Chavez Properties v. Lorentzen

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
November 7, 2006
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
CHAVEZ PROPERTIES-AIRPORT
PARKIN G ALBUQUERQUE, LP, a
Georgia limited partnership;
PA RK IN G CO M PA N Y O F
AM ERICA, INC., a Georgia
corporation,
Plaintiffs-Appellees/Cross-
Appellants,
v. Nos. 04-2338 and 04-2339
(D.C. No. CIV-02-0145-JP/AC T)
JOHN LORENTZEN, individually; (D .N.M .)
PA RK AND SH UTTLE, INC., a New
M exico corporation; WE S G O LDEN,
individually,
Defendants-Appellants/Cross-
Appellees.
CHAVEZ PROPERTIES-AIRPORT
PARKIN G ALBUQUERQUE, LP, a
Georgia limited partnership;
PA RK IN G CO M PA N Y O F
AM ERICA, INC., a Georgia
corporation,
Plaintiffs-Appellants,
v. No. 05-2053
(D.C. No. CIV-02-0145-JP/AC T)
JOHN LORENTZEN, individually; (D .N.M .)
PA RK AND SH UTTLE, INC., a New
M exico corporation; WE S G O LDEN,
individually,
Defendants-Appellees.
CHAVEZ PROPERTIES-AIRPORT
PARKIN G ALBUQUERQUE, LP, a
Georgia limited partnership;
PA RK IN G CO M PA N Y O F
AM ERICA, INC., a Georgia
corporation,
Plaintiffs-Appellees, No. 05-2388
(D.C. No. CIV-02-0145-JP/AC T)
v. (D .N.M .)
JOHN LORENTZEN, individually;
PA RK AND SH UTTLE, INC., a New
M exico corporation; WE S G O LDEN,
individually,
Defendants-Appellants.
OR D ER AND JUDGM ENT *
Before L UC ER O, B AL DOC K , and HA RTZ, Circuit Judges.
This case arises from the failed union of two parking lot operations
providing parking services for the Albuquerque International Airport. Plaintiff
Chavez Properties-Airport Parking Albuquerque, LP (CPA PA ), owner and
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
2
operator of Airport Fast Park, and Defendant John Lorentzen, owner and operator
of Defendant Park and Shuttle, Inc. (PSI), entered into a Joint Venture Agreement
joining their two parking lots. In turn, the Joint Venture entered into a contract
with Plaintiff Parking Company of A merica (PCA) to manage the Joint Venture
parking lot. For a host of reasons, the deal fell through and the parties filed
numerous claims against one another. After a bench trial, the district court found
for Plaintiffs but awarded only nominal damages. The district court taxed
Plaintiffs’ costs on Defendants but refused to award attorney fees. Defendants
appeal the district court’s judgment as well as the award of costs. Plaintiffs
cross-appeal the district court’s damage award and denial of attorney fees. W e
have jurisdiction pursuant to 28 U.S.C. § 1291. W e apply New M exico law in
this diversity action, affirming in part and remanding in part for additional
findings of fact and conclusions of law.
I.
On January 1, 2000, CPA PA and Lorentzen verbally entered into a Joint
Venture Agreement, the primary purpose of which was to consolidate expenses
thereby increasing the profitability of their parking lots. The Joint Venture
Agreement designated M anual Chavez, Jr. and Robert Chavez, part owners of
CPA PA , and Lorentzen as managers of the Joint Venture. The agreement
required the managers to unanimously agree to all management decisions, except
those delegated to the management company designated in a separate agreement.
3
The agreement provided the parties split profits with CPA PA receiving 57% and
PSI receiving 43% . The parties based this division of profits on the number of
parking spaces each contributed to the Joint Venture parking lot.
To avoid daily management hassles, the joint venturers entered into a
Parking M anagement Agreement with PCA, an entity of CPA PA , to manage the
combined properties. 1 The Parking M anagement Agreement provided that PCA
would manage the combined properties for the benefit of the Joint Venture
partners. Defendant W es Golden, PCA’s employee, served as the parking
operations site manager for the Joint Venture parking lot until December 2001
when PCA decided to remove him from site operations manager and transfer him
to the marketing manager position. The Parking M anagement Agreement
specified the parking manager’s duties including operation of the lot, paying all
expenses, collecting all revenue, providing financial reports, and making monthly
profit distributions to the Joint Venture partners. Testimony at trial made clear
PCA’s function was to manage the day to day activities of the lot while the Joint
Venture managers provided high level management.
Almost from the beginning of the Joint Venture, Lorentzen began to
express dissatisfaction with the Joint Venture Agreement and the Parking
1
Notably, the parties did not sign the Joint Venture Agreement or the
Parking M anagement Agreement until M arch 1, 2001. Despite the delay, the
parties acknowledge both agreements became effective on January 1, 2000.
Additionally, the parties agree both contracts extended for a period of ten years.
