSA. The trial court had also previously granted summary judgment against
Manuel for breach of the Settlement Agreement and made no finding, and none
was requested, that Chrysler failed to comply with paragraph 3 of the Settlement
Agreement. Thus, we will consider Chrysler=s first issue on the merits.
12
Chrysler first argues that ―best efforts‖ is a vague standard that is rarely
held enforceable. But Chrysler‘s own general counsel and legal department
drafted the settlement agreements and AESSAs used to implement Project 2000.
Moreover, and to the contrary, courts enforce contractual best efforts clauses in a
wide variety of circumstances. See E. Farnsworth, Farnsworth on Contracts '
7.17c (2d ed. 2001) (stating it is no longer the case that ―a duty defined only in
terms of best efforts‖ is too indefinite to be enforceable) (citations omitted);
Kenneth A. Adams, Understanding “Best Efforts” and Its Variants (Including
Drafting Recommendations), 50 No. 4 Practical Lawyer, Aug. 2004, at 17 (noting
courts in most jurisdictions have held best efforts clauses enforceable).
―Whatever the test of best efforts, there is no question but that courts today
regard the standard of best efforts—like that of good faith—as a workable
standard in a variety of circumstances.‖ E. Farnsworth, On Trying to Keep One’s
Promises: The Duty of Best Efforts in Contract Law, 46 U. Pitt. L. Rev. 1, 12
(1984).
Courts construing a best efforts provision that does not specify the
performance to be required commonly hold the promisor to the standard of the
diligence a reasonable person would use under the circumstances. See, e.g.,
CKB & Assocs., Inc. v. Moore McCormack Petroleum, Inc., 809 S.W.2d 577, 578
(Tex. App.—Dallas 1991, writ denied) (op. on reh‘g) (comparing performance of
best efforts with that of average prudent operator in light of circumstances of
case); see also Bloor v. Falstaff Brewing Corp., 601 F.2d 609, 614–15 (2d Cir.
13
1979) (holding licensor could not treat licensee=s brands less favorably than its
own); Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publ’g Co., 281 N.E.2d
142, 144 (1972) (holding publisher who promised best efforts to promote author‘s
book not restricted from also promoting competing series); Farnsworth, 46 U.
Pitt. L. Rev. at 7–8 (―Best efforts is a standard that has diligence as its
essence . . . .‖).
Chrysler, quoting from the Dallas court of appeals opinion in CKB,
specifically complains that the best efforts clause in this case lacks measurable
goals and guidelines. 809 S.W.2d at 580. In that case, CKB had agreed to use
its best efforts to refine crude oil into specific volumes of refined products, as set
out in the agreement in a schedule specifying percentages of total refinery output
for each product. Id. at 578. Instead of refining the crude oil to produce the
quantities specified in the contract, CKB operated the refinery to produce the
highest dollar yield on the crude. Id. at 579, 582. Moore McCormack sued CKB
for breach of contract, and the trial court rendered summary judgment in Moore
McCormack=s favor. Id. at 580. CKB appealed. Id.
As Chrysler points out, the CKB court described the provision for ―best
efforts‖ in a contract as Aa nebulous standard. . . . Under some circumstances, a
party could use best efforts to achieve a contractual goal and fall well short.
Under different circumstances, an effort well short of one=s best may suffice to hit
a target.@ See id. at 581. Thus, that court reasoned, ―To be enforceable, a best
efforts contract must set some kind of goal or guideline against which best efforts
14
may be measured.@ Id. at 581–82 (citing Pinnacle Books, Inc. v. Harlequin
Enters., 519 F. Supp. 118, 121 (S.D.N.Y. 1981)). The court concluded that when
sufficient guidelines exist, a party that performs within the guidelines fulfills the
contract regardless of the quality of its efforts. Id. at 582. Only when a party
misses the guidelines would a court measure the quality of its efforts ―by the
circumstances of the case . . . and by comparing the party‘s performance with
that of an average, prudent, comparable operator.‖ Id. (citing Bloor, 601 F.2d at
613–14; Pinnacle, 519 F. Supp. at 122; Arnold Prods., Inc. v. Favorite Films
Corp., 176 F. Supp. 862, 866 (S.D.N.Y. 1959)). Ultimately, the court affirmed the
summary judgment against CKB because it concluded that CKB made no efforts
to meet the production standards specified in the contract, stating: ―As a matter
of law, no efforts cannot be best efforts.‖ Id. (citing Bloor, 601 F.2d at 613B14).15
Thus, the CKB court did not further explore the ―goal or guideline‖ standard.
Chrysler argues that the best efforts clause in the AESSA is unenforceable
because it fails to set forth a measurable goal or guideline in that no date was
specified by which Chrysler was required to litigate or settle the Meador protest.
15
As Manuel notes, other Texas courts have encountered best efforts
clauses in a variety of contracts without discussion of how such a clause should
be interpreted. See, e.g., Malatt v. C&R Refrigeration, 179 S.W.3d 152, 158
(Tex. App.—Tyler 2005, no pet.) (holding best efforts clause did not require
actual sale of machine but implying reasonable time); Aquila Sw. Pipeline, Inc. v.
Harmony Exploration, Inc., 48 S.W.3d 225, 233–34 (Tex. App.—San Antonio
2001, pet. denied) (interpreting Section 2.306(b) of UCC, which expressly
imposes a best efforts standard upon the parties to a contract for exclusive
dealing in goods).
15
Manuel responds that, reading the contract as a whole, the AESSA required
Chrysler to settle or litigate the Meador protest in a manner that allowed Manuel
to open the South Arlington dealership on or before January 1, 2001. Manuel
references language in the AESSA stating that he was required to build and
complete the facilities for the South Arlington dealership before January 1, 2001,
that the establishment of the South Arlington dealership was of ―major
importance‖ to Chrysler, and that ―time is of the essence.‖
In Herrmann Holdings, Ltd. v. Lucent Technologies, Inc., the contract
required Lucent to use its ―reasonable best efforts‖ to file registration paperwork
with the Securities and Exchange Commission (SEC) ―as promptly as
practicable‖ or ―in the most expeditious manner practicable.‖ 302 F.3d 552, 556
(5th Cir. 2002). Rejecting the very argument by Lucent that Chrysler makes
here, the Fifth Circuit Court of Appeals held that Herrmann Holdings‘s pleadings
stated a claim for breach of contract, significantly stating that ―[r]equiring
contracting parties to fix a date certain in order to set a temporal guideline in
which to complete a certain task demands more definiteness than Texas law
requires.‖ Id. at 560 (emphasis added).
Here, the best efforts provision states: ―[Chrysler] will use its best efforts to
litigate or settle the protest or lawsuit in order to allow the establishment of [the
South Arlington] dealership.‖ The best efforts provision does not include
language similar to the ―as promptly as practicable‖ or ―in the most expeditious
manner practicable‖ language in Herrmann Holdings, but the AESSA does
16
specifically and expressly contemplate establishing the South Arlington
dealership by January 1, 2001.16 Even absent such language, we cannot
interpret the best efforts provision as placing no deadline at all for Chrysler to
litigate or settle the Meador protest because doing so reads the January 1, 2001
deadline out of the AESSA and renders the best efforts clause itself
meaningless. See id. Rather, the goal or objective of the best efforts provision in
the AESSA, in light of the agreement as a whole, was for Chrysler to use its best
efforts to litigate or settle the Meador protest in such a period of time that Manuel
could establish the South Arlington dealership by January 1, 2001.
Moreover, other courts have held enforceable ―best efforts‖ requirements
in contracts that contained none of the defining language in Herrmann Holdings.
See, e.g., First Union Nat’l Bank v. Steele Software Sys. Corp., 838 A.2d 404,
428–29, 433, 448 (Md. App. 2003) (holding ―best efforts‖ is a standard in and of
itself and is therefore enforceable, noting that even where ―best efforts‖ is not
defined it is ―a standard that has diligence as its essence‖ and a term that ―takes
its meaning from the circumstances‖); see also Coady Corp. v. Toyota Motor
Dist., Inc., 361 F.3d 50, 59 (1st Cir. 2004) (―‘Best efforts‘ is implicitly qualified by
a reasonableness test—it cannot mean everything possible under the sun.‖)
(citing Macksey v. Egan, 633 N.E.2d 408, 413 & n.16 (Mass. App. Ct. 1994));
16
That Chrysler agreed to an extension of time for Manuel to establish and
open the dealership when Meador=s protest was not resolved by that time is
further indication that time was of the essence. See Siderius, Inc. v. Wallace
Co., 583 S.W.2d 852, 864 (Tex. Civ. App.—Tyler 1979, no writ).
17
Baron Fin. Corp. v. Natanzon, 509 F. Supp. 2d 501, 513–14 (D. Md. 2007)
(applying Maryland law and holding best efforts clause enforceable and defined
in terms of reasonableness highly dependent upon surrounding circumstances);
Mark P. Gergen, The Use of Open Terms in Contract, 92 Columbia L. Rev. 997,
1000 (1992) (―Best efforts clauses and other terms that require a party to use
reasonable diligence in performance are obviously like a negligence rule.‖).
This is in accord with the well-established rule that, where a contract does
not fix the time for performance (which is Chrysler‘s specific complaint about the
AESSA), it will be presumed that the agreement is to be performed within a
reasonable time. Hewlett-Packard Co. v. Benchmark Elecs., Inc., 142 S.W.3d
554, 563 (Tex. App.—Houston [14th Dist.] 2004, pet. denied); CherCo Props.,
Inc. v. Law, Snakard & Gambill, P.C., 985 S.W.2d 262, 266 (Tex. App.—Fort
Worth 1999, no pet.). What is a reasonable time depends upon the facts and
circumstances as they existed at the time the contract was formed. CherCo
Props., Inc., 985 S.W.2d at 266. Therefore, even if the January 1, 2001 date
specified in the AESSA for opening the new dealership were not controlling (and
it is undisputed that the protest was not resolved in time for Manuel to build his
facility and open for more than a year after that date), we hold that the best
efforts provision in the AESSA had a measurable timeline or goal of resolving
any protest by settlement or litigation within a reasonable time and was thus
enforceable. We overrule the first part of Chrysler‘s first issue.
B. The Quality of Chrysler’s Efforts
18
Chrysler next argues that, even if the best efforts clause is enforceable, the
AESSA‘s only goal was the opening of the South Arlington dealership and that
because Chrysler‘s efforts eventually settled the protest, it met the goal because
the South Arlington dealership eventually opened. Thus, Chrysler, citing
Herrmann Holdings, 302 F.3d at 559, argues that the ―analysis ends‖ and that
whether Chrysler used its best efforts is irrelevant. But the Fifth Circuit‘s opinion
in Herrmann Holdings is again instructive in rejecting this argument. In that case,
Lucent eventually filed the registration paperwork with the SEC, and the SEC
approved the transaction. Id. at 557. But by that time, the Herrmanns had been
damaged by the decline in Lucent‘s stock price. Id. The Fifth Circuit held that
the Herrmanns had stated a plausible claim for breach of the best efforts clause;
in other words, that Lucent eventually filed the paperwork and that the SEC
eventually approved the transaction did not negate as a matter of law the
allegations of a breach by Lucent of the best efforts clause. Id. at 561.
The goal of the contract here—a goal Chrysler itself identified as having
major importance—was not just opening the South Arlington dealership
someday, but opening the dealership by January 1, 2001. Using the CKB
analysis, we consider the ―performance . . . of an average, prudent, comparable
operator‖ under the circumstances of the case to determine the quality of
Chrysler‘s performance. See 809 S.W.2d at 582. We conclude that, even
absent a date certain by which Chrysler was obligated to litigate or settle the
protest, the fact that Chrysler eventually settled the Meador protest so that the
19
South Arlington dealership opened a year later than contemplated does not
establish as a matter of law that Chrysler met the goal. We overrule this part of
Chrysler‘s first issue.
C. Legally Sufficient Evidence of Breach of Best Efforts Clause
In the final part of its first issue, Chrysler argues that, even if it missed the
goal of timely resolving the protest, the evidence nevertheless conclusively
establishes that it used its best efforts. Manuel responds that, under the
evidence, that issue was one of fact that was properly resolved against Chrysler
by the trial court as fact finder.