4
M anagement Agreement. W ithin the first few months of the Joint Venture,
Lorentzen sent letters to Robert Chavez expressing his discontent with certain
items billed to the Joint Venture, complaining about PCA’s management
decisions, and requesting management fees for himself or a more favorable
ownership split. A complete breakdown of the relationship began in late 2001
when Lorentzen wrote a series of letters objecting to certain charges to the Joint
Venture and objecting to PCA’s decision to replace Golden as the site manager.
Lorentzen threatened to terminate the agreements if Robert Chavez and PCA did
not comply with his demands.
In early January 2002, Lorentzen put the proverbial nail in the coffin when
he removed PCA’s credit card machines from the Joint Venture lot, took PCA’s
machines to his home, and installed his own credit card machines, thus diverting
over $70,000 of Joint Venture funds to an account exclusively under his control.
Lorentzen’s actions prompted Robert Chavez and Tim Chavez, Senior Operations
M anager for PCA, to travel to Albuquerque in attempt to rectify the situation.
Robert Chavez and Lorentzen spent several days trying to work out their
differences. During the course of their meetings, Lorentzen demanded
modification of the Joint Venture Agreement and the Parking M anagement
Agreement. Specifically, Lorentzen demanded Southwest Realty, which he
owned and operated, be substituted for PCA as the manager of the Joint Venture.
He also demanded a 50/50 profit split and demanded W es G olden remain the site
5
operations manager or that PCA buy him out at three times his annual salary.
Needless to say, Robert Chavez did not accept the proposed modifications.
On January 25, 2002, after two days of unsuccessful negotiations w ith
Lorentzen, Robert Chavez, along with other PCA representatives attempted to
remove the credit card machines Lorentzen installed and reinstall PCA’s
machines. Golden, with the assistance of others, prevented re-installation of
PCA’s machines. Golden called the police and had Chavez and the PCA
representatives escorted off the property. PCA representatives were not allowed
on the property until February 11, 2002, when PCA and CPA PA received a
temporary restraining order (TRO) allowing them to take back control of the
property and resume management of the Joint Venture parking lot.
After PCA regained management control, they discovered Golden removed
several items during their absence— namely computers containing PCA’s
proprietary information including billing information, frequent parker
information, and contract parker information. 2 Additionally, PCA discovered
Lorentzen entered into several unauthorized contracts on behalf of the Joint
Venture. Finally, the testimony at trial showed that even after the district court
entered the TRO, Lorentzen and Golden remained on the property, reeking havoc
2
Although PCA fired Golden the day he called police and had its
representatives escorted off the property, he remained in control of the parking lot
operation due to his relationship with Lorentzen. According to the testimony at
trial, he officially began working for Lorentzen the day PCA fired him.
6
among PCA employees. In particular, Golden and Lorentzen continued to give
comm ands to PCA employees resulting in great confusion among the employees
as to who was in charge. Several witnesses at trial described the atmosphere as
very “tense.”
Also of particular importance to this appeal, after PCA informed Golden he
was being removed as operations manager in December of 2001, he entered into a
contract on behalf of PCA with Airport Shuttle, a company owned by Lorentzen.
According to the contract, PCA agreed to provide eighteen parking spaces on the
Joint Venture lot for Airport Shuttle’s use. At the time Golden signed the
contract, PCA provided contract parking at the Joint Venture lot for $50 per
month. But, the contract Golden executed charged Airport Shuttle only $20 per
month per space. Additionally, the contract only provided that Airport Shuttle
would occupy eighteen spaces when in fact, it occupied fifty spaces. PCA never
received payment for Airport Shuttle’s use of the fifty spaces. The contract was
never discussed with anyone at PCA as required by its policy, and several days
after he was fired from PCA in January of 2001, Golden went to work for
Lorentzen.
CPA PA and PCA brought suit against Lorentzen, Golden and PSI claiming
breach of contract; conspiracy to divest funds, assets, and customers; and breach
of fiduciary duty. Defendants filed a separate suit (later consolidated with the
initial lawsuit) claiming accounting (claims of waste and mismanagement), actual
7
or constructive fraud and conspiracy to defraud, tortious interference with
beneficial business relations, breach of fiduciary duty, conversion of corporate
funds and opportunities, damage to credit reputation, and attorney fees and costs.
In M ay of 2002, after the TRO became effective but before trial, the court
assigned an arbiter to the case. The arbiter functioned to keep the business
operating in an orderly fashion pending trial. If either party disagreed with a
ruling issued by the arbiter, it had the option of presenting the issue to the district
court. Use of the arbiter became unnecessary when the parties agreed to
terminate the Joint Venture and the Parking M anagement Agreement effective
December 1, 2003. Thereafter, the parties separated the Joint Venture lot and
resumed running their separate businesses.
The case proceeded to a bench trial in November 2003. After three days of
testimony, the court delayed the trial because Plaintiffs’ counsel became ill. The
trial resumed for an additional eight days in M arch 2004. At the conclusion of
the trial, the district court issued a written order finding in favor of Plaintiffs on
their claims of breach of fiduciary duty and breach of contract and against
Defendants on their claims. In particular, the court found Defendant Golden
breached his fiduciary duty to his employer PCA. The court also found Lorentzen
and PSI breached their fiduciary duty to the Joint Venture, and breached the Joint
Venture Agreement and the Parking M anagement Agreement. The court further
found Golden, although an employee of PCA, joined forces w ith Lorentzen in
8
effort to terminate or modify the Joint Venture. Despite Defendants’
transgressions, the court refused to award Plaintiffs damages, save for $1 in
nominal damages. The court entered two additional orders, one taxing Plaintiffs’
costs against Defendants, and the other denying Plaintiffs’ motion for attorney
fees.
These cross-appeals followed. In an appeal from a bench trial, we review
the district court’s legal conclusions de novo, and its factual findings for clear
error. W e will reverse only if the district court’s findings are without factual
support in the record or if, after reviewing all the evidence, we are left with a
definite and firm conviction that a mistake has been made. See Keys Y outh
Servs., Inc. v. City of O lathe, 248 F.3d 1267, 1274 (10th Cir. 2001).
II.
Defendants challenge several of the district court’s findings on appeal.
Specifically, Defendants argue the district court erred in finding: 1) Plaintiffs did not
breach their fiduciary duties to Defendants; 2) Plaintiffs did not tortiously interfere
with Defendants’ beneficial business relationships; 3) Defendants are not entitled to
an accounting; 4) Defendants ratified Plaintiffs’ alleged m isconduct prior to M arch
2001; 5) Golden conspired with Lorentzen to breach the contracts; 6) Defendants are
not entitled to damages, costs and legal fees; and 7) Plaintiffs did not commit a
prim a facie tort. In a separate appeal, Defendants claim the district court erred in
awarding Plaintiffs $19,980.66 in costs.
9
A.
Defendants first argue the district court erred in determining Plaintiffs did not
breach their fiduciary duties to Defendants. Like partners in a partnership, a
fiduciary relationship exists between parties to a joint venture. Lightsey v. M arshall,
992 P.2d 904, 908 (N.M . App. 1999). This duty requires joint venturers to “deal
honestly and fairly with each other in accounting for profits and losses of the joint
venture.” Id. Defendants claim Plaintiffs breached this duty in several w ays
including: 1) assessing a portion of the cost of the H ummingbird computer software
package to the Joint Venture; 2) assessing Airport Fast Park’s van rental expense to
the Joint Venture; 3) assessing losses from the Hyatt Regency Tamaya contract to the
Joint Venture; 4) refusing to provide certain financial documents and reports; 5)
favoring Airport Fast Park vehicles over PSI’s vehicles for maintenance and repair;
6) failing to pay vendors; 7) overpaying for insurance coverage; 8) violating the
arbiter’s rulings; 8) failing to establish an operating budget; and 9) general
mismanagement. The district court disposed of Defendants’ complaints, finding they
involved management decisions specifically appointed to PCA in the Parking
M anagement Agreement. Thus, according to the district court, the decisions, good
or bad, did not amount to breaches of fiduciary duty. W e agree with the district
court’s assessment that most of Defendants’ complaints involved management
decisions assigned to PCA pursuant to the management agreement. For instance,
PCA’s decision to purchase additional insurance, its billing practices, the
10
maintenance and repair schedule for the vans, dissemination of financial statements
and budgeting w ere all management issues entrusted to PCA. 3
Defendants’ other claims also do not amount to breaches of fiduciary duty.
Lorentzen’s complaints regarding the Joint Venture’s payment for a portion of the
Hummingbird software installed at PCA are not actionable as the evidence presented
at trial showed PCA credited the Joint Venture with the cost of the software after
Lorentzen objected. Additionally, attributing the lease expense for Airport Fast
Park’s vans to the Joint Venture was also not a breach of fiduciary duty. The record
show s Lorentzen knew at the time he entered into the agreement the lease expense
was part of the Airport Fast Park’s expenses absorbed into the Joint Venture. The
expense was fully disclosed in the financial disclosure documents Lorentzen received
during discussions leading up to the Joint Venture. Despite his knowledge of this
expense, he entered into the Joint V enture verbally and later formalized the
documents in M arch of 2001. W e can hardly say charging the Joint V enture for an
expense Defendant was aware of prior to forming the Joint Venture was a breach of
3
Defendants relied on Plaintiffs’ alleged failure to produce certain financial
documents to support its claim for accounting. In particular, Defendant Lorentzen
com plained he did not receive Daily Operating Reports (DORs). Because we
agree with the district court that Plaintiffs’ dissemination of financial reports
involved management decisions and because the record indicates Lorentzen
received all information needed to perform his function as a manager of the Joint
Venture, we summarily find no error in the district court’s decision refusing to
order an accounting.