1. Standard of Review
We may sustain a legal sufficiency challenge only when (1) the record
discloses a complete absence of evidence of a vital fact; (2) the court is barred
by rules of law or of evidence from giving weight to the only evidence offered to
prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a
mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital
fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998),
cert. denied, 526 U.S. 1040 (1999); Robert W. Calvert, “No Evidence” and
“Insufficient Evidence” Points of Error, 38 Tex. L. Rev. 361, 362–63 (1960). In
determining whether there is legally sufficient evidence to support the finding
under review, we must consider evidence favorable to the finding if a reasonable
factfinder could and disregard evidence contrary to the finding unless a
reasonable factfinder could not. Cent. Ready Mix Concrete Co. v. Islas, 228
20
S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827
(Tex. 2005).
Findings of fact entered in a case tried to the court have the same force
and dignity as a jury=s answers to jury questions. Anderson v. City of Seven
Points, 806 S.W.2d 791, 794 (Tex. 1991). The trial court=s findings of fact are
reviewable for legal sufficiency of the evidence to support them by the same
standards that are applied in reviewing evidence supporting a jury=s answer.
Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996); Catalina v. Blasdel, 881
S.W.2d 295, 297 (Tex. 1994).
Whether a contractual best efforts obligation has been met or fulfilled is
usually a question of fact because it is heavily dependent upon the particular
circumstances of the case. See, e.g., Mor-Cor Packaging Prods., Inc. v.
Innovative Packaging Corp., 328 F.3d 331, 334 (7th Cir. 2003) (Posner, J.)
(characterizing best efforts as a standard in and of itself and stating whether
standard is met is question of fact involving ―the application of a standard, ‗best
efforts,‘ to the particular facts of the case‖); Informed Physician Servs., Inc. v.
Blue Cross and Blue Shield of Md., Inc., 711 A.2d 1330, 1342 (Md. 1998)
(confirming that what constitutes reasonable efforts is largely a question of fact);
Widewaters Prop. Dev. Co. v. Katz, 836 N.Y.S.2d 746, 748 (N.Y. App. Div. 2007)
(noting that whether the obligation to use best efforts has been fulfilled will almost
invariably involve an issue of fact); First Union Nat’l Bank, 838 A.2d at 428
21
(stating that factual determination may be required as to whether party used best
efforts).
2. Analysis
Chrysler argues that the AESSA did not obligate it to pay any money to
Meador and urges that its other efforts to resolve Meador‘s protest were
Areasonable and prudent@ in settling the protest within nine months. Chrysler
points to evidence that its zone manager Joe Park (1) met with Meador‘s co-
owner and sales manager (because Mr. Meador was ill and unavailable) soon
after Meador filed its protest and urged withdrawal of the protest; (2) remained in
constant contact with them; (3) later talked to Mr. Meador, who would not
overrule his co-owner‘s answer of ―no‖; and (4) finally reminded Meador‘s
representatives that Meador‘s protest was a breach of Meador‘s own contractual
agreement not to protest other relocations or new dealerships in Project 2000.
But Park never offered money to Meador to withdraw its protest because he did
not think he needed to since Meador had signed a contract. Park also testified
that he did not think Meador wanted money and instead wanted to delay
Manuel‘s dealership as long as possible. Chrysler thus continued on its litigation
path, seeking to have the administrative protest dismissed, obtaining a stay of
those proceedings, and filing suit in federal court against Meador for an injunction
and to compel arbitration regarding the validity of the protest.
22
In CKB, the Dallas court of appeals stated that ―[w]hen a party misses the
guidelines, courts measure the quality of its efforts by the circumstances of the
case and by comparing the party‘s performance with that of an average, prudent,
comparable operator.‖ 809 S.W.2d at 582 (citations omitted). While there is
evidence of the circumstances surrounding Meador‘s protest, of Chrysler‘s efforts
to have Meador withdraw that protest (which Chrysler refers to as evidence of
efforts to settle), and of Chrysler‘s eventual settlement of the protest, the
evidence is undisputed that Chrysler and Meador did not exchange settlement
proposals until September 2000 and that they did not reach a settlement until
October 4, 2000.
The trial court could have reasonably inferred that Chrysler wanted to
―clear the market‖ for all of the dealerships participating in Project 2000 and that
Chrysler‘s strategy was, in effect, to remove the protest waiver issue to federal
court and seek arbitration to avoid a determination of that issue by the
Commission under the Texas regulatory scheme (which is not to say that such a
strategy was unreasonable per se). The federal district court denied injunctive
relief and Chrysler‘s motion to compel arbitration on June 7, 2000, and issued an
eleven-page order explaining the reasons, including that the validity of the protest
waiver under the terms of the TMVC was more appropriately for the agency to
decide and that Manuel was not a party and would not be bound by an arbitration
award or a decision from the federal court. See DaimlerChrysler Motors Corp. v.
Meador Chrysler-Plymouth, Inc., No. A-00-CA-216-SS, at *10–11 (W. Dist. Tex.
23
June 7, 2000). Hence the federal court abated the suit in its own court and
returned the issue to the administrative agency for decision. Id.17 At least by that
point, as the trial court in this case noted during closing arguments, Chrysler
must have had ―some understanding‖ of the unlikelihood of success with its
litigation efforts. Yet Chrysler still did nothing to settle for several more months.
During that time, Chrysler pursued its interlocutory appeal to the Fifth Circuit
Court of Appeals and strategized with Manuel to coordinate his filing suit in state
court against Meador, all of which only further delayed the resolution of the
Meador protest. After settling with Meador in October 2000, Chrysler notified
Manuel that he could proceed with building his facility in November 2000, and the
protest was formally dismissed in December 2000. By that time, all of the other
Project 2000 dealers in the area were selling cars. But Manuel was unable to
begin building his new dealership facility by reason of the pending protest until
after the settlement and, consequently, was not able to open for business until
February 2002.
17
The decision of the federal district court to return the proceedings
regarding validity of the protest waiver to the Commission seems prescient,
considering that it predated by less than a year the legislature‘s amendment of
the TMVC to give the Commission original, exclusive jurisdiction over issues
regarding sale and distribution and other issues governed by the Code and to
require abatement of a suit seeking DTPA and other damages pending an
administrative determination of Code-based issues that would govern the
remainder of the case. See Subaru of Am., Inc. v. David McDavid Nissan, Inc.,
84 S.W.3d 212, 222 (Tex. 2002) (interpreting legislature‘s amendment to Section
3.01(a) of the Code, Act of May 18, 2001, 77th Leg., R.S., ch. 155, § 5, 2001
Tex. Gen. Laws 313, 327).
24
What would a prudent, comparable automobile manufacturer have done?
As was acknowledged by the parties in the Settlement Agreement, Chrysler and
Manuel both knew from the outset that a protest could entail significant delay,
and Chrysler knew that a protest by any dealer participating in Project 2000
would present a significant obstacle to the accomplishment of its planned market
realignment. The testimony was undisputed that Chrysler had planned all along
to pay dealers for their agreement not to protest for that very reason and had
budgeted $50 million toward preventing or resolving protests such as that filed by
Meador in order to implement Project 2000 in the Dallas-Fort Worth area.
Chrysler budgeted $11.2 million to pay another dealer for a protest waiver but
ended up paying that dealer $1 million and giving him a new point (a new
dealership), and Chrysler paid $1 million to another dealer who was not a Project
2000 participant in order to settle a threatened protest within a few days after that
dealer approached Chrysler.
Although Chrysler offered evidence that Meador only wanted to delay
Manuel‘s new dealership as long as possible, there was contradictory evidence
that Meador might have been interested in a settlement and that it wanted a
―point‖. Chrysler had two open points and a substantial remaining budget of
around $30 million after payments to Manuel and other dealers but did not offer
either money or a point to Meador until late September 2000, so there is no way
to know what Meador would have accepted at an earlier date. And Chrysler=s
25
witnesses were unable to explain why Chrysler never offered any of its multi-
million dollar budget to settle the Meador protest.
Chrysler argues that the AESSA did not obligate it to pay any money to
Meador, that it had no contractual obligation to use the $50 million it had
allocated to its budget to settle protests by dealers, and that it could simply have
―ignored‖ settling with Meador until it had fully litigated its pending federal court
and administrative proceedings. Chrysler reasons that Manuel‘s position (and
the trial court‘s finding of failure to use best efforts) imposed ―an additional
burden‖ on Chrysler of settlement. Chrysler argues that its choice to litigate
rather than settle was solely within its discretion under the AESSA, that it was
entitled to exercise its legal right to enforce Meador‘s agreement to waive the
statutory right to protest, and that there was no prohibition in either the AESSA or
the Settlement Agreement against Chrysler trying to hold Meador to its
agreement. According to Chrysler, punishing it for choosing to pursue litigation
rather than to settle would strip Chrysler of its right to access to the courts to
enforce its rights.
By all of these arguments, Chrysler overlooks its agreement in the AESSA
that contractually obligated it to use its best efforts not simply to litigate but ―to
litigate or settle the protest or lawsuit in order to allow the establishment of the
South Arlington dealership.‖ [Emphasis added]. The question is not whether
Chrysler should have litigated, as we agree that was its right. Rather, the
question is when did Chrysler‘s choice to litigate to the exclusion of making any
26
efforts toward settlement become unreasonable. See CKB, 809 S.W.2d at 582
(stating that when a party fails to meet goal or guideline, court measures quality
of its efforts by circumstances and comparison of performance of the prudent
comparable operator); see also Herrmann Holdings, 302 F.3d at 559 (stating
court may look to circumstances of case and compare party‘s performance in
similar cases in determining whether party failed to exercise best efforts).
According to a letter from Manuel‘s counsel, Chrysler assured Manuel in
mid-June 2000 that it was going to dismiss the federal appeal and attempt to
settle with Meador while Manuel filed suit and litigated against Meador in state
court. Although Manuel did file and litigate that suit, Chrysler still made no effort
to settle with Meador until late September. As held by the court in CKB, ―[N]o
efforts cannot be best efforts.‖ See 809 S.W.2d at 582.
Applying the appropriate standard of review, we hold that there is legally
sufficient evidence to support the trial court=s finding that Chrysler breached the
best efforts provision in the AESSA. See Cent. Ready Mix Concrete, 228 S.W.3d
at 651; City of Keller, 168 S.W.3d at 807, 827; see also Martinez, 977 S.W.2d at
334. We overrule the remainder of Chrysler‘s first issue.
IV. LIMITATION OF DAMAGES
By its second issue, Chrysler contends that the trial court erred by
awarding Manual damages of $370,668.50 based upon Manuel‘s claim for lost
profits for the one-year period during which Manuel was not able to open the
South Arlington dealership. Chrysler relies upon the AESSA‘s limitation-of-
27
damages provision, which limits recoverable damages solely to ―out-of-pocket
expenses that cannot be mitigated,‖ and argues that Manual is barred from
recovering lost profits as damages by waiver of ―incidental and consequential
damages‖ in both the AESSA and the Settlement Agreement.18 Chrysler
complains that the trial court erred as a matter of law in disregarding these
contractual limitations of damages. Alternatively, Chrysler contends that, if the
trial court concluded that the limitation of damages provisions were ambiguous,
there is no evidence to support the trial court‘s finding of fact that the parties‘
intent was to allow recovery of ―actual damages‖ under the Settlement
Agreement.
A. Preservation of Error
Manuel first asks us to summarily overrule Chrysler‘s second issue
because Chrysler failed to negate every basis supporting the judgment.
Specifically, Manuel argues that Chrysler only challenges ―lost profits‖ but that
the trial court could have rested its damage award on Manuel‘s individual claims
for lost salary and rental income for which there is evidence and which Manuel
asserts are independent grounds not challenged on appeal.
Rule of appellate procedure 38.1(f) provides that ―[t]he statement of an
issue or point will be treated as covering every subsidiary question that is fairly
18
As mentioned above, the trial court‘s findings of fact and conclusions of
law do not expressly state that Chrysler breached the AESSA (as opposed to the
Settlement Agreement), but only the AESSA contains a best efforts clause.