11
fiduciary duty. 4 Defendants’ complaints regarding Plaintiffs’ alleged failure to
comply with the arbiter’s rulings are also not supported by the record. The record
shows that for each alleged instance of non-compliance, Plaintiffs appealed the
arbiter’s ruling to the district court, an action fully within their rights.
Finally, Defendants’ allegation that Plaintiffs breached their fiduciary duty by
charging the loss on the Tamaya contract to the Joint Venture is not a basis for
reversing the district court’s decision. A disputed issue of fact arose as to whether
the Tamaya contract was part of the Joint Venture. The district court, serving as the
fact finder, obviously believed Plaintiffs’ witness Dale Losey when he testified the
contract was a part of the Joint V enture and, therefore, any loss or profit was
attributable to the Joint Venture. The district court’s conclusion certainly is not
unreasonable in light of the fact both Lorentzen and Golden signed the contract, an
act that bound the Joint V enture to the terms of the contract. See Keys Youth Servs.,
248 F.3d at 1274 (“[W]e w ill reverse the district court’s finding only if it is without
factual support in the record . . . .”) (internal quotation marks omitted). In sum , w e
find no error in the district court’s conclusion that Plaintiffs’ conduct did not amount
to a breach of the fiduciary duty.
B.
4
Defendants’ argument that the district court misapplied the doctrine of
ratification has no application in this case. The district court found that a charge
to the Joint Venture Defendant knew about even before the inception of the Joint
Venture is not evidence of Plaintiffs alleged breach of fiduciary duty. Prior
knowledge does not implicate the doctrine of ratification.
12
Defendants next argue the district court erred in finding insufficient evidence
to support their claim of tortious interference with beneficial business relations.
The elements of tortious interference are (1) interference in a relationship or
transaction; (2) with an improper motive or by improper means; or (3) without
justification or privilege. Quintana v. First Interstate Bank, 737 P.2d 896, 898 (N .M .
App. 1987). Defendants claim PCA failed to pay bills to various vendors in attempt
to erode Defendants’ relationship with those vendors. Although Plaintiffs admittedly
had some problems with their billing practices, we find nothing in the record (nor
does Defendant point us to any evidence) indicating PCA’s delay in paying bills was
motivated by some intent to interfere with Defendants’ business relationships. See
M & M Tools v. M ilchem, Inc., 612 P.2d 241, 246 (N.M . App. 1980) (noting a
defendant acts w ith an “improper motive” for purposes of proving a interference with
business relations claim when the defendant’s sole purpose is to harm the plaintiff).
Accordingly, we conclude the district court did not err in finding Defendants failed
to show Plaintiffs tortiously interfered with their business relations.
C.
Finally, Defendants argue the district court should have considered their claim
that Plaintiffs committed a prima facie tort. The district court summarily dismissed
Defendants’ prima facie tort claim along with several others in its written order. The
elements of prima facie tort are 1) an intentional and lawful act, 2) an intent to injure
the plaintiff, 3) injury to the plaintiff as a result of the intentional act, and 4) the
13
absence of justification for the injurious act. Schmitz v. Smentowski, 785 P.2d 726,
734-35 (N.M . 1990). “Prima facie tort is not intended to provide a remedy for every
intentionally caused harm , rather, it is a remedy for acts committed with intent to
injure the plaintiff and without justification.” Kitchell v. Public Serv. Co., 972 P.2d
344, 348 (N.M . 1998). Analyzing liability requires balancing the intent to injure
Defendants against both the justification for the injurious act and the severity of the
injury. Id. But, if a party claiming a prima facie tort presents no evidence of an
intent to injure, as is the case here, the court need not conduct the balancing test. Id.Defendants brief does not point to a shred of evidence showing Plaintiffs’ acted with
the intent to injure D efendants. Defendants simply conclude in the course of three
sentences that the district court should have considered whether Plaintiff committed
a prima facie tort because they lost on their other claims. Such a bald assertion is
insufficient for consideration on appeal. Alder v. Wal-M art, 144 F.3d 664, 679 (10th
Cir. 1998). Accordingly, Defendants w aived this argument. 5
D.
Golden also appeals the district court’s conclusion he breached his fiduciary
duty when he and Lorentzen joined forces to terminate or modify the Joint Venture
Agreement. Golden argues he did not owe Plaintiffs a fiduciary duty, and
5
Because we find the district court properly determined Defendants failed
to prove any of its claims, we need not address Defendants assertions the district
court erred in rejecting its experts calculation of damages, failing to assess
punitive damages against Plaintiffs, and failing to aw ard Defendants their court
costs and legal fees.
14
insufficient evidence supports the district court’s finding he entered into a conspiracy
with Defendant Lorentzen to destroy the Joint Venture. 6 W e are not persuaded.
First, the district court found Golden owed a fiduciary duty to his employer, PCA
and/or the Joint Venture, by virtue of being an employee. Golden does not challenge
this finding on appeal. He instead argues he did not ow e a fiduciary duty because
he did not sign the Joint Venture Agreement or the Parking M anagement Agreement.
Because Golden fails to cite any case law or adequately explain how the district
court erred in its ruling, we find Golden waived this argument on appeal. See Alder,
144 F.3d at 679 (arguments inadequately briefed in the opening brief are waived).
Second, the district court’s order adequately lays out the evidence showing
Golden and Lorentzen acted together to terminate or modify the Joint Venture.
Notably, Golden allowed Lorentzen to sign contracts binding the Joint Venture for
which Lorentzen had no authority, and he did not prevent Lorentzen from removing
credit card machines installed by PCA, thus diverting Joint V enture funds into
Lorentzen’s own account. Also, Golden physically prevented PCA employees from
removing Lorentzen’s credit card machines and re-installing PCA’s machines. And,
as the district court recognized, Golden was involved in “pirating the hard drives and
computer information maintained by PC A in the m anagement of the joint venture,
6
W e note, contrary to Defendants’ contentions in its brief, the district
court did not find Golden and Lorentzen entered into a “conspiracy” as the term is
understood in the technical legal sense. Instead, the court found Golden and
Lorentzen worked together to destroy the Joint Venture and in doing so they each
breached their respective fiduciary duties.
15
thus depriving PCA of its use while the parties commenced over tw o years of
litigation.” In apparent exchange for Golden’s loyalty, Lorentzen demanded PCA
continue to employ Golden as site operations manager after it decided to demote him
to marketing manager. Or, in the alternative, Lorentzen demanded PCA buy out
Golden’s contract at three times his yearly salary. Such acts support the district
court’s finding that Lorentzen and Golden worked together to either modify or
terminate the Joint Venture A greement and as a result, Golden breached his fiduciary
duties. Accordingly, we find no error in the district court’s conclusions.
E.
Defendants filed a separate appeal challenging the district court’s award of
costs to Plaintiffs. The district court’s order, dated November 10, 2005, taxed
Defendants with costs in the amount of $19,980.66. Defendants complain Plaintiffs
are not “prevailing parties” and thus the district court should not have awarded them
costs. Additionally, Defendants complain the district court should not have awarded
Plaintiffs costs for the first three days of trial transcripts and costs for the court
appointed appraiser’s fees. An award of costs under 28 U.S.C. § 1920 and Fed. R.
Civ. P. 54(d)(1) rests in the sound discretion of the trial court. Allison v. Bank One-
Denver, 289 F.3d 1223, 1248 (10th Cir. 2002). “To hold that the district court
abused its discretion, [this court] must have a definite conviction that the [trial]
court, upon weighing relevant factors, clearly erred in its judgment.” Gordon v. U.S.
Steel Corp., 724 F.2d 106, 108 (10th Cir. 1983).
16
Defendants argue Plaintiffs did not prevail because they received only $1 in
damages and because the parties entered into a joint stipulation prior to trial
resolving one of the more contentious claims. W e are not convinced. First, for
purposes of Rule 54(d)(1), “the litigant in whose favor judgment is rendered is the
prevailing party . . . .” Barber v. T.D. W illiamson, Inc., 254 F.3d 1223, 1234 (10th
Cir. 2001) (citations and quotations omitted); see also Head v. M edford, 62 F.3d 351,
354 (11th Cir. 1995) (“Cases from this and other circuits consistently support
shifting costs if the prevailing party obtains judgment on even a fraction of the
claims advanced.”) (internal quotations omitted). 7 In this case, the district court
entered judgment in favor of Plaintiffs. That Plaintiffs failed to submit reliable
evidence of damages, resulting in a nominal damage award, does not alter their
prevailing party status for purpose of Rule 54(d)(1). Furthermore, Plaintiffs
successfully defended themselves against all of Defendants’ counterclaims, making
them the prevailing party on all theories. 8
7
These cases suggest a more lenient standard for “prevailing party” status
for purposes of awarding costs than those cases discussing “prevailing party”
status for purposes of awarding attorney’ fees. See, e.g., Gudenkauf v. Stauffer
Communs., 158 F.3d 1074, 1076 (10th Cir. 1998). Accordingly, Defendants’
reliance on cases discussing “prevailing party” status for purposes of attorney
fees is unpersuasive.
8
Defendants’ argument that the parties resolved one of the major
contentions before trial in a joint stipulation, thus robbing Plaintiffs of
“prevailing party” status, is equally unavailing. The joint stipulation Defendants
referred to called for the termination of the Joint Venture. Defendants contend
the separation of the parking lots “took up the most energy and expense.”
(continued...)