28
included.‖ Tex. R. App. P. 38.1(f). In this regard, the Supreme Court of Texas
has stated that ―disposing of appeals for harmless procedural defects is
disfavored‖; that appellate courts are to construe appellate briefs ―reasonably, yet
liberally, so that the right to appellate review is not lost by waiver‖; and that
―appellate courts should reach the merits of an appeal whenever reasonably
possible.‖ Perry v. Cohen, 272 S.W.3d 585, 587 (Tex. 2008).
While Chrysler‘s second issue discusses the damages awarded in short-
hand form as ―lost profits,‖ Chrysler‘s overarching contention is that the limitation-
of-damages clause of the AESSA limits Manuel‘s damages to out-of-pocket
expenses that cannot be mitigated.19 None of Manuel‘s damage claims—
whether for lost profits, lost owner‘s salary, or lost rental income—are for out-of-
pocket expenses; each claim seeks recovery of benefit-of-the-bargain damages
as if the contract had been performed. See Bechtel Corp. v. Citgo Prods.
Pipeline Co., 271 S.W.3d 898, 927 (Tex. App.—Austin 2008, no pet.) (stating that
expectation damages are designed to award the claimant ―the benefit of his
bargain by being put in as good a position as he would have been had the
contract or promise been performed‖).
19
Out-of-pocket expenses are reliance damages designed ―to reimburse
the plaintiff for expenditures made toward execution of the contract, in order to
restore the status quo before the contract.‖ See Foley v. Parlier, 68 S.W.3d 870,
884–85 (Tex. App.—Fort Worth 2002, no pet.) (contrasting reliance or out-of-
pocket damages with expectancy or benefit-of-the-bargain damages).
29
Whether Manuel may recover any damages (which would include lost
profits, lost salary, and lost rentals) other than out-of-pocket expenses is fairly
included within Chrysler‘s second issue; lost owner‘s salary and rental income
are not independent, unchallenged grounds supporting the trial court‘s judgment.
See Tex. R. App. P. 38.1(f); Perry, 272 S.W.3d at 586–87; cf. Reliford v. BNSF
Ry. Co., No. 02-09-00322-CV, 2011 WL 255795, at *1 (Tex. App.—Fort Worth
Jan. 27, 2011, no pet.) (mem. op.) (holding appellant failed to challenge each
independent ground supporting judgment because jury found statute of
limitations barred claim and appellant only complained of charge error on his
affirmative cause of action). Thus, we will address the merits of Chrysler‘s
second issue.
B. Applicable Law
Included within the resolution of Chrysler‘s second issue are legal
determinations relating to the interpretation of contracts, the consideration of
separate writings together, ambiguity, and the differences between direct and
consequential damages for breach of contract.
1. Rules of Interpretation and Contract Construction
Interpretation of an unambiguous contract is a question of law for the court
to decide de novo. Coker, 650 S.W.2d at 393. Our primary concern in
construing a written contract is to ascertain the objective intent of the parties as
expressed in the contract. Id.; City of the Colony v. N. Tex. Mun. Water Dist.,
272 S.W.3d 699, 722 (Tex. App.—Fort Worth 2008, pet. dismissed). We
30
examine and consider the entire document in an effort to harmonize and give
effect to all provisions of the contract so that none will be rendered meaningless.
Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex.
2006); Coker, 650 S.W.2d at 393; City of the Colony, 272 S.W.3d at 722.
We examine all parts of the agreement in light of the circumstances
surrounding the formation of the contract. Columbia Gas Transmission Corp. v.
New Ulm Gas, Ltd., 940 S.W.2d 587, 591 (Tex. 1996). Instruments pertaining to
the same subject matter must be considered together to ascertain the intent of
the parties. In re Prudential Ins. Co., 148 S.W.3d 124, 135 (Tex. 2004) (orig.
proceeding); see City of Keller, 168 S.W.3d at 811 (even writings executed at
different times must be considered together if they pertain to the same
transaction); DeWitt County Elec. Co-op., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex.
1999). We view the contracts ―from a utilitarian standpoint bearing in mind the
particular business activity sought to be served.‖ Frost Nat’l Bank v. L & F
Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (quoting Reilly v. Rangers
Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987)); Clark v. Cotten Schmidt, L.L.P.,
327 S.W.3d 765, 772 (Tex. App.—Fort Worth 2010, no pet.).
Whether a contract is ambiguous is a question of law for the court. J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). Lack of clarity
does not create an ambiguity, and a contract is not ambiguous merely because
the parties advance conflicting interpretations. Id.; City of the Colony, 272
S.W.3d at 722. We determine whether a contract is ambiguous by considering
31
the contract as a whole in light of the circumstances present when the parties
entered into it. Universal Health Servs., Inc. v. Renaissance Women’s Grp.,
P.A., 121 S.W.3d 742, 746 (Tex. 2003). The trial court should ascertain the
objective intent of the parties as expressed in the writing itself. Sun Oil Co. v.
Madeley, 626 S.W.2d 726, 731 (Tex. 1981). A contract is ambiguous when its
meaning remains uncertain or subject to more than one reasonable interpretation
after it is subjected to applicable rules of interpretation. Frost Nat’l Bank, 165
S.W.3d at 312; Coker, 650 S.W.2d at 393–94. It is only after a determination by
the trial court that the contract is in fact ambiguous that parol evidence becomes
admissible, and then only to assist the fact finder in determining what the
subjective intent of the parties was at the time they entered into the contract.
See Sun Oil Co., 626 S.W.2d at 731; see also Coker, 650 S.W.2d at 395.
2. Law on Contract Damages
Because the agreements do not define the terms ―actual damages‖ or
―consequential damages,‖ we presume that the parties intended their ordinary
meanings. Cherokee Cnty. Cogeneration Partners, L.P. v. Dynegy Mktg. &
Trade, 305 S.W.3d 309, 314 (Tex. App.—Houston [14th Dist.] 2009, no pet.).
The trial court found, and neither party disagrees, that the AESSA did not involve
the sale of goods or services. Therefore, we will apply common-law definitions
rather than those set forth in Article 2 of the UCC. See id. (holding supply
contract for purchase of natural gas to operate cogeneration facility not a contract
for sale of goods and thus applying common law rather than UCC definition of
32
consequential damages); Wade & Sons, Inc. v. Am. Standard, Inc., 127 S.W.3d
814, 823 (Tex. App.―San Antonio 2003, pet. denied) (noting different definitions
used for direct and consequential damages under Texas common law and as
Texas courts have interpreted the UCC).
At common law, the term ―actual damages‖ encompasses both ―direct‖ and
―consequential‖ damages. Arthur Andersen & Co. v. Perry Equip. Corp., 945
S.W.2d 812, 816 (Tex. 1997); Henry S. Miller Co. v. Bynum, 836 S.W.2d 160,
163 (Tex. 1992) (Phillips, C.J., concurring). ―Direct damages,‖ also known as
―general damages,‖ are those inherent in the nature of the breach of the
obligation between the parties, and they compensate a plaintiff for a loss that is
conclusively presumed to have been foreseen by the defendant as a usual and
necessary consequence of the defendant‘s act. Arthur Anderson & Co., 945
S.W.2d at 816; Cherokee Cnty., 305 S.W.3d at 314. One measure of direct
damages is the ―benefit of the bargain‖ measure, which utilizes an expectancy
theory and evaluates the difference between the value as represented and the
value received. See Mood v. Kronos Prods., Inc., 245 S.W.3d 8, 12 (Tex. App.—
Dallas 2007, pet. denied) (generally, measure of damages for breach is that
which restores injured party to position he would have had if contract had been
performed); Frost Nat’l Bank v. Heafner, 12 S.W.3d 104, 111 n.5 (Tex. App.—
Houston [1st Dist.] 1999, pet. denied) (citing Henry S. Miller, 836 S.W.2d at 163).
―Consequential damages,‖ also referred to as ―special damages,‖ are
those said to result naturally but not necessarily from the wrongful act because
33
they require the existence of some other fact beyond the relationship of the
parties. Arthur Andersen, 945 S.W.2d at 816 (consequential damages not
necessarily referable to the breach, but the loss must still have been reasonably
foreseeable or within the contemplation of the parties); Henry S. Miller, 836
S.W.2d at 163; Cherokee Cnty., 305 S.W.3d at 313–14; Tenn. Gas Pipeline Co.
v. Technip USA Corp., No. 01-06-00535-CV, 2008 WL 3876141, at *8–9 (Tex.
App.—Houston [1st Dist.] 2008, pet. denied) (mem. op.) (op. on reh‘g).
Damages that might be considered ―consequential‖ in one contract may be
direct damages in another. As Judge Cardozo wrote many years ago, the
distinction between direct and consequential damages under the common law is
not absolute: ―There is need to keep in mind that the distinction is not absolute,
but relative. To put it in other words, damage which is general in relation to a
contract of one kind may be classified as special in relation to another.‖ Kerr
S.S. Co. v. Radio Corp. of Am., 157 N.E. 140, 141 (N.Y. 1927) (also noting that
damages for delay may be direct in some instances and consequential in others);
see Rexnord Corp. v. DeWolff Boberg & Assocs., Inc., 286 F.3d 1001, 1004 (7th
Cir. 2002) (Posner, J.) (stating that common law ―distinguishes between direct
and consequential damages, the difference lying in the degree to which the
damages are a foreseeable (that is, a highly probable) consequence of a
breach‖); Computrol, Inc. v. Newtrend, L.P., 203 F.3d 1064, 1071 n.5 (8th Cir.
2000) (―We are not convinced that the [contract‘s] restriction on ‗special,
incidental, or consequential damages,‘ standing alone, precludes the recovery of
34
lost profits . . . . [I]t is incorrect to classify mechanically . . . lost profits . . . as
consequential damages.‖). If the language of the contract indicates that the
parties contemplated lost profits as the probable result of the breach, then those
lost profits are more properly seen as a part of the contract, itself, and thus a
form of direct damages. Viastar Energy, LLC v. Motorola, Inc., No. 1:05-CV-
1095-DFH-WTL, 2006 WL 3075864, at *5–6 (S.D. Ind. Oct. 26, 2006); see also
White & Summers, Uniform Commercial Code § 10-4 (Update 2011) (noting that
it is a ―fallacy‖ to assume that damages to a buyer, such as those resulting from
delay, are inherently consequential, since damages that are consequential under
one contract may be direct or ordinary under another); 11 Corbin on Contracts §
56.6 (2005) (noting courts‘ difficulty in establishing a workable distinction
between general and special damages, and observing that the appropriate
distinction of claimed damages varies with the context). Even under the UCC, it
has been noted that consequential damages under § 2.715(2) may overlap with
difference in value damages recoverable under § 2.714(2). White & Summers,
Uniform Commercial Code § 10-4.20
20
Despite the vast number of cases purporting to define ―consequential
damages‖ by repeating the same time-honored but general definitions and
distinctions between consequential and direct damages, the meaning remains
elusive. See, e.g., T.Co Metals, L.L.C. v. Dempsey Pipe & Supply, Inc., 592 F.3d
329, 341 (2nd Cir. 2010) (citing White & Summers, Uniform Commercial Code §
10-2 (5th ed. 2006) (noting ―reasonable persons often differ whether an item of
damage is ‗consequential‘‖); Applied Data Processing, Inc. v. Burroughs Corp.,
394 F. Supp. 504, 508 (D. Conn. 1975) (discussing Michigan law and stating
neither in Michigan nor elsewhere does the term ―consequential damages‖ have
a clearly established meaning); see also Glenn D. West, Sara G. Duran,
35
Lost profits may be either ―direct‖ or ―consequential‖ damages, depending
on their nature. Cherokee Cnty., 305 S.W.3d at 314; Mood, 245 S.W.3d at 12;
Cont’l Holdings, Ltd. v. Leahy, 132 S.W.3d 471, 475 (Tex. App.—Eastland 2003,
no pet.). As Chrysler argues, profits lost on other contracts or relationships
resulting from the breach (such as resale of property to a third party) are
generally classified as indirect or consequential damages. See Mood, 245
S.W.3d at 12; Leahy, 132 S.W.3d at 475. However, lost profits that represent the
benefit-of-the-bargain measure of damages required to restore the plaintiff to the
economic position he would have enjoyed if the contract had been performed are
―direct‖ damages when shown to be ―conclusively presumed‖ to have been
foreseen by the parties as a usual and necessary consequence of a breach. See
Cherokee Cnty., 305 S.W.3d at 314.