17
D efendants specifically object to the district court’s award of costs for trial
transcripts from the first three days of trial, and the fees for the court appointed
appraiser. Trial began in November 2003. After three days of trial, Plaintiffs’
attorney became quite ill and could not continue. The district court continued the
trial until M arch 2004 when trial was completed after an additional eight days. The
district court awarded Plaintiffs’ costs for the entire trial transcript. Defendants
contend the district court abused its discretion in awarding Plaintiffs the costs for the
trial transcripts from the three days of trial in Novem ber because D efendants were
not to blame for the delay. This may seem like a legitimate complaint but the fact
is Plaintiffs were entitled to costs for the entire trial transcript whether transcribed
in November or M arch. Pursuant to 28 U.S.C. § 1920(2), a prevailing party is
entitled to recover “fees for the court reporter for all or any part of the stenographic
transcript necessarily obtained for use in this case.” The district court awarded the
cost for the trial transcript on the basis the transcript was “obtained for Plaintiffs use
in preparing for trial and to assist the attorneys and the Court in preparing findings
of fact and conclusions of law.” In addition to proposed findings of fact and
conclusions of law, the district judge also requested written closing arguments and
post-trial briefs at the close of trial. Because Plaintiffs used the trial transcript to
8
(...continued)
Defendants statement may be true as to pre-trial matters, but the costs which the
district court imposed (i.e. trial transcripts, witness travel and subsistence costs,
costs incurred by court appointed expert, and deposition expenses for those
witnesses w ho testified at trial) w ere directly related to issues resolved at trial.
18
assist in preparing these items, the district court did not abuse its discretion in
awarding costs for the entire transcript.
The court also did not abuse its discretion in taxing the costs of the court
appointed appraiser to Defendants. Pursuant to 28 U.S.C. § 1920(6), the district
court may tax as costs, “compensation of court appointed experts.” Defendants argue
Plaintiffs should not be awarded costs for the services of the appraiser because
Defendants benefitted from the court’s adoption of the appraisal report. Nothing in
the statute requires the court to consider who benefitted from the court appointed
experts findings and Defendants cite no authority for such an assertion. Accordingly,
the district court’s cost award will be upheld.
III.
W e next address Plaintiffs’ claims on appeal. Plaintiffs challenge the district
court’s $1 damage aw ard, the district court’s apparent neglect of Plaintiffs’ claim
concerning the Airport Shuttle contract, and the district court’s denial of their motion
for attorney fees. W e address each argument in turn.
A.
W e review the amount of a damage award for clear error and questions of law
de novo. See, e.g., Dill v. City of Edmond, Okla., 155 F.3d 1193, 1209 (10th C ir.
1998). “The methodology a district court uses in calculating a damage award, such
as determining the proper elements of the award or the proper scope of recovery, is
a question of law.” See Southern Co. M RI v. M ed-Alliance, 166 F.3d 1094, 1100
19
(10th Cir. 1999); see also In re Air Crash Disaster Near Cerritos, Cal., on August 31,
1986, 982 F.2d 1271, 1275 (9th Cir. 1992) (“When a legal determination such as the
proper elem ents of an award of damages is review ed, a de novo standard is
applied.”).
In cases such as this, where profit is an inducement to making a contract, “loss
of profits as a result of the breach is generally considered to be within the
contemplation of the parties and recovery for lost profits will be allowed as damages
if causation is proved with reasonable certainty.” Camino Real M obile H ome Park
Partnership v. W olfe, 891 P.2d 1190, 1200 (N.M . 1995). The court considers certain
factors including “the pre-existing or historic profits of an established business,
together with other facts and circumstances” in arriving at an estimation of the lost
profits resulting from the breach of contract. Ranchers Exploration & Dev. Corp. v.
M iles, 696 P.2d 475, 477 (N .M . 1995). W here a party establishes a legal right to
damages, the fact lost profits may not be computed with exact mathematical certainty
does not prevent the plaintiff from recovering. Id. “Even though the amount of
damages need not be proven with mathematical certainty, neither can it be based on
surmise, conjecture or speculation.” Camino Real, 891 P.2d at 1201.
At trial, Plaintiffs attempted to establish lost profits through the testimony of
M artin and Robert Chavez, and Exhibit 271, which Robert prepared. Robert, with
the assistance of Exhibit 271, testified to the amount of expense savings CPAPA lost
as a result of the failure of the Joint V enture. Robert explained the actual average
20
monthly expenses of the Joint Venture were $117,027.54. He then subtracted that
figure from the average monthly expenses prior to the Joint Venture, resulting in a
difference of $23,276.88 in expense savings per month. M ultiplied by twelve, the
total annual expense saving amounted to $279,313.56. Robert then calculated
CPAPA’s percentage interest in the Joint Venture (57% ) in the total annual expense
savings, and came up with $159,151.73 as CPA PA ’s average yearly expense savings
resulting from its involvement with the Joint Venture. Finally, Robert multiplied this
figure by six, the number of years remaining in the Joint Venture, resulting in
$954,910.38 in total lost expense savings.
Apparently alarmed when the district court made comments concerning the
inadequacy of Robert’s testimony, Plaintiffs called M artin Chavez to testify. M artin,
who is the president of PCA and partial owner of CPA PA , testified as to the
diminution in the value of CPAPA as a result of D efendants’ breach. Like lost
profits, damages measured by diminution of value flow “‘from the disappointment
of a special purpose for the subject matter of the contract’” when that subject matter
is known to both parties. Id. at 1200 (quoting W all v. Pate, 715 P.2d 449, 450 (N .M .
1986)). See also Eateries, Inc. v. J.R. Sim plot Co., 346 F.3d 1225, 1236 (10th Cir.
2003) (noting damages may be measured by diminution in value when a party loses
a business due to the wrongful act of another). M artin used the 1998 profit and loss
statement from CPA PA and the profit and loss statements generated during the Joint
Venture to make his calculations. He calculated the difference between the income
21
and expenses, both pre and post Joint V enture, and then applied a 9.5 percent
capitalization rate to value the business prior to the Joint Venture and at the
conclusion of the Joint Venture. Finally, M artin subtracted the pre and post Joint
Venture values and concluded CPA PA suffered a significant loss resulting from the
failure of the Joint Venture.
The district court awarded Plaintiffs $1 in damages, rejecting Plaintiffs’
damage evidence as speculative and conjectural. The court found Robert’s
calculation flawed because it did not establish C PA PA ’s actual lost profits, but
instead only focused on CPA PA ’s expenses before and during the Joint Venture. The
court noted Robert Chavez “did not try to calculate the future profits of the company,
nor did he determine the present value of the expense savings he calculated.” Thus,
the district court determ ined his testimony was merely “surmise, conjecture or
speculation.” The court also found M artin’s attempt to show loss in value of the
company was equally flaw ed. The court further found that if M artin attempted to
show lost profits, he failed to establish the present value of such profits and failed
to show what portion of those profits CPA PA would have realized while operating
its business separately. W e agree with the district court and find neither Robert nor
M artin Chavez’s testimony provided the trier of fact with an adequate basis upon
which to calculate lost profits.
Plaintiffs argue on appeal the district court erred because it held R obert and
M artin Chavez, w ho testified as laymen, to the same standard it would expert
22
economists. At the outset, w e agree with the general proposition that lay persons,
especially business owners, are qualified to testify regarding lost profits. Ranchers
Exploration, 696 P.2d at 478. But, such witnesses are still required to present
testimony which enables the trier of fact to properly calculate damages. Such was
not the case here. In the case of Robert’s testimony, he failed to even mention
historical profits or estimate future profits in his lost profits calculation. A basic
principle of accounting is that profits are determined only after operating expenses
are deducted from income. Lost profits are, by their definition, the receipts or
income one would receive after expenses are deducted. Here, Plaintiffs only
presented evidence of expenses, not income. W ithout anything to compare them to,
evidence of expenses are irrelevant. In calculating lost profits, evidence of gross
profits alone has no evidentiary value and failure to present evidence of expenses is
detrimental to the claim. See, e.g., Deaton, Inc. v. Aeroglide Corp. 657 P.2d 109,
114 (N .M . 1982) (plaintiff’s failure to introduce evidence of expenses rendered its
claim for lost profits speculative). W e have no reason to assume the converse is not
true— attempting to compute lost profits with evidence of expenses but no evidence
of income lacks the evidentiary thrust necessary to prove one’s claim for damages.
Thus, we find the district court did not err in concluding Robert’s failure to present
evidence of CPA PA ’s profits was fatal to the lost profits calculation.
W e also agree that M artin’s testimony did not provide a sufficient basis upon
which the district court could calculate damages. To the extent M artin attempted to
23
show diminution in value, he did not use the correct data. Such a showing required
an assessment of CPAPA’s fair market value immediately prior to the Joint Venture
and its fair market value immediately following the termination of the Joint Venture.
See generally Jones v. Lee, 971 P.2d 858, 862 (N.M . App. 1998); Eateries, Inc., 346
F.3d at 1236. M arket value is “‘the present value of a projected profit stream.’” Id.(quoting R.E.B., Inc. v. Ralston Purina Co., 525 F.2d 749, 754-55 (10th Cir. 1975)).
Projecting a profit stream requires an analysis of future profits. Id. Future profits
are calculated by taking the difference between expected revenue and expected
expenses. Id. (citing Black’s Law Dictionary 1226 (7th ed. 1999)). “Fair market
value, therefore, incorporates expected earnings and expenses.” Id. (citing Protectors
Ins. Serv. v. United States Fid. & Guar. Co., 132 F.3d 612, 615 (10th Cir. 1998)).
In arriving at the pre-Joint Venture value, M artin used the 1998 profit and loss
statement to calculate CPA PA ’s pre-Joint V enture expenses even though the 1999
figures were most relevant. 9 And, instead of using the pre-Joint Venture historical
profits to calculate the pre-Joint Venture market value, he averaged the Joint
Venture’s profits over the course of the entire Joint Venture and then carved out
CPAPA’s percentage of the profits. Failure to use historical profits and failure to
use the most relevant expense figures to calculate pre-Joint Venture m arket value
9
CPA PA ’s argument that it used the 1998 expense figures because the
parties used those figures during contract negotiations is unpersuasive.