C. Analysis
1. Relevant Contractual Language
In relevant part, the limitation-of-damages provision in the AESSA states:
In the event of default under this Agreement, the sole liability of the
defaulting party is payment of the other party=s out-of-pocket
expenses that cannot be mitigated. Both [Manuel] and [Chrysler]
Reassessing the “Consequences” of Consequential Damage Waivers in
Acquisition Agreements, 63 Bus. Law 777, 780 (May 2008) (suggesting that few
transactional lawyers can define ―‗consequential‘ damages accurately and many
misconstrue the impact a waiver of such damages may have‖); Gregory K.
Morgan & Albert E. Phillips, Design Professional Contract Risk Allocation: The
Impact of Waivers of Consequential Damages and Other Limitations of Liabilities,
33 J.C. & U.L. 1, 13 (2006) (stating ―no one knows what consequential damages
are or may be, at least not with predictability or uniformity‖).
36
waive all rights to other compensatory damages or to consequential
or punitive damages under any theory of law or cause of action.
[Emphasis added.]
The Settlement Agreement, to which the AESSA is attached as ―Exhibit A,‖
also contains a limitation-of-damages provision, which states as follows:
[Manuel] and [Chrysler] waive any claims they may have for
incidental or consequential damages, for punitive or exemplary
damages, and for jury trial, that may arise by virtue of any breach of
this [Settlement] Agreement or the AESSA, or by virtue of any
transaction based in whole or in part upon a provision of this
[Settlement] Agreement or the AESSA. The parties remain liable for
any actual damages. [Emphasis added.]
The Settlement Agreement also provides that
[t]his [Settlement] Agreement is not part of the Sales and Service
Agreement of any dealership. The terms of any Sales and Service
Agreement prevail if there is any conflict. To the extent that there is
any conflict between this [Settlement] Agreement and any other
agreement or document other than a Sales and Service Agreement
between [Chrysler] and [Manuel], the terms of this [Settlement]
Agreement prevail. [Emphasis added.]
2. Agreements Must Be Construed Together
Chrysler first contends that only the limitation-of-damages provision in the
AESSA (limiting Manuel‘s recovery solely to ―out of pocket expenses that cannot
be mitigated‖) applies because the trial court found that Chrysler failed to use its
best efforts and only the AESSA contains a ―best efforts‖ clause.21 But Manuel
21
Chrysler intimates that the AESSA is only a letter of intent for which Manuel
paid Chrysler nothing. But Manuel gave up his longstanding, successful Chrysler
line at his Richardson dealership (Manuel‘s lost profits that he would have
received from the Richardson dealership as the result of the delay while he
waited to build and open his new dealership constituted his alternative measure
of damages) and agreed to waive his own rights to protest any other relocations
37
replies that the Settlement Agreement must be considered together with and
applies to any breach of the AESSA and further states that the Settlement
Agreement prevails over the AESSA in the event of a conflict, meaning the trial
court correctly awarded damages pursuant to the Settlement Agreement‘s
limitation-of-damages provision, which provides that ―[t]he parties remain liable
for any actual damages.‖
Chrysler does not challenge the trial court‘s finding that the Settlement
Agreement and the AESSA ―comprise the entire agreement between the parties.‖
That finding mirrors &3(l) of the AESSA, which states that ―[t]his Agreement,
together with the [Settlement Agreement] executed contemporaneously with this
agreement, is the entire Agreement between [Manuel] and [Chrysler].‖ The
Settlement Agreement refers to and describes the purpose of the AESSA to
―allow Manuel to apply to the State of Texas for permission to establish a
Chrysler, Plymouth, and Jeep Dealership in Tarrant County, within the Dallas
Market at the location set forth in Exhibit A [the AESSA].‖
or new dealerships in Project 2000. Moreover, Chrysler has not argued that the
AESSA was not binding, nor has it challenged the trial court‘s conclusion that the
AESSA (as well as the Settlement Agreement) is valid and enforceable. Letters
of intent may be enforceable as valid contracts where parties agree on material
terms even where they leave open other terms for later negotiation. Foreca, S.A.
v. GRD Dev. Co., 758 S.W.2d 744, 746 (Tex. 1988) (holding intent to be bound is
essential element of enforceable agreement); John Wood Grp. USA, Inc. v. ICO,
Inc., 26 S.W.3d 12, 19 (Tex. App.—Houston [1st Dist.] 2000, pet. denied) (noting
intent to be bound by letter of intent may be found as a matter of law).
38
The Settlement Agreement contains numerous other references to the
AESSA. And significantly, the limitation-of-damages provision in the Settlement
Agreement also states that it applies to ―any claims for damages by virtue of any
breach of this [Settlement] Agreement or the AESSA.‖ [Emphasis added].
Finally, the Settlement Agreement provides that, to the extent of any conflict with
any other agreement (other than a Sales and Service Agreement, not at issue
here), which would include the AESSA, ―the terms of this [Settlement] Agreement
prevail.‖ [Emphasis added.]
We agree with Manuel that the two agreements must be construed as one
instrument and interpreted together. Although the AESSA limits Chrysler‘s
liability for breach of that agreement to ―out-of-pocket expenses that cannot be
mitigated,‖ the Settlement Agreement states that it applies to any breach of that
agreement or the AESSA, that it prevails to the extent of any conflict with the
AESSA, and that ―[t]he parties remain liable for any actual damages.‖ [Emphasis
added.]
3. Lost Profits May Be Direct or Consequential Damages
There is no bright-line rule that lost profits always constitute consequential
damages under the common law (as Chrysler seems to contend), and Chrysler‘s
cases holding that lost profits are consequential damages are not persuasive.
For example, Tooke v. City of Mexia, 197 S.W.3d 325, 329 (Tex. 2006), did not
involve common law consequential damages but instead interpreted section
271.153 of the Texas Local Government Code, which limits recovery to the
39
―balance due and owing‖ under a contract with a city plus interest, thereby
excluding recovery under that statute for all lost profits as consequential
damages.22
In Leahy, 132 S.W.3d at 475, also relied upon by Chrysler, the limitation-
of-damages provision expressly excluded recovery for ―lost profits,‖ both direct or
consequential. Neither the AESSA nor the Settlement Agreement in this case
even mentions ―lost profits,‖ nor do the limitation-of-damages provisions purport
to allocate that risk to either party, even though the lost profits were the only type
of damages that Manuel would likely suffer from a significant delay caused by a
protest from another dealer and that very risk was expressly mentioned in the
Settlement Agreement and addressed by both the Settlement Agreement and the
AESSA. Courts have construed limitation-of-damages clauses to preclude both
direct and consequential lost profits where the clauses expressly waived
damages for either lost profits or consequential damages, but have held that
direct lost profits were not precluded where only ―consequential‖ damages, either
generally or ―including‖ lost profits, were waived. Compare id. (limitation-of-
liability clause precluded both direct and consequential lost profits where contract
waived damages for ―loss of profits, loss of business, or any other indirect or
22
We agree with our sister court in Cherokee County that Tooke should not
be extended beyond the governmental-immunity context. See 305 S.W.3d at
315 n.8 (noting that lost profits are consequential damages under local
government code section 271.153) (quoting City of Houston v. Petroleum
Traders Corp., 261 S.W.3d 350, 359 (Tex. App.—Houston [14th Dist.] 2008, no
pet.)).
40
consequential damages‖ (emphasis added)), with Cherokee Cnty., 305 S.W.3d at
314 (holding direct lost profits recoverable although contract disallowed
―consequential‖ damages), and Tenn. Gas, 2008 WL 3876141, at *6–8 (holding
clause limiting recovery of consequential damages ―including . . . lost profits‖
barred only consequential lost profits).23
The recent Cherokee County case supports recovery of lost profits for
resale to third parties as direct damages in the face of a limitation-of-damages
clause, similar to the one in this case, which waived recovery of consequential
damages without mentioning lost profits. See 305 S.W.3d at 315. In that case, a
long-term contract for purchase of gas to operate a cogeneration facility
contained a provision allowing the buyer to use the gas to operate the facility or
to resell the gas to third parties. Id. at 311. When the seller failed to deliver the
required volumes of gas as the claimed result of weather disruptions, the buyer
sued for damages based on the difference between the amount it would have to
pay under the contract and the much higher amount that it would have received
by selling the gas to third parties during that period. Id. at 311–12. The seller
contended that the damages amounted to lost profits waived by the clause
prohibiting recovery of consequential damages, and the trial court granted
summary judgment to the seller. Id. at 312. The Houston Fourteenth Court of
23
See also Penncro Assocs., Inc. v. Sprint Spectrum, L.P., 499 F.3d 1151,
1156 (10th Cir. 2007) (holding direct lost profits allowed where clause provided
―no consequential damages are recoverable includ[ing], but . . . not limited to, lost
profits, lost revenues and lost business opportunities‖).
41
Appeals reversed and remanded, holding that the lost profits from the buyer‘s
inability to resell gas not delivered to customers at the higher market value were
―direct‖ damages not precluded by the waiver of ―consequential‖ damages
contained in the contract. Id. at 314–15. Holding that the contract was not a sale
of goods controlled by the UCC, the court used the common law definition of
―consequential damages‖ and held that, by the parties‘ express agreement that
the buyer could resell the gas to a third party, the contract thereby implicitly
authorized the buyer to profit from increases in the market price of the gas; thus,
any wrongful interference with that contract right ―would naturally and necessarily
cause [the buyer] to suffer direct damages in the form of profits on the
[a]greement itself.‖24 Id. at 315 & n.11. Thus, depending on the unique
circumstances of each case, including the specific language of the contract, lost
profits may be direct or consequential damages.
4. Ambiguity Concerning Recoverable Damages
a. Conflict Concerning Recoverable Damages
Considering the contracts together, the AESSA limits Chrysler‘s liability to
out-of-pocket expenses, but the Settlement Agreement provides that it ―prevails‖
to the extent of any conflict with the AESSA and states that the parties ―remain
24
The Houston court contrasted those direct loss of profits from inability to
sell the gas with profits lost on its contracts for sale of electricity produced from
the gas at its cogeneration facility, which would be consequential damages. Id.
at n.12; see also Tenn. Gas, 2008 WL 3876141, at *8 (holding gas pipeline
suffered consequential damages when seller=s failure to timely deliver purchased
equipment prevented it from selling gas to its customers).
42
liable for any actual damages.‖ The first and most obvious conflict is between
the AESSA, which limits recovery to out-of-pocket expenses and excludes
consequential damages, and the Settlement Agreement, which allows recovery
for actual damages. The second conflict is between the retention of liability for
―any actual damages‖ and the waiver of consequential damages, both within the
same paragraph of the Settlement Agreement.
Chrysler attempts to reconcile the obvious conflict between the limitation to
―out-of-pocket expenses‖ in the AESSA and the retention of liability for ―actual
damages‖ in the Settlement Agreement by focusing on a waiver of
―consequential‖ damages contained in both agreements. Chrysler argues that
the lost profits damages awarded to Manuel are barred from recovery under both
agreements as ―consequential damages‖ because they constituted only
anticipated lost income from collateral contracts, that is, retail sales that Manuel
claimed his new dealership could have made to third parties during its first year
of operation had it opened on time. But as discussed above, lost profits are not
per se consequential damages solely because sales to third parties are involved.
See, e.g., Cherokee Cnty., 305 S.W.3d at 314–15.
Chrysler also posits that one measure of direct ―actual damages‖ is ―out-of-
pocket expenses‖ and that interpreting the retention of liability for ―actual
damages‖ so as to allow Manuel‘s recovery only of out-of-pocket expenses (by
reason of the waiver of consequential damages) is consistent with the limitation
of damages in the AESSA to out-of-pocket expenses. While this proposed
43
construction superficially harmonizes the two clauses, the limitation-of-damages
clause in the AESSA already uses the term ―out-of-pocket expenses.‖ It is not
reasonable to interpret both terms, that is, ―actual damages‖ and ―out-of-pocket
expenses,‖ to have the same meaning as that would render one or the other term
meaningless or redundant. See Cmty. Improvement Ass’n of Lake Conroe Hills,
Inc. v. Beckham, No. 07-03-00036-CV, 2004 WL 2000666, at *4 (Tex. App.—
Amarillo 2004, no pet.) (mem. op.) (declining to interpret different words used in
document to have the same meaning, effectively rendering one or the other
redundant); Cherokee Water Co. v. Freeman, 33 S.W.3d 349, 354 (Tex. App.—
Texarkana 2000, no pet.) (holding that construing different terms to have same
meaning would render some words to be meaningless); see also Penncro
Assocs., Inc., 499 F.3d at 1157 (―When a contract uses different language in
proximate and similar provisions, we commonly . . . assume that the parties‘ use
of different language was intended to convey different meanings.‖). Thus, we
must assume that the use of the term ―actual damages‖ rather than ―out-of-
pocket expenses‖ in the Settlement Agreement was for a purpose and means
something other than ―out-of-pocket expenses.‖
Chrysler next argues that reading the limitation of damages clause in the
Settlement Agreement so that the more specific waiver of consequential
damages controls over the more general term ―actual damages‖ leads to a
conclusion that the parties intended to retain liability only for actual damages that
are not incidental or consequential, meaning direct damages may be recovered
44
but that Manuel‘s lost profits are unrecoverable consequential damages.
Chrysler cites Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133–34 (Tex.
1994) for the secondary rule of construction that specific provisions control over
general provisions.25 But Forbau further states that ―[t]his is but an application of
our long-established rule that ‗[n]o one phrase, sentence, or section [of a
contract] should be isolated from its setting and considered apart from the other
provisions.‘‖ Id. (quoting Guardian Trust Co. v. Bauereisen, 132 Tex. 396, 403–
05, 121 S.W.2d 579, 583 (1938)). And it bears repeating that lost profits are not
per se consequential damages solely because there will be a subsequent sale to
third parties. See, e.g., Cherokee Cnty., 305 S.W.3d at 314–15.
25
Chrysler also argues that the waiver of ―other compensatory damages‖
(in addition to the waiver of consequential damages) in the AESSA is more
specific and controls over the more general retention of liability for ―actual
damages‖ in the Settlement Agreement (applying the specific-over-general rule
of construction, so as to preclude recovery of all lost profits). But the ordinary
meanings of the terms ―actual damages‖ and ―compensatory damages‖ are that
they are synonymous. See Tate v. Hernandez, 280 S.W.3d 534, 541 (Tex.
App.—Amarillo 2009, no pet.) (holding ―actual damages‖ and ―compensatory
damages‖ have same meaning); Anderson v. Alcus, 42 S.W.2d 294, 296 (Tex.
Civ. App.—Beaumont 1931, no writ) (noting ―actual damages‖ are synonymous
with ―compensatory damages‖). Chrysler‘s only suggestion to resolve this
conflict is to ignore the provision in the Settlement Agreement allowing recovery
of actual damages. Application of that rule of construction here would require
that we simply disregard that provision in violation of the basic rule that we avoid
interpreting contracts so as to render terms meaningless. Second, we are at a
loss to see how one synonymous term can be more specific than another. Third,
Chrysler overlooks the provision that the Settlement Agreement ―prevails‖ in the
event of a conflict with the AESSA, so that the parties‘ retention of liability for
―actual damages‖ in the Settlement Agreement trumps the waiver of ―other
compensable damages‖ in the AESSA.
45
Chrysler‘s proposed interpretation—that the more specific waiver of
consequential damages controls over the more general term ―actual damages,‖
meaning Manuel may only recover lost profits that are ―direct damages‖—is
reasonable. But this does not end our analysis because Chrysler‘s interpretation
is not the only reasonable interpretation of the agreements. Manuel contends
that the two agreements are ambiguous because they conflict on their face when
read together.26 Specifically, Manuel points out that the Settlement Agreement
expressly provides that it ―prevails‖ in the event of a conflict with the AESSA and
that the Settlement Agreement‘s limitation of damages provision expressly states
that it applies to a breach of the AESSA. Manuel also points to the inherent
conflict between the Settlement Agreement‘s purported waiver of consequential
damages and simultaneous retention of liability for any actual damages. Given
these conflicts and the provisions in the AESSA that time was of the essence and
that Chrysler had the obligation to use its best efforts to litigate or settle any
protest so that the South Arlington dealership could open by January 1, 2001,
26
Manuel, citing Wilburn v. Mo.-Kan.-Tex. Ry. Co. of Tex., 268 S.W.2d 726,
731 (Tex. Civ. App.—Dallas 1954, no writ) (op. on reh‘g) (stating that ―[a] contract
will not be construed to limit the remedial rights of the parties unless such an
intention is clear‖), argues that the limitation-of-damages clauses are ambiguous,
which renders them unenforceable. While we agree that the clauses are
ambiguous as discussed below, this rule of construction is inapplicable here
because the contracts provide that their terms will not be strictly construed
against either party. Moreover, this rule of strict construction does not apply in
the context of commercial contracts between sophisticated parties. See Green
Int’l, Inc. v. Solis, 951 S.W.2d 384, 387 (Tex. 1997) (holding no-damages-for-
delay clause enforceable in agreement between experienced parties familiar with
such risk-shifting clauses).
46
Manuel‘s interpretation of the agreements—preserving the right to recover any
actual damages—is also reasonable.
After applying the applicable rules of interpretation and considering all of
the circumstances surrounding the execution of the agreements; the lack of
specific waiver of lost profits in either agreement; and the lack of any definition of
consequential, compensatory, or actual damages, we are left with terms that
remain subject to more than one reasonable interpretation. They are therefore
ambiguous as a matter of law, and we hold that the trial court did not err by
implicitly finding that the contracts are ambiguous.
b. Evidence of Parties’ Intent
While the trial court did not make an explicit conclusion of law that the
contract was ambiguous, it implicitly did so because it made a finding of fact that
the parties ―intended to retain the right to actual damages.‖ Chrysler argues in
the last part of its second issue that there is no evidence to support the trial
court‘s finding of the parties‘ intent because no witness provided parol evidence
of the parties‘ intent concerning the damage waiver provisions since neither
Manuel‘s attorney nor Chrysler‘s attorney—the only persons who drafted or
negotiated wording changes in the agreements—were asked any questions on
this topic and because no changes were made in the damage limitations in the
agreements.
Chrysler provides no case law stating that parol evidence of the parties‘
true intent as an issue of fact is required when a contract is ambiguous. Rather,
47
the rule is that parol evidence of intent of the parties may be considered when
the court has determined that a contract is ambiguous. Philadelphia Am. Life Ins.
Co. v. Turner, 131 S.W.3d 576, 587 (Tex. App.―Fort Worth 2004, no pet.) (citing
Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995),
and Sage St. Assocs. v. Northdale Constr. Co., 863 S.W.2d 438, 445 (Tex.
1993)). The primary and best evidence of the parties‘ intent remains the
agreement itself, considered in light of all of the surrounding facts and
circumstances. See Emerald Tex., Inc. v. Peel, 920 S.W.2d 398, 402 (Tex.
App.—Houston [1st Dist.] 1996, no writ) (citing City of Pinehurst v. Spooner, 432
S.W.2d 515, 518 (Tex. 1968)). The fact finder may consider other evidence that
may be helpful in illuminating the parties‘ true intent. Sw. Airlines Co. v. Jaeger,
867 S.W.2d 824, 829–30 (Tex. App.—El Paso 1993, writ denied), disapproved of
on other grounds by Dallas Market Ctr. Dev. Co. v. Liedeker, 958 S.W.2d 382,
386–87 (Tex. 1997), overruled, Torrington Co. v. Stutzman, 46 S.W.3d 829, 840
n.9 (Tex. 2000). Moreover, parties do not ordinarily contract with reference to
what happens if there is a breach. ―Parties generally have their minds addressed
to performance of contracts―not to their breach or the consequences which will
follow a breach.‖ See 24 R. Lord, Williston on Contracts § 64:15 (4th ed. 1999).
In this case, there is legally sufficient evidence to support the trial court‘s
finding that the parties intended to retain the right to actual damages, even
though there is not specific testimony of their subjective intent regarding the
limitation of damages provisions. That evidence included the agreements
48
themselves; the circumstances surrounding Chrysler‘s planning, negotiations,
and implementation of Project 2000; the sophistication and longstanding
relationship of the parties; the parties‘ negotiations; Chrysler‘s need for
franchised dealers to be able to sell Chrysler‘s motor vehicles to the public; the
purpose of the agreement for a franchise, which was for both Chrysler and
Manuel to make profits from car sales; the overriding importance to success of
the marketing plan such that each participating dealer agreed to waive the right
to protest another dealer; and, finally, the recognition by both parties that a
protest might nevertheless be made and result in significant delay in opening the
new dealership.27
Chrysler agreed in the AESSA to grant a franchise to Manuel, and the
AESSA specifically set forth Chrysler‘s ―planning potential‖ for Manuel‘s new
dealership as 1,076 vehicles to be supplied by Chrysler in the new dealership‘s
first year so that Manuel could resell those vehicles to consumers. As conditions
required for Chrysler to grant Manuel the franchise, Manuel was to acquire
suitable land for the construction of the dealership and provide building and site
plans to be approved by Chrysler for a facility—the minimum requirements for
27
Moreover, a limitation or waiver of damages in a contract is an affirmative
defense, so that Chrysler, rather than Manuel, had the burden of proof to offer
any parol or other extrinsic evidence that the parties‘ true intent was to preclude
recovery of the damages claimed by Manuel. See Leahy, 132 S.W.3d at 475;
Regency Advantage Ltd. P’ship v. Bingo Idea–Watauga, Inc., 928 S.W.2d 56, 63
(Tex. App.—Fort Worth 1995), rev’d in part on other grounds, 936 S.W.2d 275
(Tex. 1996) (per curiam).
49
which were specifically set forth (excluding a body shop) in the AESSA as 20,350
square feet of facility including a new vehicle showroom for six vehicles, a parts
department of 5,500 square feet, a service department of 11,500 square feet with
22 service stalls, and 110,100 square feet of total land area. The AESSA stated
these requirements were based upon Chrysler‘s ―planning potential‖ of ―1076
units‖ for the first year of operation of the dealership. Additionally, in November
2001, Chrysler prepared for Manuel a ―Dealer Agreement Portfolio‖ including a
document signed by Manuel and titled ―DAP-3,‖ which forecast the new
dealership‘s net profit as $702,674 for its first year of actual operation based
upon Chrysler‘s estimated ―planning potential‖ for the new dealership‘s first year
of actual operation along with parts and service, minus expenses.
Jim Dimond, Chrysler‘s national market representation manager in 2000
and whose department developed Project 2000, testified his department
determined dealer planning potential. Chrysler purchased data on auto
registrations from all parts of the country, demographic data with population and
income levels, and counts of competitive dealers in market areas. Dimond
explained that ―planning potential‖ is each market‘s share of ―forward looking
financial volumes.‖ As Dimond noted, the AESSA cautioned that planning
potential was not intended to predict the number of units that the dealer would
sell or that Chrysler would sell to the dealer and that number might change with
market conditions. Nevertheless, he admitted that Chrysler used planning
50
potential for the number of anticipated sales for the first year for a new
franchised-dealership because it is ―the best number if we have no track record.‖
Dimond described the South Arlington area as a growing market with a
strong population and increasing income where Chrysler needed to establish
more ―points.‖ Dimond explained that the only way that a dealer can sell cars in
the United States and the only way a manufacturer can distribute cars for sale to
consumers is through a franchised dealership. As relevant here, the TMVC
defines a ―franchise‖ as one or more contracts between a franchised dealer as
franchisee and a manufacturer (or distributor) as franchisor, in which: ―(A) the
franchisee is granted the right to sell and service new motor vehicles
manufactured or distributed by the franchisor or to service motor vehicles under
the contract and a manufacturer‘s warranty‖ and ―(D) the franchisee‘s business
substantially relies on the franchisor for a continued supply of motor vehicles,
parts, and accessories.‖ Tex. Occ. Code Ann. § 2301.002 (West 2008).