Calculation of diminution in value requires an evaluation of the company’s value
immediately prior to the contract, not the value of the company one year or more
prior to the contract.
24
skew ed his entire calculation. M artin applied a capitalization rate to these faulty
numbers and then subtracted that figure from the capitalized post-Joint Venture
value. Even assuming his post-Joint Venture value figures were correct and the
capitalization rate M artin chose w as correct, failure to accurately calculate the pre-
Joint Venture value flaw ed the entire calculation. Accordingly, the district court
correctly decided not to rely on these numbers to calculate damages. 10
B.
Next, we address Plaintiffs’ claim that the district court failed to consider its
claim regarding the A irport Shuttle contract. As noted above, on January 15, 2002,
Golden executed a contract purportedly on behalf of the Joint Venture, providing
parking spaces to Airport Shuttle, a company owned by Lorentzen. 11 The contract
provided Airport Shuttle unlimited use of eighteen spaces on the Joint V enture lot
at a deeply discounted rate of $20 per month. Not only were the rates significantly
lower than the usual rate of $50 per month, the contract favored Airport Shuttle as
it provided only Airport Shuttle could cancel the contract. The record reflects
Golden executed the contract after PCA notified him he would not longer serve as
10
To the extent M artin attempted to show lost profits by subtracting the
1998 expense figures from CPA PA ’s portion of the Joint Venture profits, and
multiplying by six (the number of years remaining in the Joint Venture), his
calculations were similarly faulty.
11
Jack Henderson, Lorentzen’s employee, executed the contract on behalf
of Airport Shuttle. According to Henderson’s testimony at trial, Lorentzen asked
him to sign the contract for fear that if Lorentzen signed it himself a conflict of
interest might arise.
25
operations manager for the Joint Venture, and that even if Golden continued to serve
as operations manager, he had no authority to sign the contract on behalf of PCA
without prior approval from corporate headquarters. Of further importance, Golden
went to work for Lorentzen ten days after he signed the contract. Testimony at trial
also revealed Airport Shuttle eventually used fifty spaces on the lot, instead of the
eighteen space contemplated by the contract, and the Joint Venture never received
payment for Airport Shuttle’s use of the parking spaces. Despite this evidence in the
record, the district court made no mention of Plaintiffs’ claim in its written order.
CPAPA claims it w as damaged by the unauthorized contract with Airport
Shuttle in the amount of $32,775. This am ount constitutes CPA PA ’s 57% of the
$57,500, the amount Airport Shuttle should have paid the Joint Venture at the usual
rate of $50 per m onth for fifty spaces during the term of the contract. The district
court’s failure to rule on this matter precludes meaningful appellate review. Ramey
Constr. Co., Inc. v. Apache Tribe, 616 F.2d 464, 466-67 (10th Cir. 1980) (noting that
F.R.C.P. 52(a)’s requirements that the trial judge “find facts specially and state
separately its conclusions of law” serves to (1) engender care on the part of trial
judges in ascertaining the facts; and (2) make possible meaningful appellate review).
Accordingly, remand is required for the district court to make findings of facts and
conclusions of the law regarding the Airport Shuttle contract.
C.
Finally, Plaintiffs claim the district court erred in refusing to impose attorney
26
fees against Defendants under paragraph 1.08 of the Joint Venture Agreement. That
paragraph states:
Unauthorized Acts. Either Party hereto acting or purporting to act for
or on behalf of the other Party hereto in violation of the terms and
provisions of this Agreement shall be acting without authority and the
Party acting or purporting to act shall indemnify and hold the other
Party harmless from and against any and all claims, loss, liability or
expense, which might arise or result from any such act or acts,
including, without limitation, all attorneys’ fees and expenses actually
incurred.
The determination of a contractual term is a question of law that this court review s
de novo. See Carland v. M etropolitan Life Ins. Co., 935 F.2d 1114, 1120 (10th Cir.
1991).
Reading the provision in the context of the Joint Venture Agreement we agree
with the district court and find the provision only relates to liabilities to third parties
created by the unauthorized conduct of one of the parties to the Joint V enture
Agreement. The provision does not appear to set aside the “American Rule” at least
as it applies to litigation between the parties to the Joint Venture Agreement. See
M cClain Co. v. Page & W irtz Constr. Co., 694 P.2d 1349 (N.M . 1985) (New M exico
follows the “American Rule” in that each party bears the financial burden of
litigating a civil claim, absent a statute or agreement to the contrary). Accordingly,
the district court did not err when it denied Plaintiffs’ application for attorney fees.
For the foregoing reasons, this matter is AFFIRM ED in part and REM AN DED
27
in part for the district court’s consideration as stated herein.
Entered for the Court,
Bobby R. Baldock
Circuit Judge
28