Van Gray, Chrysler‘s national dealer placement manager in 1998 and
1999, testified that Chrysler would not have undertaken the risky venture of
slating a new dealership in the South Arlington area unless it thought the
dealership could make money. It belabors the obvious to say that Chrysler and
Manuel were sophisticated parties in the automobile business and, as reflected
by the agreements, that both knew a protest from another dealer was possible
and could result in significant delay. But the AESSA placed the obligation to use
best efforts to litigate or settle the protest on Chrysler (requiring only that Manuel
51
cooperate with Chrysler) and provided that time was of the essence, and
Manuel‘s actual damages could be no other than the profits he lost by reason of
the delay caused by Chrysler‘s failure to use its best efforts to litigate or settle the
Meador protest.28
Considering the evidence favorable to the trial court‘s finding concerning
the parties‘ intent if a reasonable factfinder could and disregarding evidence
contrary to the finding unless a reasonable factfinder could not, we hold that
legally sufficient evidence supports the trial court‘s finding that the parties
intended to retain liability for the damages awarded to Manuel in this case. See
Cent. Ready Mix Concrete Co., 228 S.W.3d at 651; City of Keller, 168 S.W.3d at
827. There was ample evidence from which the trial court could reasonably have
found that the parties intended to allocate the risk of delay from any protest to
Chrysler such that it was to retain liability for ―any actual damages‖ including
Manuel‘s lost profits, rentals, or salary resulting from such a delay. We therefore
overrule Chrysler‘s second issue.
V. RELIABILITY OF EXPERTS
By its third issue, Chrysler contends that the trial court abused its
discretion in admitting the testimony of Allen Wilkerson, Manuel‘s CPA, and
28
The amount of damages awarded by the trial court was within the range
of and less than half of Chrysler‘s own estimate and, as indicated by the trial
court in a letter to the parties, amounts to approximately four months‘ of lost
profits. The amount could have tied to the four-month period, from June 7, 2000,
when the federal district court denied relief to Chrysler, to October 4, 2000, the
date of Chrysler‘s ultimate settlement with Meador.
52
Dr. James R. Vinson, Manuel‘s economist, regarding ―lost profits‖ of the new
dealership in this case because both experts‘ opinions were based upon an
unreliable methodology and foundation. Chrysler characterizes the testimony
and opinions as falling into the ―scientific testimony arena‖ subject to its
Daubert/Robinson challenge and running objection to the testimony at trial. See
Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 592–93, 113 S. Ct. 2786,
2796 (1993); E.I. duPont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 556
(Tex. 1995).
For Manuel‘s primary damage model, his experts determined lost profits
from the South Arlington dealership‘s delay in opening from November 2001 to
November 2002 based upon actual data from Manuel Dodge (the Richardson
dealership) for that period. Vinson referred to the damages model as the
―business plan model,‖ which he said is accepted in the industry for financing and
venture capital for projected profitability and which has been relied upon in other
Texas cases.
Vinson testified that he asked Wilkerson to use Chrysler‘s online manual
for the specific criteria per unit and the Richardson dealership‘s actual records
during the same period regarding actual profits and expenses as a ―yardstick,‖
which he testified was the most comparable business to the South Arlington
dealership because it was, like the South Arlington dealership, also a two-line
dealership (after Manuel ceased selling the Chrysler line) that was actually in
53
operation during that period, located in a similar area with similar demographics,
and was under the same ownership and management.
Vinson chose the figure of 1,076 new units because Chrysler calculated
that number as the ―planning potential‖ for anticipated sales from that dealership
for 2001 as a performance guideline based on Manuel‘s historical experience of
operating at or near Chrysler‘s planning potential. Wilkerson performed the
calculations comparing the proposed South Arlington dealership and the
Richardson dealership, and he testified that the ―adjusted forecasted income
loss‖ to the South Arlington dealership, because it was not open during 2001,
was $864,468. Wilkerson also testified that Manuel would have, in addition,
personally earned an owner‘s salary of $475,632 and collected rent paid to him
by the dealership entity in the amount of $600,000. Thus, Manuel‘s total net
profit according to Vinson and Wilkerson would have been $1,940,100 for the
period that he could not open the South Arlington dealership.
Chrysler challenged the admissibility of the testimony of both experts as
being based upon an unreliable foundation and methodology, contending that:
(1) their damage model was not an acceptable methodology for calculating lost
profits; (2) neither witness considered actual sales of the new dealership after it
finally opened in 2002; (3) nor did they consider other comparable dealerships in
the area but instead used as their ―benchmark‖ Manuel‘s own most successful
dealership from a different market for a ―shining star year‖ of sales; (4) they relied
upon Chrysler‘s ―planning potential‖ for 2001 to estimate future sales and did no
54
independent market or demographic analysis; (5) they failed to include start-up
costs for the new business; and (6) they used estimates of Dodge sales to
formulate opinions on Chrysler/Jeep sales.
A. Reliability Test
We do not regard the Robinson test for reliability of scientific opinions to be
applicable to the expert opinions in this case. Instead, we hold that the general
reliability test of Gammill is more appropriate. Compare Robinson, 923 S.W.2d
at 556 (relying on Daubert and identifying six nonexclusive factors for
determining whether scientific evidence is reliable), with Gammill v. Jack Williams
Chevrolet, Inc., 972 S.W.2d 713, 726 (Tex. 1998) (holding factors listed in
Daubert and Robinson cannot be applied to all expert testimony, but general
requirements of Texas Rule of Evidence 702 for reliability still require trial court to
determine whether testimony is supported by more than credentials and ipse dixit
of expert and to ensure that opinion comports with applicable professional
standards and has a reliable basis in the knowledge and experience of the
discipline); see also Paschal v. Great W. Drilling, Ltd., 215 S.W.3d 437, 448 (Tex.
App.—Eastland 2006, pet. denied) (holding Gammill test appropriate for expert
testimony of a certified public accountant regarding analysis of financial records
for tracing of embezzled funds).
B. Methodology
Chrysler argues that the method utilized by Vinson for determining lost
profits was improper. Chrysler‘s own expert, however, did not testify that the
55
methodology used by Manuel‘s experts was improper, nor did he propose
another method or calculate or offer an opinion as to what the actual sales for
2001 would have been for the twelve months that the South Arlington dealership
was not open. See KMG Kanal-Muller-Gruppe Deutschland GMBH & Co. v.
Davis, 175 S.W.3d 379, 396 (Tex. App.—Houston [1st Dist.] 2005, no pet.)
(holding testimony of expert with doctorate in economics, who taught a university
course in corporate evaluation and whose method of business valuation was not
shown to have been rejected by any authority or opposing expert, was reliable
under Gammill).
There is no one proper method for determining lost profits as damages.
See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960
S.W.2d 41, 50 (Tex. 1998) (noting that supreme court was ―not retreating from
our refusal to endorse one method for determining lost profits‖) (citing Holt
Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 85 (Tex. 1992)). The ―yardstick‖
method used by Vinson, consisting of a study of profits from business operations
that are closely comparable to that of a plaintiff, has been accepted for
calculating lost profits and, in particular, for new businesses. See Lehrman v.
Gulf Oil Corp., 500 F.2d 659, 667 (5th Cir. 1974) (recognizing ―yardstick‖ and
―before and after‖ as two generally recognized methods of determining lost profits
as damages). Texas courts have accepted the yardstick analysis specifically for
determining lost profits from a new business by using a comparable established
business that is also owned and operated by the plaintiff, as in this case. See,
56
e.g., Signal Peak Enters. of Tex., Inc. v. Bettina Invs., Inc., 138 S.W.3d 915,
925 (Tex. App.—Dallas 2004, pet. struck) (holding expert opinion proper for lost
profits based on projected revenues minus projected operating expenses for
plaintiff‘s own existing business); America’s Favorite Chicken Co. v. Samaras,
929 S.W.2d 617, 629 (Tex. App.—San Antonio 1996, writ denied) (describing
model presented by expert as having intelligent, objective basis by taking into
account historical operations of other franchises operated by plaintiff, potential for
failure of new franchise, and other factors including plaintiff‘s experience in the
industry as well as historical data on his franchise operations); Pena v. Ludwig,
766 S.W.2d 298, 303 (Tex. App.—Waco 1989, no writ) (holding reasonableness
or reliability of methodology went to weight and not admissibility where profits of
established business of plaintiff could serve as a reliable basis for calculating lost
profits of new business; plaintiff was primarily responsible for operating both
shops and familiar with their management and financial condition, and factual
data from established business provided sound basis for probable loss to new
business). Thus, we reject Chrysler‘s assertion that the expert testimony was
unreliable because it was based on the ―yardstick‖ method.
C. Foundational Data
We interpret Chrysler‘s remaining complaints in its third issue as
challenging the underlying foundational data relied upon by Vinson and
Wilkerson. See Merrell Dow Pharms. v. Havner, 953 S.W.2d 706, 712 (Tex.
1997) (―The substance of the [expert‘s] testimony must be considered. . . . The
57
underlying data should be independently evaluated in determining if the opinion
itself is reliable.‖). In this regard, Chrysler‘s complaints merge with a legal
sufficiency type analysis for lost profits damages. Once a plaintiff has chosen a
particular methodology of evaluation, ―recovery of lost profits must be predicated
on one complete calculation.‖ Holt Atherton, 835 S.W.2d at 85.
The amount of the loss must be proven by competent evidence with
―reasonable certainty‖ by whatever method is chosen, but the rule regarding such
proof is intended to be ―flexible enough to accommodate the myriad
circumstances in which claims for lost profits arise.‖ Tex. Instruments, Inc. v.
Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994) (reaffirming Sw.
Battery Corp. v. Owen, 131 Tex. 423, 425–26, 115 S.W.2d 1097, 1098–-99
(1938)). What constitutes reasonably certain evidence of lost profits is a ―fact
intensive determination.‖ Holt Atherton, 835 S.W.2d at 85. At a minimum,
opinions or estimates of lost profits must be based upon objective facts, figures,
or data from which the amount of lost profits may be ascertained. Springs
Window Fashions Div., Inc. v. The Blind Maker, Inc., 184 S.W.3d 840, 884–85
(Tex. App.―Austin 2006, pet. granted, judgm‘t vacated w.r.m.) (op. on reh‘g).
Where estimates are based on objective facts or data and there are firm reasons
to expect a business to yield a profit, recovery is not prohibited simply because
the enterprise is new. Tex. Instruments, Inc., 877 S.W.2d at 280. It is the
activity that is the enterprise, and if the activity is well-established, the fact that a
newly formed entity is engaging in the activity will not preclude recovery. Id.
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1. Reliance on “Planning Potential”
In November 2001, before the opening of the dealership, Chrysler
prepared and Mr. Manuel signed a document introduced into evidence and
referred to as a DAP-3, which projected net profits for the first year of operation
of the South Arlington dealership based upon the number of units Chrysler
estimated for anticipated sales during the first year of actual operation. Chrysler
now says that its estimate is ―not reliable‖ and should not have been used by
Manuel‘s experts to project sales. However, Van Gray, Chrysler‘s own national
dealer placement manager responsible for placing, planning, and relocating
dealerships, testified that planning potential is a common methodology prepared
and used by automobile manufacturers. In a new ―green field market‖ such as
South Arlington, it was the ―best number‖ available to capitalize and plan a
dealership. In an established market, he said, planning potential would be similar
to minimum sales responsibility. Gray further testified that Chrysler performs
extensive market research as to where dealerships are to be located and as to
what the planning potentials should be. Manuel‘s experts accepted that Chrysler
had properly evaluated the market and the resulting anticipated sales based
upon data researched by its market research company, Urban Sciences. They
testified that planning potential is consistently used as an industry standard and
concluded that it was reasonable to use the planning potential assigned in the
AESSA by Chrysler itself as the estimate for sales of new vehicles for that year
59
by the dealership. Thus, the experts‘ reliance on Chrysler‘s planning potential
did not render their opinions unreliable.
2. Comparable Dealership
Chrysler‘s expert (1) criticized Manuel‘s experts‘ use of Manuel‘s
Richardson dealership‘s operation for 2001 as a comparable dealership by which
to ascertain the new dealership‘s anticipated net profits for that year, (2) thought
that Manuel‘s experts should have used subsequent actual years of operation for
the new dealership, and (3) believed that Chrysler‘s number of units of 1076 was
―too high‖ to use as estimated actual sales for that year. Manuel‘s experts,
Vinson and Wilkerson, testified that they forecast lost profits based upon the
Richardson dealership during the same time period because it was under
Manuel‘s same experienced ownership and management in the same year that
the South Arlington dealership was unable to open, because it sold two lines
made by Chrysler, as did the South Arlington dealership, and because the
demographics were comparable. Vinson and Wilkerson testified that they chose
a dealership owned and managed by Manuel because using other dealerships
would inject too many uncertainties and extraneous variables into the
comparison. Chrysler‘s dealer placement manager, Van Gray, agreed that
management by the dealer-principal is the most important factor in the
profitability of a dealership.
Additionally, Vinson and Wilkerson testified that the Richardson dealership
and Manuel‘s West Loop Dodge dealership were the only two of Manuel‘s
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dealerships that they could have used for the year in question. They did not use
the West Loop Dodge dealership in Fort Worth because it sold other lines of
vehicles not manufactured by Chrysler, and it would have been extremely difficult
to separate out the expenses and revenues attributable to Chrysler vehicles.
They did not use Manuel‘s Lancaster dealership as a basis for comparison
because Manuel did not own that store during the relevant time period.
Chrysler also criticizes Manuel‘s experts‘ choice of using Manuel Dodge as
its yardstick because that dealership sold Dodge trucks, and the Dallas-Fort
Worth area is the biggest truck market in the world and more likely to be
profitable for that reason. But Wilkerson testified that the gross profit per vehicle
was within the same range for both dealerships. He tested the damage model by
comparing it to gross profit per unit for other area dealers doing business in 2001
and concluded that the model was very conservative. We hold that the experts‘
reliance on the Richardson dealership as the most comparable dealership did not
render their opinions unreliable.
3. Applicable time period
Chrysler‘s argument that Vinson and Wilkerson should have used
subsequent years of the South Arlington dealership‘s actual operation versus
Manuel‘s damage model based on the 2001 period during which the dealership
was delayed in opening was arguably the most contentious subject of the trial as
to damages. The dealership opened in February of 2002. However, both
Chrysler‘s and Manuel‘s witnesses agreed that the years of 2000 and 2001 were
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exceptionally great years for Chrysler sales in the Dallas/Fort Worth area,
whereas the significant downturn in the automobile market began in 2002, when
registrations for Chrysler vehicles declined by 20 percent and profit for all dealers
fell $8.2 million. The downturn was continuing at the time of trial. The South
Arlington dealership had a loss of $482,000 in 2002. But Manuel‘s experts
testified that looking at actual performance in 2002 would not accurately reflect
how the dealership would have performed in 2001. Wilkerson testified that the
difference between actual and projected sales was $1.1 million.
Each of these areas of contention was hotly disputed. We cannot say that
that the trial court abused its discretion in admitting the expert testimony on this
record. See Cooper Tire & Rubber Co. v. Mendez, 204 S.W.3d 797, 800 (Tex.
2006) (stating trial court‘s determination of reliability of expert‘s opinion reviewed
for abuse of discretion). Chrysler‘s own estimate, reflected in its DAP-3 for
Manuel‘s South Arlington dealership‘s net profit for its first year of operation, was
$702,674. The DAP-3 listed as ―fixed expenses‖ a salary of $240,000 for Tommy
Manuel and $540,000 in rent to him for a total of $780,000 to Tommy Manuel,
personally. The ―actual damages‖ of $370,668.50 awarded by the trial court
were well within the range of Chrysler‘s own estimate of net profits as well as
those of Manuel‘s witnesses.
Moreover, even if there was an error in admission of the expert testimony,
it was harmless. The trial court‘s finding as to damages is supported by the
evidence as to the amounts for rental and salary estimated to be paid to Mr.
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Manuel by the dealership, which Vinson testified could be considered either as
added to net profit or as fixed expense. See Springs Window Fashions, 184
S.W.3d at 887 (holding evidence―also provided by Vinson―that significant
portion of net income was distributed to corporation‘s owner as compensation
and benefits constituted evidence supporting award for lost profits for business
otherwise operating at a loss) (citing Bettius & Sanderson, P.C. v. Nat’l Union
Fire Ins. Co., 839 F.2d 1009, 1014 (4th Cir. 1988) (explaining concept in context
of a professional corporation, which would otherwise never be able to show lost
profits because its net income for tax purposes is usually near zero even if
shareholders are earning large incomes)). Accordingly, we overrule Chrysler‘s
third issue.
VI. PREJUDGMENT INTEREST
In its final judgment, the trial court awarded Manuel damages of
$370,668.50 plus prejudgment interest of $126,425.88, calculated at the per
diem rate of $83.78 and representing ―prejudgment interest on past damages
having accrued at the lawful rate of eight and one-quarter percent (8.25%) per
annum from January 12, 2003 until the date of this judgment.‖ Chrysler contends
in its fourth issue that the trial court erred in miscalculating the amount of
prejudgment interest because it used an incorrect date of accrual (180 days after
the date Chrysler received the first of two notices of a claim on July 16, 2002),
incorrectly granting Manuel more than $35,000 in unearned prejudgment interest.
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For a breach-of-contract claim, prejudgment interest begins to accrue on
the earlier of (1) 180 days after the date a defendant receives written notice of a
claim, or (2) the date suit is filed. Johnson & Higgins of Tex., Inc. v. Kenneco
Energy, Inc., 962 S.W.2d 507, 532 (Tex. 1998). A claim ―is a demand for
compensation or assertion of a right to be paid.‖ Toshiba Mach. Co., Am. v. SPM
Flow Control, Inc., 180 S.W.3d 761, 785 (Tex. App.—Fort Worth 2005, pet.
granted, judgm‘t vacated w.r.m.). A claim need not demand an exact amount or
list every element of damage. Id. ―The abuse of discretion standard applies to
the trial court‘s factual findings as they relate to prejudgment interest; but the de
novo standard applies to the trial court‘s application of the law to the facts.‖ Id.;
see also Figueroa v. Davis, 318 S.W.3d 53, 66 (Tex. App.—Houston [1st Dist.]
2010, no pet.).
Chrysler does not contest the trial court‘s finding of fact that Chrysler
received two written notices from Manuel, one on July 16, 2002, and the other on
May 31, 2004. Chrysler‘s contention is that the first time it had notice of any
claim against it for damages for breach of the AESSA or Settlement Agreement
was Manuel‘s May 31, 2004 demand letter and that the July 16, 2002 written
notice was for an entirely different claim on which Manuel did not prevail in the
trial court. Therefore, Chrysler argues that the written notice of that other claim
cannot constitute the date from which prejudgment interest was to run.
In the July 16, 2002 letter, Manuel asserted that Chrysler had orally agreed
at the June 14, 2000 strategy meeting to dismiss its appeal in federal court and
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attempt to negotiate a settlement with Meador while Manuel sued Meador in
state court for damages as a result of Meador‘s protest and that the Chrysler
representatives present at the meeting ―unanimously agreed‖ to reimburse
Manuel for Manuel‘s legal fees and expenses.
Pursuant to the alleged agreement reached at the meeting, Manuel filed
suit against Meador in Tarrant County District Court on July 12, 2000. Manuel
continued the state court suit against Meador to a conclusion, claiming breach of
contract, fraud, and promissory estoppel, and seeking damages for lost profits,
lost income, loss of opportunity, rental and salary.29 Manuel eventually agreed to
submit the case against Meador to binding arbitration, pursuant to which a take-
nothing judgment was rendered against Manuel in June 2002.
Tommy Manuel testified that he hand-delivered a brown envelope to the
Dallas zone manager containing his letter demand of July 16, 2002, together with
documents consisting of hourly billings by Manuel‘s attorney and his expert in
that case, for reimbursement by Chrysler of his attorney‘s fees and expenses
incurred in connection with his state court litigation against Meador. Chrysler
denied any such agreement to reimburse Manuel for attorney‘s fees and
expenses in the state court litigation. After a series of discussions and repeated
oral demands by Manuel to Chrysler representatives, Chrysler notified Manuel by
29
Contemporaneously with settling Meador‘s protest in late September or
early October 2001, Chrysler offered to reimburse Manuel‘s attorney‘s fees in
connection with the suit against Meador if Manuel would immediately drop the
suit against Meador, which offer Manuel summarily rejected.
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a February 26, 2004 letter that Chrysler would not meet the demand for the
attorney‘s fees and expenses.30
The second demand letter of May 21, 2004, which Chrysler contends
constitutes the only ―written notice‖ of Manuel‘s claim against Chrysler, reiterated
Manuel‘s claim that Chrysler had agreed to pay his attorney‘s fees and expenses
in prosecuting the suit in state court against Meador. But the second letter also
made demand for payment of the damages that Manuel had sustained as the
result of the delay in opening the South Arlington dealership, including lost
profits.
Manuel relies upon Johnson & Higgins of Tex., Inc. v. Kenneco Energy,
Inc., in which the supreme court held that a stand-still agreement tolling the
running of limitations for filing of a suit against Johnson & Higgins pending
resolution of other litigation, rather than a later formal DTPA demand letter, was
sufficient written notice of a claim against Johnson & Higgins for purposes of
accrual of prejudgment interest. See 962 S.W.2d at 531. In particular, Manuel
cites language of the court noting that at the time of the stand-still agreement,
Johnson & Higgins had sufficient information to obtain a settlement without
incurring any prejudgment interest and that it was not necessary that the
document give specific notice to the other party, so long as it demands
30
Manuel did not prevail on its claim for those attorney‘s fees and
expenses in this case in the trial court and has not pursued recovery of those
amounts by cross-appeal.
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compensation or asserts a right to payment. See id. Manuel argues that the July
16, 2002 letter similarly sufficiently asserted his right to payment and points to
the documents attached to that letter, which he describes as including
documentation of other damages, including lost profits, as well as attorney‘s fee
statements and expert witness expenses. He also refers to testimony of a
Chrysler representative about possible settlement options with Manuel, including
damages of over two million dollars based upon that witness‘s own review of the
July 16, 2002 demand letter.
We do not find Johnson & Higgins to be analogous to this case for several
reasons. First, the standstill agreement and the later DTPA letter in that case
involved the same claim against Johnson & Higgins, not two separate claims as
in this case. Secondly, the other litigation was ongoing at the time the standstill
agreement was entered into and arose from the same occurrence, so that
Johnson & Higgins had ample notice of the nature of the claim. Thirdly, as the
supreme court pointed out, the ―standstill agreement plainly says that ‗Kenneco
asserts that, to the extent underwriters are found not to be liable [in the federal
action] . . . , J & H is liable to Kenneco for the amounts which Kenneco has
claimed under the Policy.‖ Through the specific language of the standstill
agreement, itself, it was clear that Kenneco was asserting a right to be paid for
the same amounts claimed in the federal suit. Thus, Johnson & Higgins had
sufficient information at that time to obtain a settlement without incurring any
prejudgment interest at all. See Owens–Illinois, Inc. v. Estate of Burt, 897
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S.W.2d 765, 769 (Tex. 1995) (―[A] defendant must have notice and an
opportunity to settle a claim.‖).
In contrast, this case involved two separate claims under two different
contracts entered into, if at all, at different times and related to different
occurrences and suits. We agree with Chrysler that the final judgment used the
wrong date from which to calculate prejudgment interest. The subject of the
letter of July 16, 2002, used by the court as the start date is not the claim on
which Manuel prevailed, and we can find no mention in that letter or in the
accompanying documentation that can be interpreted even to suggest a right to
damages against Chrysler upon which this suit was based. Prejudgment interest
cannot be based on an unrelated claim arising from a different alleged contract
(the alleged oral agreement of June 14, 2000), made under entirely different
circumstances (the strategy meeting of Chrysler and Manuel and their respective
lawyers), and which was not a part of the contracts that were the basis of this
lawsuit. The May 27, 2004 demand letter for damages, which expressly
references and demands damages for breach of the AESSA and Settlement
Agreement against Chrysler, is the correct date of written notice. The date of the
later demand letter was less then 180 days beforer Manuel filed this suit on June
9, 2004. Therefore, the accrual date for purposes of calculating prejudgment
interest is June 9, 2004, the date on which Manuel filed this suit. See Johnson &
Higgins, 962 S.W.2d at 532. We sustain Chrysler‘s fourth issue. Calculating an
8.25% rate on $370,668.50 from June 9, 2004 to May 31, 2007 gives a total of
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$90,985.08. We modify the judgment to instead award only that amount of
prejudgment interest.
VII. ATTORNEY’S FEES
In his cross-appeal, Manuel contends in four issues that the trial court
erred by failing to award him trial and appellate attorney‘s fees. Chrysler
responds that the trial court did not err because Michigan law applies and does
not permit recovery of attorney‘s fees for breach of contract actions, because the
AESSA prohibits recovery of attorney‘s fees, and because an award of appellate
attorney‘s fees is not mandatory.
A party can recover attorney‘s fees under civil practice and remedies code
chapter 38 if the claim is one listed in section 38.001, such as for breach of
contract, and if the party (1) is represented by an attorney, (2) presented his or
her claim to the opposing party or that party‘s duly authorized agent, and (3) the
opposing party did not tender the just amount owed within thirty days. See Tex.
Civ. Prac. & Rem. Code Ann. §§ 38.001, .002 (West 2008). If all of the statutory
elements are established and there is proof of the reasonableness of the fees, an
award of fees under section 38.001 is mandatory. See AMX Enters., L.L.P. v.
Master Realty Corp., 283 S.W.3d 506, 516 (Tex. App.—Fort Worth 2009, no
pet.).
A. Trial Attorney’s Fees
Chrysler does not dispute whether Manuel established each of the
statutory elements but instead contends that Manuel may not recover attorney‘s
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fees for other legal reasons. First, Chrysler argues that Michigan law applies and
that Michigan law does not permit the recovery of attorney‘s fees in breach of
contract actions. However, Chrysler did not file a motion or otherwise request
that the trial court take judicial notice of Michigan law until after the trial. While
we do not hold that a motion seeking judicial notice of the law of another state
will always be untimely if filed after trial, Chrysler‘s posttrial motion was untimely
in this case. Choice-of-law matters may be waived, and we hold that Chrysler
waived its choice-of-law complaint in this case by failing to raise the matter
before trial, by failing to object to the admission of evidence at trial concerning
Manuel‘s attorney‘s fees, and by cross-examining Manuel‘s attorney about the
segregation of attorney‘s fees, all of which are inconsistent with Chrysler‘s
appellate contention that Michigan law prevents the recovery of attorney‘s fees in
this case.31 See Gen. Chem. Corp. v. De La Lastra, 852 S.W.2d 916, 920 (Tex.
31
One of our sister courts of appeals explained this rule as follows:
A court may take judicial notice of the laws of another
jurisdiction at any point in a proceeding. The issue of a choice-of-
law determination is distinct from the court‘s power to generally take
judicial notice of a foreign state‘s law. Thus, the mere fact that the
court may take judicial notice of foreign laws does not mean that
choice-of-law issues may be raised at any point in the proceeding. A
preliminary motion is, therefore, necessary to assure the application
of the laws of another jurisdiction. The court may undertake a
choice of law analysis sua sponte, but rule [of civil procedure] 202
does not compel this action.
Pittsburgh Corning Corp. v. Walters, 1 S.W.3d 759, 769 (Tex. App.—Corpus
Christi 1999, pet. denied) (citations omitted) (emphasis added).
70
1993) (holding party waived application of maritime law to case ―by failing to
object to evidence and jury questions regarding damages which are not
recoverable under maritime law‖); Burlington N. & Santa Fe Ry. Co. v.
Gunderson, Inc., 235 S.W.3d 287, 290 (Tex. App.—Fort Worth 2007, pet.
withdrawn) (holding trial court permitted to presume Texas and other state‘s law
similar because party failed to file motion requesting judicial notice of other
state‘s law).
Chrysler also argues that the AESSA‘s limitation-of-damages provision
bars recovery of Manuel‘s attorney‘s fees because it provides that the non-
breaching party‘s sole remedy will be out-of-pocket expenses that cannot be
mitigated. Chrysler reasons that Manuel waived any claims for other damages
and that attorney‘s fees are incidental damages. But Texas law provides that
attorney‘s fees are more in the nature of costs than damages. See, e.g., Alma
Grp., L.L.C. v. Palmer, 143 S.W.3d 840, 846 (Tex. App.—Corpus Christi 2004,
pet. denied); see also Heliflight, Inc. v. Bell/Agusta Aerospace Co., LLC, No.
4:06-CV-425-A, 2007 WL 4373259, at *2 (N.D. Tex. Dec. 12, 2007) (mem. op.).
The AESSA does not purport to prohibit recovery of costs or attorney‘s fees in
state court litigation. Therefore, we hold that the AESSA does not prohibit the
recovery of Manuel‘s attorney‘s fees.
Chrysler next argues that the trial court properly denied Manuel‘s request
for attorney‘s fees because Manuel failed to segregate his attorney‘s fees
between those incurred prosecuting claims for which attorney‘s fees are
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recoverable and those incurred prosecuting claims for which attorney‘s fees are
not recoverable. To support its contention, Chrysler relies on Green Int’l, Inc.,
951 S.W.2d at 389, in which the supreme court stated: ―A failure to segregate
attorney‘s fees in a case containing multiple causes of action, only some of which
entitle the recovery of attorney‘s fees, can result in the recovery of zero
attorney‘s fees.‖ However, this statement from Green Int’l, Inc. has been
characterized as dicta and is inconsistent with a subsequent supreme court
opinion which holds that the failure to segregate attorney‘s fees does not bar all
recovery of attorney‘s fees. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d
299, 314 (Tex. 2006) (―Chapa‘s failure to segregate her attorney‘s fees does not
mean she cannot recover any. Unsegregated attorney‘s fees for the entire case
are some evidence of what the segregated amount should be.‖); see also Air
Routing Int’l Corp. (Canada) v. Britannia Airways, Ltd., 150 S.W.3d 682, 693
(Tex. App.—Houston [14th Dist.] 2004, no pet.) (holding statement in Green
concerning nonrecovery of fees for failure to segregate is nonbinding dicta).
Under Chapa, remand is the appropriate remedy so that Manuel may offer
evidence of the segregated amount of reasonable and necessary attorney‘s fees.
See Chapa, 212 S.W.3d at 314.
As mentioned, Chrysler does not contend on appeal that Manuel failed to
establish any of the section 38.001 or 38.002 requirements, and it appears from
our review of the record that Manuel presented evidence of each statutory
requirement. Indeed, Manuel presented evidence that reasonable and
72
necessary attorney‘s fees in this case exceeded $480,000 through trial, with at
least another $125,000 for an appeal through the supreme court. Thus, even
assuming that Manuel‘s attorney fee evidence consisted only of unsegregated
fees, the trial court erred by failing to award him any attorney‘s fees. See AMX
Enters., L.L.P., 283 S.W.3d at 516 (stating section 38.001 fee award mandatory if
statutory elements met and proof of reasonableness presented). We therefore
sustain Manuel‘s first three issues and remand this case for a new trial
concerning the segregated amount of reasonable and necessary attorney‘s fees
for Manuel‘s breach of contract claim.
B. Appellate Attorney’s Fees
Manuel contends in his final issue that the trial court erred by failing to
award him any appellate attorney‘s fees, arguing that if an award of trial
attorney‘s fees is mandatory under section 38.001, an award of appellate
attorney‘s fees is likewise mandatory. See End Users, Inc. v. Sys. Supply For
End Users, Inc., No. 14-06-00833-CV, 2007 WL 2790379, at *6 (Tex. App.—
Houston [14th Dist.] Sept. 27, 2007, no pet.) (mem. op.) (citing Lee v. Perez, 120
S.W.3d 463, 469 (Tex. App.—Houston [14th Dist.] 2003, no pet.) (holding
appellate attorney‘s fees mandatory if trial fees mandatory under section 38.001).
Chrysler, citing several cases, responds that the factfinder may award appellate
attorney‘s fees but is not required to do so. See Anderson, Greenwood & Co. v.
Martin, 44 S.W.3d 200, 221 (Tex. App.—Houston [14th Dist.] 2001, pet. denied);
see also Hunsucker v. Fustok, 238 S.W.3d 421, 431 (Tex. App.—Houston [1st
73
Dist.] 2007, no pet.); Clements v. Minn. Life Ins. Co., 176 S.W.3d 258, 265 (Tex.
App.—Houston [1st Dist.] 2004, no pet.), superseded by statute on other grounds
as recognized by State Farm Life Ins. Co. v. Martinez, 216 S.W.3d 799, 804
(Tex. 2007); Neal v. SMC Corp., 99 S.W.3d 813, 818 (Tex. App.—Dallas 2003,
no pet.); Olivares v. Porter Poultry & Egg Co., 523 S.W.2d 726, 732 (Tex. Civ.
App.—San Antonio 1975, no writ).
Although Chrysler correctly cites the general rule that the factfinder may
but is not required to award appellate attorney‘s fees, none of Chrysler‘s cases
specifically addresses the scenario present here—whether appellate attorney‘s
fees are mandatory when trial attorney‘s fees are mandatory under section
38.001 of the civil practice and remedies code. The Anderson court, although it
stated the general rule, held earlier in the opinion that the fee claimant could not
prevail on its contract claim, meaning there was no basis for the recovery of any
attorney‘s fees. See 44 S.W.3d at 221; cf. Lee, 120 S.W.3d at 469 n.27
(distinguishing and declining to follow Anderson). Hunsucker concerned
appellate attorney‘s fees for an appeal of an order dismissing a medical
malpractice suit for failure to file an expert report, see 238 S.W.3d at 423–24,
431, and Clements addressed an intervenor‘s attorney‘s fees under the
insurance code. See 176 S.W.3d at 265–66. Finally, the Olivares court rejected
the appellant‘s contention that appellate attorney‘s fees for breach of contract
and quantum meruit claims are never recoverable. See 523 S.W.2d at 732.
74
On the other hand, Manuel cites authority for the proposition that appellate
attorney‘s fees are mandatory if trial attorney‘s fees are mandatory under section
38.001. See End Users, Inc., 2007 WL 2790379, at *6. In End Users, Inc., the
claimant presented uncontested evidence that $30,000 was a reasonable fee for
an appeal to the court of appeals and that $25,000 was a reasonable fee for an
appeal to the Texas Supreme Court. Id. Because the evidence was
uncontested, the court of appeals modified the trial court‘s judgment to award the
uncontested amount of appellate attorney‘s fees. Id.
We agree with our sister court of appeals and hold that if an award of trial
attorney‘s fees is mandatory under civil practice and remedies code section
38.001, an award of appellate attorney‘s fees is likewise mandatory. Unlike the
End Users, Inc. court, though, we cannot simply modify the trial court‘s judgment
concerning the award of appellate attorney‘s fees because the evidence
concerning those fees was not conclusive. Therefore, we sustain Manuel‘s
fourth issue but remand this case for a new trial concerning the amount of
Manuel‘s reasonable and necessary appellate attorney‘s fees. See World Help
v. Leisure Lifestyles, Inc., 977 S.W.2d 662, 684 (Tex. App.—Fort Worth 1998,
pet. denied) (remanding for consideration of appellate attorney‘s fees when
evidence not conclusive).
VIII. CONCLUSION
Having overruled Chrysler‘s first three issues and having sustained
Chrysler‘s fourth issue, we affirm as modified the portion of the trial court‘s
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judgment awarding damages to Manuel and affirm as modified the prejudgment
interest awarded to Manuel. In addition, having sustained each of Manuel‘s four
issues, we reverse the portion of the trial court‘s judgment awarding no attorney‘s
fees to Manuel and remand this case to the trial court for a new trial concerning
the amount of Manuel‘s reasonable and necessary trial and appellate attorney‘s
fees.
ANNE GARDNER
JUSTICE
PANEL: GARDNER and WALKER, JJ.; and DIXON W. HOLMAN (Senior
Justice, Retired, Sitting by Assignment).
DELIVERED: February 24, 2012
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